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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission File Number 000-22681
MEDLEY CREDIT ACCEPTANCE CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3571419
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134
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(Address of principal executive offices)
(305)-443-5002
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date:
NUMBER OF SHARES OUTSTANDING
CLASS ON DECEMBER 5, 1997:
----- ----------------------------
Common Stock, Par Value $.01 Per Share 1,680,000
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Condensed Balance Sheet at June 30,
1997 (Unaudited) 3
Condensed Statements of Operations for the
Three Months and Six Months ended June 30,
1997 and 1996 (Unaudited) 5
Condensed Statements of Cash Flows for the
Six Months ended June 30, 1997 and 1996
(Unaudited) 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 6 Exhibits 13
SIGNATURES 14
2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash $ (1,566)
Accounts receivable, net of allowance
for doubtful accounts of $3,000 124,772
Notes receivable 29,574
Due from affiliates 302,904
Prepaid offering costs 132,623
----------
Total Current Assets 588,307
RENTAL EQUIPMENT, at cost, net of
accumulated depreciation 268,378
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation 14,154
OTHER ASSETS
Due from affiliates 878,620
Rental equipment not in service 65,565
Security deposits 1,799
----------
945,984
Total Other Assets ----------
$1,816,823
TOTAL ASSETS ----------
See accompanying notes to condensed financial statements.
3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Notes payable $ 150,000
Current portion of long-term debt 206,157
Current portion of obligations to
finance companies 74,158
Accounts payable and accrued expenses 159,987
Dividends payable - preferred stock 275,546
----------
Total Current Liabilities 865,848
OTHER LIABILITIES
Long-term debt, net of current portion 351,088
Obligations to finance companies, net
of current portion 45,306
Notes payable - officers 127,483
----------
523,877
Total Other Liabilities ----------
Total Liabilities 1,389,725
COMMITMENTS AND CONTINGENCIES --
REDEEMABLE CONVERTIBLE 10% PREFERRED STOCK
Series A 10% convertible preferred
stock, $.01 par value, 5,000,000
authorized, 2,958,817 shares issued
and outstanding (liquidation value of 820,281
$2,958,817 plus accumulated dividends) ----------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value,
10,000,000 authorized, 1,680,000
shares issued and outstanding 16,800
Additional paid-in capital 1,532,206
Accumulated deficit (1,942,189)
----------
(393,183)
Total Stockholders' Deficit ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,816,823
----------
See accompanying notes to condensed financial statements.
4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES $ 49,009 $ 162,299 $ 143,167 $ 281,111
COST AND EXPENSES
Depreciation 17,000 23,872 34,000 47,742
Interest expense 18,345 33,098 27,988 74,190
General and
administrative 48,912 29,411 114,763 76,874
expenses --------- ---------- ---------- ----------
Total Costs and 84,257 86,381 176,751 198,806
Expenses --------- ---------- ---------- ----------
Income (Loss) from (35,248) 75,918 (33,584) 82,305
Operations --------- ---------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest income 42,114 27,283 87,119 57,919
Loss on sale of
securities (33,924) -- (40,580) --
Loss on sale of leased -- (48,554) -- (35,726)
equipment --------- ---------- ---------- ----------
Total Other Income 8,190 (21,271) (46,539) 22,193
(Expenses) --------- ---------- ---------- ----------
$(27,058) $54,647 $12,955 $ 104,498
NET INCOME (LOSS) ======== ========== ========== =========
NET INCOME (LOSS)
APPLICABLE TO COMMON $(100,965) $22,765 $(134,922) $19,195
SHAREHOLDERS ========= ========== ========== =========
NET INCOME (LOSS) PER $(.06) $(.02) $(.08) $ .02
COMMON SHARE ======== ========== ========== =========
WEIGHTED AVERAGE NUMBER 1,680,000 1,120,000 1,680,000 1,120,000
OF SHARES OUTSTANDING ========= ========== ========== =========
See accompanying notes to condensed financial statements
5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used) provided by operating activities $(34,178) $168,399
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances (to) from affiliates (9,786) 24,403
Purchase of securities (75,010) --
Proceeds from sale of securities 34,401 60,343
