AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 17, 1997
REGISTRATION NO. 333-24937
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE 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 (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
------------------
1100 PONCE DE LEON BOULEVARD
CORAL GABLES, FL 33134
(305) 443-5002
(Address and Telephone Number of Principal Executive
Offices and Principal Place of Business)
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ROBERT D. PRESS
PRESIDENT AND CHAIRMAN OF THE BOARD
MEDLEY CREDIT ACCEPTANCE CORP.
1100 PONCE DE LEON BOULEVARD
CORAL GABLES, FL 33134
(305) 443-5002
(Name, Address and Telephone Number of Agent For Service)
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COPY TO:
DAVID R. HARDY, ESQ.
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 603-2000
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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.[x] 333-24937
---------
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.[ ]
------------------
<PAGE>
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 by
December 24, 1997, 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
$1,100,000 in proceeds generated from Group's sale of its 200,000
shares of Common Stock in the Minimum Offering. This $1,100,000
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 (as defined
below) to remit directly to the Company, concurrently with the
closing of the Minimum Offering, the $1,100,000 in 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 $5.75 at any
time commencing July 22, 1998 until July 22, 2002. The Warrants
are redeemable by the Company at any time after July 22, 1998,
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."
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."
---------------------
THESE ARE SPECULATIVE SECURITIES. 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."
---------------------
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.
=======================================================================
PRICE TO PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMPANY (1)(2) SHAREHOLDER(1)(2)(3)
-----------------------------------------------------------------------
Per Share $ 5.50 $ 5.50 $ 5.50
-----------------------------------------------------------------------
Per Warrant $ 0.15 $ 0.15 --
-----------------------------------------------------------------------
Total $6,780,000 $5,680,000 $1,100,000
Minimum
-----------------------------------------------------------------------
Total $9,040,000 $7,940,000 $1,100,000
Maximum
=======================================================================
---------------------
(Continued on next page)
THE DATE OF THIS PROSPECTUS IS DECEMBER . , 1997
<PAGE>
(Continued from previous page)
(1) The shares of Common Stock and Warrants are being offered on
a best efforts basis directly by the Company through certain
of the Company's officers, directors and employees. No
commissions or other offering remuneration will be paid in
connection with this offering. This offering terminates on
December 24, 1997. Subscriptions will be placed in escrow
in a non-interest bearing account with Turnberry Bank,
Aventura, Flordia, as agent for the Company (the "Escrow
Agent"), pending attainment of the Minimum Offering. See
"Plan of Distribution."
(2) Before deducting expenses, estimated at $185,000, payable by
the Company. The Company has agreed to pay all expenses
attributable to the sale of the Selling Stockholder's
shares.
(3) 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.
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. The Company has
filed an application for the Common Stock and Warrants to be
quoted on the NASDAQ Small-Cap Market system ("NASDAQ") under the
proposed symbols "MCAC" and "MCACW", respectively. Due to this
offering being self-underwritten by the Company, and other
factors, including, that the Company may have difficulty
attracting market makers, the Company's securities may not be
approved for listing on NASDAQ. In such event, the Company
intends to arrange for its securities to be traded in the over-
the-counter market. The initial public offering prices for the
Common Stock and Warrants have been arbitrarily determined by the
Company 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. See "Plan of
Distribution."
The Common Stock and the Warrants are being offered directly
by the Company through certain of the Company's officers,
directors and employees. 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 by the
Company and subject to certain other conditions. The Company
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.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files 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.
<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 dry cleaning 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
1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134, and
its telephone number is (305) 443-5002.
-4-
<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 "Plan of Distribution."
INVESTMENT PER INVESTOR . . . Minimum of 100 shares of
Common Stock and/or 100
Warrants and greater
purchases in 100 shares and
Warrant increments. See
"Plan of Distribution."
COMMON STOCK OUTSTANDING
PRIOR TO THE OFFERING(1) . 1,680,000 shares.
COMMON STOCK TO BE OUTSTANDING 2,650,000 shares in the
AFTER THE OFFERING(1) . . 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 1,200,000 Warrants if the
AFTER THE OFFERING(1) . . Minimum Offering is sold and
1,600,000 Warrants if the
Maximum Offering is sold.
EXERCISE TERMS . . . . . . Exercisable at $5.75 per
share, subject to adjustment
in certain circumstances,
commencing July 22, 1998.
See "Description of
Securities Redeemable
Warrants."
EXPIRATION DATE . . . . . . July 22, 2002.
REDEMPTION . . . . . . . . Redeemable by the Company at
any time after July 22,
1998, 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."
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."
_____________________________________________
(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)
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, (iii) 1,300,000 shares of
Common Stock reserved for issuance upon the exercise of
other outstanding warrants and (iv) 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" and "Description of
Securities - Preferred Stock."
-5-
<PAGE>
OFFERING TERMINATION . . . . The offering will terminate
on December 24, 1997. See
"Plan of Distribution."
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 LISTING . . . The Company has filed an
application for the Common
Stock and Warrants to be
quoted on NASDAQ under the
proposed symbols "MCAC" and
"MCACW", respectively. Due
to this offering being self-
underwritten by the Company,
and other factors,
including, that the Company
may have difficulty
attracting market makers,
the Company's securities may
not be approved for listing
on NASDAQ. In such event,
the Company intends to
arrange for its securities
to be traded in the over-
the-counter market. See
"Plan of Distribution."
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:
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------- --------------------
1996 1995 1997 1996
---- ---- ---- ----
Operating Revenues . $356,235 $388,008 $189,020 $310,920
Income (Loss) from
Continuing
Operations Before
Other Income
(Expense) . . . . . (369,704) (296,807) (119,356) (48,039)
Other Income (Expense) 693,064 (600,000) 74,530 36,113
Preferred Dividend . (232,722) (205,447) (221,848) (164,006)
Net Income (Loss)
Applicable to Common
Stockholders . . . 90,638 (1,102,064) (266,674) (175,932)
Net Income (Loss) Per
Common Share . . . .05 (.98) (.16) (.16)
BALANCE SHEET DATA:
SEPTEMBER 30, 1997
(UNAUDITED)
--------------------------------------
AS ADJUSTED(1)
-----------------------
Actual Minimum Maximum
------ ------- -------
Working capital (deficit) . . . $ (790,839) $3,526,565 $5,036,565
Total assets . . . . . . . . . 1,994,513 6,478,115 8,738,115
Total liabilities . . . . . . . 1,699,166 1,010,128 1,010,128
Stockholders' equity . . . . . 295,347 5,467,987 7,727,987
----------
(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."
-6-
<PAGE>
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. 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. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
Financial Statements.
3. Explanatory Paragraph in Report of Independent Public Accountants.
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
Financial Statements.
-7-
<PAGE>
4. 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
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."
5. 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, in part, by Robert D. Press, the
President 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), Mr. Press (as one of the control persons
of Group) will indirectly be benefitted.
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 (except as set forth herein, 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 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. 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 (aggregating $218,971.69, or approximately
3.98% of the net proceeds from the Minimum Offering or approximately 2.82%
of the net proceeds from the Maximum Offering); 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 (aggregating
$19,8262.90, or less than 1% of the net proceeds from the Minimum or
Maximum Offerings). In addition, Carol Edelson, a principal stockholder of
the Company and indirectly, through her husband, Steven L. Edelson, the
former Chairman of the Board of the Company, one of the control persons of
Group, will receive (i) $82,500 in consideration for the Company's
repurchase of 15,000 shares of Common Stock owned by Ms. Edelson, (ii)
$45,000 in consideration for complete satisfaction of all indebtedness
owing by the Company to Ms. Edelson (Ms. Edelson has waived all interest
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payments) and (iii) $153,212.72 in satisfaction of all declared but unpaid
and accrued preferred stock dividends owing to Ms. Edelson (aggregating
$280,712.72, or approximately 5.11% of the net proceeds from the Minimum
Offering or approximately 3.62% of the net proceeds from the Maximum
Offering).
