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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 000-22681
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FINANTRA CAPITAL, INC.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3571419
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
150 SOUTH PINE ISLAND ROAD, SUITE 500
PLANTATION, FLORIDA 33324
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(Address of Principal Executive Offices) (Zip Code)
(954) 577-9225
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.01 par value
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(Title of Class)
Common Stock Purchase Warrants
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(Title of Class)
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 [ ]
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and non disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $9,734,940
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: $11,374,443
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,987,528 shares of Common
Stock, $.01 par value per share, at March 29,1999.
Transitional Small Business Disclosure Format (Check One):
YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE:
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None
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB may contain certain "forward-looking
statements" relating to the Company which represent the Company's current
expectations or beliefs, including, but not limited to, statements concerning
the Company's operations, performance, financial condition and growth. For this
purpose, any statements contained in this Annual Report on Form 10-KSB that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may", "will", "expect", "believe", "anticipate", "intend", "could", "estimate",
or "continue", or the negative or other variation thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, such as
credit losses, dependence on management and key personnel and variability of
quarterly results, ability of the Company to continue its growth strategy and
competition, certain of which are beyond the Company's control. Should one or
more of these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual outcomes and results could differ materially
from those indicated in the forward looking statements.
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PART I
ITEM 1. BUSINESS
GENERAL
Finantra Capital, Inc. (f/k/a Medley Credit Acceptance Corp.) (the
"Company") is a specialty finance company engaged, principally, in accounts
receivable financing (factoring), equipment leasing and traditional financing
business lines. Since the consummation, during late December 1997 and early
1998, of the Company's initial public offering of securities (the "IPO"), the
Company's operations have focused primarily on growing an operation base and
establishing a market present 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 management experience and
earnings potential and long-term growth possibilities, and obtaining
institutional lines of credit for each financing business line.
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 businesses
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 its dry cleaning and refrigeration equipment financing operations.
In an effort to grow its accounts receivable financing, equipment
leasing and traditional financing business lines, while establishing a market
presence for the same, the Company, during the fiscal year ended December 31,
1998 ("Fiscal 1998"), consummated several significant transactions. Principal
among these were (i) the Company's formation of its American Factors Group,
Inc. subsidiary ("AFG"), which specializes in accounts receivable financing,
(ii) the Company's acquisition of a majority interest in American Investment
Management ("AIM"), a marketer and a manager of a variety of financial and
insurance related services, (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"), which provide back office
accounting and other financial administrative services principally to the
medical industry, (iv) the Company's acquisition of a majority interest in MFC
Financial Corp. ("MFC"), which is engaged in the equipment leasing industry
and, principally, medical equipment financing, and (v) the Company's
acquisition of a majority interest in Ameritrust Holdings, Inc. ("Ameritrust"),
a licensed mortgage lender.
The Company has formed wholly-owned subsidiaries to act as holding
companies for certain of its current and future operating entities based upon
business lines. Ameri-Cap Factors Group ("Ameri-Cap Factors") controls AFG,
Ameri-Cap Leasing Corp. ("Ameri-Cap Leasing") controls MFC, Ameri-Cap Mortgage
Group ("Ameri-Cap Mortgage") controls Ameritrust and Ameri-Cap Finance Group,
to the extent the Company elects to enter the sub-prime automobile finance
industry (the "Sub-Prime Auto Business"), will control the Sub-Prime Auto
Business.
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,
the Company, as part of its merger into a subsidiary of Medley Group, Inc.,
changed its name to Medley Credit Acceptance Corp. In August 1998, the Company
further changed its name to Finantra Capital, Inc. The Company's principal
executive offices are located at 150 South Pine Island Road, Suite 500,
Plantation, Florida 33324, and its telephone number is (954) 577-9225.
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AMERI-CAP FACTORS GROUP OPERATIONS
Ameri-Cap Factors' business focuses on the discounted purchase of
approved accounts receivable. These receivables are limited, principally, to
credit insured and other relatively low-risk accounts receivables. On occasion,
however, Ameri-Cap Factors has, and in the future intends to, expand its
operations to include traditional factoring, i.e., providing small-to-medium
sized companies with capital through the discounted purchase of their accounts
receivable. From time to time, Ameri-Cap Factors may also make advances to its
factoring clients collateralized by inventory, equipment, real estate and other
assets ("Collateralized Advances").
Ameri-Cap Factors' business consists, generally, of Ameri-Cap Factors,
through AFG, entering into an accounts receivable factoring and security
agreement with a client which obligates the client to sell AFG a minimum amount
of accounts receivable each month (or a minimum amount of receivables during
the term of the agreement), usually has a term of not less than six months and,
more likely, one year, and is automatically renewable. When making a
Collateralized Advance, AFG enters into such additional agreements with the
client, and, if appropriate, third parties, as AFG deems necessary or desirable
based on the type of collateral securing the Collateralized Advance. AFG
purchases accounts receivable from its clients at a discount from face value
and usually requires the client's customers to make payment on the receivables
directly to AFG. AFG, generally, also takes a lien on all accounts receivable
of the client 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) to
secure the client's obligations. When making a Collateralized Advance, AFG
generally takes a first lien on the specific collateral securing the
Collateralized Advance. AFG almost always requires personal guaranties (either
unlimited or limited to the validity and collectibility of purchased accounts
receivable) from each client's principals. Although AFG obtains, when
available, credit insurance underwritten by credible insurance companies, and
as much collateral as possible and usually full recourse rights (subject to
fraud) against clients, clients (and account debtors) may fail. Accordingly,
there can be no assurance that the collateral obtained and the recourse rights
retained (together with any credit insurance and personal guaranties) will be
sufficient to protect AFG against loss.
In connection with the formation of AFG, the Company entered into
employment agreements with two experienced finance professionals. Further, for
purposes of providing AFG with the capital necessary to finance its factoring
operations, AFG 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 guaranty
of the Company. AFG two seasoned finance professionals have also 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
2% 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.
AMERI-CAP LEASING CORP. OPERATIONS
Ameri-Cap Leasing is engaged, generally, in the equipment leasing
business, i.e., the business of acquiring, originating, selling and servicing
equipment leases. Through MFC, Ameri-Cap Leasing's operations have focused
principally on medical equipment financing. The equipment leased by MFC
generally has a purchase price of less than $250,000. As such, MFC's leases are
commonly referred to as "small ticket leases." MFC currently funds the
acquisition or origination of its leases from its working capital. MFC has
established strategic alliances with a network of independent leasing
companies, lease brokers and equipment vendors,
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each of which acts as a source from which MFC obtains access to equipment
leases. MFC customizes lease financing products to meet the specific equipment
financing needs of its sources.
The Company believes that the small ticket segment of the equipment
leasing business is a rapidly growing industry due, in part, to (i) the
consolidation of the banking industry, which has eliminated many of the smaller
community banks that traditionally provided equipment financing for small to
mid-size businesses, forcing these businesses to seek alternative financing
rather than deal with the approval process of large commercial banks; (ii)
stricter lending requirements of commercial banks; (iii) a trend toward instant
approvals at the point of sale made possible by improved technology; (iv) the
decline in the price of computer hardware and software and increasing demand
therefor; and (v) the adoption of accounting pronouncements concerning the
accounting treatment of transactions with captive finance company subsidiaries,
which has caused a number of manufacturers to eliminate their finance
companies, resulting in an increased demand for independent financing.
Substantially all equipment leases acquired or originated by MFC are
non-cancelable. During the term of the lease, MFC generally receives scheduled
payments sufficient, in the aggregate, to cover MFC's borrowing costs and the
costs of the underlying equipment, and to provide MFC with an appropriate
profit margin. The initial non-cancelable term of the lease is equal to or less
than the equipment's estimated economic life and a small portion of MFC's
leases provide MFC with additional revenues based on the residual value of the
equipment financed at the end of the initial term of the lease. Initial terms
of the leases in the MFC's portfolio generally range from 12 to 60 months.
In consideration for its purchase of MFC, the Company issued to Mr.
Henry Koche and the then two other stockholders of MFC, an aggregate of 10,000
shares of the Company's Common Stock. The Company has agreed, on each of the
first three anniversaries of the initial closing of this acquisition, to
acquire from these individuals the remaining 20% of the capital stock of MFC.
The consideration payable for such remaining 20% interest shall be, on the
first anniversary, an aggregate number of shares of the Company's Common Stock
equal to two and one-half times the net pre-tax income of MFC for its first
year of operations, on the second anniversary, an aggregate number of shares of
the Company's Common Stock equal to three times the net pre-tax income of MFC
for its second year of operations and on the third anniversary, an aggregate
number of shares of the Company's Common Stock equal to four times the net
pre-tax income of MFC for its third year of operations. Shares of the Company's
Common Stock will be valued at the closing sale price on the date of their
issuance.
In connection with the MFC acquisition, the Company entered into a
three year employment agreement with Mr. Koche. This agreement, among other
things, entitles Mr. Koche to be granted incentive stock options pursuant to
the Company's 1997 Stock Option Plan (the "Option Plan") based upon MFC's
annual financial performance and to participate in a discretionary cash bonus
pool for MFC's employees if MFC's financial performance justifies the same.
This employment agreement is terminable by the Company for cause, including if,
among other things, after the six month period immediately following the
Company's initial purchase of its controlling interest in MFC, MFC's net
monthly sales volume (defined as the total amount of all leases written in any
calendar month) is less than $500,000 per month in any consecutive three month
period. Through the date of this Annual Report, MFC's net monthly sales volume
has exceeded $500,000 every month.
For purposes of providing MFC with available funds to acquire
commercial equipment leases, the Company and Heller Financial, Inc. ("Heller")
have entered into a proposal pursuant to which, among other things, Heller has
indicated its interest, subject to the completion of its due diligence
investigation and final legal documentation, in providing MFC with a $15
million revolving credit facility. It is contemplated that
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this facility will bear interest at rates ranging from the 30-day
LIBOR rate plus 2.50% to the 30-day LIBOR rate plus 2.80%, depending upon then
outstanding principal balances under this facility. Pursuant to this proposed
credit line, MFC may receive advances up to the lesser of 97% of the borrowing
base (the present value of the contractual cash flows of eligible leases
discounted at the interest rate) or 104% of the original equipment cost in
question. No assurance can be given that the Company and Heller will enter into
this proposed credit facility. If this facility is not consummated, the Company
would be required to seek alternative funding sources for its Ameri-Cap Leasing
operations. No alternative sources have been identified by the Company and
there can be no assurance that such funding sources will be available to the
Company on acceptable terms, or at all.
AMERI-CAP MORTGAGE GROUP OPERATIONS
The Company's Ameritrust subsidiary is a licensed mortgage lender
engaged in both residential and commercial lending. Ameritrust's operations
focus primarily on non-conforming loans, sub-prime credits, home improvement
loans, sales finance contracts and debt consolidations.
In consideration for its acquisition of its approximate 91% interest
in Ameritrust, the Company issued an aggregate of 381,000 shares of its Common
Stock to Ameritrust's then stockholders. The remaining capital stock of
Ameritrust not originally acquired by the Company may be exchanged for shares
of the Company's Common Stock at annual intervals during the period ending June
30, 2002, at exchange rates based upon Ameritrust's financial performance
during such period.
In connection with the Ameritrust acquisition, the Company assumed the
employment agreements of Ameritrust's three principals, Larry Schwartz, Larry
S. Sazant and Bruce Lazarus. Mr. Schwartz's employment agreement expires in
2003 (subject to annual renewal), entitles Mr. Schwartz to an annual base
salary of $75,000 through 2001, increasing $5,000 per year thereafter, an
override commission on each residential mortgage transaction made by Ameritrust
of 4% of the gross revenues derived by Ameritrust from such transaction, a
bonus, terminable upon the satisfaction of certain financial obligations of Mr.
Schwartz, equal to 10% of Ameritrust's pre-tax net profits, if any, and the
grant of stock options, conditioned upon Ameriturst's financial performance,
pursuant to the Company's Stock Option Plan. Mr. Schwartz's employment
agreement is terminable by the Company for cause, including if, among other
things, after the four month period immediately following the Company's initial
purchase of its controlling interest in Ameritrust, Ameritrust's net monthly
sales volume is less than 75% of its projected sales goals for any consecutive
three month period or Ameritrust's annual sales volume is less than 75% of its
projected annual sales. To date, Ameritrust's net monthly sales volume has
satisfied this criteria. Mr. Schwartz has further agreed not to compete with
the Company in Dade and Broward Counties, Florida, for the two year period
following termination of his employment with the Company.
Mr. Sazant's employment agreement expires in 2002, entitles Mr. Sazant
to an annual base salary of $45,000, an override commission on each commercial
loan generate by Mr. Sazant of 10% of the gross commission earned by
Ameritrust's commercial loan division with respect to such commercial loan, an
override commission generated by Ameritrust's commercial loan division equal to
the difference between any commission paid to any loan officer or consultant
and 50% of the total commission paid by Ameritrust and a bonus equal to 5% of
Ameritrust's Residential Financial Services' division pre-tax income, if any.
