AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO. 333-24937
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDLEY CREDIT ACCEPTANCE CORP.
(Name of Small Business Issuer in Its Charter)
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DELAWARE 6153 13-3571419
(State Or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification
Organization) Classification Code No.)
Number)
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10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
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ROBERT D. PRESS
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TREASURER
MEDLEY CREDIT ACCEPTANCE CORP.
10910 N.W. SOUTH RIVER DRIVE
MIAMI, FL 33178
(305) 889-1900
(Name, Address and Telephone Number of Agent For Service)
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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. [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
==========================================================================
PROPOSED PROPOSED
DOLLAR MAXIMUM MAXIMUM
TITLE OF EACH AMOUNT TO OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
--------------------------------------------------------------------------
Common Stock, $.01 1,600,000 $5.50 $8,800,000 $2,666.67
par value shares
--------------------------------------------------------------------------
Redeemable Common 1,600,000 $0.15 $ 240,000 $72.73
Stock Purchase Warrants(2)
Warrants
--------------------------------------------------------------------------
Common Stock, $.01 1,600,000 $5.75 $9,200,000 $2,787.88
par value shares(2)
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Total $18,240,000 $5,527.28(3)
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 promulgated under the Securities
Act of 1933, as amended.
(2) Together with such indeterminate number of additional Redeemable
Common Stock Purchase Warrants and shares of Common Stock as may be
issued pursuant to the anti-dilution provisions of the Redeemable
Common Stock Purchase Warrants pursuant to Rule 416(a) promulgated
under the Securities Act of 1933, as amended.
(3) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED JULY ( ), 1997
SUBJECT TO COMPLETION
1,600,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,600,000 SHARES OF COMMON STOCK
MEDLEY CREDIT ACCEPTANCE CORP.
Medley Credit Acceptance Corp., a Delaware corporation (the
"Company"), is offering hereby, subject to the immediately following
paragraph, a minimum of 1,200,000 shares of common stock, $.01 par value
per share (the "Common Stock"), and redeemable warrants to purchase a
minimum of 1,200,000 shares of Common Stock (the "Warrants"), on a best
efforts, all or none basis (the "Minimum Offering"), and a maximum of
1,600,000 shares of Common Stock and Warrants to purchase 1,600,000 shares
of Common Stock (the "Maximum Offering"), at an offering price of $5.50 per
share of Common Stock and $0.15 per Warrant. The shares of Common Stock
and Warrants in excess of the Minimum Offering will be offered on a "best
efforts" basis. Pending the sale of 1,200,000 shares of Common Stock and
1,200,000 Warrants, all proceeds will be held in an escrow account. If
1,200,000 shares of Common Stock and 1,200,000 Warrants are not sold within
30 days from the date hereof (which may be extended, if necessary, an
additional 30 days by the Company), all monies received will be refunded
to subscribers in full. If subscriptions for 1,200,000 shares of Common
Stock and 1,200,000 Warrants have been received, the offering will
continue on a "best efforts" basis, up to a maximum of 1,600,000 shares
of Common Stock and 1,600,000 Warrants, but without any escrow or refund
provisions.
Of the shares of Common Stock being offered hereby, 1,000,000 shares
(in the event of the Minimum Offering and 1,400,000 shares in the event of
the Maximum Offering) are being offered directly by the Company and 200,000
shares are being offered directly by Medley Group, Inc., the Company's
parent ("Group" or the "Selling Stockholder"). The Company will not
receive directly any of the proceeds from the sale of the Common Stock by
Group. The 200,000 shares of Common Stock being offered by Group will be
included among the 1,200,000 shares being offered in the Minimum Offering.
Group and the Company are parties to an agreement pursuant to which, among
other things, Group, on behalf of Medley Refrigeration, Inc., Group's
majority owned subsidiary and an affiliate of the Company ("Medley
Refrigeration"), will remit to the Company, at the closing of the Minimum
Offering, the $1,100,000 in proceeds generated from Group's sale of its
200,000 shares of Common Stock in the Minimum Offering. This $1,100,000
will be paid to the Company to satisfy, in their entirety, all receivables
then outstanding from Medley Refrigeration to the Company. Group, pursuant
to the Escrow Agreement controlling the disbursement of subscription
proceeds at the closing of the Minimum Offering, has authorized the
Escrow Agent (as defined below) to remit directly to the Company,
concurrently with the closing of the Minimum Offering, the $1,100,000 in
proceeds then held in escrow attributable to Group's sale of its 200,000
shares of Common Stock in the Minimum Offering.
The shares of Common Stock and the Warrants may be purchased
separately and will be separately transferable immediately upon issuance.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $5.75 at any time commencing 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 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. The initial public offering prices for
the Common Stock and Warrants have been arbitrarily determined by the
Company and do not bear any relationship to the Company's book value,
assets, past operating results or financial condition or to any other
established criteria of value. See "Plan of Distribution."
The Company has a limited operating history and limited or no
experience in some of the businesses it anticipates pursuing. In addition,
the Company will rely heavily on the management services of affiliates who,
in turn, have limited operating histories and limited capital. See
"Business."
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THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD
NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
==========================================================================
PROCEEDS
PROCEEDS TO
TO SELLING
PRICE TO COMPANY SHAREHOLDER
PUBLIC (1)(2) (1)(2)(3)
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Per Share $ 5.50 $ 5.50 $ 5.50
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Per Warrant $ 0.15 $ 0.15 --
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Total Minimum $6,780,000 $5,680,000 $1,000,000
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Total Maximum $9,040,000 $7,940,000 $1,100,000
==========================================================================
(1) The shares of Common Stock and Warrants are being offered on a best
efforts basis directly by the Company through certain of the Company's
officers, directors and employees. No commissions or other offering
renumeration will be paid in connection with this offering. This
offering terminates on ( ), 1997, provided the Company may 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 "Plan of
Distribution."
(2) Before deducting expenses, estimated at $185,000, payable by
the Company. The Company has agreed to pay all expenses
attributable to the sale of the Selling Stockholder's shares.
(3) The 200,000 shares of Common Stock being sold directly by the Selling
Stockholder will be included among the 1,200,000 shares being offered
in the Minimum Offering. The Selling Stockholder is not selling any
Warrants in this offering.
The Common Stock and the Warrants are being offered directly by the
Company through certain of the Company's officers, directors and employees.
Each investor must purchase a minimum of 100 shares of Common Stock and/or
100 Warrants in this offering. Any larger number of shares and/or Warrants
must be purchased in 100 share and/or Warrant increments. The Common Stock
and Warrants are offered when, as and if delivered by the Company and
subject to certain other conditions. The Company reserves the right to
withdraw, cancel or modify the offering and to reject any order in whole
or in part. It is expected that delivery of the certificates representing
the shares of Common Stock and the Warrants offered hereby will be made
upon transfer of the funds in escrow by the Escrow Agent to the Company's
account upon completion of the Minimum Offering and from time to time
thereafter as subscriptions are received.
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The date of this Prospectus is July ( ), 1997
-ii-
<PAGE>
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.
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<PAGE>
PROSPECTUS SUMMARY
The follow summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor
is urged to read this Prospectus in its entirety. All share and per share
data and information in this Prospectus relating to the number of shares of
Common Stock outstanding have been adjusted to give effect to the 1,120:1
stock split effected on June 30, 1996 and the 3:2 stock split effected on
December 31, 1996.
THE COMPANY
Medley Credit Acceptance Corp. (the "Company") is a specialty finance
company which has been engaged primarily in the financing of (i) dry
cleaning equipment to small dry cleaning businesses throughout the eastern
United States and (ii) refrigeration equipment sold or leased by Medley
Refrigeration, an affiliate of the Company. Medley Refrigeration is
engaged in the provision of refrigeration equipment and services to the
food service and hospitality industries and other businesses throughout
central and southeastern Florida. Since 1993 and 1994, respectively, each
of the Company and Medley Refrigeration has operated as a majority-
controlled subsidiary of Group, a Delaware holding company.
Prior to September 1, 1993, the Company (then called Premier Lease
Concepts, Inc., a Delaware corporation) was engaged primarily in the
financing of dry cleaning equipment to small dry cleaning businesses
throughout the eastern United States. In September 1993, Premier Lease
Concepts, Inc. was merged into a subsidiary of Group. As part of this
Merger, the Company's name was changed to Medley Credit Acceptance Corp.
Commencing with its affiliation with Group and continuing through 1995, the
Company focused its marketing efforts primarily on providing financing to
creditworthy purchasers of dry cleaning equipment. Commencing in 1996, the
Company began de-emphasizing its dry cleaning equipment business and began
concentrating marketing efforts to creditworthy customers of Medley
Refrigeration. Such purchasers tend to be small entities whose asset bases
may not be significant enough to attract traditional institutional lenders.
Such purchasers are typically willing to pay a premium in terms of interest
rates for convenience and availability of financing.
During December 1996, Medley Refrigeration assigned to the Company all
of Medley Refrigeration's rights to receive revenues from, and rights of
collection with respect to, a majority of the refrigeration equipment
leases entered into by Medley Refrigeration with its customers. Prior to
this assignment, the Company historically would lend Medley Refrigeration
the capital necessary for Medley Refrigeration to either purchase or
manufacture refrigeration equipment for its customers. Medley
Refrigeration, in turn, would lease this refrigeration equipment to its
customers who, as a condition to the lease, would grant the Company a
security interest in the leased equipment to collateralize the customer's
payment obligations under the equipment lease. As a result of the
aforementioned assignment, lease payments with respect to a majority of the
equipment leases extended to Medley Refrigeration's customers began, and
continue, to be payable directly to the Company. In addition, commencing
in January 1997, the Company began, and continues, to finance refrigeration
equipment leases directly with Medley Refrigeration's customers. The
Company, through the date of this Prospectus, has continued to focus its
marketing efforts primarily to customers of Medley Refrigeration.
Following the consummation of this offering, the Company anticipates
broadening its leasing efforts to expand to entities unaffiliated with the
Company.
The Company's experience in the specialty finance business has
historically been conducted with a smaller capital base than will be
available to the Company following the consummation of this offering. In
order to increase its capital base for further financing, the Company
traditionally has resorted to obtaining lines of credit secured by leased
equipment, to procuring unsecured borrowings from individual investors and
to selling or borrowing against its leases. In this regard, the Company
has established relationships with principal sources of financing and has
learned the particular focus and requirements of such sources. The Company
believes that with the proceeds from this offering, it will be positioned
to secure additional lines of credit and traditional bank financings for
the purpose of expanding and developing its business. The Company further
believes that its expanded business will enable it to pursue service
oriented financing activities such as factoring and locating potential
equipment lessees and referring them to the Company's financing sources on
a fee basis. In addition to such factoring and lease brokering activities,
the Company anticipates expanding into more traditional loan origination
business segments, including the provision of credit review services,
documentation services and loan servicing activities. There can be no
assurance, however, that the Company will successfully implement all or a
portion of this anticipated expansion.
-3-
<PAGE>
One of the principal focuses of the Company's business expansion
following the consummation of this offering will be the Company's
anticipated entrance into the factoring business, i.e., providing small-to-
medium sized, high risk growth companies with capital through the
discounted purchase of their accounts receivable. Management of the
Company perceives the Company de-emphasizing its refrigeration and dry
cleaning equipment financing businesses as the Company's factoring business
grows. The Company also anticipates making advances to its factoring
clients collateralized by inventory, equipment, real estate and other
assets (collectively, "Collateralized Advances"), and, on occasion,
providing other specialized financing structures which will be designed to
satisfy the unique requirements of the Company's clients.
The Company believes that its factoring business typically will
consist of the Company entering into an accounts receivable factoring and
security agreement with a client which will (i) obligate the client to sell
the Company a minimum amount of accounts receivable each month (or a
minimum amount of receivables during the term of the agreement); (ii)
usually have a term of not less than six months and, more likely, one year
and (iii) be automatically renewable. When making a Collateralized
Advance, the Company will enter into such additional agreements with the
client and, if appropriate, third parties, as the Company deems necessary
or desirable, based on the type(s) of collateral securing the
Collateralized Advance. The Company will purchase accounts receivable from
its factoring clients at a discount from face value and usually require the
client's customers to make payment on the receivables directly to the
Company. The Company will almost always reserve the right to seek payment
from the client in the event the client's customers fail to make the
required payment. To secure all of a client's obligations to the Company,
the Company will also take a lien on all accounts receivable of the client
(to the extent not purchased by the Company) and, whenever available,
blanket liens on all of the client's other assets (some or all of which
liens may be subordinate to other liens). When making a Collateralized
Advance, the Company will almost always take a first lien on the specific
collateral securing the Collateralized Advance. The Company may, on
occasion, make Collateralized Advances secured by a subordinate lien
position, but only if management of the Company determines that the equity
available to the Company in a subordinate position would be adequate to
secure the Collateralized Advance. The Company will almost always require
personal guaranties (either unlimited or limited to the validity and
collectibility of purchased accounts receivable) from each client's
principals. Although the Company will obtain as much collateral as
possible and usually retain full recourse rights against its clients,
clients (and account debtors) may fail and accordingly, there can be no
assurance that the collateral obtained and the recourse rights retained
(together with any personal guaranties) will be sufficient to protect the
Company against loss. Moreover, since the Company has very limited prior
experience as a factor, there can be no assurance that the Company's
expansion into the factoring business will be a profitable, or economically
prudent, venture.
The Company was incorporated under the laws of the State of Delaware
on May 2, 1990 under the name Premier Lease Concepts, Inc. The Company's
principal executive offices are located at 10910 N.W. South River Drive,
Miami, Florida 33178, and its telephone number is (305) 889-1900.
-4-
<PAGE>
THE OFFERING
SECURITIES OFFERED . . . . . A minimum of 1,200,000 shares of Common
Stock (of which the Company is offering
1,000,000 shares and the Selling
Stockholder is offering 200,000 shares)
and 1,200,000 Warrants and a maximum of
1,600,000 shares of Common Stock (of
which the Company is offering 1,400,000
shares and the Selling Stockholder is
offering 200,000 shares) and 1,600,000
Warrants. See "Description of
Securities" and "Plan of Distribution."
INVESTMENT PER INVESTOR . . . Minimum of 100 shares of Common Stock
and/or 100 Warrants and greater
purchases in 100 shares and Warrant
increments. See "Plan of
Distribution."
COMMON STOCK OUTSTANDING
PRIOR TO THE OFFERING(1) . . 1,680,000 shares.
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(1) . . . . 2,650,000 shares in the event the
Minimum Offering is sold and 3,050,000
shares if the Maximum Offering is sold.
See "Use of Proceeds."
WARRANTS
NUMBER TO BE OUTSTANDING
AFTER THE OFFERING(1) . . . 1,200,000 Warrants if the Minimum
Offering is sold and 1,600,000 Warrants
if the Maximum Offering is sold.
EXERCISE TERMS . . . . . . Exercisable at $5.75 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 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."
USE OF PROCEEDS . . . . . . . The Company intends to apply the net
proceeds from this offering, generally,
to expand into the factoring business,
to enhance its capital based financing
activities, to fund, staff and market
its anticipated service-based financing
activities, to satisfy outstanding
indebtedness and declared but unpaid
dividends and for working capital and
general corporate purposes. See "Use of
Proceeds."
------------------
(1) Does not include (i) 1,200,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Minimum
Offering is sold or 1,600,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Maximum
Offering is sold, (ii) 500,000 shares of Common Stock reserved for
issuance upon exercise of options available for future grant under the
Company's 1997 Stock Option Plan, (iii) 1,300,000 shares of Common
Stock reserved for issuance upon the exercise of other outstanding
warrants and (iv) approximately 632,902 shares of Common Stock
reserved for issuance upon the conversion of 2,958,817 outstanding
shares of Series A 10% Convertible Preferred Stock of the Company (the
"Convertible Preferred Stock"). See "Management" and "Description
of Securities - Preferred Stock."
-5-
<PAGE>
OFFERING TERMINATION . . . . The offering will terminate on ( ),
1997, provided that the Company may
extend the offering from time to time
until ( ), 1997. See "Plan of
Distribution."
RISK FACTORS . . . . . . . . The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution
and should not be purchased by investors
who cannot afford the loss of their
entire investment. See "Risk Factors"
and "Dilution."
PROPOSED NASDAQ SYMBOLS . . . Common Stock--MCAC
Warrants--MCACW
-6-
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------- -------------
1996 1995 1997 1996
------ ------ ------ -------
Operating Revenues . . . . . . $356,235 $388,008 $94,158 $118,812
Income (Loss) from Continuing
Operations Before Other Income
(Expense) . . . . . . . . . . (369,704) (296,807) 1,664 6,387
Other Income (Expense) . . . . 693,064 (600,000) 38,349 43,464
Preferred Dividend . . . . . . (232,722) (205,447) (73,970) (53,421)
Net Income (Loss) Applicable to
Common Stockholders . . . . . 90,638 (1,102,064) (33,957) (3,570)
Net Income (Loss) Per Common
Share . . . . . . . . . . . . .05 (.98) (.02) --
BALANCE SHEET DATA:
MARCH 31, 1997
(UNAUDITED)
---------------------------------------
AS ADJUSTED(1)
--------------------
Actual Minimum Maximum
-------- -------- --------
Working capital (deficit) . . . $ (77,306) $4,240,098 $5,750,098
Total assets . . . . . . . . . 1,839,752 6,323,354 8,583,354
Total liabilities . . . . . . . 1,311,688 622,650 622,650
Stockholders' equity . . . . . 528,064 5,700,704 7,960,704
---------------------
(1) Gives effect to the sale of a minimum of 1,200,000 shares of Common
Stock (1,000,000 of which are being offered by the Company and 200,000
of which are being offered by the Selling Stockholder) and 1,200,000
Warrants offered hereby and a maximum of 1,600,000 shares of Common
Stock (1,400,000 of which are being offered by the Company and 200,000
of which are being offered by the Selling Stockholder) and 1,600,000
Warrants offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
-7-
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high
degree of risk, including, but not necessarily limited to, the risk factors
described below. Each prospective investor should carefully consider the
following risk factors inherent in and affecting the business of the
Company and this offering before making an investment decision.