Following the consummation of this offering, the Company will require
all agreements and arrangements involving it and any other related party,
including the Company's officers, directors and 5% or greater stockholders,
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 and that any loans to the
Company's officers, directors, 5% or greater stockholders or affiliates
will be for bona fide business purposes only and approved by a majority of
the Company's disinterested directors. See "Use of Proceeds," "Management"
and "Certain Transactions."
6. 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."
7. 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.
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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.
8. 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 and Chairman of the Board. 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
all of his business time and efforts to the affairs of the Company.
Competition, however, 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.
The Company does not currently maintain nor, in the foreseeable future,
does it anticipate maintaining, key-man life insurance covering the lives
of its significant employees. See "Business" and "Management."
9. 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."
10. 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.
11. 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."
12. 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
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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."
13. Lack of Underwriter. This offering will be made on a "self-
underwritten" basis. The Company has never engaged in the public sale of
its securities and it has no experience in the underwriting of any public
securities offerings. Accordingly, there is no prior experience from which
investors may judge the Company's ability to consummate this offering.
There can be no assurance that the Company will be successful in selling
the shares of Common Stock and Warrants offered hereby. See "Plan of
Distribution."
14. Discretion in Application of Proceeds. The Company intends to
utilize approximately $1,850,000 (or approximately 33.67%) of the net
proceeds from the Minimum Offering, or approximately $2,750,000 (or
approximately 35.46%) of the net proceeds from the Maximum Offering to
implement its factoring business, approximately $1,500,000 (or
approximately 27.30%) of the net proceeds from the Minimum Offering, or
approximately $2,100,000 (or approximately 27.08%) of the net proceeds from
the Maximum Offering to expand its equipment leasing business,
approximately $411,739 (or approximately 7.50% of the net proceeds from the
Minimum Offering or approximately 5.31% of the net proceeds from the
Maximum Offering) to repay certain indebtedness, approximately $277,299 (or
approximately 5.04% of the net proceeds from the Minimum Offering or
approximately 3.57% of the net proceeds from the Maximum Offering) to
satisfy certain declared but unpaid dividends and approximately $165,000
(or approximately 3.00% of the net proceeds from the Minimum Offering or
approximately 2.13% of the net proceeds from the Maximum Offering) to
redeem certain shares of Common Stock. The remaining approximate
$1,290,962 (or approximately 23.49%) of the net proceeds from the Minimum
Offering, or approximate $2,050,962 (or approximately 26.45%) of the net
proceeds from the Maximum Offering, have been allocated to working capital
and general corporate purposes. Management of the Company has discretion,
within the parameters of its current business plan (i.e., primarily
expanding its equipment leasing business and implementing its factoring
business) to adjust the application and allocation of the net proceeds of
this offering allocated to working capital and general corporate purposes
in order to address changed circumstances and opportunities. As a result,
the Company will be dependent upon the discretion and judgment of
management with respect to the application of the net proceeds of this
offering allocated to working capital and general corporate purposes. See
"Use of Proceeds."
15. 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."
16. Immediate and Substantial Dilution. This offering involves an
immediate and substantial dilution of $3.44 per share or approximately
62.5% if the Minimum Offering is sold or $2.97 per share or approximately
54.0% 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. In addition, investors in this offering
will have contributed approximately 96.5% of the total consideration paid
for shares of Common Stock if the Minimum Offering is sold and
approximately 97.5% of the total consideration paid for shares if the
Maximum Offering is sold. See "Dilution."
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17. 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 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, in part, by Mr. Press, the President and
Chairman of the Board 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 $1,100,000 in proceeds
generated from Group's sale of its 200,000 shares of Common Stock in the
Minimum Offering. This $1,100,000 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
$1,100,000 in 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 with the Company not to sell or dispose of any of its
shares for a period of six months from the date of this Prospectus. In
addition, each holder of Convertible Preferred Stock has agreed with the
Company 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. 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 "Plan of Distribution."
18. Control by Management. Upon the consummation of this offering,
Group, which is controlled, in part, by Mr. Press, 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 or any other
outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock).
Accordingly, Mr. Press, through his 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, will be in a position to control the affairs of the
Company. Moreover, Mr. Press 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."
19. No Assurance of Public Market; Unilateral 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
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have been determined unilaterally by the Company 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 "Plan of Distribution."
20. Best Efforts Offering; Escrow of Investor Funds. This offering is
being made on a "best efforts, all-or-none" basis directly by the Company
through certain of the Company's officers, directors and employees. 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
Company is offering shares of its Common Stock and Warrants through
December 19, 1997. 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
Turnberry Bank, 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 until December
19, 1997 and 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 by December 19, 1997. Investors, therefore, will not have the use of
any subscription funds during the subscription period. See "Plan of
Distribution."
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 10
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. Pending NASDAQ Application; Possible Delisting of Securities from
NASDAQ if Approved for Listing; Disclosure Relating to Low-Priced "Penny"
Stocks. While the Company has filed an application for the Common Stock
and Warrants to be quoted on NASDAQ, there can be no assurance that such
securities will be approved for listing on NASDAQ. If the Company's
securities were approved for listing, then, in order for them to continue
to be listed on NASDAQ, the 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
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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 was not approved for listing on NASDAQ
or subsequently delisted from trading on NASDAQ and the trading price of
the Common Stock was 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.
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 at any time following July 22, 1998 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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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 $1,100,000 in proceeds generated from Group's
sale of its 200,000 shares of Common Stock in the Minimum Offering. This
$1,100,000 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 $1,100,000 in 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 the expenses of the offering, estimated to be
approximately $185,000, 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 $5,495,000 if the Minimum
Offering is sold and $7,755,000 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 or upon satisfaction
of the Medley Refrigeration indebtedness) 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 7.50% $ 411,739 5.31%
Satisfaction of declared
but unpaid dividends(2) 277,299 5.04 277,299 3.57
Expansion of equipment
leasing business (3) . 1,500,000 27.30 2,100,000 27.08
Implementation of
factoring business(4) 1,850,000 33.67 2,750,000 35.46
Redemption of Common
Stock(5) . . . . . . . 165,000 3.00 165,000 2.13
Working capital and
general corporate
purposes(6) . . . . . 1,290,962 23.49 2,050,962 26.45
---------- ------ ---------- ------
$5,495,000 100.00% $7,755,000 100.00%
========== ====== ========== ======
______________________________________
(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 and Steven
Dreyer, directors of the Company, and Ms. Carol Edelson, a principal
stockholder of the Company and wife of Steven Edelson, the former Chairman
of the Board 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), an affiliate of Mr. Dreyer will receive
$14,333.10 in partial satisfaction of certain indebtedness of the Company
owing to it and Ms. Edelson will receive $45,000 in complete satisfaction
of all indebtedness of the Company owing to her (Ms. Edelson has waived all
interest payments) . The $121,000 in loans being repaid with the proceeds
from this offering to Mr. Press and Ms. 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, and Dreyer and Ms. Edelson 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.
(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.
(footnotes continue on next page)
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<PAGE>
(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 Mr. Robert D. Press, the President and Chairman of the Board of
the Company, and Ms. Carol Edelson, a principal stockholder of the Company
and wife of Steven L. Edelson, the former Chairman of the Board of the
Company. These shares were transferred and assigned by Group to Messrs.
Press and Steven L. Edelson (who subsequently transferred these shares to
Carol Edelson, his wife) in January 1996 in consideration for services
performed by Messrs. Press and Edelson 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.
Although it is uncertain whether the Company's shares of
Common Stock will rise to a level at which the Warrants would be
exercised, in the event subscribers in this offering elect to
exercise all of the Warrants offered herein, the Company will
realize gross proceeds of approximately $6,900,000 if the Minimum
Offering is sold and $9,200,000 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.
