<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 2000
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
FINANTRA CAPITAL, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 6153 13-3571419
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
150 South Pine Island Road
Suite 500
Plantation, Florida 33324
(954) 577-9225
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Robert D. Press
150 South Pine Island Road
Suite 500
Plantation, Florida 33324
(954) 577-9225
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
Joel D. Mayersohn, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security(1) Offering Price(1) Registration Fee(1)
- - - - - - - - - - -------------------- ------------ --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 4,650,190 $3.27 $15,206,122 $4,015
Common Stock, par value
$.01 per share (2) 2,304,886 $3.28 $ 7,560,027 $1,996
Common Stock, par value
$.01 per share (3) 1,400,000 $3.28 $ 4,592,000 $1,213
------
Total Registration Fee $7,224
======
</TABLE>
- - - - - - - - - - --------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) To be offered and sold by selling securityholders upon conversion of
our Series C Preferred Stock and accrued dividends.
(3) To be offered and sold by selling securityholders upon exercise of
common stock purchase warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
ii
<PAGE> 3
Subject to Completion January 4, 2000
PROSPECTUS
FINANTRA CAPITAL, INC.
8,335,076 SHARES OF COMMON STOCK
This prospectus covers 8,335,076 shares of common stock of Finantra
Capital, Inc. being offered by certain selling securityholders. The shares of
common stock being offered include 2,304,886 shares reserved for issuance upon
conversion of our series C preferred stock and 1,400,000 shares reserved for
issuance upon exercise of common stock purchase warrants held by selling
securityholders.
We will not receive any proceeds from the sale of the shares by the
selling securityholders. We may however receive up to $2,296,000 if all of the
common stock purchase warrants held by selling securityholders are exercised.
Our common stock and common stock purchase warrants are traded on the
OTC Bulletin Board under the trading symbols "FANT" and "FANTW," respectively.
On December 31, 1999, the closing bid price for our common stock and common
stock purchase warrants was $3.1875 and $.50, respectively.
----------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The date of this prospectus is ____________, 1999
<PAGE> 4
PROSPECTUS SUMMARY
THE COMPANY
Finantra Capital, Inc. (f/k/a Medley Credit Acceptance Corp.), a
Delaware corporation, is a diversified, multi-faceted, specialty finance company
with two principal operating arms: our commercial asset finance group and our
consumer finance group. The commercial asset finance group, operating under the
umbrella of our Ameri-Cap Business Finance Group, Inc. holding company
subsidiary, specializes, principally, in accounts receivable financing
(factoring) and equipment leasing. The consumer finance group, operating under
the umbrella of our Ameri-Cap Consumer Finance Group, Inc. holding company
subsidiary, specializes, principally, in mortgage banking and other retail
specialty financing lines.
On November 5, 1999, but effective as of September 30, 1999 for
operating, financial, tax and accounting purposes, we acquired, through our
wholly-owned subsidiary, Travelers Acquisition Corporation, Travelers Investment
Corporation and its operating subsidiaries. Travelers Investment Corporation is
a California-based specialty consumer finance company which, for the past 25
years, has been engaged, generally, in the acquisition, management, servicing
and collection of individual consumer contracts. Travelers Investment will
operate under our Ameri-Cap Consumer Finance subsidiary.
Our executive offices are located at 150 South Pine Island Road, Suite
500, Plantation, Florida 33324 , and our telephone number is (954) 577-9225.
References throughout this prospectus to "we", "us" and "our" are to
Finantra Capital, Inc. and its subsidiaries.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by
Selling Securityholders........................................ 8,355,076 shares
Common Stock Outstanding:
Prior to the Offering .................................... 10,675,224 shares
After the Offering ...................................... 10,675,224 shares
Common Stock Reserved ........................................ 1,566,500 shares issuable upon exercise of
common stock purchase warrants and an
aggregate of 2,293,483 shares issuable upon
conversion of our Series A (631,214), Series B
(235,294) and Series C (2,304,886) Preferred
stock that have been issued.
OTC Bulletin Board Trading Symbol for:
Common Stock.............................................. FANT
Common Stock Purchase Warrants............................ FANTW
Risk Factors .................................................. The offering involves a high degree of risk.
Carefully consider the information under "Risk
Factors" prior to investing.
</TABLE>
2
<PAGE> 5
SELECTED FINANCIAL DATA
The following summary of our financial information has been derived
from our audited financial statements that are included in this prospectus. We
also refer you to "Management's Discussion and Analysis or Plan of Operation"
for a discussion of our financial statements and condition. The pro forma data
for the year ended December 31, 1998 and the nine months ended September 30,
1999 have been derived from the pro forma combined financial information of
Finantra Capital and Travelers Investment Corporation.
STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1997 December 31, 1998 September 30, 1999
----------------- ----------------------------- ------------------------------
ACTUAL PROFORMA ACTUAL PROFORMA
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 292,536 $ 9,734,940 $ 19,217,632 $ 8,596,154 $ 16,643,021
Costs and expenses:
Leasing and equipment cost -- 3,189,162 3,189,162 2,767,506 2,367,506
General and administrative 709,409 6,187,523 12,627,068 6,320,079 11,876,594
Provision for collection losses -- 1,107,269 2,412,597 60,000 1,190,971
Interest 76,050 201,276 1,147,127 305,889 1,135,326
------------ ------------ ------------ ------------ ------------
Total costs and expenses 785,459 10,685,230 19,375,954 9,453,474 16,970,397
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (492,923) (950,290) (156,122) (857,320) (327,376)
Total other expenses 203,147 2,002 2,002 -- --
------------ ------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes (696,070) (952,292) (160,124) (845,520) (315,576)
Benefit for income taxes -- 65,960 65,960 -- --
------------ ------------ ------------ ------------ ------------
Minority interest in net income
of subsidiaries -- (11,749) (11,749) 11,800 11,800
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (696,070) $ (898,061) $ (105,913) $ (845,520) $ (315,576)
============ ============ ============ ============ ============
Net income (loss) applicable to
common stockholders $ -- $ -- $ (400,518) $ (1,050,120) $ (520,176)
============ ============ ============ ============ ============
Net income (loss) per common
share (basic and diluted) $ $ $ (0.07) $ (0.32) $ (0.08)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding $ $ $ 5,602,456 $ 5,703,901 $ 6,725,401
============ ============ ============ ============ ============
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
At At At
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Working Capital (deficit) $2,408,166 $1,619,045 $9,367,578
Total Assets 4,955,831 13,618,188 64,605,830
Total liabilities 751,211 6,102,015 46,295,117
Shareholders' Equity (deficit) $4,204,620 $7,499,084 $18,286,424
</TABLE>
3
<PAGE> 6
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING US AND OUR BUSINESS BEFORE PURCHASING THE SECURITIES
OFFERED HEREBY.
WE HAVE A LIMITED OPERATING HISTORY IN THE ACCOUNTS RECEIVABLE FINANCING AND
TRADITIONAL FINANCING BUSINESS LINES.
Since March 1998 our operating activities consisted largely of accounts
receivable financing and traditional financing business lines. Our limited
operating history makes it difficult to evaluate our current business and
prospects. Due to our limited operating history, it will be difficult to
accurately predict our future revenues or results of operations. Operating
results may vary depending on a number of factors, many of which are outside our
control. Before investing, you should evaluate the risks, uncertainties,
expenses and difficulties frequently encountered by companies in early stages of
development, particularly companies in the new and rapidly evolving Internet
markets.
RISKS OF DEFAULT BY OUR CUSTOMERS MAY LIMIT CASH FLOWS.
As in any finance business, our overall success will be governed
heavily by the level of defaults we incur. We believe that our credit evaluation
procedures are adequate to limit our default rate to a manageable amount.
Although we attempt to mitigate our credit risks through the use of a variety of
commercial credit reporting agencies when processing the equipment lease
applications of our customers and through various forms of non-recourse
financing, failure of our customers to make scheduled payments under their
equipment finance contracts could require us to make payments in connection with
the recourse portion of our borrowings and forfeit cash collateral pledged as
security in connection with those borrowings. In addition, any increase in such
loss or in the rate of payment defaults under any of the equipment finance
contracts originated by us could adversely effect our ability to obtain
additional funding.
We maintain an allowance for doubtful accounts in connection with
payments due under equipment lease contracts held in our portfolio. The
allowance is maintained at a level which we deem sufficient to meet future
estimated uncollectible contract receivables, based on our analysis of the
delinquencies, problem accounts, and overall risks of probable losses associated
with such contracts. There can be no assurance, however, that the amount of our
allowance will prove to be adequate.
EQUIPMENT LEASING AND FACTORING ARE CAPITAL INTENSIVE BUSINESSES.
Our revenues and profitability have traditionally been related directly
to the volume of equipment financing we originate. To increase our equipment
financing business, and to enter into the factoring marketplace, we will require
access to substantial short and long term credit and be required to continue to
sell our loans and leases to third party discounters. There can be no assurance
that we will be able to obtain additional recourse or non-recourse financing
when needed or, to the extent such financing is available, on acceptable terms.
We would be adversely effected if we were unable to continue to secure
sufficient and timely funding on acceptable terms.
ANY SUBSTANTIAL REDUCTION IN OUR ABILITY TO COMPLETE SECURITIZATIONS COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Loans and leases held by us will be secured, in part, by the collateral
value of the underlying leased equipment. To the extent we finance higher
technology equipment, deterioration in the value of such equipment could
undermine the security of our financing and our financial performance. Adverse
changes in these conditions or the quality of our loan and lease portfolios may
adversely impact the timing of our securitization transactions and our ability
to complete securitizations on terms that are satisfactory to us.
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<PAGE> 7
THE BANKING AND FINANCE INDUSTRIES ARE SUBJECT TO SUBSTANTIAL REGULATION WHICH
MAY INCREASE OUR COST OF DOING BUSINESS; OUR FAILURE TO COMPLY WITH THESE
REGULATIONS COULD ADVERSELY AFFECT OUR OPERATIONS.
Our banking and finance businesses are subject to extensive federal and
state regulation. Our lending activities are subject to regulation under various
federal and state laws including the following:
o the Truth-in-Lending Act;
o the Equal Credit Opportunity Act;
o the Home Mortgage Disclosure Act;
o the Community Reinvestment Act;
o the Electronic Funds Transfer Act;
o the Real Estate Settlement Practices Act; and
o the Fair Credit Reporting Act.
Certain of these statutes and regulations also apply to our leasing activities.
In addition, the subsidiaries through which we conduct our home equity lending
businesses are required to be licensed, and are subject to regulation in various
states as mortgage bankers, mortgage brokers, and originators, sellers and
servicers of mortgage loans. We are also subject to examinations by federal and
state regulatory authorities with respect to originating, processing,
underwriting, selling and servicing home equity loans. Failure to comply with
these statutory and regulatory requirements can lead to, among other remedies,
termination or suspension of licenses, certain rights of rescission for mortgage
loans, class action lawsuits and administrative enforcement actions.
We have implemented procedures to comply with these requirements and we
believe that we comply in all material respects with applicable local, state and
federal laws, rules and regulations. However, we cannot be certain that more
restrictive laws, rules and regulations will not be adopted in the future that
could make compliance more difficult or expensive.
OUR PROFITABILITY DEPENDS IN PART ON MARKET CONDITIONS, INCLUDING INTEREST
RATES, WHICH WE CANNOT CONTROL.
Our profitability may be affected by fluctuations in interest rates,
changes in economic conditions, shifts in consumer behavior and other factors.
Any decline in interest rates could reduce the amounts that we can earn on our
newly originated loans and leases. A decline in interest rates could also result
in an increase in prepayments which could decrease the size of our loan
portfolio if we are unsuccessful in originating new loans. Changes in economic
conditions and shifts in customer behavior are difficult to predict, and our
financial performance generally cannot be insulated from these forces. We
continually analyze the impact of interest rate risk and attempt to reduce its
impact on our profitability. Among other things, we:
o enter into hedging transactions to reduce interest rate risk;
o periodically securitize our loans and leases;
o buy and sell assets; alter the mix and term structure of our
funding base; and
o change our investment portfolio from time to time.
Substantially all of our equipment financing contracts require our
customers to make payments at fixed rates for specified terms. A special portion
of these transactions are currently funded by us with fixed rate borrowings
which are arranged at the time, or shortly after, the finance contract is
recorded. This matching process mitigates interest rate risks for these
transactions. However, from time to time, a portion of such contracts are
originally financed by us from funds derived from working capital borrowed under
our revolving credit line, which borrowings are subject to a variable interest
rate. Consequently, if interest rates increase prior to the time we are able to
secure fixed rate, long term financing for such contracts, our profit margin
with respect to such equipment financing contracts could be affected adversely.
