AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1997
REGISTRATION NO. 333-
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MEDLEY CREDIT ACCEPTANCE CORP.
(Name of Small Business Issuer in Its Charter)
---------------------
Delaware 6153 13-3571419
(State Or Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
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10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
---------------------
ROBERT D. PRESS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TREASURER
MEDLEY CREDIT ACCEPTANCE CORP.
10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Name, Address and Telephone Number of Agent For Service)
---------------------
COPIES TO:
DAVID R. HARDY, ESQ. JONATHAN L. SHEPARD, ESQ.
REID & PRIEST LLP SIEGEL, LIPMAN, DUNAY & SHEPARD, LLP
40 WEST 57TH STREET THE PLAZA - SUITE 801
NEW YORK, NEW YORK 10019 5355 TOWN CENTER ROAD
(212) 603-2000 BOCA RATON, FL 33486
(561) 368-7700
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.[ ]
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
=================================================================
TITLE PROPOSED PROPOSED
OF EACH MAXIMUM MAXIMUM
CLASS OF DOLLAR OFFERING AGGREGATE AMOUNT
SECURITIES AMOUNT PRICE OFFERING OF
TO BE TO BE PER PRICE REGISTRATION
REGISTERED REGISTERED UNIT(1) (1) FEE
-----------------------------------------------------------------
Common
Stock, $.01 1,250,000 $5.50 $6,875,000 $2,083.33
par value shares
-----------------------------------------------------------------
Redeemable
Common Stock
Purchase 1,250,000 $0.15 $ 187,500 $56.82
Warrants Warrants(2)
----------------------------------------------------------------
Common
Stock, $.01 1,250,000 $5.00 $6,250,000 $1,893.94
par value shares(2)
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Total $13,312,500 $4,034.09
=================================================================
(1) Estimated solely for the purpose of computing the amount of
the registration fee pursuant to Rule 457 promulgated under
the Securities Act of 1933, as amended.
(2) Together with such indeterminate number of additional
Redeemable Common Stock Purchase Warrants and shares of
Common Stock as may be issued pursuant to the anti-dilution
provisions of the Redeemable Common Stock Purchase Warrants
pursuant to Rule 416(a) promulgated under the Securities Act
of 1933, as amended.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PRELIMINARY PROSPECTUS DATED APRIL 10, 1997
SUBJECT TO COMPLETION
1,250,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,250,000 SHARES OF COMMON STOCK
MEDLEY CREDIT ACCEPTANCE CORP.
Medley Credit Acceptance Corp., a Delaware corporation (the
"Company"), is offering hereby a minimum of 1,000,000 shares of
common stock, $.01 par value per share (the "Common Stock"), and
redeemable warrants to purchase a minimum of 1,000,000 shares of
Common Stock (the "Warrants"), on a best efforts, all or none
basis (the "Minimum Offering"), and a maximum of 1,250,000 shares
of Common Stock and Warrants to purchase 1,250,000 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
1,000,000 shares of Common Stock and 1,000,000 Warrants, all proceeds
will be held in an escrow account. If 1,000,000 shares of Common
Stock and 1,000,000 Warrants are not sold within 30 days from the
date hereof (which may be extended an additional 30 days by
mutual agreement of the Company and the Underwriter), all monies
received will be refunded to subscribers in full. If
subscriptions for 1,000,000 shares of Common Stock and 1,000,000
Warrants have been received, the offering will continue on a
"best efforts" basis, up to a maximum of 1,250,000 shares of Common
Stock and 1,250,000 Warrants, but without any escrow or refund
provisions.
The shares of Common Stock and the Warrants may be purchased
separately and will be separately transferable immediately upon
issuance. Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $5.00 at any
time commencing one year from the date of this Prospectus until
___, 2002 (five years after the date of this Prospectus). The
Warrants are redeemable by the Company, with the consent of the
Underwriter, at any time after ___, 1998 (one year after the
date of this Prospectus), upon notice of not less than 30 days,
at a price of $.15 per Warrant, provided that the closing bid
quotation of the Common Stock on all 25 of the trading days
ending on the third day prior to the day on which the Company
gives notice of redemption has been at least 150% (currently
$8.25, subject to adjustment) of the offering price of the
Common Stock being offered hereby. The holders of the Warrants
are granted exercise rights until the close of business on the
date fixed for redemption. See "Description of Securities."
Prior to this offering, there has been no public market for
the Common Stock or the Warrants. No assurance can be given that
public markets for the Common Stock or Warrants will develop
following the completion of this offering or that, if any such
markets do develop, they will be sustained. It is anticipated
that the Common Stock and the Warrants will be quoted on the
NASDAQ Small-Cap Market system ("NASDAQ") under the proposed
symbols "MCAC" and "MCACW", respectively. Such listing will
be effective upon the closing of the Minimum Offering. For a
discussion of the factors considered in determining the offering
prices, see "Underwriting."
The Company has a limited operating history and limited or
no experience in some of the businesses it anticipates pursuing.
In addition, the Company will rely heavily on the management
services of affiliates who, in turn, have limited operating
histories and limited capital. See "Business."
--------------------------
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 CRIMINL OFFENSE.
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UNDERWRITING PROCEEDS
DISCOUNTS AND TO
PRICE TO PUBLIC COMMISSIONS (1)(2) COMPANY (1)(3)
------------------------------------------------------------------------
Per Share $ 5.50 $ 0.550 $ 4.950
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Per Warrant $ 0.15 $ 0.015 $ 0.135
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Total Minimum $5,650,000 $565,000 $5,085,000
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Total Maximum $7,062,500 $706,250 $6,356,250
========================================================================
(1) The shares of Common Stock and Warrants are offered on a best
efforts basis. This offering terminates on ___, 1997,
provided the Company and the Underwriter may agree to extend
the offering until ___, 1997. Subscriptions will be placed
in escrow in a non-interest bearing account with SunTrust
Bank, South Florida, N.A., as agent for the Company (the
"Escrow Agent"), pending attainment of the Minimum Offering.
See "Underwriting."
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or a solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
(2) In addition, the Company has agreed to pay to the
Underwriter a 3% nonaccountable expense allowance, to sell
to the Underwriter warrants to purchase up to 125,000 shares
of Common Stock (the "Underwriter's Warrants") and to grant
the Underwriter a right of first refusal in connection with
future financings. The Company has also agreed to indemnify
the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(3) Before deducting expenses, including the nonaccountable
expense allowance in the amount of $211,875 in the event of
the Maximum Offering and $169,500 in the event of the
Minimum Offering, estimated at $345,747 in the event of the
Maximum Offering and $303,372 in the event of the Minimum
Offering, payable by the Company.
The Common Stock and the Warrants are being offered by PCM
Securities Limited, L.P. (the "Underwriter") and by other members
of the National Association of Securities Dealers, Inc. (the
"NASD") authorized as selling agents (collectively, the "Broker-
Dealers"). Each investor must purchase a minimum of 100 shares
of Common Stock and/or 100 Warrants in this offering. Any larger
number of shares and/or Warrants must be purchased in 100 share
and/or Warrant increments. The Common Stock and Warrants are
offered when, as and if delivered to and accepted by the
Underwriter and subject to the approval of certain legal matters
by counsel and to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares of Common
Stock and the Warrants offered hereby will be made upon transfer
of the funds in escrow by the Escrow Agent to the Company's
account upon completion of the Minimum Offering and from time to
time thereafter as subscriptions are received.
---------------
PCM SECURITIES LIMITED, L.P.
The date of this Prospectus is ___, 1997
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<PAGE>
[PICTURES]
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become
subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, will file reports, proxy and information statements
and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at
the principal office of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should
be available at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Company intends to
furnish its stockholders with annual reports containing audited
financial statements and such other reports as the Company deems
appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK AND WARRANTS OFFERED HEREBY AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 WITH RESPECT TO THE RESULTS OF OPERATIONS AND
BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED,
PROJECTED, FORECAST, ESTIMATED OR BUDGETED IN SUCH FORWARD
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (i) FAILURE OF THE COMPANY TO CARRY OUT
SUCCESSFULLY ITS BUSINESS PLAN; (ii) FAILURE OF THE COMPANY TO
RAISE ADDITIONAL EQUITY OR SECURE ADDITIONAL FINANCING ON
FAVORABLE TERMS, IF NECESSARY, (iii) LOSS OF KEY EXECUTIVES; (iv)
HEIGHTENED COMPETITION, INCLUDING SPECIFICALLY, THE
INTENSIFICATION OF PRICE COMPETITION, THE ENTRY OF NEW
COMPETITORS AND THE DEVELOPMENT OF NEW LEASING AND FINANCIAL
PRODUCTS BY NEW AND EXISTING COMPETITORS; (v) GENERAL ECONOMIC
AND BUSINESS CONDITIONS WHICH ARE LESS FAVORABLE THAN EXPECTED;
AND (vi) UNANTICIPATED CHANGES IN INDUSTRY TRENDS. SEE "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
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<PAGE>
PROSPECTUS SUMMARY
The follow summary is qualified in its entirety by reference
to the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. All share and per share data and
information in this Prospectus relating to the number of shares
of Common Stock outstanding have been adjusted to give effect to
the 1,120:1 stock split effected on June 30, 1996 and the 3:2
stock split effected on December 31, 1996.
THE COMPANY
Medley Credit Acceptance Corp. (the "Company") is a
specialty finance company which has been engaged primarily in the
financing of (i) dry cleaning equipment to small dry cleaning
businesses throughout the eastern United States and (ii)
refrigeration equipment sold or leased by Medley Refrigeration,
Inc. ("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 Medley Group, Inc., a Delaware holding
company ("Group").
Prior to September 1, 1993, the Company (then called Premier
Lease Concepts, Inc., a Delaware corporation) was engaged
primarily in the financing of dry cleaning equipment to small dry
cleaning businesses throughout the eastern United States. In
September 1993, Premier Lease Concepts, Inc. was merged into a
subsidiary of Group. As part of this Merger, the Company's name
was changed to Medley Credit Acceptance Corp. Commencing with
its affiliation with Group and continuing through 1995, the
Company focused its marketing efforts primarily on providing
financing to creditworthy purchasers of both dry cleaning and
refrigeration equipment. Commencing in 1996, the Company began
de-emphasizing its dry cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such purchasers tend to be small entities
whose asset bases may not be significant enough to attract
traditional institutional lenders. Such purchasers are typically
willing to pay a premium in terms of interest rates for
convenience and availability of financing.
During December 1996, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues
from, and rights of collection with respect to, a majority of the
refrigeration equipment leases entered into by Medley
Refrigeration with its customers. Prior to this assignment, the
Company historically would lend Medley Refrigeration the capital
necessary for Medley Refrigeration to either purchase or
manufacture refrigeration equipment for its customers. Medley
Refrigeration, in turn, would lease this refrigeration equipment
to its customers who, as a condition to the lease, would grant
the Company a security interest in the leased equipment to
collateralize the customer's payment obligations under the
equipment lease. As a result of the aforementioned assignment,
lease payments with respect to a majority of the equipment leases
extended to Medley Refrigeration's customers began, and continue,
to be payable directly to the Company. In addition, commencing
in January 1997, the Company began, and continues, to finance
refrigeration equipment leases directly with Medley
Refrigeration's customers. The Company, through the date of this
Prospectus, has continued to focus its marketing efforts
primarily to customers of Medley Refrigeration.
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 users of financing and referring them to the
Company's financing sources on a fee basis. In addition to such
factoring and brokerage-type, service-oriented 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.
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.,
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<PAGE>
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.
In addition to the foregoing finance activities, the Company
intends to consider entering, on a smaller scale, the business of
making bridge loans to companies in the process of effecting
public offerings. Performance Capital Management, Inc.
("Performance Capital Management"), a company controlled by
Messrs. Robert D. Press and Steven L. Edelson, President and
Chairman of the Board, respectively, of the Company, is party to
a management contract with the Underwriter of this offering.
Pursuant to the management contract, among other things, Mr.
Edelson serves as a principal of the Underwriter. The
Underwriter is in the business of underwriting public equity
financings for small companies. These companies frequently are
in need of short-term "bridge" financing to maintain their
business and/or to cover the cost of private securities offerings
pending the consummation of their underwritten public offering.
Bridge loans to such companies are normally made at relatively
high interest rates and include the issuance of warrants to
purchase a substantial amount of the stock of the issuer. The
Company believes that as a result of its affiliation with
Performance Capital Management, the Company may be presented with
bridge loan opportunities which could be effected on a profitable
basis with manageable amounts of risk. There can be no
assurance, however, that any such "bridge loan" opportunities
will be presented to the Company, or that the Company will
generate any revenues from such bridge loans.
The Company was incorporated under the laws of the State of
Delaware on May 2, 1990 under the name Premier Lease Concepts,
Inc. The Company's principal executive offices are located at
10910 N.W. South River Drive, Miami, Florida 33178, and its
telephone number is (305) 889-1900.
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<PAGE>
THE OFFERING
SECURITIES OFFERED.......... A minimum of 1,000,000 shares of
Common Stock and 1,000,000 Warrants
and a maximum of 1,250,000 shares of
Common Stock and 1,250,000 Warrants.
See "Description of Securities" and
"Underwriting."
INVESTMENT PER INVESTOR..... Minimum of 100 shares of Common
Stock and/or 100 Warrants and
greater purchases in 100 shares and
Warrant increments. See
"Underwriting."
COMMON STOCK OUTSTANDING
PRIOR TO THE OFFERING(1)... 1,680,000 shares.
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(1)...... 2,650,000 shares in the event the
Minimum Offering is sold and
2,900,000 shares if the Maximum
Offering is sold. See "Use of
Proceeds."
WARRANTS
NUMBER TO BE OUTSTANDING
AFTER THE OFFERING(1)..... 1,000,000 Warrants if the Minimum
Offering is sold and 1,250,000
Warrants if the Maximum Offering is
sold.
EXERCISE TERMS............ Exercisable at $5.00 per share,
subject to adjustment in certain
circumstances, commencing one year
from the date of this Prospectus.
See "Description of Securities--
Redeemable Warrants."
EXPIRATION DATE........... ___, 2002 (five years after the
date of this Prospectus).
REDEMPTION................ Redeemable by the Company, with the
consent of the Underwriter, at any
time after ___, 1998 (one year
after the date of this Prospectus),
upon notice of not less than 30
days, at a price of $.15 per
Warrant, provided that the closing
bid quotation of the Common Stock
on all 25 of the trading days
ending on the third day prior to
the day on which the Company gives
notice of redemption has been at
least 150% (currently $8.25,
subject to adjustment) of the
initial offering price of the
Common Stock offered hereby. The
Warrants will be exercisable until
the close of business on the date
fixed for redemption. See
"Description of Securities--
Redeemable Warrants."
