AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1997
REGISTRATION NO. 333-24937
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDLEY CREDIT ACCEPTANCE CORP.
(Name of Small Business Issuer in Its Charter)
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DELAWARE 6153 13-3571419
(State Or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code Number) No.)
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10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
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ROBERT D. PRESS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TREASURER
MEDLEY CREDIT ACCEPTANCE CORP.
10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Name, Address and Telephone Number of Agent For Service)
-----------
Copies to:
DAVID R. HARDY, ESQ. JONATHAN L. SHEPARD, ESQ.
REID & PRIEST LLP SEIGEL, LIPMAN, DUNAY & SHEPARD, LLP
40 WEST 57TH STREET THE PLAZA - SUITE 801
NEW YORK, NEW YORK 10019 5355 TOWN CENTER ROAD
(212) 603-2000 BOCA RATON, FL 33486
(516) 368-7700
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.[ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
========================================================================
TITLE OF EACH DOLLAR PROPOSED PROPOSED AMOUNT OF
CLASS OF SECURITIES AMOUNT TO MAXIMUM MAXIMUM REGISTRATION
TO BE REGISTERED BE OFFERING AGGREGATE FEE
REGISTERED PRICE PER OFFERING
UNIT(1) PRICE(1)
------------------------------------------------------------------------
Common Stock, $.01 1,600,000 $5.50 $8,800,000 $2,666.67
par value shares
------------------------------------------------------------------------
Redeemable Common 1,600,000 $0.15 $ 240,000 $72.73
Stock Purchase Warrants(2)
Warrants
------------------------------------------------------------------------
Common Stock, $.01 1,600,000 $5.00 $8,000,000 $2,424.24
par value shares(2)
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Total $17,040,000 $5,163.64(3)
========================================================================
(1) Estimated solely for the purpose of computing the amount of
the registration fee pursuant to Rule 457 promulgated under
the Securities Act of 1933, as amended.
(2) Together with such indeterminate number of additional
Redeemable Common Stock Purchase Warrants and shares of
Common Stock as may be issued pursuant to the anti-dilution
provisions of the Redeemable Common Stock Purchase Warrants
pursuant to Rule 416(a) promulgated under the Securities Act
of 1933, as amended.
(3) Of this amount, $4,034.09 was paid upon the initial filing
of this Registration Statement.
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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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<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 a 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.
PRELIMINARY PROSPECTUS DATED MAY 27, 1997
SUBJECT TO COMPLETION
1,600,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,600,000 SHARES OF COMMON STOCK
MEDLEY CREDIT ACCEPTANCE CORP.
Medley Credit Acceptance Corp., a Delaware corporation (the
"Company"), is offering hereby, subject to the immediately
following paragraph, a minimum of 1,200,000 shares of common
stock, $.01 par value per share (the "Common Stock"), and
redeemable warrants to purchase a minimum of 1,200,000 shares of
Common Stock (the "Warrants"), on a best efforts, all or none
basis (the "Minimum Offering"), and a maximum of 1,600,000 shares
of Common Stock and Warrants to purchase 1,600,000 shares of
Common Stock (the "Maximum Offering"), at an offering price of
$5.50 per share of Common Stock and $0.15 per Warrant. The
shares of Common Stock and Warrants in excess of the Minimum
Offering will be offered on a "best efforts" basis. Pending the
sale of 1,200,000 shares of Common Stock and 1,200,000 Warrants,
all proceeds will be held in an escrow account. If 1,200,000
shares of Common Stock and 1,200,000 Warrants are not sold within
30 days from the date hereof (which may be extended an additional
30 days by mutual agreement of the Company and the Underwriter),
all monies received will be refunded to subscribers in full. If
subscriptions for 1,200,000 shares of Common Stock and 1,200,000
Warrants have been received, the offering will continue on a
"best efforts" basis, up to a maximum of 1,600,000 shares of
Common Stock and 1,600,000 Warrants, but without any escrow or
refund provisions.
Of the shares of Common Stock being offered hereby, 1,000,000
shares (in the event of the Minimum Offering and 1,400,000 shares
in the event of the Maximum Offering) are being offered directly
by the Company and 200,000 shares are being offered directly by
Medley Group, Inc., the Company's parent ("Group" or the "Selling
Stockholder"). The Company will not receive directly any of the
proceeds from the sale of the Common Stock by Group. The 200,000
shares of Common Stock being offered by Group will be included
among the 1,200,000 shares being offered in the Minimum Offering.
Group and the Company are parties to an agreement pursuant to which,
among other things, Group, on behalf of Medley Refrigeration, Inc.,
Group's majority owned subsidiary and an affiliate of the Company
("Medley Refrigeration"), will remit to the Company, at the closing
of the Minimum Offering, the $990,000 in net proceeds generated
from Group's sale of its 200,000 shares of Common Stock in the
Minimum Offering. This $990,000 will be paid to the Company to
satisfy, in their entirety, all receivables then outstanding from
Medley Refrigeration to the Company. Group, pursuant to the Escrow
Agreement controlling the disbursement of subscription proceeds at
the closing of the Minimum Offering, has authorized the Escrow
Agreement (as defined below) to remit directly to the Company,
concurrently with the closing of the Minimum Offering, $990,000 in
net proceeds then held in escrow attributable to Group's sale of
its 200,000 shares of Common Stock in the Minimum Offering.
The shares of Common Stock and the Warrants may be purchased
separately and will be separately transferable immediately upon
issuance. Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $5.00 at any
time commencing one year from the date of this Prospectus until
[ ] , 2002 (five years after the date of this Prospectus). The
Warrants are redeemable by the Company, with the consent of the
Underwriter, at any time after [ ], 1998 (one year after the date
of this Prospectus), upon notice of not less than 30 days, at a
price of $.15 per Warrant, provided that the closing bid
quotation of the Common Stock on all 25 of the trading days
ending on the third day prior to the day on which the Company
gives notice of redemption has been at least 150% (currently
$8.25, subject to adjustment) of the offering price of the Common
Stock being offered hereby. The holders of the Warrants are
granted exercise rights until the close of business on the date
fixed for redemption. See "Description of Securities."
Prior to this offering, there has been no public market for
the Common Stock or the Warrants. No assurance can be given that
public markets for the Common Stock or Warrants will develop
following the completion of this offering or that, if any such
markets do develop, they will be sustained. It is anticipated
that the Common Stock and the Warrants will be quoted on the
NASDAQ Small-Cap Market system ("NASDAQ") under the proposed
symbols "MCAC" and "MCACW", respectively. Such listing will be
effective upon the closing of the Minimum Offering. For a
discussion of the factors considered in determining the offering
prices, see "Underwriting."
The Company has a limited operating history and limited or no
experience in some of the businesses it anticipates pursuing. In
addition, the Company will rely heavily on the management
services of affiliates who, in turn, have limited operating
histories and limited capital. See "Business."
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
========================================================================
PROCEEDS
UNDERWRITING PROCEEDS TO
DISCOUNTS AND TO SELLING
PRICE TO COMMISSIONS COMPANY SHAREHOLDERS
PUBLIC (1)(2) (1)(3) (1)(3)(4)
------------------------------------------------------------------------
Per Share $ 5.50 $ 0.550 $ 4.950 $ 4.950
------------------------------------------------------------------------
Per Warrant $ 0.15 $ 0.015 $ 0.135 --
------------------------------------------------------------------------
Total $6,780,000 $678,000 $5,112,000 $990,000
Minimum
------------------------------------------------------------------------
Total $9,040,000 $904,000 $7,146,000 $990,000
Maximum
========================================================================
(1) The shares of Common Stock and Warrants are offered on a
best efforts basis. This offering terminates on [ ], 1997,
provided the Company and the Underwriter may agree to extend
the offering until [ ], 1997. Subscriptions will be placed
in escrow in a non-interest bearing account with SunTrust
Bank, South Florida, N.A., as agent for the Company (the
"Escrow Agent"), pending attainment of the Minimum Offering.
See "Underwriting."
(2) In addition, the Company has agreed to pay to the
Underwriter a 3% nonaccountable expense allowance and to sell
to the Underwriter warrants to purchase up to 160,000 shares
of Common Stock (the "Underwriter's Warrants"). The Company
has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses, including the nonaccountable
expense allowance in the amount of $271,200 in the event of
the Maximum Offering and $203,400 in the event of the
Minimum Offering, estimated at $406,200 in the event of the
Maximum Offering and $338,400 in the event of the Minimum
Offering, payable by the Company. The Company has agreed to
pay all expenses attributable to the sale of the Selling
Stockholder's shares.
(4) The 200,000 shares of Common Stock being sold directly by
the Selling Stockholder will be included among the 1,200,000
shares being offered in the Minimum Offering. The Selling
Stockholder is not selling any Warrants in this offering.
The Common Stock and the Warrants are being offered by PCM
Securities Limited, L.P. (the "Underwriter") and by other members
of the National Association of Securities Dealers, Inc. (the
"NASD") authorized as selling agents (collectively, the "Broker-
Dealers"). As a consequence of Steven L. Edelson, President and
Chairman of the Board of the Company, also serving as one of the
licensed principals responsible for the day to day operations of
the Underwriter, the Company and the Underwriter may be deemed to
be affiliates. Each investor must purchase a minimum of 100
shares of Common Stock and/or 100 Warrants in this offering. Any
larger number of shares and/or Warrants must be purchased in 100
share and/or Warrant increments. The Common Stock and Warrants
are offered when, as and if delivered to and accepted by the
Underwriter and subject to the approval of certain legal matters
by counsel and to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares of Common
Stock and the Warrants offered hereby will be made upon transfer
of the funds in escrow by the Escrow Agent to the Company's
account upon completion of the Minimum Offering and from time to
time thereafter as subscriptions are received.
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PCM SECURITIES LIMITED, L.P.
The date of this Prospectus is [ ], 1997
-ii-
<PAGE>
[PICTURES]
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become
subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, will file reports, proxy and information statements
and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at
the principal office of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should
be available at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Company intends to
furnish its stockholders with annual reports containing audited
financial statements and such other reports as the Company deems
appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK AND WARRANTS OFFERED HEREBY AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE>
PROSPECTUS SUMMARY
The follow summary is qualified in its entirety by reference
to the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. All share and per share data and
information in this Prospectus relating to the number of shares
of Common Stock outstanding have been adjusted to give effect to
the 1,120:1 stock split effected on June 30, 1996 and the 3:2
stock split effected on December 31, 1996.
THE COMPANY
Medley Credit Acceptance Corp. (the "Company") is a
specialty finance company which 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,
an affiliate of the Company. 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. Since 1993 and
1994, respectively, each of the Company and Medley Refrigeration
has operated as a majority-controlled subsidiary of Group, a
Delaware holding company.
Prior to September 1, 1993, the Company (then called Premier
Lease Concepts, Inc., a Delaware corporation) was engaged
primarily in the financing of dry cleaning equipment to small dry
cleaning businesses throughout the eastern United States. In
September 1993, Premier Lease Concepts, Inc. was merged into a
subsidiary of Group. As part of this Merger, the Company's name
was changed to Medley Credit Acceptance Corp. Commencing with
its affiliation with Group and continuing through 1995, the
Company focused its marketing efforts primarily on providing
financing to creditworthy purchasers of both dry cleaning and
refrigeration equipment. Commencing in 1996, the Company began
de-emphasizing its dry cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such purchasers tend to be small entities
whose asset bases may not be significant enough to attract
traditional institutional lenders. Such purchasers are 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, a majority of the
refrigeration equipment leases entered into by Medley
Refrigeration with its customers. Prior to this 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 aforementioned 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
Prospectus, has continued to focus its marketing efforts
primarily to customers of Medley Refrigeration. Following the
consummation of this offering, the Company anticipates broadening
its leasing efforts to expand to entities unaffiliated with the
Company.
The Company's experience in the specialty finance business
has historically been conducted with a smaller capital base than
will be available to the Company following the consummation of
this offering. In order to increase its capital base for further
financing, the Company traditionally has resorted to obtaining
lines of credit secured by leased equipment, to procuring
unsecured borrowings from individual investors and to selling or
borrowing against its leases. In this regard, the Company has
established relationships with principal sources of financing and
has learned the particular focus and requirements of such
sources. The Company believes that with the proceeds from this
offering, it will be positioned to secure additional lines of
credit and traditional bank financings for the purpose of
expanding and developing its business. The Company further
believes that its expanded business will enable it to pursue
service oriented financing activities such as factoring and
locating potential equipment lessees and referring them to the
Company's financing sources on a fee basis. In addition to such
factoring and lease brokering activities, the Company anticipates
expanding into more traditional loan origination business
segments, including the provision of credit review services,
documentation services and loan servicing activities. There can
be no assurance, however, that the Company will successfully
implement all or a portion of this anticipated expansion.
-3-
<PAGE>
One of the principal focuses of the Company's business
expansion following the consummation of this offering will be the
Company's anticipated entrance into the factoring business, i.e.,
providing small-to-medium sized, high risk growth companies with
capital through the discounted purchase of their accounts
receivable. Management of the Company perceives the Company de-
emphasizing its refrigeration and dry cleaning equipment
financing businesses as the Company's factoring business grows.
The Company also anticipates making advances to its factoring
clients collateralized by inventory, equipment, real estate and
other assets (collectively, "Collateralized Advances"), and, on
occasion, providing other specialized financing structures which
will be designed to satisfy the unique requirements of the
Company's clients.
The Company believes that its factoring business typically
will consist of the Company entering into an accounts receivable
factoring and security agreement with a client which will (i)
obligate the client to sell the Company a minimum amount of
accounts receivable each month (or a minimum amount of
receivables during the term of the agreement); (ii) usually have
a term of not less than six months and, more likely, one year and
(iii) be automatically renewable. When making a Collateralized
Advance, the Company will enter into such additional agreements
with the client and, if appropriate, third parties, as the
Company deems necessary or desirable, based on the type(s) of
collateral securing the Collateralized Advance. The Company will
purchase accounts receivable from its factoring clients at a
discount from face value and usually require the client's
customers to make payment on the receivables directly to the
Company. The Company will almost always reserve the right to
seek payment from the client in the event the client's customers
fail to make the required payment. To secure all of a client's
obligations to the Company, the Company will also take a lien on
all accounts receivable of the client (to the extent not
purchased by the Company) and, whenever available, blanket liens
on all of the client's other assets (some or all of which liens
may be subordinate to other liens). When making a Collateralized
Advance, the Company will almost always take a first lien on the
specific collateral securing the Collateralized Advance. The
Company may, on occasion, make Collateralized Advances secured by
a subordinate lien position, but only if management of the
Company determines that the equity available to the Company in a
subordinate position would be adequate to secure the
Collateralized Advance. The Company will almost always require
personal guaranties (either unlimited or limited to the validity
and collectibility of purchased accounts receivable) from each
client's principals. Although the Company will obtain as much
collateral as possible and usually retain full recourse rights
against its clients, clients (and account debtors) may fail and
accordingly, there can be no assurance that the collateral
obtained and the recourse rights retained (together with any
personal guaranties) will be sufficient to protect the Company
against loss. Moreover, since the Company has very limited prior
experience as a factor, there can be no assurance that the
Company's expansion into the factoring business will be a
profitable, or economically prudent, venture.
The Company was incorporated under the laws of the State of
Delaware on May 2, 1990 under the name Premier Lease Concepts,
Inc. The Company's principal executive offices are located at
10910 N.W. South River Drive, Miami, Florida 33178, and its
telephone number is (305) 889-1900.
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<PAGE>
THE OFFERING
SECURITIES OFFERED. . . . . A minimum of 1,200,000 shares of Common Stock
(of which the Company is offering 1,000,000
shares and the Selling Stockholder is
offering 200,000 shares) and 1,200,000
Warrants and a maximum of 1,600,000 shares of
Common Stock (of which the Company is
offering 1,400,000 shares and the Selling
Stockholder is offering 200,000 shares) and
1,600,000 Warrants. See "Description of
Securities" and "Underwriting."
INVESTMENT PER INVESTOR . . Minimum of 100 shares of Common Stock and/or
100 Warrants and greater purchases in 100
shares and Warrant increments. See
"Underwriting."
COMMON STOCK OUTSTANDING
PRIOR TO THE OFFERING(1). . 1,680,000 shares.
COMMON STOCK TO BE
OUTSTANDING AFTER
THE OFFERING(1) . . . . . . 2,650,000 shares in the event the Minimum
Offering is sold and 3,050,000 shares if the
Maximum Offering is sold. See "Use of
Proceeds."
WARRANTS
NUMBER TO BE OUTSTANDING
AFTER THE OFFERING(1) . . . 1,200,000 Warrants if the Minimum Offering is
sold and 1,600,000 Warrants if the Maximum
Offering is sold.
EXERCISE TERMS . . . . . . Exercisable at $5.00 per share, subject to
adjustment in certain circumstances,
commencing one year from the date of this
Prospectus. The exercise price has been set
below the proposed initial public offering
price since purchasers of Warrants are
bearing an economic risk because the Warrants
are not exercisable until the expiration of
the one year period from the date of this
Prospectus. See "Description of Securities-
Redeemable Warrants."
EXPIRATION DATE . . . . . . [ ], 2002 (five years after the date of this
Prospectus).
REDEMPTION . . . . . . . . Redeemable by the Company, with the consent
of the Underwriter, at any time after [ ],
1998 (one year after the date of this
Prospectus), upon notice of not less than 30
days, at a price of $.15 per Warrant,
provided that the closing bid quotation of
the Common Stock on all 25 of the trading
days ending on the third day prior to the day
on which the Company gives notice of
redemption has been at least 150% (currently
$8.25, subject to adjustment) of the initial
offering price of the Common Stock offered
hereby. The Warrants will be exercisable
until the close of business on the date fixed
for redemption. See "Description of
Securities-Redeemable Warrants."
------------------------------
(1) Does not include (i) 1,200,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Minimum
Offering is sold or 1,600,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Maximum
Offering is sold, (ii) 160,000 shares of Common Stock reserved for
issuance upon exercise of the Underwriter's Warrants, (iii) 500,000
shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the Company's 1997 Stock Option Plan,
(iv) 1,300,000 shares of Common Stock reserved for issuance upon the
exercise of other outstanding warrants and (v) approximately 632,902
shares of Common Stock reserved for issuance upon the conversion of
2,958,817 outstanding shares of Series A 10% Convertible Preferred
Stock of the Company (the "Convertible Preferred Stock"). See
"Management," "Description of Securities - Preferred Stock" and
"Underwriting."
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<PAGE>
USE OF PROCEEDS . . . . . . The Company intends to apply the net proceeds
from this offering, generally, to expand into
the factoring business, to enhance its
capital based financing activities, to fund,
staff and market its anticipated service-
based financing activities, to satisfy
outstanding indebtedness and declared but
unpaid dividends and for working capital and
general corporate purposes. See "Use of
Proceeds."
OFFERING TERMINATION. . . . The offering will terminate on [ ], 1997,
provided that the Company and the Underwriter
may agree to extend the offering from time to
time until [ ], 1997. See "Underwriting."
RISK FACTORS . . . . . . . The securities offered hereby are speculative
and involve a high degree of risk and
immediate substantial dilution and should not
be purchased by investors who cannot afford
the loss of their entire investment. See
"Risk Factors" and "Dilution."
PROPOSED NASDAQ SYMBOLS . . Common Stock-MCAC
Warrants-MCACW
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------- (UNAUDITED)
------------------
1996 1995 1997 1996
---- ---- ---- ----
Operating Revenues . $356,235 $388,008 $94,158 $118,812
Income (Loss) from
Continuing Operations
Before Other Income
(Expense) . . . . . (204,704) (296,807) 1,664 6,387
Other Income (Expense) 693,064 (600,000) 38,349 43,464
Preferred Dividend . (232,722) (205,447) (73,970) (53,421)
Net Income (Loss)
Applicable to
Common Stockholders 255,638 (1,102,064) (33,957) (3,570)
Net Income (Loss) Per
Common Share . . . . .15 (.98) (.02) --
BALANCE SHEET DATA:
MARCH 31, 1997
(UNAUDITED)
---------------------------
AS ADJUSTED(1)
--------------
Actual Minimum Maximum
------ ------- ------
Working capital (deficit) . . $(77,306) $3,555,598 $4,771,798
Total assets . . . . . . . . 1,839,752 5,638,854 7,605,054
Total liabilities . . . . . . 1,311,688 622,650 622,650
Stockholders' equity . . . . 528,064 5,016,204 6,982,404
-----------------
(1) Gives effect to the sale of a minimum of 1,200,000 shares of Common
Stock (1,000,000 of which are being offered by the Company and 200,000
of which are being offered by the Selling Stockholder) and 1,200,000
Warrants offered hereby and a maximum of 1,600,000 shares of Common
Stock (1,400,000 of which are being offered by the Company and 200,000
of which are being offered by the Selling Stockholder) and 1,600,000
Warrants offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
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RISK FACTORS
The securities offered hereby are speculative and involve a high
degree of risk, including, but not necessarily limited to, the risk factors
described below. Each prospective investor should carefully consider the
following risk factors inherent in and affecting the business of the
Company and this offering before making an investment decision.