Mr. Sazant has further agreed not to compete with the Company for the five year
period following the termination of his employment agreement.
Mr. Lazarus' employment agreement expires in 2002 and entitles Mr.
Lazarus to an annual base salary of $75,000, a bonus equal to 5% of
Ameritrust's Residential Financial Services' division pre-tax
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income, if any, and such commissions as Ameritrust customarily remits to brokers
and co-brokers on a transactional basis. Mr. Lazarus has further agreed not to
compete with the Company for the five year period following the termination of
his employment agreement.
In order to provide Ameritrust with the financial capacity to
originate its mortgage loans, the Company is currently negotiating to obtain a
warehouse line of credit in the amount of $10 million. It is anticipated that
this line will be utilized for residential and commercial mortgages. There can
be no assurance that the Company will consummate this line or that it will
successfully identify other funding sources if necessary, or procure the credit
facility required for Ameri-Cap Mortgage Group's operations to proceed.
BACK OFFICE OPERATIONS
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 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 entered into 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 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 accounting 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 entered into three year employment contracts.
DISCONTINUED OPERATIONS
Prior to the IPO, the Company's operations focused primarily on the
dry cleaning and refrigeration equipment leasing businesses. Dry cleaning
equipment leasing would typically involve a total cost of between $60,000 to
$70,000 per lease 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 1995, of dry cleaning
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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 1996, began de-emphasizing its dry cleaning equipment business and began
concentrating marketing efforts on the refrigeration equipment leasing
business.
The Company's refrigeration equipment leasing business focused on the
Company's financing refrigeration equipment sold or leased by affiliates of
Medley Group, Inc. ("Medley Group"), the Company's largest stockholder,
collectively doing business under the name "Medley Refrigeration"
("Refrigeration"). Refrigeration was principally engaged in the provision of
refrigeration equipment and services to the food service and hospitality
industries and other businesses throughout central and southeastern Florida.
During December 1996, Refrigeration assigned to the Company (the "Assignment")
all of Refrigeration's rights to receive revenues from, and rights of
collection with respect to, a majority of the refrigeration equipment leases
entered into by Refrigeration with its customers. Prior to the Assignment, the
Company historically would lend Refrigeration the capital necessary for
Refrigeration to either purchase or manufacture refrigeration equipment for its
customers. 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
Refrigeration's customers became payable directly to the Company.
The Company has made a business decision, effective during the year
ended December 31, 1997 ("Fiscal 1997"), to orderly wind down its dry cleaning
and refrigeration equipment financing operations.
COMPETITION
The factoring, finance and equipment leasing 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. 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, on a consolidated basis, currently employs approximately
40 full-time employees. The Company believes that this workforce is adequate to
meet the Company's reasonably foreseeable requirements.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently owns no real property and conducts its business
from facilities leased to it by an unaffiliated third party. Pursuant to this
lease, which has an initial term expiring in 2004, the Company rents
approximately 9,800 square feet of office space in consideration for annual
rents currently set at approximately $16,750 per year, gradually escalating
over the lease term to approximately $18,850 during the last year of the
initial lease term. The Company is also obligated to pay the landlord for these
premises
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the Company's proportionate share of all operating costs, expenses and
taxes. The Company believes these premises are well maintained and adequate to
meet the Company's needs for the foreseeable future.
The Company's subsidiaries do not own any real property and conduct
their respective businesses from facilities leased to them, at market rates, by
unaffiliated persons. The Company believes that such leased facilities are
adequate for its subsidiaries' reasonably foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
At this time, the Company is not involved in any pending or threatened
legal proceeding involving it or any of its assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fourth quarter of
Fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since January 1998, the Company's Common Stock and Common Stock
Purchase Warrants (the "Warrants") have been quoted on the Electronic Bulletin
Board maintained by NASDAQ under the symbols "FANT" and "FANTW", respectively.
Each Warrant entitles the holder thereof to purchase one share of Common Stock
at a price of $5.75 at any time until July 22, 2002.
The following table set forth the monthly high and low bid quotations
on the Electronic Bulletin Board for the Common Stock of the Company. These
quotations represent prices between dealers and do not include retail mark-up,
mark-down or commissions or necessarily represent actual transactions.
COMMON STOCK HIGH LOW
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1998
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January $6.88 $4.88
February 7.25 4.00
March 5.50 2.75
April 5.13 4.00
May 2.25 1.01
June 3.50 1.00
July 2.44 1.63
August 2.88 1.63
September 2.50 1.94
October 2.63 2.00
November 3.00 2.00
December 3.00 2.25
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1999
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January 3.13 2.88
February 3.75 2.75
March (through March 29) 3.63 2.75
At March 29, 1999, there were approximately 150 holders of record of
the Company's Common Stock and approximately 35 holders of record of Warrants.
Since a substantial percentage of the Company's Common Stock and Warrants are
held in street name, the Company believes that there are substantial additional
beneficial holders of the Common Stock and Warrants.
Since the Company ceased being treated as an "S corporation," the
Company has not declared any cash dividends with respect to its shares of
Common Stock and does not anticipate that dividends will be declared in the
foreseeable future, as all available cash will be utilized for use in the
Company's business.
During the fourth quarter of Fiscal 1998, management of the Company
learned that certain circumstances relating to the manner in which the
Company's securities were offered in its initial public offering (the "IPO") in
Texas and Florida may have been inconsistent with such states' respective blue
sky laws. In addition, management of the Company concluded that various
procedural and administrative matters relating to the IPO should have been
disclosed during the period that the IPO was being marketed, rather than
following the consummation of the IPO, as the Company did. These disclosures,
relating principally to non-cash IPO subscriptions and subscription loans made
by an affiliate of the Company, were made by the Company in the Liquidity and
Capital Resources subsection to the Managements' Discussion and Analysis of
Financial Condition and Results of Operations section to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997. As a consequence
thereof, the Company, during the 30-day period ended January 22, 1999, provided
the purchasers of the Company's securities in the IPO with the opportunity to
rescind their IPO purchase in consideration for, generally, their IPO
investment price (the "Rescission Offer"). At the expiration of the Rescission
Offer, the Company had received valid written acceptances from the holders of
approximately 54,000 shares of Common Stock and approximately 20,000 Warrants
acquired in the IPO, resulting in a maximum cash redemption obligation to the
Company of approximately $300,000. The Company anticipates repurchasing the
shares of Common Stock and Warrants properly tendered to it pursuant to the
Rescission Offer shortly. The Company intends to fund this redemption
obligation out of its working capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a specialty finance company engaged, principally, in
accounts receivable financing (factoring), equipment leasing and traditional
financing business lines. Since the consummation of the Company's 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 management experience and
earnings potential and long-term growth possibilities, and obtaining
institutional lines of credit for each financing business line.
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
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the financing of dry cleaning equipment to small dry cleaning businesses
throughout the eastern United States and refrigeration equipment sold or leased
by an affiliate. The Company has made a business decision to orderly wind down
its dry cleaning and refrigeration equipment financing operations.
In an effort to grow its accounts receivable financing, equipment
leasing and traditional financing business lines, while establishing a market
presence for the same, the Company, during Fiscal 1998 consummated several
significant transactions. Principal among these were (i) the Company's
formation of AFG, an entity specializing in accounts receivable financing, (ii)
the Company's acquisition of a majority interest in AIM, a marketer and manager
of a variety of financial and insurance related services, (iii) the Company's
acquisition of the Medical Billing Subsidiaries, companies engaged, generally,
in providing back office accounting and other financial administrative services
principally to the medical industry, (iv) the Company's acquisition of a
majority interest in MFC, an entity engaged, generally, in the equipment
leasing industry and, principally, medical equipment financing, and (v) the
Company's acquisition of approximately 91% of the outstanding capital stock of
Ameritrust, a licensed mortgage lender engaged in both residential and
commercial lending.
RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
For Fiscal 1998, the Company generated revenues of $9,734,940, as
compared to revenues of $292,536 for Fiscal 1997. This significant increase in
revenues was the result of the Company's commencement, during Fiscal 1998, of
its accounts receivable financing (factoring), equipment leasing and financial
services businesses. These operations are principally conducted through the
Company's Ameri-Cap Factors, Ameri-Cap Leasing and Ameri-Cap Mortgage
subsidiaries. During Fiscal 1997, the Company's operations were limited,
principally, to winding down the Company's prior dry cleaning and refrigeration
equipment leasing operations and consummating its IPO.
For Fiscal 1998, the Company incurred costs and expenses arising out
of its accounts receivable financing (factoring), equipment leasing and
financial services businesses of $9,376,685, all of which were ordinary course
business expenses, and recorded a provision for bad debts of $1,107,269. The
Company recorded this bad debt provision in order to insulate itself from any
adverse effects resulting from existing loans and leases, and loans and leases
written by the Company during Fiscal 1999 and thereafter, becoming delinquent or
uncollectible. Management of the Company reasonably believes that the Company
will generate approximately $100 million in loans and leases during Fiscal
1999. As such, this bad debt provision constitutes approximately 1% of the
Company's estimated Fiscal 1999 loan and lease totals.
Without giving effect to the Company's recording of its provision for
bad debts, the Company generated income from operations for Fiscal 1998 of
$358,255, as compared to incurring a loss from operations for Fiscal 1997 of
$(416,873). After giving effect to the Company's recording of its provision for
bad debts, however, the Company incurred a loss from operations for Fiscal 1998
of $(749,014). When combined with the provision for dividends with respect to
shares of the Company's Series A Preferred Stock (and after giving effect to
the recording of the $1,107,269 bad debt provision), the Company incurred
losses applicable to common shareholders for Fiscal 1998 of $(1,192,685) or
$(.32) per common share, as compared to losses applicable to common
shareholders for Fiscal 1997 of $(992,179) or $(.58) per common share.
Fiscal 1997 Compared to Year Ended December 31, 1996
For Fiscal 1997, the Company generated revenues of $292,536, a
decrease of $156,763, or approximately 35%, from revenues of $449,299 for the
fiscal year ended December 31, 1996 ("Fiscal 1996"). This decrease in revenues
was primarily attributable to the Company's decision to orderly wind down its
dry cleaning and refrigeration equipment leasing operations beginning in Fiscal
1997, and the Company's expending significant time and resources to consummate
the IPO.
During Fiscal 1997, the Company incurred an approximate $180,000, or
approximately 25%, increase in general and administrative expenses over Fiscal
1996 figures, principally as a result of satisfying obligations incident to the
consummation of the IPO. As a consequence thereof, coupled with the
aforementioned decrease in revenues during Fiscal 1997, the Company generated
losses from operations during Fiscal 1997 of $416,873, a $140,233, or
approximate 51%, increase in losses from operations from Fiscal 1996. When
combined with the one-time $600,000 reversal of estimate for uncollectible
advances to an affiliate recorded during Fiscal 1996, and the provision for
dividends with respect to shares of the Company's Series A Preferred Stock (the
"Series A Preferred Stock"), the Company generated net losses applicable to
common shareholders for Fiscal 1997 of $992,179, or losses of $.58 per common
share, as compared to net income applicable to common shareholders of $90,638,
or income of $.05 per common share, for Fiscal 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had total assets of $13,618,188, 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
of AIM, the Medical Billing Subsidiaries, MFC and Ameritrust during Fiscal
1998, and the commencement of operations of AFG's accounts receivable financing
(factoring) business. At December 31, 1998, a finance receivable arising
predominantly from AFG's operations in the amount of $4,632,875 was recorded on
the Company's balance sheet. The $2,684,175 of goodwill, net, recorded on the
Company's balance sheet at December 31, 1998 represents the premium over net
equity
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<PAGE>
paid by the Company in connection with its acquisitions of AIM, the Medical
Billing Subsidiaries, MFC and Ameritrust. The Company anticipates that its
future earnings (assuming its acquired subsidiaries continue to generate
earnings) will offset the amortization associated with the recording of this
goodwill. The $868,377 asset due from related parties included on the Company's
balance sheet at December 31, 1998 is comprised, substantially, of receivables
due from, and prepaid consulting expenses with respect to, Medley Group. The
Company and Medley Group have entered into an agreement pursuant to which,
among other things, Medley Group has agreed to satisfy this obligation by
December 31, 2004.
At December 31, 1998, the Company had total liabilities of $6,102,015,
as compared to total liabilities of $751,211 at December 31, 1997. This
increase in total liabilities was primarily due to the incurrence of borrowings
under the accounts receivable credit facility established for AFG, the
Company's recording of amounts due, in the ordinary course of business, to its
factoring clients, and the Company's incurring other ordinary course
liabilities in connection with its Ameri-Cap Mortgage and Ameri-Cap Leasing
operations.