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<PAGE> 8
Although we believe that these are effective ways to reduce interest rate risk,
there can be no assurance that they will reduce that risk in the future or that
our financial condition would not be adversely affected by changes in interest
rates or other economic conditions.
DOWNTURNS IN REGIONAL OR LOCAL ECONOMIC CONDITIONS HISTORICALLY HAVE CAUSED
INCREASED DELINQUENCY, DEFAULTS AND LOSSES ON MANUFACTURED HOUSING CONTRACTS.
An economic downturn in any region where a number of the obligors on
the contracts are located might cause higher delinquencies, defaults and losses
on the contracts. If delinquencies, defaults or losses on the contracts are
higher than expected, you could suffer a loss on your investment.
IMPACT OF CREDIT LOSSES ON PROFITABILITY -- THE NON-PRIME CONSUMER CREDIT MARKET
IN WHICH WE OPERATE INVOLVES HIGH CREDIT COSTS WHICH COULD REDUCE OUR
PROFITABILITY AND AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS TO PURCHASERS OF
THE SECURITIES.
The non-prime consumer credit market is comprised of borrowers who are
deemed to be relatively high credit risks due to various factors. These factors
include, among other things, the manner in which they have handled previous
credit, the absence or limited extent of prior credit history, and limited
financial resources. Consequently, our primary assets of non-prime consumer
loans and used automobile sales contracts, relative to other assets such as
prime consumer loans and retail installment contracts, involve a higher
probability of default and greater servicing and collection costs. Our
profitability depends upon our ability to properly evaluate the creditworthiness
of credit-impaired borrowers, to maintain adequate security for used automobile
sales contracts and to efficiently service and collect our portfolio of finance
receivables. We are unable to guarantee that the credit performance of our
customers will be satisfactory, or that the rate of future defaults and/or
losses will not exceed our recent prior experience. Delinquency rates related to
consumer lending and automobile financing are significantly influenced by
general economic conditions, such as the rate of unemployment. If general
economic conditions should worsen in the future, we anticipate that our
delinquency rates would likely increase.
REGULATORY RESTRICTIONS AND LICENSING REQUIREMENTS -- WE OPERATE IN AN INDUSTRY
IN WHICH FEDERAL AND STATE GOVERNMENTAL AUTHORITIES EXTENSIVELY REGULATE,
SUPERVISE AND LICENSE THE PARTICIPANTS; CHANGES IN THE REGULATORY ENVIRONMENT,
PARTICULARLY CHANGES RELATED TO THE MAXIMUM PERMISSIBLE INTEREST RATES THAT WE
CHARGE BORROWERS, COULD MATERIALLY HURT OUR BUSINESS AND COULD IMPAIR OUR
PROFITABILITY AND OUR ABILITY TO FULFILL OUR DEBT OBLIGATIONS.
Extensive federal and state laws, some of which require licensing and
qualification, apply to our business. These laws may regulate, among other
things:
o the maximum interest rate that may be charged to our borrowers;
o our rights to repossess and sell collateral.
An adverse change in these laws or the adoption of new laws could have a
materially adverse effect on our business by limiting the interest and fee
income we can generate on existing and additional finance receivables, limiting
the states in which we may operate, or restricting our ability to realize the
value of collateral securing our finance receivables.
Moreover, a reduction in existing statutory maximum interest rates or
the imposition of statutory maximum interest rates below those we presently
charge in unregulated jurisdictions would directly impair our profitability. In
addition, due to the consumer-oriented nature of the industry in which we
operate and uncertainties with respect to the application of various laws and
regulations in some circumstances, industry participants frequently are named as
defendants in litigation involving alleged violations of federal and state
consumer lending or other similar laws and regulations. An adverse change in,
modification to, or clarification of any of these laws or regulations, or
judicial interpretations as to whether and in what manner such laws or
regulations apply to our lines of business could result
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<PAGE> 9
in potential liability that would materially hurt our financial condition and
results of operations. As a result, our cash flow and ability to service our
debt may be reduced.
COMPETITION -- INCREASED COMPETITION IN OUR LINES OF BUSINESS COULD MATERIALLY
THREATEN OUR ABILITY TO SERVICE OUR DEBT, INCLUDING THE SECURITIES.
The consumer finance business is highly fragmented and competitive.
Traditional consumer finance sources, who have generally ignored the non-prime
consumer market in the past, are now serving this market. In addition, numerous
nontraditional consumer finance sources are serving this market. Many of our
competitors or potential competitors have significantly greater resources than
we do. Increased competition from these sources or other sources of credit for
credit-impaired borrowers in the markets we serve could result in our inability
to attract new customers or retain our existing ones, which would have an
adverse effect on our revenue. This reduction in revenue may, in turn, weaken
our financial position and our ability to service our debt.
WE MAY NEED ADDITIONAL CAPITAL TO FUND CONTINUED NEGATIVE CASH FLOWS, BUT MAY
NOT BE ABLE TO RAISE CAPITAL ON ACCEPTABLE TERMS OR AT ALL.
To date, we have operated on a negative operating cash flow basis, and
we expect to continue to do so in the near future. Our business requires
substantial cash to make payments in connection with the purchase and
securitization of loans, for operating expenses and to service our debt. We may
require additional capital in the future to satisfy our operating and debt
service requirements, to fund growth or to repay our outstanding indebtedness at
maturity. We may not, however, be able to access the capital markets in the
future on terms acceptable to us, if at all. Factors which could affect our
ability to access the capital markets or the costs of any capital raised
include:
o changes in interest rates;
o general economic conditions;
o the perception of us in the capital markets; and
o the performance of our securitization trusts.
In addition, the agreements governing our existing debt securities and credit
facilities significantly restrict our ability to incur additional indebtedness
and to issue new classes of preferred stock. Any agreements governing future
debt securities or credit facilities may contain similar restrictions.
CURRENT AND HISTORICAL DELINQUENCY AND DEFAULT RATES OF LOANS IN OUR SERVICING
PORTFOLIO MAY UNDERSTATE FUTURE DELINQUENCY AND DEFAULT RATES.
The future performance of our security portfolio may vary from current
and historical rates for a number of reasons. The incidence of delinquencies and
defaults on automobile loans tends to vary with the age of the loans. For
example, loans that are between six and 14 months old generally have a higher
likelihood of being delinquent or defaulting than loans with similar credit
characteristics that are less than six months or greater than 14 months old.
Accordingly, to the extent that our servicing portfolio grows so that it
contains disproportionately more loans originated within the prior six months,
the current and historical delinquency and default rates of loans in the
servicing portfolio may understate delinquency and default rates after that
time. In addition, to the extent we offer new loan products which involve
different underwriting policies from those we have used in the past, the
delinquency and default rates of our servicing portfolio may change.
OUR PROFITABILITY MAY BE DIRECTLY AFFECTED BY THE LEVEL OF AND FLUCTUATIONS IN
INTEREST RATES.
The level of and fluctuations in interest rates affect the difference
between the annual percentage rate paid by the borrowers under the loans we
purchase and the interest rate on the asset-back securities we sell. This gross
interest rate spread is a major source of profit for us. We monitor the interest
rate environment and employ
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<PAGE> 10
strategies designed to mitigate the effect of changes in interest rates on our
gross interest rate spread. However, changes in interest rates may adversely
affect our profitability.
VIOLATIONS OF OR CHANGES IN THE LAWS AND REGULATIONS THAT GOVERN OUR BUSINESS
COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our business is subject to numerous federal and state consumer
protection laws and regulations. Among other things, these laws and regulations:
o require us to obtain and maintain licenses and qualifications;
o limit interest rates, fees and other charges;
o limit or prescribe various other terms of our automobile loan
contracts;
o require specific disclosures; and
o define our rights to repossess and sell collateral vehicles.
If we were to violate these laws and regulations, even unintentionally, we could
be subject to government enforcement action or to consumer or securityholder
lawsuits seeking to recover for damages alleged to have resulted from the
violations. Changes in existing laws or regulations, or in their interpretation,
or the promulgation of additional laws or regulations could, among other things,
impose significant new restrictions on the way in which we do business or result
in significantly increased compliance costs. If any of this happened, it could
have a material adverse effect on us.
ACQUISITIONS AND INTEGRATION OF TRAVELERS INVESTMENT CORPORATION INTO OUR
OPERATIONS.
In November 1999, we completed the acquisition of Travelers Investment
Corporation. Our business strategy includes other potential acquisitions,
although we have no commitments with respect to any specific transaction.
Acquisitions, including that of Travelers, involve a number of risks that could
adversely effect our operating results, including:
o the diversion of management's attention;
o the integration or the operations in personnel of the acquired
companies;
o the amortization of acquired intangible assets;
o the assumption of potential liabilities, disclosed or
undisclosed, associated with the business acquire;
o the possibility that the financial and accounting systems
utilized by the business acquired will not meet our standards;
o the possibility that the business acquired will not maintain
the quality of services that we have historically provided;
o the dilutive effect and the use of our common stock as
consideration for transactions; and
o the possibility that we will be unable to attract and retain
qualified local management for both the acquiree's operations
and the ensuing consolidated operations.
There can be no assurance that we will consummate any future
acquisitions on satisfactory terms, that adequate financing will be available on
terms acceptable to us, or that any acquired operations will be successfully
integrated or that such operations will ultimately have a positive impact on us,
our financial condition or results of operations.
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<PAGE> 11
CAPITALIZATION
The following table sets forth our actual and pro forma capitalization
as of September 30, 1999 giving effect to the acquisition of Travelers
Investment Corporation. The table does not reflect the exercise of any options.
The table should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus.
September 30, 1999
-------------------------------
Actual As Adjusted
------------ ------------
Stockholders' equity:
Preferred stock, 15,000,000 shares
authorized, 3,458,817 issued:
Series A 10% redeemable convertible
preferred stock, $.01 par value,
2,958,817 shares issued and
outstanding (liquidation value of
$2,958,817 plus accumulated dividends) $ 29,587 $ 29,587
Series B convertible preferred stock,
$.01 par value, 500,000 shares
authorized, 500,000 shares issued
and outstanding 5,000 5,000
Series C 6% convertible preferred
stock, $.01 par value, 3,800 shares
authorized, 3,780 shares issued
and outstanding -- 38
Common Stock, $.01 par value,
50,000,000 shares authorized,
6,389,927 shares issued and
outstanding 65,413 85,093
Treasury stock, 14,600 shares at cost (34,644) (34,644)
Additional paid-in-capital 13,152,744 23,258,389
Accumulated deficit (4,268,831) (5,057,039)
------------ ------------
Total stockholders' equity $ 8,949,269 $ 18,286,424
============ ============
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
securityholders. However, this prospectus relates to the sale of up to 1,400,000
shares that may be issued in the event of exercise of the warrants held by
selling securityholders. In the event all of the warrants are exercised, we will
receive proceeds of $2,296,000. These proceeds, if received, will be used for
working capital purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares of common stock and common stock purchase warrants are
traded over-the-counter and quoted on the OTC Electronic Bulletin Board under
the symbols "FANT" and "FANTW", respectively. The reported high and low bid
prices for the common stock and common stock purchase warrants are shown below
for the period from inception of trading in January 1998 through December 31,
1999. The closing bid prices on December 30, 1999 for the common stock and
common stock purchase warrants were $3.1875 and $.50, respectively.
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The quotations represent prices between dealers and do not include
retail mark-up, mark-down or commissions or necessarily represent actual
transactions.
COMMON STOCK
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- - - - - - - - - - ------ ---- ---
<S> <C> <C>
January 1, 1998-March 31, 1998 $7.25 $2.75
April 1, 1998 - June 30, 1998 $5.13 $1.00
July 1, 1998 - September 30, 1998 $2.88 $1.63
October 1, 1998 - December 31, 1998 $3.00 $2.00
January 1, 1999 - March 31, 1999 $3.75 $2.75
April 1, 1999 - June 30, 1999 $5.13 $2.88
July 1, 1999 - September 30, 1999 $5.00 $2.75
October 1, 1999 - December 31, 1999 $4.00 $2.13
COMMON STOCK PURCHASE WARRANTS
PERIOD HIGH LOW
- - - - - - - - - - ------ ---- ---
January 1, 1998 - March 31, 1998(1) -- --
April 1, 1998 - June 30, 1998(1) -- --
July 1, 1998 - September 30, 1998(1) -- --
October 1, 1998 - December 31, 1998 $.10 $.04
January 1, 1999 - March 31, 1999 $.19 $.10
April 1, 1999 - June 30, 1999 $.81 $.19
July 1, 1999 - September 30, 1999 $.69 $.75
October 1, 1999 - December 31, 1999 $.38 $.19
</TABLE>
- - - - - - - - - - --------------
(1) The common stock purchase warrants did not trade during this period.