1. LIMITED OPERATING HISTORY. The Company has been engaged in the
specialty financing business for a limited period. From June 1990 to
September 1993, the Company, then called Premier Lease Concepts, Inc., was
engaged principally in the financing of dry cleaning equipment to small dry
cleaning businesses throughout the eastern United States. Commencing in
December 1996, the Company allocated most of its available capital to
financing the acquisition of refrigeration equipment sold by the Company's
affiliate, Medley Refrigeration, to customers in the food service and
hospitality businesses in southeast and central Florida. Upon the
consummation of this offering, the Company plans to broaden its leasing
efforts to expand to entities unaffiliated with the Company and to expand
its specialty financing business into the factoring marketplace, an area in
which the Company has very limited prior operating experience.
Accordingly, the Company's prior limited business performance in the
refrigeration and dry cleaning equipment financing businesses may not
provide sufficient basis from which to judge the Company's future as
augmented by the proceeds of this offering. Moreover, given the Company's
lack of prior experience in the factoring business, there can be no
assurance that the Company's entry into this marketplace will be profitable
or economically prudent. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
2. SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON PROCEEDS OF
OFFERING; POSSIBLE NEED FOR ADDITIONAL FINANCING; EXPLANATORY PARAGRAPH IN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS. The Company's capital
requirements in connection with its operational activities have been, and
continue to be, significant. The Company is dependent on the proceeds of
this offering to finance and expand 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 this offering will be sufficient to satisfy
the contemplated cash requirements of the Company for approximately 12
months following the consummation of this offering. In the event that the
Company's plans change or its assumptions prove to be inaccurate or the
proceeds of this offering 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. It is not anticipated that any of the
officers, directors or stockholders of the Company will provide any portion
of the Company's future financing requirements. To the extent that any
such financing involves the sale of the Company's equity securities, the
interests of the Company's then existing stockholders could be
substantially diluted. The Company's independent public accountants have
included an explanatory paragraph in their report on the Company's
financial statements stating that certain factors raise a substantial doubt
about the ability of the Company to continue as a going concern. See "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Financial Statements.
3. EXPANSION INTO NEW BUSINESS AREAS. The Company's strategic plan
contemplates increasing the amount of lease brokering it conducts, which
activity could generate profits without utilizing the Company's capital.
This activity would consist of locating opportunities to lease finance and
transferring such opportunities to other financing sources, such as
unaffiliated lessors, banks and lenders, for fee income. The Company's
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prior experience in such lease brokering activities is limited and there
can be no assurance that the Company will generate any profits from these
proposed lease brokering activities. In addition, the Company plans to
enter into the factoring business, an area which will involve different
types of credit underwriting than the Company is presently familiar with.
Accordingly, there can be no assurance that the Company will generate any
profits from its proposed factoring business. See "Business."
4. DEPENDENCE ON AFFILIATES AND OTHERS; RELATED PARTY TRANSACTIONS.
The Company historically has principally relied, and following this
offering may continue to rely, on the customer relationships generated by
its affiliates as a significant source of its business. While the Company,
following the consummation of this offering, anticipates broadening its
leasing efforts to expand to entities unaffiliated with the Company, it
will nonetheless continue to endeavor to provide lease financing or
purchase financing for customers of its affiliates and to treat such
customers as potential customers for other financial services. As such,
the Company may be regarded as dependent upon its affiliates in this
respect. Similarly, to the extent that the Company enters into the
factoring or lease brokering businesses, the Company will also pursue
initially the customer relationships established by its affiliates. In
each of the foregoing cases, the success of the Company will in part be
dependent upon the customer relationships of others.
The Company also may be affected by the financial performance of those
persons the Company is relying upon. In purchasing equipment leased to
Medley Refrigeration customers, the Company may have residual liability
exposure to Medley Refrigeration itself if a lessee defaults on the lease
alleging a defense attributable to a breach of Medley Refrigeration's
obligations. In addition, the Company may endeavor to facilitate sales of
Medley Refrigeration equipment as a result of the Company's equipment
financing business. While it is the Company's intention that all credit
decisions with respect to lessees will be made on a purely arm's length
basis, the Company might be encouraged, with respect to Medley
Refrigeration's customers (arising strictly from the affiliation between
the Company and Medley Refrigeration), to incur greater risk than would be
prudent for a Company not affiliated with an entity it is doing business
with. Group, which is controlled by Messrs. Robert D. Press and Steven L.
Edelson, the President and Chairman of the Board, respectively, of the
Company, is the principal stockholder of Medley Refrigeration.
Consequently, to the extent Medley Refrigeration benefits, directly or
indirectly, from transactions with or involving the Company (sales or
financings by the Company of Medley Refrigeration's equipment to Medley
Refrigeration's customers), Messrs. Press and Edelson (as the control
persons of Group) will indirectly be benefitted.
In addition, Performance Capital Management, Inc. ("Performance
Capital Management"), a company controlled by Messrs. Press and Edelson, is
party to a management contract with the Underwriter of this offering.
Pursuant to the management contract, among other things, Performance
Capital Management is paid $200,000 per annum for making available Mr.
Edelson to serve as the licensed securities principal responsible for
supervising the day to day affairs and operations of the Underwriter. As
such, the Company and the Underwriter may be deemed to be affiliates. In
addition, Performance Capital Management and the Company are parties to a
management agreement pursuant to which, among other things, Performance
Capital Management is paid $90,000 per annum for making available Messrs.
Press and Edelson to render business and financial counsel, guidance and
managerial assistance to the Company. Accordingly, all payments and other
remuneration made or paid by the Company to Performance Capital Management
or the Underwriter (or from and among these three entities) may be deemed
to indirectly benefit Messrs. Press and Edelson. Neither the Company nor
Messrs. Press or Edelson are parties to any other related party contract or
arrangement involving the Company and its affiliates.
Moreover, the Company intends to apply, from the proceeds from this
offering, the following amounts to the following directors and executive
officers of the Company (no other director or executive officer, or any of
their respective affiliates, will receive, directly or indirectly, any
proceeds from this offering): Robert D. Press, President and a director of
the Company, will receive (i) $82,500 in consideration for the Company's
repurchase of 15,000 shares of Common Stock owned by Mr. Press, (ii)
$76,000 in consideration for complete satisfaction of all indebtedness
owing by the Company to Mr. Press (Mr. Press has waived all interest
payments) and (iii) $60,471.69 in satisfaction of all declared but unpaid
and accrued preferred stock dividends owing to Mr. Press; Steven L.
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Edelson, Chairman of the Board of the Company, will receive (i) $82,500 in
consideration for the Company's repurchase of 15,000 shares of Common Stock
owned by Mr. Edelson, (ii) $45,000 in consideration for complete
satisfaction of all indebtedness owing by the Company to Mr. Edelson (Mr.
Edelson has waived all interest payments) and (iii) $153,212.72 in
satisfaction of all declared but unpaid and accrued preferred stock
dividends owing to Mr. Edelson; and Steven Dreyer, a director of the
Company, will receive (i) $14,333.10 in partial satisfaction of certain
indebtedness owing by the Company to an affiliate of Mr. Dreyer and (ii)
$5,493.80 in satisfaction of all declared but unpaid and accrued preferred
stock dividends owing to Mr. Dreyer.
Following the consummation of this offering, the Company will
require all agreements and arrangements involving it and the Underwriter,
Performance Capital Management, or any other related party to be (i)
negotiated, to the extent possible, on an arm's-length basis, (ii) on
terms no more favorable to the party other than the Company thereto than
otherwise could be obtained from an unaffiliated party and (iii) approved
by a majority of the disinterested directors of the Company. In addition,
the Company has agreed that following the closing of the Minimum Offering
and the concurrent satisfaction by Group, on behalf of Medley
Refrigeration, of all receivables then outstanding from Medley
Refrigeration to the Company, the Company will not permit receivables
from affiliates to exceed, at any time, the lesser of 10% of all of
------
the Company's assets or $500,000 in the aggregate. See "Management" and
"Certain Transactions."
5. CUSTOMER CREDIT RISKS; RISK OF DEFAULTS IN FACTORING BUSINESS. As
in any finance business, the Company's overall success will be governed
heavily by the level of defaults it incurs. The Company believes that its
credit evaluation procedures are adequate to limit its default rate to a
manageable amount. Although the Company attempts to mitigate its credit
risk through the use of a variety of commercial credit reporting agencies
when processing the equipment lease applications of its customers and
through various forms of nonrecourse financing, failure of the Company's
customers to make scheduled payments under their equipment finance
contracts could require the Company to make payments in connection with the
recourse portion of its borrowings, if any, and forfeit cash collateral
pledged as security in connection with those borrowings. In addition, any
increase in such loss or in the rate of payment defaults under any of the
equipment finance contracts originated by the Company (whether maintained
by the Company in its own portfolio or assigned by the Company to its
lenders) could adversely affect the Company's ability to obtain additional
funding.
The Company maintains an allowance for doubtful accounts in connection
with payments due under equipment lease contracts held in the Company's
portfolio. (The Company's portfolio currently is comprised of those
contracts which the Company has purchased with working capital funds or
under the revolving credit lines and not yet assigned to a nonrecourse
lender or transferred in connection with an asset securitization
transaction.) The allowance is maintained at a level which the Company
deems sufficient to meet future estimated uncollectible contract
receivables, based on its analysis of the delinquencies, problem accounts,
and overall risks and probable losses associated with such contracts.
There can be no assurance, however, that the amount of the Company's
allowance will prove to be adequate.
With respect to the Company's proposed new factoring business, the
financial failure of a client or its customers or the failure of the
Company to recover under personal guarantees from the client's principals
or from other forms of security may adversely affect the Company's ability
to fully recover amounts due. While the Company intends to purchase
receivables on a full recourse basis, a client of the Company may be unable
to meet its obligations. Losses may result if the Company is unable to
recover under personal guarantees from the client's principals or from
other forms of security. Accordingly, the Company intends to make
provision for possible credit losses. There can be no assurance, however,
that the amount of such provision will prove to be adequate. See
"Business."
6. LEGAL AND REGULATORY LIMITATIONS. Depending upon the form of
financing engaged in by the Company, the Company's rates of return may be
limited by various state laws limiting the permissible amounts of interest.
Noncompliance with such laws or rules may result in substantial penalties
or liabilities to the Company. The Company believes that its current
practices comply with such laws and will continue to comply with applicable
laws.
The Company intends to use a portion of the proceeds of this offering
to expand into the factoring business. Certain loans made in connection
with this business may be considered "securities" under applicable federal
and state securities laws. If the portion of the Company's assets invested
in "securities" exceeds certain thresholds, the Company could be considered
an "investment company" within the meaning of the Investment Company Act of
1940. Classification as an investment company could have a material
adverse effect on the Company. The Company intends to limit its
investments in any instruments which might be considered securities to an
amount which would not cause it to be considered an investment company.
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7. DEPENDENCE ON KEY PERSONNEL. The success of the Company will be
largely dependent on the personal efforts of Mr. Robert Press, the
Company's President. Although the Company and Mr. Press are parties to a
one-year employment agreement (which renews automatically for successive
one-year periods in the absence of action to the contrary), the loss of the
services of Mr. Press would have a material adverse effect on the Company's
business and prospects. Mr. Press devotes substantially all of his
business time and efforts to the affairs of the Company. Steven L.
Edelson, the Company's Chairman of the Board, devotes only such time to
the affairs of the Company as is necessary for Mr. Edelson to satisfy his
fiduciary obligations as Chairman of the Company. In addition, competition
for qualified employees, including personnel skilled in the leasing,
factoring and specialty financing business, is intense, and the loss
of key personnel or the inability to attract and retain, if necessary,
additional skilled personnel for the Company's activities, could adversely
affect the Company's business and prospects. There can be no assurance
that the Company will be able to hire or retain such personnel. See
"Business" and "Management."
8. DEPENDENCE ON FUNDING SOURCES. Equipment leasing and factoring
are capital intensive businesses. The Company's revenues and profitability
have traditionally been related directly to the volume of equipment
financings the Company originates. To increase its equipment financing
business, and to enter into the factoring marketplace, the Company will
require access to substantial short and long-term credit and be required to
continue to sell its loans and leases to third party discounters. To date,
the Company's principal source of funding has been borrowings from private
lenders. There can be no assurance that the Company will be able to obtain
additional recourse or nonrecourse financing when needed or, to the extent
such financing is available, on acceptable terms. The Company would be
adversely affected if it were unable to continue to secure sufficient and
timely funding on acceptable terms. See "Business."
9. COLLATERAL VALUE RISKS. Loans and leases held by the Company will
be secured, in part, by the collateral value of the underlying leased
equipment. Refrigeration and dry cleaning equipment are not generally
subject to the rapid deterioration in value. Nonetheless, to the extent
the Company finances higher technology equipment (which currently is not
contemplated), deterioration in the value of such equipment could undermine
the security of the Company's financings and the Company's financial
performance.
10. INTEREST RATE RISK. Substantially all of the Company's equipment
financing contracts require the Company's customers to make payments at
fixed rates for specified terms. A small portion of these transactions are
currently funded by the Company with fixed rate borrowings which are
arranged at the time, or shortly after, the finance contract is recorded.
This matching process mitigates interest rate risk for these transactions.
However, from time to time, a portion of such contracts are originally
financed by the Company from funds derived from working capital borrowed
under its revolving credit line, which borrowings are subject to a variable
interest rate. Consequently, if interest rates increase prior to the time
the Company is able to secure fixed-rate, long-term financing for such
contracts, the Company's profit margin with respect to such equipment
financing contracts could be affected adversely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
11. COMPETITION. The factoring and financing of equipment businesses
are highly fragmented. The Company competes, and in the future, will
compete for customers with a number of national, regional and local finance
and factoring companies, including those which, like the Company,
specialize in particular segments of the overall market. In addition, the
Company's competitors include, and will include, those equipment
manufacturers which finance the sale or lease of their products themselves,
other traditional types of financial services companies, such as commercial
banks and savings and loan associations, and conventional leasing and
factoring companies. Although the Company believes that it currently
maintains a competitive advantage on the basis of its convenience-oriented
financing and value-added services, many of the Company's competitors and
potential competitors possess substantially greater financial, marketing,
and operational resources. Moreover, the Company's future profitability
will be directly related to the Company's ability to access capital funding
and to obtain favorable funding rates as compared to the capital and costs
of capital available to its competitors. Accordingly, there can be no
assurance that the Company will be able to continue to compete successfully
in its targeted markets. See "Business - Competition."
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12. LACK OF DIVIDENDS. Since becoming a "C Corporation" for federal
income tax purposes, the Company has not paid any dividends with respect to
its Common Stock. Moreover, the Company does not intend to pay any
dividends on its Common Stock in the foreseeable future. The holders of
the Company's outstanding Convertible Preferred Stock are entitled to
receive cumulative dividends, payable quarterly out of funds legally
available therefor, at the annual rate of 10%. The Company currently
intends to reinvest earnings, if any, in the development and expansion of
its business, except to the extent required to satisfy its obligations
under the terms of the Convertible Preferred Stock. See "Dividend Policy"
and "Description of Securities - Preferred Stock."
13. IMMEDIATE AND SUBSTANTIAL DILUTION. This offering involves an
immediate and substantial dilution of $3.61 per share or approximately
65.6% if the Minimum Offering is sold or $3.21 per share or approximately
58.4% if the Maximum Offering is sold between the pro forma net tangible
book value per share after the offering and the public offering price of
$5.50 per share of Common Stock. See "Dilution."
14. SHARES ELIGIBLE FOR FUTURE SALE. Upon the consummation of this
offering, the Company will have 2,650,000 shares of Common Stock
outstanding if the Minimum Offering is sold and 3,050,000 shares of Common
Stock outstanding if the Maximum Offering is sold, assuming no exercise of
the Warrants, the Underwriter's Warrants or any other outstanding warrant
or the issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock. At that time, only the 1,200,000
shares being offered hereby by the Company and the Selling Stockholder in
the event the Minimum Offering is sold, and the 1,600,000 shares being
offered hereby by the Company and the Selling Stockholder in the event the
Maximum Offering is sold, will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 1,450,000 shares, in either instance will
be deemed to be "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act and may, in certain circumstances,
subject to the contractual restrictions described below, be sold without
registration pursuant to such rule, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act. 150,000 of
these restricted shares will become eligible for sale under Rule 144 in
December 1997 (subject to certain recurring three-month volume limitations
prescribed by Rule 144).
Group, which is controlled by Messrs. Press and Edelson, the President
and Chairman of the Board, respectively, of the Company, beneficially owns,
as of the date of this Prospectus, 1,500,000 shares of Common Stock of the
Company. Group and the Company are parties to an agreement pursuant to
which, among other things, Group, on behalf of Medley Refrigeration, will
remit to the Company, at the closing of the Minimum Offering, the $990,000
in net proceeds generated from Group's sale of its 200,000 shares of
Common Stock in the Minimum Offering. This $990,000 will be paid to the
Company to satisfy, in their entirety, all receivables then outstanding
from Medley Refrigeration to the Company. Group, pursuant to the Escrow
Agreement controlling the disbursement of subscription proceeds at the
closing of the Minimum Offering, has authorized the Escrow Agent to remit
directly to the Company, concurrently with the closing of the Minimum
Offering, the $990,000 in net proceeds then held in escrow attributable
to Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering. Group has otherwise agreed not to sell or dispose of any of
its shares for a period of six months from the date of this
Prospectus without the prior written consent of the Underwriter. In
addition, each holder of Convertible Preferred Stock has agreed not to sell
or otherwise dispose of any shares of Common Stock issuable upon conversion
of such Convertible Preferred Stock for a period of six months from the
date of this Prospectus without the prior written consent of the
Underwriter. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and the Warrants and could
impair the Company's ability in the future to raise additional capital
through the sale of its equity securities. See "Principal Stockholders,"
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
15. CONTROL OF MANAGEMENT. Upon the consummation of this offering,
Group, which is controlled by Messrs. Press and Edelson, will beneficially
own approximately 49.0% in the event the Minimum Offering is sold, and
42.6% in the event the Maximum Offering is sold, of the issued and
outstanding shares of Common Stock (assuming no exercise of the Warrants,
the Underwriter's Warrants or any other outstanding warrant or the issuance
of any shares of Common Stock underlying shares of the Company's
Convertible Preferred Stock). Accordingly, Messrs. Press and Edelson,
through their control of Group, will continue to be in a position to decide
the outcome of any matters requiring a vote of stockholders, including the
election of directors, changes in the Company's authorized capital and the
dissolution, merger or sale of the assets of the Company, and generally,
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will be in a position to control the affairs of the Company. Moreover,
Messrs. Press and Edelson will be in a position to determine the amount of
executive compensation to be paid and whether dividends will be declared
with respect to shares of the Company's capital stock. Purchasers of the
shares of Common Stock and Warrants (to the extent exercised) offered
hereby will be minority stockholders of the Company and, although entitled
to vote on any matters that require stockholder approval, will not
influence the outcome of such votes. See "Principal Stockholders" and
"Description of Securities."
16. BROAD DISCRETION IN APPLICATION OF PROCEEDS. Management of the
Company has broad discretion to adjust the application and allocation of
the net proceeds of this offering in order to address changed circumstances
and opportunities. As a result of the foregoing, the success of the
Company will be substantially dependent upon the discretion and judgment of
the management of the Company with respect to the application and
allocation of the net proceeds hereof. See "Use of Proceeds."
17. NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK AND WARRANTS. Prior to
this offering, there has been no public trading market for the Common Stock
or Warrants. Consequently, the initial public offering prices have been
determined by negotiations between the Company and the Underwriter, with
the guidance of Lew Lieberbaum & Co., Inc., the qualified independent
underwriter associated with this offering, and do not bear any relationship
to the Company's book value, assets, past operating results or financial
condition or to any other established criteria of value. In addition,
there can be no assurance that a regular trading market for the securities
offered hereby will develop after this offering or that, if developed, that
it will be sustained. The market price of the Common Stock and Warrants
following the consummation of this offering may be highly volatile as has
been the case with the securities of other companies effecting initial
public offerings. Factors such as the Company's financial results,
quarter-to-quarter variations in operating results, press releases, trading
volumes, general market trends and various factors affecting the equipment
financing and factoring businesses generally, may have a significant impact
on the market price of the Company's securities. Additionally, in recent
years, the stock market itself has experienced a high level of price and
volume volatility and market prices for the stock of many companies have
experienced wide price fluctuations which have not necessarily been related
to the operating performance of such companies. See "Underwriting."
18. UNDERWRITER'S INFLUENCE ON THE MARKET. A significant number of
the securities offered hereby may be sold to customers of the Underwriter.
Such customers may subsequently engage in transactions for the sale or
purchase of such securities through or with the Underwriter. Although it
has no obligation to do so, the Underwriter intends to make a market in the
Company's securities and may otherwise effect transactions in such
securities. As a result, the Underwriter may exert a dominating influence
on the market for the Company's securities, if such a market is developed,
and such market activity by the Underwriter may be discontinued at any
time. The price and liquidity of the Company's securities may be
significantly affected by the degree, if any, of the Underwriter's
participation in the market for the Company's securities. See
"Underwriting."
