<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period from _________ to ____________
Commission File Number 000-22681
MEDLEY CREDIT ACCEPTANCE CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3571419
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134
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(Address of Principal Executive Offices)
(305) 443-5002
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Number of Shares Outstanding
Class on June 29, 1998
----- ----------------
Common Stock, par value $.01 per share 3,157,579 shares
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Condensed Consolidated Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheet at March 31, 1998 3
Condensed Consolidated Statements of Income for the
Three Months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION 15
Item 6 Exhibits 15
SIGNATURES 16
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MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $2,739,682
Accounts Receivable, net of allowance for doubtful accounts of $3,000 438,129
Finance Receivable 1,555,670
Note Receivable - Stockholders 10,820
Prepaid Expenses 218,937
----------
Total Current Assets 4,963,238
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation 120,529
OTHER ASSETS
Goodwill, net 2,234,581
Note Receivable - Stockholders 249,180
Due from Affiliates 91,346
Other 94,371
----------
Total Other Assets 2,649,478
----------
Total Assets $7,733,245
----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS EQUITY
<S> <C>
CURRENT LIABILITIES
Notes payable $ 140,525
Current portion of long-term debt 88,724
Current portion of obligations to finance companies 50,754
Accounts payable and accrued expenses 314,073
-----------
Total Current Liabilities 594,076
OTHER LIABILITIES
Long-term debt, net of current portion 60,000
Obligations to finance companies, net of current portion 26,913
------
Total Other Liabilities 86,913
------
Total Liabilities 680,989
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 authorized,
2,958,817 shares issued and outstanding 29,588
Common Stock, $.01 par value, 10,000,000 authorized,
2,996,661 shares issued and outstanding
and 328,000 shares to be issued 29,967
Additional paid-in capital 9,826,288
Accumulated deficit (2,833,587)
-----------
Total Stockholders' Equity 7,052,256
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,733,245
-----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 1,277,117 $ 139,163
Cost and Expenses
Depreciation 46,256 17,000
Interest expense -- 9,643
General and administrative expenses 1,196,803 65,851
----------- -----------
Total Costs and Expenses 1,243,059 92,494
----------- -----------
Income from Operations 34,058 46,669
----------- -----------
Other Expenses
Loss on sale of securities -- (6,656)
Total Other Expenses -- (6,656)
Net Income $ 34,058 $ 40,013
=========== ===========
Net Loss Applicable to Common Shareholders $ (34,142) $ (33,957)
=========== ===========
Net Loss Per Common Share $ (.01) $ (.02)
=========== ===========
Weighted Average Number of Shares Outstanding 3,354,661 1,680,000
and to be Issued =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided (used) by operating activities $ (267,108) $ 64,425
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in acquisitions 78,584 --
Net advances from (to) affiliates (15,933) 120,158
Note receivable - stockholders (260,000) --
Purchase of equipment (9,741) --
Purchase of securities available for sale -- (75,010)
Proceeds from sale of securities available for sale -- 29,250
Notes acquired for cash (1,055,670) --
----------- -----------
Net cash provided (used) by investing activities (1,262,760) 74,398
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable -- (60,000)
Proceeds from long-term debt -- 115,000
Repayments of long-term debt (18,771) (45,507)
Issuance of Common Stock 249,718 --
Payments on preferred dividends (68,200) --
----------- -----------
Net cash provided (used) by financing activities 162,747 9,493
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,367,121) 19,466
----------- -----------
CASH - BEGINNING OF PERIOD 4,106,803 --
----------- -----------
CASH - END OF PERIOD $ 2,739,682 $ 19,466
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the period:
Interest $ -- $ 20,657
=========== ===========
Supplemental noncash investing and financial activities:
Issuance of Common Stock for acquisition of
subsidiaries $ 2,631,862 $ --
=========== ===========
Leased equipment received from affiliated company as
payment on intercompany receivable $ -- $ 51,883
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Premier Provider Services, Inc. and Medical
Billing Service Systems, Inc., and its 80% owned subsidiaries, American Factors
Group, Inc. and Americal Investment Management, Inc. ("AIM").
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of the results for the interim periods presented have
been included.
These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's Annual Financial Statement for the year ended
December 31,1997. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
It is recommended that the accompanying condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included elsewhere in this filing.