1. Limited Operating History. The Company has been engaged in the
specialty financing business for a limited period. From June 1990 to
September 1993, the Company, then called Premier Lease Concepts, Inc., was
engaged principally in the financing of dry cleaning equipment to small dry
cleaning businesses throughout the eastern United States. Commencing in
December 1996, the Company allocated most of its available capital to
financing the acquisition of refrigeration equipment sold by the Company's
affiliate, Medley Refrigeration, to customers in the food service and
hospitality businesses in southeast and central Florida. Upon the
consummation of this offering, the Company plans to broaden its leasing
efforts to expand to entities unaffiliated with the Company and to expand
its specialty financing business into the factoring marketplace, an area in
which the Company has very limited prior operating experience.
Accordingly, the Company's prior limited business performance in the
refrigeration and dry cleaning equipment financing businesses may not
provide sufficient basis from which to judge the Company's future as
augmented by the proceeds of this offering. Moreover, given the Company's
lack of prior experience in the factoring business, there can be no
assurance that the Company's entry into this marketplace will be profitable
or economically prudent. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
2. Significant Capital Requirements; Dependence on Proceeds of
Offering; Possible Need for Additional Financing. The Company's capital
requirements in connection with its operational activities have been, and
continue to be, significant. The Company is dependent on the proceeds of
this offering to finance and expand its ongoing specialty finance business,
to commence its anticipated factoring business and to finance its other
working capital requirements. The Company anticipates, based on its
current proposed plans and assumptions relating to its operations and
expansion, that the proceeds of this offering will be sufficient to satisfy
the contemplated cash requirements of the Company for approximately 12
months following the consummation of this offering. In the event that the
Company's plans change or its assumptions prove to be inaccurate or the
proceeds of this offering prove to be insufficient to fund the Company's
operations or its expansion (due to unanticipated expenses, delays,
problems or otherwise), the Company would be required to seek additional
funding. Depending upon the Company's financial strength and the state of
the capital markets, the Company may also determine that it is advisable to
raise additional equity capital. The Company has no current arrangements
with respect to, or sources of, any additional capital, and there can be no
assurance that such additional capital will be available to the Company, if
needed, on commercially reasonable terms or at all. The inability of the
Company to obtain additional capital would have a material adverse effect
on the Company and could cause the Company to be unable to implement its
business strategy or proposed expansion or to otherwise significantly
curtail or cease its operations. It is not anticipated that any of the
officers, directors or stockholders of the Company will provide any portion
of the Company's future financing requirements. To the extent that any
such financing involves the sale of the Company's equity securities, the
interests of the Company's then existing stockholders could be
substantially diluted. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business"
and Financial Statements.
3. Explanatory Paragraph in Report of Independent Public Accountants.
The Company's independent public accountants have included an explanatory
paragraph in their report on the Company's financial statements stating
that certain factors raise a substantial doubt about the ability of the
Company to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business"
and Financial Statements.
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4. Expansion into New Business Areas. The Company's strategic plan
contemplates increasing the amount of lease brokering it conducts, which
activity could generate profits without utilizing the Company's capital.
This activity would consist of locating opportunities to lease finance and
transferring such opportunities to other financing sources, such as
unaffiliated lessors, banks and lenders, for fee income. The Company's
prior experience in such lease brokering activities is limited and there
can be no assurance that the Company will generate any profits from these
proposed lease brokering activities. In addition, the Company plans to
enter into the factoring business, an area which will involve different
types of credit underwriting than the Company is presently familiar with.
Accordingly, there can be no assurance that the Company will generate any
profIts from its proposed factoring business. See "Business."
5. Dependence on Affiliates and Others; Related Party Transactions.
The Company historically has principally relied, and following this
offering may continue to rely, on the customer relationships generated by
its affiliates as a significant source of its business. While the Company,
following the consummation of this offering, anticipates broadening its
leasing efforts to expand to entities unaffiliated with the Company, it
will nonetheless continue to endeavor to provide lease financing or
purchase financing for customers of its affiliates and to treat such
customers as potential customers for other financial services. As such,
the Company may be regarded as dependent upon its affiliates in this
respect. Similarly, to the extent that the Company enters into the
factoring or lease brokering businesses, the Company will also pursue
initially the customer relationships established by its affiliates. In
each of the foregoing cases, the success of the Company will in part be
dependent upon the customer relationships of others.
The Company also may be affected by the financial performance of those
persons the Company is relying upon. In purchasing equipment leased to
Medley Refrigeration customers, the Company may have residual liability
exposure to Medley Refrigeration itself if a lessee defaults on the lease
alleging a defense attributable to a breach of Medley Refrigeration's
obligations. In addition, the Company may endeavor to facilitate sales of
Medley Refrigeration equipment as a result of the Company's equipment
financing business. While it is the Company's intention that all credit
decisions with respect to lessees will be made on a purely arm's length
basis, the Company might be encouraged, with respect to Medley
Refrigeration's customers (arising strictly from the affiliation between
the Company and Medley Refrigeration), to incur greater risk than would be
prudent for a Company not affiliated with an entity it is doing business
with. Group, which is controlled by Messrs. Robert D. Press and Steven L.
Edelson, the President and Chairman of the Board, respectively, of the
Company, is the principal stockholder of Medley Refrigeration.
Consequently, to the extent Medley Refrigeration benefits, directly or
indirectly, from transactions with or involving the Company (sales or
financings by the Company of Medley Refrigeration's equipment to Medley
Refrigeration's customers), Messrs. Press and Edelson (as the control
persons of Group) will indirectly be benefitted.
Moreover, the Company intends to apply, from the proceeds from this
offering, the following amounts to the following directors and executive
officers of the Company (except as set forth herein, no other director or
executive officer, or any of their respective affiliates, will receive,
directly or indirectly, any proceeds from this offering): Robert D. Press,
President and a director of the Company, will receive (i) $82,500 in
consideration for the Company's repurchase of 15,000 shares of Common
Stock owned by Mr. Press, (ii) $76,000 in consideration for complete
satisfaction of all indebtedness owing by the Company to Mr. Press (Mr.
Press has waived all interest payments) and (iii) $60,471.69 in
satisfaction of all declared but unpaid and accrued preferred stock
dividends owing to Mr. Press (aggregating $218,971.69, or approximately
3.98% of the net proceeds from the Minimum Offering or approximately 2.82%
of the net proceeds from the Maximum Offering); Steven L. Edelson,
Chairman of the Board of the Company, will receive (i) $82,500 in
consideration for the Company's repurchase of 15,000 shares of Common
Stock owned by Mr. Edelson, (ii) $45,000 in consideration for complete
satisfaction of all indebtedness owing by the Company to Mr. Edelson
(Mr. Edelson has waived all interest payments) and (iii) $153,212.72 in
satisfaction of all declared but unpaid and accrued preferred stock
dividends owing to Mr. Edelson (aggregating $280,712.72, or approximately
5.11% of the net proceeds from the Minimum Offering or approximately
3.62% of the net proceeds from the Maximum Offering); and Steven Dreyer,
a director of the Company, will receive (i) $14,333.10 in partial
satisfaction of certain indebtedness owing by the Company to an
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affiliate of Mr. Dreyer and (ii) $5,493.80 in satisfaction of all
declared but unpaid and accrued preferred stock dividends owing to Mr.
Dreyer (aggregating $19,8262.90, or less than 1% of the net proceeds
from the Minimum or Maximum Offerings).
Following the consummation of this offering, the Company will require
all agreements and arrangements involving it and any other related party,
including the Company's officers, directors and 5% or greater stockholders,
to be (i) negotiated, to the extent possible, on an arm's-length basis,
(ii) on terms no more favorable to the party other than the Company
thereto than otherwise could be obtained from an unaffiliated party and
(iii) approved by a majority of the disinterested directors of the Company.
In addition, the Company has agreed that following the closing of the
Minimum Offering and the concurrent satisfaction by Group, on behalf of
Medley Refrigeration, of all receivables then outstanding from Medley
Refrigeration to the Company, the Company will not permit receivables from
affiliates to exceed, at any time, the lesser of 10% of all of the
------
Company's assets or $500,000 in the aggregate and that any loans to the
Company's officers, directors, 5% or greater stockholders or affiliates
will be for bona fide business purposes only and approved by a majority of
the Company's disinterested directors. See "Use of Proceeds,"
"Management" and "Certain Transactions."
6. Customer Credit Risks; Risk of Defaults in Factoring Business. As
in any finance business, the Company's overall success will be governed
heavily by the level of defaults it incurs. The Company believes that its
credit evaluation procedures are adequate to limit its default rate to a
manageable amount. Although the Company attempts to mitigate its credit
risk through the use of a variety of commercial credit reporting agencies
when processing the equipment lease applications of its customers and
through various forms of nonrecourse financing, failure of the Company's
customers to make scheduled payments under their equipment finance
contracts could require the Company to make payments in connection with the
recourse portion of its borrowings, if any, and forfeit cash collateral
pledged as security in connection with those borrowings. In addition, any
increase in such loss or in the rate of payment defaults under any of the
equipment finance contracts originated by the Company (whether maintained
by the Company in its own portfolio or assigned by the Company to its
lenders) could adversely affect the Company's ability to obtain additional
funding.
The Company maintains an allowance for doubtful accounts in connection
with payments due under equipment lease contracts held in the Company's
portfolio. (The Company's portfolio currently is comprised of those
contracts which the Company has purchased with working capital funds or
under the revolving credit lines and not yet assigned to a nonrecourse
lender or transferred in connection with an asset securitization
transaction.) The allowance is maintained at a level which the Company
deems sufficient to meet future estimated uncollectible contract
receivables, based on its analysis of the delinquencies, problem accounts,
and overall risks and probable losses associated with such contracts.
There can be no assurance, however, that the amount of the Company's
allowance will prove to be adequate.
With respect to the Company's proposed new factoring business, the
financial failure of a client or its customers or the failure of the
Company to recover under personal guarantees from the client's principals
or from other forms of security may adversely affect the Company's ability
to fully recover amounts due. While the Company intends to purchase
receivables on a full recourse basis, a client of the Company may be unable
to meet its obligations. Losses may result if the Company is unable to
recover under personal guarantees from the client's principals or from
other forms of security. Accordingly, the Company intends to make
provision for possible credit losses. There can be no assurance, however,
that the amount of such provision will prove to be adequate. See
"Business."
7. Legal and Regulatory Limitations. Depending upon the form of
financing engaged in by the Company, the Company's rates of return may be
limited by various state laws limiting the permissible amounts of interest.
Noncompliance with such laws or rules may result in substantial penalties
or liabilities to the Company. The Company believes that its current
practices comply with such laws and will continue to comply with applicable
laws.
The Company intends to use a portion of the proceeds of this offering
to expand into the factoring business. Certain loans made in connection
with this business may be considered "securities" under applicable federal
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and state securities laws. If the portion of the Company's assets invested
in "securities" exceeds certain thresholds, the Company could be considered
an "investment company" within the meaning of the Investment Company Act of
1940. Classification as an investment company could have a material
adverse effect on the Company. The Company intends to limit its
investments in any instruments which might be considered securities to an
amount which would not cause it to be considered an investment company.
8. Dependence on Key Personnel. The success of the Company will be
largely dependent on the personal efforts of Mr. Robert Press, the
Company's President. Although the Company and Mr. Press are parties to a
one-year employment agreement (which renews automatically for successive
one-year periods in the absence of action to the contrary), the loss of the
services of Mr. Press would have a material adverse effect on the Company's
business and prospects. Mr. Press devotes all of his business time and
efforts to the affairs of the Company. Steven L. Edelson, the Company's
Chairman of the Board, devotes only such time to the affairs of the
Company as is necessary for Mr. Edelson to satisfy his fiduciary
obligations as Chairman of the Company. In addition, competition for
qualified employees, including personnel skilled in the leasing, factoring
and specialty financing business, is intense, and the loss of key
personnel or the inability to attract and retain, if necessary, additional
skilled personnel for the Company's activities, could adversely affect the
Company's business and prospects. There can be no assurance that the
Company will be able to hire or retain such personnel. The Company does
not currently maintain nor, in the foreseeable future, does it anticipate
maintaining, key-man life insurance covering the lives of its significant
employees. See "Business" and "Management."
9. Dependence on Funding Sources. Equipment leasing and factoring
are capital intensive businesses. The Company's revenues and profitability
have traditionally been related directly to the volume of equipment
financings the Company originates. To increase its equipment financing
business, and to enter into the factoring marketplace, the Company will
require access to substantial short and long-term credit and be required to
continue to sell its loans and leases to third party discounters. To date,
the Company's principal source of funding has been borrowings from private
lenders. There can be no assurance that the Company will be able to obtain
additional recourse or nonrecourse financing when needed or, to the extent
such financing is available, on acceptable terms. The Company would be
adversely affected if it were unable to continue to secure sufficient and
timely funding on acceptable terms. See "Business."
10. Collateral Value Risks. Loans and leases held by the Company will
be secured, in part, by the collateral value of the underlying leased
equipment. Refrigeration and dry cleaning equipment are not generally
subject to the rapid deterioration in value. Nonetheless, to the extent
the Company finances higher technology equipment (which currently is not
contemplated), deterioration in the value of such equipment could undermine
the security of the Company's financings and the Company's financial
performance.
11. Interest Rate Risk. Substantially all of the Company's equipment
financing contracts require the Company's customers to make payments at
fixed rates for specified terms. A small portion of these transactions are
currently funded by the Company with fixed rate borrowings which are
arranged at the time, or shortly after, the finance contract is recorded.
This matching process mitigates interest rate risk for these transactions.
However, from time to time, a portion of such contracts are originally
financed by the Company from funds derived from working capital borrowed
under its revolving credit line, which borrowings are subject to a variable
interest rate. Consequently, if interest rates increase prior to the time
the Company is able to secure fixed-rate, long-term financing for such
contracts, the Company's profit margin with respect to such equipment
financing contracts could be affected adversely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
12. Competition. The factoring and financing of equipment businesses
are highly fragmented. The Company competes, and in the future, will
compete for customers with a number of national, regional and local finance
and factoring companies, including those which, like the Company,
specialize in particular segments of the overall market. In addition, the
Company's competitors include, and will include, those equipment
manufacturers which finance the sale or lease of their products themselves,
other traditional types of financial services companies, such as commercial
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banks and savings and loan associations, and conventional leasing and
factoring companies. Although the Company believes that it currently
maintains a competitive advantage on the basis of its convenience-oriented
financing and value-added services, many of the Company's competitors and
potential competitors possess substantially greater financial, marketing,
and operational resources. Moreover, the Company's future profitability
will be directly related to the Company's ability to access capital funding
and to obtain favorable funding rates as compared to the capital and costs
of capital available to its competitors. Accordingly, there can be no
assurance that the Company will be able to continue to compete successfully
in its targeted markets. See "Business Competition."
13. Lack of Underwriter. This offering will be made on a "self-
underwritten" basis. The Company has never engaged in the public sale
of securities and it has no experience in the underwriting of any public
securities offerings. Accordingly, their is no prior experience from
which investors may judge the Company's ability to consummate this
offering. There can be no assurance that the Company will be successful
in selling the shares of Common Stock offered hereby. See "Plan of
Distribution."
14. Discretion in Application of Proceeds. The Company intends to
utilize approximately $1,850,000 (or approximately 33.67%) of the net
proceeds from the Minimum Offering, or approximately $2,750,000 (or
approximately 35.46%) of the net proceeds from the Maximum Offering to
implement its factoring business, approximately $1,500,000 (or
approximately 27.30%) of the net proceeds from the Minimum Offering, or
approximately $2,100,000 (or approximately 27.08%) of the net proceeds
from the Maximum Offering to expand its equipment leasing business,
approximately $411,739 (or approximately 7.50% of the net proceeds from
the Minimum Offering or approximately 5.31% of the net proceeds from the
Maximum Offering) to repay certain indebtedness, approximately $277,299
(or approximately 5.04% of the net proceeds from the Minimum Offering
or approximately 3.57% of the net proceeds from the Maximum Offering) to
satisfy certain declared but unpaid dividends and approximately $165,000
(or approximately 3.00% of the net proceeds from the Minimum Offering or
approximately 2.13% of the net proceeds from the Maximum Offering) to
redeem certain shares of Common Stock. The remaining approximate
$1,290,962 (or approximately 23.49%) of the net proceeds from the
Minimum Offering, or approximately $2,050,962 (or approximately 26.45%)
of the net proceeds from the Maximum Offering, have been allocated to
working capital and general corporate purposes. Management of the
Company has discretion, within the parameters of its current business
plan (i.e., primarily expanding its equipment leasing business and
implementing its factoring business) to adjust the application and
allocation of the net proceeds of this offering allocated to working
capital and general corporate purposes in order to address changed
circumstances and opportunities. As a result, the Company will be
dependent upon the discretion and judgment of management with respect
to the application of the net proceeds of this offering allocated to
working capital and general corporate purposes. See "Use of Proceeds."
15. Lack of Dividends. Since becoming a "C Corporation" for federal
income tax purposes, the Company has not paid any dividends with respect to
its Common Stock. Moreover, the Company does not intend to pay any
dividends on its Common Stock in the foreseeable future. The holders of
the Company's outstanding Convertible Preferred Stock are entitled to
receive cumulative dividends, payable quarterly out of funds legally
available therefor, at the annual rate of 10%. The Company currently
intends to reinvest earnings, if any, in the development and expansion of
its business, except to the extent required to satisfy its obligations
under the terms of the Convertible Preferred Stock. See "Dividend Policy"
and "Description of Securities Preferred Stock."
16. Immediate and Substantial Dilution. This offering involves an
immediate and substantial dilution of $3.35 per share or approximately
60.9% if the Minimum Offering is sold or $2.89 per share or approximately
52.5% 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. In addition, investors in this offering
will have contributed approximately 96.5% of the total consideration
paid for shares of Common Stock if the Minimum Offering is sold and
approximately 97.5% of the total consideration paid for shares if the
Maximum Offering is sold. See "Dilution."
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17. Shares Eligible for Future Sale. Upon the consummation of this
offering, the Company will have 2,650,000 shares of Common Stock
outstanding if the Minimum Offering is sold and 3,050,000 shares of Common
Stock outstanding if the Maximum Offering is sold, assuming no exercise of
the Warrants or any other outstanding warrant or the issuance of any shares
of Common Stock underlying shares of the Company's Convertible Preferred
Stock. At that time, only the 1,200,000 shares being offered hereby by the
Company and the Selling Stockholder in the event the Minimum Offering is
sold, and the 1,600,000 shares being offered hereby by the Company and the
Selling Stockholder in the event the Maximum Offering is sold, will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
1,450,000 shares, in either instance will be deemed to be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act and may, in certain circumstances, subject to the
contractual restrictions described below, be sold without registration
pursuant to such rule, except for any shares purchased by an "affiliate" of
the Company (in general, a person who has a control relationship with the
Company), which shares will be subject to the resale limitations of Rule
144 promulgated under the Securities Act. 150,000 of these restricted
shares will become eligible for sale under Rule 144 in December 1997
(subject to certain recurring three-month volume limitations prescribed by
Rule 144).