19. LIMITED OFFERING EXPERIENCE OF THE UNDERWRITER. The Underwriter
has been in business for approximately six years, and as of March 31, 1997,
employed approximately 55 brokers in two offices. The Underwriter has
managed, on a "firm commitment" basis, two public offerings prior to this
underwriting. Since the Underwriter has acted as underwriter in only a
limited number of public offerings, no assurance can be given that the
Underwriter's lack of experience and its comparatively small size in
relation to other broker-dealers in the industry, may not adversely affect
the offering of the Company's securities and the subsequent development, if
any, of a trading market for the Company's securities. See "Underwriting."
20. BEST EFFORTS OFFERING; ESCROW OF INVESTOR FUNDS. This offering
is being made on a "best efforts, all-or-none" basis. With respect to the
first 1,200,000 shares of Common Stock and 1,200,000 Warrants, all or none
of them will be sold. The remaining 400,000 shares of Common Stock and
400,000 Warrants offered will be made on a "best efforts" basis. There can
be no assurance that any of the shares of Common Stock or Warrants will be
sold. Under the terms of this offering, the Underwriter is offering the
Company's shares of Common Stock and Warrants for an initial period of 30
days which may be extended up to an additional 30 days by mutual agreement
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of the Company and the Underwriter. Pending the sale of 1,200,000 shares
of Common Stock and 1,200,000 Warrants, all proceeds will be held in an
escrow account with SunTrust Bank, South Florida, N.A., as Escrow Agent.
No commitment exists by anyone to purchase all or any of the shares of
Common Stock or Warrants offered hereby. Consequently, subscribers' funds
may be escrowed for as long as 60 days and, if held for less than 60 days,
returned without interest thereon or deduction therefrom in the event
1,200,000 shares of Common Stock and 1,200,000 Warrants are not sold within
the offering period. Investors, therefore, will not have the use of any
subscription funds during the subscription period. See "Underwriting."
21. ANTI-TAKEOVER PROVISIONS; AUTHORIZATION OF PREFERRED STOCK.
Delaware has enacted legislation that may deter or frustrate takeovers of
the Company. In certain circumstances, Delaware law requires the approval
of two-thirds of all shares eligible to vote for certain business
combinations involving a stockholder owning 15% or more of the Company's
voting securities (other than stockholders currently meeting such
description), excluding the voting power held by such stockholder. In
addition to the potential impact on future takeover attempts and the
possible perpetuation of management, the existence of such provision could
have an adverse effect on the market price of the Company's Common Stock.
The Company's Certificate of Incorporation authorizes the issuance of
5 million shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board
of Directors. To date, the Board of Directors has authorized the issue of
a series of up to 2,958,817 shares of Convertible Preferred Stock.
Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue additional series of preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect
the voting power or other rights of the holders of Common Stock. In the
event of issuance, such preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in control of the Company. Although the Company has no present intention
to issue any additional shares of preferred stock, there can be no
assurance that the Company will not make such an issuance in the future.
See "Description of Securities--Anti-Takeover Provisions" and "--Preferred
Stock."
22. POSSIBLE DELISTING OF SECURITIES FROM NASDAQ; DISCLOSURE RELATING
TO LOW-PRICED STOCKS. It is currently anticipated that the Company's
Common Stock and Warrants will be eligible for listing on NASDAQ upon
completion of the Minimum Offering. However, in order to continue to be
listed on NASDAQ, a company must maintain either (i) $2,000,000 in net
tangible assets (total assets less total liabilities and goodwill), (ii)
$35,000,000 in market capitalization or (iii) $500,000 of net income in two
of the last three years and 500,000 shares of Common Stock in the public
float and a $1,000,000 market value of the public float. In addition,
continued inclusion requires two market makers and a minimum bid price of
$1.00 per share. The failure to meet these maintenance criteria in the
future may result in the delisting of the Company's securities from NASDAQ
and trading, if any, in the Company's securities would thereafter be
conducted in the non-NASDAQ over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Company's
securities.
In addition, if the Common Stock were delisted from trading on NASDAQ
and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Exchange Act, which
require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a "penny stock" (generally, any non-
NASDAQ equity security that has a market price of less than $5.00 per
share, subject to certain exceptions). Such rules require the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining
the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-
dealer must make a special suitability determination for the purchaser and
have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in
the Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
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<PAGE>
23. INABILITY TO EXERCISE WARRANTS. The Company intends to qualify
the sale of the Common Stock and the Warrants offered hereby in a limited
number of states. Although certain exemptions in the securities laws of
certain states might permit Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified, the
Company will be prevented from issuing Common Stock in such states upon
exercise of the Warrants unless an exemption from qualification is
available or unless the issuance of Common Stock upon exercise of the
Warrants is qualified. The Company may decide not to seek or may not be
able to obtain qualification of the issuance of such Common Stock in all of
the states in which the ultimate purchasers of the Warrants reside. In such
a case, the Warrants held by purchasers will expire and have no value if
such Warrants cannot be sold. Accordingly, the market for the Warrants may
be limited because of these restrictions. Further, a current prospectus
covering the Common Stock issuable upon exercise of the Warrants must be in
effect before the Company may accept Warrant exercises. There can be no
assurance that the Company will be able to have a prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's
commitment to use its best efforts to do so. See "Description of
Securities Redeemable Warrants."
24. POTENTIAL ADVERSE EFFECTS OF REDEMPTION OF WARRANTS. The
Warrants may be redeemed by the Company, with the consent of the
Underwriter, at any time following [ ], 1998 (one year from the date
of this Prospectus), upon notice of not less than 30 days, at a price of
$.15 per Warrant, provided that the closing bid quotation of the Common
Stock on all 25 of the trading days ending on the third day prior to the
day on which the Company gives notice of redemption has been at least 150%
(currently $8.25, subject to adjustment) of the initial public offering
price of the Common Stock offered hereby. Redemption of the Warrants could
force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Redeemable Warrants."
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<PAGE>
USE OF PROCEEDS
Of the shares of Common Stock being offered hereby, 200,000 shares are
being offered by the Selling Stockholder and 1,000,000 shares, in the event
of the Minimum Offering, and 1,400,000 shares, in the event of the Maximum
Offering, are being offered by the Company. Group and the Company are
parties to an agreement pursuant to which, among other things, Group, on
behalf of Medley Refrigeration, will remit to the Company, at the closing
of the Minimum Offering, the $990,000 in net proceeds generated from
Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering. This $990,000 will be paid to the Company to satisfy, in their
entirety, all receivables then outstanding from Medley Refrigeration
to the Company. Group, pursuant to the Escrow Agreement controlling
the disbursement of subscription proceeds at the closing of the
Minimum Offering, has authorized the Escrow Agent to remit directly
to the Company, concurrently with the closing of the Minimum Offering,
the $990,000 in net proceeds then held in escrow attributable to
Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
After deducting underwriting discounts and commissions ($881,400 if
the Minimum Offering is sold and $1,175,200 if the Maximum Offering is
sold) and other expenses of the offering estimated to be approximately
$135,000, the Company will receive (exclusive of amounts to be paid to the
Company at the closing of the Minimum Offering to satisfy all receivables
then outstanding from Medley Refrigeration to the Company) net proceeds
from this offering of approximately $4,773,600 if the Minimum Offering is
sold and $6,739,800 if the Maximum Offering is sold. The Company
intends to utilize the net proceeds from this offering (excluding
any amounts received upon the exercise of any Warrants) during the next
12 months approximately as follows:
MINIMUM OFFERING MAXIMUM OFFERING
---------------------- ---------------------
APPLICATION OF PROCEEDS NET PROCEEDS % NET PROCEEDS %
----------------------- ------------ ----- ------------ -----
Repayment of
indebtedness(1) . . . $ 411,739 8.62% $411,739 6.11%
Satisfaction of
declared but unpaid
dividends(2) . . . . 277,299 5.81 277,299 4.11
Expansion of equipment
leasing business (3) 750,000 15.71 1,500,000 22.25
Implementation of
factoring business(4) 1,000,000 20.95 1,750,000 25.97
Redemption of Common
Stock(5) . . . . . . 165,000 3.46 165,000 2.45
Working capital and
general corporate
purposes(6) . . . . . 2,169,562 45.45 2,635,762 39.11
---------- ------ --------- -----
$4,773,600 100.00% $6,739,800 100.00%
========== ====== ========== ======
-----------------------
(1) The Company will satisfy a portion of its outstanding short term
indebtedness and a portion of its long-term indebtedness with a portion of
the proceeds from this offering. Loans from Messrs. Press, Edelson and
Steven Dreyer, directors of the Company, will be repaid with a portion of
these proceeds. Specifically, Mr. Press will receive $76,000 in complete
satisfaction of all indebtedness of the Company owing to him (Mr. Press has
waived all interest payments), Mr. Edelson will receive $45,000 in complete
satisfaction of all indebtedness of the Company owing to him (Mr. Edelson
waived all interest payments) and an affiliate of Mr. Dreyer will receive
$14,333.10 in partial satisfaction of certain indebtedness of the Company
owing to it. The $121,000 in loans being repaid with the proceeds from
this offering to Messrs. Press and Edelson were incurred to finance the
Company's operating expenses in connection with, and in anticipation of,
this Offering. See "Principal Stockholders" and "Certain Transactions."
(2) On each of August 20, 1996, November 20, 1996 and February 20, 1997,
the Company declared its regular quarterly cash dividend with respect to
shares of its Convertible Preferred Stock. At the time of each of the
aforementioned dividend declarations, the Company had sufficient cash
available to pay the dividend to all holders of the Convertible Preferred
Stock other than Messrs. Press, Edelson and Dreyer and holders affiliated
or related to them. The Company will utilize a portion of the proceeds
from this offering to satisfy all declared, but unpaid dividends. See
"Principal Stockholders," "Description of Securities--Preferred Stock" and
Financial Statements.
-16-
<PAGE>
(3) The Company intends to utilize a portion of the proceeds from this
offering to expand its refrigeration equipment leasing business.
Specifically, the Company anticipates broadening and intensifying its
marketing efforts to attract equipment lessees unaffiliated with Medley
Refrigeration. In addition, the Company intends to expand its geographic
positioning and business plan by entering into geographic marketplaces in
which Medley Refrigeration does not currently do business and by marketing
to other refrigeration companies that do not compete directly with Medley
Refrigeration. To date, the Company has lacked the capital necessary to
expand its business as presently contemplated.
(4) The Company intends to utilize a portion of the proceeds from this
offering to establish a factoring business which will provide small to
medium sized companies with capital through the discounted purchase of such
companies' accounts receivable. The expansion into the factoring business
will require the Company to hire additional marketing and administrative
personnel. The Company intends to implement a direct marketing campaign to
introduce the Company's factoring services to entities in the Miami, Ft.
Lauderdale and Palm Beach, Florida markets.
(5) The Company will utilize $165,000 from this offering to redeem, at a
price of $5.50 per share, an aggregate of 30,000 shares of Common Stock
owned by Messrs. Robert D. Press and Steven L. Edelson, the President and
Chairman of the Board of the Company, respectively. These shares were
transferred and assigned by Group to Messrs. Press and Edelson in January
1996 in consideration for services performed by them on behalf of the
Company. See "Certain Transactions."
(6) Working capital will be utilized by the Company to enhance, and
otherwise stabilize, cash flow during the initial 12 months following the
consummation of this offering, such that any shortfalls between operating
revenues and costs will be covered by working capital. Although the
Company prefers to retain its working capital in reserve, the Company may
be required to expend part or all of these proceeds as financial demands
dictate.
If subscribers in this offering elect to exercise all of the Warrants
offered herein (not including the Underwriter's Warrants), the Company will
realize gross proceeds of approximately $6,000,000 if the Minimum Offering
is sold and $8,000,000 if the Maximum Offering is sold. Management
anticipates that the proceeds from the exercise of the Warrants would be
contributed to working capital of the Company. Nonetheless, the Company
may, at the time of exercise, allocate a portion of the proceeds to any
other corporate purpose. Accordingly, investors who exercise their
Warrants will entrust their funds to management, whose specific intentions
regarding the use of such funds are not presently and specifically known.
The amounts set forth in the above use of proceeds table merely
indicate the proposed use of proceeds and actual expenditures may vary
substantially from these estimates depending upon economic conditions and
the success, if any, of the Company's existing and proposed new businesses.
The Company is unable to predict the precise period for which this offering
will provide financing, although management believes that the Company
should have sufficient working capital to meet its cash requirements for
approximately 12 months from the date of this Prospectus. Accordingly, the
Company may need to seek additional funds through loans or other financing
arrangements during this period of time. No such arrangements exist or are
currently contemplated and there can be no assurance that they may be
obtained on terms acceptable to the Company in the future should the need
arise.
Pending utilization, management intends to make temporary investment
of the proceeds in bank certificates of deposit, interest bearing savings
accounts, prime commercial paper or federal government securities.
-17-
<PAGE>
DIVIDEND POLICY
Prior to the Company's merger with a subsidiary of Group in September
1993, the Company operated as an "S corporation" for federal income tax
purposes. During such time, the Company's net income was taxed for federal
income tax purposes directly to the Company's stockholders. The Company,
in turn, paid dividends to enable its stockholders to pay their tax on the
Company's income. Following the merger, the Company has been included as a
member of the consolidated tax return filed by Group and its affiliates.
The Company historically has declared (and paid to the extent surplus cash
was available) regular quarterly dividends with respect to shares of its
Convertible Preferred Stock. The Company intends to continue to declare
and pay regular quarterly dividends with respect to shares of its
Convertible Preferred Stock following this offering. See "Description of
Securities--Preferred Stock."
Subsequent to the merger, the Company has not declared or paid any
dividends with respect to shares of its Common Stock. The payment of
dividends, if any, is within the discretion of the Board of Directors and
will depend upon the Company's earnings, capital requirements, financial
condition and other relevant factors. The Company's Board does not intend
to declare any dividends in the foreseeable future with respect to shares
of the Company's Common Stock, but instead intends to retain all future
earnings, if any, for the development and expansion of the Company's
operations.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and (i) as adjusted to give effect to the sale by the
Company of a minimum of 1,000,000 shares of Common Stock (the Selling
Stockholder is selling 200,000 shares in the Minimum Offering) and
1,200,000 Warrants offered hereby and a maximum of 1,400,000 shares of
Common Stock (the Selling Stockholder is selling 200,000 shares in the
Maximum Offering) and 1,600,000 Warrants offered hereby and (ii) as
adjusted, on a pro forma basis, to give effect to the consummation of the
Minimum and Maximum Offerings and the conversion, at the rate of
approximately $4.68 per share, of all 2,958,817 issued and outstanding
shares of Convertible Preferred Stock into shares of Common Stock:
AT MARCH 31, 1997
(UNAUDITED)
---------------------------------------
AS ADJUSTED
-------------------------
ACTUAL MINIMUM(1) MAXIMUM(1)
------ ---------- ----------
Long-term Debt . . . . . . $489,447 $384,211 $384,211
Short-term Debt . . . . . . $445,528 $139,025 $139,025
Stockholders' Equity (Deficit)
Convertible Preferred
Stock, $.01 par value,
5,000,000 shares
authorized; 2,958,817
shares issued and
outstanding,
respectively . . . . . $29,588 $29,588 $29,588
Common Stock, $.01
par value, 10,000,000
shares authorized;
3,050,000, 2,650,000
and 3,050,000 shares
issued and outstanding,
respectively . . . . . $16,800 $26,500 $30,500
Additional Paid-in
Capital . . . . . . . $ 2,157,899 $ 6,636,339 $ 8,598,539
$(1,676,223) $(1,676,223) $(1,676,223)
Accumulated Deficit . . . ----------- ----------- -----------
Total Stockholders' $528,064 $ 5,016,204 $ 6,982,404
Equity . . . . . . . . ----------- ----------- -----------
$ 1,463,039 $ 5,539,440 $ 7,505,640
Total Capitalization . =========== =========== ===========
AT MARCH 31, 1997
(UNAUDITED)
-------------------------
PRO FORMA
--------------------------
MINIMUM MAXIMUM
------- -------
Long-term Debt . . . . . . . . . . . . $384,211 $384,211
Short-term Debt . . . . . . . . . . . . $139,025 $139,025
Stockholders' Equity (Deficit)
Convertible Preferred Stock, $.01
par value, 5,000,000 shares
authorized; 2,958,817 shares
issued and outstanding,
respectively . . . . . . . . . . . - -
Common Stock, $.01 par value,
10,000,000 shares authorized;
3,050,000, 2,650,000 and
3,050,000 shares issued and
outstanding, respectively . . . . . $ 56,088 $ 60,088
Additional Paid-in Capital . . . . . $20,439,220 $22,401,420
$(1,676,223) $(1,676,223)
Accumulated Deficit . . . . . . . . . ----------- -----------
$18,819,085 $20,785,285
Total Stockholders' Equity . . . . ----------- -----------
$19,342,321 $21,308,521
Total Capitalization . . . . . . . =========== ===========
----------------
(1) Assumes no exercise of the Warrants, the Underwriter's Warrants or any
other outstanding warrant or the issuance of any shares of Common
Stock underlying shares of the Company's Convertible Preferred Stock.
As of the date of this Prospectus, there were no outstanding stock
options to purchase shares of the Company's Common Stock granted under
the Company's stock option plan or otherwise. See "Management--Stock
Option Plan" and "Description of Securities--Preferred Stock."
-19-
<PAGE>
DILUTION
The difference between the public offering price per share of Common
Stock and the pro forma net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Net
tangible book value per share is determined by dividing the net tangible
book value of the Company (total tangible assets less total liabilities) by
the number of outstanding shares of Common Stock. At March 31, 1997, the
net tangible book value of the Company was $399,576, or approximately $.24
per share of Common Stock.
After giving effect to the sale by the Company of a minimum of
1,000,000 shares of Common Stock (the Selling Stockholder is selling
200,000 shares) and 1,200,000 Warrants offered hereby (less underwriting
discounts and commissions and estimated expenses of this offering, and
assuming no exercise of the Warrants, the Underwriter's Warrants or any
other outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock), the pro
forma net tangible book value of the Company at March 31, 1997 would have
been $5,016,204, or approximately $1.89 per share of Common Stock. This
represents an immediate increase in net tangible book value of
approximately $1.65 per share of Common Stock to existing stockholders and
an immediate dilution of approximately $3.61 per share of Common Stock to
new investors.
After giving effect to the sale of a maximum of 1,400,000 shares of
Common Stock (the Selling Stockholder is selling 200,000 shares) and
1,600,000 Warrants offered hereby (less underwriting discounts and
commissions and estimated expenses of this offering, and assuming no
exercise of the Warrants, the Underwriter's Warrants or any other
outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock), the pro
forma net tangible book value of the Company at March 31, 1997 would have
been $6,982,404, or approximately $2.29 per share of Common Stock. This
represents an immediate increase in net tangible book value of
approximately $2.05 per share of Common Stock to existing stockholders and
an immediate dilution of approximately $3.21 per share of Common Stock to
new investors.
The following table illustrates this dilution to new investors on a
per share basis:
MINIMUM MAXIMUM
OFFERING OFFERING
-------- --------
Public offering price of the Common
Stock offered hereby . . . . . . . $5.50 $5.50
Net tangible book value before
the offering $.24 $.24
Increase attributable to the sale
by the Company of the Common
Stock offered hereby . . . . . . $1.65 $2.05
Adjusted net tangible book value $1.89 $2.29
after the offering . . . . . . . . ----- -----
$3.61 $3.21
Dilution to new investors . . . . . ===== =====
The following table further illustrates this dilution to new investors
on a pro forma per share basis after giving effect to the conversion, at
the rate of approximately $4.68 per share, of all 2,958,817 shares of
Convertible Preferred Stock into shares of Common Stock:
MINIMUM MAXIMUM
OFFERING OFFERING
-------- --------
Public offering price of the Common
Stock offered hereby . . . . . . . $5.50 $5.50
Net tangible book value before
the offering $.24 $.24
Increase attributable to the sale
by the Company of the Common
Stock offered hereby . . . . . . $3.12 $3.22
Adjusted net tangible book value $3.36 $3.46
after the offering . . . . . . . . ----- -----
$2.14 $2.04
Dilution to new investors . . . . . ===== =====
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<PAGE>
The following table sets forth with respect to existing stockholders and
new investors, a comparison of the number of shares of Common Stock
acquired from the Company, the percentage of ownership of such shares, the
total consideration paid, the percentage of total consideration paid and
the average price per share.
AVERAGE
TOTAL PRICE
SHARES PURCHASED CONSIDERATION PAID PER SHARE
---------------- ------------------ ----------
MINIMUM OFFERING NUMBER PERCENT AMOUNT PERCENT
---------------- ------ ------- ------ -------
Existing
stockholders . . 1,680,000 62.7% $ 200,000 3.5% $.14
1,000,000 37.3 5,500,000 96.5 $5.50
New investors . . --------- ------ ---------- ------
2,680,000 100.0% $5,700,000 100.0%
Total . . . . ========= ====== ========== ======
MAXIMUM OFFERING
----------------
Existing
stockholders . . 1,680,000 54.5% $ 200,000 2.5% $.14
1,400,000 45.5 7,700,000 97.5% $5.50
New investors . . --------- ------ ---------- ------
3,080,000 100.0% $7,900,000 100.0%
========= ====== ========== ======
The above table assumes no exercise of the Warrants, the Underwriter's
Warrants or any other outstanding warrant or the issuance of any shares of
Common Stock underlying shares of the Company's Convertible Preferred
Stock. As of the date of this Prospectus, there were no outstanding stock
options to purchase shares of the Company's Common Stock granted under the
Company's stock option plan or otherwise. See "Management--Stock Option
Plan" and "Description of Securities--Preferred Stock."