Certain items in the condensed consolidated financial statements for the
interim period ended March 31, 1997 have been reclassified to conform with the
current presentation. These reclassifications had no effect on net income.
NOTE 3 - ACQUISITIONS
All acquisitions by the Company during the three months ended March 31, 1998
were accounted for as purchases and $2,272,455 in goodwill was recorded which
is being amortized over 15 years using the straight line method. Amortization
expense amounted to $37,874. The results of operations are included in the
condensed consolidated statements of income since the date of the acquisitions.
The purchase prices assigned to the net assets acquired were based on the fair
value of such assets and liabilities at the respective acquisition dates.
On January 1, 1998, the Company completed its acquisitions of Premier Provider
Services, Inc., and Medical Billing Service Systems, Inc. The Company agreed to
issue to the principals of these subsidiaries an aggregate of 656,000 shares of
common stock, each share valued at $4.50, one-half of which were issued upon
the closing of the acquisition, with the remaining one-half of such shares
being issuable on the first anniversary of such acquisition. In addition, the
Company agreed to issue to the
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MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 3 - ACQUISITIONS (CONTINUED)
principals of these subsidiaries incentive stock options pursuant to the
Company's option plan to acquire, through December 31, 2001, under certain
circumstances, up to an aggregate of 150,000 additional shares of common stock
based upon the subsidiaries' financial performance.
The Company acquired an 80% interest in AIM during the quarter ended March 31,
1998. In consideration, the Company agreed to issue to the principal of AIM
shares of the Company's common stock on the first, second and third
anniversaries of the acquisition. These shares represent less than 1% of the
outstanding shares of the Company.
The pro forma unaudited results of operations for the three months ended March
31, 1997, assuming consummation of the purchases at the beginning of the
period, are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $1,203,553 $376,944
Net Income $ 64,058 $ 62,815
Net Loss per common share after dividends $ -- $ --
========== ========
</TABLE>
The unaudited pro forma information does not purport to be indicative of the
results of operations which would have resulted had the acquisitions been
consummated at the date assumed.
NOTE 4 - FORMATION OF SUBSIDIARY
At March 31, 1998, the Company has formed an 80% owned subsidiary, American
Factors Group, Inc., an entity specializing in accounts receivable financing
that will be limited, generally, to credit insured and other extremely low-risk
accounts receivable. The subsidiary had no operations as of March 31, 1998.
NOTE 5 - NOTES PAYABLE
Notes payable of $140,525 comprise the following at March 31, 1998:
Notes Payable to Bank
The Company previously established a revolving credit line agreement with a
commercial bank which was used to finance working capital requirements. At
March 31, 1998 the outstanding amount was $135,000. Borrowings under the note
are collateralized by certain of the Company's assets not otherwise pledged and
the debt is personally guaranteed by the Company's principal officer and Medley
Group, Inc., an affiliated company.
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<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 5 - NOTES PAYABLE (CONTINUED)
Notes Payable to Individuals
Included in notes payable is $5,525 due to an individual, bearing interest at
10% per annum, with a due date in June 1998.
NOTE 6 - OBLIGATIONS TO FINANCE COMPANIES
Obligations to finance companies, secured by rental equipment and related
rental agreements, consist of:
<TABLE>
<CAPTION>
<S> <C>
18.7% obligation payable in monthly installments of
$2,260, including interest, through April 1998. $10,791
23.6% obligation payable in varying monthly installments,
including interest, through November 1999. 19,156
21.2% obligation payable in varying monthly installments,
including interest, through November 1999. 36,722
18.3% obligation payable in varying monthly installments,
including interest, through November 1999. 10,998
77,667
Less: Current maturities (50,754)
Long-term obligations 26,913
</TABLE>
NOTE 7 - DIVIDENDS PAYABLE - PREFERRED STOCK
The Company has paid $68,200 of dividends on its preferred stock at March 31,
1998.
NOTE 8 - LONG-TERM DEBT
At March 31, 1998, the Company is obligated to various individuals for amounts
aggregating $148,724. These notes are for various amounts and mature through
January 1999. Interest is payable at rates ranging from 10% to 13.5% per annum.
The unsecured portion of these notes is $88,724.
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<PAGE>
MEDLEY CREDIT ACCEPTANCE CORP.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company loaned its principal officer $60,000 as of March 31, 1998. The note
bears interest at 10% per annum with interest only payable quarterly. The
entire unpaid principal balance and accrued interest is due May 5, 2001.