Proceeds from sale of equipment 21,000 14,890
-------- --------
Net cash (used) provided by investing 29,395 99,636
activities -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 160,000 --
Repayments of long-term debt (59,670) (151,625)
Repayments of notes payable (60,000) (45,000)
Net proceeds from shareholders loans 28,000 --
Repayments of shareholder loans (6,253) --
Payments on preferred dividends -- (65,567)
Net cash provided (used) by financing activity 62,577 (262,192)
-------- --------
NET (DECREASE) INCREASE IN CASH (1,566) 5,843
CASH- BEGINNING OF PERIOD -- 3,803
-------- --------
CASH- END OF PERIOD $(1,566) $ 9,646
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $22,866 $52,860
-------- --------
SUPPLEMENTAL NONCASH INVESTING AND FINANCIAL ACTIVITIES:
Leased equipment received from affiliated company
as payment on intercompany receivable $87,758 $ --
Obligations to finance companies transferred to
affiliated company 27,807 --
Long-term debt and related accrued interest -- $788,844
converted into convertible preferred stock -------- --------
$111,565 $788,844
======== ========
See accompanying notes to condensed financial statements
6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
necessary for a fair presentation of the results for the interim
periods presented have been included.
These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently
with those used in the preparation of the Company's Annual
Financial Statement for the year ended December 31, 1996.
Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1997.
NOTE 2 - RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment at June 30, 1997 consists of the following:
NOT
IN SERVICE IN SERVICE TOTAL
---------- ---------- -----
Equipment, at cost $528,134 $562,140 $1,090,274
Less: accumulated 259,756 496,575 756,331
depreciation -------- -------- --------
Net Rental Equipment $268,378 $ 65,565 $333,943
======== ======== ========
The depreciation expense on rental equipment for the six months
ended June 30, 1997 was $29,000.
7
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 3 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following
at June 30, 1997:
Office equipment $48,571
Automobile 6,955
-------
55,526
Less: Accumulated depreciation 41,372
-------
Net Property and Equipment $14,154
=======
Depreciation expense on property and equipment for the six months
ended June 30, 1997 was $5,000.
NOTE 4 - NOTES PAYABLE
Notes payable of $150,000 are comprised of the following at June
30, 1997:
Note Payable to Bank
--------------------
The Company maintains a revolving credit line agreement with a
commercial bank that is used to finance working capital
requirements. At June 30, 1997, the amount outstanding was
$135,000. Borrowings are due on demand, with interest payable
monthly at prime (9.5% at June 30, 1997) plus 2%. Borrowings
under the note are collateralized by certain Company assets not
otherwise pledged and the debt is personally guaranteed by the
Company's principal officers and Medley Group, Inc.
Notes Payable to Individuals
----------------------------
Included in notes payable is $15,000 due to individuals, bearing
interest at 10% per annum, with due dates in June and October
1997.
NOTE 5 - LONG-TERM DEBT
At June 30, 1997, the Company is obligated to various individuals
for amounts aggregating $557,245. These notes are for various
amounts and mature through January 1999. Interest is payable at
rates ranging from 10% to 13.5% per annum. The unsecured portion
of these notes is $528,223.
8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 6 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and
related rental agreements, consist of:
18.7% obligation payable in monthly installments of
$2,260, including interest, through April 1998 $22,739
23.6% obligation payable in varying monthly
installments, including interest, through November
1999 31,205
21.2% obligation payable in varying monthly
installments, including interest, through November
1999 48,464
18.3% obligation payable in varying monthly
installments, including interest, through November 17,056
1999 -------
119,464
74,158
Less: Current maturities -------
$45,306
Long-Term Obligations -------
NOTE 7 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has accrued $73,970 of dividends on its preferred
stock at June 30, 1997. It is in arrears on the 10% dividends
for the last five quarters due to the Company's officers.