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, an
affiliate of the Company. 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 both dry cleaning and refrigeration 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 Prospectus, has continued to focus its marketing
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<PAGE>
efforts primarily to customers of Medley Refrigeration. Following the
consummation of this offering, however, the Company anticipates broadening
its leasing efforts to expand to entities unaffiliated with the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
For the three months ended March 31, 1997, the Company generated net
income of $40,013, as compared to net income of $49,851 for the comparable
period during 1996. This decrease was primarily attributable to increases
in general and administrative expenses associated with this Offering. This
increase in general and administrative expenses also had the effect of
nullifying the approximate $20,000 decrease in total costs and expenses
incurred by the Company during the three months ended March 31, 1997 as
compared to the comparable period during 1996.
During the three months ended March 31, 1997, the Company generated
leasing revenues of $94,158. This represents a decrease of $24,654 from
leasing revenues of $118,812 for the three months ended March 31, 1996.
This decrease in revenues was partially offset, however, by the $14,369
increase in interest income realized during the three months ended March
31, 1997. This increase in interest income reflects the continuing shift
in the Company's assets from maturing leases of dry cleaning equipment to
financed refrigeration equipment. All of the Company's equipment leases
are non-cancellable and since March 31, 1997, there has been no material
change in the amount or value of the Company's leased equipment.
FISCAL 1996 COMPARED TO FISCAL 1995
For Fiscal 1996, the Company generated revenues of $356,235, an
approximate 8% reduction from revenues of $388,008 for the fiscal year
ended December 31, 1995 ("Fiscal 1995"). Revenues for Fiscal 1996 and
Fiscal 1995 represented, principally, payments received against dry
cleaning equipment leases financed by the Company. During Fiscal 1996,
however, the Company began de-emphasizing its dry cleaning equipment
financing business and primarily concentrated its marketing efforts in the
refrigeration equipment financing area. Consequently, during Fiscal 1996,
the Company entered into approximately 41 new financing agreements with
customers of Medley Refrigeration while it did not enter into any new dry
cleaning equipment financing agreements. The Company expects revenues from
these new refrigeration equipment financing agreements to be realized over
the next five years.
Total costs and expenses for Fiscal 1996 decreased to $560,939, or
approximately 18% from Fiscal 1995 total costs and expenses of $684,615.
This decrease is primarily attributable to the Company's incurring a one-
time write-down during Fiscal 1995 of $87,456 for rental equipment not in
service. The reduction in costs and expenses during Fiscal 1996 would have
been greater had the Company not paid approximately $110,000 in accounting
fees directly associated with the Fiscal 1995 audit.
For Fiscal 1996, the Company generated net income of $488,360, as
compared to a net loss of $(896,607) for Fiscal 1995. This significant
change in operating results is primarily due to the reversal, during Fiscal
1996, of a $600,000 provision for uncollectible advances to an affiliate
(Medley Refrigeration) recorded during Fiscal 1995. This reversal was
taken essentially because the Company was able to adequately demonstrate
that the uncollectible advances in question were, in fact, collectible. In
this regard, during December 1996, the Company and Medley Refrigeration
consummated the Assignment, pursuant to which, Medley Refrigeration's
rights to receive revenues from, and rights of collection with respect to,
a majority of Medley Refrigeration's equipment leases with its customers
were assigned to the Company. The present value of the revenue stream
underlying the Assignment was approximately $652,000 at the time of the
Assignment.
During January 1997, the Medley Refrigeration intercompany receivable
was further reduced by $237,000 as a result of Medley Refrigeration paying
the Company $200,000 in cash and transferring to the Company $37,000 of
refrigeration equipment. The Company used this refrigeration equipment to
directly enter into new refrigeration equipment leases with customers of
Medley Refrigeration. The Company continues, on a regular basis, to
finance refrigeration equipment leases directly with Medley Refrigeration's
customers. The equipment underlying these leases has been, and will
continue to be, provided by Medley Refrigeration. The intercompany
receivable due the Company from Medley Refrigeration has been, and will
continue to be, reduced by the direct cost of the equipment underlying
these equipment leases. At March 31, 1997, the uncollectible advance,
which is now presented as due from affiliates in both the current and other
asset sections of the Company's financial statements, was approximately
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<PAGE>
$1,000,000. Group and the Company are parties to an agreement pursuant
to which, among other things, Group, on behalf of Medley Refrigeration,
will remit to the Company, at the closing of the Minimum Offering, the
$990,000 in net proceeds generated from Group's sale of its 200,000 shares
of Common Stock in the Minimum Offering. This $990,000 will be paid to
the Company to satisfy, in their entirety, all receivables then
outstanding from Medley Refrigeration to the Company. Group, pursuant
to the Escrow Agreement controlling the disbursement of subscription
proceeds at the closing of the Minimum Offering, has authorized the Escrow
Agent to remit directly to the Company, concurrently with the closing of
the Minimum Offering, the $990,000 in net proceeds then held in escrow
attributable to Group's sale of its 200,000 shares of Common Stock in the
Minimum Offering.
For Fiscal 1996, the Company generated net income per common share of
$.15 as compared to a net loss per common share of $(.98) for Fiscal 1995.
This change in net income per share is primarily the result of the reversal
of the $600,000 provision for uncollectible advances to an affiliate
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had total assets of $1,839,752 as
compared to total assets of $1,794,820 at December 31, 1996. This increase
in total assets is primarily attributable to a significant increase in
accounts receivable relating to new equipment leases entered into.
At December 31, 1996, the Company had total assets of $1,794,820, as
compared to total assets of $1,258,950 at December 31, 1995. This increase
in total assets was primarily due to (i) the Assignment, which resulted in
the reversal of the $600,000 estimate for uncollectible advances from an
affiliate (Medley Refrigeration) taken during Fiscal 1995 and (ii) the
Company's recording approximately $73,000 of additional prepaid expenses
directly attributable to this offering.
At March 31, 1997, the Company had total liabilities of $1,311,688 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.
At December 31, 1996, the Company had total liabilities of $1,232,799,
an approximate 33% reduction from total liabilities of $1,856,411 at
December 31, 1995. This decrease in liabilities is primarily the result of
the exchange, during June 1996, by holders of approximately $765,657
principal amount of long term debt of the Company, of this debt into
811,973 shares of Convertible Preferred Stock of the Company. The overall
decrease in total liabilities at December 31, 1996 was offset, however, by
an approximate $175,000 increase in accounts payable and accrued expenses
primarily attributable to $192,675 of accrued but unpaid dividends payable
with respect to shares of the Company's Convertible Preferred Stock due to
three of the Company's directors and their affiliates and relatives.
At March 31, 1997, the Company had total stockholder's equity of
$528,064 as compared to total stockholder's equity of $562,021 at December
31, 1996.
At December 31, 1996, the Company had total stockholder's equity of
$562,021, an approximate 195% increase from total stockholder's deficit of
$(597,461) at December 31, 1995. This significant change in stockholder's
equity was primarily the result of the aforementioned exchange, during June
1996, of approximately $765,657 principal amount of long term debt into
811,973 shares of Convertible Preferred Stock.
The Company's experience in the specialty finance business has
historically been conducted with a smaller capital base than will be
available to the Company following the consummation of this offering. In
order to increase its capital base for further financing, the Company
traditionally has resorted to obtaining lines of credit secured by leased
equipment, to procuring unsecured borrowings from individual investors and
to selling or borrowing against its leases. In this regard, the Company
has established relationships with principal sources of financing and has
learned the particular focus and requirements of such sources. The Company
believes that with the proceeds from this offering, it will be positioned
to secure additional lines of credit and traditional bank financings for
the purpose of expanding and developing its business. The Company further
believes that its expanded business will enable it to pursue service
oriented financing activities such as factoring and locating potential
equipment lessees and referring them to the Company's financing sources on
a fee basis. In addition to such factoring and lease brokering activities,
the Company anticipates expanding into more traditional loan origination
business segments, including the provision of credit review services,
documentation services and loan servicing activities. There can be no
assurance, however, that the Company will successfully implement all or a
portion of this anticipated expansion.
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The Company is dependent on the proceeds of this offering 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 this
offering will be sufficient to satisfy the contemplated cash requirements
of the Company for approximately 12 months following the consummation of
this offering. In the event that the Company's plans change or its
assumptions prove to be inaccurate or the proceeds of this offering 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.
BUSINESS
GENERAL
The Company is a specialty finance company which, historically, has been
engaged primarily in the financing of (i) dry cleaning equipment to smaller
dry cleaning businesses throughout the eastern United States and (ii)
refrigeration equipment sold or leased by Medley Refrigeration. The
Company commenced operations by providing the cost of dry cleaning
equipment to new businesses. The Company, typically, would provide capital
to acquire the equipment which was then leased to the dry cleaning
businesses for amounts which would amortize the loan, repay any interest
expense and generate a profit. Since becoming affiliated with Group in
September 1993, the Company has also been involved in providing similar
lease financing to Medley Refrigeration's customers. 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. The Company has historically utilized
its own equity capital for these purposes, as well as loan capital from
private investors. More recently, the Company has entered into
relationships with banks and institutional lenders to provide the credit
necessary to fund such financing operations.
Prior to Fiscal 1996, the Company focused its marketing efforts
primarily on providing financing to creditworthy customers purchasers of
both dry cleaning and refrigeration 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 tend to be small entities whose asset bases
may not be significant enough to attract traditional institutional lenders.
Such customers are typically willing to pay a premium in terms of interest
rates for convenience and availability of financing.
During December 1996, Medley Refrigeration and the Company consummated
the Assignment, pursuant to which, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues from, and
rights of collection with respect to, a majority of the refrigeration
equipment leases entered into by Medley Refrigeration with its customers.
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. This direct
financing is essentially accomplished by the Company purchasing the
equipment to be leased from Medley Refrigeration. The Company, in turn,
then leases this equipment to creditworthy Medley Refrigeration's customers
who make lease payments with respect to such equipment directly to the
Company. The Company, through the date of this Prospectus, has continued
to focus its marketing efforts primarily to customers of Medley
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Refrigeration. Following the consummation of this offering, however, the
Company anticipates broadening its leasing efforts to expand to entities
unaffiliated with the Company.
The Company believes that with the proceeds from this offering, it will
be positioned to secure additional lines of credit and traditional bank
financings for the purpose of expanding and developing its business. The
Company further believes that its expanded business will enable it to
pursue service oriented financing activities such as factoring and locating
potential equipment lessees and referring them to the Company's financing
sources on a fee basis. In addition to such factoring and lease brokering
activities, the Company anticipates expanding into more traditional loan
origination business segments, including the provision of credit review
services, documentation services and loan servicing activities. The
Company believes that its current and proposed expanded business activities
do not subject it to any existing or proposed lending or licensing
regulations or requirements.
The Company was incorporated under the laws of the State of Delaware on
May 2, 1990 under the name Premier Lease Concepts, Inc. In September 1993,
Premier Lease Concepts, Inc. was merged into a subsidiary of Group. As
part of this Merger, the Company's name was changed to Medley Credit
Acceptance Corp.
EXISTING BUSINESSES
FINANCING OF DRY CLEANING EQUIPMENT
The Company's principal initial business was the investment of capital
in dry cleaning equipment leased to small dry cleaning businesses
throughout the eastern United States. Such dry cleaning equipment would
typically involve a total cost of between $60,000 to $70,000 and be leased
out for a five-year term with the lessee having the option to buy the
equipment at the end of the lease term for the fair market value thereof.
The internal rate of return of such leases was generally attractive to the
Company. Such leases could be refinanced or sold at discount rates
substantially less than the return implicit in the lease itself. Such
finance discounting was, in most instances, accomplished on a full
nonrecourse basis. Due to the decrease, commencing in Fiscal 1995, of dry
cleaning equipment financing opportunities, and the general reduction in
risk associated with the financing of refrigeration equipment as compared
to dry cleaning equipment (primarily due to the significantly reduced cost
of refrigeration equipment as compared to dry cleaning equipment), the
Company, during Fiscal 1996, began de-emphasizing its dry cleaning
equipment business and began concentrating marketing efforts to Medley
Refrigeration's customers.
REFRIGERATION EQUIPMENT FINANCING
The Company's financing activities with respect to refrigeration
equipment are similar to that employed in its dry cleaning equipment
financing business. The cost of refrigeration equipment (generally $6,000
to $10,000), however, is much less than dry cleaning equipment. In
addition, the Company's lease terms for refrigeration equipment generally
range between 36 to 60 months, without, in many instances, any buy-out
option at the end of the lease term. The Company, historically, has
financed refrigeration equipment to creditworthy customers of Medley
Refrigeration. Following the consummation of this offering, the Company
anticipates broadening its leasing efforts to expand to entities
unaffiliated with the Company.
The Company generally performs its own credit checks on potential
lessees, including a review of a standard credit application, the
verification of bank references and three trade creditor references, the
confirmation of business history and the lessee's existence, as well as
performing an independent credit check of the potential lessee (TRW,
Equifax or CBI).
PROPOSED MATERIAL NEW BUSINESSES
FACTORING
One of the principal focuses of the Company's business expansion
following the consummation of this offering will be the Company's
anticipated entrance into the factoring business, i.e., providing small-to-
medium sized, high risk growth companies with capital through the
discounted purchase of their accounts receivable. The Company also
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anticipates making Collateralized Advances to its factoring clients secured
by inventory, equipment, real estate and other assets and, on occasion,
providing other specialized financing structures which will be designed to
satisfy the unique requirements of the Company's clients.
The Company believes that its factoring business typically will consist
of the Company entering into an accounts receivable factoring and security
agreement with a client which will (i) obligate the client to sell the
Company a minimum amount of accounts receivable each month (or a minimum
amount of receivables during the term of the agreement); (ii) usually have
a term of not less than six months and, more likely, one year and (iii) be
automatically renewable. When making a Collateralized Advance, the Company
will enter into such additional agreements with the client and, if
appropriate, third parties, as the Company deems necessary or desirable,
based on the type(s) of collateral securing the Collateralized Advance.
The Company will purchase accounts receivable from its factoring clients at
a discount from face value and usually require the client's customers to
make payment on the receivables directly to the Company. The Company will
almost always reserve the right to seek payment from the client in the
event the client's customers fail to make the required payment. To secure
all of a client's obligations to the Company, the Company will also take a
lien on all accounts receivable of the client (to the extent not purchased
by the Company) and, whenever available, blanket liens on all of the
client's other assets (some or all of which liens may be subordinate to
other liens). When making a Collateralized Advance, the Company will
almost always take a first lien on the specific collateral securing the
Collateralized Advance. The Company may, on occasion, make Collateralized
Advances secured by a subordinate lien position, but only if management of
the Company determines that the equity available to the Company in a
subordinate position would be adequate to secure the Collateralized
Advance. The Company will almost always require personal guaranties
(either unlimited or limited to the validity and collectibility of
purchased accounts receivable) from each client's principals. Although the
Company will obtain as much collateral as possible and usually retain full
recourse rights against its clients, clients (and account debtors) may fail
and accordingly, there can be no assurance that the collateral obtained and
the recourse rights retained (together with personal guaranties) will be
sufficient to protect the Company against loss. Moreover, since the
Company has very limited prior experience as a factor, there can be no
assurance that the Company's expansion into the factoring business will be
a profitable, or economically prudent, venture.
LEASE BROKERING ACTIVITIES
Following the consummation of this offering, the Company also intends to
consider expanding its operations to include lease brokering. At this
date, however, the Company has no specific plans, arrangements or
agreements relating to future lease brokering activities. In this regard,
the Company believes that the customer base of the Company, Medley
Refrigeration and their affiliates may be receptive to other types of
financing in addition to those utilized in the acquisition of refrigeration
equipment. These types of specialty financing arrangements may include
leases for equipment in which other lessors (unaffiliated with the Company)
or banks and finance companies known to the Company specialize. The
Company believes, based upon what it believes to be generally accepted
market terms, that these other lessors, banks and finance companies would
be willing to pay the Company between two to four percentage points of the
total loan in consideration for the Company's referring such financing
opportunity to such lender. The Company is not presently a party to any
agreement or understanding with respect to any proposed lease brokering
activities. Nonetheless, lease brokering activities are attractive to the
Company because they may be pursued with limited to no involvement of
capital. In addition, such referrals generally do not include customary
credit analysis procedures and normally do not involve residual liability.
COMPETITION
The factoring and financing of equipment businesses are highly
fragmented. The Company competes, and in the future, will compete for
customers with a number of national, regional and local finance and
factoring companies, including those which, like the Company, specialize in
particular segments of the overall market. In addition, the Company's
competitors include, and will include, those equipment manufacturers which
finance the sale or lease of their products themselves, other traditional
types of financial services companies, such as commercial banks and savings
and loan associations, and conventional leasing and factoring companies.
Although the Company believes that it currently maintains a competitive
advantage on the basis of its convenience-oriented financing and value-
added services, many of the Company's competitors and potential competitors
possess substantially greater financial, marketing, and operational
resources. Moreover, the Company's future profitability will be directly
related to the Company's ability to access capital funding and to obtain
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favorable funding rates as compared to the capital and costs of capital
available to its competitors. Accordingly, there can be no assurance that
the Company will be able to continue to compete successfully in its
targeted markets.
EMPLOYEES
The Company plans to operate with as few employees as possible. The
Company currently engages four full-time employees and anticipates hiring
three additional full-time employees following the consummation of this
offering. The Company believes that these three new employees will be
necessary as a result of the Company's anticipated expansion into the
factoring business.
PROPERTIES
The Company currently owns no real property and conducts its business
from facilities leased by Medley Refrigeration. The Company pays Medley
Refrigeration $15,000 per year to cover the Company's allocated rental and
common expense charges with respect to the facility encompassing the
Company's offices. The Company believes this facility is well maintained
and adequate to meet the Company's needs for the foreseeable future.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Robert D. Press 33 President, Chief Executive
Officer, Treasurer
Steven L. Edelson 49 Chairman of the Board and
Secretary
Steven Dreyer 54 Director
Maynard Hellman 52 Director
ROBERT D. PRESS has served as the President, Chief Executive Officer,
Treasurer and a Director of the Company since its inception in September
1993. Mr. Press devotes substantially all of his business time and efforts
to the affairs of the Company. From June 1990 to August 1993, Mr. Press
served as President of Premier Lease Concepts, Inc., the Company's
predecessor. In addition, since 1989, Mr. Press has served as President of
Performance Capital Management, a holding company with interests in
brokerage and investment management, and as President of Group since
October 1992. Mr. Press holds a B.A. degree in Economics from Brandeis
University. From 1984 to 1986, Mr. Press worked as a full-time trading
systems consultant to several major Wall Street firms, including The
Longview Group. In 1986, Mr. Press joined Chemical Bank, N.A. ("Chemical
Bank") as an internal consultant in trading and capital markets, and later
in 1986, Mr. Press joined in the formation of Chemical Bank's Interest Rate
Arbitrage trading group, of which Mr. Press became the principal trader
responsible for the global trading and investment decisions of a multi-
billion dollar portfolio. Mr. Press holds the Series 7 and 63 professional
securities licenses.
STEVEN L. EDELSON has served as the Chairman of the Board and Secretary
of the Company since its inception. Mr. Edelson devotes only such business
time and efforts to the affairs of the Company as is necessary for Mr.
Edelson to fulfill his fiduciary duties as Chairman of the Board of the
Company. From June 1990 to August 1993, Mr. Edelson served as Chairman of
the Board of Premier Lease Concepts, Inc. In addition, Mr. Edelson has
served as Chairman of the Board of Performance Capital Management and of
Group since 1991 and 1992, respectively. Pursuant to a management
agreement between Performance Capital Management and the Underwriter, Mr.
Edelson serves as a licensed securities principal of the Underwriter,
responsible for supervising the day to day operations and affairs of the
Underwriter. Mr. Edelson holds an M.B.A. degree in Finance from the
University of Chicago and a B.A. degree in Economics from the Wharton
School of the University of Pennsylvania. Mr. Edelson has extensive Wall
Street experience including serving as a Bond Trader at Goldman Sachs and
Co. and at Salomon Brothers from 1973 to 1975 and 1975 to 1977,
respectively. Mr. Edelson also served as Vice President of Bond Trading at
The Chase Manhattan Bank, N.A. from 1977 to October 1979 and as Managing
Director and Department Head for Trading and Distribution of several major
areas, including Bond Trading, at Chemical Bank from October 1979 to
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<PAGE>
October 1989. Mr. Edelson holds the Series 7 and 63 professional
securities licenses and the Series 24 securities principal's license.
MAYNARD J. HELLMAN has served as a Director of the Company since January
1997. Since January 1988, Mr. Hellman has served as managing partner of
the Coral Gables, Florida based law firm of Hellman & Maas. From 1983
until 1988, Mr. Hellman was engaged in the private practice of law and
prior thereto, Mr. Hellman served as a partner in the Miami, Florida law
firm of Gilbert, Silverstein and Hellman. Mr. Hellman holds a J.D. degree
from the University of Miami School of Law and a B.B.A. degree in
Accounting from the University of Miami School of Business Administration.