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 September 30, 1997 and 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:
AT SEPTEMBER 30, 1997
(UNAUDITED)
------------------------------------------------
AS ADJUSTED
------------------------------
ACTUAL MINIMUM(1) MAXIMUM(1)
------ ---------- ----------
Long-term Debt . . . . $ 192,273 $ 87,037 $ 87,037
Short-term Debt . . . . $ 867,612 $ 561,109 $ 561,109
Redeemable Convertible
Preferred Stock,
$.01 par value,
5,000,000 shares
authorized;
2,958,817 shares
issued and
outstanding,
respectively . . . $ 820,281 $ 29,588 $ 29,588
Stockholders' Equity
(Deficit)
Common Stock, $.01 par
value, 10,000,000
shares authorized;
1,680,000, 2,650,000
and 3,050,000 shares
issued and
outstanding,
respectively . . . $ 16,800 $ 26,500 $ 30,500
Additional Paid-in
Capital . . . . . . $ 1,532,206 $ 7,485,839 $ 9,741,839
$(2,073,940) $(2,073,940) $(2,073,940)
Accumulated Deficit . ----------- ----------- -----------
Total Stockholders' $ (524,934) $ 5,467,987 $ 7,727,987
Equity (Deficit) ----------- ----------- -----------
$ 1,355,232 $ 6,116,133 $ 8,376,133
Total Capitalization =========== =========== ===========
__________________________
(1) Assumes no exercise of the 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."
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 September 30, 1997, the
net tangible book value of the Company was $(524,934), or
approximately $(.31) 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 estimated expenses of this offering, and assuming no
exercise of the 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
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<PAGE>
tangible book value of the Company at September 30, 1997 would
have been $5,467,987, or approximately $2.06 per share of Common
Stock. This represents an immediate increase in net tangible
book value of approximately $2.37 per share of Common Stock to
existing stockholders and an immediate dilution of approximately
$3.44 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 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
September 30, 1997 would have been $7,727,987, or approximately
$2.53 per share of Common Stock. This represents an immediate
increase in net tangible book value of approximately $2.84 per
share of Common Stock to existing stockholders and an immediate
dilution of approximately $2.97 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 $ (.31) $ (.31)
Increase attributable to the
sale by the Company of the
Common Stock offered hereby . $ 2.37 $ 2.84
Adjusted net tangible book value $ 2.06 $ 2.53
after the offering . . . . . . . ---------- ----------
$ 3.44 $ 2.97
Dilution to new investors . . . . ========== ==========
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.
SHARES PURCHASED
---------------------------
MINIMUM OFFERING NUMBER PERCENT
---------------- ------ -------
Existing stockholders . . . . 1,680,000 62.7%
1,000,000 37.3
New investors . . . . . . . . --------- ------
2,680,000 100.0%
Total . . . . . . . . . . ========= ======
MAXIMUM OFFERING
----------------
Existing stockholders . . . . 1,680,000 54.5%
1,400,000 45.5
New investors . . . . . . . . --------- ------
3,080,000 100.0%
========= ======
TOTAL AVERAGE PRICE
CONSIDERATION PAID PER SHARE
------------------ ------------
MINIMUM OFFERING AMOUNT PERCENT
---------------- ------ -------
Existing stockholders . . . $ 200,000 3.5% $.14
5,500,000 96.5
New investors . . . . . . . ---------- ------ $5.50
$5,700,000 100.0%
Total . . . . . . . . . ========== ======
MAXIMUM OFFERING
----------------
Existing stockholders . . . $ 200,000 2.5% $.14
7,700,000 97.5
New investors . . . . . . . ---------- ------ $5.50
$7,900,000 100.0%
========== ======
The above table assumes no exercise of the 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."
-18-
<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, 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 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 Prospectus, has continued to focus its marketing
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
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
For the nine months ended September 30, 1997, the Company incurred a net
loss of $44,826, as compared to a net loss of $11,926 for the comparable
period during 1996. The increase in net loss was primarily attributable to
(i) increases in general and administrative expenses associated with this
offering, (ii) the Company's being forced to expend cash flow from
operations to satisfy obligations incurred in connection with this offering
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 this offering also had the effect of nullifying the approximate
$50,000 decrease in total costs and expenses incurred by the Company during
the nine months ended September 30, 1997 as compared to the comparable
period during 1996.
During the nine months ended September 30, 1997, the Company generated
leasing revenues of $189,020. This represents a decrease of approximately
$110,000 from leasing revenues of $310,920 for the nine months ended
September 30, 1996. This decrease in revenues was partially offset,
however, by the approximate $50,000 increase in interest income realized
during the nine months ended September 30, 1997. This increase in interest
income reflects the continuing shift in the Company's assets from maturing
leases of dry cleaning equipment to financed refrigeration equipment,
particularly with Medley Refrigeration and its affiliates.
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<PAGE>
The difference between the Company's net loss for each of the nine month
periods ended September 30, 1997 and 1996 as compared to the Company's net
loss applicable to common shareholders for the same periods is the accrued
but unpaid dividend applicable to shares of the Company's 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 this offering.
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.
For Fiscal 1996, the Company generated net income of $323,360, 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 $600,000
provision was taken essentially because at December 31, 1995, total
advances by the Company to Medley Refrigeration approximated $1.3 million.
This intercompany receivable was generated and had grown as a result of the
Company's advancing monies to Medley Refrigeration to enable Medley
Refrigeration to manufacture or otherwise acquire refrigeration equipment
which Medley Refrigeration would then lease to its customers. Medley
Refrigeration historically would then receive the lease payments relating
to this equipment directly from its customers, but, in lieu of remitting
these payments to the Company to reduce the outstanding intercompany
balance, Medley Refrigeration contributed these amounts to operate and
expand its business. Since Medley Refrigeration had not, prior to the
September 1996 audit date for the Company's Fiscal 1995 financial
statements, satisfied any meaningful portion of the outstanding advances
made to it by the Company, the independent public accountants auditing the
Company's Fiscal 1995 financial statements, determined that recording the
$600,000 provision was appropriate.
A reversal of the $600,000 provision was taken during Fiscal 1996
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. In addition, Medley Refrigeration sold various leases to the
Company totalling approximately $55,000 (which was Medley Refrigeration's
cost basis) in January 1997. The transaction was recorded as a further
reduction of the intercompany balance. Moreover, Medley Refrigeration paid
$200,000 cash, subsequent to December 31, 1996, to the Company to further
reduce the outstanding receivable balance. The leases assigned to the
Company as part of the Assignment are performing within the lease
agreements and the residual value of the equipment, net of reconditioning
costs, plus the future payment, exceed the total receivable balance as of
December 31, 1996. It was therefore management's belief that the payment
of the receivable was assured by a third party and therefore the allowance
was no longer warranted.
As discussed above, during January 1997, the Medley Refrigeration
intercompany receivable was further reduced 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 September 30, 1997, the
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<PAGE>
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 $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 $1,100,000 in proceeds generated from Group's
sale of its 200,000 shares of Common Stock in the Minimum Offering. This
$1,100,000 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 $1,100,000 in proceeds then
held in escrow attributable to Group's sale of its 200,000 shares of Common
Stock in the Minimum Offering.
Management of the Company believes that the Company is not at risk of
accumulating such a significant receivable in the future. Management's
belief is based upon, among other things, (i) the fact that all receivables
outstanding from Medley Refrigeration will be satisfied in their entirety
at the closing of the Minimum Offering, (ii) management's intention of
expanding operations to unaffiliated parties following the consummation of
this offering, (iii) management's confidence in evaluating the
creditworthiness of potential customers and lessees, (iv) the Company's
stated policy that following the consummation of this offering, it will not
permit receivables from affiliates to exceed, at any time, the lesser of
------
10% of all of the Company's total assets or $500,000 in the aggregate and
(v) the Company's stated policy that following the consummation of this
offering, all related party transactions must be on terms no more
favorable than otherwise could have been obtained from unrelated parties
and approved by a majority of the Company's disinterested directors.
See "Certain Transactions."
For Fiscal 1996, the Company generated net income per common share of
$.05 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 September 30, 1997, the Company had total assets of $1,994,513 as
compared to total assets of $1,794,820 at December 31, 1996. This increase
in total assets is primarily attributable to increases in accounts
receivable relating to new equipment leases entered into, the Company's
improved cash position and significantly higher prepaid offering costs
associated with this offering.