NOTE 8 - INCOME TAXES
The Company is included in the consolidated federal tax return of
its parent, Medley Group, Inc. Federal and state income taxes
are provided for on a stand-alone basis as if the Companies filed
their own tax returns.
The provision for income taxes at June 30, 1997 is as follows:
Deferred Income Tax Expense:
Federal $--
State --
Less Valuation
Allowance --
Deferred Income Tax $--
===
9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 8 - INCOME TAXES (Continued)
At June 30, 1997, the Company has an unused net operating loss
carryforward of approximately $409,800, expiring in 2010, which
is available for use on its future corporate federal and state
tax returns. The Company's evaluation of the tax benefit of its
net operating loss carryforward is presented in the following
table. The tax amounts have been calculated using a 40% combined
effective tax rate.
Deferred Tax Asset:
Tax Benefit of Net
Operating Loss $163,900
Less: Valuation (163,900)
Allowance --------
$ --
Deferred Tax Asset ========
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
Federal Statutory Rate (34%)
State Income Tax Rate (6)%
-----
(40)%
Effect of Net Operating
Loss Carryforward
and Validation Allowance 40%
-----
Effective Income Tax Rate (0)%
=====
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company which, historically,
has been engaged primarily in the financing of (i) dry cleaning
equipment to small dry cleaning businesses throughout the eastern
United States and (ii) refrigeration equipment sold or leased by
Medley Refrigeration, Inc., an affiliate of the Company ("Medley
Refrigeration"). Medley Refrigeration is engaged in the
provision of refrigeration equipment and services to the food
service and hospitality industries and other businesses
throughout central and southeastern Florida.
Prior to the fiscal year ended December 31, 1996 ("Fiscal
1996"), the Company focused its marketing efforts primarily on
providing financing to creditworthy purchasers of dry cleaning
equipment. Commencing in Fiscal 1996, the Company began de-
emphasizing its dry cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such customers tended to be small entities
with reliable cash flow but without access to sophisticated
financing arrangements. Such customers were typically willing to
pay a premium in terms of interest rates for convenience and
availability of financing.
During December 1996, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues
from, and rights of collection with respect to, refrigeration
equipment leases entered into by Medley Refrigeration with its
customers (the "Assignment"). Excluded from the Assignment,
however, were those equipment leases, the revenues from which,
were previously assigned to collateralize the Company's line of
credit facility with an independent third party lender. Prior to
the Assignment, the Company historically would lend Medley
Refrigeration the capital necessary for Medley Refrigeration to
either purchase or manufacture refrigeration equipment for its
customers. Medley Refrigeration, in turn, would lease this
refrigeration equipment to its customers who, as a condition to
the lease, would grant the Company a security interest in the
leased equipment to collateralize the customer's payment
obligations under the equipment lease. As a result of the
Assignment, lease payments with respect to a majority of the
equipment leases extended to Medley Refrigeration's customers
began, and continue, to be payable directly to the Company. In
addition, commencing in January 1997, the Company began, and
continues, to finance refrigeration equipment leases directly
with Medley Refrigeration's customers. The Company, through the
date of this Report, has continued to focus its marketing efforts
primarily to customers of Medley Refrigeration. Following the
consummation of the Company's initial public offering (the
"IPO"), however, the Company anticipates broadening its leasing
efforts to expand to entities unaffiliated with the Company.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
For the six months ended June 30, 1997, the Company earned net
income of $12,955, as compared to net income of $104,498 for the
comparable period during 1996. The decrease in net income was
primarily attributable to (i) increases in general and
administrative expenses associated with the IPO, (ii) the
Company's being forced to expend cash flow from operations to
satisfy obligations incurred in connection with the IPO rather
than reinvesting such cash flow into the Company's operations and
(iii) the Company's recognizing lease revenue from Medley
Refrigeration as an increase in the Company's inter-company
receivable due from Medley Refrigeration rather than revenue
received from an unrelated person. The general and
administrative expenses incurred by the Company in connection
with the IPO also had the effect of nullifying the approximate
$40,000 decrease in total costs and expenses incurred by the
Company during the six months ended June 30, 1997 as compared to
the comparable period during 1996.