STEVEN DREYER has served as a Director of the Company since January
1997. Since 1989, Mr. Dreyer has served as President of Cryntel
Enterprises Ltd., a Florida based company engaged in the manufacture and
marketing of Far Eastern made floor tiles and other home improvement
products. From 1981 to 1988, Mr. Dreyer served as Chief Executive Officer
of Cyntec Trading Company, a London, England based company engaged in the
manufacture and marketing of Asian made floor covering products. Mr.
Dreyer holds a B.A. degree from the University of California at Northridge.
The Company's Directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. Directors currently receive no compensation for serving on the
Board of Directors or any committee thereof other than reimbursement of
reasonable expenses incurred in attending meetings. In the future, it is
intended that non-employee Directors will receive a fee of $500 for
attendance at each Board of Directors (or committee) meeting. The
Company's officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
No family relationships exist among any of the Company's Directors and
officers. Moreover, no arrangement or understanding exists between any of
the Company's Directors and officers and any other person pursuant to which
any Director or officer was elected as a Director or officer of the
Company.
EXECUTIVE COMPENSATION
During Fiscal 1996, the Company did not pay any cash remuneration to any
of its executive officers. Moreover, no bonus or other form of
remuneration was paid by the Company to its executive officers during
Fiscal 1996. The Company, however, is party to employment contracts with
each of Messrs. Press and Edelson, the Company's President and Chairman of
the Board, respectively. The following table summarizes the aggregate
annual compensation to be payable by the Company to its President and
Chairman of the Board effective upon the consummation of this offering:
CAPACITY IN WHICH
NAME OF INDIVIDUAL SERVED AGGREGATE COMPENSATION
------------------ ----------------- ----------------------
Robert D. Press President $60,000(1)
Steven L. Edelson Chairman of the Board $30,000(1)
---------------------
(1) Pursuant to the terms of Messrs. Press' and Edelson's employment
agreements with the Company, this compensation will not begin to
accrue until the Company consummates this offering. During Fiscal
1996, Messrs. Press and Edelson did not, nor were they entitled to,
receive any remuneration from the Company. In addition, the Company
and Performance Capital Management are parties to a Management
Agreement pursuant to which, among other things, Performance Capital
Management provides the Company with certain financial and managerial
assistance in consideration for a management fee (the "Management
Fee") of $15,000 per annum for Fiscal 1996, increasing to $90,000 per
annum effective upon the consummation of this offering. Messrs. Press
and Edelson, the President and Chairman of the Board of the Company,
respectively, control Performance Capital Management. The aggregate
compensation set forth in the above table does not include any portion
of the Management Fee that may be attributable to Mr. Press or Mr.
Edelson, as the case may be, as a result of his affiliation with
Performance Capital Management. See "--Employment Agreements" and
"Certain Transactions."
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Press and Edelson pursuant to which, among other things, Messrs. Press and
Edelson have agreed to serve as President and Chairman of the Board,
respectively, of the Company. Each of Messrs. Press' and Edelson's
employment agreement provides that no compensation accrues or is payable
thereunder until the Company consummates its initial public offering (as
defined therein). Upon consummation of the Company's initial public
offering, Messrs. Press and Edelson will begin earning salaries at the
rates of $60,000 and $30,000 per annum, respectively. These employment
agreements expire on December 31, 1997 (subject to early termination
provisions), provided, however, that such agreements will automatically
renew for successive one-year terms commencing on December 31 of each year
if no formal notice of termination has been provided. Messrs. Press and
Edelson are also entitled to participate in medical, stock option, pension
and other benefit plans that the Company may establish from time to time
for the benefit of its employees generally.
Messrs. Press' and Edelson's employment agreements are terminable by the
Company for cause (i.e., conviction of a felony, willful misconduct,
dishonesty or material breach of the agreement) at any time or in the event
that Messrs. Press or Messrs. Edelson, as the case may be, becomes disabled
and, as a result, is unable to perform his duties under his employment
agreement for more than three consecutive months or for more than five
months during any 12-month period. In addition, each of Messrs. Press and
Edelson has agreed that during the term of his employment with the Company,
and for a period of two years thereafter, he will not compete or engage in
a business competitive with the business of the Company.
STOCK OPTION PLAN
On January 9, 1997, the Company adopted a stock option plan (the "Stock
Option Plan"). The Stock Option Plan has 500,000 shares of Common Stock
reserved for issuance upon the exercise of options designated as either (i)
incentive stock options ("ISOs") under the Internal Revenue Code of 1986,
as amended, or (ii) non-qualified options. ISOs may be granted under the
Stock Option Plan to employees and officers of the Company. Non-qualified
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company. In certain
circumstances, the exercise of stock options may have an adverse effect on
the market price of the Company's Common Stock and/or Warrants. As of the
date of this Prospectus, no options have been granted under the Stock
Option Plan.
The purpose of the Stock Option Plan is to encourage stock ownership by
certain directors, officers and employees of the Company and certain other
persons instrumental to the success of the Company and give them a greater
personal interest in the success of the Company. The Stock Option Plan is
administered by the Board of Directors or, at the Board's discretion, by a
committee which is appointed by the Board to perform such function (the
"Committee"). The Board or the Committee, as the case may be, within the
limitations of the Stock Option Plan, determines, among other things, when
to grant options, the persons to whom options will be granted, the number
of shares to be covered by each option, whether the options granted are
intended to be ISOs, the duration and rate of exercise of each option, the
exercise price per share and the manner of exercise, the time, manner and
form of payment upon exercise of an option, and whether restrictions such
as repurchase rights in the Company are to be imposed on shares subject to
options. ISOs granted under the Stock Option Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of
grant (or 110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). The aggregate fair market value
of shares for which ISOs granted to any employee are exercisable for the
first time by such employee during any calendar year (under all stock
option plans of the Company and any related corporation) may not exceed
$100,000. Options granted under the Stock Option Plan will expire not more
than ten years from the date of grant (five years in the case of ISOs
granted to persons holding 10% or more of the voting stock of the Company).
Options granted under the Stock Option Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus and as adjusted to reflect the sale (i) by the Company of a
minimum of 1,000,000 shares of Common Stock offered hereby and a maximum of
1,400,000 shares of Common Stock offered hereby and (ii) by the Selling
Stockholder of 200,000 shares of Common Stock offered hereby, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by
the Company to be the beneficial owner of more than 5% percent of the
outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer and (iv) all directors and executive officers of the
Company as a group.
AMOUNT AND NATURE AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP BEFORE OWNERSHIP AFTER
BENEFICIAL OWNER OFFERING(1) OFFERING(1)
------------------ ---------------- -----------------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . 1,500,000(3) 1,300,000(3)
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . 1,819,189(3)(4) 1,619,189(3)(4)
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . 2,067,160(3)(5) 1,867,160(3)(5)
Steven Dreyer . . . . . . . . . 20,154(6) 20,154(6)
Maynard Hellman . . . . . . . . 150,000(7) 150,000(7)
All directors and
officers as a
group (four persons) . . . . . 2,556,503(3)(4)(5) 2,356,503(3)(4)
(6)(7) (5)(6)
(7)
PERCENTAGE OF
OUTSTANDING SHARES OWNED
---------------------------------------------
NAME AND ADDRESS OF BEFORE AFTER MINIMUM AFTER MAXIMUM
BENEFICIAL OWNER OFFERING OFFERING(2) OFFERING(2)
------------------- -------- ------------- ------------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . 89.3% 49.1% 42.6%
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . 91.7% 54.8% 48.3%
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . 92.6% 58.3% 51.8%
Steven Dreyer . . . . . . 1.2% * *
Maynard Hellman . . . . . 8.9% 5.7% 4.9%
All directors and
officers as a
group (four persons) . . 100.0% 66.8% 60.0%
---------------
* Represents less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this
Prospectus upon the exercise or conversion of options, warrants or
other convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or other
convertible securities that are held by such person (but not those
held by any other person) and that are exercisable or convertible
within 60 days from the date of this Prospectus have been exercised or
converted. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Does not include (i) 1,200,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Minimum
Offering is sold or 1,600,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Maximum
Offering is sold, (ii) 160,000 shares of Common Stock reserved for
issuance upon exercise of the Underwriter's Warrants and (iii) 500,000
shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the Company's Stock Option Plan.
(3) Messrs. Press and Edelson, the President and Chairman of the Board,
respectively, of the Company, may be deemed to be the control persons
of Medley Group, Inc., and, as such, may be deemed to beneficially own
all of the Common Stock of the Company beneficially owned by Medley
Group, Inc.
(4) 15,000 of these shares will be redeemed by the Company, at the
redemption price of $5.50 per share, concurrently with the closing of
the Minimum Offering. Includes 142,500 shares of Common Stock
issuable upon the exercise of certain warrants; these warrants are
exercisable at any time on or prior to September 30, 2000 at an
exercise price of $1.50 per share. Also includes 161,689 shares of
Common Stock issuable upon the conversion of 755,895 shares of
Convertible Preferred Stock owned by Mr. Press.
(5) 15,000 of these shares will be redeemed by the Company, at the
redemption price of $5.50 per share, concurrently with the closing of
the Minimum Offering. Includes 142,500 shares of Common Stock
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issuable upon the exercise of certain warrants; these warrants are
exercisable at any time on or prior to September 30, 2000 at an
exercise price of $1.50 per share. Also includes 409,660 shares of
Common Stock issuable upon the conversion of 1,915,160 shares of
Convertible Preferred Stock owned by Mr. Edelson.
(6) Represents (i) 5,625 shares of Common Stock issuable upon the exercise
of certain warrants owned by Tile's International, an entity
controlled by Mr. Dreyer; these warrants are exercisable at any time
on or prior to September 30, 2000 at an exercise price of $1.50 per
share and (ii) 14,529 shares of Common Stock issuable upon the
conversion of 67,925 shares of Convertible Preferred Stock owned by
Mr. Dreyer.
(7) Does not include 1,000,000 shares of Common Stock issuable upon the
exercise of certain warrants owned by Mr. Hellman. These warrants are
identical to the Warrants being offered hereby.
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CERTAIN TRANSACTIONS
Prior to December 1996, the Company, generally, provided equipment lease
financing to customers of Medley Refrigeration. Essentially, the Company
would lend Medley Refrigeration the capital necessary for Medley
Refrigeration to lease equipment owned by it to its customers. These
customers, in turn, would make lease payments to Medley Refrigeration.
These advances were historically recorded on the Company's financial
statements as an intercompany receivable due from Medley Refrigeration. As
an accommodation to the Company, Medley Refrigeration would cause its
customers to grant the Company a security interest in the equipment leased
to them to secure lease payments from customers. At December 31, 1995, the
intercompany receivable due from Medley Refrigeration was approximately
$1,350,000.
During December 1996, the Company and Medley Refrigeration consummated
the Assignment, pursuant to which, Medley Refrigeration's rights to receive
revenues from, and rights of collection with respect to, a majority of
Medley Refrigeration's equipment leases with its customers were assigned to
the Company. The present value of the revenue stream underlying the
Assignment was approximately $652,000 at the time of the Assignment.
Group and the Company are parties to an agreement pursuant to which, among
other things, Group, on behalf of Medley Refrigeration, will remit to the
Company, at the closing of the Minimum Offering, the $990,000 in net
proceeds generated from Group's sale of its 200,000 shares of Common
Stock in the Minimum Offering. This $990,000 will be paid to the Company
to satisfy, in their entirety, all receivables then outstanding from
Medley Refrigeration to the Company. Group, pursuant to the Escrow
Agreement controlling the disbursement of subscription proceeds at the
closing of the Minimum Offering, has authorized the Escrow Agent to remit
directly to the Company, concurrently with the closing of the Minimum
Offering, the $990,000 in net proceeds then held in escrow attributable
to Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering.
During January 1997, the Medley Refrigeration intercompany receivable
was further reduced by $237,000 as a result of Medley Refrigeration paying
the Company $200,000 in cash and transferring to the Company $37,000 of
refrigeration equipment. The Company used this refrigeration equipment to
directly enter into new refrigeration equipment leases with customers of
Medley Refrigeration. This direct lease financing was essentially
accomplished by the Company purchasing the equipment to be leased from
Medley Refrigeration. The Company, in turn, then leased this equipment to
creditworthy Medley Refrigeration customers who are required to make lease
payments with respect to such equipment directly to the Company. The
Company continues, on a regular basis, to finance refrigeration equipment
leases directly with Medley Refrigeration's customers. The equipment
underlying these leases has been, and will continue to be, provided by
Medley Refrigeration. The intercompany receivable due the Company from
Medley Refrigeration has been, and will continue to be, reduced by the sum
of all lease payments received with respect to these equipment leases. At
March 31, 1997, the intercompany receivable due to the Company from Medley
Refrigeration was approximately $1,000,000.
Group and the Company are parties to an agreement pursuant to which,
among other things, Group, on behalf of Medley Refrigeration, will remit
to the Company, at the closing of the Minimum Offering, the $990,000 in
net proceeds generated from Group's sale of its 200,000 shares of Common
Stock in the Minimum Offering. This $990,000 will be paid to the Company
to satisfy, in their entirety, all receivables then outstanding from
Medley Refrigeration to the Company. Group, pursuant to the Escrow
Agreement controlling the disbursement of subscription proceeds at the
closing of the Minimum Offering, has authorized the Escrow Agent to remit
directly to the Company, concurrently with the closing of the Minimum
Offering, the $990,000 in net proceeds then held in escrow attributable
to Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering.
During June 1996, the Company offered holders of approximately $951,590
principal amount of unsecured notes of the Company (of which Steven Dreyer,
a Director of the Company, held approximately $50,788 of these notes) the
opportunity to exchange their notes into shares of the Company's
Convertible Preferred Stock. Noteholders, including Mr. Dreyer, converted
approximately $765,657 principal amount of notes into 811,973 shares of
Convertible Preferred Stock. Mr. Dreyer was issued 54,338 shares of
Convertible Preferred Stock pursuant to this exchange offer.
Concurrently, in June 1996, the Company offered Messrs. Robert Press and
Steven Edelson, President and Chairman of the Board, respectively, of the
Company, the opportunity to exchange their shares of 13 1/2% preferred
stock of the Company then owned by them, having an aggregate liquidation
value of $1,643,726, into shares of Convertible Preferred Stock. Messrs.
Press and Edelson exchanged all of their shares of 13 1/2% preferred
stock for an aggregate of 2,136,844 shares of Convertible Preferred
Stock (604,717 shares to Mr. Press and 1,532,127 shares to Mr. Edelson).
The Company and Performance Capital Management, a company controlled by
Messrs. Press and Edelson, are parties to a Management Agreement pursuant
to which, among other things, Performance Capital Management provides the
Company with certain financial and managerial assistance in consideration
for a Management Fee of $30,000 for Fiscal 1995, $15,000 for Fiscal 1996
and $90,000 per year following the consummation of this offering. Under
this Agreement, representatives of Performance Capital Management
(specifically, Messrs. Press and Edelson) render business and financial
counsel, guidance and managerial assistance to the Company while also
serving as directors of the Company and, in Mr. Press' case, as President
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of the Company. Mr. Press devotes substantially all of his business time
and efforts to the affairs of the Company, while Mr. Edelson devotes only
such time to the business and affairs of the Company as is necessary for
Mr. Edelson to satisfy his fiduciary obligations as Chairman of the Board
of the Company. This Agreement expires on December 31, 1997 but is
automatically renewable for successive one year terms if no formal notice
of termination has been provided.
From June 1, 1996 through March 31, 1997, Messrs. Press and Edelson
loaned the Company $58,218 and $47,018, respectively. These loans were
made to the Company in order to permit the Company to satisfy its operating
expenses in connection with, and in anticipation of, this Offering. These
loans bear interest at the rate of 12% per annum, with a balloon payment of
principal and accrued interest due by August 2, 1999. The Company intends
to repay these loans (Messrs. Press and Edelson have each agreed to waive
interest payments under these loans) with a portion of the proceeds
from this offering. In connection with their making these loans, the
Company issued to each of Messrs. Press and Edelson warrants to purchase
up to 142,500 shares of Common Stock. These warrants are exercisable
at any time on or prior to September 30, 2000, at an exercise price of
$1.50 per share.
From June 1, 1996 to March 31, 1997, Performance Capital Management
loaned the Company $21,000. This loan bears interest at the rate of 12%
per annum with a balloon payment of principal and accrued interest due by
August 2, 1999.
From June 1, 1996 to March 31, 1997, Tile's International ("Tiles"), a
company controlled by Steven Dreyer, loaned the Company $100,000, of which
approximately $81,321 was outstanding at March 31, 1997. This loan bears
interest at the rate of 13 1/2% per annum, requires monthly payments of
principal and interest and matures in November 1998. The Company intends
to satisfy $14,333.10 of this loan (which sum includes accrued and unpaid
interest) with a portion of the proceeds from this offering. In connection
with the loans made to the Company by Tiles, the Company issued to Tiles
warrants to purchase up to 5,625 shares of Common Stock. These warrants
are exercisable at any time prior to September 30, 2000, at an exercise
price of $1.50 per share.
In December 1996, the Company sold Maynard Hellman, a director of the
Company, in consideration for $100,000, warrants to purchase up to
1,000,000 shares of Common Stock of the Company. These warrants are
identical to the Warrants being offered hereby.
The Company will utilize $165,000 from this offering to redeem, at a
price of $5.50 per share, an aggregate of 30,000 shares of Common Stock
owned by Messrs. Press and Edelson. These shares were transferred and
assigned by Group to Messrs. Press and Edelson in January 1996 in
consideration for services performed by them on behalf of the Company.
Following the consummation of this offering, the Company will require
all agreements and arrangements involving it and the Underwriter,
Performance Capital Management or any other related party to be (i)
negotiated, to the extent possible, on an arm's-length basis, (ii) on
terms no more favorable to the party other than the Company thereto
than otherwise could be obtained from an unaffiliated party and (iii)
approved by a majority of the disinterested directors of the Company.
In addition, the Company has agreed that following the closing of the
Minimum Offering and the concurrent satisfaction by Group, on behalf
of Medley Refrigeration, of all receivables then outstanding from
Medley Refrigeration to the Company, the Company will not permit
receivables from affiliates to exceed, at any time, the lesser of 10%
------
of the Company's total assets or $500,000 in the aggregate.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 10,000,000 shares of Common Stock,
par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share. As of the date of this Prospectus, there were
1,680,000 shares of Common Stock issued and outstanding, and 2,958,817
shares of preferred stock issued and outstanding. All such preferred stock
is Convertible Preferred Stock, the only series of preferred stock to date
authorized for issuance by the Company's Board of Directors.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors then up for election.
The holders of Common Stock are entitled to receive ratably dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining which are available for distribution to them after payment
of liabilities and after provision has been made for each class of stock,
if any, having preference over the Common Stock. Holders of shares of
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Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are (and the shares
of Common Stock offered hereby, when issued in exchange for the
consideration set forth in this Prospectus, will be) fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue preferred stock in one or more series
with such designations, rights, preferences and restrictions as may be
determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock and, in certain instances, could
adversely affect the market price of such stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.
In June 1996, the Company authorized the first, and, to date, the only
series of preferred stock and issued an aggregate of 2,958,817 shares
designated as 10% Convertible Preferred Stock. The Convertible Preferred
Stock accrues dividends, payable quarterly (to the extent legally
sufficient funds are then available to the Company), at an annual rate of
$.10 per share. All regularly declared but unpaid dividends cumulate. If
the Company, for whatever reason, fails to pay the regular quarterly
dividend with respect to the Convertible Preferred Stock for four
consecutive quarters, the holders of the Convertible Preferred Stock,
voting separately as a class, shall be entitled to elect one designee to
the Company's Board of Directors. Holders of shares of Convertible
Preferred Stock are not otherwise entitled to vote on any matters affecting
the Company or its stockholders, except as may be required by law.
The Convertible Preferred Stock is entitled to a $1.00 per share
liquidation preference (together with all accrued and unpaid dividends)
over the Company's Common Stock in the event of dissolution of the Company.
After the satisfaction of all indebtedness of the Company, holders of
Convertible Preferred Stock would then receive any remaining assets in
priority to holders of the Company's Common Stock.
Holders of the Convertible Preferred Stock shall have the right,
effective at any time following the closing of the Minimum Offering, to
convert any or all of such holder's shares of Convertible Preferred Stock
into shares of Common Stock of the Company at the initial public offering
price for the Common Stock being offered hereby ($5.50 per share) less a
15% discount, or approximately $4.68 per share (the "conversion price").
The number of shares of Common Stock issuable upon conversion shall be
determined by dividing the aggregate liquidation value ($1.00 per share) of
all shares of Convertible Preferred Stock being converted (together with
the amount of all accrued and unpaid dividends with respect to such shares)
by the conversion price for such shares.
The Company has the unilateral right, commencing on [ ], 2001 (the
"anniversary date"), to redeem all or any shares of Convertible Preferred
Stock at the redemption price of $1.00 per share (together with the amount
of all accrued and unpaid dividends with respect to such shares) if the
average closing price for shares of the Company's Common Stock for the 20
consecutive trading days immediately preceding the anniversary date exceeds
the conversion price by 20% (approximately $5.62 per share).