In addition, the Company loaned $200,000 to a company owned by a shareholder of
the Company. The installment note caries a 12% interest rate per annum. The
note will be repaid in monthly installments of $3,500, commencing June 1, 1998.
The entire unpaid principal balance, together with accrued interest, is due on
May 31, 2001.
NOTE 10 - INDUSTRY SEGMENT INFORMATION
The Company currently operates primarily two industry segments: specialty
finance and medical billing and financial administrative services. Revenues,
income from operations, identifiable assets, capital expenditures and
depreciation and amortization pertaining to the industries in which the Company
operates are presented below:
<TABLE>
<CAPTION>
For the Three Months ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Industry Segments:
Revenues:
Specialty Finance $ 205,211 $ 139,163
Medical Billing and Financial Services 1,071,906 --
----------- -----------
Total 1,277,117 139,163
=========== ===========
Income (loss) from operations
Specialty Finance (161,330) 46,669
Medical Billing and Financial Services 195,388 --
----------- -----------
Total 34,058 46,669
=========== ===========
Identifiable assets:
Specialty Finance 4,691,272 1,839,752
Medical Billing and Financial Services 3,041,973 --
----------- -----------
Total 7,733,245 1,839,752
=========== ===========
Capital expenditures:
Specialty Finance -- --
Medical Billing and Financial Services 9,741 --
----------- -----------
Total 9,741 --
=========== ===========
Depreciation and amortization:
Specialty Finance -- 17,000
Medical Billing and Financial Services 46,256 --
----------- -----------
Total $ 46,256 $ 17,000
=========== ===========
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Medley Credit Acceptance Corp., a Delaware corporation (the
"Company"), is a specialty finance company engaged, principally, in accounts
receivable financing (factoring), equipment leasing and traditional financing
business lines. Since the consummation, in late December 1997, of the Company's
initial public offering of approximately $6.8 million of securities (the
"IPO"), the Company's operations have focused primarily on growing an operation
base and establishing a market presence in each of the aforementioned
businesses. The Company's primary strategy for achieving its necessary growth
and market presence has been, among other things, to pursue acquisitions of
existing enterprises which, in the Company's opinion, have immediate earnings
potential and long-term growth possibilities.
While the Company has only a limited operating history in the accounts
receivable financing and traditional financing business lines, the Company has
more seasoned experience in the equipment leasing business. Prior to the
consummation of the Company's IPO, the Company's business and affairs focused
on the financing of (i) dry cleaning equipment to small dry cleaning business
throughout the eastern United States and (ii) refrigeration equipment sold or
leased by an affiliate. The Company has made a business decision to orderly
wind down, commencing during the fiscal year ended December 31, 1997, its dry
cleaning and refrigeration equipment financing operations.
In an effort to grow its accounts receivable financing and traditional
financing business lines, while establishing a market presence for the same,
the Company, during the three months ended March 31, 1998 ("First Quarter
1998"), consummated several significant transactions. Principal among these
were (i) the Company's formation of its American Factors Group, Inc. subsidiary
("AFG"), an entity specializing in accounts receivable financing, (ii) the
Company's acquisition of a majority interest in Americal Investment Management
("AIM"), a marketer and manager of a variety of financial and insurance related
services, and (iii) the Company's acquisition of Medical Billing Service
Systems, Inc. ("Medical Billing) and Premier Provider Services, Inc.
("Premier"; Medical Billing and Premier are sometimes hereinafter collectively
referred to as the "Medical Billing Subsidiaries"), companies engaged,
generally, in providing back office auditing and other financial administrative
services principally to the medical industry.
AFG's factoring business, i.e., the discounted purchase of approved
accounts receivable, will be limited, principally, to credit insured and other
extremely low-risk accounts receivable. In connection with the formation of
AFG, the Company entered into employment agreements with two seasoned finance
professionals who have covenanted to the Company that they will generate, in
the aggregate, significant factored accounts receivable for AFG per annum. For
purposes of providing AFG with the capital necessary to initiate full-time
factoring operations, AFG has entered into a $4 million credit facility (the
"AFG Facility") with FINOVA Capital Corporation ("FINOVA"). Advances under the
AFG Facility are secured by the pledge to FINOVA of AFG's factored receivables
and the limited guaranty of the Company. In addition, these two seasoned
finance professionals have been granted the right to exchange their 20%
interest in AFG (the Company owns the remaining 80% of AFG) for shares of the
Company's Common Stock (aggregating approximately 3% of the Company's
outstanding shares) upon AFG's achieving certain financial performance levels.