We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid for the foreseeable
future. The future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus discuss further expectations
or state other forward-looking information. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those contemplated by the statements.
Factors that might cause a difference include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
GENERAL
Finantra Capital, Inc. (f/k/a Medley Credit Acceptance Corp.), a
Delaware corporation, is a diversified, multi-faceted, specialty finance company
with two principal operating arms - our commercial asset finance group and our
consumer finance group. The commercial asset finance group, operating under the
umbrella of Ameri-Cap
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Business Finance Group, Inc., the holding company subsidiary, specializes,
principally, in accounts receivable financing (factoring) and equipment leasing.
The consumer finance group, operating under the umbrella of our Ameri-Cap
Consumer Finance Group, Inc. holding company subsidiary, specializes,
principally, in mortgage banking and other retail specialty financing. We, on
November 5, 1999, but effective as of September 30, 1999 for all operating,
financial, tax and accounting purposes, acquired, through our wholly-owned
subsidiary, Travelers Acquisition Corporation, Travelers Investment Corporation
and its operating subsidiaries. Travelers Investment Corporation is a
California-based specialty consumer finance company which, for the past 25
years, has been engaged, generally, in the acquisition, management, servicing
and collection of individual consumer contracts. Travelers Investment will
operate under our Ameri-Cap Consumer Finance subsidiary.
In addition to our commercial asset finance and consumer finance arms,
we have also established an Internet financial services company subsidiary,
Finantra Internet Services.Com, Inc., as a platform for the distribution of
financial products and services, in particular, residential mortgages, through
the Internet.
Since the consummation, during late December 1997 and early 1998, of
our initial public offering of securities, our operations have focused primarily
on growing an operation base and establishing a market presence in each of the
aforementioned business segments. Our primary strategy for achieving its
necessary growth and market presence has been, among other things, to pursue
acquisitions of existing enterprises which, in our opinion, have management
experience and earnings potential and long-term growth possibilities, and
obtaining institutional lines of credit for each business line. Having
established operations in each of its commercial asset finance and consumer
finance arms, our current principal strategy for making its operations more
profitable is to bundle (or combine and package) financial products and
services. We believe that by bundling products and services, we will be
positioned to more effectively compete since as the volume of the transactions
it handles increases, the more likely we will have access to less costly
leasing, factoring, mortgage banking and retail consumer financing lines.
In an effort to grow our Ameri-Cap Business Finance Group and Ameri-Cap
Consumer Finance Group business segments, while establishing a market presence
for the same, we, during 1998 and 1999, in addition to our recent, consummated
several other significant transactions. Principal among these were (i) our
formation of our American Factors Group, Inc. subsidiary, an entity specializing
in accounts receivable financing, (ii) our acquisition of Medical Billing
Service Systems, Inc. and Premier Provider Services, Inc., companies engaged,
generally, in providing back office accounting and other financial
administrative services principally to the medical industry, and (iii) our
acquisition of a majority interest in Ameritrust Holdings, Inc., a licensed
mortgage lender engaged in both residential and commercial lending.
We have formed several subsidiaries under the control of Ameri-Cap
Finance Group and Ameri-Cap Consumer Finance Group from which we conduct
operations. Included within our commercial asset finance arm are Ameri-Cap
Commercial Asset Finance Group, which, through Ameri-Cap Factors Group, Inc., a
wholly-owned subsidiary, controls American Factors Group, Ameri-Cap Leasing
Corp., which controls the equipment leasing aspect of our business, and
Ameri-Cap Medical Finance Group, which controls our medical industry receivables
business. Included within our consumer finance arm are Ameri-Cap Mortgage Group,
Inc., which controls Ameritrust Holdings, and Travelers Acquisition Corporation,
which controls Travelers Investment Corp.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
For the nine month period ended September 30, 1999 ("Nine Months
1999"), we generated revenues of $8,596,154, an increase of $1,460,836, or
approximately 20%, from revenues of $7,135,318 for the nine month period ended
September 30, 1998 ("Nine Months 1998"). This increase in revenues was primarily
the result of our full-scale initiation, during Nine Months 1999, of our
mortgage banking operations and an approximate $930,000, or approximate 213%,
increase, during Nine Months 1999 as compared to Nine Months 1998, in revenues
generated from our factoring operations.
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During Nine Months 1998, we had not yet commenced its mortgage banking
operations. Consequently, mortgage banking operations generated no revenue
during Nine Months 1998, while factoring income during this period was
negligible since our factoring operations were then still in the start-up mode.
Revenues generated from our mortgage banking operations effectively offset an
approximate $1.9 million decrease from Nine Months 1998 results in revenues
generated from our financial services operations. This decrease in financial
services revenues can be attributed principally to the shift in emphasis
(detailed below) in our financial services operations during Third Quarter 1999.
During the first Nine Months of 1999, we incurred an increase of
$2,516,311, or approximately 38%, in total operating costs and expenses over the
first Nine Months 1998 figures. This increase was principally the result of our
expansion and full-scale initiation, and the costs attendant thereto, during the
Nine Months 1999, of our overall business and, in particular, our equipment
leasing, mortgage banking and accounts receivable financing operations. A
portion of this increase can also be attributed to our creation of a reserve for
bad debts during the first Nine Months of 1999. As a consequence thereof, and
the approximate $180,000 increase during Nine Months 1999 in interest expenses
incurred as a result of our greater utilization of our credit facilities to
generate revenues, we recorded a net loss of $845,520 for Nine Months 1999, as
compared to net income of $378,436 for Nine Months 1998. When combined with the
provision for dividends with respect to shares of our series A convertible
preferred stock, we incurred a net loss applicable to common shareholders for
Nine Months 1999 of $1,050,120, or approximately $.18 per share, as compared to
net income applicable to common shareholders for Nine Months 1998 of $173,836,
or approximately $.05 per share.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
For the three months ended September 30, 1999, we generated revenues of
$2,213,031, a decrease of $1,838,455, or approximately 44%, from revenues of
$4,171,307 for the three months ended September 30, 1998. This decrease in
revenues was directly the result of our reorganization, during third quarter
1999, of our equipment leasing operations and shift in emphasis of its financial
services operations. During third quarter 1999, we effectively merged our
equipment leasing operations into its factoring operations for financial
reporting purposes. This reorganization will become evident in future statement
of operations presentations. In addition, during third quarter 1999, equipment
leasing revenues were adversely affected by the seasonal decrease, during the
summer months, of equipment leasing transactions. In addition, during third
quarter 1999, we shifted the emphasis of our Premier Provider Services, Inc.
subsidiary from performing back office accounting functions for third party
clients for a fee to providing in-house back office accounting functions for us
and our operating subsidiaries; consequently, the significant decrease in
financial services revenues during third quarter 1999 as compared to third
quarter 1998. The overall decrease in revenues during third quarter 1999 as
compared to third quarter 1998 was offset, however, by approximately $1.5
million of revenue generated from mortgage banking operations during third
quarter 1999.
Mortgage banking operations generated no revenue during third quarter 1998.
During third quarter 1999, primarily as a consequence of the
aforementioned reorganization of our equipment leasing operations, we recorded a
decrease of $1,838,455, or approximately 44%, in total operating costs and
expenses over third quarter 1998 figures. As a result of the foregoing, during
third quarter 1999, we recorded a net loss of $216,104, as compared to net
income of $233,963 for third quarter 1998. When combined with the provision for
dividends with respect to shares of our series A 10% convertible preferred
stock, we incurred a net loss applicable to common shareholders for third
quarter 1999 of $284,304, or approximately $.04 per share, as compared to net
income applicable to common shareholders for third quarter 1998 of $165,763, or
approximately $.04 per share.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
For Fiscal 1998, we 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 our commencement, during Fiscal 1998, of our accounts receivable
financing (factoring), equipment leasing and financial services businesses.
These operations are
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principally conducted through our Ameri-Cap Factors, Ameri-Cap Leasing and
Ameri-Cap Mortgage subsidiaries. During Fiscal 1997, our operations were
limited, principally, to winding down our prior dry cleaning and refrigeration
equipment leasing operations and consummating its IPO.
For Fiscal 1998, we 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. We 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 us
during Fiscal 1999 and thereafter, becoming delinquent or uncollectible. Our
management reasonably believes that we will generate approximately $100 million
in loans and leases during Fiscal 1999. As such, this bad debt provision
constitutes approximately 1% of our estimated Fiscal 1999 loan and lease totals.
Without giving effect to our recording of our provision for bad debts,
we 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 our recording of our provision for bad debts, however, we incurred a
loss from operations for Fiscal 1998 of $(749,014). When combined with the
provision for dividends with respect to shares of our Series A Preferred Stock
(and after giving effect to the recording of the $1,107,269 bad debt provision),
we 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had total assets of $64,605,830, as compared
to total assets of $13,618,188 at December 31, 1998. This significant increase
in total assets is directly the result of our acquisition, as of September 30,
1999, of Travelers Investment Corporation (and its subsidiaries) (see Item 5
below). The acquisition of Travelers Investment Corporation has been accounted
for under the purchase method of accounting. Approximately $44 million of assets
included on our balance sheet at September 30, 1999 are Travelers Investments'
assets. Without giving effect to the Travelers Investment acquisition, the
modest increase in our assets from December 31, 1998 (approximately $6 million),
is a product of the increased number of equipment leases, financed accounts
receivable, loans held for resale and related financial instruments originated
or underwritten by us during Nine Months 1999. The $13,941,518 of goodwill, net,
recorded on our balance sheet at September 30, 1999 represents the premium over
net equity paid by us in connection with its acquisitions of its operating
divisions. Approximately $11 million of this goodwill figure was generated from
the Travelers Investment acquisition. We anticipate that our future earnings
(assuming its acquired subsidiaries continue to generate earnings) will offset
the amortization associated with the recording of this goodwill.
At September 30, 1999, we had total liabilities of $46,270,828, as
compared to total liabilities of $6,102,015 at December 31, 1998. This
significant increase in total liabilities was directly the result of our
acquisition of Travelers Investment. Approximately $36 million of our
liabilities at September 30, 1999 are Travelers' liabilities. Without giving
effect to the Travelers Investment acquisition, the increase in liabilities from
December 31, 1998 (approximately $4 million) is a direct result of our increased
borrowings under our interest bearing credit facilities, rather than financing
internally out of its working capital, amounts necessary to fund our mortgage
banking operations.
At September 30, 1999, we had total stockholders' equity of
$18,286,424, as compared to total stockholders' equity of $7,499,084 at December
31, 1998. The increase from December 31, 1998 in stockholders' equity is
attributable directly to the approximate $11 million in stockholders' equity
inherited from Travelers Investment.
We anticipate, based on our current proposed plans and assumptions
relating to our operations and expansion, that we will be able to satisfy our
currently contemplated cash requirements for approximately the next 12 months
from working capital and cash flow. In addition, we intend to fund Travelers
Investment's operations
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from borrowings available under the $32.5 million FINOVA Credit Facility. In the
event that our plans change or our assumptions prove to be inaccurate, or
working capital, cash flow and availability under existing credit facilities
prove to be insufficient to fund our operations and expansion (due to
unanticipated expenses, delays, problems or otherwise), we would be required to
seek additional funding. Depending upon our financial strength and the state of
the capital markets, we may also determine that it is advisable to raise
additional equity capital. Except as set forth above or in our interim financial
statements included as part of this report, we have 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 us, if needed, on commercial
reasonable terms, or at all. Our inability to obtain additional capital would
have a material adverse effect on us and could cause us to be unable to
implement its business strategy or proposed expansion or to otherwise
significantly curtail or cease operations.
The FINOVA Credit Facility is in the principal amount of $32.5 million,
has a five-year term and bears interest, payable monthly, at the rate which,
from time to time, is 2% above FINOVA's stated "prime rate." Advances under the
FINOVA Credit Facility are limited, generally, to an amount not to exceed 80% of
Travelers' eligible receivables and eligible inventory (each as defined).
Travelers' obligations under the FINOVA Credit Facility have been secured by
Travelers' grant of a first lien on, and security interest in, all of Travelers'
assets, and a pledge, on a subordinated basis, of all of the capital stock of
Travelers. In addition, each of Travelers Acquisition Corp. and Finantra has
guaranteed all of Traveler's Acquisition Corp.'s obligations and liabilities
under the FINOVA Credit Facility. At the Closing, Travelers applied
approximately $15 million of advances under the FINOVA Credit Facility to
satisfy and discharge all indebtedness then owing by Travelers to Travelers'
senior lenders.