Group, which is controlled by Messrs. Press and Edelson, the President
and Chairman of the Board, respectively, of the Company, beneficially owns,
as of the date of this Prospectus, 1,500,000 shares of Common Stock of the
Company. Group and the Company are parties to an agreement pursuant to
which, among other things, Group, on behalf of Medley Refrigeration, will
remit to the Company, at the closing of the Minimum Offering, the
$1,100,000 in proceeds generated from Group's sale of its 200,000 shares
of Common Stock in the Minimum Offering. This $1,100,000 will be paid to
the Company to satisfy, in their entirety, all receivables then outstanding
from Medley Refrigeration to the Company. Group, pursuant to the Escrow
Agreement controlling the disbursement of subscription proceeds at the
closing of the Minimum Offering, has authorized the Escrow Agent to remit
directly to the Company, concurrently with the closing of the Minimum
Offering, the $1,100,000 in proceeds then held in escrow attributable
to Group's sale of its 200,000 shares of Common Stock in the Minimum
Offering. Group has otherwise agreed with the Company not to sell or
dispose of any of its shares for a period of six months from the date of
this Prospectus. In addition, each holder of Convertible Preferred Stock
has agreed with the Company not to sell or otherwise dispose of any shares
of Common Stock issuable upon conversion of such Convertible Preferred
Stock for a period of six months from the date of this Prospectus.
Nevertheless, the possibility that substantial amounts of Common Stock
may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the Company's
ability in the future to raise additional capital through the sale of its
equity securities. See "Principal Stockholders," "Description of
Securities," "Shares Eligible for Future Sale" and "Plan of Distribution."
18. Control by Management. Upon the consummation of this offering,
Group, which is controlled by Messrs. Press and Edelson, will beneficially
own approximately 49.0% in the event the Minimum Offering is sold, and
42.6% in the event the Maximum Offering is sold, of the issued and
outstanding shares of Common Stock (assuming no exercise of the Warrants 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."
19. No Assurance of Public Market; Unilateral Determination of
Offering Price; Possible Volatility of Market Price of Common Stock and
Warrants. Prior to this offering, there has been no public trading market
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for the Common Stock or Warrants. Consequently, the initial public
offering prices have been determined unilaterally by the Company and do not
bear any relationship to the Company's book value, assets, past operating
results or financial condition or to any other established criteria of
value. In addition, there can be no assurance that a regular trading
market for the securities offered hereby will develop after this offering
or that, if developed, that it will be sustained. The market price of
the Common Stock and Warrants following the consummation of this offering
may be highly volatile as has been the case with the securities of other
companies effecting initial public offerings. Factors such as the
Company's financial results, quarter-to-quarter variations in operating
results, press releases, trading volumes, general market trends and
various factors affecting the equipment financing and factoring businesses
generally, may have a significant impact on the market price of the
Company's securities. Additionally, in recent years, the stock market
itself has experienced a high level of price and volume volatility and
market prices for the stock of many companies have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies. See "Plan of Distribution."
20. Best Efforts Offering; Escrow of Investor Funds. This offering
is being made on a "best efforts, all-or-none" basis directly by the
Company through certain of the Company's officers, directors and employees.
With respect to the first 1,200,000 shares of Common Stock and 1,200,000
Warrants, all or none of them will be sold. The remaining 400,000 shares
of Common Stock and 400,000 Warrants offered will be made on a "best
efforts" basis. There can be no assurance that any of the shares of
Common Stock or Warrants will be sold. Under the terms of this offering,
the Company is offering shares of its Common Stock and Warrants for an
initial period of 30 days which may be extended up to an additional 30
days by the Company if necessary. Pending the sale of 1,200,000 shares
of Common Stock and 1,200,000 Warrants, all proceeds will be held in an
escrow account with SunTrust Bank, South Florida, N.A., as Escrow Agent.
No commitment exists by anyone to purchase all or any of the shares of
Common Stock or Warrants offered hereby. Consequently, subscribers' funds
may be escrowed for as long as 60 days and, if held for less than 60 days,
returned without interest thereon or deduction therefrom in the event
1,200,000 shares of Common Stock and 1,200,000 Warrants are not sold within
the offering period. Investors, therefore, will not have the use of any
subscription funds during the subscription period. See "Plan of
Distribution."
21. Anti-Takeover Provisions; Authorization of Preferred Stock.
Delaware has enacted legislation that may deter or frustrate takeovers of
the Company. In certain circumstances, Delaware law requires the approval
of two-thirds of all shares eligible to vote for certain business
combinations involving a stockholder owning 15% or more of the Company's
voting securities (other than stockholders currently meeting such
description), excluding the voting power held by such stockholder. In
addition to the potential impact on future takeover attempts and the
possible perpetuation of management, the existence of such provision could
have an adverse effect on the market price of the Company's Common Stock.
The Company's Certificate of Incorporation authorizes the issuance of
10 million shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board
of Directors. To date, the Board of Directors has authorized the issue of
a series of up to 2,958,817 shares of Convertible Preferred Stock.
Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue additional series of preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect
the voting power or other rights of the holders of Common Stock. In the
event of issuance, such preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in control of the Company. Although the Company has no present intention
to issue any additional shares of preferred stock, there can be no
assurance that the Company will not make such an issuance in the future.
See "Description of Securities--Anti-Takeover Provisions" and "--Preferred
Stock."
22. Possible Delisting of Securities from NASDAQ; Disclosure Relating
to Low-Priced "Penny" 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
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of the last three years and 500,000 shares of Common Stock in the public
float and a $1,000,000 market value of the public float. In addition,
continued inclusion requires two market makers and a minimum bid price of
$1.00 per share. The failure to meet these maintenance criteria in the
future may result in the delisting of the Company's securities from NASDAQ
and trading, if any, in the Company's securities would thereafter be
conducted in the non-NASDAQ over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Company's
securities.
In addition, if the Common Stock were delisted from trading on NASDAQ
and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Exchange Act, which
require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a "penny stock" (generally, any non-
NASDAQ equity security that has a market price of less than $5.00 per
share, subject to certain exceptions). Such rules require the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining
the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-
dealer must make a special suitability determination for the purchaser and
have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in
the Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
23. Inability to Exercise Warrants. The Company intends to qualify
the sale of the Common Stock and the Warrants offered hereby in a limited
number of states. Although certain exemptions in the securities laws of
certain states might permit Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified, the
Company will be prevented from issuing Common Stock in such states upon
exercise of the Warrants unless an exemption from qualification is
available or unless the issuance of Common Stock upon exercise of the
Warrants is qualified. The Company may decide not to seek or may not be
able to obtain qualification of the issuance of such Common Stock in all of
the states in which the ultimate purchasers of the Warrants reside. In such
a case, the Warrants held by purchasers will expire and have no value if
such Warrants cannot be sold. Accordingly, the market for the Warrants may
be limited because of these restrictions. Further, a current prospectus
covering the Common Stock issuable upon exercise of the Warrants must be in
effect before the Company may accept Warrant exercises. There can be no
assurance that the Company will be able to have a prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's
commitment to use its best efforts to do so. See "Description of
Securities--Redeemable Warrants."
24. Potential Adverse Effects of Redemption of Warrants. The
Warrants may be redeemed by the Company at any time following ( ), 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."
USE OF PROCEEDS
Of the shares of Common Stock being offered hereby, 200,000 shares are
being offered by the Selling Stockholder and 1,000,000 shares, in the event
of the Minimum Offering, and 1,400,000 shares, in the event of the Maximum
Offering, are being offered by the Company. Group and the Company are
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parties to an agreement pursuant to which, among other things, Group, on
behalf of Medley Refrigeration, will remit to the Company, at the closing
of the Minimum Offering, the $1,100,000 in proceeds generated from
Group's sale of its 200,000 shares of Common Stock in the Minimum Offering.
This $1,100,000 will be paid to the Company to satisfy, in their entirety,
all receivables then outstanding from Medley Refrigeration to the Company.
Group, pursuant to the Escrow Agreement controlling the disbursement of
subscription proceeds at the closing of the Minimum Offering, has
authorized the Escrow Agent to remit directly to the Company, concurrently
with the closing of the Minimum Offering, the $1,100,000 in proceeds then
held in escrow attributable to Group's sale of its 200,000 shares of Common
Stock in the Minimum Offering. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Financial Statements.
After deducting the expenses of the offering, estimated to be
approximately $185,000, the Company will receive (exclusive of amounts
to be paid to the Company at the closing of the Minimum Offering to
satisfy all receivables then outstanding from Medley Refrigeration to
the Company) net proceeds from this offering of approximately $5,495,000
if the Minimum Offering is sold and $7,755,000 if the Maximum Offering is
sold. The Company intends to utilize the net proceeds from this offering
(excluding any amounts received upon the exercise of any Warrants or upon
satisfaction of the Medley Refrigeration indebtedness) during the next 12
months approximately as follows:
MINIMUM OFFERING MAXIMUM OFFERING
------------------ -------------------
NET NET
APPLICATION OF PROCEEDS PROCEEDS % PROCEEDS %
----------------------- ---------- ------- ---------- ------
Repayment of indebtedness(1) $ 411,739 7.50% $ 411,739 5.31%
Satisfaction of declared but
unpaid dividends(2) . . . 277,299 5.04 277,299 3.57
Expansion of equipment
leasing business (3) . . 1,500,000 27.30 2,100,000 27.08
Implementation of factoring
business(4) . . . . . . . 1,850,000 33.67 2,750,000 35.46
Redemption of Common Stock(5) 165,000 3.00 165,000 2.13
Working capital and general
corporate purposes(6) . . . . 1,290,962 23.49 2,050,962 26.45
---------- ------ ---------- ------
$5,495,000 100.00% $7,755,000 100.00%
========== ======= ========== =======
______________________________________
(1) The Company will satisfy a portion of its outstanding short term
indebtedness and a portion of its long-term indebtedness with a portion of
the proceeds from this offering. Loans from Messrs. Press, Edelson and
Steven Dreyer, directors of the Company, will be repaid with a portion of
these proceeds. Specifically, Mr. Press will receive $76,000 in complete
satisfaction of all indebtedness of the Company owing to him (Mr. Press has
waived all interest payments), Mr. Edelson will receive $45,000 in complete
satisfaction of all indebtedness of the Company owing to him (Mr. Edelson
waived all interest payments) and an affiliate of Mr. Dreyer will receive
$14,333.10 in partial satisfaction of certain indebtedness of the Company
owing to it. The $121,000 in loans being repaid with the proceeds from
this offering to Messrs. Press and Edelson were incurred to finance the
Company's operating expenses in connection with, and in anticipation of,
this Offering. See "Principal Stockholders" and "Certain Transactions."
(2) On each of August 20, 1996, November 20, 1996 and February 20, 1997,
the Company declared its regular quarterly cash dividend with respect to
shares of its Convertible Preferred Stock. At the time of each of the
aforementioned dividend declarations, the Company had sufficient cash
available to pay the dividend to all holders of the Convertible Preferred
Stock other than Messrs. Press, Edelson and Dreyer and holders affiliated
or related to them. The Company will utilize a portion of the proceeds
from this offering to satisfy all declared, but unpaid dividends. See
"Principal Stockholders," "Description of Securities--Preferred Stock" and
Financial Statements.
(3) The Company intends to utilize a portion of the proceeds from this
offering to expand its refrigeration equipment leasing business.
Specifically, the Company anticipates broadening and intensifying its
marketing efforts to attract equipment lessees unaffiliated with Medley
Refrigeration. In addition, the Company intends to expand its geographic
positioning and business plan by entering into geographic marketplaces in
which Medley Refrigeration does not currently do business and by marketing
to other refrigeration companies that do not compete directly with Medley
Refrigeration. To date, the Company has lacked the capital necessary to
expand its business as presently contemplated.
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(4) The Company intends to utilize a portion of the proceeds from this
offering to establish a factoring business which will provide small to
medium sized companies with capital through the discounted purchase of such
companies' accounts receivable. The expansion into the factoring business
will require the Company to hire additional marketing and administrative
personnel. The Company intends to implement a direct marketing campaign to
introduce the Company's factoring services to entities in the Miami, Ft.
Lauderdale and Palm Beach, Florida markets.
(5) The Company will utilize $165,000 from this offering to redeem, at a
price of $5.50 per share, an aggregate of 30,000 shares of Common Stock
owned by Messrs. Robert D. Press and Steven L. Edelson, the President and
Chairman of the Board of the Company, respectively. These shares were
transferred and assigned by Group to Messrs. Press and Edelson in January
1996 in consideration for services performed by them on behalf of the
Company. See "Certain Transactions."
(6) Working capital will be utilized by the Company to enhance, and
otherwise stabilize, cash flow during the initial 12 months following the
consummation of this offering, such that any shortfalls between operating
revenues and costs will be covered by working capital. Although the
Company prefers to retain its working capital in reserve, the Company may
be required to expend part or all of these proceeds as financial demands
dictate.
Although it is uncertain whether the Company's shares of Common Stock
will rise to a level at which the Warrants would be exercised, in the event
subscribers in this offering elect to exercise all of the Warrants offered
herein, the Company will realize gross proceeds of approximately $6,900,000
if the Minimum Offering is sold and $9,200,000 if the Maximum Offering is
sold. Management anticipates that the proceeds from the exercise of the
Warrants would be contributed to working capital of the Company.
Nonetheless, the Company may, at the time of exercise, allocate a portion
of the proceeds to any other corporate purpose. Accordingly, investors who
exercise their Warrants will entrust their funds to management, whose
specific intentions regarding the use of such funds are not presently and
specifically known.
The amounts set forth in the above use of proceeds table merely
indicate the proposed use of proceeds and actual expenditures may vary
substantially from these estimates depending upon economic conditions and
the success, if any, of the Company's existing and proposed new businesses.
The Company is unable to predict the precise period for which this offering
will provide financing, although management believes that the Company
should have sufficient working capital to meet its cash requirements for
approximately 12 months from the date of this Prospectus. Accordingly, the
Company may need to seek additional funds through loans or other financing
arrangements during this period of time. No such arrangements exist or are
currently contemplated and there can be no assurance that they may be
obtained on terms acceptable to the Company in the future should the need
arise.
Pending utilization, management intends to make temporary investment
of the proceeds in bank certificates of deposit, interest bearing savings
accounts, prime commercial paper or federal government securities.
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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.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted to give effect to the sale by the Company of
a minimum of 1,000,000 shares of Common Stock (the Selling Stockholder is
selling 200,000 shares in the Minimum Offering) and 1,200,000 Warrants
offered hereby and a maximum of 1,400,000 shares of Common Stock (the
Selling Stockholder is selling 200,000 shares in the Maximum Offering) and
1,600,000 Warrants offered hereby:
AT MARCH 31, 1997
(UNAUDITED)
-------------------------------------
AS ADJUSTED
-----------------------
ACTUAL MINIMUM(1) MAXIMUM(1)
-------- ---------- ----------
Long-term Debt . . . . . . . . .$ 489,447 $ 384,211 $ 384,211
Short-term Debt . . . . . . . . .$ 445,528 $ 139,025 $ 139,025
Stockholders' Equity (Deficit)
Convertible Preferred Stock,
$.01 par value, 5,000,000
shares authorized; 2,958,817
shares issued and outstanding,
respectively . . . . . . . . . $ 29,588 $ 29,588 $ 29,588
Common Stock, $.01 par value,
10,000,000 shares authorized;
1,680,000, 2,650,000 and
3,050,000 shares issued and
outstanding, respectively . . $ 16,800 $ 26,500 $ 30,500
Additional Paid-in Capital . . $ 2,322,899 $ 7,485,839 $ 9,741,839
Accumulated Deficit . . . . . . $(1,841,223) $(1,841,223) $(1,841,223)
----------- ----------- -----------
Total Stockholders' Equity . $ 528,064 $ 5,700,704 $ 7,960,704
----------- ----------- -----------
Total Capitalization . . . . $ 1,463,039 $ 6,223,940 $ 8,483,940
=========== =========== ===========
__________________________
(1) Assumes no exercise of the Warrants or any other outstanding warrant
or the issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock. As of the date of this
Prospectus, there were no outstanding stock options to purchase shares
of the Company's Common Stock granted under the Company's stock option
plan or otherwise. See "Management -- Stock Option Plan" and
"Description of Securities--Preferred Stock."
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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 March 31, 1997, the
net tangible book value of the Company was $399,576, or approximately $.24
per share of Common Stock.
After giving effect to the sale by the Company of a minimum of
1,000,000 shares of Common Stock (the Selling Stockholder is selling
200,000 shares) and 1,200,000 Warrants offered hereby (less underwriting
discounts and commissions and estimated expenses of this offering, and
assuming no exercise of the Warrants or any other outstanding warrant or
the issuance of any shares of Common Stock underlying shares of the
Company's Convertible Preferred Stock), the pro forma net tangible book
value of the Company at March 31, 1997 would have been $5,700,704, or
approximately $2.15 per share of Common Stock. This represents an
immediate increase in net tangible book value of approximately $1.91 per
share of Common Stock to existing stockholders and an immediate dilution of
approximately $3.35 per share of Common Stock to new investors.
After giving effect to the sale of a maximum of 1,400,000 shares of
Common Stock (the Selling Stockholder is selling 200,000 shares) and
1,600,000 Warrants offered hereby (less underwriting discounts and
commissions and estimated expenses of this offering, and assuming no
exercise of the Warrants or any other outstanding warrant or the issuance
of any shares of Common Stock underlying shares of the Company's
Convertible Preferred Stock), the pro forma net tangible book value of the
Company at March 31, 1997 would have been $7,960,704, or approximately
$2.61 per share of Common Stock. This represents an immediate increase in
net tangible book value of approximately $2.37 per share of Common Stock to
existing stockholders and an immediate dilution of approximately $2.89 per
share of Common Stock to new investors.