These two individuals are also entitled to established cash bonuses based upon
AFG's future financial performance.
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<PAGE>
The Company's AIM subsidiary, which operated independently for over 20
years prior to its acquisition by the Company, markets a variety of financial
and insurance related services. In consideration for the Company's purchase of
AIM, the Company agreed to issue to the principal of AIM shares of the
Company's Common Stock on the first, second and third anniversaries of the AIM
acquisition (representing, in the aggregate, less than 1% of the outstanding
shares of Common Stock of the Company) in exchange for the remaining 20% of AIM
capital stock not originally acquired by the Company, and incentive stock
options pursuant to the Company's 1997 Stock Option Plan (the "Option Plan") to
acquire additional shares of Common Stock of the Company based upon AIM's
future operating performance. In addition, the principal of AIM was issued a
three year employment contract. This principal also has been granted the right,
exercisable at any time on or prior to March 13, 2000, to repurchase all of the
outstanding capital stock of AIM. The purchase price payable by this principal
to the Company should he exercise this right by March 13, 1999 will equal 65%
of the net paid in capital of AIM at the time of exercise. If this right is
exercised after March 13,1999, the purchase price will be the product of (i) an
amount equal to AIM's gross sales during the 12 months immediately preceding
the exercise of this right multiplied by (ii) .10 multiplied by (iii) 2.3.
The Company's Medical Billing Subsidiaries, which each operated
independently for more than two years prior to their acquisition by the
Company, provide back office auditing and other financial administrative
services principally to the medical industry. These entities enable the
Company, among other things, to save the costs and expenses associated with
either building internally, or outsourcing, such back office and administrative
services. In consideration for the Company's purchase of the Medical Billing
Subsidiaries, the Company agreed to issue to the principals of the Medical
Billing Subsidiaries an aggregate of 585,000 shares of Common Stock, each share
valued at $4.50, one-half of which were issued upon the closing of the
acquisitions, with the remaining one-half of such shares being issuable on the
first anniversary of such acquisitions. In addition, the Company agreed to
issue to the principals of the Medical Billing Subsidiaries incentive stock
options pursuant to the Company's Option Plan to acquire, through December 31,
2001, under certain circumstances, up to an aggregate of 150,000 additional
shares of Common Stock based upon the Medical Billing Subsidiaries' future
financial performance. Further, the principals of the Medical Billing
Subsidiaries were issued three year employment contracts.
During First Quarter 1998, the Company's traditional financing
business closed three significant loans, one, a secured debt refinancing
facility in the approximate principal amount of $400,000, the second, a motion
picture completion loan in the approximate principal amount of $350,000 secured
by the assignment to the Company of the borrower's film distribution rights,
revenue stream and capital stock, and the third, a general purpose secured loan
in the principal amount of $110,000.
The $400,000 debt refinancing was extended to an unaffiliated
borrower, matures on January 8, 1999, bears interest at the rate of 10% per
annum, and is secured by the pledge to the Company of 65,000 shares of the
Company's Common Stock owned by the borrower (which shares represent
approximately 2% of the outstanding Common Stock of the Company) and the pledge
of all of the borrower's capital stock.
The $350,000 motion picture completion loan, which was part of a
$600,000 syndicated facility (repayment of the $250,000 principal portion of
the loan not advanced by the Company has been guaranteed by the Company), was
extended to an unaffiliated borrower, matures on September 23, 1998, bears
interest at the rate of 10% per annum (which, when added with other financial
arrangements, results in an 18% per annum yield to the Company) and is secured
by the assignment to the Company of the borrower's film distribution rights,
revenue stream and capital stock. In addition, in March 1998, the Company
entered into a Distribution Receivables Purchase Program with the borrower
pursuant to which
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<PAGE>
the Company agreed to purchase at a discount (with full recourse against the
borrower), up to $100,000 per month of approved distribution rights or accounts
receivable of the borrower not otherwise encumbered or assigned to any third
party.
The $110,000 general purpose loan was made to an unaffiliated
borrower, matures on October 1, 1999, bears interest at the rate of 18% per
annum, and is secured by the pledge of the borrower's stock, a lien covering
all of the borrower's assets and the personal guaranty of the Borrower's
principal.