At December 31, 1998, the Company had total stockholders' equity of
$7,499,084, as compared to total stockholders' equity of $4,204,620 at December
31, 1997. The significant increase in stockholders' equity is attributable
directly to the earnings generated by the Company from operations, values
associated with the Company's formation of AFG and acquisition, utilizing
primarily shares of the Company's Common Stock, of AIM, the Medical Billing
Subsidiaries, MFC and Ameritrust.
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.
During the fourth quarter of Fiscal 1998 and the first quarter of the
year ending December 31, 1999 ("Fiscal 1999"), the Company consummated a
private placement of 150 units (the "Units") which raised net proceeds to the
Company (after giving effect to the payment of all offering commissions and
expenses) of approximately $2,773,125. Each Unit was comprised of 10,000 shares
of the Company's Common Stock and 10,000 warrants (the "Private Placement
Warrants"). Each Private Placement Warrant entitles the holder to purchase one
share of Common Stock for $3.25 at any time through November 9, 2001. The
Private Placement Warrants are redeemable by the Company upon notice of not
less than 30 days at a price of $0.25 per Private Placement Warrant, provided
that the closing bid quotation for shares of the Company's Common Stock on all
20 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% of the exercise price
of the Private Placement Warrants (currently $4.875, subject to adjustment).
The Company utilized the net proceeds from this private placement to, among
other things, expand Ameri-Cap Leasing's marketing base, provide working
capital for Ameri-Cap Factors' operations, augment capital committed to
Ameri-Cap Mortgage's operations and fund, generally, the Company's business and
operations.
During December 1998, the Company issued and sold to an investor, in
an isolated, privately negotiated transaction, 500,000 shares of the Company's
Series B Preferred Stock (the "Series B Preferred Stock"). Each share of Series
B Preferred Stock was issued and sold for $1.00. The Series B Preferred Stock
is subordinate to shares of the Company's Series A Preferred Stock in the event
of the liquidation, dissolution or winding up of the Company, and is
convertible, at any time at the option of the holder, into shares of the
Company's Common Stock at the rate of one share of Common Stock for every 2.125
shares of Series B Preferred Stock. The Company applied the proceeds from the
sale of the Series B Preferred Stock to its working capital.
During the fourth quarter of Fiscal 1998, management of the Company
learned that certain circumstances relating to the manner in which the
Company's securities were offered in its IPO in Texas and Florida may have been
inconsistent with such states' respective blue sky laws. In addition,
management of the Company concluded that various procedural and administrative
matters relating to the IPO should have been disclosed during the period that
the IPO was being marketed, rather than following the consummation of the IPO,
as the Company did. These disclosures, relating principally to non-cash IPO
subscriptions and subscription loans made by an affiliate of the Company, were
made by the Company in the Liquidity and Capital Resources subsection to the
Managements' Discussion and Analysis of Financial Condition and Results of
Operations section to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997. As a consequence thereof, the Company, during the
30-day period ended January 22, 1999, provided the purchasers of the Company's
securities in the IPO with the opportunity to rescind their IPO purchase in
consideration for, generally, their IPO investment price. At the expiration of
this Rescission Offer, the Company had received valid written acceptances from
the holders of approximately 54,000 shares of Common Stock and approximately
20,000 Warrants acquired in the IPO, resulting in a maximum cash redemption
obligation to the Company of approximately $300,000. The Company anticipates
repurchasing the shares of Common Stock and Warrants properly tendered back to
it pursuant to the Rescission Offer shortly. The Company intends to fund this
redemption obligation out of its working capital.
<PAGE>
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.
Except as set forth in this Annual Report on Form 10-KSB, 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
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<PAGE>
adverse effect on the Company and could cause the Company to be unable to
implement its business strategy or proposed expansion.
YEAR 2000 COMPLIANCE
The inability of business processes to continue to function correctly
after the beginning of the Year 2000 could have serious adverse effects on
companies and entities throughout the world. In order to minimize the
possibility that the Company will suffer any adverse effects resulting from
system failures on January 1, 2000, the Company, over the last 18 months, has
purchased new software and hardware systems for itself and its subsidiaries.
These new systems all come with manufacturers' representations and warranties
concerning Year 2000 compliance. No assurance can be given, however, that the
Company's software and hardware systems will not fail after the beginning of
the Year 2000. In such event, the Company will be forced to expend such amounts
of its working capital as may be necessary to correct its software and hardware
systems and implement contingency plans. The Company continues to attempt to
assess the Year 2000 compliance and readiness of its lenders and material
customers. Such attempts include written inquiries as to their Year 2000
certification of compliance.
ITEM 7. SELECTED FINANCIAL DATA
The selected historical financial information of the Company set forth
below should be read in conjunction with the audited financial statements of
the Company and notes thereto contained elsewhere in this Annual Report on Form
10-KSB.
The statement of operations data for the year ended December 31, 1998
and 1997, and the balance sheet data as of December 31, 1998 and 1997, are
derived from, and are qualified by reference to, the audited financial
statements of the Company which are included elsewhere in this Annual Report on
Form 10-KSB. No cash dividends have ever been declared or paid on shares of the
Company's Common Stock.
The required financial statements of the Company are included as part
of this Annual Report on Form 10-KSB beginning on page F-1.
STATEMENT OF OPERATIONS DATA :
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---------- ----------
Total Revenues............................ $ 9,734,940 $ 292,536
Total Costs and Expenses.................. 10,483,954 709,409
Loss from Operations...................... (749,014) (416,873)
Total Other Expenses ..................... (203,278) (279,197)
Net Loss ................................. (898,081) (696,070)
Net Loss Applicable
to Common Shareholders................... (1,192,685) (992,179)
Net Loss Per
Common Share............................ (.32) (.58)
BALANCE SHEET DATA:
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---------- ----------
Working Capital .......................... $ 1,619,045 $2,408,166
Total Assets.............................. 13,618,188 4,955,831
Total Liabilities......................... 6,102,015 751,211
Stockholders' Equity ..................... 7,499,084 4,204,620
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Robert D. Press 35 President, Chief Executive Officer and
Chairman of the Board
Maynard Hellman 53 Director
Arthur J. Press 70 Director
Evaldo F. Dupuy 55 Director
Thomas W. Dwyer 38 Director
Alyce B. Schreiber 34 Vice President and Director
Robert D. Press has served as Chairman of the Board of the Company
since August 1997 and as President, Chief Executive Officer and a Director of
the Company since its inception in September 1993. Mr. Press devotes all of his
business time and efforts to the affairs of the Company. From June 1990 to
August 1993, Mr. Press served as President of Premier Lease Concepts, Inc., the
Company's predecessor. In addition, from 1989 to 1997, Mr. Press served as
President of Performance Capital Management, Inc., a holding company controlled
by Messrs. Press and Steven L. Edelson, the former Chairman of the Board of the
Company, which had interests in brokerage and investment 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. 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 a Series 7 and 63 professional securities licenses.
Mr. Press is the son of Arthur J. Press, a Director of the Company.
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 & Mass. 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.
Arthur J. Press has served as a Director of the Company since January
1998. Prior to his retirement in 1987, Mr. Press served as the Vice President
of Commercial Lending for Chemical Bank. Mr. Press is the father of Robert D.
Press, the Chairman of the Board, President and Chief Executive Officer of the
Company.
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<PAGE>
Evaldo F. Dupuy has served as a Director of the Company since July
1998. Since 1989, Mr. Dupuy has served as a principal of Coast Partners
Securities, Inc., a boutique investment banking firm specializing in asset
backed and debt related facilities for its clients. Mr. Dupuy is a member of
the Florida Premium Finance Association, Florida Automobile Dealers
Association, Florida Mortgage Brokers Association and the Asset Based Lender
Association.
Thomas W. Dwyer has served as a Director of the Company since March
1999. Since 1994, Mr. Dwyer has served as Vice President of Fuji Capital
Markets Corp., a derivatives trading house owned by Fuji Bank Tokyo. In
addition, since 1998, Mr. Dwyer has served as a director of Securities
Arbitrage Consulting Group, a Chicago based risk software company.
Alyce B. Schreiber has served as a Director of the Company since March
1999, Secretary of the Company since November 1997 and as Vice President of the
Company since 1990. Prior to Ms. Schreiber's becoming associated with the
Company, Ms. Schreiber served as a tax specialist for Laventhol and Horwath, a
certified public accounting firm.
The Company and Charles Litt have entered into an agreement pursuant
to which, among other things, Mr. Litt has agreed to serve as President of the
Company commencing May 15, 1999. At the time Mr. Litt begins his tenure as
President of the Company, Mr. Robert D. Press will continue as Chairman of the
Board of the Company. Since 1996, Mr. Litt has served as Vice President and
General Counsel for First Sierra Financial, Inc. ("First Sierra"), a publicly
held specialty finance company. Mr. Litt's responsibilities at First Sierra
include the negotiation of vendor program agreements and the structuring of
major leasing and finance transactions. From 1993 to 1996, Mr. Litt served as
President of Kinnard Capital Corporation, a subsidiary of Kinnard Investments,
a Minneapolis based investment company with broker dealer and financial focused
operating subsidiaries. Prior to 1993, Mr. Litt served in various positions for
Banc One Leasing Corporation.
During Fiscal 1998, none of the Company's executive officers,
Directors or beneficial owners of more than 10% of the Company's outstanding
shares of Common Stock failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended.
The Company's Board has Audit and Compensation Committees. The Audit
Committee meets with management to consider the adequacy of the internal
controls of the Company and the objectivity of the Company's financial
reporting. The Audit Committee also meets with the Company's independent
accountants and with appropriate Company financial personnel about these
matters. The Compensation Committee administers the Company's Option Plan and
makes recommendations to the Board of Directors with respect to the
compensation of management. The Audit and Compensation Committees are comprised
of Messrs. Hellman and Dupuy.
The Company's Directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Each non-employee Director receives a fee of $500 for each meeting (or
committee meeting) attended, together with reimbursement of reasonable expenses
incurred in attending such meeting.
OTHER KEY EMPLOYEES
Irwin Gross serves as the principal of AIM, a marketer and manager of
a variety of financial and insurance related services. Mr. Gross served as the
President of AIM for more than five years preceding AIM's acquisition by the
Company.
Frederick Horwin serves as one of the principals of AFG. AFG is
engaged, generally, in accounts receivable financing. Mr. Horwin served as
Executive Vice President and Executive Director of First Capital Services,
Inc., an entity engaged, generally, in accounts receivable financing ("First
Capital"), for more than five years preceding his affiliation with AFG.
Henry Koche serves as the principal of Ameri-Cap Leasing. Ameri-Cap
Leasing owns 80% of the outstanding capital stock of MFC. Mr. Koche served as
one of the principals of MFC from February 1997 until its acquisition by
Ameri-Cap Leasing. From May 1996 to January 1997, Mr. Koche served as President
of Carolina Capital, Inc., an independent brokerage firm specializing in
medical equipment leasing. From January 1995 to April 1996, Mr. Koche served as
an independent broker. Prior thereto, Mr. Koche served as Northeastern Regional
Manager of DVI Financial Services, an equipment leasing concern.
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<PAGE>
W. Dennis Prouty serves as one of the principals of Premier. Premier
is engaged, generally, in providing back office accounting and other financial
administrative services principally to the medical industry. From 1996 until
its acquisition by the Company, Mr. Prouty served as President of Premier.
Prior thereto, Mr. Prouty served as Controller for Rx for Fleas, Inc., an
entity engaged in the sale of distributorships and the operation of flea
elimination services.
Joanne Telmosse serves as the principal of Medical Billing. Ms.
Telmosse was one of the founders of Medical Billing in 1994 and served as its
principal until the Company's acquisition of Medical Billing. Prior to 1994,
Ms. Telmosse served as Director of Finance for Recovery Management, Inc., a
bookkeeping concern.
Tom Wheatley serves as one of the principals of AFG. From March 1995
until the commencement of Mr. Wheatley's affiliation with AFG, Mr. Wheatley
served as Vice President of Marketing of First Capital. Prior thereto, Mr.
Wheatley owned and operated Connect Communications, Inc., a telecommunications
company.