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 September 30, 1997, the Company had total liabilities of $1,699,166
as compared to total liabilities of $1,232,799 at December 31, 1996. This
increase in liabilities was primarily due to increases in declared but
unpaid and accrued Convertible Preferred Stock dividends and accounts
payable and accrued expenses incurred in connection with this offering. In
addition, during the third quarter of Fiscal 1997, the Company was required
to incur approximately $140,000 in borrowings from unaffiliated lenders to
support working capital requirements.
At 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 September 30, 1997, the Company had total stockholders' deficit of
$524,934 as compared to total stockholders' deficit of $258,260 at December
31, 1996. This increase in stockholders' deficit is primarily attributable
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<PAGE>
to the Company's incurring increased expenses in connection with this
offering, coupled with the Company's inability, due to these expenses, to
reinvest into its business, cash flow from operations.
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.
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.
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Prior to Fiscal 1996, the Company focused its marketing efforts
primarily on providing financing to creditworthy customers 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 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
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.
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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
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.
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<PAGE>
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
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 to the Company by an affiliate of Maynard Hellman, a
director of the Company. The Company pays this affiliate of Mr. Hellman
approximately $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.
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<PAGE>
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 and Chairman of the
Board
Steven Dreyer 54 Director
Maynard Hellman 52 Director
Robert D. Press has served as Chairman of the Board of the Company since
August 1997 and as President, Chief Executive Officer and a Director of the
Company since its inception in September 1993. Mr. Press devotes 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, Inc., a
holding company controlled by Messrs. Press and Steven L. Edelson the
former Chairman of the Board of the Company, with interests in brokerage
and investment management ("Performance Capital Management"), and as
President of Group since October 1992. Mr. Press also served, from 1991 to
July 1997, as a licensed registered representative of PCM Securities
Limited, L.P., an NASD registered broker-dealer ("PCM Securities"). 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.
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.
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<PAGE>
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 an employment contract with
Mr. Press, the Company's President and Chairman of the Board. The
following table summarizes the aggregate annual compensation to be payable
by the Company to Mr. Press effective upon the consummation of this
offering:
CAPACITY IN WHICH AGGREGATE
NAME OF INDIVIDUAL SERVED COMPENSATION
------------------ ----------------- ------------
Robert D. Press President and $60,000(1)
Chairman of the Board
_____________________
(1) Pursuant to the terms of Mr. Press' employment agreement with the
Company, this compensation will not begin to accrue until the Company
consummates this offering. During Fiscal 1996, Mr. Press did not, nor
was he 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 Steven L. Edelson, the President and
Chairman of the Board of the Company, and the former 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, as a result of his affiliation with
Performance Capital Management. See "--Employment Agreements"
and "Certain Transactions."
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Press
pursuant to which, among other things, Mr. Press has agreed to serve as
President and Chairman of the Board of the Company. Mr. Press' 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, Mr.
Press will begin earning a salary at the rate of $60,000 per annum. This
employment agreement expires on December 31, 1998 (subject to early
termination provisions), provided, however, that such agreement will
automatically renew for successive one-year terms commencing on December 31
of each year if no formal notice of termination has been provided. Mr.
Press is 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.
Mr. Press' employment agreement is 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 Mr. Press 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, Mr. Press 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
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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.
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 Dreyer . . . . . . . . . 20,154(5) 20,154(6)
Maynard Hellman . . . . . . . . 150,000(6) 150,000(7)
Carol Edelson
421 West 54 Street
New York, New York 10019 . . . 2,067,160(3)(7) 1,867,160(3)(5)
All directors and
officers as a
group (three persons) . . . . . 2,556,503(3)(4) 2,356,503(3)(4)
(5)(6) (5)(6)
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 Dreyer . . . . . . . . . 1.2% * *
Maynard Hellman . . . . . . . . 8.9% 5.7% 4.9%
Carol Edelson
421 West 54 Street
New York, New York 10019 . . . 92.6% 58.3% 51.8%
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All directors and
officers as a
group (three 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 and (ii)
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 Steven L. Edelson, the President and
Chairman of the Board and the former Chairman of the Board,
and the husband of Carol Edelson, a principal stockholder,
of the Company, respectively, may be deemed to be the
control persons of Medley Group, Inc., and, as such, each of
Mr. Press and Ms. Edelson 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) 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.
(6) 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 except that the exercise price of the warrants owned
by Mr. Hellman is $5.00 per share.
(7) 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 409,660 shares of Common Stock
issuable upon the conversion of 1,915,160 shares of
Convertible Preferred Stock owned by Ms. Edelson.
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.
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
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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 $1,100,000 in proceeds generated from
Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering. This $1,100,000 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 $1,100,000 in
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 Carol Edelson, President and Chairman of the Board of
the Company, and a principal stockholder of the Company,
respectively, 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. Mr. Press and Ms. 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 Ms. Edelson).
The Company and Performance Capital Management, a company
controlled by Mr. Press and Steven L. Edelson, the husband of
Carol Edelson, a principal stockholder of the Company, 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, Mr. Press) render business and
financial counsel, guidance and managerial assistance to the
Company. Mr. Press devotes all of his business time and efforts
to the affairs 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, Mr. Press and Ms.
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 (Mr. Press and Ms. 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 Mr. Press and Ms.
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%
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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
except that the exercise price of the Warrants owned by Mr.
Hellman is $5.00 per share.
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 Mr. Press and Ms. Edelson. These
shares were transferred and assigned by Group to Mr. Press and
Ms. Edelson (who subsequently received these shares from her
husband, Steven L. Edelson) in January 1996 in consideration for
services performed on behalf of the Company.
Following the consummation of this offering, the Company will
require all agreements and arrangements involving it and
Performance Capital Management or any other related party,
including the Company's officers, directors and 5% or greater
stockholders 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 total assets or $500,000 in the
aggregate and that any loans to the Company's officers,
directors, 5% or greater stockholders or affiliates will be for
bona fide business purposes only and approved by a majority of
the Company's disinterested directors. To date, all transactions
between the Company and its officers, directors and greater than
5% stockholders have been on terms no more favorable to such
officers, directors and stockholders as otherwise could be
obtained from unaffiliated parties.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 15,000,000 shares of Common
Stock, par value $.01 per share, and 10,000,000 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 outstanding
as of the date of this Prospectus.
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 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,
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when issued in exchange for the consideration set forth in this
Prospectus, will be) fully paid and nonassessable.
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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 and issued an aggregate
of 2,958,817 shares designated as Series A 10% Convertible
Preferred Stock. There is not authorized or outstanding, as of
the date of this Prospectus, any other series of preferred stock
of the Company. 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 June 1,
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 July 22,
1998, one share of Common Stock at a price of $5.75, subject to
adjustment in certain circumstances, until 5:00 p.m., Eastern
time, on July 22, 2002. The Warrants will be separately
transferable immediately upon issuance.
The Warrants are redeemable by the Company at any time after
July 22, 1998 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 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 (the "Warrant Agreement") by and
between the Company and American Stock Transfer & Trust Company,
as warrant agent (the "Warrant Agent"). 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,
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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.
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
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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. The Company has registered 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 is 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 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.
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
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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 Steven L.
Edelson, the President and Chairman of the Board of the Company,
and the former Chairman of the Board and the husband of Carol
Edelson, a principal stockholder of the Company, respectively,
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 $1,100,000 in 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
with the Company not to sell or dispose of any of its shares for
a period of six months from the date of this Prospectus. In
addition, each holder of Convertible Preferred Stock has agreed
with the Company 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.
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.
PLAN OF DISTRIBUTION
In accordance with the terms hereof, the Company is offering,
on a "best efforts" basis, 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
Company will use its best efforts to find purchasers for the
Common Stock and Warrants offered hereby by December 24, 1997.
The Company 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 Company. Subscribers' checks shall be made payable
to the Escrow Agent and the Company will transmit all
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 Company in an escrow account
maintained at Turnberry Bank, Aventura, Florida, 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.