The following table illustrates this dilution to new investors on a
per share basis:
MINIMUM MAXIMUM
OFFERING OFFERING
-------- --------
Public offering price of the Common
Stock offered hereby . . . . . . . $ 5.50 $ 5.50
Net tangible book value before
the offering $ .24 $ .24
Increase attributable to the
sale by the Company of the
Common Stock offered hereby. $ 1.91 $ 2.37
Adjusted net tangible book value $ 2.15 $ 2.61
after the offering . . . . . . . -------- --------
$ 3.35 $ 2.89
Dilution to new investors . . . . . ======== ========
The following table sets forth with respect to existing stockholders
and new investors, a comparison of the number of shares of Common Stock
acquired from the Company, the percentage of ownership of such shares, the
total consideration paid, the percentage of total consideration paid and
the average price per share.
SHARES PURCHASED
-----------------------
MINIMUM OFFERING NUMBER PERCENT
---------------- -------- --------
Existing stockholders . . . . 1,680,000 62.7%
1,000,000 37.3%
New investors . . . . . . . . --------- --------
2,680,000 100.0%
Total . . . . . . . . . ========= ========
MAXIMUM OFFERING
----------------
Existing stockholders . . . . 1,680,000 54.5%
1,400,000 45.5
New investors . . . . . . . . --------- --------
3,080,000 100.0%
========= ========
TOTAL AVERAGE PRICE
CONSIDERATION PAID PER SHARE
------------------------ -------------
MINIMUM OFFERING AMOUNT PERCENT
---------------- -------- --------
Existing stockholders . . . . $ 200,000 3.5% $.14
5,500,000 96.5
New investors . . . . . . . ---------- -------- $5.50
$5,700,000 100.0%
Total . . . . . . . . . ========== ========
MAXIMUM OFFERING
----------------
Existing stockholders . . . . $ 200,000 2.5% $.14
7,700,000 97.5
New investors . . . . . . . . ---------- -------- $5.50
$7,900,000 100.0%
========== ========
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The above table assumes no exercise of the Warrants or any other
outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock. As of the
date of this Prospectus, there were no outstanding stock options to
purchase shares of the Company's Common Stock granted under the Company's
stock option plan or otherwise. See "Management--Stock Option Plan" and
"Description of Securities--Preferred Stock."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company which, historically, has
been engaged primarily in the financing of (i) dry cleaning equipment to
small dry cleaning businesses throughout the eastern United States and (ii)
refrigeration equipment sold or leased by Medley Refrigeration, an
affiliate of the Company. Medley Refrigeration is engaged in the provision
of refrigeration equipment and services to the food service and hospitality
industries and other businesses throughout central and southeastern
Florida.
Prior to the fiscal year ended December 31, 1996 ("Fiscal 1996"), the
Company focused its marketing efforts primarily on providing financing to
creditworthy purchasers of dry cleaning equipment. Commencing in Fiscal
1996, the Company began de-emphasizing its dry cleaning equipment business
and began concentrating marketing efforts to creditworthy customers of
Medley Refrigeration. Such customers tended to be small entities with
reliable cash flow but without access to sophisticated financing
arrangements. Such customers were typically willing to pay a premium in
terms of interest rates for convenience and availability of financing.
During December 1996, Medley Refrigeration assigned to the Company all
of Medley Refrigeration's rights to receive revenues from, and rights of
collection with respect to, refrigeration equipment leases entered into by
Medley Refrigeration with its customers (the "Assignment"). Excluded from
the Assignment, however, were those equipment leases, the revenues from
which, were previously assigned to collateralize the Company's line of
credit facility with an independent third party lender. Prior to the
Assignment, the Company historically would lend Medley Refrigeration the
capital necessary for Medley Refrigeration to either purchase or
manufacture refrigeration equipment for its customers. Medley
Refrigeration, in turn, would lease this refrigeration equipment to its
customers who, as a condition to the lease, would grant the Company a
security interest in the leased equipment to collateralize the customer's
payment obligations under the equipment lease. As a result of the
Assignment, lease payments with respect to a majority of the equipment
leases extended to Medley Refrigeration's customers began, and continue, to
be payable directly to the Company. In addition, commencing in January
1997, the Company began, and continues, to finance refrigeration equipment
leases directly with Medley Refrigeration's customers. The Company,
through the date of this Prospectus, has continued to focus its marketing
efforts primarily to customers of Medley Refrigeration. Following the
consummation of this offering, however, the Company anticipates broadening
its leasing efforts to expand to entities unaffiliated with the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
For the three months ended March 31, 1997, the Company generated net
income of $40,013, as compared to net income of $49,851 for the comparable
period during 1996. This decrease was primarily attributable to increases
in general and administrative expenses associated with this Offering. This
increase in general and administrative expenses also had the effect of
nullifying the approximate $20,000 decrease in total costs and expenses
incurred by the Company during the three months ended March 31, 1997 as
compared to the comparable period during 1996.
During the three months ended March 31, 1997, the Company generated
leasing revenues of $94,158. This represents a decrease of $24,654 from
leasing revenues of $118,812 for the three months ended March 31, 1996.
This decrease in revenues was partially offset, however, by the $14,369
increase in interest income realized during the three months ended March
31, 1997. This increase in interest income reflects the continuing shift
in the Company's assets from maturing leases of dry cleaning equipment to
financed refrigeration equipment. All of the Company's equipment leases
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are non-cancellable and since March 31, 1997, there has been no material
change in the amount or value of the Company's leased equipment.
FISCAL 1996 COMPARED TO FISCAL 1995
For Fiscal 1996, the Company generated revenues of $356,235, an
approximate 8% reduction from revenues of $388,008 for the fiscal year
ended December 31, 1995 ("Fiscal 1995"). Revenues for Fiscal 1996 and
Fiscal 1995 represented, principally, payments received against dry
cleaning equipment leases financed by the Company. During Fiscal 1996,
however, the Company began de-emphasizing its dry cleaning equipment
financing business and primarily concentrated its marketing efforts in the
refrigeration equipment financing area. Consequently, during Fiscal 1996,
the Company entered into approximately 41 new financing agreements with
customers of Medley Refrigeration while it did not enter into any new dry
cleaning equipment financing agreements. The Company expects revenues from
these new refrigeration equipment financing agreements to be realized over
the next five years.
For Fiscal 1996, the Company generated net income of $323,360, as
compared to a net loss of $(896,607) for Fiscal 1995. This significant
change in operating results is primarily due to the reversal, during Fiscal
1996, of a $600,000 provision for uncollectible advances to an affiliate
(Medley Refrigeration) recorded during Fiscal 1995. This $600,000
provision was taken essentially because at December 31, 1995, total
advances by the Company to Medley Refrigeration approximated $1.3 million.
This intercompany receivable was generated and had grown as a result of
the Company's advancing monies to Medley Refrigeration to enable Medley
Refrigeration to manufacture or otherwise acquire refrigeration equipment
which Medley Refrigeration would then lease to its customers. Medley
Refrigeration historically would then receive the lease payments relating
to this equipment directly from its customers, but, in lieu of remitting
these payments to the Company to reduce the outstanding intercompany
balance, Medley Refrigeration contributed these amounts to operate and
expand its business. Since Medley Refrigeration had not, prior to the
September 1996 audit date for the Company's Fiscal 1995 financial
statements, satisfied any meaningful portion of the outstanding advances
made to it by the Company, the independent public accountants auditing
the Company's Fiscal 1995 financial statements, determined that recording
the $600,000 provision was appropriate.
A reversal of the $600,000 provision was taken during Fiscal 1996
essentially because the Company was able to adequately demonstrate
that the uncollectible advances in question were, in fact, collectible. In
this regard, during December 1996, the Company and Medley Refrigeration
consummated the Assignment, pursuant to which, Medley Refrigeration's
rights to receive revenues from, and rights of collection with respect to,
a majority of Medley Refrigeration's equipment leases with its customers
were assigned to the Company. The present value of the revenue stream
underlying the Assignment was approximately $652,000 at the time of the
Assignment. In addition, Medley Refrigeration sold various leases to the
Company totalling approximately $55,000 (which was Medley Refrigeration's
cost basis) in January 1997. The transaction was recorded as a further
reduction of the intercompany balance. Moreover, Medley Refrigeration
paid $200,000 cash, subsequent to December 31, 1996, to the Company to
further reduce the outstanding receivable balance. The leases assigned
to the Company as part of the Assignment are performing within the lease
agreements and the residual value of the equipment, net of reconditioning
costs, plus the future payment, exceed the total receivable balance as
of December 31, 1996. It was therefore management's belief that the
payment of the receivable was assured by a third party and therefore
the allowance was no longer warranted.
As discussed above, during January 1997, the Medley Refrigeration
intercompany receivable was further reduced as a result of Medley
Refrigeration paying the Company $200,000 in cash and transferring
to the Company $37,000 of refrigeration equipment. The Company used this
refrigeration equipment to directly enter into new refrigeration equipment
leases with customers of Medley Refrigeration. The Company continues, on
a regular basis, to finance refrigeration equipment leases directly with
Medley Refrigeration's customers. The equipment underlying these leases
has been, and will continue to be, provided by Medley Refrigeration. The
intercompany receivable due the Company from Medley Refrigeration has
been, and will continue to be, reduced by the direct cost of the equipment
underlying these equipment leases. At 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. Group and the Company are parties to an
agreement pursuant to which, among other things, Group, on behalf of
Medley Refrigeration, will remit to the Company, at the closing of the
Minimum Offering, the $1,100,000 in proceeds generated from Group's
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sale of its 200,000 shares of Common Stock in the Minimum Offering. This
$1,100,000 will be paid to the Company to satisfy, in their entirety, all
receivables then outstanding from Medley Refrigeration to the Company.
Group, pursuant to the Escrow Agreement controlling the disbursement of
subscription proceeds at the closing of the Minimum Offering, has
authorized the Escrow Agent to remit directly to the Company, concurrently
with the closing of the Minimum Offering, the $1,100,000 in proceeds
then held in escrow attributable to Group's sale of its 200,000 shares
of Common Stock in the Minimum Offering.
Management of the Company believes that the Company is not at risk of
accumulating such a significant receivable in the future. Management's
belief is based upon, among other things, (i) the fact that all receivables
outstanding from Medley Refrigeration will be satisfied in their entirety
at the closing of the Minimum Offering, (ii) management's intention of
expanding operations to unaffiliated parties following the consummation of
this offering, (iii) management's confidence in evaluating the credit-
worthiness of potential customers and lessees, (iv) the Company's stated
policy that following the consummation of this offering, it will not
permit receivables from affiliates to exceed, at any time, the lesser of
10% of all of the Company's total assets or $500,000 in the aggregate
and (v) the Company's stated policy that following the consummation of
this offering, all related party transactions must be on terms no more
favorable than otherwise could have been obtained from unrelated parties
and approved by a majority of the Company's disinterested directors. See
"Certain Transactions."
For Fiscal 1996, the Company generated net income per common share of
$.05 as compared to a net loss per common share of $(.98) for Fiscal 1995.
This change in net income per share is primarily the result of the reversal
of the $600,000 provision for uncollectible advances to an affiliate
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had total assets of $1,839,752 as
compared to total assets of $1,794,820 at December 31, 1996. This increase
in total assets is primarily attributable to a significant increase in
accounts receivable relating to new equipment leases entered into.
At December 31, 1996, the Company had total assets of $1,794,820, as
compared to total assets of $1,258,950 at December 31, 1995. This increase
in total assets was primarily due to (i) the Assignment, which resulted in
the reversal of the $600,000 estimate for uncollectible advances from an
affiliate (Medley Refrigeration) taken during Fiscal 1995 and (ii) the
Company's recording approximately $73,000 of additional prepaid expenses
directly attributable to this offering.
At March 31, 1997, the Company had total liabilities of $1,311,688 as
compared to total liabilities of $1,232,799 at December 31, 1996. This
increase in liabilities was primarily due to increases in declared but
unpaid and accrued Convertible Preferred Stock dividends.
At December 31, 1996, the Company had total liabilities of $1,232,799,
an approximate 33% reduction from total liabilities of $1,856,411 at
December 31, 1995. This decrease in liabilities is primarily the result of
the exchange, during June 1996, by holders of approximately $765,657
principal amount of long term debt of the Company, of this debt into
811,973 shares of Convertible Preferred Stock of the Company. The overall
decrease in total liabilities at December 31, 1996 was offset, however, by
an approximate $175,000 increase in accounts payable and accrued expenses
primarily attributable to $192,675 of accrued but unpaid dividends payable
with respect to shares of the Company's Convertible Preferred Stock due to
three of the Company's directors and their affiliates and relatives.
At March 31, 1997, the Company had total stockholder's equity of
$528,064 as compared to total stockholder's equity of $562,021 at December
31, 1996.
At December 31, 1996, the Company had total stockholder's equity of
$562,021, an approximate 195% increase from total stockholder's deficit of
$(597,461) at December 31, 1995. This significant change in stockholder's
equity was primarily the result of the aforementioned exchange, during June
1996, of approximately $765,657 principal amount of long term debt into
811,973 shares of Convertible Preferred Stock.
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The Company's experience in the specialty finance business has
historically been conducted with a smaller capital base than will be
available to the Company following the consummation of this offering. In
order to increase its capital base for further financing, the Company
traditionally has resorted to obtaining lines of credit secured by leased
equipment, to procuring unsecured borrowings from individual investors and
to selling or borrowing against its leases. In this regard, the Company
has established relationships with principal sources of financing and has
learned the particular focus and requirements of such sources. The Company
believes that with the proceeds from this offering, it will be positioned
to secure additional lines of credit and traditional bank financings for
the purpose of expanding and developing its business. The Company further
believes that its expanded business will enable it to pursue service
oriented financing activities such as factoring and locating potential
equipment lessees and referring them to the Company's financing sources on
a fee basis. In addition to such factoring and lease brokering activities,
the Company anticipates expanding into more traditional loan origination
business segments, including the provision of credit review services,
documentation services and loan servicing activities. There can be no
assurance, however, that the Company will successfully implement all or a
portion of this anticipated expansion.
The Company is dependent on the proceeds of this offering to finance
its ongoing specialty finance business, to commence its anticipated
factoring business and to finance its other working capital requirements.
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations and expansion, that the proceeds of
this offering will be sufficient to satisfy the contemplated cash
requirements of the Company for approximately 12 months following the
consummation of this offering. In the event that the Company's plans
change or its assumptions prove to be inaccurate or the proceeds of this
offering prove to be insufficient to fund the Company's operations or its
expansion (due to unanticipated expenses, delays, problems or otherwise),
the Company would be required to seek additional funding. Depending upon
the Company's financial strength and the state of the capital markets, the
Company may also determine that it is advisable to raise additional equity
capital. The Company has no current arrangements with respect to, or
sources of, any additional capital, and there can be no assurance that such
additional capital will be available to the Company, if needed, on
commercially reasonable terms or at all. The inability of the Company to
obtain additional capital would have a material adverse effect on the
Company and could cause the Company to be unable to implement its business
strategy or proposed expansion or to otherwise significantly curtail or
cease its operations.
BUSINESS
GENERAL
The Company is a specialty finance company which, historically, has
been engaged primarily in the financing of (i) dry cleaning equipment to
smaller dry cleaning businesses throughout the eastern United States and
(ii) refrigeration equipment sold or leased by Medley Refrigeration. The
Company commenced operations by providing the cost of dry cleaning
equipment to new businesses. The Company, typically, would provide capital
to acquire the equipment which was then leased to the dry cleaning
businesses for amounts which would amortize the loan, repay any interest
expense and generate a profit. Since becoming affiliated with Group in
September 1993, the Company has also been involved in providing similar
lease financing to Medley Refrigeration's customers. Medley Refrigeration
is engaged in the provision of refrigeration equipment and services to the
food service and hospitality industries and other businesses throughout
central and southeastern Florida. The Company has historically utilized
its own equity capital for these purposes, as well as loan capital from
private investors. More recently, the Company has entered into
relationships with banks and institutional lenders to provide the credit
necessary to fund such financing operations.
Prior to Fiscal 1996, the Company focused its marketing efforts
primarily on providing financing to creditworthy customers of dry cleaning
equipment. Commencing in Fiscal 1996, the Company began de-emphasizing its
dry cleaning equipment business and began concentrating marketing efforts
to creditworthy customers of Medley Refrigeration. Such customers tend to
be small entities whose asset bases may not be significant enough to
attract traditional institutional lenders. Such customers are typically
willing to pay a premium in terms of interest rates for convenience and
availability of financing.
During December 1996, Medley Refrigeration and the Company consummated
the Assignment, pursuant to which, Medley Refrigeration assigned to the
Company all of Medley Refrigeration's rights to receive revenues from, and
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rights of collection with respect to, a majority of the refrigeration
equipment leases entered into by Medley Refrigeration with its customers.
Prior to the Assignment, the Company historically would lend Medley
Refrigeration the capital necessary for Medley Refrigeration to either
purchase or manufacture refrigeration equipment for its customers. Medley
Refrigeration, in turn, would lease this refrigeration equipment to its
customers who, as a condition to the lease, would grant the Company a
security interest in the leased equipment to collateralize the customer's
payment obligations under the equipment lease. As a result of the
Assignment, lease payments with respect to a majority of the equipment
leases extended to Medley Refrigeration's customers began, and continue, to
be payable directly to the Company. In addition, commencing in January
1997, the Company began, and continues, to finance refrigeration equipment
leases directly with Medley Refrigeration's customers. This direct
financing is essentially accomplished by the Company purchasing the
equipment to be leased from Medley Refrigeration. The Company, in turn,
then leases this equipment to creditworthy Medley Refrigeration's customers
who make lease payments with respect to such equipment directly to the
Company. The Company, through the date of this Prospectus, has continued
to focus its marketing efforts primarily to customers of Medley
Refrigeration. Following the consummation of this offering, however, the
Company anticipates broadening its leasing efforts to expand to entities
unaffiliated with the Company.
The Company believes that with the proceeds from this offering, it
will be positioned to secure additional lines of credit and traditional
bank financings for the purpose of expanding and developing its business.
The Company further believes that its expanded business will enable it to
pursue service oriented financing activities such as factoring and locating
potential equipment lessees and referring them to the Company's financing
sources on a fee basis. In addition to such factoring and lease brokering
activities, the Company anticipates expanding into more traditional loan
origination business segments, including the provision of credit review
services, documentation services and loan servicing activities. The
Company believes that its current and proposed expanded business activities
do not subject it to any existing or proposed lending or licensing
regulations or requirements.