ITEM 10. EXECUTIVE COMPENSATION
During Fiscal 1998, the Company paid to Robert D. Press, the Company's
Chairman of the Board, President and Chief Executive Officer, cash remuneration
of $225,000. Mr. Press is the sole executive officer of the Company. During
Fiscal 1998, Mr. Press, in accordance with the terms of his employment agreement
with the Company, as amended, was also issued an aggregate of 120,000 shares of
the Company's Common Stock. Mr. Press, however, waived his right to receive a
minimum cash bonus of $45,000 relating to Fiscal 1998. No other form of
remuneration was paid by the Company to Mr. Press during, or on account of,
Fiscal 1998. The following table summarizes the aggregate annual compensation
payable by the Company to Mr. Press and Maynard J. Hellman, General Counsel and
a Director of the Company, for Fiscal 1999:
NAME OF INDIVIDUAL CAPACITIES TO SERVE AGGREGATE COMPENSATION
- ------------------ ------------------- ----------------------
Robert D. Press President, Chairman of the $275,000
Board and Chief Executive Officer
Maynard J. Hellman General Counsel $180,000
Pursuant to Mr. Press' employment agreement with the Company, as
amended, Mr. Press has agreed to serve as President, Chairman of the Board and
Chief Executive Officer of the Company. This employment agreement expires on
December 31, 2004 (subject to earlier termination for cause). Mr. Press'
employment agreement further provides for Mr. Press' salary to increase to
$350,000 per annum during the year beginning January 1, 2000, with such annual
salary increasing 10% per annum thereafter. In addition, Mr. Press is entitled
to receive minimum cash bonuses of $60,000 and $75,000, respectively, for
Fiscal 1999 and the year ending December 31, 2000 ("Fiscal 2000"). Mr. Press is
also entitled to receive 40,000 shares of the Company's Common Stock following
the close of each calendar quarter during Fiscal 1999, 50,000 shares of Common
Stock following the close of each calendar quarter during Fiscal 2000 and
25,000 shares of Common Stock following the close of each calendar quarter
therafter. Mr. Press' employment agreement also provides for the annual grant
to him of 100,000 incentive stock options. These options are exercisable over
the five year period following their grant at a price equal to 110% of the fair
market value for shares of the Company's Common Stock at the date of grant. Mr.
Press is entitled to participate in all medical, stock option, pension and
other benefit plans that the Company may establish from time to time for the
benefit of its senior management generally.
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<PAGE>
Mr. Press' employment agreement is terminable by the Company for cause
(i.e., conviction of a felony, willful misconduct, dishonesty or material
breach of the agreement) at any time or in the event that Mr. Press becomes
disabled and, as a result, is unable to perform his duties under his employment
agreement for more than 60 consecutive days or for more than 90 days during any
12-month period.
Pursuant to Mr. Hellman's employment agreement with the Company, Mr.
Hellman has agreed to serve as General Counsel, giving and rendering legal
services, to the Company. This employment agreement expires on December 31,
2004 (subject to (i) automatic annual extensions unless written notice of
expiration is provided by Mr. Hellman or the Company and (ii) earlier
termination for cause or disability). Mr. Hellman's salary for Fiscal 1999
under this agreement is $180,000. Commencing with Fiscal 2000, Mr. Hellman's
annual salary shall be increased annually by the lesser of the then cost of
living increase, if any, or 5%. Mr. Hellman was granted 75,000 incentive stock
options in connection with the execution of his employment agreement and,
pursuant to his employment agreement, is entitled to receive an aggregate of
75,000 incentive stock options during each year of his employment agreement.
All such incentive stock options are exercisable over the five year period
following their grant at a price equal to the fair market value for shares of
the Company's Common Stock at the date of grant. Subject to eligibility rules,
Mr. Hellman is entitled to participate in all medical, stock option, pension
and other benefit plans maintained by the Company.
In connection with the formation of AFG , the Company, through AFG,
entered into three-year employment agreements (which automatically renew for
additional one-year periods unless AFG provides 30 days' prior notice of
cancellation) with each of Frederick Horwin and Tom Wheatley, seasoned finance
professionals. Pursuant to these agreements, Messrs. Horwin and Wheatley agreed
to serve as the operating officers of AFG in consideration for base salaries of
$120,000 and $96,000 per annum, respectively. Messrs. Horwin and Wheatley have
agreed not to compete with the Company or AFG during the term of their
employment with AFG and for the two-year period immediately thereafter.
In connection with the acquisition of AIM, the Company, through AIM,
entered into a three year employment agreement (which automatically renews for
additional one year periods unless AIM provides 30 days' prior notice of
cancellation) with Irwin Gross, the principal of AIM. Pursuant to this
agreement, Mr. Gross agreed to serve as the operating officer of AIM in
consideration for a draw against commissions of $125,000 per annum, increasing
over the term of the agreement to $150,000 per annum, a base salary during the
second and third year of the agreement in the amount of $50,000 per annum and
commissions equal to 70% of all net commission income generated and paid to AIM
from accounts developed by Mr. Gross and 50% of all net commission income
generated and paid to AIM from accounts referred to AIM from sources other than
Mr. Gross. Mr. Gross has agreed not to compete with the Company or AIM during
the term of his employment with AIM.
In connection with the acquisition of Medical Billing, the Company,
through Medical Billing, entered into three year employment agreements with
each of Joanne Telmosse, Jennifer Makula and Jamie Silva, the principals of
Medical Billing. Pursuant to these agreements, Mss. Telmosse, Makula and Silva
agreed to serve as the operating officers of Medical Billing in consideration
for base salaries of $125,000, $75,000 and $75,000, respectively. Mss.
Telmosse, Makula and Silva have each agreed not to compete with the Company or
Medical Billing during the term of her employment with Medical Billing.
In connection with the acquisition of Premier, the Company, through
Premier, entered into three year employment agreements with each of W. Dennis
Prouty and Laura C. Sotera, the principals of Premier. Pursuant to these
agreements, Mr. Prouty and Ms. Sotera agreed to serve as the operating officers
of Premier in consideration for base salaries of $110,000 and $72,000,
respectively. Mr. Prouty and Ms. Sotera have each agreed not to compete with
the Company or Premier during the term of his or her employment, as the case
may be, with Premier.
In connection with the Company's acquisition of MFC, the Company,
through Ameri-Cap Leasing, entered into a three year employment agreement with
Mr. Henry Koche. Pursuant thereto, Mr. Koche agreed to serve as the operating
officer of Ameri-Cap Leasing in consideration for an annual base salary of
$100,000. This agreement also entitles Mr. Koche to be granted incentive stock
options pursuant to the Company's Option Plan based upon Ameri-Cap Leasing's
annual financial performance and to participate in a discretionary cash bonus
pool for Ameri-Cap Leasing's employees if Ameri-Cap Leasing's financial
performance justifies the same. This employment agreement is terminable by the
Company for cause, including if Ameri-Cap Leasing's net monthly sales volume
(defined as the total amount of all leases written in any calendar month) is
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<PAGE>
less than $500,000 per month in any consecutive three month period or in a three
month aggregate in any 12 month period.
In connection with the Ameritrust acquisition, the Company assumed the
employment agreements of Ameritrust's three principals, Larry Schwartz, Larry
S. Sazant and Bruce Lazarus. Mr. Schwartz's employment agreement expires in
2003 (subject to annual renewal), entitles Mr. Schwartz to an annual base
salary of $75,000 through 2001, increasing $5,000 per year thereafter, an
override commission on each residential mortgage transaction made by Ameritrust
of 4% of the gross revenues derived by Ameritrust from such transaction, a
bonus, terminable upon the satisfaction of certain financial obligations of Mr.
Schwartz, equal to 10% of Ameritrust's pre-tax net profits, if any, and the
grant of stock options, conditioned upon Ameritrust's financial performance,
pursuant to the Company's Stock Option Plan. Mr. Schwartz's employment
agreement is terminable by the Company for cause, including if Ameritrust's net
monthly sales volume is less than 75% of its projected sales goals for any
consecutive three month period or Ameritrust's annual sales volume is less than
75% of its projected annual sales. Mr. Schwartz has further agreed not to
compete with the Company in Dade and Broward Counties, Florida, for the two
year period following termination of his employment with the Company.
Mr. Sazant's employment agreement expires in 2002, entitles Mr. Sazant
to an annual base salary of $45,000, an override commission on each commercial
loan generated by Mr. Sazant of 10% of the gross commission earned by
Ameritrust's commercial loan division with respect to such commercial loan, an
override commission with respect to other commissions generated by Ameritrust's
commercial loan division equal to the difference between any commission paid to
any loan officer or consultant and 50% of the total commission paid by
Ameritrust, and a bonus equal to 5% of Ameritrust's Residential Financial
Services' division pre-tax income, if any. Mr. Sazant has further agreed not to
compete with the Company for the five year period following the termination of
his employment agreement.
Mr. Lazarus' employment agreement expires in 2002 and entitles Mr.
Lazarus to an annual base salary of $75,000, a bonus equal to 5% of
Ameritrust's Residential Financial Services' division pre-tax income, if any,
and such commissions as Ameritrust customarily remits to brokers and co-brokers
on a transactional basis. Mr. Lazarus has further agreed not to compete with
the Company for the five year period following the termination of his
employment agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 29, 1999,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent (5%)
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:
- 18 -
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
NAME AND ADDRESS OF OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP(1) SHARES OWNED
---------------- ------------ ---------------
<S> <C> <C>
Medley Group, Inc.
150 South Pine Island Road
Suite 500
Plantation, FL 33324 1,064,290(2) 17.78%
Robert D. Press
150 South Pine Island Road
Suite 500
Plantation, FL 33324 1,877,309(2)(3) 29.87%
Arthur J. Press
1268 Hemlock Farms
Hawley, PA 18428 37,336(4) *
Maynard Hellman
150 South Pine Island Road
Suite 500
Plantation, FL 33324 768,750(5) 11.68%
Carol Edelson
421 West 54th Street
New York, NY 10019 537,226(6) 8.32%
Evaldo F. Dupuy
3911 Riviera Drive
Coral Gables, FL 33134 60,000(7) *
Thomas W. Dwyer
2 Hathaway Drive
Princeton Junction, NJ 08550 36,240(8) *
Alyce B. Schreiber
150 South Pine Island Road
Suite 500
Plantation, FL 33324 53,500(9) 1.01%
All directors and officers
as a group (six persons) 2,833,135(3)(4)(5)(6) 40.26%
(7)(8)(9)
Represents less than 1%.
</TABLE>
- --------------
(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 Memorandum 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 Memorandum
have been exercised or converted. Unless otherwise
- 19 -
<PAGE>
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) Mr. Robert D. Press, the President, Chairman of the Board and Chief
Executive Officer of the Company, may be deemed to control Medley Group.
As such, Mr. Press may be deemed to own beneficially all Common Stock of
the Company beneficially owned by Medley Group.
(3) Includes 129,351 shares of Common Stock issuable upon the conversion of
604,717 shares of the Company's Series A Preferred Stock owned by Mr.
Press. Also 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,
and 25,000 shares of Common Stock issuable upon the exercise of certain
options; these options are exercisable at any time on or prior to December
31, 2004 at an exercise price of $2.88 per share. Robert D. Press is the
son of Arthur J. Press. Robert Press disclaims beneficial ownership over
all shares of Common Stock beneficially owned by Arthur J. Press.
(4) These shares are owned by an affiliate of Mr. Press. Includes 21,925 shares
of Common Stock issuable upon the conversion of 102,500 shares of the
Company's Series A Preferred Stock owned by an affiliate of Mr. Press.
Peggy Press, the wife of Arthur J. Press and the mother of Robert D. Press,
beneficially owns 29,168 shares of Common Stock. Each of Mr. Arthur J.
Press and Robert D. Press disclaims beneficial ownership over all shares of
Common Stock of the Company owned by Mrs. Press. Arthur J. Press is the
father of Robert D. Press. Mr. Press disclaims beneficial ownership owner
all shares of Common Stock beneficially owned by Robert D. Press.
(5) Includes 10,000 shares of Common Stock beneficially owned by an affiliate
of Mr. Hellman. Also includes 500,000 shares of Common Stock issuable upon
the exercise of certain warrants owned by Mr. Hellman; these warrants are
exercisable at any time through December 2002 at an exercise price of $2.50
per share, 75,000 shares of Common Stock issuable upon the exercise of
certain options; these options are exercisable at any time on or prior to
December 16, 2003 at an exerise price of $2.13 per share, and 18,750 shares
of Common Stock issuable upon the exercise of certain other options; these
other options are exercisable at any time on or prior to December 31, 2004
at an exercise price of $2.88 per share. Does not include an additional
510,000 shares of Common Stock the Company is contractually obligated to
issue to Mr. Hellman in annual installments through 2003 arising out of Mr.
Hellman's sale to the Company of his interests in certain of the Company's
subsidiaries and a Florida based title insurance company.
(6) Includes 327,728 shares of Common Stock issuable upon the conversion of
1,532,127 shares of the Company's Series A Preferred Stock owned by Ms.
Edelson. Also 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.
(7) Includes 50,000 shares of Common Stock issuable upon the exercise of
certain options; these options are exercisable at any time on or prior to
June 8, 2001 at an exercise price of $1.50 per share.
(8) Represents shares of Common Stock issuable upon the conversion of 169,419
shares of Series A Preferred Stock owned by Mr. Dwyer.