This offering is being made by the Company on a "self-
underwritten" basis. As such, the Common Stock and Warrants are
being offered directly by the Company through certain of the
Company's officers, directors and employees. No underwriter or
broker or dealer has been retained by the Company in connection
with this offering and the Company has no intention of retaining
or engaging any underwriter or broker or dealer in the future to
assist with this offering. No commissions or other offering
remuneration will be paid in connection with this offering and
the Company has no intention of retaining or engaging any
underwriter or broker or dealer in the future to assist with this
offering. Alyce R. Schreiber, Director of Investor Relations of
the Company, and Christopher Pappas, Vice President-Marketing of
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the Company, will act as the principal selling agents of the
Company in connection with this offering.
The shares of Common Stock and Warrants are being offered
hereby subject to prior sale, withdrawal, cancellation or
modification of the offer, including its structure, terms and
conditions, without notice. The Company reserves the right, in
its sole discretion, to reject, in whole or in part, any offer to
purchase shares of Common Stock and/or Warrants.
The Company intends to sell the shares of Common Stock and
Warrants in this offering only in the states in which the
offering is qualified. An offer to purchase may only be made and
the purchase of the shares of Common Stock and/or Warrants may
only be negotiated and consummated in such states.
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.
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
unilaterally by the Company 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.
The Company has filed an application for the Common Stock and
Warrants to be quoted on NASDAQ under the proposed symbols "MCAC"
and "MCACW", respectively. Due to this offering being self-
underwritten by the Company, and other factors, including, that
the Company may have difficulty attracting market makers, the
Company's securities may not be approved for listing on NASDAQ.
In such event, the Company intends to arrange for its securities
to be traded in the over-the-counter market. See "Plan of
Distribution."
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.
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.
-37-
<PAGE>
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.
-38-
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
I. Fiscal 1996 and Interim 1997 Period:
------------------------------------
Independent Auditors' Report . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1996 and
unaudited at September 30, 1997 . . . . . . . . . . . . F-3
Statements of Operations for the year ended
December 31, 1996 and unaudited for the nine months
ended September 30, 1997 and 1996 . . . . . . . . . . . . F-5
Statements of Stockholders' Deficit for the year
ended December 31, 1996 and unaudited for the
nine months ended September 30, 1997 . . . . . . . . . . F-6
Statements of Cash Flows for the year ended
December 31, 1996 and unaudited for the
nine months ended September 30, 1997 and 1996 . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . F-9
II. Fiscal 1995:
-----------
Independent Auditors' Report . . . . . . . . . . . . . F-9
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.
As discussed in Note 18 to the financial statements, certain
errors in classification resulted in the overstatement of
previously reported stockholders' equity as of December 31, 1996.
The financial statements have been restated to correct the
misstatement.
Boca Raton, Florida
March 31, 1997 (except for Note 10 and Note 18 as
to which the date is September 25, 1997)
DASZKAL, BOLTON & MANELA
F-2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEETS
ASSETS
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
CURRENT ASSETS
Cash $ -- $ 26,242
Accounts receivable, net of
allowance for doubtful
accounts of $3,000 73,727 84,800
Notes receivable 29,816 29,574
Due from affiliates 585,288 302,904
73,015 272,534
Prepaid offering costs ---------- ----------
761,846 716,054
Total Current Assets ---------- ----------
RENTAL EQUIPMENT, AT COST, NET OF 234,619 253,878
ACCUMULATED DEPRECIATION ---------- ----------
PROPERTY AND EQUIPMENT, AT COST, 19,154 11,654
NET OF ACCUMULATED DEPRECIATION ---------- ----------
OTHER ASSETS
Due from affiliates 711,837 945,563
Rental equipment not in
service 65,565 65,565
1,799 1,799
Security deposits ---------- ----------
779,201 1,012,927
Total Other Assets ---------- ----------
$1,794,820 $1,994,513
TOTAL ASSETS ========== ==========
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, 1996 SEPTEMBER 31, 1997
----------------- ------------------
(UNAUDITED)
Notes payable $ 210,000 $ 150,000
Current portion of long-term debt 250,937 660,895
Current portion of obligations to
finance companies 91,027 56,717
Accounts payable and accrued
expenses 172,534 289,765
Dividends payable - preferred 127,668 349,516
stock ---------- ----------
Total Current Liabilities 852,166 1,506,893
---------- ----------
OTHER LIABILITIES
Long-term debt, net of current
portion 167,286 30,000
Obligations to finance companies,
net of current portion 100,996 36,790
Notes payable - officers 105,236 125,483
Customer deposits 7,115 --
---------- ----------
Total Other Liabilities 380,633 192,273
---------- ----------
Total Liabilities 1,232,799 1,699,166
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
---------- ----------
REDEEMABLE CONVERTIBLE 10%
PREFERRED STOCK
Series A 10% convertible
preferred stock, $.01 par
value, 5,000,000 authorized,
2,958,817 shares, issued
and outstanding (liquidation
value of $2,958,817 plus 820,281 820,281
accumulated dividends) ---------- ----------
STOCKHOLDERS' DEFICIT
Common stock, .01 par value,
10,000,000 authorized, 1,680,000
shares issued and outstanding 16,800 16,800
Additional paid-in capital 1,532,206 1,532,206
Accumulated deficit (1,807,266) (2,073,940)
---------- ----------
Total Stockholder's Deficit (258,260) (524,934)
---------- ----------
TOTAL LIABILITIES AND $1,794,820 $1,994,513
STOCKHOLDERS' EQUITY ========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
------------ -----------------
1996 1997 1996
---- ---- ----
REVENUES $ 356,235 $ 189,020 $ 310,920
--------- --------- ---------
COST AND EXPENSES
Depreciation 95,483 51,000 71,614
Interest expense 146,914 53,517 111,872
Loss on sale of leased
equipment 35,687 -- --
General and administrative 447,855 203,859 175,473
expenses --------- --------- ---------
Total Costs and Expenses 725,939 308,376 358,949
--------- --------- ---------
Income (Loss) From (369,704) (119,356) (48,039)
Operations --------- --------- ---------
OTHER INCOME (EXPENSES)
Interest income 93,064 108,310 58,339
Loss on sale of securities -- (33,780) --
Reversal of estimate for
uncollectible advances to
affiliate 600,000 -- --
Loss on sale of leased -- -- (22,226)
equipment --------- --------- ---------
Total Other Income 693,064 74,530 36,113
(Expenses) --------- --------- ---------
NET INCOME (LOSS) $ 323,360 $ (44,826) $ (11,926)
========= ========= =========
NET INCOME (LOSS) APPLICABLE TO $ 90,638 $(266,674) $(175,932)
COMMON SHAREHOLDERS --------- --------- ---------
NET INCOME (LOSS) PER COMMON $ .05 $ (.16) $ (.16)
SHARE ========= ========= =========
WEIGHTED AVERAGE NUMBER OF 1,680,000 1,680,000 1,120,000
SHARES OUTSTANDING ========= ========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK
------------
SHARES AMOUNT
------ ------
Balance, at January 1, 1996 1,000 $ 200,000
Reclassification of S-Corp
Undistributed Earnings -- --
Restatement of Common Stock -- (199,990)
Par Value --------- ---------
Beginning balance as restated 1,000 10
Stock Split - 1,120 to 1 1,119,000 11,190
Issuance of Warrants -- --
Compensation Value of Common
Stock -- --
Stock Split - 3 to 2 560,000 5,600
Preferred Stock Dividends -- --
Net Income -- --
--------- ---------
Balance, at
December 31, 1996 1,680,000 16,800
Net Income (Loss),
September 30, 1997
(Unaudited) -- --
Preferred Stock Dividends -- --
(Unaudited) --------- ---------
Balance, September 30, 1997 1,680,000 $ 16,800
(Unaudited) ========= =========
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
---------- ----------- -----
Balance, at January 1, 1996 $ 979,146 $(1,793,044) $(613,898)
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) (613,898)
Stock Split - 1,120 to 1 (11,190) -- --
Issuance of Warrants 100,000 -- 100,000
Compensation Value of Common
Stock 165,000 -- 165,000
Stock Split - 3 to 2 (5,600) -- --
Preferred Stock Dividends -- (232,722) (232,722)
Net Income -- 323,360 323,360
---------- ----------- ---------
Balance, at December 31, 1996 1,532,206 (1,807,266) (258,260)
Net Income (Loss), September
30, 1997 (Unaudited) -- (44,826) (44,826)
Preferred Stock Dividends -- (221,848) (221,848)
(Unaudited) ---------- ----------- ---------
Balance, September 30, 1997 $1,532,206 $(2,073,940) $(524,934)
(Unaudited) ========== =========== =========
See accompanying notes to financial statements.