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase, commencing one year following the date of
this Prospectus, one share of Common Stock at a price of $5.00, subject to
adjustment in certain circumstances, until 5:00 p.m., Eastern time, on [ ],
2002 (five years following the date of this Prospectus). The Warrants will
be separately transferable immediately upon issuance. The exercise price
for the Warrants has been set below the proposed initial public offering
price since purchasers of Warrants are bearing an economic risk because the
Warrants are not exercisable for the one year period from the date of this
Prospectus.
The Warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time after [ ], 1998 (one year following the date of
this Prospectus), upon notice of not less than 30 days at a price of
$.15 per Warrant, provided that the closing bid quotation of the Common
Stock on all 25 of the trading days ending on the third day prior to the
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day on which the Company gives notice of redemption has been at least
150% (currently $8.25, subject to adjustment) of the initial offering
price of the Common Stock offered hereby. The Warrant Holders shall
have the right to exercise their Warrants until the close of business on
the date fixed for redemption. The Warrants will be issued in registered
form under a warrant agreement by and among the Company, American
Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent"),
and the Underwriter (the "Warrant Agreement"). The exercise price and
number of shares of Common Stock issuable on exercise of the Warrants
are subject to adjustment in certain circumstances, including in the
event of a stock dividend, recapitalization, reorganization, merger or
consolidation of the Company. However, the Warrants are not subject to
adjustment for issuances of Common Stock at prices below the exercise
price of the Warrants. Reference is made to the Warrant Agreement
(which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part) for a complete description of the terms
and conditions of the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate
on or prior to the expiration date at the offices of the Warrant Agent,
with the exercise form on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by full payment of the
exercise price (by certified check or bank draft payable to the Company) to
the Warrant Agent for the number of Warrants being exercised. Warrant
Holders do not have the rights or privileges of holders of Common Stock
until their Warrants are exercised.
No Warrant will be exercisable unless at the time of exercise the
Company has filed a current registration statement with the Commission
covering the shares of Common Stock issuable upon exercise of such Warrant
and such shares have been registered or qualified or deemed to be exempt
from registration or qualification under the securities laws of the state
of residence of the holder of such Warrant. The Company will use its best
efforts to have all shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until
the expiration of the Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there can be no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based
on the market value of the Common Stock on the last trading day prior to
the exercise date.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The General Corporation Law of Delaware (the "DGCL") provides that a
corporation may limit the liability of each director to the corporation or
its stockholders for monetary damages except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper
personal benefit. The Company's certificate of incorporation provides for
the elimination and limitation of the personal liability of directors of
the Company for monetary damages to the fullest extent permitted by the
DGCL. In addition, the certificate of incorporation provides that if the
DGCL is amended to authorize the further elimination or limitation of the
liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligence or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. This provision
does not limit or eliminate the rights of the Company or any stockholder to
seek non-monetary relief such as an injunction or rescission in the event
of a breach of a director's duty of care. The certificate of incorporation
also provides that the Company shall, to the full extent permitted by the
DGCL, as amended from time to time, indemnify and advance expenses to each
of its currently acting and former directors, officers, employees and
agents.
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 Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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ANTI-TAKEOVER PROVISIONS
The Company is subject to certain anti-takeover provisions under Section
203 of the DGCL. In general, under Section 203, a Delaware corporation may
not engage in any business combination with any "interested stockholder" (a
person that owns, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation or is an affiliate of the corporation and
was the owner of 15% or more of the outstanding voting stock), for a period
of three years following the date such stockholder became an interested
stockholder, unless (i) prior to such date the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, or
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders by at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder. The
restrictions imposed by Section 203 will not apply to a corporation if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by this Section or the corporation by
action of its stockholders holding a majority of outstanding stock adopts
an amendment to its certificate of incorporation or by-laws expressly
electing not to be governed by Section 203.
The Company has not elected not to be governed by Section 203, and upon
consummation of this offering and the listing of the Common Stock and
Warrants on NASDAQ, the restrictions imposed by Section 203 will apply to
the Company. Such provision could have the effect of discouraging,
delaying or preventing a takeover of the Company, which could otherwise be
in the best interest of the Company's stockholders, and have an adverse
effect on the market price for the Company's Common Stock and/or Warrants.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
REPORTS TO SECURITYHOLDERS
The Company will furnish to its securityholders annual reports
containing audited financial statement and such unaudited interim reports
as it deems appropriate. Contemporaneously with the commencement of this
offering, the Company intends to register its Common Stock and Warrants
with the Commission pursuant to the provisions of Section 12(g) promulgated
under the Exchange Act. In accordance therewith, the Company will be
required to comply with certain reporting, proxy solicitation and other
requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,650,000
shares of Common Stock outstanding if the Minimum Offering is sold and
3,050,000 shares of Common Stock outstanding if the Maximum Offering is
sold, assuming no exercise of the Warrants, the Underwriter's Warrants or
any other outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock. At that
time, only the 1,000,000 shares being offered by the Company hereby in the
event the Minimum Offering is sold (the Selling Stockholder is offering
200,000 shares), and the 1,400,000 shares being offered by the Company
hereby in the event the Maximum Offering is sold (the Selling Stockholder
is offering 200,000 shares), will be freely tradable without restriction or
further registration under the Securities Act. The remaining 1,400,000
shares, in either instance, will be deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities
Act, in that such shares were issued and sold by the Company in private
transactions not involving a public offering and, as such, may, subject to
the contractual restrictions described below, only be sold pursuant to an
effective registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption
under the Securities Act, except for any shares purchased by an "affiliate"
of the Company (in general, a person who has a control relationship with
the Company), which shares will be subject to the resale limitations,
described below, of Rule 144 promulgated under the Securities Act. None of
such "restricted" securities will be eligible for sale under Rule 144 prior
to December 1997.
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In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate
of the Company (or persons whose shares are aggregated with an affiliate),
who has owned restricted shares of Common Stock beneficially for at least
one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class or, if the Common Stock is quoted on
NASDAQ, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of the Company
for at least three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
Group, which is controlled by Messrs. Press and Edelson, the President
and Chairman of the Board, respectively, of the Company, beneficially owns,
as of the date of this Prospectus, 1,500,000 shares of Common Stock of the
Company. Group is selling, as part of the Minimum Offering, 200,000 shares
of Common Stock. Upon the closing of the Minimum Offering, and Group's
concurrent receipt of the approximate $990,000 in net proceeds from the
sale of its 200,000 shares, Group will cause Medley Refrigeration to
satisfy, in their entirety, all receivables then outstanding from Medley
Refrigeration to the Company. Group has otherwise agreed not to sell or
dispose of any of its shares for a period of six months from the date of
this Prospectus without the prior written consent of the Underwriter. In
addition, each holder of Convertible Preferred Stock has agreed not to sell
or otherwise dispose of any shares of Common Stock issuable upon conversion
of such Convertible Preferred Stock for a period of six months from the
date of this Prospectus without the prior written consent of the
Underwriter.
Prior to this offering, there has been no market for the Common Stock or
Warrants and no prediction can be made as to the effect, if any, that
public sales of shares of Common Stock or the availability of such shares
for sale will have on the market prices of the Common Stock and the
Warrants prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and the
Warrants and could impair the Company's ability in the future to raise
additional capital through the sale of its equity securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriter has agreed to use its best efforts to offer a
minimum of 1,200,000 shares of Common Stock (1,000,000 of which will be
sold by the Company and 200,000 of which will be sold by the Selling
Stockholder) and 1,200,000 Warrants and a maximum of 1,600,000 shares of
Common Stock (1,400,000 of which will be sold by the Company and 200,000 of
which will be sold by the Selling Stockholder) and 1,600,000 Warrants to
the public. The first 1,200,000 shares of Common Stock (which includes the
200,000 shares being sold by the Selling Stockholder) and 1,200,000
Warrants will be offered on a "best efforts all-or-none" basis at a
purchase price of $5.50 per share of Common Stock and $.15 per Warrant. If
the first 1,200,000 shares of Common Stock and 1,200,000 Warrants are sold,
the offering will continue on a "best efforts" basis up to 1,600,000 shares
of Common Stock and 1,600,000 Warrants. The Underwriter has made no
commitment to purchase any of the Common Stock or Warrants offered hereby.
The Underwriter has agreed to use its best efforts to find purchasers for
the Common Stock and Warrants offered hereby within a period of 30 days
from the date of this Prospectus, subject to an extension by mutual
agreement for an additional period of 30 days. The Underwriter will
promptly send to each subscriber who subscribes to this offering a
confirmation of the subscriber's purchase of Common Stock and/or Warrants
with instructions to forward their funds to the Underwriter. Subscribers'
checks shall be made payable to the Escrow Agent and the Underwriter (and
Broker Dealers participating in this offering) will transmit subscribers'
checks directly to the Escrow Agent by noon of the next business day after
receipt. All proceeds raised in this offering will be deposited by the
Underwriter in an escrow account maintained at SunTrust Bank, South
Florida, N.A., the Escrow Agent for the Company. If the Minimum Offering
is not achieved and the offering is canceled, all subscriptions held in
the escrow account will be returned without interest or deduction.
The Common Stock and Warrants will be sold on a fully paid basis only.
Certificates representing shares of Common Stock and Warrants will be
issued to subscribers only if the proceeds from the sale of at least
1,200,000 shares of Common Stock and 1,200,000 Warrants are released to the
Company. Until such time as the funds have been released by the Escrow
Agent, such subscribers will not be deemed stockholders or warrantholders.
-37-
<PAGE>
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus. The Underwriter may allow to
certain Broker Dealers who are members of the NASD concessions, not in
excess of $.55 per share of Common Stock and $.015 per Warrant, of which
not in excess of $[ ] per share of Common Stock and $[ ] per Warrant may be
reallowed to other Broker Dealers who are members of the NASD.
The Company has agreed to pay to the Underwriter a nonaccountable
expense allowance of three percent of the gross proceeds of this offering,
of which $[ ] has been paid as of the date of this Prospectus. The Company
has also agreed to pay all expenses in connection with qualifying the
shares of Common Stock and Warrants offered hereby for sale under the laws
of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
Mr. Steven L. Edelson, Chairman of the Board of the Company, also serves
as a licensed securities principal of the Underwriter, responsible for the
day to day affairs and operations of the Underwriter. As such, the
Underwriter may be deemed to be an affiliate of the Company. As a
consequence of this affiliation, the Underwriter will provide a market
making prospectus in connection with its aftermarket transactions and this
offering is being conducted in accordance with the applicable provisions of
Section 2720 of the NASD Rules of Conduct. Accordingly, the initial public
offering prices for the Common Stock and Warrants offered hereby can be no
higher than that recommended by a "qualified independent underwriter"
meeting certain standards. The NASD requires that the "qualified
independent underwriter" (i) be an NASD member experienced in the
securities or investment banking business, (ii) not be an affiliate of the
issuer of the securities and (iii) agree to undertake the responsibilities
and liabilities of an underwriter under the Securities Act. In accordance
with this requirement, Lew Lieberbaum & Co., Inc. ("Lieberbaum") is serving
as qualified independent underwriter in this offering. Lieberbaum has
assumed the responsibilities of acting as qualified independent underwriter
in pricing the Offering, has performed due diligence with respect to the
information contained herein and has participated in preparing the
Registration Statement. In its role as qualified independent underwriter,
Lieberbaum will receive an aggregate fee from the Underwriter of $65,000,
$10,000 of which has been paid and $55,000 of which is to be paid upon
consummation of the Minimum Offering.
The Company has agreed to sell to the Underwriter (or its designee) for
an aggregate of $1,600, the Underwriter's Warrants, which Underwriter's
Warrants shall entitle the Underwriter to purchase up to 160,000 shares of
Common Stock (assuming the Maximum Offering is consummated) at an exercise
price of $6.60 per share. To the extent less than the Maximum Offering is
consummated, the Underwriter will receive one Underwriter's Warrant for
every ten shares of Common Stock sold in this offering. The Underwriter's
Warrants may not be sold, transferred, assigned or hypothecated for one
year from the date of this Prospectus, except to the officers and partners
of the Underwriter, and are exercisable during the four-year period
commencing one year from the date of this Prospectus (the "Warrant Exercise
Term"). During the Warrant Exercise Term, the holders of the Underwriter's
Warrants are given, at nominal cost, the opportunity to profit from a rise
in the market price of the Common Stock. To the extent that the
Underwriter's Warrants are exercised, dilution to the interests of the
Company's stockholders will occur. Further, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the Underwriter's Warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able
to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants or the shares of
Common Stock issuable upon exercise of such Underwriter's Warrants may be
deemed additional underwriting compensation. Subject to certain
limitations and exclusions, the Company has agreed, at the request of the
holders of a majority of the Underwriter's Warrants, at the Company's
expense, to register the Underwriter's Warrants and the shares of Common
Stock issuable upon exercise of such Underwriter's Warrants under the
Securities Act on one occasion during the Warrant Exercise Term and to
include the Underwriter's Warrants and all such underlying securities in an
appropriate registration statement which is filed by the Company during the
three years following the date of this Prospectus.
The Company has also agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year from the date of
this Prospectus), to pay to the Underwriter a fee of 5% of the exercise
price for each Warrant exercised; provided, however, that the Underwriter
will not be entitled to receive such compensation in Warrant exercise
transactions in which (i) the market price of the Common Stock at the time
of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretionary account; (iii) disclosure of
compensation arrangements is not made, in addition to the disclosure
provided in this Prospectus, in documents provided to holders of Warrants
at the time of exercise; (iv) the exercise of the Warrants is unsolicited;
-38-
<PAGE>
and (v) the solicitation of exercise of the Warrants was in violation of
Rule 10b-6 promulgated under the Exchange Act. Holders of Warrants will be
required to designate in writing that they were solicited in order for the
5% exercise fee to be payable to the Underwriter.
Performance Capital Management, an entity controlled by Messrs. Press
and Edelson, is party to a five year management agreement with the
Underwriter, expiring in April 2001, pursuant to which, among other things,
Performance Capital Management, in consideration for $200,000 per year,
designates a representative to serve as the licensed securities principal
of the Underwriter, responsible for supervising the day to day operations
and affairs of the Underwriter. Mr. Edelson has been designated by
Performance Capital Management to serve as such licensed securities
principal of the Underwriter.
The Company's officers and directors, beneficially owning 2,556,503
shares of Common Stock as of the date of this Prospectus, have agreed not
to sell or otherwise dispose of any securities of the Company beneficially
owned by them for a period of six months from the date of this Prospectus,
without the prior written consent of the Underwriter.
Each investor must purchase a minimum of 100 shares of Common Stock
and/or 100 Warrants in this offering. Any larger number of shares and/or
Warrants must be purchased in 100 share and/or Warrant increments.
The Company has agreed to indemnify the Underwriter and Lieberbaum
against certain civil liabilities, including liabilities under the
Securities Act.
Prior to this offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering
prices of the Common Stock and Warrants and the exercise price of the
Warrants have been determined by negotiations between the Company and the
Underwriter, with the guidance of Lieberbaum, and do not bear any
relationship to the Company's book value, assets, past operating results or
financial condition or to any other established criteria of value.
It is anticipated that the Common Stock and Warrants will be listed on
NASDAQ under the proposed symbols "MCAC" and "MCACW," respectively. These
listings will not be effective, however, until the consummation of the
Minimum Offering. The Underwriter may act as a market maker with respect
to the Common Stock and Warrants.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Reid & Priest LLP, New York, New York. David R. Hardy,
Esq., a partner of Reid & Priest LLP, is the beneficial owner of 34,095
shares of common stock of Group, 40,000 shares of preferred stock of
Group and warrants to purchase up to an additional 10,000 shares of common
stock of Group. Siegel, Lipman, Dunay & Shepard, LLP, Boca Raton, has
acted as counsel for the Underwriter in connection with this offering.
-39-
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1996 and for
the year ended December 31, 1996, included in this Prospectus and elsewhere
in the Registration Statement have been audited by Daszkal, Bolton &
Manela, independent certified public accountants ("Daszkal, Bolton"), as
indicated by its report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
The statement of operations, cash flow and stockholders' equity of the
Company for the year ended December 31, 1995 included in this Prospectus
and elsewhere in the Registration Statement has been audited by Israeloff,
Trattner & Co., independent certified public accountants ("Israeloff,
Trattner"), as indicated by its report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
During January 1997, Israeloff, Trattner resigned as independent
certified public accountants for the Company. Concurrently therewith,
Daszkal, Bolton was retained by the Company to serve as its independent
certified public accountants. Israeloff, Trattner's report with respect to
the Company's Fiscal 1995 financial statements contained a statement,
generally, that the Company's financial situation raises substantial doubt
about the Company's ability to continue as a going concern. The Board of
Directors of the Company unanimously accepted Israeloff, Trattner's
resignation and Daszkal, Bolton's retention. There were no disagreements
between the Company and Israeloff, Trattner on any matter of accounting
principles or practices, financial statement disclosure or auditing scope
or procedure.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (the "Registration Statement") under the Securities Act with
respect to the securities offered by this Prospectus. This Prospectus,
filed as part of such Registration Statement, does not contain all of the
information set forth in, or annexed as exhibits to, the Registration
Statement, certain parts of which are omitted in accordance with the rules
and regulations of the Commission. For further information with respect to
the Company and this offering, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be inspected
without charge at the office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, New
York, New York 10048. Copies of the Registration Statement may be obtained
from the Commission at its principal office upon payment of prescribed
fees. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to
the applicable document filed with the Commission.
-40-
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
I. Fiscal 1996:
-----------
Independent Auditors' Report . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1996
and unaudited at March 31, 1997. . . . . . . . . . . . F-3
Statements of Operations for the year
ended December 31, 1996 and unaudited for
the three months ended March 31, 1997 and 1996 . . . . F-5
Statements of Stockholders' Equity for the
year ended December 31, 1996 and unaudited for
the three months ended March 31, 1997. . . . . . . . . F-6
Statements of Cash Flows for the year ended
December 31, 1996 and unaudited for the three
months ended March 31, 1997 and 1996 . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . F-9
II. Fiscal 1995:
-----------
Independent Auditors' Report . . . . . . . . . . . . F-19
Statement of Operations for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . F-20
Statement of Shareholders' Deficit for the
year ended December 31, 1995 . . . . . . . . . . . . . F-21
Statements of Cash Flows for the year
ended December 31, 1995 . . . . . . . . . . . . . . . F-22
Notes to Financial Statements . . . . . . . . . . . . F-23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Medley Credit Acceptance Corp.:
We have audited the accompanying balance sheet of
Medley Credit Acceptance Corp. as of December 31, 1996, and the
related statement of income, stockholder's equity, and cash flows
from the year then ended. These financial statements are the
responsibility of the management of Medley Credit Acceptance
Corp. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating 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 Medley Credit Acceptance Corp. as of December 31,
1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company experienced a loss from operations in 1996, has
substantial working capital deficiency at December 31, 1996, and
is in arrears on its preferred stock dividends. These matters
raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 1. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result
from the resolution of these uncertainties.
Boca Raton, Florida
March 31, 1997
/s/ Daszkal, Bolton & Manela
DASZKAL, BOLTON & MANELA
F-2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
------------ --------
(UNAUDITED)
CURRENT ASSETS
Cash $ - $ 19,466
Accounts receivable, net of
allowance for doubtful
accounts of $3,000 73,727 141,774
Notes receivable 29,816 30,491
Due from affiliates 585,288 412,601
Prepaid offering costs 73,015 128,488
-------- --------
Total Current Assets 761,846 732,820
-------- --------
RENTAL EQUIPMENT, AT COST, NET OF 234,619 272,002
ACCUMULATED DEPRECIATION -------- --------
PROPERTY AND EQUIPMENT, AT COST, 19,154 16,654
NET OF ACCUMULATED DEPRECIATION -------- --------
OTHER ASSETS
Investments - 39,075
Due from affiliates 711,837 711,837
Rental equipment not in service 65,565 65,565
Security deposits 1,799 1,799
-------- --------
Total Other Assets 779,201 818,276
-------- --------
TOTAL ASSETS $1,794,820 $1,839,752
========== ==========
<?R>
See accompanying notes to financial statements.