_________________________
(1) Does not include (i) 1,000,000 shares of Common Stock reserved
for issuance upon the exercise of Warrants in the event the
Minimum Offering is sold or 1,250,000 shares of Common Stock
reserved for issuance upon the exercise of Warrants in the
event the Maximum Offering is sold, (ii) 125,000 shares of
Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants, (iii) 500,000 shares of Common Stock
reserved for issuance upon exercise of options available for
future grant under the Company's 1997 Stock Option Plan, (iv)
1,300,000 shares of Common Stock reserved for issuance upon
the exercise of other outstanding warrants and (v)
approximately 632,902 shares of Common Stock reserved for
issuance upon the conversion of 2,958,817 outstanding shares
of Series A 10% Convertible Preferred Stock of the Company
(the "Convertible Preferred Stock"). See "Management,"
"Description of Securities - Preferred Stock" and
"Underwriting."
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<PAGE>
USE OF PROCEEDS............. The Company intends to apply the
net proceeds from this offering,
generally, to expand into the
factoring business, to enhance its
capital based financing activities,
to fund, staff and market its
anticipated service-based financing
and bridge loan activities and for
working capital and general
corporate purposes. See "Use of
Proceeds."
OFFERING TERMINATION........ The offering will terminate on ___,
1997, provided that the Company and
the Underwriter may agree to extend
the offering from time to time
until ___, 1997. See
"Underwriting."
RISK FACTORS................ The securities offered hereby are
speculative and involve a high
degree of risk and immediate
substantial dilution and should not
be purchased by investors who
cannot afford the loss of their
entire investment. See "Risk
Factors" and "Dilution."
PROPOSED NASDAQ SYMBOLS..... Common Stock--MCAC
Warrants--MCACW
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived
from and should be read in conjunction with the financial
statements, including the notes thereto, appearing elsewhere in
this Prospectus.
STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
----- -----
Operating Revenues . . . . . . . $356,235 $388,008
Income (Loss) from Continuing (204,704)
Operations Before Other Income
(Expense) . . . . . . . . . . . . (296,807)
Other Income (Expense) . . . . . 693,064 (600,000)
Preferred Dividend . . . . . . . (232,722) (205,447)
Net Income (Loss) Applicable to
Common Stockholders . . . . . . . 255,638 (1,102,064)
Net Income (Loss) Per Common Share .15 (.98)
BALANCE SHEET DATA:
DECEMBER 31, 1996
--------------------------------------
AS ADJUSTED(1)
--------------------
Actual Minimum Maximum
------ ------- -------
Working capital (deficit)... $(90,320) $2,973,771 $3,772,971
Total assets................ 1,794,820 5,211,333 6,260,533
Total liabilities........... 1,232,799 790,124 740,124
Stockholders' equity
(deficit)................... 562,021 4,421,209 5,520,409
-------------------------
(1) Gives effect to the sale of a minimum of 1,000,000 shares of
Common Stock and 1,000,000 Warrants offered hereby and a
maximum of 1,250,000 shares of Common Stock and 1,250,000
Warrants offered hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
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<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 expand its specialty financing business into the
factoring and, to a lesser extent, the bridge financing areas,
two marketplaces 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 and bridge financing
businesses, there can be no assurance that the Company's entry
into these marketplaces will be profitable or economically
prudent. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
2. Significant Capital Requriements; Dependence on Proceeds
of Offering; Possible Need for Additional Financing; Explanatory
Paragraph in Report of Independent Public Accountants. The
Company's capital requirements in connection with its operational
activities have been, and continue to be, significant. The
Company is dependent on the proceeds of this offering to finance
its ongoing specialty finance business, to commence its
anticipated factoring, service-based financing and bridge loan
financing businesses and to finance its other working capital
requirements. The Company anticipates, based on its current
proposed plans and assumptions relating to its operations and
expansion, that the proceeds of this offering will be sufficient
to satisfy the contemplated cash requirements of the Company for
approximately 12 months following the consummation of this
offering. In the event that the Company's plans change or its
assumptions prove to be inaccurate or the proceeds of this
offering prove to be insufficient to fund the Company's
operations or its expansion (due to unanticipated expenses,
delays, problems or otherwise), the Company would be required to
seek additional funding. Depending upon the Company's financial
strength and the state of the capital markets, the Company may
also determine that it is advisable to raise additional equity
capital. The Company has no current arrangements with respect
to, or sources of, any additional capital, and there can be no
assurance that such additional capital will be available to the
Company, if needed, on commercially reasonable terms or at all.
The inability of the Company to obtain additional capital would
have a material adverse effect on the Company and could cause the
Company to be unable to implement its business strategy or
proposed expansion or to otherwise significantly curtail or cease
its operations. It is not anticipated that any of the officers,
directors or stockholders of the Company will provide any portion
of the Company's future financing requirements. To the extent
that any such financing involves the sale of the Company's equity
securities, the interests of the Company's then existing
stockholders could be substantially diluted. The Company's
independent public accountants have included an explanatory
paragraph in their report on the Company's financial statements
stating that certain factors raise a substantial doubt about the
ability of the Company to continue as a going concern. See "Use
of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
3. Expansion into New Business Areas. The Company's
strategic plan contemplates increasing the amount of loan
brokering it conducts which activities could generate profits
without utilizing the Company's capital. Such activities would
consist of acquiring opportunities to finance and transferring
such opportunities to other financing sources for fee income.
The Company's prior experience in such finance brokering
activities is limited and there can be no assurance that the
Company will generate any profits from these proposed brokering
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<PAGE>
activities. In addition, the Company plans to enter into the
factoring and bridge loan financing businesses, each of 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 or bridge loan financing businesses. See
"Business."
4. Dependence on Affiliates and Others. The Company
historically has relied, and following this offering may continue
to rely, principally on the customer relationships generated by
its affiliates as a significant source of its business. The
Company will 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, bridge financing, loan
brokering or loan origination 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 and enhance the
underwriting efforts of the Underwriter through the provision of
"bridge loans" to the clients of the Underwriter. While it is
the Company's intention that all credit decisions will be made on
a purely arm's length basis, the Company might be encouraged,
with respect to Medley Refrigeration's and the Underwriter's
clients, to incur greater risk than would be prudent for a
Company operating independently and not relying upon the business
relationships of others.
5. Customer Credit Risks; Risk of Defaults in Factoring
Business. As in any finance business, the Company's overall
success will be governed heavily by the level of defaults it
incurs. The Company believes that its credit evaluation
procedures are adequate to limit its default rate to a
manageable amount. Although the Company attempts to mitigate its
credit risk through the use of a variety of commercial credit
reporting agencies when processing the equipment lease
applications of its customers and through various forms of
nonrecourse financing, failure of the Company's customers to make
scheduled payments under their equipment finance contracts could
require the Company to make payments in connection with the
recourse portion of its borrowings, if any, and forfeit cash
collateral pledged as security in connection with those
borrowings. In addition, any increase in such loss or in the
rate of payment defaults under any of the equipment finance
contracts originated by the Company (whether maintained by the
Company in its own portfolio or assigned by the Company to its
lenders) could adversely affect the Company's ability to obtain
additional funding.
The Company maintains an allowance for doubtful accounts in
connection with payments due under equipment lease contracts held
in the Company's portfolio. (The Company's portfolio currently
is comprised of those contracts which the Company has purchased
with working capital funds or under the revolving credit lines
and not yet assigned to a nonrecourse lender or transferred in
connection with an asset securitization transaction.) The
allowance is maintained at a level which the Company deems
sufficient to meet future estimated uncollectible contract
receivables, based on its analysis of the delinquencies, problem
accounts, and overall risks and probable losses associated with
such contracts. There can be no assurance, however, that the
amount of the Company's allowance will prove to be adequate.
With respect to the Company's proposed new factoring
business, the financial failure of a client or its customers or
the failure of the Company to recover under personal guarantees
from the client's principals or from other forms of security may
adversely affect the Company's ability to fully recover amounts
due. While the Company intends to purchase receivables on a full
recourse basis, a client of the Company may be unable to meet its
obligations. Losses may result if the Company is unable to
recover under personal guarantees from the client's principals or
from other forms of security. Accordingly, the Company intends
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<PAGE>
to make provision for possible credit losses. There can be no
assurance, however, that the amount of such provision will prove
to be adequate. See "Business."
6. Legal and Regulatory Limitations. Depending upon the
form of financing engaged in by the Company, the Company's rates
of return may be limited by various state laws limiting the
permissible amounts of interest. Noncompliance with such laws or
rules may result in substantial penalties or liabilities to the
Company. The Company believes that its current practices comply
with such laws and will continue to comply with applicable laws.
The Company intends to use a portion of the proceeds of this
offering to expand into the factoring and bridge loan financing
businesses. Certain loans made in connection with these
businesses 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.
7. Dependence on Key Personnel. The success of the Company
will be largely dependent on the personal efforts of Mr. Robert
Press, the Company's President. Although the Company and Mr.
Press are parties to a one-year employment agreement (which
renews automatically for successive one-year periods in the
absence of action to the contrary), the loss of the services of
Mr. Press would have a material adverse effect on the Company's
business and prospects. Moreover, competition for qualified
employees, including personnel skilled in the leasing, factoring
and specialty financing business, is intense, and the loss of key
personnel or the inability to attract and retain, if necessary,
additional skilled personnel for the Company's activities, could
adversely affect the Company's business and prospects. There can
be no assurance that the Company will be able to hire or retain
such personnel. See "Business" and "Management."
8. Dependence on Funding Sources. Equipment leasing and
factoring are capital intensive businesses. The Company's
revenues and profitability have traditionally been related
directly to the volume of equipment financings the Company
originates. To increase its equipment financing business, and to
enter into the factoring marketplace, the Company will require
access to substantial short and long-term credit and be required
to continue to sell its loans and leases to third party
discounters. To date, the Company's principal source of funding
has been borrowings from private lenders. There can be no
assurance that the Company will be able to obtain additional
recourse or nonrecourse financing when needed or, to the extent
such financing is available, on acceptable terms. The Company
would be adversely affected if it were unable to continue to
secure sufficient and timely funding on acceptable terms. See
"Business."
9. Collateral Value Risks. Loans and leases held by the
Company will be secured, in part, by the collateral value of the
underlying leased equipment. Refrigeration and dry cleaning
equipment are not generally subject to the rapid deterioration in
value that affects high technology equipment. Nonetheless, to
the extent the Company finances such higher technology equipment,
deterioration in the value of the equipment could undermine the
security of the Company's financings and the Company's financial
performance.
10. Interest Rate Risk. Substantially all of the Company's
equipment financing contracts require the Company's customers to
make payments at fixed rates for specified terms. A small
portion of these transactions are currently funded by the Company
with fixed rate borrowings which are arranged at the time, or
shortly after, the finance contract is recorded. This matching
process mitigates interest rate risk for these transactions.
However, from time to time, a portion of such contracts are
originally financed by the Company from funds derived from
working capital borrowed under its revolving credit line, which
borrowings are subject to a variable interest rate.
Consequently, if interest rates increase prior to the time the
Company is able to secure fixed-rate, long-term financing for
such contracts, the Company's profit margin with respect to such
equipment financing contracts could be affected adversely. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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<PAGE>
11. Competition. The factoring and financing of equipment
businesses are highly fragmented. The Company competes, and in
the future, will compete for customers with a number of national,
regional and local finance and factoring companies, including
those which, like the Company, specialize in particular segments
of the overall market. In addition, the Company's competitors
include, and will include, those equipment manufacturers which
finance the sale or lease of their products themselves, other
traditional types of financial services companies, such as
commercial banks and savings and loan associations, and
conventional leasing and factoring companies. Although the
Company believes that it currently maintains a competitive
advantage on the basis of its convenience-oriented financing and
value-added services, many of the Company's competitors and
potential competitors possess substantially greater financial,
marketing, and operational resources. Moreover, the Company's
future profitability will be directly related to the Company's
ability to access capital funding and to obtain favorable funding
rates as compared to the capital and costs of capital available
to its competitors. Accordingly, there can be no assurance that
the Company will be able to continue to compete successfully in
its targeted markets. See "Business - Competition."
12. Lack of Dividends. Since becoming a "C Corporation"
for federal income tax purposes, the Company has not paid any
dividends with respect to its Common Stock. Moreover, the
Company does not intend to pay any dividends on its Common Stock
in the foreseeable future. The holders of the Company's
outstanding Convertible Preferred Stock are entitled to receive
cumulative dividends, payable quarterly out of funds legally
available therefor, at the annual rate of 10%. The Company
currently intends to reinvest earnings, if any, in the
development and expansion of its business, except to the extent
required to satisfy its obligations under the terms of the
Convertible Preferred Stock. See "Dividend Policy" and
"Description of Securities - Preferred Stock."
13. Immediate and Substantial Dilution. This offering
involves an immediate and substantial dilution of $3.83 per share
or approximately 69.6% if the Minimum Offering is sold or $3.60
per share or approximately 65.5% if the Maximum Offering is sold
between the pro forma net tangible book value per share after the
offering and the public offering price of $5.50 per share of
Common Stock. See "Dilution."
14. Shares Eligible for Future Sale. Upon the consummation
of this offering, the Company will have 2,650,000 shares of
Common Stock outstanding if the Minimum Offering is sold and
2,900,000 shares of Common Stock outstanding if the Maximum
Offering is sold, assuming no exercise of the Warrants, the
Underwriter's Warrants or any other outstanding warrant or the
issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock. At that time, only the
1,000,000 shares being offered hereby in the event the Minimum
Offering is sold, and the 1,250,000 shares being offered hereby 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
1,650,000 shares, in either instance will be deemed to be
"restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act and may, in certain
circumstances, subject to the contractual restrictions described
below, be sold without registration pursuant to such rule, except
for any shares purchased by an "affiliate" of the Company (in
general, a person who has a control relationship with the
Company), which shares will be subject to the resale limitations
of Rule 144 promulgated under the Securities Act. 150,000 of
these restricted shares will become eligible for sale under Rule
144 in December 1997 (subject to certain recurring three-month
volume limitations prescribed by Rule 144).
Group, which is controlled by Messrs. Press and Edelson, the
President and Chairman of the Board, respectively, of the
Company, beneficially owns, as of the date of this Prospectus,
1,500,000 shares of Common Stock of the Company. Group has
agreed not to sell or otherwise dispose of any of its shares for
a period of six months from the date of this Prospectus without
the prior written consent of the Underwriter. In addition, each
holder of Convertible Preferred Stock has agreed not to sell or
otherwise dispose of any shares of Common Stock issuable upon
conversion of such Convertible Preferred Stock for a period of
six months from the date of this Prospectus without the prior
written consent of the Underwriter. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold
in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the
Company's ability in the future to raise additional capital
-11-
<PAGE>
through the sale of its equity securities. See "Principal
Stockholders," "Description of Securities," "Shares Eligible for
Future Sale" and "Underwriting."