F-6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
------------ -----------
CASH FLOWS FROM OPERATING 1996 1997 1996
ACTIVITIES ---- ---- ----
Net income $ 323,360 -- --
--------- -------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 95,483 -- --
Reversal of estimate for
uncollectible advances (600,000) -- --
to affiliate
Loss on sale of leased 35,687 -- --
equipment
Compensation value of common stock 165,000 -- --
Changes in assets and
liabilities:
Accounts receivable (43,907) -- --
Prepaid expenses (65,423) -- --
Accounts payable and 130,118 -- --
accrued expenses
Customer deposits (20,229) -- --
--------- -------- --------
Total Adjustments (303,271) -- --
--------- -------- --------
Net cash provided (used) by 20,089 (52,491) 105,228
operating activities --------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Net receipt from (to) affiliates 42,083 (76,228) 31,612
Purchase of securities -- (75,010) --
Proceeds from sale of securities -- 34,401 60,343
Purchase of rental equipment (111,544) -- --
Proceeds from sale of equipment -- 27,800 14,890
--------- -------- --------
Net cash provided (used) by (69,461) (89,037) 106,845
investing activities --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings 10,000 -- --
Proceeds from long-term debt 276,000 293,650 --
Repayments of short-term borrowings (145,000)
Repayments of long-term debt and
obligations to finance companies (216,577) (85,627) (161,748)
Payment of preferred stock (105,054) -- (75,328)
dividends
Net proceeds from shareholders 111,200 28,000 61,200
loans
Issuance of preferred stock 15,000 -- 5,000
Issuance of warrants 100,000 -- --
Repayments of notes payable -- (60,000) (45,000)
Repayments of shareholder loan -- (8,253) --
--------- -------- --------
Net cash provided (used) by 45,569 167,770 (215,876)
financing activities --------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS (3,803) 26,242 (3,803)
CASH AND EQUIVALENTS - beginning of 3,803 -- 3,803
period --------- -------- --------
CASH AND EQUIVALENTS - end of period $ -- $ 26,242 $ --
========= ======== ========
See accompanying notes to financial statements.
F-7
<PAGE>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
------------ -----------
1996 1997 1996
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 59,628 $ 28,475 $ 61,962
========== ======== ========
SUPPLEMENTAL NONCASH INVESTING AND
FINANCIAL ACTIVITIES:
Long-term debt and related
accrued interest converted into
convertible preferred stock $ 788,844 $ -- $788,844
Leased equipment received from
affiliated company as payment
on intercompany receivable -- 87,758 --
Obligations to finance
companies trasferred to
affiliated company -- 27,807 --
========== ======== ========
$ 788,844 $ 51,883 $788,844
========== ======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 1997
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.
Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and
related-party transactions:
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents, receivables and accounts
payable approximate carrying value due to the short-term maturity of the
instruments. The fair value of short-term and long-term debt approximate
carrying value based on their effective interest rates compared to current
market rates.
F-9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 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) September 30,
September 30, December 31, 1997
1997 1996 -----------
------------- ------------ Not
In Service In Service In Service
------------- ------------ -----------
Equipment, at cost $528,134 $465,375 $562,140
Less, accumulated 274,256 230,756 496,575
depreciation -------- -------- --------
$253,878 $234,619 $ 65,565
Net Rental Equipment ======== ======== ========
December 31, (Unaudited)
1996 September 30, December 31,
------------ 1997 1996
Not ----------- ------------
In Service Total Total
------------ ----------- ------------
Equipment, at cost $562,140 $1,090,274 $1,027,515
Less, accumulated 496,575 756,331 727,331
depreciation -------- ---------- ----------
Net Rental $ 65,565 $ 333,943 $ 300,184
Equipment ======== =========== ==========
F-10
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RENTAL EQUIPMENT AND DEPRECIATION (CONT.)
The depreciation expense on rental equipment for the nine months ended
September 30, 1997 and the year ended December 31, 1996 was $43,500 and
$85,415, respectively.
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)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -----------
Office equipment . . . . . . . . $48,571 $48,571
6,955 6,955
Automobile . . . . . . . . . . . ------- -------
55,526 55,526
43,872 36,372
Less: Accumulated depreciation . ------- -------
$11,654 $19,154
Net property and Equipment . . ======= =======
Depreciation expense on property and equipment for the nine months ended
September 30, 1997 and the year ended December 31, 1996 was $7,500 and
$10,068, respectively.
F-11
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
Notes payable of $150,000 at September 30, 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 September
30, 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 September 30, 1997) 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.
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 September 30, 1997 and December 31, 1996, the Company remained obligated
to various individuals, not electing to convert their debt, for amounts
aggregating $690,895 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 September 30, 1997 and December 31, 1996 is $661,873 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)
September 30, December 31,
1997 1996
------------ -----------
18.7% obligation, payable in monthly
installments of $2,260, including interest,
through April 1998 . . . . . . . . . . . . $14,880 $ 33,527
23.6% obligation, payable in varying monthly
installments, including interest, through
November 1999 . . . . . . . . . . . . . . . 21,867 40,341
21.2% obligation, payable in varying monthly
installments, including interest, through
November 1999 . . . . . . . . . . . . . . . 42,663 62,223
18.3% obligation, payable in varying monthly
installments, including interest, through
November 1999 . . . . . . . . . . . . . . . 14,097 26,678
21.4% obligation, payable in monthly
installments of $996, including interest, -- 29,254
through June 2000 . . . . . . . . . . . . . -------- --------
93,507 192,023
Less: Current maturities . . . . . . . . . 56,717 91,027
-------- --------
Long-Term Obligations . . . . . . . . . . $ 36,790 $100,996
======== ========
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
=========
F-13
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
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 five
quarters. 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 September 30, 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)
The Company has recorded its share of allocated corporate
overhead expenses of $18,000 as follows:
Allocated 15% of rent, utilities and insurance
based upon square footage used . . . . . . . . $ 13,650
Allocated 12% of office salaries based upon
companies determination of labor hours
incurred . . . . . . . . . . . . . . . . . . . $ 4,350
-------
Total allocated . . . . . . . . . . . . . . . . $18,000
=======
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
F-14
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS (Cont.)
the future collection of cash by Medley Credit Acceptance
Corporation from the assigned leases will be sufficient to pay
the obligation.
Included in long-term debt is a $10,000 note due to a company
owned by one of the stockholders.
NOTE 10 - REDEEMABLE CONVERTIBLE 10% PREFERRED STOCK
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. When the public offering has been
successfully completed the preferred stock will be reclassified
to the permanent equity of the Company.
NOTE 11 - STOCKHOLDERS' DEFICIT
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.
Additional Paid-In Capital
--------------------------
30,000 shares of stock owned by the parent Company, Medley Group,
Inc., was transferred to the officers for services performed by
them on behalf of the Company.
At December 31, 1996, $165,000, representing the fair value of
the officer's compensation was recorded as an expense and
included in additional paid-in capital.
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.
F-15
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - 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.
NOTE 13 - 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
$3,750 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.
F-16
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - 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)
September 30, December 31,
1997 1996
------------- ------------
Deferred Income Tax
Expense:
Federal $ -- $102,500
State -- 17,500
Less Valuation Allowance ( --) (120,000)
_______ ________
Deferred Income Tax $ -- $
======= ========
At September 30, 1997 and December 31, 1996, the Company has an
unused net operating loss carryforward of approximately $617,800
and $573,000, 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
loss carryforward is presented in the following table. The tax
amounts have been calculated using a 40% combined effective tax
rate.