F-3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES DECEMBER 31, MARCH 31,
1996 1997
----------- ---------
(UNAUDITED)
Notes Payable $210,000 $150,000
Current portion of long-term debt 250,937 212,525
Current portion of obligations
to finance companies 91,027 83,003
Accounts payable and accrued
expenses 172,534 162,960
Dividends payable - preferred 127,668 201,638
stock ---------- ----------
Total Current Liabilities 852,166 810,126
---------- ----------
OTHER LIABILITIES
Long-term debt, net of current
portion 167,286 306,088
Obligations to finance companies,
net of current portion 100,996 78,123
Notes payable - officers 105,236 105,236
Customer deposits 7,115 12,115
---------- ----------
Total Other Liabilities 380,633 501,562
---------- ----------
Total Liabilities 1,232,799 1,311,688
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
5,000,000 authorized,
2,958,817 shares issued and
outstanding 29,588 29,588
Common stock, .01 par value,
10,000,000 authorized,
1,680,000 shares issued and
outstanding 16,800 16,800
Additional paid-in capital 2,157,899 2,157,899
Accumulated deficit (1,642,266) (1,676,223)
---------- ----------
Total Stockholder's Equity 562,021 528,064
---------- ----------
TOTAL LIABILITIES AND $1,794,820 $1,839,752
STOCKHOLDERS' EQUITY ========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------- ------------------
1996 1997 1996
---- ---- ----
REVENUES $356,235 $94,158 $118,812
-------- -------- --------
COST AND EXPENSES
Depreciation 95,483 17,000 23,870
Interest expense 146,914 9,643 41,092
Loss on sale of leased
equipment 35,687 - -
General and administrative 282,855 65,851 47,463
expenses -------- -------- --------
Total Costs and 560,939 92,494 112,425
Expenses -------- -------- --------
Income (Loss) From (204,704) 1,664 6,387
Operations -------- -------- --------
OTHER INCOME (EXPENSES)
Interest income 93,064 45,005 30,636
Loss on sale of securities - (6,656) -
Reversal of estimate for
uncollectible advances to
affiliate 600,000 - -
Gain on sale of leased - - 12,828
equipment -------- -------- --------
Total Other Income 693,064 38,349 43,464
-------- -------- --------
NET INCOME $488,360 $40,013 $49,851
======== ======== ========
NET INCOME (LOSS) APPLICABLE TO $255,638 $(33,957) $(3,570)
COMMON SHAREHOLDERS ------- -------- --------
NET INCOME (LOSS) PER COMMON $.15 $(.02) $ -
SHARE ==== ===== ====
WEIGHTED AVERAGE NUMBER OF SHARES 1,680,000 1,680,000 1,120,000
OUTSTANDING ========= ========= =========
PROFORMA INFORMATION ASSUMING
CONVERSION OF PREFERRED STOCK
TO COMMON SHARES
NET INCOME PER COMMON SHARE $ .07 $ .01 $ -
========= ======== =======
WEIGHTED AVERAGE NUMBER OF SHARES 3,414,758 3,414,758 -
OUTSTANDING ========= ========= =======
See accompanying notes to financial statements.
F-5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
PREFERRED STOCK COMMON STOCK
--------------- ------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
BALANCE, AT JANUARY 1, 1996 1,643,700 $ 16,437 1,000 $200,000
RECLASSIFICATION OF S-CORP
UNDISTRIBUTED EARNINGS - - - -
RESTATEMENT OF COMMON STOCK - - - (199,990)
PAR VALUE ---------- -------- ------- -------
BEGINNING BALANCE AS RESTATED 1,643,700 $ 16,437 1,000 10
ISSUANCE OF PREFERRED STOCK FOR
EXTINGUISHMENT OF DEBT 1,300,117 13,001 - -
ISSUANCE OF PREFERRED STOCK 15,000 150 - -
STOCK SPLIT - 1,120 TO 1 - - 1,119,000 11,190
ISSUANCE OF WARRANTS - - - -
STOCK SPLIT - 3 TO 2 - - 560,000 5,600
PREFERRED STOCK DIVIDENDS - - - -
NET INCOME - - - -
---------- -------- -------- ------
BALANCE AT DECEMBER 31, 1996 2,958,817 $ 29,588 1,680,000 $16,800
NET INCOME, MARCH 31, 1997
(UNAUDITED) - - - -
PREFERRED STOCK DIVIDENDS - - - -
(UNAUDITED) --------- ------- --------- ------
BALANCE, MARCH 31, 1997 2,958,817 $29,588 1,680,000 $16,800
(UNAUDITED) ========= ======= ========= =======
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------- ------- -----
BALANCE, AT JANUARY 1, 1996 $ 979,146 $(1,793,044) $(597,461)
RECLASSIFICATION OF S-CORP
UNDISTRIBUTED EARNINGS 104,860 (104,860) -
RESTATEMENT OF COMMON STOCK 199,990 - -
PAR VALUE --------- ---------- --------
BEGINNING BALANCE AS RESTATED 1,283,996 (1,897,904) (597,461)
ISSUANCE OF PREFERRED STOCK
FOR EXTINGUISHMENT OF DEBT 775,843 - 788,844
ISSUANCE OF PREFERRED STOCK 14,850 - 15,000
STOCK SPLIT - 1,120 TO 1 (11,190) - -
ISSUANCE OF WARRANTS 100,000 - 100,000
STOCK SPLIT - 3 TO 2 (5,600) - -
PREFERRED STOCK DIVIDENDS - (232,722) (232,722)
NET INCOME - 488,360 488,360
---------- ---------- ---------
BALANCE AT DECEMBER 31, 1996 $2,157,899 $(1,642,266) $562,021
NET INCOME, MARCH 31, 1997
(UNAUDITED) - 40,013 40,013
PREFERRED STOCK DIVIDENDS - (73,970) 73,970
(UNAUDITED) ---------- ----------- --------
BALANCE, MARCH 31, 1997 $2,157,899 $(1,676,223) $528,064
(UNAUDITED) ========== =========== ========
See accompanying notes to financial statements.
F-6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------ ------------------
CASH FLOWS FROM OPERATING 1996 1997 1996
ACTIVITIES ---- ---- ----
Net income $488,360
--------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 95,483
Reversal of estimate
for uncollectible
advances
to affiliate (600,000)
Loss on sale of leased
equipment 35,687
Changes in assets and
liabilities:
Accounts (43,907)
receivable
Prepaid expenses (65,423)
Accounts payable 130,118
and accrued
expenses
Customer deposits (20,229)
-------- ------- ------
Total Adjustments (468,271)
-------- ------- ------
Net cash (used) provided by 20,089 (64,425) 55,241
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Net receipts from 42,083 120,158 26,041
affiliates
Purchase of securities - (75,010) -
Proceeds from sale of - 29,250 -
securities
Purchase of rental (111,544) - -
equipment -------- -------- ------
Proceeds from sale of 60,343
leased equipment -------- -------- ------
Net cash (used) provided (69,461) 74,398 86,384
by investing activities -------- ------- ------
CASH FLOWS FROM FINANCING
ACTIVITIES
Short-term borrowings 10,000 - -
Proceeds from long-term 276,000 115,000 -
debt
Repayments of short-term (145,000)
borrowings
Repayments of long-term (216,577) (45,507) (94,953)
debt and obligations
to finance companies
Payment of preferred stock (105,054) - (40,721)
dividends
Net proceeds from 111,200 - -
shareholders loans
Issuance of preferred stock 15,000 - -
Issuance of warrants 100,000 - -
Repayments of notes payable - (60,000) -
------- -------- -------
Net cash provided (used) by 45,569 9,493 (135,674)
financing activities ------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (3,803) 19,466 5,951
CASH AND EQUIVALENTS - 3,803 - 3,803
BEGINNING OF YEAR ------- ------- -------
CASH AND EQUIVALENTS - END $ - $19,466 $9,754
OF YEAR ======= ======= ======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION: $59,628 $20,657 $41,092
======= ======= =======
Interest paid
See accompanying notes to financial statements.
F-7
<PAGE>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------ -------------------
1996 1997 1996
---- ---- ----
SUPPLEMENTAL NONCASH
INVESTING AND FINANCIAL
ACTIVITIES:
Long-term debt and $ 788,844 $ - $ -
related accrued
interest
converted into
convertible preferred
stock
Leased equipment
received from affiliate
company as payments on - 51,883 -
intercompany receivable ========= ======== =======
$ 788,844 $ 51,883 $ -
========= ======== =======
See accompanying notes to financial statements.
F-8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Medley Credit Acceptance Corp. ("the Company"), a Delaware
corporation, is a majority-owned subsidiary of Medley Group, Inc.
The Company is a specialty finance company operating in Florida
and engaged primarily in the leasing of dry cleaning equipment.
In addition, the Company has provided financing arrangements on
certain refrigeration equipment sold or leased by Medley
Refrigeration, Inc., an affiliated company.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
experienced a loss from operations in 1996, has substantial
working capital deficiency at December 31, 1996, and is in
arrears on its preferred stock dividends. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue in existence as
a going concern is dependent upon its ability to attain
profitable operations and to obtain equity and/or debt financing.
Management plans to rely, to a substantial extent, on the
Company's ability to successfully complete a proposed initial
public offering.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates include those related to valuation of
amounts due from affiliates and the net realizable value of
rental equipment not in service. It is at least reasonably
possible that the significant estimates used will change within
the next year.
Financial Instruments
---------------------
The Company's financial instruments include cash, receivables,
payables, and notes payable - bank for which carrying amounts
approximate fair value. Related party receivables, payables and
the long term debt amounts approximate fair value.
Revenue Recognition
-------------------
The Company leases equipment to others under non-cancelable
operating leases, whereby revenue is recognized as lease payments
are due from customers and the related costs are depreciated
using the straight-line method over the rental equipment's
expected life. Dry cleaning and refrigeration equipment is not
generally subject to obsolescence, however, the Company
periodically evaluates the realizable value of such assets to
determine whether any impairment has occurred in the value based
on the provisions of Statement of Financial Accounting Standards
F-9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
Revenue Recognition (cont.)
---------------------------
No. 121, "Accounting for the Impairment of Long-Lived Assets".
In the opinion of the Company, though not assured, the estimated
residual value will be realized.
Property, Equipment and Depreciation
------------------------------------
Property and equipment are stated at cost. Major expenditures
for property and those which substantially increase useful lives
are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired or otherwise
disposed of, their costs and related accumulated depreciation are
removed from the accounts and resulting gains or losses are
included in income. Depreciation is provided by the straight-
line method over the estimated useful lives of the assets.
Income Taxes
------------
Income taxes have been provided using the asset and liability
method in accordance with Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
NOTE 2 - DUE FROM AFFILIATES
Due from affiliates resulted principally from interest bearing
advances with no definitive due date. As security, the
affiliated companies have assigned various operating leases to
the Company whereby all lease payments are received from the
lessee by the Company and credited against the amount due from
the related affiliates. Management believes that the future
lease payments will be sufficient to satisfy the obligations from
the affiliated Companies.
NOTE 3 - RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following:
(Unaudited)
(Unaudited) March 31,
March 31, December 31, 1997
1997 1996 ----------
---------- ----------- Not
In Service In Service In Service
---------- ---------- ---------
Equipment, at cost $517,258 $465,375 $562,140
Less, accumulated
depreciation 245,256 230,756 496,575
-------- -------- --------
Net Rental Equipment $272,002 $234,619 $ 65,565
======== ======== ========
December 31, (Unaudited) December
1996 March 31, 31,
----------- 1997 1996
Not ---------- --------
In Service Total Total
---------- ---------- --------
Equipment, at cost $562,140 $1,079,398 $1,027,515
Less, accumulated depreciation 496,575 741,831 727,331
------- -------- -------
Net Rental Equipment $65,565 $337,567 $300,184
======= ======== ========
The depreciation expense on rental equipement for the three months
ended March 31, 1997 and the year ended December 31, 1996 was
$14,500 and $85,415, respectively.
F-10
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RENTAL EQUIPMENT AND DEPRECIATION (CONT.)
Rents receivable under non-cancelable operating lease commitments
for the next five years are as follows:
1997 $120,653
1998 92,118
1999 80,448
2000 22,968
2001 -
--------
$316,187
--------
NOTE 4 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following:
(UNAUDITED) DECEMBER
MARCH 31, 31,
1997 1996
--------- --------
Office equipment . . . . . . . $48,571 $48,571
Automobile . . . . . . . . . . 6,955 6,955
------- -------
55,526 55,526
Less: Accumulated depreciation 38,872 36,372
------- -------
Net property and Equipment $16,654 $19,154
======= =======
Depreciation expense on property and equipment for the three
months ended March 31, 1997 and the year ended December 31, 1996
was $2,500 and $10,068, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable of $150,000 at March 31, 1997 and $210,000 at
December 31, 1996 are comprised of the following:
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 March 31, 1997 and December 31, 1996, the
amount outstanding was $135,000 and $195,000, respectively.
Borrowings are due on demand, with interest payable monthly at
prime (9.5% at December 31, 1996) plus 2%. Borrowings under the
note are collateralized by certain of the Company assets not
otherwise pledged and the debt is personally guaranteed by the
Company's principal officers and Medley Group, Inc.
F-11
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (CONT.)
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 6 - LONG-TERM DEBT
The Company has received funds from individuals and issued notes
for these loans. In June 1996, the Company offered to convert
these individual notes to 10% convertible preferred stock at a
conversion ratio of approximately 1.03 shares to $1.00 of debt.
Certain note holders elected to convert their debt, amounting to
$765,657, and $23,187 of accrued interest to the convertible
preferred stock.
At March 31, 1997 and December 31, 1996, the Company remained
obligated to various individuals, not electing to convert their
debt, for amounts aggregating $518,613 and $418,223,
respectively. These notes are for various amounts and maturities
through January 1999. Interest is payable at rates ranging from
10% to 13.5% per annum. The unsecured portion of these notes at
March 31, 1997 and December 31, 1996 is $473,223 and $358,223,
respectively.
As of December 31, 1996, annual maturities of long-term debt
(excluding converted notes) are as follows:
1997 $ 250,937
1998 97,286
1999 70,000
---------
Total $ 418,223
=========
F-12
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and
related rental agreements, consist of the following at:
(unaudited) December
March 31, 31,
1997 1996
--------- --------
18.7% obligation, payable in monthly
installments of $2,260, including
interest, through April 1998 . . . . $28,014 $ 33,527
23.6% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 33,249 40,341
21.2% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 50,229 62,223
18.3% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 21,827 26,678
21.4% obligation, payable in monthly
installments of $996, including
interest, through June 2000 . . . . . 27,807 29,254
-------- --------
161,126 192,023
Less: Current maturities . . . . . . 83,003 91,027
-------- --------
Long-Term Obligations . . . . . $78,123 $100,996
======== ========
F-13
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - OBLIGATIONS TO FINANCE COMPANIES (CONT.)
As of December 31, 1996, the annual maturities of obligations to
finance companies for the next five years are as follows:
1997 $ 91,027
1998 58,666
1999 36,626
2000 5,704
2001 -
---------
$ 192,023
=========
NOTE 8 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has declared dividends on its preferred stock;
however, it is in arrears on the 10% dividends for the last two
quarters of the year. The majority of the unpaid preferred stock
dividends are due the Company officers. The Company has accrued
$73,970 of dividends on its preferred stock at March 31, 1997.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has transactions with related companies whose
ownership is substantially the same as that of the Company.
Included in the statements of operations are the following items
of income and expense for the year ended December 31, 1996:
Rental revenues . . . . . . $ 92,144
General and administrative
expenses - allocated . . . . $(18,000)
Management expense . . . . . $(15,000)
Included in the balance sheet at December 31, 1996 are the
following assets:
Due from affiliates $1,297,125
The balance due from affiliates results principally from advances
with interest at 10% per annum with no definite due date.
The Company has reversed its $600,000 previous estimated
allowance for uncollectible advances due from an affiliated
company. This was effected, as the Company received in December
1996, an assignment of leases. In January 1997, approximately
$200,000 was received as payment against the receivable. As a
result of the above transactions, management feels no allowance
for collectability of the affiliated Company receivable is
required as the future collection of cash by Medley Credit
Acceptance Corporation from the assigned leases will be
sufficient to pay the obligation.
F-14
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS (CONT.)
Included in long-term debt is a $10,000 note due to a company
owned by one of the stockholders.
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock - Stock Splits
---------------------------
On June 30, 1996, the Company declared a 1,120 to 1 stock split,
which increased the issued and outstanding shares from 1,000 to
1,120,000 shares. On December 31, 1996, the Company declared a 3
for 2 stock split, which increased the issued and outstanding
shares to 1,680,000 shares. Per share amounts in the
accompanying financial statements have been adjusted for the
stock splits.
Preferred Stock - Exchange for Debt
-----------------------------------
In June 1996, the Company offered to certain note holders the
option to exchange their notes, approximating $972,000, to
convertible preferred stock of Medley Credit Acceptance Corp. at
a ratio of approximately 1.03 shares to $1.00. Note holders
elected to convert $788,844 of notes and accrued interest to
convertible preferred stock. Dividends on the preferred stock
are payable quarterly and are cumulative. The preferred stock is
convertible to common stock of the Company at a 15% discount to
the public offering price of $5.50.
Under the terms of the convertible preferred stock issue, the
Company may redeem the stock commencing on or after the fifth
anniversary of its issuance if the average trading price of the
common stock, if any, in the 20 trading days immediately
preceding such anniversary, exceeds the conversion price by 20%.
At anytime thereafter, the Company has the right to redeem the
convertible preferred stock, in whole or in part, upon 30 days
notice to the holders. The Company will be obligated to commence
a preferred stock redemption sinking fund if the public offering
of the Company's stock has not occurred within one year of the
date of the issuance of the convertible preferred stock.
Commencing 18 months after issuance of the convertible preferred
stock and annually thereafter, the Company will offer to redeem
25% of the shares.
Warrants Issued
---------------
During December 1996, the Company sold 1,000,000 warrants at $.10
each. Each warrant is exercisable for the purchase of one share
of common stock at a price of $5.00 per share for a period of
four years commencing one year after the effective date of the
Company's registration statement filing.
NOTE 11 - RECLASSIFICATION
The common stock par value in the 1996 financial statements has
been reclassified to the proper par value amount of $.01 per
share. The resultant reclassification has increased additional
paid in capital by $199,990 and reduced common stock by a
corresponding amount.
At the time the Company changed its status from a S-Corporation
to C-Corporation, there was $104,860 of undistributed S-
Corporation earnings which has been reclassified from retained
earnings to additional paid-in capital. This treatment assumes a
constructive distribution to the owners followed by a
contribution to paid-in capital.
F-15
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
----------------
In 1992, an affiliate of the Company entered into a lease for the
premises which is currently occupied by Medley Group and
subsidiaries. This lease expires October 1997. The lease
requires a minimum annual base rent of $25,000 plus real estate
taxes and operating costs. Medley Credit Acceptance Corp. has
included in the statement of operations its allocated portion of
$18,000 as an expense.
In addition, the Company rents warehouse space on a month-to-
month basis for storage purposes at a cost of approximately $700
per month.
Management Agreement
--------------------
The Company entered into a management agreement with a related
company for management services at a fee of $90,000 per annum
effective January 1, 1994. The related company has agreed to
modify this agreement to $15,000 per annum for 1996. This
management agreement expired December 1, 1996 but carries an
automatic annual renewal commencing on that date.
Litigation
----------
The Company is involved in litigation in the normal course of
business. None of the legal actions are expected to have a
material effect on the Company's results of operations or
financial condition.
NOTE 13 - 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 is as follows:
(Unaudited)
March 31, December 31,
1997 1996
---------- --------
Deferred Income Tax
Expense:
Federal $42,400 $166,000
State 8,666 29,300
Less Valuation Allowance (51,000) (195,300)
-------- --------
Deferred Income Tax $ $
======== ========
At March 31, 1997 and December 31, 1996, the Company has an
unused net operating loss carryforward of approximately $368,000
and $408,000, respectively, 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
F-16
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - INCOME TAXES (CONT.)
loss carryforward is presented in the following table. The tax
amounts have been calculated using a 40% combined effective tax
rate.
(Unaudited)
March 31, December 31,
1997 1996
---------- -----------
Deferred Tax Asset:
Tax Benefit of Net $147,200 $163,200
Operating Loss
Les: Valuation Allowance (147,200) (163,200)
-------- --------
Deferred Tax Asset $ $
-------- --------
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
(Unaudited)
March 31, December 31,
1997 1996
-------- ------------
Benefit of Federal (32%) (34)%
Statutory Rate
Benefit at State Income (5)% (6)%
Tax Rate ---- ----
(37)% (40)%
---- ----
NOTE 14 - DEPENDENCE ON AFFILIATES AND OTHERS
The Company has relied primarily on the customer relationships
generated by its affiliates for a significant source of its
business. In addition, the Company has outstanding receivable
balances from the affiliates of $1,297,125. The future
operations of Medley Credit is therefore dependent upon these
affiliates.
NOTE 15 - PROPOSED PUBLIC OFFERING
The Company has signed a Letter of Intent with an underwriter to
complete an initial public offering for a minimum of 1,200,000
shares of common stock (of which the Company is offering 1,000,000
shares and the Selling Stockholder is offering 200,000 shares) and
1,200,000 warrants and a maximum of 1,600,000 shares of common
stock (of which the Company is offering 1,400,000 shares and the
Selling Stockholder is offering 200,000 shares) and 1,600,000
warrants. The stock to be issued consists of $.01 par value common
stock at $5.50 per share. The warrants to be issued consist of one
redeemable warrant to purchase one share of common stock. The
warrants will be issued at $.15 each and entitles the registered
holder to purchase one share of common stock at a price of $5.00.
The common shares of stock and the warrants may be purchased
separately and will be separately transferrable. Professional
fees incurred through December 31, 1996, in connection with the
proposed offering, have been recorded as prepaid offering costs
in the amount of $73,015 and will be charged to additional paid-
in capital upon completion of the offering or will be charged to
expense, if the offering is not completed.