15. Control by Management. Upon the consummation of this
offering, Group, which is controlled by Messrs. Press and
Edelson, will beneficially own approximately 56.6% in the event
the Minimum Offering is sold, and 51.7% in the event the Maximum
Offering is sold, of the issued and outstanding shares of Common
Stock (assuming no exercise of the Warrants, the Underwriter's
Warrants or any other outstanding warrant or the issuance of any
shares of Common Stock underlying shares of the Company's
Convertible Preferred Stock). Accordingly, Messrs. Press and
Edelson, through their control of Group, will continue to be in a
position to decide the outcome of any matters requiring a vote of
stockholders, including the election of directors, changes in the
Company's authorized capital and the dissolution, merger or sale
of the assets of the Company, and generally, will be in a
position to control the affairs of the Company. Moreover,
Messrs. Press and Edelson will be in a position to determine the
amount of executive compensation to be paid and whether dividends
will be declared with respect to shares of the Company's capital
stock. Purchasers of the shares of Common Stock and Warrants (to
the extent exercised) offered hereby will be minority
stockholders of the Company and, although entitled to vote on any
matters that require stockholder approval, will not influence the
outcome of such votes. See "Principal Stockholders" and
"Description of Securities."
16. Broad Discretion in Application of Proceeds. Management
of the Company has broad discretion to adjust the application and
allocation of the net proceeds of this offering in order to address
changed circumstances and opportunities. As a result of the
foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of the management of
the Company with respect to the application and allocation of
the net proceeds hereof. See "Use of Proceeds."
17. No Assurance of Public Market; Determination of
Offering Price; Possible Volatility of Market Price of Common
Stock and Warrants. Prior to this offering, there has been no
public trading market for the Common Stock or Warrants.
Consequently, the initial public offering prices have been
determined by negotiations between the Company and the
Underwriter, with the guidance of Lew Lieberbaum & Co., Inc., the
qualified independent underwriter associated with this offering,
and do not necessarily bear any relationship to the Company's
book value, assets, past operating results or financial condition
or to any other established criteria of value. In addition,
there can be no assurance that a regular trading market for the
securities offered hereby will develop after this offering or
that, if developed, that it will be sustained. The market price
of the Common Stock and Warrants following the consummation of
this offering may be highly volatile as has been the case with
the securities of other companies effecting initial public
offerings. Factors such as the Company's financial results,
quarter-to-quarter variations in operating results, press
releases, trading volumes, general market trends and various
factors affecting the equipment financing and factoring
businesses generally, may have a significant impact on the market
price of the Company's securities. Additionally, in recent
years, the stock market itself has experienced a high level of
price and volume volatility and market prices for the stock of
many companies have experienced wide price fluctuations which
have not necessarily been related to the operating performance of
such companies. See "Underwriting."
18. Underwriter's Influence on the Market. A significant
number of the securities offered hereby may be sold to customers
of the Underwriter. Such customers may subsequently engage in
transactions for the sale or purchase of such securities through
or with the Underwriter. Although it has no obligation to do so,
the Underwriter intends to make a market in the Company's
securities and may otherwise effect transactions in such
securities. As a result, the Underwriter may exert a dominating
influence on the market for the Company's securities, if such a
market is developed, and such market activity by the Underwriter
may be discontinued at any time. The price and liquidity of the
Company's securities may be significantly affected by the degree,
if any, of the Underwriter's participation in the market for the
Company's securities. See "Underwriting."
19. Limited Offering Experience of the Underwriter. The
Underwriter has been in business for approximately six years, and
as of March 31, 1997, employed approximately 55 brokers in two
offices. The Underwriter has managed, on a "firm commitment"
basis, two public offerings prior to this underwriting. Since
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<PAGE>
the Underwriter has acted as underwriter in only a limited number
of public offerings, no assurance can be given that the
Underwriter's lack of experience and its comparatively small size
in relation to other broker-dealers in the industry, may not
adversely affect the offering of the Company's securities and the
subsequent development, if any, of a trading market for the
Company's securities. See "Underwriting."
20. Best Efforts Offering; Escrow of Investor Funds. This
offering is being made on a "best efforts, all-or-none" basis.
With respect to the first 1,000,000 shares of Common Stock and
1,000,000 Warrants, all or none of them will be sold. The
remaining 250,000 shares of Common Stock and 250,000 Warrants
offered will be made on a "best efforts" basis. There can be no
assurance that any of the shares of Common Stock or Warrants will
be sold. Under the terms of this offering, the Underwriter is
offering the Company's shares of Common Stock and Warrants for an
initial period of 30 days which may be extended up to an
additional 30 days by mutual agreement of the Company and the
Underwriter. Pending the sale of 1,000,000 shares of Common Stock
and 1,000,000 Warrants, all proceeds will be held in an escrow
account with SunTrust Bank, South Florida, N.A., as Escrow Agent.
No commitment exists by anyone to purchase all or any of the
shares of Common Stock or Warrants offered hereby. Consequently,
subscribers' funds may be escrowed for as long as 60 days and, if
held for less than 60 days, returned without interest thereon or
deduction therefrom in the event 1,000,000 shares of Common Stock
and 1,000,000 Warrants are not sold within the offering period.
Investors, therefore, will not have the use of any subscription
funds during the subscription period. See "Underwriting."
21. Anti-Takeover Provisions; Authorization of Preferred
Stock. Delaware has enacted legislation that may deter or
frustrate takeovers of the Company. In certain circumstances,
Delaware law requires the approval of two-thirds of all shares
eligible to vote for certain business combinations involving a
stockholder owning 15% or more of the Company's voting securities
(other than stockholders currently meeting such description),
excluding the voting power held by such stockholder. In addition
to the potential impact on future takeover attempts and the
possible perpetuation of management, the existence of such
provision could have an adverse effect on the market price of the
Company's Common Stock.
The Company's Certificate of Incorporation authorizes the
issuance of 5 million shares of "blank check" preferred stock
with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. To date,
the Board of Directors has authorized the issue of a series of up
to 2,958,817 shares of Convertible Preferred Stock. Accordingly,
the Board of Directors is empowered, without stockholder
approval, to issue additional series of preferred stock with
dividend, liquidation, conversion, voting or other rights that
could adversely affect the voting power or other rights of the
holders of Common Stock. In the event of issuance, such
preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present
intention to issue any additional shares of preferred stock,
there can be no assurance that the Company will not make such an
issuance in the future. See "Description of Securities--Anti-
Takeover Provisions" and "--Preferred Stock."
22. Possible Delisting of Securities from NASDAQ;
Disclosure Relating to Low-Priced Stocks. It is currently
anticipated that the Company's Common Stock and Warrants will be
eligible for listing on NASDAQ upon completion of the Minimum
Offering. However, in order to continue to be listed on NASDAQ,
a company must maintain either (i) $2,000,000 in net tangible
assets (total assets less total liabilities and goodwill), (ii)
$35,000,000 in market capitalization or (iii) $500,000 of net
income in two of the last three years and 500,000 shares
of Common Stock in the public float and a $1,000,000 market value
of the public float. In addition, continued inclusion requires
two market makers and a minimum bid price of $1.00 per share.
The failure to meet these maintenance criteria in the future
may result in the delisting of the Company's securities from
NASDAQ and trading, if any, in the Company's securities would
thereafter be conducted in the non-NASDAQ over-the-counter
market. As a result of such delisting, an investor may find
it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities.
In addition, if the Common Stock were delisted from trading
on NASDAQ and the trading price of the Common Stock were to fall
below $5.00 per share, trading in the Common Stock would also be
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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, with the consent of
the Underwriter, at any time following ___, 1998 (one year from
the date of this Prospectus), upon notice of not less than 30
days, at a price of $.15 per Warrant, provided that the closing
bid quotation of the Common Stock on all 25 of the trading days
ending on the third day prior to the day on which the Company
gives notice of redemption has been at least 150% (currently
$8.25, subject to adjustment) of the initial public offering
price of the Common Stock offered hereby. Redemption of the
Warrants could force the holders to exercise the Warrants and pay
the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Warrants at the then current
market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities--Redeemable
Warrants."
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<PAGE>
USE OF PROCEEDS
After deducting underwriting discounts and commissions
($734,500 if the Minimum Offering is sold and $918,125 if the
Maximum Offering is sold) and other expenses of the offering
estimated to be approximately $133,872, the Company will receive
net proceeds from this offering of approximately $4,781,628 if
the Minimum Offering is sold and $6,010,503 if the Maximum
Offering is sold. The Company intends to utilize the net
proceeds from this offering (excluding any amounts received upon
the exercise of any Warrants) during the next 12 months
approximately as follows:
MINIMUM OFFERING
-----------------------------
APPLICATION OF PROCEEDS NET PROCEEDS %
----------------------- ------------ --------
Repayment of indebtedness(1)........ $250,000 5.23%
Satisfaction of declared but unpaid
dividends(2).................... 192,675 4.03
Expansion of equipment
leasing business (3)............ 750,000 15.69
Implementation of bridge loan
business(4)...................... 250,000 5.23
Implementation of factoring
business(5)......................... 1,000,000 20.91
Redemption of Common Stock(6)....... 165,000 3.45
Working capital and general 2,173,953 45.46
corporate purposes(7)............... ---------- ------
$4,781,628 100.00%
========== =======
MAXIMUM OFFERING
-----------------------------
APPLICATION OF PROCEEDS NET PROCEEDS %
----------------------- -------------- ------
Repayment of indebtedness(1)...... $ 300,000 4.99%
Satisfaction of declared but
unpaid dividends(2)............ 192,675 3.21
Expansion of equipment
leasing business (3)........... 1,000,000 16.64
Implementation of bridge loan
business(4).................... 250,000 4.16
Implementation of factoring
business(5)....................... 1,250,000 20.80
Redemption of Common Stock(6)..... 165,000 2.75
Working capital and general 2,852,828 47.45
corporate purposes(7)............. ---------- ------
$6,010,503 100.00%
========== =======
-----------------
(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
certain of the Company's affiliates, including Messrs. Press,
Edelson and Steven Dreyer, directors of the Company, will be
repaid, in whole or in part, with a portion of these proceeds.
Approximately $ 75,000 of the loans being repaid with the
proceeds from this offering were incurred to finance the
Company's operating expenses in connection with, and in
anticipation of, this Offering. See "Principal Stockholders" and
"Certain Transactions."
(2) On each of August 20, 1996, November 20, 1996 and February
20, 1997, the Company declared its regular quarterly cash
dividend with respect to shares of its Convertible Preferred
Stock. At the time of each of the aforementioned dividend
declarations, the Company had sufficient cash available to pay
the dividend to all holders of the Convertible Preferred Stock
other than Messrs. Press, Edelson and Dreyer and holders
affiliated or related to them. The Company will utilize a
portion of the proceeds from this offering to satisfy all
declared, but unpaid dividends. See "Principal Stockholders,"
"Description of Securities--Preferred Stock" and Financial
Statements.
(3) The Company intends to utilize a portion of the proceeds
from this offering to expand its refrigeration equipment leasing
business.
(4) The Company intends to utilize a portion of the proceeds
from this offering to establish a bridge loan financing business
and to underwrite short term bridge loans, initially, primarily,
to clients of the Underwriter.
(5) 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.
(6) The Company will utilize $165,000 from this offering to
redeem, at a price of $5.50 per share, an aggregate of 30,000
shares of Common Stock owned by Messrs. Robert D. Press and
Steven L. Edelson, the President and Chairman of the Board of the
Company, respectively. These shares were transferred and
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<PAGE>
assigned by Group to Messrs. Press and Edelson in January 1996 in
consideration for services performed by them on behalf of the
Company. See "Certain Transactions."
(7) 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 (not including the
Underwriter's Warrants), the Company will realize gross proceeds
of approximately $5,000,000 if the Minimum Offering is sold and
$6,250,000 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 December 31, 1996 and as adjusted to give effect to
the sale by the Company of a minimum of 1,000,000 shares of Common
Stock and 1,000,000 Warrants offered hereby and a maximum of
1,250,000 shares of Common Stock and 1,250,000 Warrants offered
hereby:
AT DECEMBER 31, 1996
--------------------
ACTUAL
------
Long-term Debt . . . . . . . . . . . . . $373,518
Short-term Debt . . . . . . . . . . . . . $551,964
Stockholders' Equity (Deficit) . . . . .
Convertible Preferred Stock,
$.01 par value, 5,000,000
shares authorized; 2,958,817
shares issued and outstanding,
respectively . . . . . . . . . . . . $29,588
Common Stock, $.01 par value,
10,000,000 shares authorized;
1,680,000, 2,650,000 and 2,900,000
shares issued and outstanding,
respectively . . . . . . . . . . . . $16,800
Additional Paid-in Capital . . . . . . $2,053,039
$1,537,406
Accumulated Deficit . . . . . . . . . ----------
$562,021
Total Stockholders' Equity ----------
$1,487,503
Total Capitalization . . . . . . . ==========
AT DECCEMBER 31, 1996
--------------------
AS ADJUSTED
-----------
MINIMUM(1) MAXIMUM(1)
---------- ----------
Long-term Debt . . . . . . . . $268,282 $268,282
Short-term Debt . . . . . . . . $407,200 $357,200
Stockholders' Equity (Deficit)
Convertible Preferred Stock,
$.01 par value, 5,000,000
shares authorized;
2,958,817 shares
issued and outstanding,
respectively . . . . . . . $29,588 $29,588
Common Stock, $.01 par value,
10,000,000 shares
authorized; 1,680,000,
2,650,000 and 2,900,000
shares issued and
outstanding, respectively. $26,500 29,000
Additional Paid-in Capital . $5,902,527 6,999,227
$1,537,406 $1,537,406
Accumulated Deficit . . . . ---------- ----------
$4,421,209 $5,520,409
Total Stockholders' Equity ---------- ----------
$5,096,691 $6,145,891
Total Capitalization . . ========== ==========
-----------------------
(1) Assumes no exercise of the Warrants, the Underwriter's
Warrants or any other outstanding warrant or the issuance of
any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock. As of the date of
this Prospectus, there were no outstanding stock options to
purchase shares of the Company's Common Stock granted under
the Company's stock option plan or otherwise. See
"Management -- Stock Option Plan" and "Description of
Securities--Preferred Stock."
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<PAGE>
DILUTION
The difference between the public offering price per share
of Common Stock and the pro forma net tangible book value per
share after this offering constitutes the dilution to investors
in this offering. Net tangible book value per share is
determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. At December 31, 1996, the
net tangible book value of the Company was $489,006, or
approximately $.29 per share of Common Stock.
After giving effect to the sale of a minimum of 1,000,000
shares of Common Stock and 1,000,000 Warrants offered hereby (less
underwriting discounts and commissions and estimated expenses of
this offering, and assuming no exercise of the Warrants, the
Underwriter's Warrants or any other outstanding warrant or the
issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock), the pro forma net
tangible book value of the Company at December 31, 1996 would
have been $4,421,209, or approximately $1.67 per share of Common
Stock. This represents an immediate increase in net tangible
book value of approximately $1.38 per share of Common Stock to
existing stockholders and an immediate dilution of approximately
$3.83 per share of Common Stock to new investors.