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
Deferred Tax Asset:
Tax Benefit of Net Operating $247,000 $229,200
Loss
Less: Valuation Allowance (247,000) (229,200)
-------- --------
Deferred Tax Asset $ __ $ __
-------- --------
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
(Unaudited)
September
30, December 31,
1997 1996
---------- ----------
Benefit of Federal (34%) (34)%
Statutory Rate
Benefit at State (6)% (6)%
Income Tax Rate ----- ----
(40)% (40)%
===== =====
F-17
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - 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 16 - 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.
NOTE 17 - 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>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 18 - RESTATEMENT OF FINANCIAL INFORMATION
On September 25, 1997, it was discovered that the Company's
Series A 10% convertible preferred stock as described in Note 10
requires a sinking fund and, as a result, has been reclassified
outside of stockholders' equity.
F-19
<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.
ISRAELOFF, TRATTNER & CO. P.C.
F-20
<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 210,628
expenses ----------
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-21
<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 31, 1,643,726 $16,437 1,000 $200,000
1995 ========= ======= ===== ========
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
---------- ----------- ------
BALANCE - BEGINNING OF YEAR AS
PREVIOUSLY REPORTED $979,146 $(369,183) $ 826,400
-- (321,807) (321,807)
PRIOR PERIOD ADJUSTMENT (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 ________ _________ _________
$979,146 $(1,793,044) $(597,461)
BALANCE - DECEMBER 31, 1995 ======== =========== =========
See accompanying notes to financial statements.
F-22
<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 operating 48,469
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 67,772
activities ---------
NET DECREASE IN CASH (161,427)
CASH - BEGINNING 165,230
---------
CASH - END $ 3,803
=========
See accompanying notes to financial statements.
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
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-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
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 $ 20,049
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-25
<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-26
<PAGE>
MEDLEY CREDIT 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-27
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL 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-28
<PAGE>
=================================== ===============================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE 1,600,000 SHARES
CONTAINED IN THIS PROSPECTUS IN COMMON STOCK
CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR 1,600,000 REDEEMABLE WARRANTS
REPRESENTATIONS MUST NOT BE RELIED TO PURCHASE COMMON STOCK
UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. 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 . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . 15 MEDLEY CREDIT
Dividend Policy . . . . . . . . . . . 16 ACCEPTANCE CORP.
Capitalization . . . . . . . . . . . 17
Dilution . . . . . . . . . . . . . . 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . 19
Business . . . . . . . . . . . . . . 22 ----------
Management . . . . . . . . . . . . . 25 PROSPECTUS
Principal Stockholders . . . . . . . 28 ----------
Certain Transactions . . . . . . . . 29
Description of Securities . . . . . . 31
Shares Eligible for Future Sale . . . 34
Plan of Distribution . . . . . . . . 35
Legal Matters . . . . . . . . . . . . 36
Experts . . . . . . . . . . . . . . . 36
Additional Information . . . . . . . 37
Index to Financial Statements . . . F-1
______________
UNTIL MARCH . , 1998 (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. DECEMBER . , 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.
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 . . . . . $ 5,527.28
NASD filing fee . . . . . . . 2,204.00
Nasdaq SmallCap Market
listing fee . . . . . . . 9,880.00
Accounting fees and expenses . 30,000.00
Legal fees and expenses . . . 100,000.00
Blue sky fees and expenses . . 10,000.00
Transfer and Warrant Agent fee 3,500.00
Printing and engraving fees . 3,000.00
Miscellaneous . . . . . . . . 888.72
------------
Total . . . . . . . . . . . $165,000.00*
___________________________
II-1
<PAGE>
* 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, and the former Chairman of the Board of the Company,
respectively, 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
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 except that the exercise price of the warrants
owned by Mr. Hellman is $5.00 per share.
Section 4(2) of the Securities Act provides an exemption for
the Company for each of the above-described transactions.
ITEM 27. EXHIBITS.
3.1 Amended and Restated Certificate of Incorporation of
the Company+
3.2 Certificate of Designation, Rights and Preferences
relating to shares of the Company's Series A 10%
Convertible Preferred Stock+
3.3 By-Laws of the Company+
4.1 Specimen Common Stock Certificate+
4.2 Specimen Warrant Certificate (included as Exhibit A
to Exhibit 4.3)
4.3 Warrant Agency Agreement, dated as of . , 1997,
between the Company and American Stock Transfer &
Trust Company+
5.1 Opinion of Reid & Priest LLP+
10.1 Employment Agreement, dated as of December 1, 1996,
as amended, 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.+
II-2
<PAGE>
10.5 Escrow Agreement, dated as of , 1997, among the
Company, Medley Group, Inc. and Turnberry Bank
10.6 The Company's 1997 Stock Option Plan+
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+
__________________________________
+ Previously filed.
II-3
<PAGE>
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:
(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 Post-Effective Amendment to Registration
Statement to be signed on its behalf by the undersigned, in the
City of Coral Gables, State of Florida, on this 17th day of
December, 1997.
MEDLEY CREDIT ACCEPTANCE CORP.
/s/ Robert D. Press
-----------------------------
Robert D. Press
Chairmand of the Board,
President, Treasurer and
Secretary
In accordance with the requirements of the Securities Act of
1933, this Post-Effective Amendment to Registration Statement was
signed by the following persons in the capacities and on the
dates stated.
Signatures Title Date
---------- ----- ----
/s/ Robert D. Press
_____________________ Chairman of the Board December 17, 1997
Robert D. Press President, Treasurer
and Secretary
(Principal Executive,
Financial
and Accounting
Officer)
/s/ *
_____________________
Steven Dreyer Director December 17, 1997
/s/ *
_____________________ Director December 17, 1997
Maynard Hellman
* By: Robert D. Press as
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
-------------
3.1 Amended and Restated Certificate of Incorporation of the Company+
3.2 Certificate of Designation, Rights and Preferences relating to
shares of the Company's Series A 10% Convertible Preferred
Stock+
3.3 By-Laws of the Company+
4.1 Specimen Common Stock Certificate+
4.2 Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3)
4.3 Warrant Agency Agreement, dated as of . , 1997, between the Company
and American Stock Transfer & Trust Company+
5.1 Opinion of Reid & Priest LLP+
10.1 Employment Agreement, dated as of December 1, 1996, as amended,
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.+
10.5 Escrow Agreement, dated as of November, 1997, among the Company,
Medley Group, Inc. and Turnberry Bank
10.6 The Company's 1997 Stock Option Plan+
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+
__________________________________
+ Previously filed.
EXHIBIT 10.5
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT is made and entered into this ___
day of November, 1997, by and between MEDLEY CREDIT ACCEPTANCE
CORP., a Delaware corporation (hereinafter referred to as
"Company"), MEDLEY GROUP, INC., a Delaware Corporation
(hereinafter referred to as "Group") and TURNBERRY BANK
(hereinafter referred to as "Escrow Agent").
WITNESSETH
WHEREAS, the Company has filed a registration statement
with the Securities and Exchange Commission for a public offering
("Public Offering"), of a minimum of One Million Two Hundred
Thousand (1,200,000) shares of common stock at $5.50 per share
and redeemable warrants to purchase a minimum of One Million Two
Hundred Thousand (1,200,000) shares of common stock at $.15 per
warrant on a best efforts, all or none basis (the "Minimum
Offering") and a maximum of One Million Six Hundred Thousand
(1,600,000) shares of common stock and warrants to purchase One
Million Six Hundred Thousand (1,600,000) shares of common stock
on a best effort basis (the "Maximum Offering"), and
WHEREAS, to close on the Minimum Offering and disburse
the escrowed funds, the Escrow Agent must receive the sum of Six
Million Seven Hundred Eighty Thousand Dollars ($6,780,000.00)
from the sale of shares and warrants in cash, and
WHEREAS, the ownership of the shares of Common Shares
to be sold in the Minimum Offering are owned as follows:
(1) Company 1,000,000
(2) Group 200,000
and,
WHEREAS, as a condition to closing on the Minimum
Offering, Group has agreed on behalf of Medley Refrigeration,
Inc., Group's majority owned subsidiary, to remit directly to
Company the proceeds from the sale of Group's 200,000 shares of
common stock in the Minimum Offering ($990,000) for the express
purpose of satisfying in their entirety all receivables then
outstanding from Medley Refrigeration, Inc., to the Company, and
WHEREAS, pending the sale of the Minimum Offering, the
proceeds of the sale are required to be held in escrow so that in
the event by December 31, 1997, the Minimum Offering is not sold,
all monies received will be refunded to the subscribers in full,
and
WHEREAS, provided the funds from the Minimum Offering
in the sum of Six Million Seven Hundred Eighty Thousand Dollars
($6,780,000.00) have been received by the Escrow Agent, timely,
the Escrow Agent will be responsible for paying the proceeds
received as required by this Agreement, and
WHEREAS, the Company, Group and Escrow Agent desire to
memorialize their agreement concerning the escrow into a written
instrument.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein and for other good and
valuable consideration, the parties agree as follows:
1. RECITALS. The above and foregoing recitals are true
--------
and correct and are incorporated herein.