YEAR 2000 COMPLIANCE
Computer programs that are "Year 2000 noncompliant" are incapable, in
whole or in part, of processing date data between periods before and periods
after January 1, 2000. The inability of our computer systems, or the computer
systems of businesses we may acquire, to accept, store, interpret or display
dates for the year 2000 and beyond could materially impair our ability to
originate, service and sell financial products. In addition, we intend to
utilize in its internal operations a number of computer software programs,
including programs used to manage our financial and accounting functions and
sales and marketing activities. The inability of such programs to interpret
properly date data for the year 2000 and beyond could have a material adverse
effect on our operations. While we have purchased new computers and software
programs that are not year 2000 non-compliant, failure by us to identify a year
2000 problem in our software products or in any software program used in our
operations could require modifications or replacements. In such event, we will
be forced to expend such amounts of our working capital as may be necessary to
correct its software and hardware systems and implement contingency plans. We
continue 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.
BUSINESS
GENERAL
Finantra Capital, Inc. (f/k/a Medley Credit Acceptance Corp.) is a
specialty finance company engaged, principally, in accounts receivable financing
(factoring), equipment leasing, mortgaging and traditional financing business
lines. Our business is principally operated through two wholly owned
subsidiaries, Ameri-Cap Business Finance Group, Inc. and Ameri-Cap Consumer
Finance Group, Inc. Our commercial asset finance group operates under Ameri-Cap
Business Finance Group, a holding company, specializing, principally, in
accounts receivable financing (factoring) and equipment leasing. The consumer
finance group, which operates under Ameri-Cap Consumer Finance Group, a holding
company, specializes, principally, in mortgage banking and other retail
specialty financing lines. Additionally we have incorporated Finantra Internet
Services.com, Inc., a platform for the distribution of financial products and
services, in particular, residential mortgages, through the Internet.
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Since the consummation of our initial public offering in January 1998,
our operations have focused primarily on growing an operation base and
establishing a market presence in each of the aforementioned businesses. Our
primary strategy for achieving our necessary growth and market presence has
been, among other things, to pursue acquisitions of existing enterprises which
have management experience and earnings potential and long-term growth
possibilities, and obtaining institutional lines of credit for each financing
business line.
While we have only a limited operating history in the accounts
receivable financing and traditional financing business lines, we have more
seasoned experience in the equipment leasing business. Prior to January 1998,
our 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. We have discontinued
these operations entirely.
We were incorporated under the laws of the State of Delaware on May 2,
1990 under the name Premier Lease Concepts Inc. In September 1993, as part of
our merger into a subsidiary of Medley Group, Inc., we changed our name to
Medley Credit Acceptance Corp. In August 1998, we further changed our name to
Finantra Capital, Inc. Our principal executive offices are located at 150 South
Pine Island Road, Suite 500, Plantation, Florida 33324, and our telephone number
is (954) 577-9225.
ACQUISITION OF TRAVELERS INVESTMENT CORPORATION
On November 5, 1999, but effective as of September 30, 1999, we
acquired, through a wholly owned subsidiary, all of the outstanding capital
stock of Travelers Investment Corporation, a California-based provider of
specialty consumer financing. Travelers has been engaged, for over 25 years, in
the acquisition, management, servicing and collection of individual consumer
contracts. At the time of its acquisition, Travelers had an established loan
portfolio of approximately $36 million in gross consumer receivables.
In consideration for our purchase of Travelers, we paid Travelers'
stockholders an aggregate of $20 million, $15 million of which was paid in cash
at closing of the acquisition, with the remaining $5 million purchase price
taking the form of three-year 10% promissory notes (the "Notes") of our wholly
owned subsidiary, Travelers Acquisition Co. The $20 million purchase price shall
be adjusted, post closing of the acquisition, upward or downward, on a
dollar-for-dollar basis, by the amount that the consolidated stockholders'
equity of Travelers at September 30, 1999 was greater or less than, as the case
may be, $12,128,281. To secure Travelers Acquisition Co.'s obligations to
Travelers' former stockholders under the promissory notes, Travelers Acquisition
Co. granted such former stockholders a subordinated security interest in all of
Travelers' assets and pledged, on a subordinated basis, all of the capital stock
of Travelers. We have also guaranteed all of Travelers Acquisition Co.'s
obligations under the promissory notes.
AMERI-CAP BUSINESS FINANCE GROUP
AMERI-CAP FACTORS GROUP OPERATIONS
Ameri-Cap Factors', a wholly owned subsidiary of Ameri-Cap Commercial
Asset Finance Group, Inc. (a holding company) business, through its majority
owned subsidiary, American Factors Group, Inc. and its wholly owned subsidiary,
Ameri-Cap Retail Factors, Inc., focuses on the discounted purchase of approved
accounts receivable. These receivables are limited, principally, to credit
insured and other relatively low-risk accounts receivables. Ameri-Cap Factors
has expanded our operations to include traditional factoring, i.e., providing
small- to-medium sized companies with capital through the discounted purchase of
their accounts receivable.
Ameri-Cap Factors' business consists of entering into an accounts
receivable factoring and security agreement with a client which obligates the
client to sell us 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 one year, and is automatically renewable. When making an
advance collateralized by inventory, equipment, real estate or
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other assets, we enter into such additional agreements with the client, and, if
appropriate, third parties, as we deem necessary or desirable based on the type
of collateral securing the advance. We purchase accounts receivable from our
clients at a discount from face value and usually require the client's customers
to make payment on the receivables directly to us. We also take 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 an advance, we
generally take a first lien on the specific collateral securing the advance. We
almost always require personal guaranties (either unlimited or limited to the
validity and collectibility of purchased accounts receivable) from each client's
principals. Although we obtain, when available, credit insurance underwritten by
credible insurance companies, and as much collateral as possible, there can be
no assurance that the collateral obtained will be sufficient to protect us
against loss.
For purposes of providing American Factors Group with the capital
necessary to finance factoring operations, we entered into a $7 million credit
facility with FINOVA Capital Corporation. Advances under the credit facility are
secured by a pledge to FINOVA Capital Corporation of American Factors Group's
factored receivables and the guaranty of us.
AMERI-CAP LEASING CORP. OPERATIONS
Ameri-Cap Leasing is engaged in the equipment leasing business
(acquiring, originating, selling and servicing equipment leases). The equipment
leased by Ameri-Cap Leasing generally has a purchase price of less than
$250,000. As such, Ameri-Cap Leasing"s leases are commonly referred to as "small
ticket leases". Ameri- Cap Leasing currently funds the acquisition or
origination of its leases from its working capital. Ameri-Cap Leasing has
established strategic alliances with a network of independent leasing companies,
lease brokers and equipment vendors, each of which acts as a source from which
Ameri-Cap Leasing obtains access to equipment leases. Ameri-Cap Leasing
customizes lease financing products to meet the specific equipment financing
needs of its sources.
We believe that the small ticket segment of the equipment leasing
business is a rapidly growing industry due to the following:
o 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; o stricter lending
requirements of commercial banks;
o a trend toward instant approvals at the point of sale made
possible by improved technology;
o the decline in the price of computer hardware and software and
increasing demand therefor; and
o 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 Ameri-Cap
Leasing are non-cancelable. During the term of the lease, Ameri-Cap Leasing
generally receives scheduled payments sufficient, in the aggregate, to cover
Ameri-Cap Leasing's borrowing costs and the costs of the underlying equipment,
and to provide Ameri- Cap Leasing 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 Ameri-Cap Leasing's leases
provide Ameri-Cap Leasing 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 Ameri-Cap Leasing's portfolio generally range from 12
to 60 months.
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AMERI-CAP CONSUMER FINANCE GROUP
TRAVELER'S INVESTMENT CORPORATION OPERATIONS
Travelers conducts business, principally, through four operating
subsidiaries, Travelers Acceptance Corporation, Travelers Leasing Corporation,
Trace Credit Services and Traveler's Data Services. Travelers Acceptance
Corporation purchases, services and collects installment consumer contracts from
originators. Travelers Acceptance Corporation currently services approximately
200 organizations, with a total portfolio value of approximately $40 million in
notes, comprising over 21,000 individual accounts. Travelers Acceptance
Corporation provides niche based leasing solutions to a variety of businesses.
Trace Credit Services provides debt collection services to third-party clients.
Trace Credit Services currently serves approximately 100 clients and has in its
portfolio approximately $50 million in recoverable and collectible
non-performing receivables. Traveler's Data Services provides the billing and
servicing of individual consumer accounts for third-party clients. Traveler's
Data Services currently services approximately $80 million of notes.
We believe that Travelers' resources have been, historically,
under-utilized, and that, with the implementation of certain marketing and
operating strategies, Travelers' financial performance could be increased
materially. Management further believes that the acquisition of Travelers will
result in numerous marketing and operating synergies that will result, on a
consolidated basis, in revenue and earnings increases for us. The acquisition of
Travelers is expected to be immediately accretive as a result of both cost
savings and revenue expansion. We intend to effect initial Travelers' cost
reductions by combining Travelers' three existing offices into one location and
by updating Travelers' information systems and transitioning it to an Internet
access portal. In addition, we anticipate that we can eliminate approximately $1
million annually from Travelers' operating expenses as a direct result of the
elimination of certain salary and consulting fees historically paid to certain
of Travelers' former stockholders. Management further anticipates that our
revenues should be enhanced as a result of cross- selling and marketing efforts
between Travelers' and our current operating businesses including Ameri-Cap
Leasing Corp. and Ameri-Cap Mortgage's operations.
AMERI-CAP MORTGAGE GROUP OPERATIONS
Ameri-Cap Mortgage Group, Inc. is a licensed mortgage lender engaged in
both residential and commercial lending. Ameri-Cap Mortgage Group's, and its
wholly owned subsidiaries, Ameri-Cap Mortgage Lending Corp. and Ameri-Cap
Mortgage Services, Inc., operations focus primarily on conforming and
non-conforming loans, sub- prime credits, home improvement loans, sales finance
contracts and debt consolidations.
In order to provide Ameri-Cap Mortgage Group with the financial
capacity to originate its mortgage loans, we have obtained warehouse lines of
credit in the amount of $10 million from Suntrust Bank and $10 million from
Republic Bank. It is anticipated that this line will be utilized for residential
and commercial mortgages.
DISPOSITION OF ASSETS
In March 1998, we purchased American Investment Management.
Subsequently, in September, 1999 we entered into a Separation and Termination
Agreement with the principal of American Investment Management, Inc. whereby he
agreed to repurchase our 80% ownership of American Investment Management for
$35,000 and the termination of his employment agreement.
COMPETITION
The factoring, finance and equipment leasing businesses are highly
fragmented. We compete, and will compete, for customers with a number of
national, regional and local finance and factoring companies, including those
which, like us, specialize in particular segments of the overall market. In
addition, our competitors include, and will include, those equipment
manufacturers which finance the sale or lease of their products themselves,
other
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traditional types of financial services companies, such as commercial banks and
savings and loan associations, and conventional leasing and factoring companies.
Our future profitability will be directly related to our 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 we will be able to continue to compete successfully in its
targeted markets.
EMPLOYEES
We currently employ 165 full-time employees, in the following
capacities: 10 executive officers, 25 administrative employees, 50 sales and
marketing person and 80 support staff. Our employees are not represented by a
collective bargaining unit. We believe relations with our employees are good.
DESCRIPTION OF PROPERTY
We currently own no real property and conduct our business from
facilities leased to us by unaffiliated third parties in Plantation, Florida,
Boca Raton, Florida, Lake Worth, Florida, Carlsbad, California and Bainbridge
Township, Ohio. Our principal place of business is located in Plantation,
Florida. Pursuant to the terms of this lease, which has an initial term expiring
in 2004, we rent 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 leased term to approximately $18,850 during the
last year of the initial leased term. We are also obligated to pay the landlord
for these premises our proportionate share of all operating costs, expenses and
taxes. We believe these premises are well maintained and adequate to meet our
needs for the foreseeable future.
Our subsidiaries do not own any real property and conduct their
respective businesses from facilities leased to them, at market rates, by
unaffiliated persons. We believe that such leased facilities are adequate for
our subsidiaries reasonably foreseeable operations.