(9) Includes 10,000 shares of Common Stock issuable upon the exercise of
certain options; these options are exercisable at any time on or prior to
May 31, 2000 at an exercise price of $1.20 per share, and 40,000 shares of
Common Stock issuable upon the exercise of certain other options; these
other options are exercisable, as to 20,000 shares, at any time on or prior
to August 30, 2000, and as to the other 20,000 shares, at any time on or
prior to October 31, 2000, each at an exercise price of $2.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During January 1997, intercompany receivable owing by Refrigeration
was reduced by $237,000 as a result of 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 Refrigeration. This direct
lease financing was essentially accomplished by the Company purchasing the
equipment to be leased from Refrigeration. The Company, in turn, then leased
this equipment to creditworthy Refrigeration customers who were required to
make lease payments with respect to such equipment directly to the Company.
- 20 -
<PAGE>
In connection with the closing of the Company's IPO, Medley Group
remitted to the Company, on behalf of Refrigeration, the $1,100,000 in proceeds
generated from Medley Group's sale of 200,000 shares of Common Stock in the IPO
to satisfy, in their entirety, all intercompany receivables then outstanding
from Refrigeration to the Company.
On July 31, 1997, Steven L. Edelson resigned as Chairman of the Board
of the Company. Simultaneously therewith, Mr. Edelson transferred to his wife,
Carol Edelson, a principal stockholder of the Company, all of Mr. Edelson's
right, title, and interest in and to all securities of the Company then owned
by Mr. Edelson. Mr. Edelson's resignation was not the result of any
disagreement between Mr. Edelson and the Company on any matter relating to the
Company's operations, policies or practices. Subsequent thereto, Mr. Edelson
granted Robert D. Press, President, Chairman of the Board and Chief Executive
Officer of the Company, an option to purchase, through December 31, 2002, all
of Mr. Edelson's interest in Medley Group (approximately 8% of Medley Group's
outstanding capital stock as of the date of this Annual Report on Form 10-KSB)
for $750,000. In connection with this grant, Mr. Press received an irrevocable
proxy to vote all such Medley Group stock on all matters submitted to Medley
Group stockholders for a vote.
During June 1996, the Company offered Robert Press, the President and
Chairman of the Board of the Company, and Steven L. Edelson, the then Chairman
of the Board 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 Series A 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 Series A Preferred Stock (604,717
shares to Mr. Press and 1,532,127 shares to Mr. Edelson). Mr. Edelson
subsequently transferred these shares to Carol Edelson.
From June 1, 1996 through December 20, 1997, Messrs. Press and Edelson
loaned the Company $131,738 and $48,745, respectively, in order to permit the
Company to satisfy its operating expenses in connection with, and in
anticipation of, its IPO. Interest accrued on these loans at the rate of 12%
per annum and required balloon payments of principal and accrued interest by
August 2, 1999. (Mr. Edelson transferred his right to receive payment under his
loan to Carol Edelson.) The Company repaid these loans as part of the IPO by
issuing Mr. Press and Ms. Edelson approximately 23,952 and 8,863 shares of
Common Stock from the IPO (the "Conversion Shares"), respectively. These
Conversion Shares were valued at the IPO price of $5.50 per share. 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 (Mr. Edelson
transferred these warrants to Carol Edelson). These warrants are exercisable at
any time on or 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 (the "1996 Warrants"). The 1996 Warrants
were exercisable until July 22, 2002 at an exercise price of $5.00 per share. In
October 1998, Mr. Hellman provided the Company with a $150,000 bridge loan. The
current outstanding principal balance of $100,000 under this bridge loan is
payable on June 30, 1999. In connection with this bridge loan, the Company and
Mr. Hellman agreed to terminate the 1996 Warrants and the Company issued Mr.
Hellman warrants to purchase, at any time through December 2002, up to 500,000
shares of Common Stock at an exercise price of $2.50 per share.
In connection with the IPO, the Company issued 15,000 Conversion Shares
to each of Mr. Press and Ms. Edelson in satisfaction of certain redemption
obligations of the Company owing to them with respect to 15,000 other shares of
Common Stock owned by each of them. These shares of Common Stock were originally
transferred and assigned by Group to Messrs. Press and Edelson (who subsequently
transferred them to Carol Edelson) in January 1996 in consideration for services
performed by Messrs. Press and Edelson on behalf of the Company. Also, in
connection with the IPO, the Company issued Mr. Robert D. Press, Ms. Carol
Edelson and an affiliate of Mr. Arthur J. Press approximately 13,740, 41,785 and
2,880 Conversion Shares, respectively, in satisfaction of approximately $75,590,
$230,000 and $15,860 of declared but unpaid Series A Preferred Stock dividends
owing them.
During the second quarter of 1998, the Company provided a financial
accommodation to Medley Group for a fee equal to $150,000 per annum. This 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 Medley Group. This letter of credit was posted for the purpose of
securing the
- 21 -
<PAGE>
performance of certain equipment leases sold by Medley Group to an unrelated
party. The Company's financial exposure under this letter of credit has been
collateralized by the pledge by Medley Group to the Company of 750,00 shares of
the Company's Common Stock owned by Meldey Group, which Common Stock, for
purposes of the pledge, has an agreed upon value of $2.50 per share.
During December 1998, the Company agreed to forgive an outstanding loan
in the then outstanding amount of $68,000 made to Mr. Robert D.Press, the
Company's Chairman of the Board, President and Chief Executive Officer, at the
rate of 20% per year beginning during Fiscal 1999.
During January 1999, the Company, through its Ameri-Cap Mortgage
subsidiary, acquired from Mr. Maynard Hellman, a director of the Company, 80% of
the outstanding capital stock of Suncoast Title Company, Inc., a Florida title
insurance company ("Suncoast"), for 50,000 shares of the Company's Common Stock.
The Company has agreed, through 2002, to acquire the remaining 20% of the
outstanding capital stock of Suncoast from Mr. Hellman for an aggregate of
50,000 additional shares of the Company's Common Stock.
During February 1999, the Company, through its Ameri-Cap Factors
subsidiary, acquired from Mr. Hellman, .6% of the outstanding capital stock of
Ameri-Med Financial Services, Inc., a Florida medical receivables financing
business ("Ameri-Med Financial"), for 35,000 shares of the Company's Common
Stock. Ameri-Cap Factors previously owned 80% of the outstanding capital stock
of Ameri-Med Financial. The Company has agreed, through 2003, to acquire an
additional 2.4% of the capital stock of Ameri-Med Financial owned by Mr. Hellman
for an aggregate of 140,000 additional shares of the Company's Common Stock.
Also during February 1999, the Company acquired from Mr.Hellman 1.4% of
the outstanding capital stock of Ameri-Cap Mortgage for 80,000 shares of the
Company's Common Stock. The Company previously owned 80% of the outstanding
capital stock of Ameri-Cap Mortgage. The Company has agreed, through 2003, to
acquire an additional 5.6% of the capital stock of Ameri-Cap Mortgage owned by
Mr. Hellman for an aggregate of 320,000 additional shares of the Company's
Common Stock.
On December 31, 1998, the Company and Medley Group entered into an
agreement pursuant to which, among other things, the manner in which the then
$633,089.24 outstanding inter-company debt owing to the Company by Medley Group
was scheduled for repayment. Specifically, Medley Group paid the Company
$50,000 upon the execution of this agreement and agreed to pay the Company the
remaining balance by December 31, 2004.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are filed as part of this Report:
(i) FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report F-1
Balance Sheets at December 31, 1998 and 1997 F-2
Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 F-5
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-6
Notes to Financial Statements F-8
(ii) FINANCIAL STATEMENT SCHEDULES
None
(iii) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company
(the "Restated Certificate") (Incorporated by reference to Exhibit
3.1 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-24937)).
3.2 Certificate of Amendment to the Restated Certificate (Incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1998).
3.3 Certificate of Designation, Rights and Preferences relating to
shares of the Company's Series A 10% Convertible Preferred Stock
(Incorporated by reference to Exhibit 3.2 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-24937)).
3.4 Certificate of the Powers, Designations, Preferences and Rights of
the Company's Series B Preferred Stock.*
3.5 By-Laws of the Company (Incorporated by reference to Exhibit 3.3
to Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937)).
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-24937)).
- 22 -
<PAGE>
4.2 Specimen Warrant Certificate (included as Exhibit A to Exhibit
4.3) (Incorporated by reference to Exhibit 4.2 to Post-Effective
Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-24937)).
4.3 Warrant Agency Agreement, dated December 1997, between the Company
and American Stock Transfer & Trust Company (Incorporated by
reference to Exhibit 4.3 to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 (File No. 333-
24937)).
10.1 Employment Agreement, dated as of March 1, 1998 between Robert D.
Press and the Company (Incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.2 Amendment, dated December 31, 1998, to Employment Agreement
between Robert D. Press and the Company.*
10.3 Agreement, dated March 4, 1998, among the Company, Frederick
Horwin and Tom Wheatley (Incorporated by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.4 Employment Agreement, dated as of March 4, 1998, between AFG and
Frederick Horwin (Incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.5 Employment Agreement, dated as of March 4, 1998, between AFG and
Tom Wheatley (Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.6 Stock Purchase Agreement, dated March 13, 1998, between the
Company and Irwin Gross (Incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.7 Employment Agreement, dated March 13, 1998, between AIM and Irwin
Gross (Incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1997).
10.8 Stock Purchase Agreement, dated March 30, 1998, among the Company,
Joanne Telmosse, Jamie Silva, Jennifer Makula and Medical Billing
(Incorporated by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).
10.9 Employment Agreement, dated March 30, 1998, between Medical
Billing and Joanne Telmosse (Incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997).
10.10 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jennifer Makula (Incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997).
10.11 Employment Agreement, dated March 30, 1998, between Medical
Billing and Jamie Silva (Incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997).
- 23 -
<PAGE>
10.12 Stock Purchase Agreement, dated March 30, 1998, among the Company,
W. Dennis Prouty, Laura C. Sotera, Garry R. Spear, Esq., YNC
General Partnership and Premier (Incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997).
10.13 Employment Agreement, dated April 1, 1998, between Premier and W.
Dennis Prouty (Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.14 Employment Agreement, dated April 1, 1998, between Premier and
Laura C. Sotera (Incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.15 Promissory Note, dated December 26, 1997 issued by Advantage Life
Products, Inc. to the Company in the principal amount of $500,000
(Incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1997).
10.16 Stock Pledge Agreement, dated December 26, 1997, between Advantage
Life Products, Inc. and the Company (Incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997).
10.17 Syndication Agreement, dated February 1, 1998, among the Company,
Barry Goldstein and Randy Wool (Incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997).
10.18 Loan and Security Agreement, dated May 8, 1998, between AFG and
FINOVA (Incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.19 Continuing Corporate Guaranty, dated May 8, 1998 issued by the
Company to FINOVA (Incorporated by reference to Exhibit 10.29 to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.20 Stock Pledge Agreement, dated December 24, 1997, between Medley
Group and the Company (Incorporated by reference to Exhibit 10.30
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.21 Letter Agreement, dated December 24, 1997, between Medley Group
and the Company (Incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1997).
10.22 The Company's 1997 Stock Option Plan (Incorporated by reference to
Exhibit 10.06 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-24937)).
10.23 Promissory Note, dated February 4, 1998, issued by Robert D. Press
to the Company in the principal amount of $60,000 (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1999).
- 24 -
<PAGE>
10.24 Promissory Note, date March 9, 1998, issued by Tract 4, Inc. to
the Company in the principal amount of $200,000 (Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1999).
10.25 Stock Purchase Agreement, dated June 30, 1998, among Ameri-Cap,
Ron Epstein, Elliot Kalus, Henry Koche and the Company
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998).
10.26 Employment Agreement, dated June 30, 1998, between Ameri-Cap and
Henry Koche (Incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998).
10.27 Stock Exchange Agreement, dated July 20, 1998, among Ameri-Cap
Finance Group, Inc., certain individuals named therein, the
Company and Ameritrust (Incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998).
10.28 Amendment, dated October 21, 1998, to Stock Exchange Agreement
between Ameri-Cap Finance Group, Inc., the Company and Ameritrust
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998).
10.29 Employment Agreement, dated November 1998, between Ameritrust and
Larry Schwartz (Incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998).
10.30 Employment Agreement, dated as of November 14, 1997, between
Residential Financial Services, Inc. and Bruce Lazarus
(Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998).
10.31 Employment Agreement, dated as of November 14, 1997, between
Residential Financial Services, Inc. and Larry Sazant
(Incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998).
10.32 Addendum, dated as of July 1, 1998, to Employment Agreement dated
as of November 14, 1998, between Residential Financial Services,
Inc. and Larry Sazant (Incorporated by reference to Exhibit 10.5
to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998).