The Company was incorporated under the laws of the State of Delaware
on May 2, 1990 under the name Premier Lease Concepts, Inc. In September
1993, Premier Lease Concepts, Inc. was merged into a subsidiary of Group.
As part of this Merger, the Company's name was changed to Medley Credit
Acceptance Corp.
EXISTING BUSINESSES
Financing of Dry Cleaning Equipment
The Company's principal initial business was the investment of capital
in dry cleaning equipment leased to small dry cleaning businesses
throughout the eastern United States. Such dry cleaning equipment would
typically involve a total cost of between $60,000 to $70,000 and be leased
out for a five-year term with the lessee having the option to buy the
equipment at the end of the lease term for the fair market value thereof.
The internal rate of return of such leases was generally attractive to the
Company. Such leases could be refinanced or sold at discount rates
substantially less than the return implicit in the lease itself. Such
finance discounting was, in most instances, accomplished on a full
nonrecourse basis. Due to the decrease, commencing in Fiscal 1995, of dry
cleaning equipment financing opportunities, and the general reduction in
risk associated with the financing of refrigeration equipment as compared
to dry cleaning equipment (primarily due to the significantly reduced cost
of refrigeration equipment as compared to dry cleaning equipment), the
Company, during Fiscal 1996, began de-emphasizing its dry cleaning
equipment business and began concentrating marketing efforts to Medley
Refrigeration's customers.
Refrigeration Equipment Financing
The Company's financing activities with respect to refrigeration
equipment are similar to that employed in its dry cleaning equipment
financing business. The cost of refrigeration equipment (generally $6,000
to $10,000), however, is much less than dry cleaning equipment. In
addition, the Company's lease terms for refrigeration equipment generally
range between 36 to 60 months, without, in many instances, any buy-out
option at the end of the lease term. The Company, historically, has
financed refrigeration equipment to creditworthy customers of Medley
Refrigeration. Following the consummation of this offering, the Company
anticipates broadening its leasing efforts to expand to entities
unaffiliated with the Company.
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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.
Lease Brokering Activities
Following the consummation of this offering, the Company also intends
to consider expanding its operations to include lease brokering. At this
date, however, the Company has no specific plans, arrangements or
agreements relating to future lease brokering activities. In this regard,
the Company believes that the customer base of the Company, Medley
Refrigeration and their affiliates may be receptive to other types of
financing in addition to those utilized in the acquisition of refrigeration
equipment. These types of specialty financing arrangements may include
leases for equipment in which other lessors (unaffiliated with the Company)
or banks and finance companies known to the Company specialize. The
Company believes, based upon what it believes to be generally accepted
market terms, that these other lessors, banks and finance companies would
be willing to pay the Company between two to four percentage points of the
total loan in consideration for the Company's referring such financing
opportunity to such lender. The Company is not presently a party to any
agreement or understanding with respect to any proposed lease brokering
activities. Nonetheless, lease brokering activities are attractive to the
Company because they may be pursued with limited to no involvement of
capital. In addition, such referrals generally do not include customary
credit analysis procedures and normally do not involve residual liability.
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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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Robert D. Press 33 President, Chief Executive
Officer, Treasurer
Steven L. Edelson 49 Chairman of the Board and
Secretary
Steven Dreyer 54 Director
Maynard Hellman 52 Director
Robert D. Press has served as the President, Chief Executive Officer,
Treasurer and a Director of the Company since its inception in September
1993. Mr. Press devotes all of his business time and efforts to the
affairs of the Company. From June 1990 to August 1993, Mr. Press served
as President of Premier Lease Concepts, Inc., the Company's predecessor.
In addition, since 1989, Mr. Press has served as President of Performance
Capital Management, Inc., a holding company controlled by Messrs. Press
and Steven L. Edelson, Chairman of the Board of the Company, with interests
in brokerage and investment management ("Performance Capital Management"),
and as President of Group since October 1992. Mr. Press also served, from
1991 to July 1997, as a licensed registered representative of PCM
Securities Limited, L.P., an NASD registered broker-dealer ("PCM
Securities"). Mr. Press holds a B.A. degree in Economics from Brandeis
University. From 1984 to 1986, Mr. Press worked as a full-time trading
systems consultant to several major Wall Street firms, including The
Longview Group. In 1986, Mr. Press joined Chemical Bank, N.A. ("Chemical
Bank") as an internal consultant in trading and capital markets, and
later in 1986, Mr. Press joined in the formation of Chemical Bank's
Interest Rate Arbitrage trading group, of which Mr. Press became the
principal trader responsible for the global trading and investment
decisions of a multi-billion dollar portfolio. Mr. Press holds the
Series 7 and 63 professional securities licenses.
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<PAGE>
Steven L. Edelson has served as the Chairman of the Board and
Secretary of the Company since its inception. Mr. Edelson devotes only
such business time and efforts to the affairs of the Company as is
necessary for Mr. Edelson to fulfill his fiduciary duties as Chairman of
the Board of the Company. From June 1990 to August 1993, Mr. Edelson
served as Chairman of the Board of Premier Lease Concepts, Inc. In
addition, Mr. Edelson has served as Chairman of the Board of Performance
Capital Management and of Group since 1991 and 1992, respectively.
Mr. Edelson has also served as a licensed securities principal
of PCM Securities since 1991, responsible for supervising the day to day
regulatory and compliance matters concerning PCM Securities. 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.
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
NAME OF INDIVIDUAL WHICH SERVED AGGREGATE COMPENSATION
------------------ ------------ ----------------------
Robert D. Press President $60,000 (1)
Steven L. Edelson Chairman of the Board $30,000 (1)
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--------------
(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 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
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Plan may not be granted at a price less than the fair market value of the
Common Stock on the date of grant (or 110% of fair market value in the case
of persons holding 10% or more of the voting stock of the Company). The
aggregate fair market value of shares for which ISOs granted to any
employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any related
corporation) may not exceed $100,000. Options granted under the Stock
Option Plan will expire not more than ten years from the date of grant
(five years in the case of ISOs granted to persons holding 10% or more of
the voting stock of the Company). Options granted under the Stock Option
Plan are not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus and as adjusted to reflect the sale (i) by the Company of a
minimum of 1,000,000 shares of Common Stock offered hereby and a maximum of
1,400,000 shares of Common Stock offered hereby and (ii) by the Selling
Stockholder of 200,000 shares of Common Stock offered hereby, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by
the Company to be the beneficial owner of more than 5% percent of the
outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer and (iv) all directors and executive officers of the
Company as a group.
AMOUNT AND NATURE AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP BEFORE OWNERSHIP AFTER
BENEFICIAL OWNER OFFERING(1) OFFERING(1)
---------------- ----------- -----------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 1,500,000(3) 1,300,000(3)
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 1,819,189(3)(4) 1,619,189(3)(4)
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 2,067,160(3)(5) 1,867,160(3)(5)
Steven Dreyer . . . . . . . . 20,154(6) 20,154(6)
Maynard Hellman . . . . . . . 150,000(7) 150,000(7)
All directors and
officers as a
group (four persons) . . . . 2,556,503(3)(4)(5) 2,356,503(3)(4)(5)
(6)(7) (6)(7)
PERCENTAGE OF
OUTSTANDING SHARES OWNED
--------------------------------------
AFTER MINIMUM AFTER MAXIMUM
NAME AND ADDRESS OF BEFORE OFFERING OFFERING
BENEFICIAL OWNER OFFERING (2) (2)
---------------- -------- ------------- -------------
Medley Group, Inc.
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 89.3% 49.1% 42.6%
Robert D. Press
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 91.7% 54.8% 48.3%
Steven L. Edelson
10910 N.W. South River Drive
Miami, Florida 33178 . . . . 92.6% 58.3% 51.8%
Steven Dreyer . . . . . . . . 1.2% * *
Maynard Hellman . . . . . . . 8.9% 5.7% 4.9%
All directors and
officers as a
group (four persons) . . . . 100.0% 66.8% 60.0%
--------------
* Represents less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this
Prospectus upon the exercise or conversion of options, warrants or
other convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or other
convertible securities that are held by such person (but not those
held by any other person) and that are exercisable or convertible
within 60 days from the date of this Prospectus have been exercised or
converted. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Does not include (i) 1,200,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Minimum
Offering is sold or 1,600,000 shares of Common Stock reserved for
issuance upon the exercise of Warrants in the event the Maximum
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Offering is sold and (ii) 500,000 shares of Common Stock reserved for
issuance upon exercise of options available for future grant under the
Company's Stock Option Plan.
(3) Messrs. Press and Edelson, the President and Chairman of the Board,
respectively, of the Company, may be deemed to be the control persons
of Medley Group, Inc., and, as such, may be deemed to beneficially own
all of the Common Stock of the Company beneficially owned by Medley
Group, Inc.
(4) 15,000 of these shares will be redeemed by the Company, at the
redemption price of $5.50 per share, concurrently with the closing of
the Minimum Offering. Includes 142,500 shares of Common Stock
issuable upon the exercise of certain warrants; these warrants are
exercisable at any time on or prior to September 30, 2000 at an
exercise price of $1.50 per share. Also includes 161,689 shares of
Common Stock issuable upon the conversion of 755,895 shares of
Convertible Preferred Stock owned by Mr. Press.
(5) 15,000 of these shares will be redeemed by the Company, at the
redemption price of $5.50 per share, concurrently with the closing of
the Minimum Offering. Includes 142,500 shares of Common Stock
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 except that the
exercise price of the warrants owned by Mr. Hellman is $5.00 per
share.
CERTAIN TRANSACTIONS
Prior to December 1996, the Company, generally, provided equipment
lease financing to customers of Medley Refrigeration. Essentially, the
Company would lend Medley Refrigeration the capital necessary for Medley
Refrigeration to lease equipment owned by it to its customers. These
customers, in turn, would make lease payments to Medley Refrigeration.
These advances were historically recorded on the Company's financial
statements as an intercompany receivable due from Medley Refrigeration. As
an accommodation to the Company, Medley Refrigeration would cause its
customers to grant the Company a security interest in the equipment leased
to them to secure lease payments from customers. At December 31, 1995, the
intercompany receivable due from Medley Refrigeration was approximately
$1,350,000.
During December 1996, the Company and Medley Refrigeration consummated
the Assignment, pursuant to which, Medley Refrigeration's rights to receive
revenues from, and rights of collection with respect to, a majority of
Medley Refrigeration's equipment leases with its customers were assigned to
the Company. The present value of the revenue stream underlying the
Assignment was approximately $652,000 at the time of the Assignment.
During January 1997, the Medley Refrigeration intercompany receivable
was further reduced by $237,000 as a result of Medley Refrigeration paying
the Company $200,000 in cash and transferring to the Company $37,000 of
refrigeration equipment. The Company used this refrigeration equipment to
directly enter into new refrigeration equipment leases with customers of
Medley Refrigeration. This direct lease financing was essentially
accomplished by the Company purchasing the equipment to be leased from
Medley Refrigeration. The Company, in turn, then leased this equipment to
creditworthy Medley Refrigeration customers who are required to make lease
payments with respect to such equipment directly to the Company. The
Company continues, on a regular basis, to finance refrigeration equipment
leases directly with Medley Refrigeration's customers. The equipment
underlying these leases has been, and will continue to be, provided by
Medley Refrigeration. The intercompany receivable due the Company from
Medley Refrigeration has been, and will continue to be, reduced by the sum
of all lease payments received with respect to these equipment leases. At
March 31, 1997, the intercompany receivable due to the Company from Medley
Refrigeration was approximately $1,000,000.
Group and the Company are parties to an agreement pursuant to which,
among other things, Group, on behalf of Medley Refrigeration, will remit to
the Company, at the closing of the Minimum Offering, the $1,100,000 in
proceeds generated from Group's sale of its 200,000 shares of Common Stock
in the Minimum Offering. This $1,100,000 will be paid to the Company to
satisfy, in their entirety, all receivables then outstanding from Medley
Refrigeration to the Company. Group, pursuant to the Escrow Agreement
controlling the disbursement of subscription proceeds at the closing of the
Minimum Offering, has authorized the Escrow Agent to remit directly to the
Company, concurrently with the closing of the Minimum Offering, the
$1,100,000 in proceeds then held in escrow attributable to Group's sale
of its 200,000 shares of Common Stock in the Minimum Offering.
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During June 1996, the Company offered holders of approximately
$951,590 principal amount of unsecured notes of the Company (of which
Steven Dreyer, a Director of the Company, held approximately $50,788 of
these notes) the opportunity to exchange their notes into shares of the
Company's Convertible Preferred Stock. Noteholders, including Mr. Dreyer,
converted approximately $765,657 principal amount of notes into 811,973
shares of Convertible Preferred Stock. Mr. Dreyer was issued 54,338 shares
of Convertible Preferred Stock pursuant to this exchange offer.
Concurrently, in June 1996, the Company offered Messrs. Robert Press
and Steven Edelson, President and Chairman of the Board, respectively, of
the Company, the opportunity to exchange their shares of 13 1/2% preferred
stock of the Company then owned by them, having an aggregate liquidation
value of $1,643,726, into shares of Convertible Preferred Stock. Messrs.
Press and Edelson exchanged all of their shares of 13 1/2% preferred stock
for an aggregate of 2,136,844 shares of Convertible Preferred Stock
(604,717 shares to Mr. Press and 1,532,127 shares to Mr. Edelson).
The Company and Performance Capital Management, a company controlled
by Messrs. Press and Edelson, are parties to a Management Agreement
pursuant to which, among other things, Performance Capital Management
provides the Company with certain financial and managerial assistance in
consideration for a Management Fee of $30,000 for Fiscal 1995, $15,000 for
Fiscal 1996 and $90,000 per year following the consummation of this
offering. Under this Agreement, representatives of Performance Capital
Management (specifically, Messrs. Press and Edelson) render business and
financial counsel, guidance and managerial assistance to the Company while
also serving as directors of the Company and, in Mr. Press' case, as
President of the Company. Mr. Press devotes all of his business time
and efforts to the affairs of the Company, while Mr. Edelson devotes only
such time to the business and affairs of the Company as is necessary for
Mr. Edelson to satisfy his fiduciary obligations as Chairman of the Board
of the Company. This Agreement expires on December 31, 1997 but is
automatically renewable for successive one year terms if no formal
notice of termination has been provided.
From June 1, 1996 through March 31, 1997, Messrs. Press and Edelson
loaned the Company $58,218 and $47,018, respectively. These loans were
made to the Company in order to permit the Company to satisfy its operating
expenses in connection with, and in anticipation of, this offering. These
loans bear interest at the rate of 12% per annum, with a balloon payment of
principal and accrued interest due by August 2, 1999. The Company intends
to repay these loans (Messrs. Press and Edelson have each agreed to waive
interest payments under these loans) with a portion of the proceeds from
this offering. In connection with their making these loans, the Company
issued to each of Messrs. Press and Edelson warrants to purchase up to
142,500 shares of Common Stock. These warrants are exercisable at any time
on or prior to September 30, 2000, at an exercise price of $1.50 per share.
From June 1, 1996 to March 31, 1997, Performance Capital Management
loaned the Company $21,000. This loan bears interest at the rate of 12%
per annum with a balloon payment of principal and accrued interest due by
August 2, 1999.
From June 1, 1996 to March 31, 1997, Tile's International ("Tiles"), a
company controlled by Steven Dreyer, loaned the Company $100,000, of which
approximately $81,321 was outstanding at March 31, 1997. This loan bears
interest at the rate of 13 1/2% per annum, requires monthly payments of
principal and interest and matures in November 1998. The Company intends
to satisfy $14,333.10 of this loan (which sum includes accrued and unpaid
interest) with a portion of the proceeds from this offering. In connection
with the loans made to the Company by Tiles, the Company issued to Tiles
warrants to purchase up to 5,625 shares of Common Stock. These warrants
are exercisable at any time prior to September 30, 2000, at an exercise
price of $1.50 per share.
In December 1996, the Company sold Maynard Hellman, a director of the
Company, in consideration for $100,000, warrants to purchase up to
1,000,000 shares of Common Stock of the Company. These warrants are
identical to the Warrants being offered hereby except that the exercise
price of the Warrants owned by Mr. Hellman is $5.00 per share.
The Company will utilize $165,000 from this offering to redeem, at a
price of $5.50 per share, an aggregate of 30,000 shares of Common Stock
owned by 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.
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Following the consummation of this offering, the Company will require
all agreements and arrangements involving it and Performance Capital
Management or any other related party, including the Company's officers,
directors and 5% or greater stockholders to be (i) negotiated, to the
extent possible, on an arm's-length basis, (ii) on terms no more favorable
to the party other than the Company thereto than otherwise could be
obtained from an unaffiliated party and (iii) approved by a majority of
the disinterested directors of the Company. In addition, the Company
has agreed that following the closing of the Minimum Offering
and the concurrent satisfaction by Group, on behalf of Medley
Refrigeration, of all receivables then outstanding from Medley
Refrigeration to the Company, the Company will not permit receivables from
affiliates to exceed, at any time, the lesser of 10% of all of the
Company's total assets or $500,000 in the aggregate and that any loans to
the Company's officers, directors, 5% or greater stockholders or affiliates
will be for bona fide business purposes only and approved by a majority of
the Company's disinterested directors. To date, all transactions between
the Company and its officers, directors and greater than 5% stockholders
have been on terms no more favorable to such officers, directors and
stockholders as otherwise could be obtained from unaffiliated parties.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 15,000,000 shares of Common Stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share. As of the date of this Prospectus, there were
1,680,000 shares of Common Stock issued and outstanding, and 2,958,817
shares of preferred stock issued and outstanding. All such preferred stock
is Convertible Preferred Stock, the only series of preferred stock
outstanding as of the date of this Prospectus.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voting for the
election of directors can elect all of the directors then up for election.
The holders of Common Stock are entitled to receive ratably dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining which are available for distribution to them after payment
of liabilities and after provision has been made for each class of stock,
if any, having preference over the Common Stock. Holders of shares of
Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are (and the shares
of Common Stock offered hereby, when issued in exchange for the
consideration set forth in this Prospectus, will be) fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue preferred stock in one or more
series with such designations, rights, preferences and restrictions as may
be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock and, in certain instances, could
adversely affect the market price of such stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.
In June 1996, the Company authorized and issued an aggregate of
2,958,817 shares designated as Series A 10% Convertible Preferred Stock.