The Company anticipates continuing to provide similar financing
services as its cash flow permits.
Since the end of First Quarter 1998, the Company has provided a
financial accommodation to an affiliate for a fee equal to $150,000 per annum,
which fee is payable each year the Company continues to extend such financial
accommodation. Specifically, the Company posted a $1.475 million standby letter
of credit on behalf of the affiliate. This letter of credit was posted for the
purpose of securing the performance of certain equipment leases sold by the
affiliate to an unrelated party. The Company's financial exposure under this
letter of credit has been collateralized by the pledge by the affiliate to the
Company of 750,000 shares of the Company's Common Stock owned by the affiliate,
which Common Stock, for purposes of the pledge, has an agreed upon value of
$2.50 per share.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
For First Quarter 1998, the Company generated revenues of $1,277,117,
an increase of $1,257,954 from revenues of $139,163 for the three months ended
March 31, 1997 ("First Quarter 1997"). This increase in revenues was primarily
the result of the Company's acquisitions of AIM and the Medical Billing
Subsidiaries and the subsequent commencement of the Company's accounts
receivable financing (factoring) and traditional financing business lines.
During First Quarter 1998, the Company incurred an increase of
$1,130,952 in general and administrative expenses over First Quarter 1997
figures, principally as a result of the Company's commencement of its accounts
receivables financing (factoring) and traditional financing business lines.
Principally as a consequence thereof, the Company recorded net income of
$34,058 for First Quarter 1998 as compared to net income of $40,013 for First
Quarter 1997. When combined with the provision for dividends with respect to
shares of the Company's Series A 10% Convertible Preferred Stock, the Company
incurred net losses applicable to common shareholders for First Quarter 1998 of
$34,142, or approximately $.01 per share, as compared to net losses applicable
to common shareholders of $33,957 for First Quarter 1997, or approximately $.02
per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had total assets of $7,808,245, as
compared to total assets of $4,944,831 at December 31, 1997. This significant
increase in total assets is primarily the result of the Company's acquisition,
during First Quarter 1998, of AIM and the Medical Billing Subsidiaries, and the
commencement of operations of AFG's accounts receivable financing (factoring)
business. The $2,234,581 of goodwill, net, recorded on the Company's balance
sheet at March 31, 1998 represents the premium over net equity paid by the
Company in connection with the acquisition of AIM and the
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<PAGE>
Medical Billing Subsidiaries. The Company anticipates that its future earnings
will offset the amortization associated with the recording of this goodwill. In
addition, during First Quarter I998, the Company entered into two loans with
affiliates, the first, a $60,000 loan to Robert Press, Chairman of the Board,
President and Chief Executive Officer of the Company, and the second, a
$200,000 loan to an affiliate of Maynard J. Hellman, a director of the Company.
The loan to Mr. Press bears interest at the rate of 10% per annum, payable
quarterly in arrears, and matures on May 5, 2001. The loan to Mr. Hellman's
affiliate bears interest at the rate of 12% per annum, requires monthly
payments of principal and interest in the amount of $3,500 and matures on May
31, 2001.
At March 31, 1998, the Company had total liabilities of $680,989, as
compared to total liabilities of $751,211 at December 31, 1997. This decrease
in total liabilities was primarily due to the Company's satisfaction, during
First Quarter 1998, of various obligations.
At March 31, 1998, the Company had total stockholders' equity of
$7,052,256, as compared to total stockholders' equity of $4,204,620 at December
31, 1997. The significant increase in stockholders' equity is attributable
directly to values associated with the Company's formation of AFG and
acquisition, utilizing primarily shares of the Company's Common Stock, of AIM
and the Medical Billing Subsidiaries.
The Company's experience in the specialty finance business has
historically been conducted with a smaller capital base than currently is
available to the Company. As a consequence of the consummation of the IPO, the
Company believes that it is positioned to secure additional lines of credit and
traditional bank financings for the purpose of expanding and developing its
business lines. There can be no assurance, however, that the Company will
successfully implement all or a portion of this anticipated expansion.