10.33 Employment Agreement, dated December 23, 1998, between the Company
and Maynard J. Hellman.*
10.34 Stock Purchase Agreement, dated December 31, 1998, between
Ameri-Cap Mortgage, Maynard J. Hellman and the Company.*
10.35 Stock Exchange Agreement, dated December 16, 1998, between Maynard
J. Hellman, Ameri-Cap Factors and the Company.*
10.36 Stock Exchange Agreement, dated December 16, 1998, between Maynard
J. Hellman and the Company.*
10.37 Warrant for 500,000 shares of Common Stock, dated October 16,
1998, issued by the Company to Maynard J. Hellman.*
10.38 Agreement, dated December 31, 1998, between the Company and Medley
Group.*
21 Subsidiaries of the Company
23 Consent of Daszkal, Bolton & Manela
27 Financial Data Schedule
---------------------
* To be filed by amendment.
- 25 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FINANTRA CAPITAL, INC.
Date: March 30, 1999 By: /s/ Robert D. Press
--------------------------------
Robert D. Press, President
In accordance with the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert D. Press President, Chairman of the Board March 30, 1999
- ------------------------ of Directors and Chief Executive
Robert D. Press Officer
/s/ Maynard Hellman Director March 30, 1999
- ------------------------
Maynard Hellman
/s/ Arthur J. Press Director March 30, 1999
- ------------------------
Arthur J. Press
/s/ Evaldo F. Dupuy Director March 30, 1999
- ------------------------
Evaldo F. Dupuy
/s/ Thomas W. Dwyer Director March 30, 1999
- ------------------------
Thomas W. Dwyer
/s/ Alyce B. Schreiber Director March 30, 1999
- ------------------------
Alyce B. Schreiber
- 26 -
<PAGE>
FINANTRA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE #300, BOCA RATON, FLORIDA 33432
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Finantra Capital, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Finantra
Capital, Inc. and subsidiaries, as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the management of Finantra Capital, Inc. and subsidiaries. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide 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 Finantra Capital, Inc. and
subsidiaries, as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Boca Raton, Florida
March 12, 1999
F-1
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 971,760 $ 2,406,803
Accounts receivable, net 1,701,387 45,661
Finance receivables, net 4,632,875 500,000
Accrued interest receivable 41,200 0
Other receivables 156,991 0
Prepaid expenses 120,000 120,000
Total current assets 7,624,213 3,072,464
=========== ===========
Rental equipment, net 0 69,959
----------- -----------
Property and equipment, net 146,943 7,995
----------- -----------
Other assets:
Certificate of deposit - restricted 1,475,000 1,700,000
Finance receivable, net 412,000 0
Due from related parties 868,377 75,413
Prepaid expenses 296,705 30,000
Deposits 46,233 0
Goodwill, net 2,684,175 0
Other intangibles, net 64,542 0
----------- -----------
Total other assets 5,847,032 1,805,413
----------- -----------
Total assets $13,618,188 $ 4,955,831
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,368,087 $ 364,246
Accrued expenses 123,822 0
Rescission payable 100,000 0
Line of credit 2,643,571 0
Current portion of long-term debt 297,756 298,774
Obligation under capital lease 7,217 0
Notes payable - related parties 300,000 0
Due to factoring clients 1,035,130 0
Dividends payable - preferred stock 129,585 1,278
Total current liabilities 6,005,168 664,298
------------ ------------
Other liabilities:
Deferred income 12,933 0
Obligations under capital lease 2,112 0
Notes payable, net of current portion 81,802 86,913
------------ ------------
Total long-term debt 96,847 86,913
------------ ------------
Total liabilities 6,102,015 751,211
------------ ------------
Minority interest 17,089 0
Stockholders' equity:
Series A 10% redeemable convertible preferred stock,
$.01 par value, 5,000,000 shares authorized, 2,958,817
shares, issued and outstanding (liquidation value of
$2,958,817 plus accumulated dividends) 29,588 29,588
Series B convertible preferred stock, $.01 par value, 500,000
shares authorized, 500,000 shares issued and outstanding 5,000 0
Common stock, $.01 par value, 10,000,000 shares authorized,
4,112,127 and 2,667,382 shares issued and outstanding 41,121 26,674
Treasury stock, 14,600 shares at cost (34,644) 0
Additional paid-in capital 11,450,149 6,947,803
Accumulated deficit (3,992,130) (2,799,445)
Total stockholders' equity 7,499,084 4,204,620
------------ ------------
Total liabilities and stockholder's equity $ 13,618,188 $ 4,955,831
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Financial services $ 4,437,664 $ 0
Medical billing 709,521 0
Leasing and equipment sales income 3,440,434 148,589
Factoring income 889,791 46,579
Interest income 257,530 97,368
------------ ------------
Total revenues 9,734,940 292,536
------------ ------------
Cost and expenses:
Leasing and equipment cost 3,189,162 0
Depreciation and amortization 228,255 83,115
Bad debts 1,107,269 0
General and administrative expense 5,959,268 626,294
------------ ------------
Total costs and expenses 10,483,954 709,409
------------ ------------
Loss from operations (749,014) (416,873)
------------ ------------
Other (expenses):
Interest expense (201,276) (76,050)
Loss on disposal of asset (2,002) (162,567)
Loss on sale of securities available for sale 0 (40,580)
------------ ------------
Total other income (expenses) (203,278) (279,197)
------------ ------------
Income before provision for income taxes and minority interest (952,292) 0
------------ ------------
Benefit for income taxes 65,960 0
Minority interest in net (income) of subsidiaries (11,749) 0
------------ ------------
Net loss $ (898,081) $ (696,070)
============ ============
Net loss applicable to common shareholders $ (1,192,685) $ (992,179)
============ ============
Net loss per common share (basic and diluted) $ (.32) $ (.58)
============ ============
Weighted average number of shares outstanding
(basic and diluted) 3,691,956 1,698,607
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, at January 1, 1997 0 $ 0 1,680,000 $ 16,800
Issuance of warrants 0 0 0 0
Preferred stock dividends 0 0 0 0
Net loss 0 0 0 0
Sale of stock, net of issuance costs 0 0 1,017,382 10,174
Purchase and retirement of treasury stock 0 0 (30,000) (300)
Restatement of preferred stock 2,958,817 29,588 0 0
------------ ------------ ------------ ------------
Balance, at December 31, 1997 2,958,817 29,588 2,667,382 26,674
Issuance of warrants 0 0 0 0
Preferred stock dividends 0 0 0 0
Stock issued 0 0 30,000 300
Acquisitions 0 0 975,855 9,758
Stock issued for services 0 0 412,600 4,126
Preferred stock Series B to be issued 0 5,000 0 0
Private placement, net of issuance
costs, to be issued 0 0 0 0
Net loss 0 0 0 0
Purchase of treasury stock 0 0 0 0
Purchase and retirement of treasury stock 0 0 (10,000) (100)
Common stock rescission 0 0 0 0
Sale of stock, net of issuance costs 0 0 36,290 363
------------ ------------ ------------ ------------
Balance, at December 31, 1998 2,958,817 $ 34,588 4,112,127 $ 41,121
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
TREASURY PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIT)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, at January 1, 1997 $ 0 $ 1,532,206 $ (1,807,266) $ (258,260)
Issuance of warrants 0 153,488 0 153,488
Preferred stock dividends 0 0 (296,109) (296,109)
Net loss 0 0 (696,070) (696,070)
Sale of stock, net of issuance costs 0 4,636,116 0 4,646,290
Purchase and retirement of treasury stock 0 (164,700) 0 (165,000)
Restatement of preferred stock 0 790,693 0 820,281
------------ ------------ ------------ ------------
Balance, at December 31, 1997 0 6,947,803 (2,799,445) 4,204,620
Issuance of warrants 0 0 0 0
Preferred stock dividends 0 0 (294,604) (294,604)
Stock issued 0 0 0 300
Acquisitions 0 3,167,588 0 3,177,346
Stock issued for services 0 574,854 0 578,980
Preferred stock Series B to be issued 0 495,000 0 500,000
Private placement, net of issuance
costs, to be issued 0 400,578 0 400,578
Net loss 0 0 (898,081) (898,081)
Purchase of treasury stock (34,644) 0 0 (34,644)
Purchase and retirement of treasury stock 0 (54,900) 0 (55,000)
Common stock rescission 0 (100,000) 0 (100,000)
Sale of stock, net of issuance costs 0 19,226 0 19,589
------------ ------------ ------------ ------------
Balance, at December 31, 1998 $ (34,644) $ 11,450,149 $ (3,992,130) $ 7,499,084
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (898,081) $ (696,070)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 228,253 83,115
Minority interest 11,749 0
Bad debt expense 1,107,269 0
Deferred income tax (65,960) 0
Loss on sale of leased equipment 0 162,567
Loss on sale of securities available-for-sale 0 40,570
Common Stock issued for services 578,880 0
Changes in assets and liabilities:
Accounts receivable (1,352,174) 28,066
Prepaid expenses and deposits (286,290) (150,000)
Prepaid offering costs 0 73,015
Other receivables (199,161) 0
Accounts payable and accrued expenses 925,431 191,712
Customer deposits 0 (7,115)
Deferred income (12,933) 0
Other intangibles (49,387) 0
----------- -----------
Net cash (used) by operating activities (12,404) (274,140)
Cash flows from investing activities
Cash acquired in acquisitions 46,044 0
Purchase of rental equipment (76,511) 0
Notes acquired for cash (1,012,000) (500,000)
Increase in factored accounts receivable, net of
due to factoring clients (3,197,745) 0
(Increase) decrease in related party loans (792,964) 1,177,662
(Increase) decrease in certificate of deposit 225,000 (1,700,000)
Purchase of securities held for sale 0 (75,010)
Proceeds from sale of securities available for sale 0 34,440
----------- -----------
Net cash (used) by investing activities (4,808,176) (1,062,908)
Cash flows from financing activities
Notes payable
Increase in line of credit 2,643,571 0
Proceeds from long-term debt 100,000 382,951
Repayments of short-term debt 0 (70,000)
Repayments of long-term debt (322,361) (81,223)
Payment of preferred stock dividends (166,297) (56,023)
Issuance of common stock, net 420,268 3,414,658
Sale of warrants 0 153,488
Proceeds from related party debt 300,000 0
Issuance of preferred stock 500,000 0
Purchase of treasury stock (89,644) 0
----------- -----------
Net cash provided by financing activities 3,385,537 3,743,851
Net increase (decrease) in cash and equivalents $(1,435,043) $ 2,406,803
=========== ===========
Cash and equivalents - beginning of period $ 2,406,803 $ 0
=========== ===========
Cash and equivalents - end of period $ 971,760 $ 2,406,803
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow Information:
Interest paid $ 74,961 $ 104,178
=========== ==========
Supplemental noncash investing and financial activities:
Issuance of common stock for acquisitions $ 3,177,346 $ 0
=========== ==========
Long-term debt and related interest converted
into common stock and warrants $ 0 $1,068,882
----------- ----------
Purchase of treasury stock $ 0 $ 165,000
----------- ----------
Leased equipment received from affiliated
company as payment on intercompany
receivable $ 0 $ 58,888
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Finantra Capital, Inc., and subsidiaries, (the "Company"), is a Delaware
corporation with offices in Plantation, Florida. The Company specializes in
accounts receivable financing, equipment leasing, mortgage banking and other
types of specialty financing. The Company also provides accounting and billing
services to companies in the health care industry.
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.
Revenue Recognition
Revenues from financial services include insurance commissions, and fees from
mortgage brokerage and other financial services. Revenues from these types
of services are recognized when the services are provided.
Revenue from medical billing services are recognized when the services are
provided.
Leasing and equipment sales income includes the sale of equipment under sales
type leases. The present value of payments is recorded as revenues and cost of
goods sold with the book value of the equipment. Finance income on sales types
and direct financing is recognized over the term of the lease. Gains arising
from the sale of leases and the related equipment are recognized at the time the
obligations of the Company have ceased. Subsequent to the sale of the lease, the
Company has no or limited remaining interest in the transaction and no
obligation to indemnify the purchaser in the event of default.
Factoring fees on purchased receivables begin accruing on the date of the
purchase and are earned at rates stipulated in the factoring agreement.
Basis of Consolidation
The consolidated financial statements include the accounts of Finantra Capital,
Inc., and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Stock Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation," which was effective for the Company beginning November 1, 1996.
SFAS No. 123 requires expanded disclosures of stock based compensation cost to
be measured based on the fair value of the equity instrument. Under SFAS No.
123, companies are permitted to continue to apply
F-8
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Principal Board ("APB") Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The Company
will continue to apply APB Opinion No. 25 to it's stock based compensation
awards to employees. See Note 17 for the required pro forma effect on net income
and earnings per share as if the Company had adopted the expense recognition
requirement of SFAS No. 123.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over the estimated useful lives of the assets.