<TABLE>
<CAPTION>
MONTHLY SQUARE LEASE
LEASE LOCATION RENT FOOTAGE TERM
- - - - - - - - - - -------------- ------- ------- ----
<S> <C> <C> <C>
Boca Raton, Florida $5,224.57 2,200 March 31, 2003
Lake Worth, Florida $5,255.83 3,500 February 29,2000
Carlsbad, California $30,517.66 19,438 January 14, 2005
Bainbridge Township, Ohio $2,700 2,400 March 31, 2002
</TABLE>
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding the resolution of
which, our management believes, would have a material adverse effect on our
results of operations or financial condition, nor to any other pending legal
proceedings other than ordinary, routine litigation incidental to our business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions held and ages of our
executive officers and directors. All directors serve for one year and until
their successors are elected and qualify. Except for outside directors who
receive $1,500 and are reimbursed for their travel and lodging expenses for
their attendance at board meetings, directors do not presently receive
compensation for their services as directors. Officers are elected by the Board
and their terms of office are, except as otherwise stated in employment
contracts, at the discretion of the Board.
18
<PAGE> 21
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - - - - - - - - ---- --- --------
<S> <C> <C>
Robert D. Press 35 Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer
Charles Litt 51 President and Director
Maynard Hellman 54 Director
Arthur J. Press 70 Director
Evaldo F. Dupuy 55 Director
Thomas W. Dwyer 38 Director
Alyce B. Schreiber 35 Executive Vice President, Secretary and
Director
</TABLE>
ROBERT D. PRESS has served as our Chairman of the Board since August
1997 and as our Director since our inception in September 1993. From September
1993 through May 1999, Mr. Press also served as our President. Mr. Press devotes
all of his business time and efforts to the affairs of Finantra Capital. From
June 1990 to August 1993, Mr. Press served as President of Premier Lease
Concepts, Inc., our predecessor. In addition, from 1989 to 1997, Mr. Press
served as President of Performance Capital Management, Inc., a holding company
controlled in part by Mr. Press, which had interests in brokerage and investment
management, and as President of Medley 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 Series 7 and 63 professional securities
licenses. Mr. Press is the son of Arthur J. Press, our director.
CHARLES LITT has served as our President since May 1999. From 1996 to
May 1999, Mr. Litt 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 included 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 subsidiaries. Prior to 1993,
Mr. Litt served in various positions for Banc One Leasing Corporation.
MAYNARD J. HELLMAN has served as our Director 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 our Director 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, our
Chairman of the Board.
EVALDO F. DUPUY has served as our Director 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.
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<PAGE> 22
THOMAS W. DWYER has served as our Director 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 our Director and Executive Vice
President since March 1999 and our Secretary since November 1997. From 1990 to
March 1999, Ms. Schreiber served our Vice President. Prior to Ms. Schreiber's
becoming associated with us, Ms. Schreiber served as a tax specialist for
Laventhol and Horwath, a certified public accounting firm. Ms. Schreiber holds a
J.D. degree from Cardozo School of Law and a B.B.A. degree in Accounting from
the Boston University School of Management.
DIRECTORS' FEES, BOARD MEETINGS AND COMMITTEES
Our Board has established Audit and Compensation Committees. The Audit
Committee meets with management to consider the adequacy of our internal
controls and the objectivity of our financing reporting. The Audit Committee
also meets with our independent accountants and with appropriate personnel of
Finantra Capital about these matters. The Compensation Committee administers our
1997 Stock Option Plan (the "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, Dupuy, Press and Dwyer
and Ms. Schreiber. The Board of Directors met or took written action by
unanimous written consent four times during Fiscal 1998. None of our then
Directors attended (or executed written consents at) less than 75% of such
meetings. 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.
EMPLOYMENT AGREEMENTS
Pursuant to Mr. Press' employment agreement with us, as amended, Mr.
Press has agreed to serve as our Chairman of the Board. 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 our 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
thereafter. 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 our Common Stock at the date of grant. Mr. Press is
entitled to participate in all medical, stock option, pension and other benefit
plans that we may establish from time to time for our senior management
generally. Mr. Press' employment agreement is terminable by us 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. Litt's employment agreement with us, Mr. Litt has
agreed to serve as our President. This employment agreement expires on May 16,
2004 (subject to earlier termination for cause or disability). Mr. Litt shall be
paid an annual salary under this agreement of $250,000. Mr. Litt was granted
100,000 stock options in connection with the execution of his employment
agreement and, pursuant to his employment agreement, shall be granted an
additional 100,000 stock options on each December 31 during the term of the
agreement. All such options have and shall have a six month vesting period, an
exercise period of 36 months following their date of grant and an exercise price
equal to the fair market value for shares of our common stock on their date of
grant less the maximum allowable discount which will not create income to Mr.
Litt or an expense to us. In addition, we are required to provide Mr. Litt with
a furnished apartment and an automobile during the term of his employment. Mr.
20
<PAGE> 23
Litt may nonetheless terminate his affiliation with us and continue to receive
benefits and compensation under his employment agreement for the lesser of 24
months following his termination of employment or the remaining term under his
employment agreement if we are convicted of a felony within which Mr. Litt had
no knowledge or complicity, or an officer, Director or employee of us is
convicted of a felony and we, notwithstanding Mr. Litt's request, refuse to
discharge such person, or we require Mr. Litt to relocate his residence from
Atlanta, Georgia to South Florida. Subject to eligibility requirements, Mr. Litt
is entitled to participate in all medical, stock option, pension and other
benefit plans the Company may establish from time to time for its senior
management generally.
Pursuant to Mr. Hellman's employment agreement with us, Mr. Hellman has
agreed to serve as General Counsel, giving and rendering legal services, to us.
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 us 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, shall be granted an
aggregate of 75,000 incentive stock options during each year of his employment
agreement. All such incentive stock options are and will be exercisable over the
five year period following their grant at a price equal to the fair market value
for shares of our 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 we may establish from time to time for our
senior management generally.
Pursuant to Ms. Schreiber's employment agreement with us, Ms. Schreiber
has agreed to serve as our Executive Vice President. This employment agreement
expires on December 31, 2003 (subject to earlier termination for cause or
disability). Ms. Schreiber's annual salary for Fiscal 1999 under this agreement
is $85,000, and such annual salary shall increase annually by $5,000 increments
during the term of her employment agreement. Ms. Schreiber's employment
agreement further provides that she will be granted an aggregate of 50,000
incentive stock options during each year of her employment agreement. All such
incentive stock options will be exercisable over the five year period following
their grant at a price equal to the fair market value for shares of our Common
Stock at the date of grant. Subject to eligibility rules, Ms. Schreiber is
entitled to participate in all medical, stock option, pension and other benefit
plans we may establish from time to time for its senior management generally.
Ms. Schreiber has agreed, generally, not to compete with us during the term of
her employment and for the 18- month period immediately thereafter.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation
we paid during the past three fiscal years to: (a) our President and Chief
Executive Officer; and (b) each of our executive officers who earned more than
$100,000 during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
FISCAL OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/ (#) PAYOUTS COMPENSATION
- - - - - - - - - - --------------------------- ---- ------- ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert D. Press, Chairman, Chief 1998 $225,000 - - - - (1)
Executive Officer and Chief 1997 $60,000 - - - - -
Financial Officer 1996 $60,000 - - - - -
</TABLE>
(1) Mr. Press was issued 120,000 shares of our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning our grant of
options to purchase shares of our common stock during the fiscal year ended
December 31, 1998 to (a) our President and Chief Executive Officer;
21
<PAGE> 24
and (b) each of our executive officers who earned more than $100,000 during the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Percent of
Number of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year ($/Sh) Expiration Date
- - - - - - - - - - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert D. Press, Chairman,
Chief Executive Officer and
Chief Financial Officer - - - -
</TABLE>
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On January 9, 1997, the board of directors and shareholders adopted our
1997 Stock Option Plan. We have reserved 1,500,000 shares of common stock for
issuance upon exercise of options granted from time to time under the 1997 Stock
Option Plan. The 1997 Stock Option Plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under the stock option plan we may grant incentive stock options only
to key employees and employee directors, or we may grant non-qualified options
to our employees, officers, directors and consultants. The 1997 Stock Option
Plan is currently run by our board of directors.
Subject to the provisions of each of the stock option plans, the board
will determine who shall receive options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices. The term of options granted under the stock option
plan may not exceed ten years or five years for an inventive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options will be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted.
However, the incentive stock options granted to a 10% holder of our voting stock
are exercisable at a price equal to or greater than 110% of the fair market
value of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event shall the exercise price be less than 75% of the fair market value of the
shares of common stock on the date of grant. The exercise price may be payable
in cash or, with the approval of the board, by delivery of shares or by a
combination of cash and shares. Shares of common stock received upon exercise of
options will be subject to restrictions on sale or transfer. As of the date of
this prospectus, we have granted options to purchase 250,000 shares under
the stock option plan.
OPTION EXERCISES AND HOLDINGS
The following table sets contains information with respect to the
exercise of options to purchase shares of common stock during the fiscal year
ended December 31, 1998 to (a) our President and Chief Executive Officer; and
(b) each of our executive officers who earned more than $100,000 during the
fiscal year ended December 31, 1998.
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<PAGE> 25
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- - - - - - - - - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert D. Press, Chairman, - - - -
Chief Executive Officer
and Chief Financial Officer
</TABLE>
LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number Performance Estimated Future Payouts Under
of Shares or Other Non-stock Price-based Plans
Units or Period Until -------------------------------
Other Rights Maturation Threshold Target Maximum
Name (#) or Payout ($ or #) ($ or #) ($ or #)
- - - - - - - - - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert D. Press, Chairman, - - - - -
Chief Executive Officer
and Chief Financial Officer
</TABLE>
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The General Corporation Law of Delaware provides that a corporation may
limit the liability of each director to the corporation or its stockholders for
monetary damages except for liability
o for any breach of the director's duty of loyalty to the
corporation or its stockholders;
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o in respect of certain unlawful dividend payments or stock
redemptions or repurchases; and
o for any transaction from which the director derives an
improper personal benefit.
Our certificate of incorporation provides for the elimination and
limitation of the personal liability of our directors for monetary damages to
the fullest extent permitted by the General Corporation Law of Delaware. In
addition, the certificate of incorporation provides that if the General
Corporation Law of Delaware is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended. The effect of this provision is to
eliminate our rights and our stockholders (through stockholders' derivative
suits on our behalf) to recover monetary damages against a director for breach
of the fiduciary duty of care as a director (including breaches resulting from
negligence or grossly negligent behavior), except in the situations described
above. This provision does not limit or eliminate our rights or any stockholder
to seek non-monetary relief such as an injunction or rescission in the event of
a breach of a director's duty of care. The certificate of incorporation also
provides that we shall, to the full extent permitted by the General Corporation
Law of Delaware, as amended from time to time, indemnify and advance expenses to
each of our currently acting and former directors, officers, employees and
agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we
23
<PAGE> 26
have been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
Our articles of incorporation further provides for the indemnification
of any and all persons who serve as our director, officer, employee or agent to
the fullest extent permitted under Florida law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC, this indemnification is against public policy as expressed
in the securities laws, and is, therefore unenforceable.
CERTAIN TRANSACTIONS
In December 1996, we sold Maynard Hellman, a director of the Company,
in consideration for $100,000, warrants to purchase up to 1,000,000 shares of
our common stock (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 us with a $150,000 bridge loan. The current outstanding
principal balance of $100,000 under this bridge loan is payable on June 30,
2000. In connection with this bridge loan, we agreed with Mr. Hellman to
terminate the 1996 Warrants and we 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.
During the second quarter of 1998, we provided a financial
accommodation to Medley Group, a corporation controlled by Robert D. Press, for
a fee equal to $150,000 per annum. This fee is payable each year we continue to
extend such financial accommodation. Specifically, we 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 performance of certain equipment leases
sold by Medley Group to an unrelated party. Our financial exposure under this
letter of credit has been collateralized by the pledge by Medley Group to us of
750,000 shares of our common stock owned by Medley Group, which common stock,
for purposes of the pledge, has an agreed upon value of $2.50 per share.
In connection with the formation of Ameri-Cap Business Finance Group
during 1998, Mr. Frederick Horwin was granted the right, over time, to exchange
his equity interest in Ameri-Cap Business Finance Group for shares of our common
stock (aggregating less than 1% of our outstanding shares) upon Ameri-Cap
Business Finance Group's achieving certain financial performance levels. Mr.
Horwin is also entitled to established cash bonuses based upon Ameri-Cap
Business Finance Group's financial performance.