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations and expansion, that it will be able to
satisfy its currently contemplated cash requirements for approximately the next
12 months from working capital and cash flow. In the event that the Company's
plans change or its assumptions prove to be inaccurate, or working capital and
cash flow prove to be insufficient to fund the Company's operations and
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 commercial 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.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS
No. Description
--- -----------
10.1 Promissory Note, dated February 4, 1998, issued by Robert D.
Press to the Company in the principal amount of $60,000.
10.2 Promissory Note, dated March 9, 1998, issued by Tract 4, Inc.
to the Company in the principal amount of $200,000.
27 Financial Data Schedule
-15-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf of the undersigned, thereunto duly
authorized.
MEDLEY CREDIT ACCEPTANCE CORP.
Dated: June 29, 1998 By: /s/ Robert D. Press
----------------------------------
Robert D. Press, Chairman of the Board,
President, Chief Executive Officer and
Chief Financial Officer
(Principal Executive and Financial Officer)
-16-
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
10.1 Promissory Note, dated February 4, 1998, issued by Robert D. Press to
the Company in the principal amount of $60,000.
10.2 Promissory Note, dated March 9, 1998, issued by Tract 4, Inc. to the
Company in the principal amount of $200,000.
27 Financial Data Schedule
-17-
<PAGE>
PROMISSORY NOTE
$60,000.00 MIAMI, FLORIDA
FEBRUARY 4, 1998
FOR VALUE RECEIVED the undersigned, ROBERT PRESS (hereinafter referred
to as "Maker") promises to pay to the order of MEDLEY CREDIT ACCEPTANCE CORP.,
a Delaware corporation, or its successors or assigns (hereinafter referred to
as the "Holder"), at 1100 Ponce de Leon Boulevard, Coral Gables, Florida 33134,
or such place as the Holder hereof may from time to time designate in writing,
the principal sum of SIXTY THOUSAND DOLLARS ($60,000.00), with interest thereon
from the date of disbursement paid in lawful money of the United States of
America, which shall be legal tender in the payment of all debts and dues,
public and private at the time of payment.
Interest: The Maker shall pay the Holder interest at the rate of ten
percent (10%) per annum, paid quarterly.
Maturity Date: This Note shall mature and the principal sum remaining
together with any accrued and unpaid interest thereon shall become due and
payable in full on the 5th day of May, 2001 ("MATURITY DATE").
Provided that the Holder has not exercised its right to accelerate
this Note as set forth herein; in the event any required payment is not
received by the Holder within fifteen (15) days after said payment is due, the
Maker shall pay the Lender a late charge of five percent (5%) of the payment
not so received. The Parties agreeing that said charge is a fair and reasonable
charge for the late payment and shall not be considered a penalty.
Maker may make prepayment(s) hereunder at any time and from time to
time without premium or penalty. The amount of any partial prepayment shall be
applied to principal to become due thereon.
It is agreed hereby that if any payment of the principal sum above
mentioned, or any installment thereof, or any interest thereon, not be made
when due, or if default be made in the performance of or compliance with any of
the other covenants and conditions of the Note, or any security agreement now
or hereafter in effect securing payment of this Note; or upon any default in
the payment of any sum due by Maker to Lender under any other Promissory Note,
Security Instrument or other written obligation of any kind now existing or
hereafter created; or upon the insolvency or bankruptcy of the Maker or any
Guarantor hereof; or upon the direct or indirect sale, conveyance or pledge of
all or any part of the Property securing this Note, or any interest therein, or
of any interest in the Maker to any other firm, partnership, corporation or
individual, without the prior written consent of the Lender in each instance,
then in any or all such events, the entire amount of principal of this Note
with all interest then accrued, shall, at the option of the Holder of this Note
and without notice (the Maker hereby expressly waives notice of such default),
become and be due and collectible, time being of the essence of this Note.
<PAGE>
If this Note shall not be paid at maturity or according to the tenor
thereof and strictly as above provided, it may be placed in the hands of any
attorney at law for collection, and in that event, each party liable for the
payment thereof, as Maker, Endorser, Guarantor or otherwise, hereby agrees to
pay the Holder hereof in addition to the sums above stated, a reasonable sum as
an attorney's fee, which shall include attorney's fees at the trial level and
on appeal, together with all reasonable costs incurred. After maturity or
default, this Note shall bear interest at the highest lawful rate per annum.