Finance Receivables
Finance receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge off or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans. Loan origination fees and
certain direct origination costs are capitalized and recognized as an adjustment
of the yield of the related loan.
Allowance for loan losses is increased by charges to income and decreased by
charge offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic
conditions.
The Company calculates its provision for credit losses based on changes in the
present value of expected future cash flows of its loans discounted at the
loan's effective interest rate in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards
No. 114.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and cash equivalents. The carrying amounts of cash and short-term
instruments approximate the fair value.
Finance receivables. Fair values for commercial receivables are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flows analyses or underlying
collateral values, where applicable.
F-9
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded net of an allowance for doubtful accounts
of $342,770 and $3,000, at December 31, 1998 and 1997, respectively.
NOTE 3 - ACQUISITIONS
During the calendar quarter ending March 31, 1998, the Company acquired Medical
Billing Services Systems, Premier Provider Systems and PPS Staffing Systems, a
conglomerate of companies engaged, primarily, in providing accounting and other
financial administrative services principally to the medical industry. In
consideration for these acquisitions, the Company agreed to issue to the
stockholders of these companies an aggregate of 585,000 shares of the Company's
common stock, each share valued at $4.50, one-half of such shares issuable at
the date of acquisition, with the remaining one-half of such shares being
payable one year after March 31, 1998.
On March 13, 1998, the Company acquired 80% of Americal Investment Management, a
marketer and manager of a variety of financial and insurance-related services.
According to the terms of the agreement, the seller has the right to reacquire
the shares of AIM on March 13, 1999 and March 13, 2000. The Company is obligated
to issue a total of 40,000 shares of common stock to acquire the remaining 20%
of AIM capital stock over a 37 month period beginning March 13, 1998, provided
the seller has not exercised his right to reacquire the shares of AIM.
On June 30, 1998, the Company, through a wholly owned subsidiary, Ameri-Cap
Leasing Corp., acquired 80% of the outstanding common stock of MFC Financial
Corp. As consideration, the Company issued 10,000 shares of its common stock.
Additionally, the Company has agreed to acquire the remaining MFC shares
annually in equal installments over a three-year period from the date of
closing. The acquisition consideration for the balance of the MFC shares shall
be an amount of Company common stock equal to two and one half times the net
pre-tax income of the Company's leasing division in the first year, three times
in the second year, and four times in the third year. The number of shares to be
issued shall be based upon the closing share price of the Company's common stock
on the date of each exchange.
The Company, through a wholly owned subsidiary, acquired approximately 91% of
the outstanding capital stock of Ameritrust on August 31, 1998. In
consideration, the Company issued an aggregate of 381,000 shares of its common
stock to Ameritrust's stockholders. The remaining capital stock of Ameritrust
will be exchanged for shares of the Company's common stock at annual intervals
ending on June 30, 2002 if certain earning hurdles are met. The maximum number
of shares that could be issued under this agreement over the next five (5) years
is 624,750 shares.
All acquisitions by the Company during 1998 were accounted for as purchases and
$2,851,604 in goodwill was recorded. The goodwill will be amortized over 15
years using the straight-line method. Amortization expense at December 31, 1998,
amounted to $167,429. The results of operations are included in the consolidated
statements of income from the date of the acquisitions.
F-10
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONTINUED)
The following summarize the fair value of the assets of the subsidiaries
acquired and the liabilities of the subsidiaries assumed:
<TABLE>
<CAPTION>
PREMIER PREMIER MEDICAL MFC AMERI-CAP
PROVIDER PROVIDER BILLING FINANCIAL MORTGAGE
STAFFING, SERVICES, SYSTEMS CORP. AIM GROUP, INC. TOTAL
--------- --------- ------- ----- --- ----------- -----
INC. INC.
---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets $ 218,061 $ 233,351 $ 202,646 $ (23,210) $ 14,367 $ 105,033 $ 750,248
Non-current 4,157 20,989 42,176 13,344 0 20,185 100,851
Current liabilities 13,387 (77,633) (43,153) (100,193) (14,367) (149,885) (371,844)
Non-current
liabilities (65,500) 0 0 (8,424) 0 0 (73,924)
--------- --------- --------- --------- --------- --------- ---------
Net assets $ 170,105 $ 176,707 $ 201,669 $(118,483) 0 $ (24,667) $ 405,331
========= ========= ========= ========= ========= ========= =========
</TABLE>
NOTE 4 - FINANCE RECEIVABLES
Finance receivables consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Factored receivables $ 4,232,875 $ 0
Loan receivable which is secured by an amended
pledge. The total note plus interest at 10% is
due April 1, 2006 412,000
Loan receivable which is secured by common
stock of the borrower. The note plus interest
at 10% was due December 16, 1998 500,000 500,000
Loan receivable which is secured by the pledge of
certain assigned receivables of the borrower. The
note plus interest at 10% is due April 15, 1999 600,000 0
----------- -----------
5,744,875 500,000
Less allowance for bad debts (700,000) 0
----------- -----------
Financial receivables, net 5,044,875 500,000
Less current portion 4,632,875 500,000
----------- -----------
Non current $ 412,000 $ 0
=========== ===========
</TABLE>
NOTE 5 - CONSULTING AGREEMENT
On December 31, 1997, the Company entered into an agreement for the services of
a lease financing consultant whereby consulting services would be provided to
the Company which will allow it to expand its leasing business. The Company paid
consulting fees of $150,000 for a two year period ending December 31, 1999. At
December 31, 1998 and 1997, the unexpired portion was $30,000 and $150,000,
respectively.
F-11
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Equipment, at cost $ 0 $106,094
Less, accumulated depreciation 0 (36,135)
-------- --------
Net rental equipment $ 0 $ 69,959
======== ========
</TABLE>
Depreciation expense on rental equipment for the years ended December 31, 1998
and 1997, was $19,541 and $74,108, respectively. During the year ended December
31, 1998, the Company transferred these assets to an affiliate. This transfer
resulted in a receivable of $50,418.
NOTE 7 - PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Office equipment $124,557 $ 48,571
Furniture and fixtures 55,252 0
Equipment under capital lease 42,809 0
-------- --------
222,618 48,571
Less: accumulated depreciation (75,675) (40,576)
-------- --------
Property and equipment, net $146,943 $ 7,995
======== ========
</TABLE>
Depreciation expense on property and equipment for the years ended December 31,
1998 and 1997, was $60,824 and $9,007, respectively.
F-12
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following schedule provides the information required by FASB Statement
No. 107:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 971,760 $ 971,760 $4,106,803 $4,106,803
Accounts receivable 1,700,317 1,700,317 45,661 45,661
Finance receivable 5,044,875 5,044,875 500,000 500,000
Other receivable 199,261 199,261 0 0
Certificate of deposit 1,475,000 1,475,000 0 0
Due from related parties 868,377 868,377 75,413 75,413
Liabilities:
Line of credit 2,643,571 2,643,571 0 0
Long-term debt 388,887 388,887 385,687 385,687
Notes payable - related parties 300,000 300,000 0 0
Accounts and reserve payable 2,526,937 2,526,937 364,246 364,246
Other 129,585 129,585 1,278 1,278
</TABLE>
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, finance and accounts
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. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange, and the use of different market assumptions or methodologies could
have a material effect of the estimated fair value amounts.
F-13
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - BORROWINGS
Notes payable and long-term debt obligations consist of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Line of credit: 1998 1997
- --------------- ---- ----
<S> <C> <C>
$4,000,000 revolving line-of-credit consisting of loans against the
Company's eligible receivables, interest at prime plus 1 1/2% due
monthly. The agreement expires May 2000. The Company has
$1,306,185 unused credit under this line. Secured by all of the
subsidiary's assets and guaranteed by the Company $2,643,571 $ 0
========== ==========
Notes payable to related parties:
- ---------------------------------
Participation payable at 13% annual interest due upon payment of
the related note receivable $ 150,000 $ 0
Note payable at 12% annual interest due June 1999 150,000 0
---------- ----------
Total $ 300,000 $ 0
========== ==========
Notes payable to individuals:
- -----------------------------
Participation payable at 13% interest, due upon payment of the
related note receivable $ 100,000 $ 0
Note payable at 13% annual interest, quarterly interest
payments of $975 maturing December 1999 30,000 30,000
Note payable at 13% annual interest, quarterly interest
payments of $975 maturing December 1999 30,000 30,000
Notes payable to individuals. Notes were for various amounts
and maturities through December 1998. Interest ranged from 10% 0 113,020
to 13%
Note payable in monthly installments of $4,460, including 8%
interest through July 2001 124,583 0
---------- ----------
Total individuals: $ 284,583 $ 173,020
---------- ----------
</TABLE>
F-14
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - BORROWINGS (CONTINUED)
Note payable to financial institution:
<TABLE>
<CAPTION>
<S> <C> <C>
Note payable due bank collateralized by certain of the Company's
assets not otherwise pledged and is personally guaranteed by the
Company's principal officer and affiliate. 45,000 135,000
Non-interest bearing obligation payable in monthly installments
of $10,000 with a final payment of $5,000 through September 35,000 0
1999.
7.2% obligation in various monthly installments, including
interest, through December 1999. 7,667 0
Note payable due to financial institutions at 10.46% and 11.5%
annual interest maturing May and June 2000. 7,308 0
Various notes due to a leasing company at interest rates varying
from 18.3% to 23.6%, due in monthly installments through 1999. 0 77,667
--------- ---------
Total financial institutions 94,975 212,667
--------- ---------
Total notes payable 379,558 385,687
Less current portion (297,756) (298,774)
--------- ---------
Total long-term debt $ 81,802 $ 86,913
========= =========
As of December 31, 1998, annual maturities of notes payable (excluding converted
notes) are as follows:
1999 $ 297,756
2000 51,342
2001 30,460
---------
Total $ 379,558
=========
</TABLE>
F-15
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED-PARTY TRANSACTIONS
The Company had transactions with a related company, Medley Group, Inc., whose
management 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.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Due from Medley Group, Inc. at beginning of year $ 31,506 $1,205,584
---------- ----------
Revenues 274,128 65,459
Cash payments (receipts) 325,368 (109,537)
Transferred assets 159,327 0
Less payments and credits (106,822) (1,130,000)
---------- ----------
Due from Medley Group, Inc. at end of year $ 683,507 $ 31,506
========== ==========
</TABLE>
At December 31, 1998, the Company has a receivable totaling $683,507 from Medley
Group, Inc. The total receivable consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Prepaid consulting expenses $ 200,000 $ 0
Advance receivable 150,418 31,509
Note receivable 333,089 0
---------- ----------
Total $ 683,507 $ 31,509
========== ==========
</TABLE>
The note receivable is payable in sixty (60) monthly installments of $3,754,
plus accrued interest at 5% beginning July 1, 1999. The remaining balance of
$100,000 plus any accrued interest is due July 1, 2004.
The $200,000 consulting expenses will be amortized in the form of credits for
services to the Company, primarily relating to locating and targeting companies
to be acquired. Included in the advance receivable of $151,000 are expenses paid
on behalf of Medley Group by the Company and the transferred lease equipment.
Medley Group has pledged 150,000 shares of Finantra Capital, Inc. common stock
as collateral. The market value of these shares at December 31, 1998, was
approximately $450,000, which is subject to marketability restrictions. The
ultimate collection of this receivable is dependent on the company's ability to
liquidate these shares.
F-16
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED-PARTY TRANSACTIONS (CONTINUED)
At December 31, 1998 and 1997, the Company has $1,475,000 and $1,700,000,
respectively, in a certificate of deposit with six (6) months maturities, that
is pledged as security for letter of credit for Medley Group, Inc. which is a
major shareholder of the Company and is controlled by a shareholder/officer of
the Company. The certificate currently earns interest quarterly at an annual
rate of 5.12%.
On December 31, 1998, the Company had a loan receivable from a
shareholder/officer in the amount of $60,000. The loan was modified along with
the employment agreement whereby $68,000 in principal and accrued interest will
be forgiven at a rate of 20% per year beginning in 1999. At December 31, 1998,
$5,446 is included in the Company's interest income from this note.
On December 31, 1998, the Company has a note receivable from a company which is
owned by a shareholder and director of the Company. The principal balance at
December 31, 1998, is approximately $189,000. The note bears interest at a rate
of 12% per annum and calls for monthly payments of principal and interest in the
amount of $3,500 with a final payment due May 1, 2003, in the amount of $80,193,
plus interest.
The Company has a loan payable to this individual in the amount of $150,000 at
December 31, 1998 which bears interest at 12% per annum and matures January 1,
1999. The Company's interest expense includes $13,179 from this loan. In
addition, the Company's expenses include approximately $62,000 in legal expense,
$28,000 in rent, and $48,000 in operating expense
reimbursements.