In connection with the formation of Ameri-Cap Mortgage Group during
1998, Mr. Malcolm Resnick was granted the right, on the first Tuesday of
January, 2000 and on the same day in 2001, 2002, 2003 and 2004, to exchange
3,000 shares of the common stock of Ameri-Cap Mortgage owned by Mr. Resnick on
such date into such number of shares of our common stock as shall equal $155,000
divided by the average closing price for shares of our common stock for the 20
days preceding the exchange, provided that such average closing price shall
never be deemed to be less than $2.00 nor more than $6.00. Mr. Resnick was
further granted an additional five-year exchange right whereby he shall be
entitled to exchange 20% of his common stock in Ameri-Cap Mortgage each year for
shares of our common stock at a formula rate that is based upon Ameri-Cap
Mortgage's annual pre-tax net profit. We have been granted the right, under
certain circumstances, to redeem Mr. Resnick's equity interest in Ameri-Cap
Mortgage at a formula price if Mr. Resnick ceases to be employed by us.
During December 1998, we agreed to forgive an outstanding loan in the
then outstanding amount of $68,000 made to Mr. Robert D. Press, our Chairman of
the Board, at the rate of 20% per year beginning during Fiscal 1999.
24
<PAGE> 27
On December 31, 1998, we entered into an agreement with Medley Group
pursuant to which, among other things, the manner in which the then $663,089.24
outstanding inter-company debt owing to us by Medley Group was scheduled for
repayment. Specifically, Medley Group paid us $50,000 upon the execution of this
agreement and agreed to pay us the remaining balance by December 31, 2004.
During January 1999, we, through Ameri-Cap Mortgage, acquired from Mr.
Maynard Hellman, General Counsel and our Director, 80% of the outstanding
capital stock of Suncoast Title Company, Inc., a Florida title insurance company
("Suncoast"), for 50,000 shares of our common stock. We have agreed to acquire
the remaining 20% of the outstanding capital stock of Suncoast from Mr. Hellman
in equal, annual installments through 2002 for an aggregate of 50,000 additional
shares of our common stock.
During February 1999, we, through our Ameri-Cap Factors Group
subsidiary ("Ameri-Cap Factors"), 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 our common stock. Ameri- Cap Factors previously owned 80% of the
outstanding capital stock of Ameri-Med Financial. We have 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 our common
stock.
Also during February 1999, we acquired from Mr. Hellman 1.4% of the
outstanding capital stock of our Ameri-Cap Mortgage subsidiary for 80,000 shares
of our common stock. We previously owned 80% of the outstanding capital stock of
Ameri-Cap Mortgage. We have 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 our common stock.
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us, as of December
15, 1999, relating to the beneficial ownership of shares of common stock by:
each person who is known by us to be the beneficial owner of more than five
percent of the outstanding shares of common stock; each director; each executive
officer; and all executive officers and directors as a group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Finantra Capital, Inc., 150 South Pine Island
Road, Suite 500, Plantation, Florida 33324.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as being owned
by them.
Under securities laws, a person is considered to be the beneficial
owner of securities owned by him and that can be acquired by him within 60 days
from the date of this prospectus, including upon the exercise of options,
warrants or convertible securities. We determine a beneficial owner's percentage
ownership by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of the date of this prospectus, have been exercised or converted.
25
<PAGE> 28
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
- - - - - - - - - - ------------------- -------------------- ----------
Medley Group, Inc. 700,590(1) 6.56%
Robert D. Press 3,566,569(1)(2) 25.04%
Arthur J. Press
1268 Hemlock Farms
Hawley, PA 18428 32,394(3) *
Maynard Hellman 958,750(4) 8.24%
Evaldo F. Dupuy
3911 Riviera Drive
Coral Gables, FL 33134 60,000(5) *
Charles Litt 102,000(6) *
Thomas W. Dwyer
2 Hathaway Drive
Princeton Junction, NJ 08550 46,200(7) *
Alyce B. Schreiber 82,600(8) *
All directors and officers
as a group (seven persons) 4,848,603(2-8) 31.23%
- - - - - - - - - - ----------------------
* Represents less than 1%.
(1) Mr. Press, our Chairman of the Board, may be deemed to control Medley
Group, Inc. ("Medley Group"). As such, Mr. Press may be deemed to own
beneficially all of our common stock beneficially owned by Medley
Group.
(2) Includes 456,590 shares of common stock issuable upon the conversion of
2,136,844 shares of our series A preferred stock (the "Series A
Preferred Stock") owned by Mr. Press. Also includes (i) 9,500 shares of
common stock issuable upon the exercise of certain warrants that are
exercisable at any time on or prior to September 30, 2000 at $1.50 per
share and 17,500 shares of common stock issuable upon the exercise of
certain warrants that are exercisable at any time on or prior to March
29, 2004 at $3.03 per share, (ii) 25,000 shares of common stock
issuable upon the exercise of certain options that are exercisable at
any time on or prior to January 1, 2004 at $3.16 per share, (iii)
25,000 shares of common stock issuable upon the exercise of certain
options on or prior to April 1, 2004 at $3.23 per share and (iv) 25,000
shares of common stock issuable upon the exercise on or prior to July
1, 2004, of certain other options at $4.13 per share. Does not include
an additional 25,000 shares of common stock issuable upon the exercise,
after April 1, 2000 but on or prior to October 1, 2004, of certain
other options at $4.13 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.
(3) 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 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 469 shares of
26
<PAGE> 29
common stock and 10,000 shares of common stock issuable upon the
exercise of certain options that are exercisable at any time prior to
November 24, 2002 at $2.875 per share. Each of Mr. Arthur J. Press and
Robert D. Press disclaims beneficial ownership over all shares of our
common stock owned by Mrs. Press. Arthur J. Press is the father of
Robert D. Press. Mr. Press disclaims beneficial ownership over all
shares of common stock beneficially owned by Robert D. Press.
(4) Includes 500,000 shares of common stock issuable upon the exercise of
certain warrants exercisable until December 31, 2002 at $2.50 per
share, (ii) 75,000 shares of common stock issuable upon the exercise of
certain options that are exercisable at any time on or prior to
December 16, 2003 at $2.13 per share (iii) 18,750 other shares of
common stock issuable upon the exercise of certain other options that
are exercisable at any time on or prior to January 1, 2004 at $2.75 per
share, (iv) 18,750 shares of common stock issuable upon the exercise on
or prior to April 1, 2004, of certain options at $2.94 per share and
(v) 18,750 other shares of common stock issuable upon the exercise on
or prior to June 30, 2004, of certain other options at $4.69 per share.
Does not include an additional (i) 37,500 shares of our common stock we
are contractually obligated to issue to Mr. Hellman in annual
installments through 2003 arising out of Mr. Hellman's sale to us of
his interest in certain of our subsidiaries and a Florida based title
insurance company, and (ii) 18,750 shares of common stock issuable upon
the exercise after March 30, 2000 but on or prior to September 30, 2004
of certain other options at $3.75 per share.
(5) Includes 50,000 shares of common stock issuable upon the exercise of
certain options that are exercisable at any time on or prior to June 8,
2001 at $1.50 per share and 10,000 shares of common stock issuable upon
the exercise of certain options that are exercisable at any time prior
to November 29, 2002 at $2.875 per share.
(6) Includes 100,000 shares of common stock issuable upon the exercise
prior to May 17, 2002, of certain options at $4.00 per share. Does not
include an additional 100,000 shares of common stock issuable upon the
exercise, after June 30, 2000 but on or prior to December 31, 2002 of
certain other options at $2.94 per share.
(7) Represents shares of common stock issuable upon the conversion of
169,419 shares of Series A Preferred Stock owned by Mr. Dwyer and
10,000 shares of common stock issuable upon the exercise of certain
options that are exercisable at any time prior to November 29, 2002 at
$2.875 per share.
(8) Includes 10,000 shares of common stock issuable upon the exercise of
certain options that are exercisable at any time on or prior to May 31,
2000 at $1.20 per share and 40,000 shares of common stock issuable upon
the exercise of certain other options that 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 $2.00 per share and 12,500 shares of common stock issuable upon
the exercise on or prior to March 31, 2004, of certain options at $2.94
per share and 12,500 shares of common stock issuable upon the exercise
on or prior to June 30, 2004, of certain other options at $4.69 per
share.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.01 par value per share and 15,000,000 shares of preferred stock, $.01
par value per share. As of the date of this prospectus, there are 10,675,224
shares of common stock issued and outstanding, which are held of record by
approximately 700 holders. As of the date of this prospectus, there are
2,958,817, 500,000 and 3,780 shares of series A, series B and series C preferred
stock outstanding, respectively.
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<PAGE> 30
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on
all matters submitted to a shareholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of our liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock.
Holders of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are, and the
shares underlying all option and warrants will be, duly authorized, validly
issued, fully paid an non-assessable upon our issuance of these shares.
PREFERRED STOCK
We may issue preferred stock from time to time, with such designations,
preferences, conversion rights, cumulative, relative, participating, optional or
other rights, including voting rights, qualifications, limitations or
restrictions as are determined by our Board of Directors. We have no present
intention of issuing shares of preferred stock.
SERIES A 10% REDEEMABLE CONVERTIBLE PREFERRED STOCK
The 10% series A preferred stock ranks PARI PASSU to the Series C 6%
Convertible Preferred Stock (except to the extent certain holders thereof have
not consented to and waived the issuance of the 6% Series C preferred stock
ranking PARI PASSU to the 10% Series A preferred stock) and ranks senior to (i)
any other series or classes of preferred stock hereafter created and (ii) all of
our other equity securities, including common stock. Dividends, when, as and if
declared by the board of directors, shall be paid out of funds at the time
legally available for such purpose, regular, quarterly cumulative dividends in
cash at the annual rate of 10% per annum in respect of the liquidation value (as
defined below).
LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution or winding up of our
business, whether voluntary or involuntary, the holders of shares of the 10%
series A preferred stock shall be entitled to receive out of our assets
available for distribution to our stockholders, an amount equal to $1.00 per
share, plus any accrued dividends and unpaid thereon to the date of liquidation,
before any payment shall be made or any assets distributed to the holders of our
common stock or any class or series of our capital stock ranking junior as to
liquidation rights to the 10% series A preferred stock.
REDEMPTION
Commencing June 1, 2001, we shall have the unilateral right to redeem,
in whole or in part, the outstanding shares of 10% series A preferred stock at
the price of $1.00 per share (together with all accrued but unpaid dividends
thereon to the date fixed for redemption), provided, that the average closing
price per share of our common stock for the 20 consecutive trading days
immediately preceding June 1, 2001 exceeds the then conversion price by not less
than 20%.
VOTING RIGHTS
The shares of 10% series A preferred stock carry no voting rights
except:
28
<PAGE> 31
o as required by law; or
o if and whenever accrued dividends on the series A preferred
stock shall not have been paid or declared for four
consecutive quarters on all shares of series A referred stock
at the time outstanding, then, and in such event, the holders
of the series A preferred stock, voting separately as a class,
shall be entitled to elect one (1) director to our board of
directors.
CONVERSION RIGHTS
The 10% series A preferred stock shall, at the option of the holder, be
convertible, at any time, in whole or in part, into fully paid and
non-assessable shares of common stock. The number of shares of common stock
issuable upon conversion shall be determined by dividing the aggregate
liquidation value of all shares of 10% series A preferred stock being converted
(together with the amount of any and all accrued but unpaid dividends with
respect to such shares) by $4.6875, subject to adjustment.
SERIES B CONVERTIBLE PREFERRED STOCK
The series B preferred stock ranks junior to the series A preferred
stock and ranks senior to (i) any other series or classes of preferred stock
hereto or hereafter created and (ii) all of our other equity securities,
including common stock.
LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution or winding up of our
business, whether voluntary or involuntary, the holders of shares of the series
B preferred stock shall be entitled to receive out of our assets available for
distribution to our stockholders, an amount equal to $1.00 per share.
CONVERSION RIGHTS
The series B preferred stock shall, at the option of the holder, be
convertible, at any time from and after the consummation of our IPO, in whole or
in part, into fully paid and non-assessable shares of common stock. The holders
of the series B preferred stock shall exchange 2 and 1/8 shares of series B
preferred stock for each share of common stock being exchanged.
SERIES C 6% CONVERTIBLE PREFERRED STOCK
The 6% series C preferred stock ranks PARI PASSU to the 10% series A
preferred stock (except to the extent certain holders thereof have not consented
to and waived the issuance of the 6% series C preferred stock ranking pari passu
to the 10% series A preferred stock) and the series B preferred stock (as to
distributions and upon liquidation, dissolution or winding up. The holders of 6%
series C preferred stock shall be entitled to receive, in preference to the
holders of common stock or any other junior ranking securities, cumulative
annual dividends at the annual rate of 6% of the stated value ($1,000 per share)
in cash for each share of 6% series C preferred stock held.
LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution or winding up of our
business, whether voluntary or involuntary, the holders of shares of the 6%
series C preferred stock shall be entitled to receive out of our assets
available for distribution to our stockholders, an amount equal to the stated
value ($1,000 per share).
29
<PAGE> 32
REDEMPTION
If we receive a conversion notice from a holder of 6% series C
preferred stock and it is determined that the per share market value on the
conversion date is less than $3.00, then we shall redeem all of the shares of
6% series C preferred stock then held by such holder. The redemption price shall
be equal to 120% of the stated value, together with any and all accumulated and
unpaid dividends thereon through the date of redemption, of such holder's shares
of 6% series C preferred stock.
VOTING RIGHTS
The shares of series C preferred stock carry no voting rights except:
o as required by law; or
o so long as any shares of 6% series C preferred stock
are outstanding, we shall not, and shall cause our
subsidiaries not to, without the written consent of
the holders of 66 2/3% of the shares of the 6% series
C preferred stock then outstanding, (a) amend, alter
or change the preferences or rights of any series or
class of our capital stock or the qualifications,
limitations or restrictions thereof if such
amendment, alteration or change adversely affects the
powers, preferences or rights given to the 6% series
C preferred stock, (b) alter or amend the 6% series C
preferred stock Certificate of Designation, (c)
authorize or create any class or series of any class
of capital stock ranking as to distribution of assets
upon liquidation or otherwise senior to the series C
preferred stock, (d) amend our Certificate of
Incorporation, bylaws or other organizational
documents so as to affect adversely any rights of any
holders, (e) increase the authorized number of shares
of series C preferred stock, and (f) enter into an y
agreement with respect to the foregoing.
CONVERSION RIGHTS
Shares of Series C Preferred Stock are convertible into shares of our
Common Stock at any time at the option of the holder as follows:
o if conversion is requested prior to the expiration of
the 180-day period immediately following November 5,
1999, the holder shall be entitled to that number of
shares of common stock as equals the quotient of (i)
the aggregate liquidation preference (plus all
accrued and unpaid dividends) attributable to such
holder's shares of 6% series C preferred stock
divided by (ii) $3.28 (such price being the average
closing price on the OTC Bulletin Board for shares of
our Common Stock for the three trading days
immediately preceding November 5, 1999 (the "Initial
Conversion Price"));
o if conversion is requested at any time following the
180-day period immediately following November 5,
1999, the holder shall be entitled to that number of
shares of common stock as equals the quotient of (y)
the aggregate liquidation preference (plus all
accrued and unpaid dividends) attributable to such
holder's shares of 6% series C preferred stock
divided by (z) the lesser of (A) the Initial
Conversion Price and (B) the product of (1) 80%
multiplied by (2) the closing price on the OTC
Bulletin Board (or the exchange upon which shares of
our common stock may then be listed) for shares of
our common stock on the trading day immediately
preceding the date that conversion is requested.
Additionally, if, on the 180th day immediately following November 5,
1999, the closing price on the OTC Bulletin Board (or the exchange upon which
shares of our common stock may then be listed) for shares of our common stock is
not equal to or greater than twice the Initial Conversion Price, we will issue
to each holder of the 6% series C preferred stock, such number of shares of our
common stock as is equal to the difference between (i) the quotient of (a) the
aggregate liquidation preference (plus all accrued and unpaid dividends)
attributable to such
30
<PAGE> 33
holder's shares of 6% series C preferred stock divided by (b) the Initial
Conversion Price and (ii) the quotient of (A) the aggregate liquidation
preference (plus accrued and unpaid dividends) attributable to such holder's
shares of 6% series C preferred stock divided by (B) the product of (1) 90%
multiplied by (2) the Initial Conversion Price.
REDEEMABLE WARRANTS
Each warrant entitles the registered holder to purchase, commencing one
year following the date of this Prospectus, one share of common stock at a price
of $5.75, subject to adjustment in certain circumstances, until 5:00 p.m.,
Eastern time, on July 22, 2002 (five years following the date of this
Prospectus).
The warrants are redeemable by us at any time, upon notice of not less
than 30 days at a price of $.15 per warrant, provided that the closing bid
quotation of the common stock on all 25 of the trading days ending on the third
day prior to the day on which we give notice of redemption has been at least
150% ($8.25, subject to adjustment) of the initial offering price of the common
stock. The warrant holders shall have the right to exercise their warrants until
the close of business on the date fixed for redemption. The exercise price and
number of shares of common stock issuable on exercise of the warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation.
However, the warrants are not subject to adjustment for issuances of common
stock at prices below the exercise price of the warrants.
No warrant will be exercisable unless at the time of exercise we have
filed a current registration statement with the Commission covering the shares
of common stock issuable upon exercise of such warrant and such shares have been
registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such warrant. We will use our best efforts to have all shares so registered
or qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of the warrants, subject to the terms of
the warrant agreement. While it is our intention to do so, there can be no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the warrants.
However, if a warrant holder exercises all warrants then owned of record by him,
we will pay such warrant holder, in lieu of the issuance of any fractional share
which is otherwise issuable, an amount in cash based on the market value of the
common stock on the last trading day prior to the exercise date.
OTHER OUTSTANDING WARRANTS
As of the date of this prospectus we have 700,000 warrants outstanding
to purchase common stock. These warrants are exercisable at a price of $3.28 per
share until November 5, 2004.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for our common stock and warrants is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005, and its telephone number is (718) 921-8355.
REPORTS TO SECURITYHOLDERS
We intend to furnish our stockholders with annual reports containing
audited financial statements. We may disseminate such other unaudited interim
reports to securityholders as we deem appropriate.
31
<PAGE> 34
SELLING SECURITYHOLDERS
We have listed below:
o the name of each selling securityholder;
o the number or shares of common stock beneficially
owned by each selling securityholder as of the date
of this prospectus, giving effect to the conversion
of the series C preferred stock and exercise of the
selling securityholders' warrants into shares of
common stock; and
o the number of shares being offered by each selling
securityholder.
The shares of common stock being offered are being registered to permit
public sales and the selling securityholders may offer all or part of the shares
for resale from time to time. Finantra Capital is paying for all the expenses of
the registration. We will receive no proceeds of this offering, but we could
receive up to $2,296,000 if the warrants to purchase shares of our common stock
are exercised by selling securityholders.
The following table is derived from our books and records, as well as
from those of our transfer agent. No selling securityholder is affiliated with
us. An "*" indicates less than one percent.
32
<PAGE> 35
<TABLE>
<CAPTION>
Shares Owned Shares Available Shares Percent of
Prior to this Pursuant to Owned after Class
Selling Securityholder Offering This Prospectus Offering After Offering
- - - - - - - - - - ---------------------- ------------- --------------- -------- --------------
<S> <C> <C> <C> <C>
Esquire Trade &
Finance, Inc. 670,732(1)(2) 670,732(1)(2) - *
Austinvest Anstalt Balzers 670,732(1)(2) 670,732(1)(2) - *
Nesher, Inc. 60,976(1)(3) 60,976(1)(3) - *
Amro International, S.A. 517,074(1)(4) 517,074(1)(4) - *
Altra Trading &
Investment, Inc. 252,440(1)(5) 252,440(1)(5) - *
The Gross Foundation 121,952(1)(6) 121,952(1)(6) - *
Talbiya B. Investments, Ltd. 257,014(1)(7) 257,014(1)(7) - *
Ellis Enterprises 188,294(1)(8) 188,294(1)(8) - *
Libra Finance, S.A. 942,806(1)(9) 942,806(1)(9) - *
Aryeh Leib Schwartz 22,866(1)(10) 22,866(1)(10) - *
AFIBA AG 100,000 100,000 - *
Al & Laura I. Bost 10,000 10,000 - *
Alan Abelson 1,000 1,000 - *
Alec Arho 10,000 10,000 - *
Alfredo Forgione 10,000 10,000 - *
Angelo Calvello 5,000 5,000 - *
Ann Katherine Stromberg 10,000 10,000 - *
Ann-Marie Kolster 25,000 25,000 - *
Anthony J. Esper 6,000 6,000 - *
Anthony Lopez 10,000 10,000 - *
Arete Diversified Hedge Fund 10,000 10,000 - *
Azzarelli Enterprise, Ltd. 10,000 10,000 - *
Banque Edouard Constant SA 20,000 20,000 - *
Barry Goldstein 87,500 87,500 - *
Barry Saxs 33,000 33,000 - *
Barth Azzarelli 10,000 10,000 - *
Beril & Klara Sinnrich 43,000 43,000 - *
Bill Wimble 10,000 10,000 - *
Bobby N. Butts 20,000 20,000 - *
Briston Investment Group 400,000 400,000
Business Administrative
Services, Inc. 40,000 40,000 - *
C & K Capital 22,500 22,500 - *
Calvo Spendthrift Trust 50,000 50,000 - *
Canaclord Capital Corporation 10,000 10,000 - *
Carlos andGlenda Johns 10,000 10,000 - *
Carol Edelson 100,000 100,000 - *
Carrington Capital 40,000 40,000 - *
Central American
Enterprises, Ltd. 20,000 20,000 - *
Central American
Enterprises, Ltd. 10,000 10,000 - *
Charles Fest 10,000 10,000 - *
Christian Kolster 10,000 10,000 - *
Christian Kolster 15,000 15,000 - *
Claude Disserens 10,000 10,000 - *
Credit Lyonnais (Schweiz) AG 50,000 50,000 - *
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
D.M Stone Revocable Trust 10,000 10,000 - *
David Banning 30,000 30,000 - *
David Banning, Jr. 20,000 20,000 - *
David Horlington 50,000 50,000 - *
David Horlington 50,000 50,000 - *
David J. Bell 10,000 10,000 - *
Debbie and Gary Phillips 10,000 10,000 - *
Derek Taylor 80,000 80,000 - *
Dominique Pilet 20,000 20,000 - *
Donald McDermott 10,000 10,000 - *
Donald Tocco 5,000 5,000 - *
E. William Reiber 10,000 10,000 - *
E.T. Henry 10,000 10,000 - *
El Oro Mining &
Exploration Co. 100,000 100,000 - *
Estate of William Starr 82,433 82,433 - *
Everett Sorenson 77,647 77,647 - *
Francis DeBenedictis 10,000 10,000 - *
Frank Leskinenn 1,500 1,500 - *
Frank Musolino 430,000 430,000 - *
Frank Musolino 100,000 100,000 - *
Fred Dupuy 10,000 10,000 - *
Gary R. & Jacqueline L.