As to this Note and any other instrument securing the indebtedness,
the Maker and any endorsers severally waive all applicable exemption rights,
whether under the State Constitution, Homestead Laws or otherwise, and also
severally waive valuation and appraisement, presentment, protest and demand,
demand, notice of protest, demand and dishonor and expressly agree that the
Maturity Date of this Note or any payment hereunder, may be extended from time
to time, only with the express consent of the Holder, without in any way
affecting the liability of the Maker, or any endorsers, or any Guarantors.
In addition to other rights and remedies (including, without
limitation, other rights of setoff), the Holder shall have a lien upon and
right of setoff against all monies, securities and other property of the Maker
or any Guarantor now or hereafter in the possession of or on deposit with the
Holder, whether held in a general or special account or deposit, or for
safekeeping or otherwise, and every such lien and right of setoff may be
exercised without demand upon or notice to the Maker. No lien or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
the Holder, or by any neglect to exercise such right of setoff or to enforce
such lien, or by any delay in so doing; and every right of setoff and lien
shall continue in full force and effect until such right of setoff or lien is
specifically waived or released by an instrument in writing executed by the
Holder.
Nothing herein contained, nor in any instrument or transaction related
thereto, shall be construed or so operate as to require the Maker, or any
person liable for the payment of the loan made pursuant to this Note, to pay
interest in an amount or at a rate greater than the highest rate permissible
under applicable law. Should any interest or other charges paid by the Maker,
or any parties liable for the payment of the loan made pursuant to this Note,
result in the computation or earning of interest in excess of the highest rate
permissible under applicable law, then any and all such excess shall be and the
same is hereby waived by the Holder hereof, and all such excess shall be
automatically credited against and in reduction of the principal balance, and
any portion of said excess which exceeds the principal balance shall be paid by
the Holder hereof to the Maker and any parties liable for the payment of the
loan made pursuant to this Note, it being the intent of the parties hereto that
under no circumstances shall the Maker, or any parties liable for the payment
of the loan hereunder, be required to pay interest in excess of the highest
rate permissible under applicable law.
Time shall be of the essence as to the Maker's obligations under this
Note.
- 2 -
<PAGE>
If any provision or portion of this Note is declared or found by a
court of competent jurisdiction to be unenforceable or null and void, such
provision or portion of this Note shall be deemed stricken and severed from
this Note, and the remaining provisions and portions of this Note shall
continue in full force and effect.
This Note may not be amended, extended, renewed, or modified, and no
waiver of any provision of this Note shall be effective except by an instrument
in writing executed by the Holder. Any waiver of any provision of this Note
shall be effective only in the specific instance and for the specific purpose
for which given.
This Note is to be construed according to the applicable laws of the
State of Florida and the United States of America.
THE MAKER AND THE HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
NOTE, AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE MAKER EXTENDING CREDIT TO THE HOLDER.
--------------------------
ROBERT PRESS
- 3 -
<PAGE>
PROMISSORY NOTE
$200,000.00 DATED: March 19, 1998
FOR VALUE RECEIVED, the undersigned TRACT 4, INC., a Florida
Corporation, (hereinafter referred to as "Maker"), promises to pay to the order
of MEDLEY CREDIT ACCEPTANCE CORP., a Delaware Corporation, or its successors or
assigns, ( hereinafter referred to as "Holder") at 1100 Ponce de Leon Blvd.,
Coral Gables, Fla. 33134 or at such place as the Holder hereof may from time to
time designate in writing, the principal sum of $200,000.00, or so much as has
been funded with interest thereon, at the rate of 12% per annum, all to be
repaid in lawful money of the United States of America, as follows:
Commencing on the 1S'day of June 1998 and the 1st day of each
month thereafter the Maker shall pay the Holder the sum of
$3,500.00 per month in principal and interest. The entire
unpaid principal balance, together with accrued interest
shall be due and payable in full on or before May 31, 2001.
Payments made pursuant to this Note shall be applied first to accrued
and unpaid interest, and the balance, if any, to principal.
This Note may be prepaid in whole or in part at any time without
penalty.
It is agreed hereby that if any payment of the principal sum above
mentioned or any installment thereof, or any interest thereon, not be made when
due, or if default be made in the performance of, or compliance with any of the
other covenants and conditions of this Note, or in any Agreement now or
hereafter in effect securing payment of this Note; or upon the insolvency or
bankruptcy of the Maker hereof; then in any and all such events, the entire
amount of principal of this Note, with all interest then accrued, shall, at the
option of the Holder of this Note and without notice (the Maker hereby
expressly waiving notice of such default) be due and collectible, time being of
the essence of this Note.