After giving effect to the sale of a maximum of 1,250,000
shares of Common Stock and 1,250,000 Warrants offered hereby (less
underwriting discounts and commissions and estimated expenses of
this offering, and assuming no exercise of the Warrants, the
Underwriter's Warrants or any other outstanding warrant or the
issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock), the pro forma net
tangible book value of the Company at December 31, 1996 would
have been $5,520,409, or approximately $1.90 per share of Common
Stock. This represents an immediate increase in net tangible
book value of approximately $1.61 per share of Common Stock to
existing stockholders and an immediate dilution of approximately
$3.60 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.................. $ .29 $.29
Increase attributable to the
sale by the Company of the
Common Stock offered hereby... $1.38 $1.61
Adjusted net tangible book value
after the offering................ $1.67 $1.90
----- -----
Dilution to new investors......... $3.83 $3.60
===== =====
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%
New investors . . . . . . 1,000,000 37.3%
--------- ------
Total . . . . . . . . 2,680,000 100.0%
========= ======
MAXIMUM OFFERING
----------------
Existing stockholders . . 1,680,000 57.3%
New investors . . . . . . 1,250,000 42.7%
--------- ------
2,930,000 100.0%
========= ======
TOTAL
CONSIDERATION PAID
---------------------
AVERAGE
PRICE PER
MINIMUM OFFERING AMOUNT PERCENT SHARE
---------------- ------ ------- ---------
Existing stockholders . . $ 200,000 3.5 $.14
New investors . . . . . . 5,550,000 96.5 5.50
--------- -----
Total . . . . . . . . $5,750,000 100.0%
========== =====
MAXIMUM OFFERING
----------------
Existing stockholders . . $200,000 2.8 $.14
New investors . . . . . . $6,875,000 97.2 5.50
---------- ------
$7,075,000 100.0%
========== =====
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<PAGE>
The above table assumes no exercise of the Warrants, the
Underwriter's Warrants or any other outstanding warrant or the
issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock. As of the date of this
Prospectus, there were no outstanding stock options to purchase
shares of the Company's Common Stock granted under the Company's
stock option plan or otherwise. See "Management--Stock Option
Plan" and "Description of Securities--Preferred Stock."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company which,
historically, has been engaged primarily in the financing of (i)
dry cleaning equipment to small dry cleaning businesses
throughout the eastern United States and (ii) refrigeration
equipment sold or leased by Medley Refrigeration, an affiliate of
the Company. Medley Refrigeration is engaged in the provision of
refrigeration equipment and services to the food service and
hospitality industries and other businesses throughout central
and southeastern Florida.
Prior to the fiscal year ended December 31, 1996 ("Fiscal
1996"), the Company focused its marketing efforts primarily on
providing financing to creditworthy purchasers of both dry
cleaning and refrigeration equipment. Commencing in Fiscal 1996,
the Company began de-emphasizing its dry cleaning equipment
business and began concentrating marketing efforts to
creditworthy customers of Medley Refrigeration. Such customers
tended to be small entities with reliable cash flow but without
access to sophisticated financing arrangements. Such customers
were typically willing to pay a premium in terms of interest
rates for convenience and availability of financing.
During December 1996, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues
from, and rights of collection with respect to, refrigeration
equipment leases entered into by Medley Refrigeration with its
customers (the "Assignment"). Excluded from the Assignment,
however, were those equipment leases, the revenues from which,
were previously assigned to collateralize the Company's line of
credit facility with an independent third party lender. Prior to
the Assignment, the Company historically would lend Medley
Refrigeration the capital necessary for Medley Refrigeration to
either purchase or manufacture refrigeration equipment for its
customers. Medley Refrigeration, in turn, would lease this
refrigeration equipment to its customers who, as a condition to
the lease, would grant the Company a security interest in the
leased equipment to collateralize the customer's payment
obligations under the equipment lease. As a result of the
Assignment, lease payments with respect to a majority of the
equipment leases extended to Medley Refrigeration's customers
began, and continue, to be payable directly to the Company. In
addition, commencing in January 1997, the Company began, and
continues, to finance refrigeration equipment leases directly
with Medley Refrigeration's customers. The Company, through the
date of this Prospectus, has continued to focus its marketing
efforts primarily to customers of Medley Refrigeration.
RESULTS OF OPERATIONS
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.
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<PAGE>
Total costs and expenses for Fiscal 1996 decreased to
$560,939, or approximately 18% from Fiscal 1995 total costs and
expenses of $684,615. This decrease is primarily attributable
to the Company's incurring a one-time write-down during Fiscal
1995 of $87,456 for rental equipment not in service. The reduction
in costs and expenses during Fiscal 1996 would have been
greater had the Company not paid approximately $110,000 in
accounting fees directly associated with the Fiscal 1995 audit.
For Fiscal 1996, the Company generated net income of
$488,360, as compared to a net loss of $(896,607) for Fiscal
1995. This significant change in operating results is primarily
due to the reversal, during Fiscal 1996, of a $600,000 provision
for uncollectible advances to an affiliate (Medley Refrigeration)
recorded during Fiscal 1995. This reversal was taken essentially
because the Company was able to adequately demonstrate that the
uncollectible advances in question were, in fact, collectible.
In this regard, during December 1996, the Company and Medley
Refrigeration consummated the Assignment, pursuant to which,
Medley Refrigeration's rights to receive revenues from, and
rights of collection with respect to, a majority of Medley
Refrigeration's equipment leases with its customers were assigned
to the Company. The present value of the revenue stream
underlying the Assignment was approximately $652,000 at the time
of the Assignment. The Company anticipates recognizing a
significant amount of these revenues over the next two years.
The Company will reduce the intercompany receivable due it from
Medley Refrigeration (i.e., the uncollectible advance in
question) on a dollar for dollar basis as and when it receives
revenues with respect to the equipment leases comprising the
Assignment.
During January 1997, the Medley Refrigeration intercompany
receivable was further reduced by $237,000 as a result of Medley
Refrigeration paying the Company $200,000 in cash and
transferring to the Company $37,000 of refrigeration equipment.
The Company used this refrigeration equipment to directly enter
into new refrigeration equipment leases with customers of Medley
Refrigeration. The Company continues, on a regular basis, to
finance refrigeration equipment leases directly with Medley
Refrigeration's customers. The equipment underlying these leases
has been, and will continue to be, provided by Medley
Refrigeration. The intercompany receivable due the Company from
Medley Refrigeration has been, and will continue to be, reduced
by the direct cost of the equipment underlying these equipment
leases. At March 31, 1997, the uncollectible advance, which is
now presented as due from affiliates in both the current and other
asset sections of the Company's financial statements, was
approximately $1,000,000.
For Fiscal 1996, the Company generated net income per common
share of $.15 as compared to a net loss per common share of
$(.98) for Fiscal 1995. This change in net income per share is
primarily the result of the reversal of the $600,000 provision
for uncollectible advances to an affiliate discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At 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 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 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.
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<PAGE>
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 users of financing and referring them to the
Company's financing sources on a fee basis. In addition to such
factoring and brokerage-type, service-oriented 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, service-based financing and bridge loan
financing businesses 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. In addition, the Company has
transferred to third parties, without recourse, leases owned by
the Company in exchange for the discounted value of such leases.
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<PAGE>
Prior to Fiscal 1996, the Company focused its marketing
efforts primarily on providing financing to creditworthy
customers purchasers of both dry cleaning and refrigeration
equipment. Commencing in Fiscal 1996, the Company began de-
emphasizing its dry-cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such customers tend to be small entities
whose asset bases may not be significant enough to attract
traditional institutional lenders. Such customers are typically
willing to pay a premium in terms of interest rates for
convenience and availability of financing.
During December 1996, Medley Refrigeration and the Company
consummated the Assignment, pursuant to which, Medley
Refrigeration assigned to the Company all of Medley
Refrigeration's rights to receive revenues from, and rights of
collection with respect to, a majority of the refrigeration
equipment leases entered into by Medley Refrigeration with its
customers. Prior to the Assignment, the Company historically
would lend Medley Refrigeration the capital necessary for Medley
Refrigeration to either purchase or manufacture refrigeration
equipment for its customers. Medley Refrigeration, in turn,
would lease this refrigeration equipment to its customers who, as
a condition to the lease, would grant the Company a security
interest in the leased equipment to collateralize the customer's
payment obligations under the equipment lease. As a result of
the Assignment, lease payments with respect to a majority of the
equipment leases extended to Medley Refrigeration's customers
began, and continue, to be payable directly to the Company. In
addition, commencing in January 1997, the Company began, and
continues, to finance refrigeration equipment leases directly
with Medley Refrigeration's customers. The Company, through the
date of this Prospectus, has continued to focus its marketing
efforts primarily to customers of Medley Refrigeration.
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 users of financing and referring them to the
Company's financing sources on a fee basis. In addition to such
factoring and brokerage-type, service-oriented 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 was incorporated under the laws of the State of
Delaware on May 2, 1990 under the name Premier Lease Concepts,
Inc. In September 1993, Premier Lease Concepts, Inc. was merged
into a subsidiary of Group. As part of this Merger, the
Company's name was changed to Medley Credit Acceptance Corp.
EXISTING BUSINESSES
Financing of Dry Cleaning Equipment
The Company's principal initial business was the investment
of capital in dry cleaning equipment leased to small dry cleaning
businesses throughout the eastern United States. Such dry
cleaning equipment would typically involve a total cost of
between $60,000 to $70,000 and be leased out for a five-year term
with the lessee having the option to buy the equipment at the end
of the lease term for the fair market value thereof. The
internal rate of return of such leases was generally attractive
to the Company. Such leases could be refinanced or sold at
discount rates substantially less than the return implicit in the
lease itself. Such finance discounting was, in most instances,
accomplished on a full nonrecourse basis. Due to the decrease,
commencing in Fiscal 1995, of dry cleaning equipment financing
opportunities, and the general reduction in risk associated with
the financing of refrigeration equipment as compared to dry
cleaning equipment (primarily due to the significantly reduced
cost of refrigeration equipment as compared to dry cleaning
equipment), the Company, during Fiscal 1996, began de-emphasizing
its dry cleaning equipment business and began concentrating
marketing efforts to Medley Refrigeration's customers.
Refrigeration Equipment Financing
The Company's financing activities with respect to
refrigeration equipment are similar to that employed in its dry
cleaning equipment financing business. The cost of refrigeration
equipment (generally $6,000 to $10,000), however, is much less
than dry cleaning equipment. In addition, the Company's lease
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<PAGE>
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 generally finances
refrigeration equipment to creditworthy customers of Medley
Refrigeration.
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.
Securities Bridge Loans
Following the consummation of this offering, the Company
also intends to consider entering, on a smaller scale, the
business of making bridge loans to companies in the process of
effecting public offerings. Bridge loans are typically made
available to companies in the initial public offering process and
are generally made to enable the borrower to maintain its
business and/or to cover the cost of private securities offerings
pending the consummation of its underwritten initial public
offering. Bridge loans are normally made at relatively high
interest rates and include the issuance of warrants to purchase a
substantial amount of the stock of the issuer. Bridge loans
rarely have a maturity greater than one year.
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Performance Capital Management, a company controlled by
Messrs. Robert D. Press and Steven L. Edelson, President and
Chairman of the Board, respectively, of the Company, is party to
a management contract with the Underwriter of this offering.
Pursuant to the management contract, among other things, Mr.
Edelson serves as a principal of the Underwriter. The
Underwriter is in the business of underwriting public equity
financings for small companies. The Company believes that as a
result of its affiliation with Performance Capital Management,
the Company may be presented with bridge loan opportunities which
could be effected on a profitable basis with manageable amounts
of risk. There can be no assurance, however, that any such
bridge loan opportunities will be presented to the Company, or
that the Company will generate any revenues from such bridge
loans.
Loan Brokering Activities
Following the consummation of this offering, the Company
also intends to consider expanding its operations to include loan
brokering. 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 areas in which other lending groups known to the Company
specialize. Generally, these other lending organizations 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 the lender. Loan
brokering activities are attractive to the Company because they
may be pursued with limited to no involvement of capital. 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 by Medley Refrigeration. The
Company pays Medley Refrigeration $15,000 per year to cover the
Company's allocated rental and common expense charges with
respect to the facility encompassing the Company's offices. The
Company believes this facility is well maintained and adequate to
meet the Company's needs for the foreseeable future.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as
follows:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Robert D. Press 33 President, Chief Executive
Officer, Treasurer
Steven L. Edelson 49 Chairman of the Board and
Secretary
Steven Dreyer 54 Director
Maynard Hellman 52 Director
Robert D. Press has served as the President, Chief Executive
Officer, Treasurer and a Director of the Company since its
inception in September 1993. From June 1990 to August 1993, Mr.
Press served as President of Premier Lease Concepts, Inc., the
Company's predecessor. In addition, since 1989, Mr. Press has
served as President of Performance Capital Management, a holding
company with interests in brokerage and investment management,
and as President of Group since October 1992. Mr. Press holds a
B.A. degree in Economics from Brandeis University. From 1984 to
1986, Mr. Press worked as a full-time trading systems consultant
to several major Wall Street firms, including The Longview Group.
In 1986, Mr. Press joined Chemical Bank, N.A. ("Chemical Bank")
as an internal consultant in trading and capital markets, and
later in 1986, Mr. Press joined in the formation of Chemical
Bank's Interest Rate Arbitrage trading group, of which Mr. Press
became the principal trader responsible for the global trading
and investment decisions of a multi-billion dollar portfolio.
Mr. Press holds the Series 7 and 63 professional securities
licenses.
Steven L. Edelson has served as the Chairman of the Board
and Secretary of the Company since its inception. From June 1990
to August 1993, Mr. Edelson served as Chairman of the Board of
Premier Lease Concepts, Inc. In addition, Mr. Edelson has served
as Chairman of the Board of Performance Capital Management and of
Group since 1991 and 1992, respectively. Mr. Edelson holds an
M.B.A. degree in Finance from the University of Chicago and a
B.A. degree in Economics from the Wharton School of the
University of Pennsylvania. Mr. Edelson has extensive Wall
Street experience including serving as a Bond Trader at Goldman
Sachs and Co. and at Salomon Brothers from 1973 to 1975 and 1975
to 1977, respectively. Mr. Edelson also served as Vice President
of Bond Trading at The Chase Manhattan Bank, N.A. from 1977 to
October 1979 and as Managing Director and Department Head for
Trading and Distribution of several major areas, including Bond
Trading, at Chemical Bank from October 1979 to October 1989. Mr.