There is not authorized or outstanding, as of the date of this Prospectus,
any other series of preferred stock of the Company. The Convertible
Preferred Stock accrues dividends, payable quarterly (to the extent legally
sufficient funds are then available to the Company), at an annual rate of
$.10 per share. All regularly declared but unpaid dividends cumulate. If
the Company, for whatever reason, fails to pay the regular quarterly
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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 Convertible Preferred Stock is entitled to a $1.00 per share
liquidation preference (together with all accrued and unpaid dividends)
over the Company's Common Stock in the event of dissolution of the Company.
After the satisfaction of all indebtedness of the Company, holders of
Convertible Preferred Stock would then receive any remaining assets in
priority to holders of the Company's Common Stock.
Holders of the Convertible Preferred Stock shall have the right,
effective at any time following the closing of the Minimum Offering, to
convert any or all of such holder's shares of Convertible Preferred Stock
into shares of Common Stock of the Company at the initial public offering
price for the Common Stock being offered hereby ($5.50 per share) less a
15% discount, or approximately $4.68 per share (the "conversion price").
The number of shares of Common Stock issuable upon conversion shall be
determined by dividing the aggregate liquidation value ($1.00 per share) of
all shares of Convertible Preferred Stock being converted (together with
the amount of all accrued and unpaid dividends with respect to such shares)
by the conversion price for such shares.
The Company has the unilateral right, commencing on June 1, 2001 (the
"anniversary date"), to redeem all or any shares of Convertible Preferred
Stock at the redemption price of $1.00 per share (together with the amount
of all accrued and unpaid dividends with respect to such shares) if the
average closing price for shares of the Company's Common Stock for the 20
consecutive trading days immediately preceding the anniversary date exceeds
the conversion price by 20% (approximately $5.62 per share).
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof
(the "Warrant Holders") to purchase, commencing one year following the date
of this Prospectus, one share of Common Stock at a price of $5.75, subject
to adjustment in certain circumstances, until 5:00 p.m., Eastern time, on
( ), 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 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
(the "Warrant Agreement") by and between the Company and American Stock
Transfer & Trust Company, as warrant agent (the "Warrant Agent"). The
exercise price and number of shares of Common Stock issuable on exercise
of the Warrants are subject to adjustment in certain circumstances,
including in the event of a stock dividend, recapitalization,
reorganization, merger or consolidation of the Company. However, 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
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efforts to have all shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until
the expiration of the Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there can be no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based
on the market value of the Common Stock on the last trading day prior to
the exercise date.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The General Corporation Law of Delaware (the "DGCL") provides that a
corporation may limit the liability of each director to the corporation or
its stockholders for monetary damages except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper
personal benefit. The Company's certificate of incorporation provides for
the elimination and limitation of the personal liability of directors of
the Company for monetary damages to the fullest extent permitted by the
DGCL. In addition, the certificate of incorporation provides that if the
DGCL is amended to authorize the further elimination or limitation of the
liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligence or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. This provision
does not limit or eliminate the rights of the Company or any stockholder to
seek non-monetary relief such as an injunction or rescission in the event
of a breach of a director's duty of care. The certificate of incorporation
also provides that the Company shall, to the full extent permitted by the
DGCL, as amended from time to time, indemnify and advance expenses to each
of its currently acting and former directors, officers, employees and
agents.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ANTI-TAKEOVER PROVISIONS
The Company is subject to certain anti-takeover provisions under
Section 203 of the DGCL. In general, under Section 203, a Delaware
corporation may not engage in any business combination with any "interested
stockholder" (a person that owns, directly or indirectly, 15% or more of
the outstanding voting stock of the corporation or is an affiliate of the
corporation and was the owner of 15% or more of the outstanding voting
stock), for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the 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,
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delaying or preventing a takeover of the Company, which could otherwise be
in the best interest of the Company's stockholders, and have an adverse
effect on the market price for the Company's Common Stock and/or Warrants.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
REPORTS TO SECURITYHOLDERS
The Company will furnish to its securityholders annual reports
containing audited financial statement and such unaudited interim reports
as it deems appropriate. Contemporaneously with the commencement of this
offering, the Company intends to register its Common Stock and Warrants
with the Commission pursuant to the provisions of Section 12(g) promulgated
under the Exchange Act. In accordance therewith, the Company will be
required to comply with certain reporting, proxy solicitation and other
requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have
2,650,000 shares of Common Stock outstanding if the Minimum Offering is
sold and 3,050,000 shares of Common Stock outstanding if the Maximum
Offering is sold, assuming no exercise of the Warrants or any other
outstanding warrant or the issuance of any shares of Common Stock
underlying shares of the Company's Convertible Preferred Stock. At that
time, only the 1,000,000 shares being offered by the Company hereby in the
event the Minimum Offering is sold (the Selling Stockholder is offering
200,000 shares), and the 1,400,000 shares being offered by the Company
hereby in the event the Maximum Offering is sold (the Selling Stockholder
is offering 200,000 shares), will be freely tradable without restriction or
further registration under the Securities Act. The remaining 1,400,000
shares, in either instance, will be deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities
Act, in that such shares were issued and sold by the Company in private
transactions not involving a public offering and, as such, may, subject to
the contractual restrictions described below, only be sold pursuant to an
effective registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption
under the Securities Act, except for any shares purchased by an "affiliate"
of the Company (in general, a person who has a control relationship with
the Company), which shares will be subject to the resale limitations,
described below, of Rule 144 promulgated under the Securities Act. None of
such "restricted" securities will be eligible for sale under Rule 144 prior
to December 1997.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate
of the Company (or persons whose shares are aggregated with an affiliate),
who has owned restricted shares of Common Stock beneficially for at least
one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class or, if the Common Stock is quoted on
NASDAQ, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of the Company
for at least three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
Group, which is controlled by Messrs. Press and Edelson, the President
and Chairman of the Board, respectively, of the Company, beneficially owns,
as of the date of this Prospectus, 1,500,000 shares of Common Stock of the
Company. Group is selling, as part of the Minimum Offering, 200,000 shares
of Common Stock. Upon the closing of the Minimum Offering, and Group's
concurrent receipt of the approximate $1,100,000 in proceeds from the
sale of its 200,000 shares, Group will cause Medley Refrigeration to
satisfy, in their entirety, all receivables then outstanding from Medley
Refrigeration to the Company. Group has otherwise agreed with the Company
not to sell or dispose of any of its shares for a period of six months
from the date of this Prospectus. In addition, each holder of Convertible
Preferred Stock has agreed with the Company not to sell or otherwise
dispose of any shares of Common Stock issuable upon conversion of such
Convertible Preferred Stock for a period of six months from the date of
this Prospectus.
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Prior to this offering, there has been no market for the Common Stock
or Warrants and no prediction can be made as to the effect, if any, that
public sales of shares of Common Stock or the availability of such shares
for sale will have on the market prices of the Common Stock and the
Warrants prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and the
Warrants and could impair the Company's ability in the future to raise
additional capital through the sale of its equity securities.
PLAN OF DISTRIBUTION
In accordance with the terms hereof, the Company is offering, on a
"best efforts" basis, a minimum of 1,200,000 shares of Common Stock
(1,000,000 of which will be sold by the Company and 200,000 of which will
be sold by the Selling Stockholder) and 1,200,000 Warrants and a maximum
of 1,600,000 shares of Common Stock (1,400,000 of which will be sold by
the Company and 200,000 of which will be sold by the Selling Stockholder)
and 1,600,000 Warrants to the public. The first 1,200,000 shares of
Common Stock (which includes the 200,000 shares being sold by the Selling
Stockholder) and 1,200,000 Warrants will be offered on a "best efforts
all-or-none" basis at a purchase price of $5.50 per share of Common Stock
and $.15 per Warrant. If the first 1,200,000 shares of Common Stock and
1,200,000 Warrants are sold, the offering will continue on a "best
efforts" basis up to 1,600,000 shares of Common Stock and 1,600,000
Warrants. The Company will use its best efforts to find purchasers for
the Common Stock and Warrants offered hereby within a period of 30 days
from the date of this Prospectus, subject to an extension by the Company
for an additional period of 30 days. The Company will promptly send to
each subscriber who subscribes to this offering a confirmation of the
subscriber's purchase of Common Stock and/or Warrants with instructions
to forward their funds to the Company. Subscribers' checks shall be made
payable to the Escrow Agent and the Company will transmit all subscribers'
checks directly to the Escrow Agent by noon of the next business day after
receipt. All proceeds raised in this offering will be deposited by the
Company in an escrow account maintained at SunTrust Bank, South Florida,
N.A., the Escrow Agent for the Company. If the Minimum Offering is not
achieved and the offering is canceled, all subscriptions held in the
escrow account will be returned without interest or deduction.
The Common Stock and Warrants will be sold on a fully paid basis only.
Certificates representing shares of Common Stock and Warrants will be
issued to subscribers only if the proceeds from the sale of at least
1,200,000 shares of Common Stock and 1,200,000 Warrants are released to the
Company. Until such time as the funds have been released by the Escrow
Agent, such subscribers will not be deemed stockholders or warrantholders.
This offering is being made by the Company on a "self-underwritten"
basis. As such, the Common Stock and Warrants are being offered directly
by the Company through certain of the Company's officers, directors and
employees. No underwriter or broker/dealer has been retained by the
Company in connection with this offering. No commissions or other
offering renumeration will be paid in connection with this offering.
Alyce R. Schreiber, Director of Investor Relations of the Company, and
Christopher Pappas, Vice President-Marketing of the Company, will act
as the principal selling agents of the Company in connection with this
offering.
The shares of Common Stock and Warrants are being offered hereby
subject to prior sale, withdrawal, cancellation or modification of the
offer including its structure, terms and conditions, without notice.
The Company reserves the right, in its sole discretion, to reject, in
whole or in part, any offer to purchase shares of Common Stock and/or
Warrants.
The Company intends to sell the shares of Common Stock and Warrants
in this offering only in the states in which the offering is qualified.
An offer to purchase may only be made and the purchase of the shares of
Common Stock and/or Warrants may only be negotiated and consummated in
such states.
Each investor must purchase a minimum of 100 shares of Common Stock
and/or 100 Warrants in this offering. Any larger number of shares and/or
Warrants must be purchased in 100 share and/or Warrant increments.
Prior to this offering, there has been no public trading market for
the Common Stock or Warrants. Consequently, the initial public offering
prices of the Common Stock and Warrants and the exercise price of the
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Warrants have been determined unilaterally by the Company and do not bear
any relationship to the Company's book value, assets, past operating
results or financial condition or to any other established criteria of
value.
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.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed
upon for the Company by Reid & Priest LLP, New York, New York. David R.
Hardy, Esq., a partner of Reid & Priest LLP, is the beneficial owner of
34,095 shares of common stock of Group, 40,000 shares of preferred stock of
Group and warrants to purchase up to an additional 10,000 shares of common
stock of Group.
EXPERTS
The financial statements of the Company as of December 31, 1996 and
for the year ended December 31, 1996, included in this Prospectus and
elsewhere in the Registration Statement have been audited by Daszkal,
Bolton & Manela, independent certified public accountants ("Daszkal,
Bolton"), as indicated by its report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting
and auditing.
The statement of operations, cash flow and stockholders' equity of the
Company for the year ended December 31, 1995 included in this Prospectus
and elsewhere in the Registration Statement has been audited by Israeloff,
Trattner & Co., independent certified public accountants ("Israeloff,
Trattner"), as indicated by its report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
During January 1997, Israeloff, Trattner resigned as independent
certified public accountants for the Company. Concurrently therewith,
Daszkal, Bolton was retained by the Company to serve as its independent
certified public accountants. Israeloff, Trattner's report with respect to
the Company's Fiscal 1995 financial statements contained a statement,
generally, that the Company's financial situation raises substantial doubt
about the Company's ability to continue as a going concern. The Board of
Directors of the Company unanimously accepted Israeloff, Trattner's
resignation and Daszkal, Bolton's retention. There were no disagreements
between the Company and Israeloff, Trattner on any matter of accounting
principles or practices, financial statement disclosure or auditing scope
or procedure.
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.
-37-
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
I. Fiscal 1996:
-----------
Independent Auditors' Report . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1996
and unaudited at March 31, 1997. . . . . . . . . . . . F-3
Statements of Operations for the year
ended December 31, 1996 and unaudited for
the three months ended March 31, 1997 and 1996 . . . . F-5
Statements of Stockholders' Equity for the
year ended December 31, 1996 and unaudited for
the three months ended March 31, 1997. . . . . . . . . F-6
Statements of Cash Flows for the year ended
December 31, 1996 and unaudited for the three
months ended March 31, 1997 and 1996 . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . F-9
II. Fiscal 1995:
-----------
Independent Auditors' Report . . . . . . . . . . . . F-19
Statement of Operations for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . F-20
Statement of Shareholders' Deficit for the
year ended December 31, 1995 . . . . . . . . . . . . . F-21
Statements of Cash Flows for the year
ended December 31, 1995 . . . . . . . . . . . . . . . F-22
Notes to Financial Statements . . . . . . . . . . . . F-23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Medley Credit Acceptance Corp.:
We have audited the accompanying balance sheet of
Medley Credit Acceptance Corp. as of December 31, 1996, and the
related statement of income, stockholder's equity, and cash flows
from the year then ended. These financial statements are the
responsibility of the management of Medley Credit Acceptance
Corp. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Medley Credit Acceptance Corp. as of December 31,
1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company experienced a loss from operations in 1996, has
substantial working capital deficiency at December 31, 1996, and
is in arrears on its preferred stock dividends. These matters
raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 1. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result
from the resolution of these uncertainties.
Boca Raton, Florida
March 31, 1997
/s/ Daszkal, Bolton & Manela
DASZKAL, BOLTON & MANELA
F-2
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
------------ --------
(UNAUDITED)
CURRENT ASSETS
Cash $ - $ 19,466
Accounts receivable, net of
allowance for doubtful
accounts of $3,000 73,727 141,774
Notes receivable 29,816 30,491
Due from affiliates 585,288 412,601
Prepaid offering costs 73,015 128,488
-------- --------
Total Current Assets 761,846 732,820
-------- --------
RENTAL EQUIPMENT, AT COST, NET OF 234,619 272,002
ACCUMULATED DEPRECIATION -------- --------
PROPERTY AND EQUIPMENT, AT COST, 19,154 16,654
NET OF ACCUMULATED DEPRECIATION -------- --------
OTHER ASSETS
Investments - 39,075
Due from affiliates 711,837 711,837
Rental equipment not in service 65,565 65,565
Security deposits 1,799 1,799
-------- --------
Total Other Assets 779,201 818,276
-------- --------
TOTAL ASSETS $1,794,820 $1,839,752
========== ==========
See accompanying notes to financial statements.
F-3
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES DECEMBER 31, MARCH 31,
1996 1997
----------- ---------
(UNAUDITED)
Notes Payable $210,000 $150,000
Current portion of long-term debt 250,937 212,525
Current portion of obligations
to finance companies 91,027 83,003
Accounts payable and accrued
expenses 172,534 162,960
Dividends payable - preferred 127,668 201,638
stock ---------- ----------
Total Current Liabilities 852,166 810,126
---------- ----------
OTHER LIABILITIES
Long-term debt, net of current
portion 167,286 306,088
Obligations to finance companies,
net of current portion 100,996 78,123
Notes payable - officers 105,236 105,236
Customer deposits 7,115 12,115
---------- ----------
Total Other Liabilities 380,633 501,562
---------- ----------
Total Liabilities 1,232,799 1,311,688
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
5,000,000 authorized,
2,958,817 shares issued and
outstanding 29,588 29,588
Common stock, .01 par value,
10,000,000 authorized,
1,680,000 shares issued and
outstanding 16,800 16,800
Additional paid-in capital 2,322,899 2,322,899
Accumulated deficit (1,807,266) (1,841,223)
---------- ----------
Total Stockholder's Equity 562,021 528,064
---------- ----------
TOTAL LIABILITIES AND $1,794,820 $1,839,752
STOCKHOLDERS' EQUITY ========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------- ------------------
1996 1997 1996
---- ---- ----
REVENUES $356,235 $94,158 $118,812
-------- -------- --------
COST AND EXPENSES
Depreciation 95,483 17,000 23,870
Interest expense 146,914 9,643 41,092
Loss on sale of leased
equipment 35,687 - -
General and administrative 447,855 65,851 47,463
expenses -------- -------- --------
Total Costs and 725,939 92,494 112,425
Expenses -------- -------- --------
Income (Loss) From (369,704) 1,664 6,387
Operations -------- -------- --------
OTHER INCOME (EXPENSES)
Interest income 93,064 45,005 30,636
Loss on sale of securities - (6,656) -
Reversal of estimate for
uncollectible advances to
affiliate 600,000 - -
Gain on sale of leased - - 12,828
equipment -------- -------- --------
Total Other Income 693,064 38,349 43,464
-------- -------- --------
NET INCOME $323,360 $40,013 $49,851
======== ======== ========
NET INCOME (LOSS) APPLICABLE TO $ 90,638 $(33,957) $(3,570)
COMMON SHAREHOLDERS ======== ======== =======
NET INCOME (LOSS) PER COMMON $.05 $(.02) $ -
SHARE ==== ===== ====
WEIGHTED AVERAGE NUMBER OF SHARES 1,680,000 1,680,000 1,120,000
OUTSTANDING ========= ========= =========
See accompanying notes to financial statements.