If this Note shall not be paid at maturity or according to the tenor
thereof, and strictly as above provided, it may be placed in the hands of any
attorney at law for collection, and in that event each Party liable for the
payment thereof, as Maker, Endorser, Guarantor or otherwise, hereby agrees to
pay the Holder hereof, in addition to the sums above stated, a reasonable sum
as an attorney's fee, which shall include attorney's fees at the trial level
and on appeal, together with all reasonable costs incurred.
After maturity or default, this Note shall bear interest at the
highest rate permitted under the then applicable law, further provided,
however, that in no event shall such rate exceed the highest rate permissible
under the applicable law.
<PAGE>
As to this Note, and any instrument securing the indebtedness
represented by this Note, the Maker, Endorser and any Guarantor severally waive
all applicable exemption rights, whether under the State Constitution,
Homestead laws or otherwise, and also severally waive valuation and
appraisement, presentment, protest and demand, demand, notice of protest,
demand and dishonor, and expressly agree that the maturity date of this Note or
any payment hereunder, may be extended from time to time without in any way
affecting the liability of the Maker, Endorsers or Guarantors.
Nothing herein contained, nor in any instrument or transaction related
hereto, shall be construed or so operate as to require the Maker or any person
liable for the payment of the loan made pursuant to this Note, to pay interest
in an amount, or at a rate greater than the highest rate permissible under
applicable law. Should any interest or other charges paid by the Maker, or any
Parties liable for the payment of the loan made pursuant to this Note, result
in the computation or earning of interest in excess of the highest rate
permissible under applicable law, then any and all such excess shall be and the
same is hereby waived by the Holder hereof, and all such excess shall be
automatically credited against, and in reduction of the principal balance, and
any portion of said excess which exceeds the principal balance shall be paid by
the Holder hereof to the Maker, and any parties liable for the payment of the
loan made pursuant to this Note, it being the intent of the Parties that under
no circumstances shall the Maker be required to pay interest in excess of the
highest rate permissible under applicable law.
Time is of the essence as to the Maker's obligations under this Note.
If any provision or portion of this Note is declared or found by a
Court of competent jurisdiction to be unenforceable or null and void, such
provision or portion of this Note shall be deemed stricken and severed from
this Note, and the remaining provisions and portions of this Note shall
continue in full force and effect.
This Note may not be amended, extended, renewed or modified, and no
waiver of any provision of this Note shall be effective, except by an
instrument in writing executed by the Holder. Any waiver of any of the
provisions of this Note shall be effective only in the specific instance and
for the specific purpose for which it is given.
EXCEPT AS PROHIBITED BY LAW, NEITHER THE HOLDER NOR MAKER SHALL SEEK A
JURY TRIAL IN ANY LAW SUIT, PROCEEDING OR COUNTER CLAIM, BASED UPON, OR ARISING
OUT OF THIS NOTE, THE COLLATERAL OR THE RELATIONSHIP BETWEEN THE HOLDER AND THE
MAKER. IF THE SUBJECT MATTER OF ANY SUCH LAW SUIT IS ONE IN WHICH THE WAIVER OF
A JURY TRIAL IS PROHIBITED, NEITHER THE HOLDER NOR MAKER SHALL PRESENT AS A
COUNTER CLAIM IN SUCH LAW SUIT ANY CLAIM ARISING OUT OF THIS NOTE. FURTHERMORE,
NEITHER THE HOLDER, NOR MAKER SHALL SEEK TO CONSOLIDATE ANY ACTION IN WHICH A
JURY HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE
WAIVED.
- 2 -
<PAGE>
This Note is to be construed according to the applicable laws of the
State of Florida and the United States of America.
TRACT 4, INC.
a Florida Corporation
By:
-------------------------------
Maynard J. Hellman, President
- 3 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,739,682
<SECURITIES> 0
<RECEIVABLES> 1,907,016
<ALLOWANCES> 3,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,963,238
<PP&E> 120,529
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,733,245
<CURRENT-LIABILITIES> 594,076
<BONDS> 0
0
29,588
<COMMON> 29,967
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,733,245
<SALES> 1,277,117
<TOTAL-REVENUES> 1,277,117
<CGS> 0
<TOTAL-COSTS> 1,243,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,058
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,058
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