Edelson holds the Series 7 and 63 professional securities
licenses and the Series 24 securities principal's license.
Maynard J. Hellman has served as a Director of the Company
since January 1997. Since January 1988, Mr. Hellman has served
as managing partner of the Coral Gables, Florida based law firm
of Hellman & Maas. From 1983 until 1988, Mr. Hellman was engaged
in the private practice of law and prior thereto, Mr. Hellman
served as a partner in the Miami, Florida law firm of Gilbert,
Silverstein and Hellman. Mr. Hellman holds a J.D. degree from
the University of Miami School of Law and a B.B.A. degree in
Accounting from the University of Miami School of Business
Administration.
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<PAGE>
Steven Dreyer has served as a Director of the Company since
January 1997. Since 1989, Mr. Dreyer has served as President of
Cryntel Enterprises Ltd., a Florida based company engaged in the
manufacture and marketing of Far Eastern made floor tiles and
other home improvement products. From 1981 to 1988, Mr. Dreyer
served as Chief Executive Officer of Cyntec Trading Company, a
London, England based company engaged in the manufacture and
marketing of Asian made floor covering products. Mr. Dreyer
holds a B.A. degree from the University of California at
Northridge.
The Company's Directors hold office until the next annual
meeting of stockholders and until their successors have been duly
elected and qualified. Directors currently receive no
compensation for serving on the Board of Directors or any
committee thereof other than reimbursement of reasonable expenses
incurred in attending meetings. In the future, it is intended
that non-employee Directors will receive a fee of $500 for
attendance at each Board of Directors (or committee) meeting.
The Company's officers are elected annually by the Board of
Directors and serve at the discretion of the Board.
No family relationships exist among any of the Company's
Directors and officers. Moreover, no arrangement or
understanding exists between any of the Company's Directors and
officers and any other person pursuant to which any Director or
officer was elected as a Director or officer of the Company.
EXECUTIVE COMPENSATION
During Fiscal 1996, the Company did not pay any cash
remuneration to any of its executive officers. Moreover, no
bonus or other form of remuneration was paid by the Company to
its executive officers during Fiscal 1996. The Company, however,
is party to employment contracts with each of Messrs. Press and
Edelson, the Company's President and Chairman of the Board,
respectively. The following table summarizes the aggregate
annual compensation to be payable by the Company to its President
and Chairman of the Board effective upon the consummation of this
offering:
CAPACITY IN WHICH AGGREGATE
NAME OF INDIVIDUAL SERVED COMPENSATION
------------------ ----------------- ------------
Robert D. Press President $60,000(1)
Steven L. Edelson Chairman of the Board $30,000(1)
----------------
(1) Pursuant to the terms of Messrs. Press' and Edelson's
employment agreements with the Company, this compensation
will not begin to accrue until the Company consummates this
offering. During Fiscal 1996, Messrs. Press and Edelson did
not, nor were they entitled to, receive any remuneration
from the Company. In addition, the Company and Performance
Capital Management are parties to a Management Agreement
pursuant to which, among other things, Performance Capital
Management provides the Company with certain financial and
managerial assistance in consideration for a management fee
(the "Management Fee") of $15,000 per annum for Fiscal 1996,
increasing to $90,000 per annum effective upon the
consummation of this offering. Messrs. Press and Edelson,
the President and Chairman of the Board of the Company,
respectively, control Performance Capital Management. The
aggregate compensation set forth in the above table does not
include any portion of the Management Fee that may be
attributable to Mr. Press or Mr. Edelson, as the case may
be, as a result of his affiliation with Performance Capital
Management. See "--Employment Agreements" and "Certain
Transactions."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each
of Messrs. Press and Edelson pursuant to which, among other
things, Messrs. Press and Edelson have agreed to serve as
President and Chairman of the Board, respectively, of the
Company. Each of Messrs. Press' and Edelson's employment
agreement provides that no compensation accrues or is payable
thereunder until the Company consummates its initial public
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<PAGE>
offering (as defined therein). Upon consummation of the
Company's initial public offering, Messrs. Press and Edelson will
begin earning salaries at the rates of $60,000 and $30,000 per
annum, respectively. These employment agreements expire on
December 31, 1997 (subject to early termination provisions),
provided, however, that such agreements will automatically renew
for successive one-year terms commencing on December 31 of each
year if no formal notice of termination has been provided.
Messrs. Press and Edelson are also entitled to participate in
medical, stock option, pension and other benefit plans that the
Company may establish from time to time for the benefit of its
employees generally.
Messrs. Press' and Edelson's employment agreements are
terminable by the Company for cause (i.e., conviction of a
felony, willful misconduct, dishonesty or material breach of the
agreement) at any time or in the event that Messrs. Press or
Messrs. Edelson, as the case may be, becomes disabled and, as a
result, is unable to perform his duties under his employment
agreement for more than three consecutive months or for more than
five months during any 12-month period. In addition, each of
Messrs. Press and Edelson has agreed that during the term of his
employment with the Company, and for a period of two years
thereafter, he will not compete or engage in a business
competitive with the business of the Company.
STOCK OPTION PLAN
On January 9, 1997, the Company adopted a stock option plan
(the "Stock Option Plan"). The Stock Option Plan has 500,000
shares of Common Stock reserved for issuance upon the exercise of
options designated as either (i) incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended, or (ii) non-
qualified options. ISOs may be granted under the Stock Option
Plan to employees and officers of the Company. Non-qualified
options may be granted to consultants, directors (whether or not
they are employees), employees or officers of the Company. In
certain circumstances, the exercise of stock options may have an
adverse effect on the market price of the Company's Common Stock
and/or Warrants. As of the date of this Prospectus, no options
have been granted under the Stock Option Plan.
The purpose of the Stock Option Plan is to encourage stock
ownership by certain directors, officers and employees of the
Company and certain other persons instrumental to the success of
the Company and give them a greater personal interest in the
success of the Company. The Stock Option Plan is administered by
the Board of Directors or, at the Board's discretion, by a
committee which is appointed by the Board to perform such
function (the "Committee"). The Board or the Committee, as the
case may be, within the limitations of the Stock Option Plan,
determines, among other things, when to grant options, the
persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are
intended to be ISOs, the duration and rate of exercise of each
option, the exercise price per share and the manner of exercise,
the time, manner and form of payment upon exercise of an option,
and whether restrictions such as repurchase rights in the Company
are to be imposed on shares subject to options. ISOs granted
under the Stock Option Plan may not be granted at a price less
than the fair market value of the Common Stock on the date of
grant (or 110% of fair market value in the case of persons
holding 10% or more of the voting stock of the Company). The
aggregate fair market value of shares for which ISOs granted to
any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the
Company and any related corporation) may not exceed $100,000.
Options granted under the Stock Option Plan will expire not more
than ten years from the date of grant (five years in the case of
ISOs granted to persons holding 10% or more of the voting stock
of the Company). Options granted under the Stock Option Plan are
not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and
distribution.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the
date of this Prospectus and as adjusted to reflect the sale by
the Company of a minimum of 1,000,000 shares of Common Stock
offered hereby and a maximum of 1,250,000 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
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP(1)
------------------- ------------------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . . 1,500,000(3)
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . . 1,819,189(3)(4)
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . . . . . 2,067,160(3)(5)
Steven Dreyer . . . . . . . . . . 20,154(6)
Maynard Hellman . . . . . . . . . 150,000(7)
All directors and
officers as a
group (four persons) . . . . . . 2,556,503(3)(4)(5)
(6)(7)
PERCENTAGE OF
OUTSTANDING SHARES OWNED
------------------------------------------
NAME AND ADDRESS OF BEFORE AFTER MINIMUM AFTER MAXIMUM
BENEFICIAL OWNER OFFERING OFFERING(2) OFFERING(2)
------------------ -------- ------------- -----------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 89.3% 56.6% 51.7%
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 91.7% 61.6% 56.8%
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 92.6% 64.6% 59.9%
Steven Dreyer . . . . . . . . 1.2% * *
Maynard Hellman . . . . . . . 8.9% 5.7% 5.2%
All directors and
officers as a
group (four persons) . . . . 100.0% 72.5% 67.7%
-----------------------
* 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) 1,000,000 shares of Common Stock reserved
for issuance upon the exercise of Warrants in the event the
Minimum Offering is sold or 1,250,000 shares of Common Stock
reserved for issuance upon the exercise of Warrants in the
event the Maximum Offering is sold, (ii) 125,000 shares of
Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and (iii) 500,000 shares of Common
Stock reserved for issuance upon exercise of options
available for future grant under the Company's Stock Option
Plan.
(3) Messrs. Press and Edelson, the President and Chairman of the
Board, respectively, of the Company, may be deemed to be the
control persons of Medley Group, Inc., and, as such, may be
deemed to beneficially own all of the Common Stock of the
Company beneficially owned by Medley Group, Inc.
(4) 15,000 of these shares will be redeemed by the Company, at
the redemption price of $5.50 per share, concurrently with
the closing of the Minimum Offering. Includes 142,500
shares of Common Stock issuable upon the exercise of certain
warrants; these warrants are exercisable at any time on or
prior to September 30, 2000 at an exercise price of $1.50
per share. Also includes 161,689 shares of Common Stock
issuable upon the conversion of 755,895 shares of
Convertible Preferred Stock owned by Mr. Press.
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<PAGE>
(5) 15,000 of these shares will be redeemed by the Company, at
the redemption price of $5.50 per share, concurrently with
the closing of the Minimum Offering. Includes 142,500
shares of Common Stock issuable upon the exercise of certain
warrants; these warrants are exercisable at any time on or
prior to September 30, 2000 at an exercise price of $1.50
per share. Also includes 409,660 shares of Common Stock
issuable upon the conversion of 1,915,160 shares of
Convertible Preferred Stock owned by Mr. Edelson.
(6) Represents (i) 5,625 shares of Common Stock issuable upon
the exercise of certain warrants owned by Tile's
International, an entity controlled by Mr. Dreyer; these
warrants are exercisable at any time on or prior to
September 30, 2000 at an exercise price of $1.50 per share
and (ii) 14,529 shares of Common Stock issuable upon the
conversion of 67,925 shares of Convertible Preferred Stock
owned by Mr. Dreyer.
(7) Does not include 1,000,000 shares of Common Stock issuable
upon the exercise of certain warrants owned by Mr. Hellman.
These warrants are identical to the Warrants being offered
hereby.
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<PAGE>
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. The
Company anticipates recognizing a significant amount of these
revenues over the next two years. The Company will reduce the
intercompany receivable due it from Medley Refrigeration on a
dollar for dollar basis as and when it receives revenues with
respect to the equipment leases comprising the Assignment.
During January 1997, the Medley Refrigeration intercompany
receivable was further reduced by $237,000 as a result of Medley
Refrigeration paying the Company $200,000 in cash and
transferring to the Company $37,000 of refrigeration equipment.
The Company used this refrigeration equipment to directly enter
into new refrigeration equipment leases with customers of Medley
Refrigeration. The Company continues, on a regular basis, to
finance refrigeration equipment leases directly with Medley
Refrigeration's customers. The equipment underlying these leases
has been, and will continue to be, provided by Medley
Refrigeration. The intercompany receivable due the Company from
Medley Refrigeration has been, and will continue to be, reduced
by the direct cost of the equipment underlying these equipment
leases. At March 31, 1997, the intercompany receivable due to
the Company from Medley Refrigeration was approximately $1,000,000.
During June 1996, the Company offered holders of
approximately $951,590 principal amount of unsecured notes of the
Company (of which Steven Dreyer, a Director of the Company, held
approximately $50,788 of these notes) the opportunity to exchange
their notes into shares of the Company's Convertible Preferred
Stock. Noteholders, including Mr. Dreyer, converted
approximately $765,657 principal amount of notes into 811,973
shares of Convertible Preferred Stock. Mr. Dreyer was issued
54,338 shares of Convertible Preferred Stock pursuant to this
exchange offer.
Concurrently, in June 1996, the Company offered Messrs.
Robert Press and Steven Edelson, President and Chairman of the
Board, respectively, of the Company, the opportunity to exchange
their shares of 13 1/2% preferred stock of the Company then owned
by them, having an aggregate liquidation value of $1,643,726, into
shares of Convertible Preferred Stock. Messrs. Press and Edelson
exchanged all of their shares of 13 1/2% preferred stock for an
aggregate of 2,136,844 shares of Convertible Preferred Stock
(604,717 shares to Mr. Press and 1,532,127 shares to Mr.
Edelson).
The Company and Performance Capital Management, a company
controlled by Messrs. Press and Edelson, are parties to a
Management Agreement pursuant to which, among other things,
Performance Capital Management provides the Company with certain
financial and managerial assistance in consideration for a
Management Fee of $30,000 for Fiscal 1995, $15,000 for Fiscal
1996 and $90,000 per year following the consummation of this
offering. 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.
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<PAGE>
From June 1, 1996 through March 31, 1997, Messrs. Press and
Edelson loaned the Company $58,218 and $47,018, respectively.
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 with a portion
of the proceeds from this offering. In connection with their
making these loans, the Company issued to each of Messrs. Press
and Edelson warrants to purchase up to 142,500 shares of Common
Stock. These warrants are exercisable at any time on or prior to
September 30, 2000, at an exercise price of $1.50 per share.
From June 1, 1996 to March 31, 1997, Performance Capital
Management loaned the Company $21,000. This loan bears interest
at the rate of 12% per annum with a balloon payment of principal
and accrued interest due by August 2, 1999. The Company intends
to repay this loan with a portion of the proceeds from this
offering.
From June 1, 1996 to March 31, 1997, Tile's International
("Tiles"), a company controlled by Steven Dreyer, loaned the
Company $100,000, of which approximately $81,321 was outstanding
at March 31, 1997. This loan bears interest at the rate of 13 1/2%
per annum, requires monthly payments of principal and interest
and matures in November 1998. In connection with the loans made
to the Company by Tiles, the Company issued to Tiles warrants to
purchase up to 5,625 shares of Common Stock. These warrants are
exercisable at any time prior to September 30, 2000, at an
exercise price of $1.50 per share.
In December 1996, the Company sold Maynard Hellman, a
director of the Company, in consideration for $100,000, warrants
to purchase up to 1,000,000 shares of Common Stock of the
Company. These warrants are identical to the Warrants being
offered hereby.
The Company will utilize $165,000 from this offering to
redeem, at a price of $5.50 per share, an aggregate of 30,000
shares of Common Stock owned by Messrs. Press and Edelson. These
shares were transferred and assigned by Group to Messrs. Press
and Edelson in January 1996 in consideration for services
performed by them on behalf of the Company.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 10,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of
preferred stock, par value $.01 per share. As of the date of
this Prospectus, there were 1,680,000 shares of Common Stock
issued and outstanding, and 2,958,817 shares of preferred stock
issued and outstanding. All such preferred stock is Convertible
Preferred Stock, the only series of preferred stock to date
authorized for issuance by the Company's Board of Directors.