During the six months ended June 30, 1997, the Company
generated leasing revenues of $143,167. This represents a
decrease of approximately $140,000 from leasing revenues of
$281,111 for the six months ended June 30, 1996. This decrease
in revenues was partially offset, however, by the approximate
$30,000 increase in interest income realized during the six
months ended June 30, 1997. This increase in interest income
reflects the continuing shift in the Company's assets from
11
<PAGE>
maturing leases of dry cleaning equipment to financed
refrigeration equipment, particularly with Medley Refrigeration
and its affiliates.
The difference between the Company's net income (loss) for each
of the six month periods ended June 30, 1997 and 1996 as compared
to the Company's net income (loss) applicable to common
shareholders for the same periods is the accrued but unpaid
dividend applicable to shares of the Company's Redeemable
Convertible Preferred Stock (the "Convertible Preferred Stock").
These accrued but unpaid dividends are payable to affiliates of
the Company and will be paid from a portion of the proceeds
raised in the Company's IPO.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had total assets of $1,816,823 as
compared to total assets of $1,794,820 at December 31, 1996.
This increase in total assets is primarily attributable to higher
prepaid offering costs associated with the IPO.
At June 30, 1997, the Company had total liabilities of
$1,389,725 as compared to total liabilities of $1,232,799 at
December 31, 1996. This increase in liabilities was primarily
due to increases in declared but unpaid and accrued Convertible
Preferred Stock dividends and accounts payable and accrued
expenses incurred in connection with the IPO.
At June 30, 1997, the Company had total stockholders' deficit
of $393,183 as compared to total stockholders' deficit of
$258,260 at December 31, 1996. This increase in stockholders'
deficit is primarily attributable to the Company's incurring
increased expenses in connection with the IPO, coupled with the
Company's inability, due to these expenses, to reinvest into its
business, cash flow from operations.
The Company is dependent on the proceeds of its IPO to finance
its ongoing specialty finance business, to commence its
anticipated factoring business and to finance its other working
capital requirements. The Company anticipates, based on its
current proposed plans and assumptions relating to its operations
and expansion, that the proceeds of its IPO will be sufficient to
satisfy the contemplated cash requirements of the Company for
approximately 12 months following the consummation of the IPO.
In the event that the Company's plans change or its assumptions
prove to be inaccurate or the proceeds of the IPO prove to be
insufficient to fund the Company's operations or its expansion
(due to unanticipated expenses, delays, problems or otherwise),
the Company would be required to seek additional funding.
Depending upon the Company's financial strength and the state of
the capital markets, the Company may also determine that it is
advisable to raise additional equity capital. The Company has no
current arrangements with respect to, or sources of, any
additional capital, and there can be no assurance that such
additional capital will be available to the Company, if needed,
on commercially reasonable terms or at all. The inability of the
Company to obtain additional capital would have a material
adverse effect on the Company and could cause the Company to be
unable to implement its business strategy or proposed expansion
or to otherwise significantly curtail or cease its operations.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
27 - Financial Data Schedule
(b) Reports on Form 8-K
--------------------
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDLEY CREDIT ACCEPTANCE CORP.
------------------------------
(REGISTRANT)
Date: December 8, 1997 /s/ Robert D. Press
-------------------
Robert D. Press
Chairman of the Board, President,
Chief Executive Officer and Chief
Financial Officer
(Principal Executive and Financial
Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> (1,566)
<SECURITIES> 0
<RECEIVABLES> 457,250
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 588,307
<PP&E> 282,532
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,816,823
<CURRENT-LIABILITIES> 865,848
<BONDS> 0
0
820,281
<COMMON> 16,800
<OTHER-SE> (409,983)
<TOTAL-LIABILITY-AND-EQUITY> 1,816,823
<SALES> 143,167
<TOTAL-REVENUES> 143,167
<CGS> 0
<TOTAL-COSTS> 176,751
<OTHER-EXPENSES> 176,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,988
<INCOME-PRETAX> 12,955
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,955
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