The Company has $250,000 in participation payable at December 31, 1998. The
payable is comprised of balances to three shareholders in the amounts of
$150,000, $75,000 and $25,000. The amounts bear interest at 13% interest per
annum and the balance is due upon receipt of the loan receivable for which the
shareholder is participating.
As of December 31, 1998, the Company had a note receivable from an affiliated
company, through common management, totaling $100,449. The note is unsecured and
bears interest at 3%. This affiliate will become a branch office of the Company
subsequent to year end. In addition to this note, the Company received revenue
of approximately $174,000 from the affiliate. Also, the Company paid
approximately $72,000 in expenses on behalf of the affiliate.
In addition, the Company has a non-interest bearing note receivable from an
employee totaling $26,000 at December 31, 1998. This note is to repaid by the
employee as per his employment contract with the Company.
F-17
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at two financial
institutions. The balances, at times, exceed federally insured limits. At
December 31, 1998 and 1997, the Company accounts exceeded the insured limit by
approximately $1,652,000 and $3,900,000.
Of the Company's total receivables, approximately $2,000,000 are due from a
relatively small group of debtors. If any one of this group's receivables should
become uncollectible, the Company's future results could be adversely affected.
NOTE 12 - STOCKHOLDERS' EQUITY
Rescission
Following the consummation of the initial public offering (the "IPO"),
management of the Company concluded that various procedural and administrative
matters relating to the IPO should have been disclosed during the period that
the IPO was being marketed, rather than following the consummation of the IPO,
as the Company did. These disclosures related, principally, to the Company's
issuing securities in the IPO in consideration for the cancellation of
indebtedness owing by the Company (valued at the IPO offering prices) in lieu of
cash, and the making by an affiliate of the Company to unaffiliated persons of
loans to finance the acquisition of securities in the IPO. In addition, the
Company has been notified recently by the Florida and Texas Securities
Commissions that the Company's actions in connection with the IPO may not have
complied fully with all provisions of the Florida and Texas securities
regulations. As a consequence thereof, the Company provided purchasers of the
Company's securities in the IPO with the opportunity to rescind their IPO
purchase in consideration for their IPO investment price.
The rescission offer expired January 22, 1999. As a result of this offer, the
Company has recorded a liability of $100,000.
Preferred Stock
Series A:
In June 1996, the Company authorized and issued an aggregate of 2,958,817 shares
designated as Series A 10% convertible preferred stock. At the time the
preferred stock was issued, the Company offered to certain note holders the
option to exchange their notes, approximating $972,000, to convertible preferred
stock of Finantra Capital, Inc. and subsidiaries 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 in 1996. Dividends on the
preferred stock are payable quarterly and are cumulative. The preferred stock is
convertible to common stock of the Company at $4.68. Under the terms of the
convertible preferred stock issue, the Company, at its sole discretion, 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 after the fifth anniversary, the Company has the right to redeem the
convertible preferred stock, in whole or in part, upon 30 days notice to the
holders.
F-18
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Series B:
In November 1998 the Company authorized 500,000 shares of Series B preferred
stock. The preferred stock is convertible to common stock of the Company at a
rate of 2 1/8 shares of Series B preferred stock for each share of common stock
exchanged. The Series B preferred stock is neither redeemable nor subject to
dividends. Holders of the Series B Preferred Stock are subordinate to Series A
Preferred Stock and senior to all other equity securities of the Company. In the
event of a liquidation, the holders of the Series B Preferred Stock shall be
entitled to receive out of the assets of Company available for distribution to
its stockholders, an amount equal to $1.00 per share.
Warrants Issued
At December 31, 1998, warrants to purchase 2,100,000 common shares are
outstanding; 500,000 warrants exercisable until July 2001 at strike price of
$2.50 per share, and 1,600,000 warrants exercisable until December 2001 at
$5.75.
Treasury Stock
During the year ended December 31, 1998, the Company acquired 14,600 shares of
common stock. The treasury stock is recorded at cost.
In December 1997, the Company acquired 15,000 shares of common stock from an
officer/stockholder, and 15,000 shares of common stock from a principal
stockholder, and created a loan payable in the amount of $165,000. The loan
payable was satisfied with the issuance of IPO stock to each of them. The
Treasury stock shares were canceled by the Company.
Private Placement
In November 1998, the Company commenced a private placement of securities
seeking to raise up to $2,125,000. Pursuant to this offering, the Company and
placement agent were selling up to 100 units at a purchase price of $21,250 per
unit. The Company and the Placement Agent may increase the Offering to a maximum
of 150 units ($3,178,500) in order to meet over-subscriptions. Each unit
consists of 10,000 shares of the Company's common stock and 10,000 redeemable
common stock purchase warrants (the "warrant"). Each Warrant is exercisable into
one share of common stock at $3.25 per share through November 2001. There is no
minimum number of units that must be sold before the Company can utilize the net
proceeds from unit sales.
In the event the Offering is increased, the net proceeds to the Company would
increase by approximately $924,375 (assuming the maximum amount of commissions
and fees and non-accountable expense allowance is paid), all of which would be
applied towards working capital.
F-19
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Initial Public Offering
The Company completed an initial public offering ("IPO") at December 24, 1997,
selling 1,217,382 shares of common stock and 1,223,250 warrants. Included in
this offering was 200,000 shares of common stock by the parent company, Medley
Group, Inc. Medley Group, Inc.'s, ownership percentage at December 31, 1998, is
approximately 23%.
The proceeds from the sale of the parent's company stock was used to pay off a
loan payable to Finantra Capital, Inc.
The stock sold for $5.50 per share with a $0.01 par value per share. The
warrants sold for $0.15 each and consist of one redeemable warrant to purchase
one share of common stock for $5.75. The common shares and warrants were
purchased separately and are transferable separately.
The Company received cash and subscriptions of approximately $6,893,000 for
securities and warrants sold from the IPO. Of this amount, there was a non-cash
portion approximating $1,234,000 in subscriptions, representing 223,933 shares,
that was issued to satisfy existing obligations owing by the Company to the
subscribers of the IPO. Included in this amount was approximately $290,000 due
to President and Chairman of the Board of the Company and $361,000 due to a
principal stockholder. Prepaid offering costs of approximately $958,000 were
charged to additional paid-in capital upon completion of the offering.
NOTE 13 - RECLASSIFICATION
Certain items in the 1997 financial statement have been reclassified to conform
to the 1998 presentation.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company acquired computers and equipment under the provisions of two leases
which, for financial reporting purposes, have been capitalized. The leases
expire in 1999 and 2000. The leased property under the capital leases as of
December 31, 1998, has a cost of $43,208, accumulated amortization of $13,234.
Amortization of the leased property is included in depreciation expense.
F-20
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments for these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31 LEASES LEASES
----------- ------ ------
<S> <C> <C>
1999 $ 7,876 $ 119,930
2000 2,219 101,846
2001 0 90,780
2002 0 59,524
2003 0 13,472
--------- ---------
Total minimum lease payments 10,095 $ 385,552
=========
Less: amount representing interest (766)
---------
Present value of net minimum lease payments 9,329
Less: current portion of capital lease obligations (7,217)
---------
Long-term capital lease obligation $ 2,112
=========
</TABLE>
Total rent expense for all operating leases for the years ended December 31,
1998 and 1997, was $141,530 and $7,960, respectively.
NOTE 15 - LITIGATION
Litigation
The Company is involved in litigation in the normal course of business. This
litigation is not expected to have a material effect on the Company's results of
operations or financial condition.
F-21
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Taxes currently payable $ 0 $ 0
Deferred income taxes 0 0
Change in beginning valuation allowance 0 0
--------- ---------
Provision for income taxes $ 0 $ 0
========= =========
</TABLE>
Reconciliation of the Federal statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computed at the Statutory rates $(345,207) $ 102,500
(Increase) decrease resulting from:
Non-deductible expenses 258,220 0
State income taxes, net loss 9,620 17,500
Change in deferred tax asset
valuation allowance 11,407 (120,000)
--------- ---------
Actual provision (benefit) $(65,690) $ 0
========= =========
</TABLE>
The components of the deferred tax asset were as follows at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating loss carryforward $ 829,587 $ 471,553
Allowance for bad debts (405,510) 1,139
Other 0 15,061
--------- ---------
Total deferred tax asset 424,077 487,753
Deferred tax liabilities:
Depreciation expense (18,202) (4,511)
--------- ---------
Net deferred tax asset 405,875 483,242
--------- ---------
Valuation allowance:
Beginning of year (483,242) (229,200)
Decrease (increase) during year 77,367 (254,042)
--------- ---------
Ending balance (405,875) (483,242)
--------- ---------
Net Deferred Taxes $ 0 $ 0
========= =========
</TABLE>
At December 31, 1998 and 1997, the Company has unused net operating loss
carryforwards of approximately $2,127,147 and $1,242,000, respectively, expiring
primarily in 2013 and 2012, which is available for use on its future corporate
Federal and State tax returns.
F-22
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - STOCK OPTION PLAN
On January 9, 1997, the Company established an incentive compensation stock
option plan (the "Plan"). The Plan has 1,500,000 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, or (ii)
non-qualified options. ISOs may be granted under the 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.
Options issued through December 31, 1998, carry exercise prices at the fair
market value on the date of the grant. The options vest over a period of up to
five years following the date of grant and the unexercised portion of the
options expires and ceases to be exercisable on the earlier of the stated
exercise period of the grant or specified date following termination of
employment. 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.
The Company has elected to measure compensation cost using the intrinsic value
based method of accounting prescribed in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees." Compensation cost recognized for the
stock option plan amounted to $ 0 for 1998. Disclosures about the fair value of
options and pro forma disclosures of the effect of measuring compensation based
on the fair value method of accounting have not been presented because
management believes such values do not have a material effect.
Had compensation expense for the stock option plan been determined based on the
fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for Stock
Based Compensation," the Company's loss would have been increased by $251,287.
The fair value of each option is estimated on the date of grant using the fair
market option pricing model with the assumption:
Risk-free interest rate 5.50%
Expected life (years) 2 - 5 years
Expected volatility n/a
Expected dividends None
F-23
<PAGE>
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - STOCK OPTION PLAN (CONTINUED)
Information related to options is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
------- ----------
<S> <C> <C>
Outstanding at December 31, 1997 0 $ 0
Granted 565,000 1.96
Exercised 0 0
Forfeited 0 0
---------- ----------
Outstanding at December 31, 1998
(82,000 exercisable) 565,000 $ 1.96
========== ==========
Information related to options outstanding at December 31, 1998:
Exercise price range $1.20-5.50
Number of options:
Outstanding 565,000
Exercisable 157,000
Weighted average exercise price:
Outstanding $ 1.96
Exercisable $ 1.88
Weighted average remaining contractual life 4 years
</TABLE>
NOTE 18 - SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company completed the private placement
offering. The Company sold the entire offering including the additional 50 units
to meet oversubscriptions. During the period, the Company raised an additional
$2,063,585 net of offering expense.
F-24
<PAGE>
SUBSIDIARIES OF THE COMPANY
American Factors Group, Inc. - 80% owned by the Company
Americal Investment Management - 80% owned by the Company
Medical Billing Services Systems, Inc. - 100% owned by the Company
Premier Provider Services, Inc. - 100% owned by the Company
Ameri-Med Financial Services, Inc. - 80.6% owned by the Company
Suncoast Title Company, Inc. - 80% owned by the Company
Ameri-Cap Factors Group - 100% owned by the Company
Ameri-Cap Mortgage Group - 81.4% owned by the Company
Ameri-Cap Finance Group - 100% owned by the Company
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of Finantra Capital, Inc. for the year ended December 31, 1998, to our
report dated March 12, 1999, which appears on Page F-1 of the Annual Report on
Form 10-KSB for the year ended December 31, 1998.
Boca Raton, Florida /s/ Daszkal, Bolton & Manela CPAs
Dated: March 30, 1999 -----------------------------------
Daszkal, Bolton & Manela CPAs
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 971,760
<SECURITIES> 0
<RECEIVABLES> 6,532,453
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,624,213
<PP&E> 146,943
<DEPRECIATION> 228,255
<TOTAL-ASSETS> 13,618,188
<CURRENT-LIABILITIES> 6,005,168
<BONDS> 0
0
34,588
<COMMON> 41,121
<OTHER-SE> (34,644)
<TOTAL-LIABILITY-AND-EQUITY> 13,618,188
<SALES> 9,734,940
<TOTAL-REVENUES> 9,734,940
<CGS> 0
<TOTAL-COSTS> 10,483,954
<OTHER-EXPENSES> 203,278
<LOSS-PROVISION> 1,107,269
<INTEREST-EXPENSE> 201,276
<INCOME-PRETAX> (952,292)
<INCOME-TAX> (65,960)
<INCOME-CONTINUING> (898,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,192,685)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