F-5
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
PREFERRED STOCK COMMON STOCK
--------------- ------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
BALANCE, AT JANUARY 1, 1996 1,643,700 $ 16,437 1,000 $200,000
RECLASSIFICATION OF S-CORP
UNDISTRIBUTED EARNINGS - - - -
RESTATEMENT OF COMMON STOCK - - - (199,990)
PAR VALUE ---------- -------- ------- -------
BEGINNING BALANCE AS RESTATED 1,643,700 $ 16,437 1,000 10
ISSUANCE OF PREFERRED STOCK FOR
EXTINGUISHMENT OF DEBT 1,300,117 13,001 - -
ISSUANCE OF PREFERRED STOCK 15,000 150 - -
STOCK SPLIT - 1,120 TO 1 - - 1,119,000 11,190
ISSUANCE OF WARRANTS - - - -
COMPENSATION VALUE OF
COMMON STOCK - - - -
STOCK SPLIT - 3 TO 2 - - 560,000 5,600
PREFERRED STOCK DIVIDENDS - - - -
NET INCOME - - - -
---------- -------- -------- ------
BALANCE AT DECEMBER 31, 1996 2,958,817 $ 29,588 1,680,000 $16,800
NET INCOME, MARCH 31, 1997
(UNAUDITED) - - - -
PREFERRED STOCK DIVIDENDS - - - -
(UNAUDITED) --------- ------- --------- ------
BALANCE, MARCH 31, 1997 2,958,817 $29,588 1,680,000 $16,800
(UNAUDITED) ========= ======= ========= =======
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------- ------- -----
BALANCE, AT JANUARY 1, 1996 $ 979,146 $(1,793,044) $(597,461)
RECLASSIFICATION OF S-CORP
UNDISTRIBUTED EARNINGS 104,860 (104,860) -
RESTATEMENT OF COMMON STOCK 199,990 - -
PAR VALUE --------- ---------- --------
BEGINNING BALANCE AS RESTATED 1,283,996 (1,897,904) (597,461)
ISSUANCE OF PREFERRED STOCK
FOR EXTINGUISHMENT OF DEBT 775,843 - 788,844
ISSUANCE OF PREFERRED STOCK 14,850 - 15,000
STOCK SPLIT - 1,120 TO 1 (11,190) - -
ISSUANCE OF WARRANTS 100,000 - 100,000
COMPENSATION VALUE OF
COMMON STOCK 165,000 - 165,000
STOCK SPLIT - 3 TO 2 (5,600) - -
PREFERRED STOCK DIVIDENDS - (232,722) (232,722)
NET INCOME - 323,360 323,360
---------- ---------- ---------
BALANCE AT DECEMBER 31, 1996 $2,322,899 $(1,807,266) $562,021
NET INCOME, MARCH 31, 1997
(UNAUDITED) - 40,013 40,013
PREFERRED STOCK DIVIDENDS - (73,970) 73,970
(UNAUDITED) ---------- ----------- --------
BALANCE, MARCH 31, 1997 $2,322,899 $(1,841,223) $528,064
(UNAUDITED) ========== =========== ========
See accompanying notes to financial statements.
F-6
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------ ------------------
CASH FLOWS FROM OPERATING 1996 1997 1996
ACTIVITIES ---- ---- ----
Net income $323,360 - -
-------- ------- -------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 95,483 - -
Reversal of estimate
for uncollectible
advances
to affiliate (600,000) - -
Loss on sale of leased
equipment 35,687 - -
Compensation value of
common stock 165,000 - -
Changes in assets and
liabilities:
Accounts (43,907) - -
receivable
Prepaid expenses (65,423) - -
Accounts payable 130,118 - -
and accrued
expenses
Customer deposits (20,229) - -
-------- ------- ------
Total Adjustments (468,271) - -
-------- ------- ------
Net cash (used) provided by 20,089 (64,425) 55,241
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Net receipts from 42,083 120,158 26,041
affiliates
Purchase of securities - (75,010) -
Proceeds from sale of - 29,250 -
securities
Purchase of rental (111,544) - -
equipment -------- -------- ------
Proceeds from sale of - - 60,343
leased equipment -------- -------- ------
Net cash (used) provided (69,461) 74,398 86,384
by investing activities -------- ------- ------
CASH FLOWS FROM FINANCING
ACTIVITIES
Short-term borrowings 10,000 - -
Proceeds from long-term 276,000 115,000 -
debt
Repayments of short-term (145,000) - -
borrowings
Repayments of long-term (216,577) (45,507) (94,953)
debt and obligations
to finance companies
Payment of preferred stock (105,054) - (40,721)
dividends
Net proceeds from 111,200 - -
shareholders loans
Issuance of preferred stock 15,000 - -
Issuance of warrants 100,000 - -
Repayments of notes payable - (60,000) -
------- -------- -------
Net cash provided (used) by 45,569 9,493 (135,674)
financing activities ------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (3,803) 19,466 5,951
CASH AND EQUIVALENTS - 3,803 - 3,803
BEGINNING OF YEAR ------- ------- -------
CASH AND EQUIVALENTS - END $ - $19,466 $9,754
OF YEAR ======= ======= ======
See accompanying notes to financial statements.
F-7
<PAGE>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, (UNAUDITED)
------------ -------------------
1996 1997 1996
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION: $59,628 $20,657 $41,092
======= ======= =======
Interest paid
SUPPLEMENTAL NONCASH
INVESTING AND FINANCIAL
ACTIVITIES:
Long-term debt and $ 788,844 $ - $ -
related accrued
interest
converted into
convertible preferred
stock
Leased equipment
received from affiliate
company as payments on - 51,883 -
intercompany receivable ========= ======== =======
$ 788,844 $ 51,883 $ -
========= ======== =======
See accompanying notes to financial statements.
F-8
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996 IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Medley Credit Acceptance Corp. ("the Company"), a Delaware
corporation, is a majority-owned subsidiary of Medley Group, Inc.
The Company is a specialty finance company operating in Florida
and engaged primarily in the leasing of dry cleaning equipment.
In addition, the Company has provided financing arrangements on
certain refrigeration equipment sold or leased by Medley
Refrigeration, Inc., an affiliated company.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
experienced a loss from operations in 1996, has substantial
working capital deficiency at December 31, 1996, and is in
arrears on its preferred stock dividends. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue in existence as
a going concern is dependent upon its ability to attain
profitable operations and to obtain equity and/or debt financing.
Management plans to rely, to a substantial extent, on the
Company's ability to successfully complete a proposed initial
public offering.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates include those related to valuation of
amounts due from affiliates and the net realizable value of
rental equipment not in service. It is at least reasonably
possible that the significant estimates used will change within
the next year.
Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments
and related-party transactions.
The fair value of financial instruments classified as current
assets or liabilities including cash and cash equivalents,
receivables and accounts payable approximate carrying value
due to the short-term maturity of the instruments. The fair
value of short-term and long-term debt approximate carrying
value based on their effective interest rates compared to current
market rates.
F-9
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Revenue Recognition
-------------------
The Company leases equipment to others under non-cancelable
operating leases, whereby revenue is recognized as lease payments
are due from customers and the related costs are depreciated
using the straight-line method over the rental equipment's
expected life. Dry cleaning and refrigeration equipment is not
generally subject to obsolescence, however, the Company
periodically evaluates the realizable value of such assets to
determine whether any impairment has occurred in the value based
on the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets".
In the opinion of the Company, though not assured, the estimated
residual value will be realized.
Property, Equipment and Depreciation
------------------------------------
Property and equipment are stated at cost. Major expenditures
for property and those which substantially increase useful lives
are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired or otherwise
disposed of, their costs and related accumulated depreciation are
removed from the accounts and resulting gains or losses are
included in income. Depreciation is provided by the straight-
line method over the estimated useful lives of the assets.
Income Taxes
------------
Income taxes have been provided using the asset and liability
method in accordance with Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
NOTE 2 - DUE FROM AFFILIATES
Due from affiliates resulted principally from interest bearing
advances with no definitive due date. As security, the
affiliated companies have assigned various operating leases to
the Company whereby all lease payments are received from the
lessee by the Company and credited against the amount due from
the related affiliates. Management believes that the future
lease payments will be sufficient to satisfy the obligations from
the affiliated Companies.
NOTE 3 - RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following:
(Unaudited)
(Unaudited) March 31,
March 31, December 31, 1997
1997 1996 ----------
---------- ----------- Not
In Service In Service In Service
---------- ---------- ---------
Equipment, at cost $517,258 $465,375 $562,140
Less, accumulated
depreciation 245,256 230,756 496,575
-------- -------- --------
Net Rental Equipment $272,002 $234,619 $ 65,565
======== ======== ========
December 31, (Unaudited) December
1996 March 31, 31,
----------- 1997 1996
Not ---------- --------
In Service Total Total
---------- ---------- --------
Equipment, at cost $562,140 $1,079,398 $1,027,515
Less, accumulated depreciation 496,575 741,831 727,331
------- -------- -------
Net Rental Equipment $65,565 $337,567 $300,184
======= ======== ========
F-10
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RENTAL EQUIPMENT AND DEPRECIATION (CONT.)
The depreciation expense on rental equipement for the three months
ended March 31, 1997 and the year ended December 31, 1996 was
$14,500 and $85,415, respectively.
Rents receivable under non-cancelable operating lease commitments
for the next five years are as follows:
1997 $120,653
1998 92,118
1999 80,448
2000 22,968
2001 -
--------
$316,187
--------
NOTE 4 - PROPERTY, EQUIPMENT AND DEPRECIATION
Major classes of property and equipment consist of the following:
(UNAUDITED) DECEMBER
MARCH 31, 31,
1997 1996
--------- --------
Office equipment . . . . . . . $48,571 $48,571
Automobile . . . . . . . . . . 6,955 6,955
------- -------
55,526 55,526
Less: Accumulated depreciation 38,872 36,372
------- -------
Net property and Equipment $16,654 $19,154
======= =======
Depreciation expense on property and equipment for the three
months ended March 31, 1997 and the year ended December 31, 1996
was $2,500 and $10,068, respectively.
F-11
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
Notes payable of $150,000 at March 31, 1997 and $210,000 at
December 31, 1996 are comprised of the following:
Note Payable to Bank
--------------------
The Company maintains a revolving credit line agreement with a
commercial bank that is used to finance working capital
requirements. At March 31, 1997 and December 31, 1996, the
amount outstanding was $135,000 and $195,000, respectively.
Borrowings are due on demand, with interest payable monthly at
prime (9.5% at December 31, 1996) plus 2%. Borrowings under the
note are collateralized by certain of the Company assets not
otherwise pledged and the debt is personally guaranteed by the
Company's principal officers and Medley Group, Inc.
Notes Payable to Individuals
----------------------------
Included in notes payable is $15,000 due to individuals, bearing
interest at 10% per annum, with due dates in June and October
1997.
NOTE 6 - LONG-TERM DEBT
The Company has received funds from individuals and issued notes
for these loans. In June 1996, the Company offered to convert
these individual notes to 10% convertible preferred stock at a
conversion ratio of approximately 1.03 shares to $1.00 of debt.
Certain note holders elected to convert their debt, amounting to
$765,657, and $23,187 of accrued interest to the convertible
preferred stock.
At March 31, 1997 and December 31, 1996, the Company remained
obligated to various individuals, not electing to convert their
debt, for amounts aggregating $518,613 and $418,223,
respectively. These notes are for various amounts and maturities
through January 1999. Interest is payable at rates ranging from
10% to 13.5% per annum. The unsecured portion of these notes at
March 31, 1997 and December 31, 1996 is $473,223 and $358,223,
respectively.
As of December 31, 1996, annual maturities of long-term debt
(excluding converted notes) are as follows:
1997 $ 250,937
1998 97,286
1999 70,000
---------
Total $ 418,223
=========
F-12
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and
related rental agreements, consist of the following at:
(unaudited) December
March 31, 31,
1997 1996
--------- --------
18.7% obligation, payable in monthly
installments of $2,260, including
interest, through April 1998 . . . . $28,014 $ 33,527
23.6% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 33,249 40,341
21.2% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 50,229 62,223
18.3% obligation, payable in varying
monthly installments, including
interest, through November 1999 . . . 21,827 26,678
21.4% obligation, payable in monthly
installments of $996, including
interest, through June 2000 . . . . . 27,807 29,254
-------- --------
161,126 192,023
Less: Current maturities . . . . . . 83,003 91,027
-------- --------
Long-Term Obligations . . . . . $78,123 $100,996
======== ========
As of December 31, 1996, the annual maturities of obligations to
finance companies for the next five years are as follows:
1997 $ 91,027
1998 58,666
1999 36,626
2000 5,704
2001 -
---------
$ 192,023
=========
F-13
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has declared dividends on its preferred stock;
however, it is in arrears on the 10% dividends for the last two
quarters of the year. The majority of the unpaid preferred stock
dividends are due the Company officers. The Company has accrued
$73,970 of dividends on its preferred stock at March 31, 1997.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has transactions with related companies whose
ownership is substantially the same as that of the Company.
Included in the statements of operations are the following items
of income and expense for the year ended December 31, 1996:
Rental revenues . . . . . . $ 92,144
General and administrative
expenses - allocated . . . . $(18,000)
Management expense . . . . . $(15,000)
The Company has recorded its share of allocated corporate overhead
expenses of $18,000 as follows:
Allocated 15% of rent,
utilities and insurance
based upon square footage
used $ 13,650
Allocated 12% of office
salaries based upon
companies determination
of labor hours incurred 4,350
---------
Total allocated $ 18,000
=========
Included in the balance sheet at December 31, 1996 are the
following assets:
Due from affiliates $1,297,125
The balance due from affiliates results principally from advances
with interest at 10% per annum with no definite due date.
The Company has reversed its $600,000 previous estimated
allowance for uncollectible advances due from an affiliated
company. This was effected, as the Company received in December
1996, an assignment of leases. In January 1997, approximately
$200,000 was received as payment against the receivable. As a
result of the above transactions, management feels no allowance
for collectability of the affiliated Company receivable is
F-14
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS (CONT.)
required as the future collection of cash by Medley Credit
Acceptance Corporation from the assigned leases will be
sufficient to pay the obligation.
Included in long-term debt is a $10,000 note due to a company
owned by one of the stockholders.
NOTE 10 - 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.
Additional Paid-In Capital
--------------------------
30,000 shares of stock owned by the parent Company, Medley Group,
Inc., was transferred to the officers for services performed by
them on behalf of the Company.
At December 31, 1996, $165,000, representing the fair value of
the officer's compensation was recorded as an expense and included
in additional paid-in capital.
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.
F-15
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - RECLASSIFICATION
The common stock par value in the 1996 financial statements has
been reclassified to the proper par value amount of $.01 per
share. The resultant reclassification has increased additional
paid in capital by $199,990 and reduced common stock by a
corresponding amount.
At the time the Company changed its status from a S-Corporation
to C-Corporation, there was $104,860 of undistributed S-
Corporation earnings which has been reclassified from retained
earnings to additional paid-in capital. This treatment assumes a
constructive distribution to the owners followed by a
contribution to paid-in capital.
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
$3,750 as an expense.
In addition, the Company rents warehouse space on a month-to-
month basis for storage purposes at a cost of approximately $700
per month.
Management Agreement
--------------------
The Company entered into a management agreement with a related
company for management services at a fee of $90,000 per annum
effective January 1, 1994. The related company has agreed to
modify this agreement to $15,000 per annum for 1996. This
management agreement expired December 1, 1996 but carries an
automatic annual renewal commencing on that date.
Litigation
----------
The Company is involved in litigation in the normal course of
business. None of the legal actions are expected to have a
material effect on the Company's results of operations or
financial condition.
F-16
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - INCOME TAXES
The Company is included in the consolidated federal tax return of
its parent, Medley Group, Inc. Federal and state income taxes
are provided for on a stand-alone basis as if the Companies filed
their own tax returns.
The provision for income taxes is as follows:
(Unaudited)
March 31, December 31,
1997 1996
---------- --------
Deferred Income Tax
Expense:
Federal $10,800 $102,500
State 2,200 17,500
Less Valuation Allowance (13,000) (120,000)
-------- --------
Deferred Income Tax $ $
======== ========
At March 31, 1997 and December 31, 1996, the Company has an
unused net operating loss carryforward of approximately $533,000
and $573,000, respectively, expiring in 2010, which is available
for use on its future corporate federal and state tax returns.
The Company's evaluation of the tax benefit of its net operating
loss carryforward is presented in the following table. The tax
amounts have been calculated using a 40% combined effective tax
rate.
(Unaudited)
March 31, December 31,
1997 1996
---------- -----------
Deferred Tax Asset:
Tax Benefit of Net $213,200 $229,200
Operating Loss
Les: Valuation Allowance (213,200) (229,200)
-------- --------
Deferred Tax Asset $ $
======== ========
Reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate is as follows:
(Unaudited)
March 31, December 31,
1997 1996
-------- ------------
Benefit of Federal (32%) (34)%
Statutory Rate
Benefit at State Income (5)% (6)%
Tax Rate ---- ----
(37)% (40)%
==== ====
F-17
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - DEPENDENCE ON AFFILIATES AND OTHERS
The Company has relied primarily on the customer relationships
generated by its affiliates for a significant source of its
business. In addition, the Company has outstanding receivable
balances from the affiliates of $1,297,125. The future
operations of Medley Credit is therefore dependent upon these
affiliates.
NOTE 15 - PROPOSED PUBLIC OFFERING
The Company has signed a Letter of Intent with an underwriter to
complete an initial public offering for a minimum of 1,200,000
shares of common stock (of which the Company is offering 1,000,000
shares and the Selling Stockholder is offering 200,000 shares) and
1,200,000 warrants and a maximum of 1,600,000 shares of common
stock (of which the Company is offering 1,400,000 shares and the
Selling Stockholder is offering 200,000 shares) and 1,600,000
warrants. The stock to be issued consists of $.01 par value common
stock at $5.50 per share. The warrants to be issued consist of one
redeemable warrant to purchase one share of common stock. The
warrants will be issued at $.15 each and entitles the registered
holder to purchase one share of common stock at a price of $5.00.
The common shares of stock and the warrants may be purchased
separately and will be separately transferrable. Professional
fees incurred through December 31, 1996, in connection with the
proposed offering, have been recorded as prepaid offering costs
in the amount of $73,015 and will be charged to additional paid-
in capital upon completion of the offering or will be charged to
expense, if the offering is not completed.
NOTE 16 - SUBSEQUENT EVENTS
Line of Credit Expiration
-------------------------
The Company's line of credit, described in Note 5, expired
January 29, 1997. Subsequent to January 29, 1997 an additional
payment of $55,000 was made to the bank and the note was
extended.
Stock Option Plan
-----------------
On January 9, 1997, the Company adopted a stock option plan (the
"Stock Option Plan"). The Stock Option Plan has 500,000 shares
of Common Stock reserved for issuance upon the exercise of
options designated as either (i) incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended, or (ii) non-
qualified options. ISOs may be granted under the Stock Option
Plan to employees and officers of the Company. Non-qualified
options may be granted to consultants, directors (whether or not
they are employees), employees or officers of the Company. In
certain circumstances, the exercise of stock options may have an
adverse effect on the market price of the Company's Common Stock
and/or Warrants. No options have been granted under the Stock
Option Plan.
Employment Agreements
---------------------
The Company entered into employment agreements on January 9, 1997
with its President and Chairman in the amounts of $60,000 and
$30,000, respectively, which will begin to accrue upon
consummation of the public offering described in Note 15. The
agreements are effective for a period of one year. The
Agreements are automatically renewable by the Company on an
annual basis.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders of
Medley Credit Acceptance Corp.