COMMON STOCK
The holders of Common Stock are entitled to one vote for
each share held of record on all matters to be voted on by
stockholders. There is no cumulative voting with respect to the
election of directors, with the result that the holders of more
than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of
Common Stock are entitled to receive ratably dividends when, as
and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining which are
available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares
of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of
Common Stock are (and the shares of Common Stock offered hereby,
when issued in exchange for the consideration set forth in this
Prospectus, will be) fully paid and nonassessable.
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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 the first, and, to
date, the only series of preferred stock and issued an aggregate
of 2,958,817 shares designated as 10% Convertible Preferred
Stock. The Convertible Preferred Stock accrues dividends,
payable quarterly (to the extent legally sufficient funds are
then available to the Company), at an annual rate of $.10 per
share. All regularly declared but unpaid dividends cumulate. If
the Company, for whatever reason, fails to pay the regular
quarterly dividend with respect to the Convertible Preferred
Stock for four consecutive quarters, the holders of the
Convertible Preferred Stock, voting separately as a class, shall
be entitled to elect one designee to the Company's Board of
Directors. Holders of shares of Convertible Preferred Stock are
not otherwise entitled to vote on any matters affecting the
Company or its stockholders, except as may be required by law.
The Convertible Preferred Stock is entitled to a $1.00 per
share liquidation preference (together with all accrued and
unpaid dividends) over the Company's Common Stock in the event of
dissolution of the Company. After the satisfaction of all
indebtedness of the Company, holders of Convertible Preferred
Stock would then receive any remaining assets in priority to
holders of the Company's Common Stock.
Holders of the Convertible Preferred Stock shall have the
right, effective at any time following the closing of the Minimum
Offering, to convert any or all of such holder's shares of
Convertible Preferred Stock into shares of Common Stock of the
Company at the initial public offering price for the Common Stock
being offered hereby ($5.50 per share) less a 15% discount, or
approximately $4.68 per share (the "conversion price"). The
number of shares of Common Stock issuable upon conversion shall
be determined by dividing the aggregate liquidation value ($1.00
per share) of all shares of Convertible Preferred Stock being
converted (together with the amount of all accrued and unpaid
dividends with respect to such shares) by the conversion price
for such shares.
The Company has the unilateral right, commencing on ____,
2001 (the "anniversary date"), to redeem all or any shares of
Convertible Preferred Stock at the redemption price of $1.00 per
share (together with the amount of all accrued and unpaid
dividends with respect to such shares) if the average closing
price for shares of the Company's Common Stock for the 20
consecutive trading days immediately preceding the anniversary
date exceeds the conversion price by 20% (approximately $5.62 per
share).
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder
thereof (the "Warrant Holders") to purchase, commencing one year
following the date of this Prospectus, one share of Common Stock
at a price of $5.00, subject to adjustment in certain
circumstances, until 5:00 p.m., Eastern time, on _________, 2002
(five years following the date of this Prospectus). The Warrants
will be separately transferable immediately upon issuance.
The Warrants are redeemable by the Company, upon the consent
of the Underwriter, at any time after ____, 1998 (one year
following the date of this Prospectus), upon notice of not less
than 30 days at a price of $.15 per Warrant, provided that the
closing bid quotation of the Common Stock on all 25 of the
trading days ending on the third day prior to the day on which
the Company gives notice of redemption has been at least 150%
(currently $8.25, subject to adjustment) of the initial offering
price of the Common Stock offered hereby. The Warrant Holders
shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will
be issued in registered form under a warrant agreement by and
among the Company, American Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent"), and the Underwriter (the
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"Warrant Agreement"). The exercise price and number of shares of
Common Stock issuable on exercise of the Warrants are subject to
adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or
consolidation of the Company. However, the Warrants are not
subject to adjustment for issuances of Common Stock at prices
below the exercise price of the Warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part) for a
complete description of the terms and conditions of the Warrants.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date at the offices of
the Warrant Agent, with the exercise form on the reverse side of
the Warrant certificate completed and executed as indicated,
accompanied by full payment of the exercise price (by certified
check or bank draft payable to the Company) to the Warrant Agent
for the number of Warrants being exercised. Warrant Holders do
not have the rights or privileges of holders of Common Stock
until their Warrants are exercised.
No Warrant will be exercisable unless at the time of
exercise the Company has filed a current registration statement
with the Commission covering the shares of Common Stock issuable
upon exercise of such Warrant and such shares have been
registered or qualified or deemed to be exempt from registration
or qualification under the securities laws of the state of
residence of the holder of such Warrant. The Company will use
its best efforts to have all shares so registered or qualified on
or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of the Warrants, subject to
the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be
able to do so.
No fractional shares will be issued upon exercise of the
Warrants. However, if a Warrant Holder exercises all Warrants
then owned of record by him, the Company will pay such Warrant
Holder, in lieu of the issuance of any fractional share which is
otherwise issuable, an amount in cash based on the market value
of the Common Stock on the last trading day prior to the exercise
date.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The General Corporation Law of Delaware (the "DGCL")
provides that a corporation may limit the liability of each
director to the corporation or its stockholders for monetary
damages except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The Company's certificate
of incorporation provides for the elimination and limitation of
the personal liability of directors of the Company for monetary
damages to the fullest extent permitted by the DGCL. In
addition, the certificate of incorporation provides that if the
DGCL is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of
the directors shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended. The effect of this
provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of
the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including
breaches resulting from negligence or grossly negligent
behavior), except in the situations described in clauses (i)
through (iv) above. This provision does not limit or eliminate
the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a
breach of a director's duty of care. The certificate of
incorporation also provides that the Company shall, to the full
extent permitted by the DGCL, as amended from time to time,
indemnify and advance expenses to each of its currently acting
and former directors, officers, employees and agents.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable.
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ANTI-TAKEOVER PROVISIONS
The Company is subject to certain anti-takeover provisions
under Section 203 of the DGCL. In general, under Section 203, a
Delaware corporation may not engage in any business combination
with any "interested stockholder" (a person that owns, directly
or indirectly, 15% or more of the outstanding voting stock of the
corporation or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock), for a
period of three years following the date such stockholder became
an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, or (ii) upon
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, or (iii) on or
subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of stockholders by at least 66 2/3% of the outstanding
voting stock not owned by the interested stockholder. The
restrictions imposed by Section 203 will not apply to a
corporation if the corporation's original certificate of
incorporation contains a provision expressly electing not to be
governed by this Section or the corporation by action of its
stockholders holding a majority of outstanding stock adopts an
amendment to its certificate of incorporation or by-laws
expressly electing not to be governed by Section 203.
The Company has not elected not to be governed by Section
203, and upon consummation of this offering and the listing of
the Common Stock and Warrants on NASDAQ, the restrictions imposed
by Section 203 will apply to the Company. Such provision could
have the effect of discouraging, delaying or preventing a
takeover of the Company, which could otherwise be in the best
interest of the Company's stockholders, and have an adverse
effect on the market price for the Company's Common Stock and/or
Warrants.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant
Agent for the Warrants is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005.
REPORTS TO SECURITYHOLDERS
The Company will furnish to its securityholders annual
reports containing audited financial statement and such unaudited
interim reports as it deems appropriate. Contemporaneously with
the commencement of this offering, the Company intends to
register its Common Stock and Warrants with the Commission
pursuant to the provisions of Section 12(g) promulgated under the
Exchange Act. In accordance therewith, the Company will be
required to comply with certain reporting, proxy solicitation and
other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will
have 2,650,000 shares of Common Stock outstanding if the Minimum
Offering is sold and 2,900,000 shares of Common Stock outstanding
if the Maximum Offering is sold, assuming no exercise of the
Warrants, the Underwriter's Warrants or any other outstanding
warrant or the issuance of any shares of Common Stock underlying
shares of the Company's Convertible Preferred Stock. At that
time, only the 1,000,000 of the shares being offered hereby in the
event the Minimum Offering is sold, and the 1,250,000 shares being
offered hereby in the event the Maximum Offering is sold, will be
freely tradable without restriction or further registration under
the Securities Act. The remaining 1,650,000 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
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<PAGE>
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 preceding the sale and who has beneficially owned
shares of Common Stock for at least two years is entitled to sell
such shares under Rule 144 without regard to any of the
limitations described above.
Group, which is controlled by Messrs. Press and Edelson, the
President and Chairman of the Board, respectively, of the
Company, beneficially owns, as of the date of this Prospectus,
1,500,000 shares of Common Stock of the Company. Group has
agreed not to sell or otherwise dispose of any of its shares for
a period of six months from the date of this Prospectus without
the prior written consent of the Underwriter. In addition, each
holder of Convertible Preferred Stock has agreed not to sell or
otherwise dispose of any shares of Common Stock issuable upon
conversion of such Convertible Preferred Stock for a period of
six months from the date of this Prospectus without the prior
written consent of the Underwriter.
Prior to this offering, there has been no market for the
Common Stock or Warrants and no prediction can be made as to the
effect, if any, that public sales of shares of Common Stock or
the availability of such shares for sale will have on the market
prices of the Common Stock and the Warrants prevailing from time
to time. Nevertheless, the possibility that substantial amounts
of Common Stock may be sold in the public market may adversely
affect prevailing market prices for the Common Stock and the
Warrants and could impair the Company's ability in the future to
raise additional capital through the sale of its equity
securities.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement, the Underwriter has agreed to use its
best efforts to offer a minimum of 1,000,000 shares of Common Stock
and 1,000,000 Warrants and a maximum of 1,250,000 shares of Common
Stock and 1,250,000 Warrants to the public. The first 1,000,000
shares of Common Stock and 1,000,000 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 1,000,000
shares of Common Stock and 1,000,000 Warrants are sold, the
offering will continue on a "best efforts" basis up to 1,250,000
shares of Common Stock and 1,250,000 Warrants. The Underwriter has
made no commitment to purchase any of the Common Stock or
Warrants offered hereby. The Underwriter has agreed to use its
best efforts to find purchasers for the Common Stock and Warrants
offered hereby within a period of 30 days from the date of this
Prospectus, subject to an extension by mutual agreement for an
additional period of 30 days. The Underwriter will promptly send
to each subscriber who subscribes to this offering a confirmation
of the subscriber's purchase of Common Stock and/or Warrants with
instructions to forward their funds to the Underwriter. All
proceeds raised in this offering will be deposited by the
Underwriter in an escrow account maintained at SunTrust Bank,
South Florida, N.A., the Escrow Agent for the Company. If the
Minimum Offering is not achieved and the offering is canceled,
all subscriptions held in the escrow account will be returned
without interest or deduction.
The Common Stock and Warrants will be sold on a fully paid
basis only. Certificates representing shares of Common Stock and
Warrants will be issued to subscribers only if the proceeds from
the sale of at least 1,000,000 shares of Common Stock and 1,000,000
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.
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<PAGE>
The Underwriter has advised the Company that it proposes to
offer the Common Stock and Warrants to the public at the public
offering prices set forth on the cover page of this Prospectus.
The Underwriter may allow to certain Broker Dealers who are
members of the NASD concessions, not in excess of $.55 per share
of Common Stock and $.015 per Warrant, of which not in excess of
$_____ per share of Common Stock and $_____ per Warrant may be
reallowed to other Broker Dealers who are members of the NASD.
The Company has agreed to pay to the Underwriter a
nonaccountable expense allowance of three percent of the gross
proceeds of this offering, of which $___ has been paid as of the
date of this Prospectus. The Company has also agreed to pay all
expenses in connection with qualifying the shares of Common Stock
and Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
Mr. Steven L. Edelson, Chairman of the Board of the Company,
also serves as a financial principal of the Underwriter. As
such, the Underwriter may be deemed to be an affiliate of the
Company. As a result, this offering is being conducted in
accordance with the applicable provisions of Section 2720 of the
NASD Rules of Conduct. Accordingly, the initial public offering
prices for the Common Stock and Warrants offered hereby can be no
higher than that recommended by a "qualified independent
underwriter" meeting certain standards. The NASD requires that
the "qualified independent underwriter" (i) be an NASD member
experienced in the securities or investment banking business,
(ii) not be an affiliate of the issuer of the securities and
(iii) agree to undertake the responsibilities and liabilities of
an underwriter under the Securities Act. In accordance with this
requirement, Lew Lieberbaum & Co., Inc. ("Lieberbaum") is serving
as qualified independent underwriter in this offering.
Lieberbaum has assumed the responsibilities of acting as
qualified independent underwriter in pricing the Offering, has
performed due diligence with respect to the information contained
herein and has participated in preparing the Registration
Statement. In its role as qualified independent underwriter,
Lieberbaum will receive an aggregate fee from the Underwriter of
$65,000, $10,000 of which has been paid and $55,000 of which is
to be paid upon consummation of the Minimum Offering.
The Company has agreed to sell to the Underwriter (or its
designee) for an aggregate of $1,250, the Underwriter's Warrants,
which Underwriter's Warrants shall entitle the Underwriter to
purchase up to 125,000 shares of Common Stock at an exercise price
of $6.60 per share. The Underwriter's Warrants may not be sold,
transferred, assigned or hypothecated for one year from the date
of this Prospectus, except to the officers and partners of the
Underwriter, and are exercisable during the four-year period
commencing one year from the date of this Prospectus (the
"Warrant Exercise Term"). During the Warrant Exercise Term, the
holders of the Underwriter's Warrants are given, at nominal cost,
the opportunity to profit from a rise in the market price of the
Common Stock. To the extent that the Underwriter's Warrants are
exercised, dilution to the interests of the Company's
stockholders will occur. Further, the terms upon which the
Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's
Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those
provided in the Underwriter's Warrants. Any profit realized by
the Underwriter on the sale of the Underwriter's Warrants or the
shares of Common Stock issuable upon exercise of such
Underwriter's Warrants may be deemed additional underwriting
compensation. Subject to certain limitations and exclusions, the
Company has agreed, at the request of the holders of a majority
of the Underwriter's Warrants, at the Company's expense, to
register the Underwriter's Warrants and the shares of Common
Stock issuable upon exercise of such Underwriter's Warrants under
the Securities Act on one occasion during the Warrant Exercise
Term and to include the Underwriter's Warrants and all such
underlying securities in an appropriate registration statement
which is filed by the Company during the three years following
the date of this Prospectus.
The Company has also agreed, in connection with the exercise
of the Warrants pursuant to solicitation (commencing one year
from the date of this Prospectus), to pay to the Underwriter a
fee of 5% of the exercise price for each Warrant exercised;
provided, however, that the Underwriter will not be entitled to
receive such compensation in Warrant exercise transactions in
which (i) the market price of the Common Stock at the time of
exercise is lower than the exercise price of the Warrants; (ii)
the Warrants are held in any discretionary account; (iii)
disclosure of compensation arrangements is not made, in addition
to the disclosure provided in this Prospectus, in documents
provided to holders of Warrants at the time of exercise; (iv) the
exercise of the Warrants is unsolicited; and (v) the solicitation
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<PAGE>
of exercise of the Warrants was in violation of Rule 10b-6
promulgated under the Exchange Act.