F-17
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - SUBSEQUENT EVENTS
Line of Credit Expiration
-------------------------
The Company's line of credit, described in Note 5, expired
January 29, 1997. Subsequent to January 29, 1997 an additional
payment of $55,000 was made to the bank and the note was
extended.
Stock Option Plan
-----------------
On January 9, 1997, the Company adopted a stock option plan (the
"Stock Option Plan"). The Stock Option Plan has 500,000 shares
of Common Stock reserved for issuance upon the exercise of
options designated as either (i) incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended, or (ii) non-
qualified options. ISOs may be granted under the Stock Option
Plan to employees and officers of the Company. Non-qualified
options may be granted to consultants, directors (whether or not
they are employees), employees or officers of the Company. In
certain circumstances, the exercise of stock options may have an
adverse effect on the market price of the Company's Common Stock
and/or Warrants. No options have been granted under the Stock
Option Plan.
Employment Agreements
---------------------
The Company entered into employment agreements on January 9, 1997
with its President and Chairman in the amounts of $60,000 and
$30,000, respectively, which will begin to accrue upon
consummation of the public offering described in Note 15. The
agreements are effective for a period of one year. The
Agreements are automatically renewable by the Company on an
annual basis.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders of
Medley Credit Acceptance Corp.
We have audited the accompanying statements of operations,
shareholders' deficit and cash flows for the year ended December
31, 1995. 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 financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Medley Credit Acceptance Corp. for
the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company experienced a
substantial loss in 1995, has substantial working capital
deficiency and shareholders' deficit at December 31, 1995, and in
addition, there is substantial uncertainty concerning the
collectibility of amounts due from affiliates. These matters
raise substantial doubt about the Company's ability to continue
as a going concern, which in turn raise uncertainty about the
carrying value of its rental equipment. Management's plans in
regard to these matters are also described in Note 1. The
accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities
that might result from the resolution of these uncertainties.
Valley Stream, New York
September 13, 1996, except for
notes 3, 5 and 8, as to which the date is
December 6, 1996.
/s/ Israeloff, Tratner & Co. P.C.
ISRAELOFF, TRATTNER & CO. P.C.
F-19
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenues (Note 1) $388,008
Costs and Expenses
Depreciation (Notes 1 and 2) $151,914
Interest expense 160,040
Repairs and disposition losses on 74,577
rental equipment
Write-down of rental equipment not 87,456
in service (Note 2)
General and administrative expenses 210,628
--------
Total costs and expenses 684,615
--------
Loss before other expense (296,607)
Other expense - provision for
uncollectible advances 600,000
to affiliates (Note 4) --------
Net loss (896,607)
Preferred dividends (205,447)
--------
Net loss applicable to common $(1,102,054)
shareholders ==========
Net loss per common share (Note 1) $ (.98)
==========
Weighted average number of shares 1,120,000
outstanding ==========
See accompanying notes to financial statements.
F-20
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
Preferred Shares Common Shares
Number Amount Number Amount
------ ------ ------ ------
Balance - beginning of
year as previously
reported 1,643,726 $16,437 1,000 $200,000
Prior period - - - -
adjustment (Note 7) --------- -------- ----- ------
Balance, beginning of
year as restated 1,643,726 16,437 1,000 200,000
Net loss - - - -
- - - -
Preferred dividends --------- ------- ------ -----
Balance - December 1,643,726 $16,437 1,000 $200,000
31, 1995 ========= ======= ===== =======
Additional
Paid-In Accumulated
Capital Deficit Total
---------- ---------- -----
Balance - beginning of
year as previously
reported $979,146 $(369,183) $826,400
Prior period
adjustment - (321,807) (321,807)
(Note 7) -------- -------- ---------
Balance, beginning of
year as restated 979,146 (690,990) 504,593
Net loss - (896,607) (896,607)
- (205,447) (205,447)
Preferred dividends -------- ----------- --------
Balance - December 31, $979,146 $(1,793,044) $(597,461)
1995 ======== =========== =========
See notes to accompanying financial statements.
F-21
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(896,607)
Adjustments to reconcile net loss
to net cash provided
by operating activities;
Depreciation $151,914
Provision for uncollectible
advances to affiliates 600,000
Write-down of rental
equipment not in service 87,456
Changes in assets and
liabilities:
Accounts receivable (29,820)
Prepaid expenses 140,905
Accounts payable 12,396
Customer deposits (17,775)
--------
Total adjustments 945,076
-------
Net cash provided by 48,469
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliates (276,949)
Increase in security deposits (719)
--------
Net cash used by investing (277,668)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank borrowings 196,735
Proceeds from long-term debt 389,506
Repayments of long-term debt (313,022)
Dividends paid (205,447)
--------
Net cash provided by
financing activities 67,772
--------
NET DECREASE IN CASH (161,427)
CASH - beginning 165,230
--------
CASH - end $ 3,803
========
See accompanying notes to financial statements.
F-22
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Medley Credit Acceptance Corp. (the "Company"), a Delaware
Corporation, is a wholly-owned subsidiary of Medley Group,
Inc. ("Medley"). The Company is engaged in the leasing of
dry cleaning equipment, principally in Florida.
The financial statements have been prepared on a going
concern basis which contemplates realization of assets and
satisfaction of liabilities in the ordinary course of
business. However, the Company incurred a net loss of
$896,607 for the year ended December 31, 1995, and as of that
date, it has a working capital deficiency of $664,021 and a
shareholders' deficit of $597,461. These conditions raise
substantial doubt about the Company's ability to continue as
a going concern. The Company's ability to continue in
existence as a going concern, is dependent upon its ability
to attain profitable operations and to obtain equity and/or
debt financing. Management plans to rely, to a substantial
extent, on the Company's ability to successfully complete a
proposed initial public offering (Note 8), and also upon the
collectibility of amounts advanced to affiliates (Note 4).
The Company believes the above plan will permit it to
continue operations. However, there can be no assurance that
the Company will be successful in raising additional capital
or in achieving profitable operations. The financial
statements do not include any adjustments that might result
from this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates include
those related to valuation of amounts due from affiliates and
the net realizable value of rental equipment. It is at least
reasonably possible that the significant estimates used will
change within the next year.
REVENUE RECOGNITION
The Company recognizes revenue from its leased equipment as
earned under operating lease agreements. Rental equipment is
stated at cost using the specific identification method.
When assets are sold or otherwise disposed of, their cost and
related accumulated depreciation are removed from the
accounts and resulting gains or losses are included in
income. Depreciation is provided by the straight-line method
over the estimated useful life of the assets, 7 years.
F-23
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Major
expenditures for property and those which substantially
increase useful lives are capitalized. Maintenance, repairs,
and minor renewals are expensed as incurred. When assets are
retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and
resulting gains or losses are included in income.
Depreciation is provided by the straight-line method over the
estimated useful lives of the assets.
DEFERRED INCOME TAXES
The Company provides deferred income taxes resulting from
temporary differences between the financial statement and tax
bases of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using
the tax rate expected when taxes are actually paid or
recovered. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. Temporary differences result
principally from the write-down of amounts due from
affiliates and of certain rental equipment.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average of
common shares outstanding. On June 30, 1996, the Company
effected a 1,120 for 1 stock split, thereby increasing the
common shares outstanding from 1,000 to 1,120,000. All per
share data have been restated to reflect this stock split.
2. RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following:
Not
In Service In Service Total
---------- ---------- -----
Equipment, at cost $751,529 $695,840 $1,447,369
Less: Accumulated 406,949 620,371 1,027,320
depreciation -------- -------- ----------
Net rental $344,580 $ 75,469 $ 420,049
equipment ======== ======== ==========
The depreciation expense for the year was $141,208. The
Company provided a write-down of $87,456 on the equipment not
currently in service, to reduce it to its estimated net
realizable value. However, it is at least reasonably
possible that this estimate will change.
F-24
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
Rents receivable under operating lease commitments are as
follows:
1996 $152,400
1997 38,288
Thereafter 0
--------
$190,688
========
3. NOTES PAYABLE
The Company maintains a $350,000 revolving credit line
agreement with a commercial bank that is used to finance
working capital requirements. At December 31, 1995, the
amount outstanding was $334,895. Borrowings are due on
demand, with interest payable monthly at 2 1/2% over the bank's
prime rate. The agreement was due to expire June 3, 1996 and
was extended to October 3, 1996, but still remains
substantially unpaid. All borrowings under the note are
collateralized by substantially all assets not otherwise
pledged and are personally guaranteed by the Company's
principal officers and "Medley". The note contains various
restrictive covenants, which among other things require the
maintenance of certain financial ratios. As of December
1996, approximately $100,000 had been repaid to the bank.
The Company is currently negotiating an extension of the
line.
4. RELATED PARTY TRANSACTIONS
The Company has transactions with related companies whose
ownership is substantially the same as that of the Company.
Included in the statement of operations are the following
items of income and (expense):
Management fees $ (30,000)
Allocated general and $ (24,650)
administrative expenses
Rental revenues $ 16,162
Included in the balance sheet at December 31, 1995 are:
Due from affiliates (less $ 766,665
allowance of $600,000)
Due to affiliated company $ (127,279)
The balance due to and due from related companies result
principally from non-interest bearing advances with no
definite due date. The Company has reduced the receivable to
its estimated net realizable value through a $600,000
allowance. However, it is at least reasonably possible that
the amount collected will differ from management's estimate.
F-25
<PAGE>
MEDLEY CEDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
5. COMMITMENTS AND CONTINGENCIES
Lease Agreements
An affiliate of the Company is obligated under a lease for
its premises expiring October 1997, which requires minimum
annual rentals of $25,000 plus increases based on real estate
taxes and operating costs. Included in the statement of
operations is $2,700 allocated to the Company, under this
lease.
In addition, the Company rents warehouse space on a month-to-
month basis for storage purposes at a cost of approximately
$700 per month.
Employment Agreements
Effective December 1, 1996, the Company entered into one-year
employment agreements with its President and Secretary for
annual amounts of $60,000 and $30,000, respectively. The
agreements may be automatically renewed on an annual basis.
Management Agreement
On October 31, 1996, but effective January 1, 1994, the
Company entered into a management agreement with a related
company. The related company provides management services at
a fee of $90,000 per annum. The agreement expires December
1996 and may be renewed on an annual basis.
In 1995, the related company agreed to modify the agreement
to $30,000 for that year.
Litigation
The Company is involved in several actions in the normal
course of business, none of which are expected to have a
material effect on the Company's results of operations or
financial condition.
6. INCOME TAXES
The Company, its parent company and its parent's other
subsidiaries file a consolidated Federal income tax return.
The effective consolidated federal tax rate is applied to
each company's taxable income or loss for purposes of
allocating the consolidated federal tax.
The potential deferred tax asset resulting from net operating
loss carryforwards has been reduced to zero by a valuation
allowance because management could not conclude that
realization of such benefits was more likely than not.
Furthermore, the Internal Revenue Code contains provisions
which may limit the loss carryforwards available if
significant changes in stockholder ownership of the Company
occur.
F-26
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FIANCNIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
7. PRIOR YEAR ADJUSTMENTS
The accumulated deficit at the beginning of 1995 has been
restated to correct the valuation of certain rental equipment
that was taken out of service and placed in storage in prior
years and to correct the treatment of proceeds from a
financing company in 1994.
8. PROPOSED PUBLIC OFFERING
The Company has signed a Letter of Intent with an underwriter
to complete an initial public offering for a minimum of
420,000 units and a maximum of 620,000 units. Each unit
consists of one share of $.01 par value common stock at $6.50
per share and one redeemable warrant to purchase one share of
common stock at $.10 per share. Professional fees incurred
in connection with the proposed offering will be recorded as
a deferred cost and will be charged to additional paid-in
capital upon completion of the offering, or will be charged
to expense if the offering is not completed.
F-27
<PAGE>
=================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
EXCEPT WHERE OTHERWISE INDICATED, THIS PROSPECTUS SPEAKS AS OF
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
-----------------
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Information . . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management and
Certain Securityholders . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . .
Description of Securities . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . .
-----------
UNTIL [ ] , 1997 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, 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.
=================================================================
=================================================================
1,600,000 SHARES
COMMON STOCK
1,600,000 REDEEMABLE WARRANTS
TO PURCHASE COMMON STOCK
MEDLEY CREDIT
ACCEPTANCE CORP.
----------
PROSPECTUS
----------
PCM SECURITIES LIMITED, L.P.
[ ], 1997
=============================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation") provides that no director shall
be personally liable to the Company or any of its stockholders
for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper
personal benefit.
The Company's By-Laws and Certificate of Incorporation provide
that the Company shall indemnify, to the fullest extent
authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because he
or she is or was a director or officer of the Company against all
expense, loss or liability in connection therewith.
Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify any director or officer of the
corporation against expenses (including attorneys' fees),
judgements, fines and amounts paid in settlements actually and
reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or
was a director or officer of the corporation, if such person
acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her
conduct was unlawful. In a derivative action indemnification may
be made only for expenses actually and reasonably incurred by any
director or officer in connection with the defense or settlement
of an action or suit, if such person has acted in good faith and
in a manner that he or she reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been
adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought
shall determine upon application that the defendant is reasonably
entitled to indemnification for such expenses despite such
adjudication of liability. The right to indemnification includes
the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition upon the delivery
to the corporation of an undertaking, by or on behalf of the
director or officer, to repay all amounts so advanced if it is
ultimately determined that such director or officer is not
entitled to indemnification.
If a person is entitled to indemnification in respect to a
portion, but not all, of any liabilities to which such person may
be subject, the Company shall indemnify such person to the
maximum extent for such portion of the liabilities.
Pursuant to the Underwriting Agreement, the Underwriter is
obligated, under certain circumstances, to indemnify officers,
directors and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act of
1933. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be
incurred in connection with the offering described in this
Registration Statement.
SEC registration fee . . . . . $5,163.09
NASD filing fee . . . . . . . 1,831.25
Nasdaq SmallCap Market
listing fee . . . . . . . 7,900.00
Accounting fees and expenses . 30,000.00
Legal fees and expenses . . . 100,000.00
Blue sky fees and expenses . . 10,000.00
Transfer agent fee . . . . . . 2,500.00
Printing and engraving fees . 5,000.00
Miscellaneous . . . . . . . . 2,605.66
------------
Total . . . . . . . . . . . $165,000.00*
-----------------
* The Company will pay the above expenses with the proceeds
from this offering, except that for $30,000 of such expenses have
already been paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During June 1996, the Company offered holders of
approximately $951,590 principal amount of unsecured notes of the
Company, each of whom was an "accredited investor" within the
meaning of Rule 501(a) promulgated under the Securities Act, the
opportunity to exchange their notes into shares of the Company's
Convertible Preferred Stock. Noteholders converted approximately
$765,657 principal amount of notes into 811,973 shares of
Convertible Preferred Stock.
Concurrently, in June 1996, the Company offered Messrs.
Robert Press and Steven Edelson, President and Chairman of the
Board, respectively, of the Company, the opportunity to exchange
their shares of 13 1/2% preferred stock of the Company then owned
by them, having an aggregate liquidation value of $1,643,726, into
shares of Convertible Preferred Stock. Messrs. Press and Edelson
exchanged all of their shares of 13 1/2% preferred stock for an
aggregate of 2,136,844 shares of Convertible Preferred Stock
(604,717 shares to Mr. Press and 1,532,127 shares to Mr.
Edelson).
From June 1, 1996 through March 31, 1997, Messrs. Press and
Edelson loaned the Company $58,218 and $47,018, respectively. In
connection with these loans, the Company issued to each of
Messrs. Press and Edelson warrants to purchase up to 142,500
shares of Common Stock. These warrants are exercisable at any
time on or prior to September 30, 2000, at an exercise price of
$1.50 per share.
From June 1, 1996 to March 31, 1997, Tile's International, a
company controlled by Steven Dreyer, a director of the Company,
loaned the Company $100,000, of which approximately $81,321 was
outstanding at March 31, 1997. In connection with these loans,
the Company issued to Tile's International warrants to purchase
II-2
<PAGE>
up to 5,625 shares of Common Stock. These warrants are
exercisable at any time prior to September 30, 2000, at an
exercise price of $1.50 per share.
In December 1996, the Company sold to Maynard Hellman, a
director of the Company, in consideration for $100,000, warrants
to purchase up to 1,000,000 shares of Common Stock of the
Company. These warrants are identical to the Warrants being
offered hereby.
Section 4(2) of the Securities Act provides an exemption for
the Company for each of the above-described transactions.
ITEM 27. EXHIBITS.
1.1 Underwriting Agreement*
3.1 Certificate of Incorporation of the Company, as
amended*
3.2 By-Laws of the Company*
3.3 Certificate of Designations, Rights and Preferences
of the 10% Convertible Preferred Stock*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Redeemable Warrant Certificate*
5.1 Opinion of Reid & Priest LLP*
10.1 Employment Agreement, dated as of December 1, 1996,
between Robert D. Press and the Company*
10.2 Employment Agreement, dated as of December 1, 1996,
between Steven L. Edelson and the Company*
10.3 Management Agreement, dated as of October 31, 1996,
between Performance Capital Management, Inc. and the
Company*
10.4 Agreement, dated as of May 23, 1997, between the
Company and Medley Group, Inc.*
16 Letter on Change in Certifying Accountant*
23.1 Consent of Reid & Priest LLP (included in Exhibit
5.1)
23.2 Consent of Israeloff, Trattner & Co. P.C.
23.3 Consent of Daszkal, Bolton & Manela
24 Power of attorney+
27 Financial Data Schedule
-------------------
* To be filed by amendment.
+ Previously filed.
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes:
(a) To file, during any period in which it offers
or sells securities, a post-effective amendment to this
registration statement:
II-3
<PAGE>
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts
or events which, individually or together, represent a
fundamental change in the information in the registration
statement; and
(iii) To include any additional or changed
material on the plan of distribution.
(b) To file a post-effective amendment to remove
from registration any of the securities that remain unsold
at the end of the offering.
The Company will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (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.
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 by such director, officer or controlling
person in connection with the securities being registered, the
Company will, unless in the opinion 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.
For determining any liability under the Securities Act, the
Company will treat the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
For determining any liability under the Securities Act, the
Company will treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the
securities offered in the registration statement, and that
offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
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-2 and authorized this Registration Statement to be signed on
its behalf by the undersigned, in the City of Miami, State of
Florida, on this 27th day of May, 1997.
MEDLEY CREDIT ACCEPTANCE CORP.
/s/ Robert D. Press
------------------------------
Robert D. Press
President, Chief Executive
Officer, Treasurer and
Director
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.
Signatures Title Date
---------- ----- ----
/s/ Robert D. Press
------------------- President, Chief May 27, 1997
Robert D. Press Executive Officer,
Treasurer
and Director
(Principal Executive,
Financial
and Accounting
Officer)
/s/ *
--------------------- Chairman of the Board May 27, 1997
Steven L. Edelson and Secretary
/s/ *
-------------------- Director May 27, 1997
Steven Dreyer
/s/ *
-------------------- Director May 27, 1997
Maynard Hellman
* By: Robert D. Press as
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
1.1 Underwriting Agreement*
3.1 Certificate of Incorporation of the Company, as amended*
3.2 By-Laws of the Company*
3.3 Certificate of Designations, Rights and Preferences of the
10% Convertible Preferred Stock*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Redeemable Warrant Certificate*
5.1 Opinion of Reid & Priest LLP*
10.1 Employment Agreement, dated as of December 1, 1996,
between Robert D. Press and the Company*
10.2 Employment Agreement, dated as of December 1, 1996,
between Steven L. Edelson and the Company*
10.3 Management Agreement, dated as of October 31, 1996,
between Performance Capital Management, Inc. and the
Company*
10.4 Agreement, dated as of May 23, 1997, between the Company
and Medley Group, Inc.*
16 Letter on Change in Certifying Accountant*
23.1 Consent of Reid & Priest LLP (included in Exhibit 5.1)
23.2 Consent of Israeloff, Trattner & Co. P.C.
23.3 Consent of Daszkal, Bolton & Manela
24 Power of attorney+
27 Financial Data Schedule
------------------
* To be filed by amendment.
+ Previously filed.
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENTS
We consent to the use in this Registration Statement of Medley
Credit Acceptance Corp. on Form SB-2 of our report dated
September 13, 1996, except for Notes 3, 5 and 8 as to which date
is December 6, 1996, appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us as "Experts" in such
Prospectus.
/s/ Israeloff, Trattner & Co. P.C.
Israeloff, Trattner & Co. P.C.
Valley Stream, New York
May 27, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form SB-2
of Medley Credit Acceptance Corp. of our report dated March 31,
1997, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us as "Experts" in such
Prospectus.
/s/ Daszkal, Bolton & Manela
Daszkal, Bolton & Manela
Boca Raton, Florida
May 27, 1997
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,466
<SECURITIES> 0
<RECEIVABLES> 1,296,703
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 732,820
<PP&E> 16,654
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,839,752
<CURRENT-LIABILITIES> 810,126
<BONDS> 0
0
29,588
<COMMON> 16,800
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,839,752
<SALES> 94,158
<TOTAL-REVENUES> 94,158
<CGS> 65,851
<TOTAL-COSTS> 92,494
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,643
<INCOME-PRETAX> 40,013
<INCOME-TAX> 73,970
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,957)
<EPS-PRIMARY> (.02)
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