We have audited the accompanying statements of operations,
shareholders' deficit and cash flows for the year ended December
31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Medley Credit Acceptance Corp. for
the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company experienced a
substantial loss in 1995, has substantial working capital
deficiency and shareholders' deficit at December 31, 1995, and in
addition, there is substantial uncertainty concerning the
collectibility of amounts due from affiliates. These matters
raise substantial doubt about the Company's ability to continue
as a going concern, which in turn raise uncertainty about the
carrying value of its rental equipment. Management's plans in
regard to these matters are also described in Note 1. The
accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities
that might result from the resolution of these uncertainties.
Valley Stream, New York
September 13, 1996, except for
notes 3, 5 and 8, as to which the date is
December 6, 1996.
/s/ Israeloff, Tratner & Co. P.C.
ISRAELOFF, TRATTNER & CO. P.C.
F-19
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenues (Note 1) $388,008
Costs and Expenses
Depreciation (Notes 1 and 2) $151,914
Interest expense 160,040
Repairs and disposition losses on 74,577
rental equipment
Write-down of rental equipment not 87,456
in service (Note 2)
General and administrative expenses 210,628
--------
Total costs and expenses 684,615
--------
Loss before other expense (296,607)
Other expense - provision for
uncollectible advances 600,000
to affiliates (Note 4) --------
Net loss (896,607)
Preferred dividends (205,447)
--------
Net loss applicable to common $(1,102,054)
shareholders ==========
Net loss per common share (Note 1) $ (.98)
==========
Weighted average number of shares 1,120,000
outstanding ==========
See accompanying notes to financial statements.
F-20
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
Preferred Shares Common Shares
Number Amount Number Amount
------ ------ ------ ------
Balance - beginning of
year as previously
reported 1,643,726 $16,437 1,000 $200,000
Prior period - - - -
adjustment (Note 7) --------- -------- ----- ------
Balance, beginning of
year as restated 1,643,726 16,437 1,000 200,000
Net loss - - - -
- - - -
Preferred dividends --------- ------- ------ -----
Balance - December 1,643,726 $16,437 1,000 $200,000
31, 1995 ========= ======= ===== =======
Additional
Paid-In Accumulated
Capital Deficit Total
---------- ---------- -----
Balance - beginning of
year as previously
reported $979,146 $(369,183) $826,400
Prior period
adjustment - (321,807) (321,807)
(Note 7) -------- -------- ---------
Balance, beginning of
year as restated 979,146 (690,990) 504,593
Net loss - (896,607) (896,607)
- (205,447) (205,447)
Preferred dividends -------- ----------- --------
Balance - December 31, $979,146 $(1,793,044) $(597,461)
1995 ======== =========== =========
See notes to accompanying financial statements.
F-21
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(896,607)
Adjustments to reconcile net loss
to net cash provided
by operating activities;
Depreciation $151,914
Provision for uncollectible
advances to affiliates 600,000
Write-down of rental
equipment not in service 87,456
Changes in assets and
liabilities:
Accounts receivable (29,820)
Prepaid expenses 140,905
Accounts payable 12,396
Customer deposits (17,775)
--------
Total adjustments 945,076
-------
Net cash provided by 48,469
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net advances to affiliates (276,949)
Increase in security deposits (719)
--------
Net cash used by investing (277,668)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank borrowings 196,735
Proceeds from long-term debt 389,506
Repayments of long-term debt (313,022)
Dividends paid (205,447)
--------
Net cash provided by
financing activities 67,772
--------
NET DECREASE IN CASH (161,427)
CASH - beginning 165,230
--------
CASH - end $ 3,803
========
See accompanying notes to financial statements.
F-22
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Medley Credit Acceptance Corp. (the "Company"), a Delaware
Corporation, is a wholly-owned subsidiary of Medley Group,
Inc. ("Medley"). The Company is engaged in the leasing of
dry cleaning equipment, principally in Florida.
The financial statements have been prepared on a going
concern basis which contemplates realization of assets and
satisfaction of liabilities in the ordinary course of
business. However, the Company incurred a net loss of
$896,607 for the year ended December 31, 1995, and as of that
date, it has a working capital deficiency of $664,021 and a
shareholders' deficit of $597,461. These conditions raise
substantial doubt about the Company's ability to continue as
a going concern. The Company's ability to continue in
existence as a going concern, is dependent upon its ability
to attain profitable operations and to obtain equity and/or
debt financing. Management plans to rely, to a substantial
extent, on the Company's ability to successfully complete a
proposed initial public offering (Note 8), and also upon the
collectibility of amounts advanced to affiliates (Note 4).
The Company believes the above plan will permit it to
continue operations. However, there can be no assurance that
the Company will be successful in raising additional capital
or in achieving profitable operations. The financial
statements do not include any adjustments that might result
from this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates include
those related to valuation of amounts due from affiliates and
the net realizable value of rental equipment. It is at least
reasonably possible that the significant estimates used will
change within the next year.
REVENUE RECOGNITION
The Company recognizes revenue from its leased equipment as
earned under operating lease agreements. Rental equipment is
stated at cost using the specific identification method.
When assets are sold or otherwise disposed of, their cost and
related accumulated depreciation are removed from the
accounts and resulting gains or losses are included in
income. Depreciation is provided by the straight-line method
over the estimated useful life of the assets, 7 years.
F-23
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Major
expenditures for property and those which substantially
increase useful lives are capitalized. Maintenance, repairs,
and minor renewals are expensed as incurred. When assets are
retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and
resulting gains or losses are included in income.
Depreciation is provided by the straight-line method over the
estimated useful lives of the assets.
DEFERRED INCOME TAXES
The Company provides deferred income taxes resulting from
temporary differences between the financial statement and tax
bases of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using
the tax rate expected when taxes are actually paid or
recovered. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. Temporary differences result
principally from the write-down of amounts due from
affiliates and of certain rental equipment.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average of
common shares outstanding. On June 30, 1996, the Company
effected a 1,120 for 1 stock split, thereby increasing the
common shares outstanding from 1,000 to 1,120,000. All per
share data have been restated to reflect this stock split.
2. RENTAL EQUIPMENT AND DEPRECIATION
Rental equipment consists of the following:
Not
In Service In Service Total
---------- ---------- -----
Equipment, at cost $751,529 $695,840 $1,447,369
Less: Accumulated 406,949 620,371 1,027,320
depreciation -------- -------- ----------
Net rental $344,580 $ 75,469 $ 420,049
equipment ======== ======== ==========
The depreciation expense for the year was $141,208. The
Company provided a write-down of $87,456 on the equipment not
currently in service, to reduce it to its estimated net
realizable value. However, it is at least reasonably
possible that this estimate will change.
F-24
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
Rents receivable under operating lease commitments are as
follows:
1996 $152,400
1997 38,288
Thereafter 0
--------
$190,688
========
3. NOTES PAYABLE
The Company maintains a $350,000 revolving credit line
agreement with a commercial bank that is used to finance
working capital requirements. At December 31, 1995, the
amount outstanding was $334,895. Borrowings are due on
demand, with interest payable monthly at 2 1/2% over the bank's
prime rate. The agreement was due to expire June 3, 1996 and
was extended to October 3, 1996, but still remains
substantially unpaid. All borrowings under the note are
collateralized by substantially all assets not otherwise
pledged and are personally guaranteed by the Company's
principal officers and "Medley". The note contains various
restrictive covenants, which among other things require the
maintenance of certain financial ratios. As of December
1996, approximately $100,000 had been repaid to the bank.
The Company is currently negotiating an extension of the
line.
4. RELATED PARTY TRANSACTIONS
The Company has transactions with related companies whose
ownership is substantially the same as that of the Company.
Included in the statement of operations are the following
items of income and (expense):
Management fees $ (30,000)
Allocated general and $ (24,650)
administrative expenses
Rental revenues $ 16,162
Included in the balance sheet at December 31, 1995 are:
Due from affiliates (less $ 766,665
allowance of $600,000)
Due to affiliated company $ (127,279)
The balance due to and due from related companies result
principally from non-interest bearing advances with no
definite due date. The Company has reduced the receivable to
its estimated net realizable value through a $600,000
allowance. However, it is at least reasonably possible that
the amount collected will differ from management's estimate.
F-25
<PAGE>
MEDLEY CEDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
5. COMMITMENTS AND CONTINGENCIES
Lease Agreements
An affiliate of the Company is obligated under a lease for
its premises expiring October 1997, which requires minimum
annual rentals of $25,000 plus increases based on real estate
taxes and operating costs. Included in the statement of
operations is $2,700 allocated to the Company, under this
lease.
In addition, the Company rents warehouse space on a month-to-
month basis for storage purposes at a cost of approximately
$700 per month.
Employment Agreements
Effective December 1, 1996, the Company entered into one-year
employment agreements with its President and Secretary for
annual amounts of $60,000 and $30,000, respectively. The
agreements may be automatically renewed on an annual basis.
Management Agreement
On October 31, 1996, but effective January 1, 1994, the
Company entered into a management agreement with a related
company. The related company provides management services at
a fee of $90,000 per annum. The agreement expires December
1996 and may be renewed on an annual basis.
In 1995, the related company agreed to modify the agreement
to $30,000 for that year.
Litigation
The Company is involved in several actions in the normal
course of business, none of which are expected to have a
material effect on the Company's results of operations or
financial condition.
6. INCOME TAXES
The Company, its parent company and its parent's other
subsidiaries file a consolidated Federal income tax return.
The effective consolidated federal tax rate is applied to
each company's taxable income or loss for purposes of
allocating the consolidated federal tax.
The potential deferred tax asset resulting from net operating
loss carryforwards has been reduced to zero by a valuation
allowance because management could not conclude that
realization of such benefits was more likely than not.
Furthermore, the Internal Revenue Code contains provisions
which may limit the loss carryforwards available if
significant changes in stockholder ownership of the Company
occur.
F-26
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF MEDLEY GROUP, INC.)
NOTES TO FIANCNIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1995
7. PRIOR YEAR ADJUSTMENTS
The accumulated deficit at the beginning of 1995 has been
restated to correct the valuation of certain rental equipment
that was taken out of service and placed in storage in prior
years and to correct the treatment of proceeds from a
financing company in 1994.
8. PROPOSED PUBLIC OFFERING
The Company has signed a Letter of Intent with an underwriter
to complete an initial public offering for a minimum of
420,000 units and a maximum of 620,000 units. Each unit
consists of one share of $.01 par value common stock at $6.50
per share and one redeemable warrant to purchase one share of
common stock at $.10 per share. Professional fees incurred
in connection with the proposed offering will be recorded as
a deferred cost and will be charged to additional paid-in
capital upon completion of the offering, or will be charged
to expense if the offering is not completed.
F-27
<PAGE>
===========================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. 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 . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . . . . . . .
------------------
UNTIL ( ), 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
==========================================================================
==========================================================================
1,600,000 SHARES
COMMON STOCK
1,600,000 REDEEMABLE WARRANTS
TO PURCHASE COMMON STOCK
MEDLEY CREDIT
ACCEPTANCE CORP.
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PROSPECTUS
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JULY ( ), 1997
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<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.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the offering described in this Registration Statement.
SEC registration fee . . . . . . . . $ 5,527.28
NASD filing fee . . . . . . . . . . 2,204.00
Nasdaq SmallCap Market
listing fee . . . . . . . . . . . . 9,880.00
Accounting fees and expenses . . . . 50,000.00
Legal fees and expenses . . . . . . 130,000.00
Blue sky fees and expenses . . . . . 10,000.00
Transfer and Warrant Agent fee . . . 3,500.00
Printing and engraving fees . . . . 3,000.00
Miscellaneous . . . . . . . . . . . 888.72
-----------
Total . . . . . . . . . . . . . . $235,000.00*
----------------------
* The Company will pay the above expenses with the proceeds from this
offering, except that for $30,000 of such expenses have already been paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During June 1996, the Company offered holders of approximately
$951,590 principal amount of unsecured notes of the Company, each of whom
was an "accredited investor" within the meaning of Rule 501(a) promulgated
under the Securities Act, the opportunity to exchange their notes into
shares of the Company's Convertible Preferred Stock. Noteholders converted
approximately $765,657 principal amount of notes into 811,973 shares of
Convertible Preferred Stock.
Concurrently, in June 1996, the Company offered Messrs. Robert Press
and Steven Edelson, President and Chairman of the Board, respectively, of
the Company, the opportunity to exchange their shares of 13 1/2% preferred
stock of the Company then owned by them, having an aggregate liquidation
value of $1,643,726, into shares of Convertible Preferred Stock. Messrs.
Press and Edelson exchanged all of their shares of 13 1/2% preferred stock
for an aggregate of 2,136,844 shares of Convertible Preferred Stock
(604,717 shares to Mr. Press and 1,532,127 shares to Mr. Edelson).
From June 1, 1996 through March 31, 1997, Messrs. Press and Edelson
loaned the Company $58,218 and $47,018, respectively. In connection with
these loans, the Company issued to each of Messrs. Press and Edelson
warrants to purchase up to 142,500 shares of Common Stock. These warrants
are exercisable at any time on or prior to September 30, 2000, at an
exercise price of $1.50 per share.
From June 1, 1996 to March 31, 1997, Tile's International, a company
controlled by Steven Dreyer, a director of the Company, loaned the Company
$100,000, of which approximately $81,321 was outstanding at March 31, 1997.
In connection with these loans, the Company issued to Tile's International
warrants to purchase 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 except that the exercise
price of the warrants owned by Mr. Hellman is $5.00.
Section 4(2) of the Securities Act provides an exemption for the
Company for each of the above-described transactions.
ITEM 27. EXHIBITS.
3.1 Amended and Restated Certificate of Incorporation of
the Company+
3.2 Certificate of Designation, Rights and Preferences
relating to shares of the Company's Series A 10%
Convertible Preferred Stock+
3.3 By-Laws of the Company+
4.1 Specimen Common Stock Certificate+
4.2 Specimen Warrant Certificate (included as Exhibit A
to Exhibit 4.3)+
4.3 Warrant Agency Agreement, dated as of ( ), 1997,
between the Company and American Stock Transfer &
Trust Company+
5.1 Opinion of Reid & Priest LLP+
10.1 Employment Agreement, dated as of December 1, 1996,
between Robert D. Press and the Company+
10.2 Employment Agreement, dated as of December 1, 1996,
between Steven L. Edelson and the Company+
10.3 Management Agreement, dated as of October 31, 1996,
between Performance Capital Management, Inc. and the
Company+
10.4 Agreement, dated as of May 23, 1997, between the
Company and Medley Group, Inc.+
10.5 Escrow Agreement, dated as of ( ), 1997, among the
Company, Medley Group, Inc. and SunTrust/South
Florida, National Association+
10.6 The Company's 1997 Stock Option Plan+
16 Letter on Change in Certifying Accountant+
23.1 Consent of Reid & Priest LLP (included in Exhibit
5.1)+
23.2 Consent of Israeloff, Trattner & Co. P.C.
23.3 Consent of Daszkal, Bolton & Manela
24 Power of attorney+
27 Financial Data Schedule+
------------------------------------
+ Previously filed.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes:
(a) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) To include any additional or changed material on the
plan of distribution.
(b) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
The Company will provide to the Transfer Agent, at the closing,
certificates in such denominations and registered in such names as required
by the Transfer Agent to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
For determining any liability under the Securities Act, the Company
will treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company under Rule 424(b)(1)
or (4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
For determining any liability under the Securities Act, the Company
will treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as
the initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in
the City of Miami, State of Florida, on this 11th day of July, 1997.
MEDLEY CREDIT ACCEPTANCE CORP.
/s/ Robert D. Press
----------------------------------
Robert D. Press
President, Chief Executive Officer,
Treasurer and Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Signatures Title Date
-------- -------- --------
/s/ Robert D. Press
--------------------
Robert D. Press President, Chief July 11, 1997
Executive Officer,
Treasurer
and Director
(Principal Executive,
Financial
and Accounting
Officer)
/s/ *
-------------------
Steven L. Edelson Chairman of the Board July 11, 1997
and Secretary
/s/ *
-------------------
Steven Dreyer Director July 11, 1997
/s/ *
-------------------
Maynard Hellman Director July 11, 1997
* By: Robert D. Press as
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
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3.1 Amended and Restated Certificate of Incorporation of the
Company+
3.2 Certificate of Designation, Rights and Preferences relating to
shares of the Company's Series A 10% Convertible Preferred
Stock+
3.3 By-Laws of the Company+
4.1 Specimen Common Stock Certificate+
4.2 Specimen Warrant Certificate (included as Exhibit A to Exhibit
4.3)+
4.3 Warrant Agency Agreement, dated as of ( ), 1997, between the
Company and American Stock Transfer & Trust Company+
5.1 Opinion of Reid & Priest LLP+
10.1 Employment Agreement, dated as of December 1, 1996, between
Robert D. Press and the Company+
10.2 Employment Agreement, dated as of December 1, 1996, between
Steven L. Edelson and the Company+
10.3 Management Agreement, dated as of October 31, 1996, between
Performance Capital Management, Inc. and the Company+
10.4 Agreement, dated as of May 23, 1997, between the Company and
Medley Group, Inc.+
10.5 Escrow Agreement, dated as of ( ), 1997, among the Company,
Medley Group, Inc. and SunTrust/South Florida, National
Association+
10.6 The Company's 1997 Stock Option Plan+
16 Letter on Change in Certifying Accountant+
23.1 Consent of Reid & Priest LLP (included in Exhibit 5.1)+
23.2 Consent of Israeloff, Trattner & Co. P.C.
23.3 Consent of Daszkal, Bolton & Manela
24 Power of attorney+
27 Financial Data Schedule+
----------------------------------
+ Previously filed.
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENTS
We consent to the use in this Registration Statement of Medley Credit
Acceptance Corp. on Form SB-2 of our report dated September 13, 1996,
except for Notes 3, 5 and 8 as to which date is December 6, 1996,
appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us as "Experts" in such Prospectus.
/s/ Israeloff, Trattner & Co. P.C.
Israeloff, Trattner & Co. P.C.
Valley Stream, New York
July 11, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form SB-2 of
Medley Credit Acceptance Corp. of our report dated March 31, 1997,
appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us as "Experts" in such Prospectus.
/s/ Daszkal, Bolton & Manela
Daszkal, Bolton & Manela
Boca Raton, Florida
July 11, 1997