In addition, the Company has agreed to grant to the
Underwriter a one-year right of first refusal (i) to underwrite
or place any public or private sale of debt or equity securities
of the Company, or any subsidiary or successor of the Company,
offered for sale for an aggregate amount of $25 million or less
through a placement agent or underwriter by the Company or any of
its subsidiaries, successors or principal stockholders, and (ii)
to purchase for the Underwriter's account or to sell for the
account of the Company's officers, directors and principal
stockholders any securities of the Company sold pursuant to Rule
144 under the Securities Act.
The Company's officers and directors, beneficially owning
2,556,503 shares of Common Stock as of the date of this
Prospectus, have agreed not to sell or otherwise dispose of any
securities of the Company beneficially owned by them for a period
of six months from the date of this Prospectus, without the prior
written consent of the Underwriter.
Each investor must purchase a minimum of 100 shares of
Common Stock and/or 100 Warrants in this offering. Any larger
number of shares and/or Warrants must be purchased in 100 share
and/or Warrant increments.
The Company has agreed to indemnify the Underwriter and
Lieberbaum against certain civil liabilities, including
liabilities under the Securities Act.
Prior to this offering, there has been no public trading
market for the Common Stock or Warrants. Consequently, the
initial public offering prices of the Common Stock and Warrants
and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter, with the
guidance of Lieberbaum, and do not necessarily bear any
relationship to the Company's book value, assets, past operating
results or financial condition or to any other established
criteria of value.
It is anticipated that the Common Stock and Warrants will be
listed on NASDAQ under the proposed symbols "MCAC" and "MCACW,"
respectively. These listings will not be effective, however,
until the consummation of the Minimum Offering. The Underwriter
may act as a market maker with respect to the Common Stock and
Warrants.
LEGAL MATTERS
The validity of the securities being offered hereby will be
passed upon for the Company by Reid & Priest LLP, New York, New
York. David R. Hardy, Esq., a partner of Reid & Priest LLP, is
the beneficial owner of 34,247 shares of common stock of Group,
the Company's parent corporation. Siegel, Lipman, Dunay & Shepard,
LLP, Boca Raton, has acted as counsel for the Underwriter in
connection with this offering.
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, 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, 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.
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<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.
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<PAGE>
=================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
EXCEPT WHERE OTHERWISE INDICATED, THIS PROSPECTUS SPEAKS AS OF
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Information . . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management and
Certain Securityholders . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . .
Description of Securities . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . .
----------------------
UNTIL ___, 1997 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=================================================================
=================================================================
1,250,000 SHARES
COMMON STOCK
1,250,000 REDEEMABLE WARRANTS
TO PURCHASE COMMON STOCK
MEDLEY CREDIT
ACCEPTANCE CORP.
----------
PROSPECTUS
----------
PCM SECURITIES LIMITED, L.P.
___ , 1997
=================================================================
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
I. Fiscal 1996:
-----------
Independent Auditors' Report . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . F-3
Statement of Operations for the year ended December 31, 1996 . . F-5
Statement of Stockholders' Equity for the year ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-6
Statement of Cash Flows for the year ended December 31, 1996 . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . F-8
II. Fiscal 1995:
-----------
Independent Auditors' Report . . . . . . . . . . . . . . . . F-16
Statement of Operations for the year ended December 31, 1995 . F-17
Statement of Shareholders' Deficit for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . F-18
Statements of Cash Flows for the year ended December 31, 1995 F-19
Notes to Financial Statements . . . . . . . . . . . . . . . . . F-20
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Medley Credit Acceptance Corp.:
We have audited the accompanying balance sheet of
Medley Credit Acceptance Corp. as of December 31, 1996, and the
related statement of income, stockholder's equity, and cash flows
from the year then ended. These financial statements are the
responsibility of the management of Medley Credit Acceptance
Corp. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Medley Credit Acceptance Corp. as of December 31,
1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company experienced a loss from operations in 1996, has
substantial working capital deficiency at December 31, 1996, and
is in arrears on its preferred stock dividends. These matters
raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 1. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result
from the resolution of these uncertainties.
Boca Raton, Florida
March 31, 1997
DASZKAL, BOLTON & MANELA
F-2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for
doubtful accounts of $3,000 $ 73,727
Notes receivable 29,816
Due from affiliates 585,288
Prepaid offering costs 73,015
-------
Total Current Assets 761,846
-------
RENTAL EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 234,619
-------
PROPERTY AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION 19,154
-------
OTHER ASSETS
Due from affiliates 711,837
Rental equipment not in service 65,565
Security deposits 1,799
-------
Total Other Assets 779,201
-------
TOTAL ASSETS $1,794,820
==========
See accompanying notes to financial statements.
F-3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $210,000
Current portion of long-term debt 250,937
Current portion of obligations
to finance companies 91,027
Accounts payable and accrued expenses 172,534
Dividends payable - preferred stock 127,668
--------
Total Current Liabilities 852,166
--------
OTHER LIABILITIES
Long-term debt, net of current portion 167,286
Obligations to finance companies, net of 100,996
current portion
Notes payable - officers 105,236
Customer deposits 7,115
-------
Total Other Liabilities 380,633
-------
Total Liabilities 1,232,799
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000
authorized, 2,958,817 shares, issued and 29,588
outstanding
Common stock, $.01 par value, 10,000,000
authorized, 1,680,000 shares, issued and 16,800
outstanding
Additional paid-in capital 2,053,039
Accumulated deficit (1,537,406)
-----------
Total Stockholder's Equity 562,021
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,794,820
==========
See accompanying notes to financial statements.
F-4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
REVENUES $356,235
--------
COST AND EXPENSES
Depreciation 95,483
Interest expense 146,914
Loss on sale of leased equipment 35,687
General and administrative expenses 282,855
--------
Total Costs and Expenses 560,939
--------
Loss from Operations (204,704)
--------
OTHER INCOME
Interest income 93,064
Reversal of estimate for uncollectible
advances to affiliate 600,000
--------
Total Other Income 693,064
--------
NET INCOME $488,360
========
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $255,638
========
NET INCOME PER COMMON SHARE $ .15
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,680,000
=========
See accompanying notes to financial statements.
F-5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
PREFERRED STOCK COMMON STOCK
---------------- -------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
BALANCE,
AT JANUARY 1, 1996 1,643,700 $ 16,437 1,000 $200,000
RESTATEMENT OF COMMON STOCK
PAR VALUE - - - (199,990)
--------- -------- --------- --------
BEGINNING BALANCE AS RESTATED 1,643,700 16,437 1,000 10
ISSUANCE OF PREFERRED STOCK
FOR EXTINGUISHMENT OF
DEBT 1,300,117 13,001 - -
ISSUANCE OF PREFERRED STOCK 15,000 150 - -
STOCK SPLIT - 1,120 TO 1 - - 1,119,000 11,190
ISSUANCE OF WARRANTS - - - -
STOCK SPLIT - 3 TO 2 - - 560,000 5,600
PREFERRED STOCK DIVIDENDS - - - -
NET INCOME - - - -
---------- -------- ---------- -------
BALANCE AT DECEMBER 31, 1996 2,958,817 $29,588 1,680,000 $16,800
========== ======= ========= =======
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
---------- ---------- ----------
BALANCE, AT JANUARY 1, 1996 $ 979,146 $(1,793,044) $(597,461)
RESTATEMENT OF COMMON STOCK
PAR VALUE 199,990 - -
--------- ----------- ---------
BEGINNING BALANCE AS RESTATED 1,179,136 (1,793,044) (597,461)
ISSUANCE OF PREFERRED STOCK
FOR EXTINGUISHMENT OF
DEBT 775,843 - 788,844
ISSUANCE OF PREFERRED STOCK 14,850 - 15,000
STOCK SPLIT - 1,120 TO 1 (11,190) - -
ISSUANCE OF WARRANTS 100,000 - 100,000
STOCK SPLIT - 3 TO 2 (5,600) - -
PREFERRED STOCK DIVIDENDS - (232,722) (232,722)
NET INCOME - 488,360 488,360
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 $2,053,039 $(1,537,406) $562,021
========== =========== ========
See accompanying notes to financial statements.
F-6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $488,360
----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 95,483
Reversal of estimate
for uncollectible (600,000)
advances to affiliate
Loss on sale of 35,687
leased equipment
Changes in assets and
liabilities:
Accounts receivable (43,907)
Prepaid expenses (65,423)
Accounts payable
and accrued expenses 130,118
Customer deposits (20,229)
----------
Total Adjustments (468,271)
----------
Net cash provided by operating 20,089
activities ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net receipts from affiliates 42,083
Purchase of rental equipment (111,544)
----------
Net cash used by investing activities (69,461)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings 10,000
Proceeds from long-term debt 276,000
Repayments of short-term borrowings (145,000)
Repayments of long-term debt
and obligations to finance
companies (216,577)
Payment of preferred stock dividends (105,054)
Net proceeds from shareholders loans 111,200
Issuance of preferred stock 15,000
Issuance of warrants 100,000
----------
Net cash provided by financing activities 45,569
----------
NET DECREASE IN CASH AND EQUIVALENTS (3,803)
CASH AND EQUIVALENTS - beginning of year 3,803
----------
CASH AND EQUIVALENTS - end of year $ --
==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 59,268
===========
SUPPLEMENTAL NONCASH INVESTING
AND FINANCIAL ACTIVITIES:
Long-term debt and related
accrued interest converted
into convertible preferred
stock $ 788,844
===========
See accompanying notes to financial statements.
F-7
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A Subsidiary of Medley Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Medley Credit Acceptance Corp. ("the Company"), a Delaware
corporation, is a majority-owned subsidiary of Medley Group, Inc.
The Company is a specialty finance company operating in Florida
and engaged primarily in the leasing of dry cleaning equipment.
In addition, the Company has provided financing arrangements on
certain refrigeration equipment sold or leased by Medley
Refrigeration, Inc., an affiliated company.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
experienced a loss from operations in 1996, has substantial
working capital deficiency at December 31, 1996, and is in
arrears on its preferred stock dividends. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue in existence as
a going concern is dependent upon its ability to attain
profitable operations and to obtain equity and/or debt financing.
Management plans to rely, to a substantial extent, on the
Company's ability to successfully complete a proposed initial
public offering.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates include those related to valuation of
amounts due from affiliates and the net realizable value of
rental equipment not in service. It is at least reasonably
possible that the significant estimates used will change within
the next year.
Financial Instruments
---------------------
The Company's financial instruments include cash, receivables,
payables, and notes payable - bank for which carrying amounts
approximate fair value. It is not practicable to estimate the
fair value of related party receivables and payables and the
long-term debt.
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.
F-8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
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 at December 31, 1996 consists of the following:
Not in
In Service Service Total
---------- ------- -----
Equipment, at cost . $465,375 $562,140 $1,027,515
Less: accumulated
depreciation . . . . 230,756 496,575 727,331
-------- -------- ----------
Net Rental Equipment $234,619 $ 65,565 $ 300,184
======== ======== ==========
The depreciation expense on rental equipment for the year ended
December 31, 1996 was $85,415.
Rents receivable under 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
----------
F-9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following
at December 31, 1996:
Office equipment . . . . . . . . $ 48,571
Automobile . . . . . . . . . . . 6,955
--------
55,526
Less: Accumulated depreciation . 36,372
--------
Net property and Equipment . $ 19,154
========
Depreciation expense on property and equipment for the year ended
December 31, 1996 was $10,068.
NOTE 5 - NOTES PAYABLE
Notes payable of $210,000 are comprised of the following at
December 31, 1996:
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 December 31, 1996, the amount outstanding was
$195,000. Borrowings are due on demand, with interest payable
monthly at prime (9.5% at December 31, 1996) plus 2%. Borrowings
under the note are collateralized by certain of the Company
assets not otherwise pledged and the debt is personally
guaranteed by the Company's principal officers and Medley Group,
Inc.
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.
F-10
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
At December 31, 1996, the Company remained obligated to various
individuals, not electing to convert their debt, for amounts
aggregating $418,223. 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 is $358,223.
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
=========
NOTE 7 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and
related rental agreements, consist of:
18.7% obligation, payable in
monthly installments of
$2,260, including interest,
through April 1998 . . . . . $ 33,527
23.6% obligation, payable in
varying monthly installments,
including interest, through
November 1999 . . . . . . . . 40,341
21.2% obligation, payable in
varying monthly installments,
including interest, through
November 1999 . . . . . . . . 62,223
18.3% obligation, payable in
varying monthly installments,
including interest, through
November 1999 . . . . . . . . 26,678
21.4% obligation, payable in
monthly
installments of $996,
including interest, through
June 2000 . . . . . . . . . . 29,254
----------
192,023
Less: Current maturities . . 91,027
----------
Long-Term Obligations . $ 100,996
==========
F-11
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1996, the annual maturities of obligations to
finance companies for the next five years are as follows:
1997 $ 91,027
1998 58,666
1999 36,626
2000 5,704
2001 -
---------
$ 192,023
=========
NOTE 8 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has declared dividends on its preferred stock;
however, it is in arrears on the 10% dividends for the last two
quarters of the year. The majority of the unpaid preferred stock
dividends are due the Company officers.
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 - $(18,000)
allocated . . . . . . . . .
Management expense . . . . . $(15,000)
Included in the balance sheet at December 31, 1996 are the
following assets:
Due from affiliates $1,297,125
The balance due from affiliates results principally from advances
with interest at 10% per annum with no definite due date.
The Company has reversed its $600,000 previous estimated
allowance for uncollectible advances due from an affiliated
company. This was effected, as the Company received in December
1996, an assignment of leases. In January 1997, approximately
$200,000 was received as payment against the receivable. As a
result of the above transactions, management feels no allowance
for collectability of the affiliated Company receivable is required
as the future income from the assigned leases will be sufficient
to pay the obligation.
F-12
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
Included in long-term debt is a $10,000 note due to a company
owned by one of the stockholders.
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock - Stock Splits
---------------------------
On June 30, 1996, the Company declared a 1,120 to 1 stock split,
which increased the issued and outstanding shares from 1,000 to
1,120,000 shares. On December 31, 1996, the Company declared a
3 for 2 stock split, which increased the issued and outstanding
shares to 1,680,000 shares. Per share amounts in the
accompanying financial statements have been adjusted for the
stock splits.
Preferred Stock - Exchange for Debt
-----------------------------------
In June 1996, the Company offered to certain note holders the
option to exchange their notes, approximating $972,000, to
convertible preferred stock of Medley Credit Acceptance Corp. at
a ratio of approximately 1.03 shares to $1.00. Note holders
elected to convert $788,844 of notes and accrued interest to
convertible preferred stock. Dividends on the preferred stock
are payable quarterly and are cumulative. The preferred stock is
convertible to common stock of the Company at a 15% discount to
the public offering price of $5.50.