2. ESCROW. The Escrow Agentagrees to accept all funds
------
delivered to it derived from the sale of common stock and
redeemable warrants arising from the Minimum Offering of the
Company and to hold and disburse said funds in furtherance of the
terms of this agreement. The Escrow Agent shall acknowledge to
the each other the receipt of all funds on Friday of each week
during the term of this escrow.
3. REQUIREMENTS FOR DISBURSEMENT OF ESCROWED FUNDS:
-----------------------------------------------
The Escrow Agent shall disburse and pay over all funds held in
escrow upon the satisfaction of the following conditions:
a. Escrow Agent shall have received Six Million
Seven Hundred Eighty Thousand Dollars ($6,780,000.00) in cash.
In the event the foregoing requirement is not satisfied
by December 31, 1997, all monies received by Escrow Agent will be
refunded and returned to the subscribers in full within a
reasonable time.
4. INTEREST ON ESCROWED FUNDS: All interest accruing
--------------------------
on the escrowed funds from the date of deposit to disbursement
shall belong to the Company.
5. DISBURSEMENT OF ESCROWED FUNDS: Provided the
------------------------------
requirement for disbursement set forth in Section 3 above have
been satisfied, Escrow Agent shall disburse the escrowed funds as
directed by a Letter of Authorization signed by the Company's
Board of Directors.
6. CLOSING DATE: Provided the Minimum Offering has
------------
been sold, the closing of this Escrow and the disbursement of the
escrowed funds shall take place within 48 hours of the Escrow
Agents' receipt of the Company's Letter of Authorization.
7. INVESTMENTS: Funds held in escrow under this Escrow
-----------
Agreement shall be invested in short term U.S. Government
Securities, money market funds or such other similar short term,
highly liquid investments as authorized by the Company.
Investment income derived on the funds held in escrow shall
accrue and be deposited into a separate escrow fund for
accounting purposes.
8. ESCROW AGENT'S RIGHT TO RELY: DUTIES: All funds
----------------------------
deposited with the Escrow Agent shall be accepted, subject to
clearance. The Escrow Agent may act in reliance upon any writing
or instrument or signature which it, in its sole discretion,
believes to be genuine; may assume the validity and accuracy of
any statements or assertions contained in such writing or
instrument; and may assume that any person purporting to give any
writing, notice, advice, or instruction in connection with
provisions hereof, has been duly authorized to do so. The Escrow
Agent shall not be liable to any party to this Escrow Agreement,
or to any other individual or entity in any manner for the
sufficiency or correctness as to form, manner of execution, or
validity of any written instructions delivered to it, nor as to
the identity, authority, or rights of any person executing the
same. The Escrow Agent undertakes to perform only such duties as
are expressly set forth herein, and no implied duties or
obligations shall be read into this Escrow Agreement as against
the Escrow Agent.
9. INDEMNIFICATION. The Escrow Agent may consult with
---------------
counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by
it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall otherwise not be liable for
any mistakes of fact or error of judgment, or for any acts or
omissions of any kind unless caused by its willful misconduct or
gross negligence and the Company and Group agree to indemnify and
hold harmless the Escrow Agent from any claims, demands, causes
of action, liabilities, damages or judgments, including the cost
of defending any action against it, together with any reasonable
attorney's fees of any nature (including appeal) incurred
therewith in connection with Escrow Agent's undertakings pursuant
to the terms and conditions of the Escrow Agreement, unless such
act or omission is a result of the willful misconduct or gross
negligence of the Escrow Agent.
10. INTERPLEADER: If disagreement arises about the
------------
interpretation of this Escrow Agreement, or about the rights and
obligations or the propriety of any action contemplated by the
Escrow Agent hereunder, Escrow Agent may, at its sole discretion,
file an action in interpleader to resolve the said disagreement.
The Escrow shall be indemnified by the Company and Group for all
costs, including reasonable attorneys' fees of any nature
(including appeal) in connection with any aforesaid interpleader
action and the Escrow Agent shall be fully protected in
suspending all or a part of its activities under this Escrow
Agreement until a final judgment in the interpleader action shall
have been rendered by the appropriate judicial body.
11. COMPENSATION: The Escrow Agent shall receive
------------
compensation in accordance with its schedule of fees attached
hereto as "Exhibit A" and incorporated herein as part of this
Escrow Agreement. The fee schedule may be modified from time to
time, provided however, that all parties hereto shall be given 30
days' notice prior to the effective date of any fee increase.
12. RESIGNATION: The Escrow Agent may resign at any
-----------
time for any reason upon the giving of 30 days' written notice to
the Company. If a notice of appointment of a successor Escrow
Agent is not delivered to the Escrow Agent within 30 days after
notice of resignation, the Escrow Agent may petition any court of
competent jurisdiction (the "Court") to name a successor Escrow
Agent, and the Escrow Agent herein shall be fully relieved of all
liability to any and all parties upon the transfer of all cash or
property in its possession under the Escrow Agreement to the
Successor Escrow Agent either designated or appointed by the
Court.
13. GOVERNING LAW: This Escrow Agent shall be construed
-------------
and enforced according to the laws of the State of Florida.
14. ENTIRE AGREEMENT: This Escrow Agreement represents
----------------
the entire agreement between Turnberry Bank, as Escrow Agent, and
all other parties to this Escrow Agreement, with respect to the
subject matter of this Escrow Agreement, and shall be binding
upon the parties, their respective successions and assigns.
15. COUNTERPARTS: This Agreement may be executed
------------
through the use of separate signature pages or in any number of
counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same
counterpart.
16. NOTICES: Any notices and communication required or
-------
permitted hereunder shall be sufficiently given if sent by first-
class mail, postage prepaid, addressed as follows:
(a) If to Company, addressed to:
MEDLEY CREDIT ACCEPTANCE CORP.
Attn: Robert D. Press, President
1100 Ponce de Leon Blvd.
Coral Gables, Florida 33134
with a copy to:
MAYNARD J. HELLMAN, ESQ.
HELLMAN & MAAS
1100 Ponce de Leon Blvd.
Coral Gables, Florida 33134
(b) If to the Escrow Agent, addressed to:
Turnberry Bank
Attention: Russell Rice
20295 N.E. 29 Place
Aventura, Florida 33180
(c) If to GROUP, addressed to:
Medley Group, Inc.
Attn: Robert D. Press, President
1100 Ponce de Leon Blvd.
Coral Gables, Florida 33134
IN WITNESS WHEREOF, the parties hereto have hereunder
set their hands and seals as of the day and year first above
written.
COMPANY:
MEDLEY CREDIT ACCEPTANCE CORP.
BY: /s/ Robert D. Press
--------------------------
ROBERT D. PRESS, PRESIDENT
GROUP:
MEDLEY GROUP, INC.
BY: /s/ Robert D. Press
--------------------------
ROBERT D. PRESS, PRESIDENT
ESCROW AGENT:
TURNBERRY BANK
BY: /s/ Russell Rice
--------------------------
RUSSELL RICE, PRESIDENT
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.
Israeloff, Trattner & Co. P.C.
Valley Stream, New York
December 17, 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, except for Note
10 and Note 18 as to which the date is September 25, 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.
Daszkal, Bolton & Manela
Boca Raton, Florida
December 17, 1997