Under the terms of the convertible preferred stock issue, the
Company may redeem the stock commencing on or after the fifth
anniversary of its issuance if the average trading price of the
common stock, if any, in the 20 trading days immediately
preceding such anniversary, exceeds the conversion price by 20%.
At anytime thereafter, the Company has the right to redeem the
convertible preferred stock, in whole or in part, upon 30 days
notice to the holders. The Company will be obligated to commence
a preferred stock redemption sinking fund if the public offering
of the Company's stock has not occurred within one year of the
date of the issuance of the convertible preferred stock.
Commencing 18 months after issuance of the convertible preferred
stock and annually thereafter, the Company will offer to redeem
25% of the shares.
Warrants Issued
---------------
During December 1996, the Company sold 1,000,000 warrants at $.10
each. Each warrant is exercisable for the purchase of one share
of common stock at a price of $5.00 per share for a period of
four years commencing one year after the effective date of the
Company's registration statement filing.
NOTE 11 - RECLASSIFICATION
The common stock par value in the 1996 financial statements has
been reclassified to the proper par value amount of $.01 per share.
The resultant reclassification has increased additional paid in
capital by $199,990 and reduced common stock by a corresponding
amount.
F-13
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
----------------
In 1992, an affiliate of the Company entered into a lease for the
premises which is currently occupied by Medley Group and
subsidiaries. This lease expires October 1997. The lease
requires a minimum annual base rent of $25,000 plus real estate
taxes and operating costs. Medley Credit Acceptance Corp. has
included in the statement of operations its allocated portion of
$18,000 as an expense.
In addition, the Company rents warehouse space on a month-to-
month basis for storage purposes at a cost of approximately $700
per month.
Management Agreement
--------------------
The Company entered into a management agreement with a related
company for management services at a fee of $90,000 per annum
effective January 1, 1994. The related company has agreed to
modify this agreement to $15,000 per annum for 1996. This
management agreement expired December 1, 1996 but carries an
automatic annual renewal commencing on that date.
Litigation
----------
The Company is involved in litigation in the normal course of
business. None of the legal actions are expected to have a
material effect on the Company's results of operations or
financial condition.
NOTE 13 - INCOME TAXES
The Company is included in the consolidated federal tax return of
its parent, Medley Group, Inc. Federal and state income taxes
are provided for on a stand-alone basis as if the Companies filed
their own tax returns.
The provision for income taxes is as follows:
Deferred Income Tax Expense:
Federal $ 166,000
State 29,300
Less Valuation Allowance (195,300)
----------
Deferred Income Tax $
==========
F-14
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
At December 31, 1996, the Company has an unused net operating
loss carryforward of approximately $408,000, expiring in 2010,
which is available for use on its future corporate federal and
state tax returns. The Company's evaluation of the tax benefit
of its net operating loss carryforward is presented in the
following table. The tax amounts have been calculated using a
40% combined effective tax rate.
Deferred Tax Asset:
Tax Benefit of Net Operating Loss $ 163,200
Less: Valuation Allowance (163,200)
----------
Deferred Tax Asset $
==========
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
Benefit at Federal Statutory Rate (34)%
Benefit at State Income Tax Rate (6)%
-----
(40)%
-----
NOTE 14 - DEPENDENCE ON AFFILIATES AND OTHERS
The Company has relied primarily on the customer relationships
generated by its affiliates for a significant source of its
business. In addition, the Company has outstanding receivable
balances from the affiliates of $1,297,125. The future
operations of Medley Credit is therefore highly dependent upon
these affiliates.
NOTE 15 - PROPOSED PUBLIC OFFERING
The Company has signed a Letter of Intent with an underwriter to
complete an initial public offering for a minimum of 1,000,000
shares of common stock and 1,000,000 warrants and a maximum of
1,250,000 shares of common stock and 1,250,000 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 16 - SUBSEQUENT EVENTS
Line of Credit Expiration
-------------------------
The Company's line of credit, described in Note 5, expired
January 29, 1997. Subsequent to January 29, 1997 an additional
payment of $55,000 was made to the bank and the note was
extended.
F-15
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
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-16
<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-17
<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 rental equipment 74,577
Write-down of rental equipment not in service
(Note 2) 87,456
General and administrative expenses 210,628
----------
Total costs and expenses 684,615
----------
Loss before other expense (296,607)
Other expense - provision for uncollectible advances 600,000
to affiliates (Note 4) ----------
Net loss (896,607)
Preferred dividends (205,447)
----------
Net loss applicable to common shareholders $(1,102,054)
===========
Net loss per common share (Note 1) $ (.98)
===========
Weighted average number of shares outstanding 1,120,000
===========
See accompanying notes to financial statements.
F-18
<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 ---------- ------ ----- -------
1,643,726 $16,437 1,000 $200,000
Balance - December 31, 1995 =========== ======= ===== ========
Additional
Paid-In Accumulated
Capital Deficit Total
------- ----------- -----
Balance - beginning of year as
previously reported $979,146 $(369,183) $ 826,400
Prior period adjustment -- (321,807) (321,807)
Note 7) ---------- ---------- ----------
Balance, beginning of year as
restated 979,146 (690,990) 504,593
Net loss -- (896,607) (896,607)
-- (205,447) (205,447)
Preferred dividends ---------- ---------- ----------
$979,146 $(1,793,044) $(597,461)
Balance - December 31, 1995 ========== ============ ==========
See accompanying notes to financial statements.
F-19
<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 600,000
affiliates
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 activities 48,469
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliates (276,949)
Increase in security deposits (719)
----------
Net cash used by investing activities (277,668)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank borrowings 196,735
Proceeds from long-term debt 389,506
Repayments of long-term debt (313,022)
Dividends paid (205,447)
----------
Net cash provided by financing activities 67,772
NET DECREASE IN CASH (161,427)
CASH - beginning 165,230
----------
CASH - end $3,803
==========
See accompanying notes to financial statements.
F-20
<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-21
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Major expenditures for
property and those which substantially increase useful lives are
capitalized. Maintenance, repairs, and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their
costs and related accumulated depreciation are removed from the
accounts and resulting gains or losses are included in income.
Depreciation is provided by the straight-line method over the
estimated useful lives of the assets.
DEFERRED INCOME TAXES
The Company provides deferred income taxes resulting from temporary
differences between the financial statement and tax bases of assets
and liabilities. Deferred tax assets or liabilities at the end of
each period are determined using the tax rate expected when taxes are
actually paid or recovered. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Temporary differences result principally from the write-
down of amounts due from affiliates and of certain rental equipment.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average of common
shares outstanding. On June 30, 1996, the Company effected a 1,120
for 1 stock split, thereby increasing the common shares outstanding
from 1,000 to 1,120,000. All per share data have been restated to
reflect this stock split.
2. RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following:
Not
In Service In Service Total
---------- ---------- -----
Equipment, at cost $751,529 $695,840 $1,447,369
Less: Accumulated 406,949 620,371 1,027,320
depreciation --------- --------- ----------
Net rental $344,580 $ 75,469 $,420,049
equipment ========= ========= ==========
The depreciation expense for the year was $141,208. The Company
provided a write-down of $87,456 on the equipment not currently in
service, to reduce it to its estimated net realizable value. However,
it is at least reasonably possible that this estimate will change.
F-22
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
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-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
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-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
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-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation") provides that no director shall
be personally liable to the Company or any of its stockholders
for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper
personal benefit.
The Company's By-Laws and Certificate of Incorporation
provide that the Company shall indemnify, to the fullest extent
authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because he
or she is or was a director or officer of the Company against all
expense, loss or liability in connection therewith.
Section 145 of the Delaware General Corporation Law permits
a corporation to indemnify any director or officer of the
corporation against expenses (including attorneys' fees),
judgements, fines and amounts paid in settlements actually and
reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or
was a director or officer of the corporation, if such person
acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her
conduct was unlawful. In a derivative action indemnification may
be made only for expenses actually and reasonably incurred by any
director or officer in connection with the defense or settlement
of an action or suit, if such person has acted in good faith and
in a manner that he or she reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been
adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought
shall determine upon application that the defendant is reasonably
entitled to indemnification for such expenses despite such
adjudication of liability. The right to indemnification includes
the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition upon the delivery
to the corporation of an undertaking, by or on behalf of the
director or officer, to repay all amounts so advanced if it is
ultimately determined that such director or officer is not
entitled to indemnification.
If a person is entitled to indemnification in respect to a
portion, but not all, of any liabilities to which such person may
be subject, the Company shall indemnify such person to the
maximum extent for such portion of the liabilities.
Pursuant to the Underwriting Agreement, the Underwriter is
obligated, under certain circumstances, to indemnify officers,
directors and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act of
1933. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be
incurred in connection with the offering described in this
Registration Statement.
SEC registration fee . . . . . $4,039.09
NASD filing fee . . . . . . . 1,831.25
Nasdaq SmallCap Market
listing fee . . . . . . . 7,900.00
Accounting fees and expenses . 30,000.00
Legal fees and expenses . . . 100,000.00
Blue sky fees and expenses . . 10,000.00
Transfer agent fee . . . . . . 2,500.00
Printing and engraving fees . 5,000.00
Miscellaneous . . . . . . . . 2,601.66
--------
Total . . . . . . . . . . . $163,872.00*
------------------------
* The Company will pay the above expenses with the proceeds
from this offering, except that for $30,000 of such expenses have
already been paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During June 1996, the Company offered holders of
approximately $951,590 principal amount of unsecured notes of the
Company the opportunity to exchange their notes into shares of
the Company's Convertible Preferred Stock. Noteholders converted
approximately $765,657 principal amount of notes into 811,973
shares of Convertible Preferred Stock.
Concurrently, in June 1996, the Company offered Messrs.
Robert Press and Steven Edelson, President and Chairman of the
Board, respectively, of the Company, the opportunity to exchange
their shares of 13 1/2% preferred stock of the Company then owned
by them, having an aggregate liquidation value of $1,643,726, into
shares of Convertible Preferred Stock. Messrs. Press and Edelson
exchanged all of their shares of 13 1/2% preferred stock for an
aggregate of 2,136,844 shares of Convertible Preferred Stock
(604,717 shares to Mr. Press and 1,532,127 shares to Mr.
Edelson).
From June 1, 1996 through March 31, 1997, Messrs. Press and
Edelson loaned the Company $58,218 and $47,018, respectively. In
connection with these loans, the Company issued to each of
Messrs. Press and Edelson warrants to purchase up to 142,500
shares of Common Stock. These warrants are exercisable at any
time on or prior to September 30, 2000, at an exercise price of
$1.50 per share.
From June 1, 1996 to March 31, 1997, Tile's International, a
company controlled by Steven Dreyer, a director of the Company,
loaned the Company $100,000, of which approximately $81,321 was
outstanding at March 31, 1997. In connection with these loans,
the Company issued to Tile's International warrants to purchase
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.
II-2
<PAGE>
In December 1996, the Company sold to Maynard Hellman, a
director of the Company, in consideration for $100,000, warrants
to purchase up to 1,000,000 shares of Common Stock of the
Company. These warrants are identical to the Warrants being
offered hereby.
Section 4(2) of the Securities Act provides an exemption for
the Company for each of the above-described transactions.
ITEM 27. EXHIBITS.
1.1 Underwriting Agreement*
3.1 Certificate of Incorporation of the Company, as
amended*
3.2 By-Laws of the Company*
3.3 Certificate of Designations, Rights and Preferences
of the 10% Convertible Preferred Stock*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Redeemable Warrant Certificate*
5.1 Opinion of Reid & Priest LLP*
10.1 Employment Agreement, dated as of December 1, 1996,
between Robert D. Press and the Company*
10.2 Employment Agreement, dated as of December 1, 1996,
between Steven L. Edelson and the Company*
10.3 Management Agreement, dated as of October 31, 1996,
between Performance Capital Management, Inc. and the
Company*
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 (included on signature page to
this Registration Statement)
27 Financial Data Schedule
-------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
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
II-3
<PAGE>
the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
For determining any liability under the Securities Act, the
Company will treat the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
For determining any liability under the Securities Act, the
Company will treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the
securities offered in the registration statement, and that
offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form
SB-2 and authorized this Registration Statement to be signed on
its behalf by the undersigned, in the City of Miami, State of
Florida, on this 9th day of April, 1997.
MEDLEY CREDIT ACCEPTANCE CORP.
/s/ Robert D. Press
-------------------------------
Robert D. Press
President, Chief Executive
Officer, Treasurer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below under the heading "Signatures"
constitutes and appoints Robert D. Press and Steven L. Edelson,
or either of them his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in connection with the above
premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following
persons in the capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Robert D. Press
--------------------
Robert D. Press President, Chief April 9, 1997
Executive Officer,
Treasurer
and Director
(Principal Executive,
Financial
and Accounting
Officer)
/s/ Steven L. Edelson
---------------------
Steven L. Edelson Chairman of the Board April 9, 1997
and Secretary
/s/ Steven Dreyer
---------------------
Steven Dreyer Director April 9, 1997
/s/ Maynard Hellman
--------------------
Maynard Hellman Director April 9, 1997
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
1.1 Underwriting Agreement*
3.1 Certificate of Incorporation of the Company, as
amended*
3.2 By-Laws of the Company*
3.3 Certificate of Designations, Rights and Preferences
of the 10% Convertible Preferred Stock*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Redeemable Warrant Certificate*
5.1 Opinion of Reid & Priest LLP*
10.1 Employment Agreement, dated as of December 1, 1996,
between Robert D. Press and the Company*
10.2 Employment Agreement, dated as of December 1, 1996,
between Steven L. Edelson and the Company*
10.3 Management Agreement, dated as of October 31, 1996,
between Performance Capital Management, Inc. and the
Company*
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 (included on signature page to
this Registration Statement)
27 Financial Data Schedule
-------------------------
* To be filed by amendment.
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
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
April 10, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS'
We consent to the use in this Registration Statement on Form SB-2
of Medley Credit Acceptance Corp. of our report dated March 31, 1997,
appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us as "Experts" in such Prospectus.
Daszkal, Bolton & Manela
Boca Raton, Florida
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,400,668
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 761,846
<PP&E> 19,154
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,794,820
<CURRENT-LIABILITIES> 852,166
<BONDS> 0
0
29,588
<COMMON> 16,800
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,794,820
<SALES> 356,235
<TOTAL-REVENUES> 356,235
<CGS> 282,855
<TOTAL-COSTS> 560,855
<OTHER-EXPENSES> 131,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,914
<INCOME-PRETAX> 488,360
<INCOME-TAX> 232,722
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 600,000
<NET-INCOME> 255,638
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