Trombley 20,000 20,000 - *
George G. & June Oliver 10,000 10,000 - *
Gilbert Wolter 20,000 20,000 - *
Golden Lion 20,000 20,000 - *
Gulfshore Brokerage, Inc. 1,300 1,300 - *
Henrick Gayer 25,000 25,000 - *
Hi-tel 25,000 25,000 - *
Hugh Alcorn 25,000 25,000 - *
Irwin Gross 25,000 25,000 - *
James & Robin Eilers 10,000 10,000 - *
Jay Massaro 10,000 10,000 - *
John Mathis 10,000 10,000 - *
John Ash 5,000 5,000 - *
Jonathan Huttner 12,500 12,500 - *
Jorma Alhopuro 10,000 10,000 - *
Joseph Nuccio 10,000 10,000 - *
Jukka Lehtonen Estate 15,000 15,000 - *
Kari Ahola 10,000 10,000 - *
Kari Ahola 10,000 10,000 - *
Karnaff Limited 200,000 200,000 - *
Kim Schwencke 20,000 20,000 - *
Kurt H. Hull 20,000 20,000 - *
Lago Invest 30,000 30,000 - *
Leif Kolster 33,000 33,000 - *
Leo & Sharon Harvey 3,400 3,400 - *
Leonard Martz 3,000 3,000 - *
Leslie Bauer 10,000 10,000 - *
Linda Hecht 10,000 10,000 - *
Lloyds Bank PLC 50,000 50,000 - *
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
MaCalay Asst Management, Ltd. 10,000 10,000 - *
Marc Sacks 50,000 50,000 - *
Marcia and David
Thuermer JTWROS 10,000 10,000 - *
Margaret Davis 10,000 10,000 - *
Mark Himan 15,000 15,000 - *
Mark Hirst 10,000 10,000 - *
Mark J. & Elisa A. Stevens 10,000 10,000 - *
Markus Lindberg 10,000 10,000 - *
Massaro Plumbing Co. 10,000 10,000 - *
Melvin Hughes 3,500 3,500 - *
Mergers, Acquisitions &
Placements, Inc. 120,000 120,000 - *
Michael & Carol Lechance 10,000 10,000 - *
Michael Azarelli 20,000 20,000 - *
Michael Orr 20,000 20,000 - *
Micheal Wayne Trust 10,000 10,000 - *
Mitch Welin 30,000 30,000 - *
Northwoods Capital Money
Purchase Pension 5,000 5,000 - *
Paul Whiting 20,000 20,000 - *
Pauline Mordini 10,000 10,000 - *
Peter Nasca 10,000 10,000 - *
Phillip Taylor 5,000 5,000 - *
Pierre Arbour 50,000 50,000 - *
Ralph C. Mahin 10,000 10,000 - *
Randy Wool 37,500 37,500 - *
Ray Diana 10,000 10,000 - *
Richard Carolan 50,000 50,000 - *
Richard T. & Kathy Carbaugh 20,000 20,000 - *
Richard W. Henry 10,000 10,000 - *
Rickard Rosen 2,000 2,000 - *
Robert Curci 10,000 10,000 - *
Robert Lowe II 10,000 10,000 - *
Robert P Kouwe 50,000 50,000 - *
Rocky P. Pagliarulo 10,000 10,000 - *
RogerD. Ladd 10,000 10,000 - *
Roger Andre Pinder 10,000 10,000 - *
Ronald Don 15,967 15,967 - *
Rosalyn T. & Keith F. Tart 10,000 10,000 - *
Royter & Co. 50,000 50,000 - *
Rudolfo Suarez 2,000 2,000 - *
Russell Wolter 3,700 3,700 - *
Ruth Adney 10,000 10,000 - *
Ruth C. Kelly 10,000 10,000 - *
Scott A. Nedrow 10,000 10,000 - *
SG Hamaros Bank & Trust 30,000 30,000 - *
Simon Sinnrich 387,000 387,000 - *
Solomon Grey Financial 50,000 50,000 - *
Stephen Story 20,000 20,000 - *
Steve & Mary Lou Dreyer 5,625 5,625 - *
Steve Aufderhar 20,000 20,000 - *
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C>
Tan Ching Khoon 10,000 10,000 - *
Tan Ching Khoon 100,000 100,000 - *
Tari Shannon 5,000 5,000 - *
Terry W. Kramer 10,000 10,000 - *
Theodore P. Kovaleff 10,000 10,000 - *
Thomas Zilliacus 3,000 3,000 - *
Todd R. Taylor 10,000 10,000 - *
Trust Co. of America
F/B/O Larry Neely 10,000 10,000 - *
Vincent Testaverde 20,000 20,000 - *
W. Van Gelown. 30,000 30,000 - *
Wallace Fritz 2,500 2,500 - *
Walter J. Croll 20,000 20,000 - *
Warren Freistat 18,118 18,118 - *
WilliamAshby 50,000 50,000 - *
William & Debra Shelton 10,000 10,000 - *
William A. Strickland
Rev. Trust. 10,000 10,000 - *
William Betke 1,500 1,500 - *
William R. & Debra B.
Shelton 10,000 10,000 - *
--------- --------- --------- ---------
Total 8,335,076 8,335,076 - *
========= ========= ========= =========
</TABLE>
(1) Because the number of shares of common stock issuable upon conversion
of the series c preferred stock and as payment of interest thereon may
be dependent in part upon the market price of the common stock prior to
a conversion, the actual number of shares of common stock that will be
issued in respect of such conversions or interest payments and,
consequently, offered for sale under the registration statement, cannot
be determined at this time. However, we have contractually agreed to
register 200% of the shares of common stock issuable upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii).
(2) Includes 670,732 shares of common stock issued upon conversion of the
series C preferred stock and as payment of interest thereon.
(3) Includes 60,976 shares of common stock issued upon conversion of the
series C preferred stock and as payment of interest thereon.
(4) Includes (i) 317,074 shares of common stock issued upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii) 200,000 shares of common stock issuable upon exercise of warrants.
(5) Includes (i) 152,440 shares of common stock issued upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii) 100,000 shares of common stock issuable upon exercise of warrants.
(6) Includes 121,952 shares of common stock issued upon conversion of the
series C preferred stock and as payment of interest thereon.
(7) Includes (i) 157,014 shares of common stock issued upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii) 100,000 shares of common stock issuable upon exercise of warrants.
(8) Includes (i) 68,294 shares of common stock issued upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii) 120,000 shares of common stock issuable upon exercise of warrants.
(9) Includes (i) 62,806 shares of common stock issued upon conversion of
the series C preferred stock and as payment of interest thereon and
(ii) 880,000 shares of common stock issuable upon exercise of warrants.
(10) Includes 22,866 shares of common stock issued upon conversion of the
series C preferred stock and as payment of interest thereon.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be distributed from time to
time by the selling securityholders in one or more transactions that may take
place on the over-the-counter market. These include ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of these shares as principals, at market prices
existing at the time of sale, at prices related to existing market prices,
through Rule 144 transactions or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of securities.
The selling securityholders may sell the securities in one or more of
the following methods:
o a block trade in which a broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principals to facilitate the transaction;
o purchasers by a broker or dealer as principal and resale by
the broker or dealer for its account under this prospectus;
o ordinary brokerage transactions and transactions which the
broker solicits purchases, and
o face-to-face transactions between sellers and purchasers
without a broker-dealer.
In making sales, brokers or dealers used by the selling securityholders
may arrange for other brokers or dealers to participate. The selling
securityholders and others through whom such securities are sold may be
"underwriters" within the meaning of the Securities Act for the securities
offered, and any profits realized or commission received may be considered
underwriting compensation.
36
<PAGE> 39
At the time a particular offer of the securities is made by or on
behalf of a selling securityholder, to the extent required, a prospectus is to
delivered. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling securityholder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
We have told the selling securityholders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have provided each of the selling
securityholders with a copy of these rules. We have also told the selling
securityholders of the need for delivery of copies of this prospectus in
connection with any sale of securities that are registered by this prospectus.
Sales of securities by us and the selling securityholders or even the
potential of these sales may have a negative effect on the market price for
shares of our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this prospectus, we have 10,675,224 shares of common
stock issued and outstanding. Of those shares, 6,083,258 shares, including
4,650,190 shares covered by this prospectus, are freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an affiliate of ours.
This does not include shares that may be issued upon exercise of options.
The remaining 4,591,966 shares of common stock currently outstanding
are restricted securities, and will become eligible for public sale at various
times, provided the requirements of Rule 144 are complied with. In general, Rule
144 permits a shareholder who has owned restricted shares for at least one year,
to sell without registration, within a three month period, up to one percent of
our then outstanding common stock. We must be current in our reporting
obligations in order for a shareholder to sell shares under Rule 144. In
addition, shareholders other than our officers, directors or 5% or greater
shareholders who have owned their shares for at least two years, may sell them
without volume limitation or the need for our reports to be current.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
our shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could negatively damage
affect market prices for the common stock and could damage our ability to raise
capital through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas
Boulevard, Suite 1900, Fort Lauderdale, FL 33301, Florida.
EXPERTS
The consolidated financial statements of Finantra Capital, Inc. as of
December 31, 1997 and 1998, appearing in this prospectus and registration
statement have been audited by Daszkal, Bolton & Manela, CPAs, independent
auditors, as set forth in their report thereon appearing elsewhere in this
prospectus, and are included in reliance upon this report given on the authority
of Daszkal, Bolton & Manela, CPAs as experts in auditing and accounting.
37
<PAGE> 40
The consolidated financial statements of Travelers Investment
Corporation as of December 31, 1998 and 1997 and for the years then ended,
appearing in this prospectus and registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and are included in reliance upon the report of such firm
given their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement, and these statements are qualified in
their entirety by reference to the contract or document The registration
statement, including all exhibits, may be inspected without charge at the SEC's
Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials may also be obtained from the
SEC's Public Reference at 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549, upon the payment of prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, registration statements and other filings made with the SEC through
its Electronic Data Gathering, Analysis and Retrieval Systems are publicly
available through the SEC's site on the world wide web located at
http//www.sec.gov.
The registration statement, including all exhibits and schedules and
amendments, has been filed with the SEC through the Electronic Data Gathering,
Analysis and Retrieval system. At your written or telephonic request, we will
provide you, without charge, a copy of any of the information that is
incorporated by reference (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct your request to the Company at
Finantra Capital, Inc., 150 South Pine Island Road, Suite 500, Plantation,
Florida 33324, Attention: Chief Executive Officer, telephone (954) 577-9225.
Following the effective date of the registration statement relating to
this prospectus, we will become subject to the reporting requirements of the
Exchange Act and in accordance with these requirements, will file quarterly and
annual financial reports and other information with the SEC. We intend to
furnish our shareholders with annual reports containing audited financial
statements and other periodic reports as we think appropriate or as may be
required by law.
38
<PAGE> 41
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Available Information........................
Prospectus Summary...........................
Risk Factors.................................
Capitalization...............................
Use of Proceeds..............................
Price Range of Common Stock
and Dividend Policy.......................
Forward-Looking Statements...................
Management's Discussion and
Analysis or Plan of Operation.............
Business.....................................
Management...................................
Executive Compensation.......................
Certain Transactions.........................
Principal Shareholders.......................
Description of Securities....................
Selling Securityholders......................
Plan of Distribution ........................
Shares Eligible for Future Sale..............
Legal Matters................................
Experts......................................
Additional Information.......................
Financial Statements.........................
8,355,076 SHARES
FINANTRA CAPITAL, INC.
PROSPECTUS
________________, 2000
<PAGE> 42
UNTIL _________, 2000 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO SPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANTRA CAPITAL, INC.
PAGE
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Financial Information F-2
Proforma Combined Balance Sheet as of December 31, 1998 (unaudited) F-3
Proforma Combined Pro Forma Statements of Operations for
the year ended December 31, 1998 (unaudited) F-5
Proforma Combined Pro Forma Statements of Operations for
the nine months ended September 30, 1999 (unaudited) F-6
Notes to Pro Forma Combined Financial Statements F-7
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-8
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-9
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 F-11
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998 and 1997 F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-13
Notes to Consolidated Financial Statements F-15
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at September 30, 1999 (unaudited) F-32
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1999 and 1998 (unaudited) F-34
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 (unaudited) F-35
Notes to Condensed Consolidated Financial Statements F-36
BUSINESS ACQUIRED - TRAVELERS INVESTMENT CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-38
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-39
Consolidated Statements of Income for the years ended
December 31, 1998 and 1997 F-40
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998 and 1997 F-41
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-42
Notes to Consolidated Financial Statements F-43
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 1999 (unaudited) F-48
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1999 and 1998 (unaudited) F-50
Notes to Condensed Consolidated Financial Statements F-51
</TABLE>
<PAGE> 44
PRO FORMA FINANCIAL STATEMENTS
On November 5, 1999, Finantra Capital, Inc. acquired all of the
outstanding stock of Travelers Investment Corporation. For accounting purposes,
the acquisition was effective September 30, 1999.
The following Pro Forma Combined Balance Sheets of the Registrant have
been prepared by management of the Registrant based upon the balance sheets of
the Registrant as of December 31, 1998. The Pro Forma Combined Statements of
Operations were prepared based upon the statements of operations for the twelve
months ended December 31, 1998 and the nine months ended September 30, 1999.
The pro forma statements give effect to the transaction under the purchase
method of accounting. The pro forma combined balance sheets give effect to the
acquisition as if it had occurred as of December 31, 1998. The pro forma
combined statements of operations give effect to the transaction as if had
occurred on January 1, 1998. The pro forma combined statement of operations for
the nine months ended September 30, 1999, gives effect to the acquisition as if
it had occurred as of January 1, 1999.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable. The pro forma
combined financial statements do not purport to represent what the combined
companies' financial position or results of operation would have been had the
acquisition occurred on such date or as of the beginning of the periods
indicated, or to project the combined companies' financial position or results
of operations for any future period.
F-2
<PAGE> 45
FINANTRA CAPITAL, INC.
PROFORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
FINANTRA TRAVELERS
CAPITAL INVESTMENT PROFORMA PROFORMA
INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 971,760 $ 2,078,014 $ 3,049,774
Accounts receivable, net 1,701,387 1,701,387
Finance receivables, net 4,632,875 24,171,594(A) (500,000) 28,304,469
Net investment in direct financing leases 672,191 672,191
Equipment to be leased 938,567 938,567
Notes and other receivables 198,191 1,474,202 1,672,393
Prepaid expenses 120,000 168,338 288,338
------------ ------------ ------------
Total current assets 7,624,213 29,502,906 (500,000) 36,627,119
------------ ------------ ------------ ------------
Property and equipment, net 146,943 218,943 365,886
------------ ------------ ------------
Other assets:
Certificate of deposit-restricted 1,475,000 1,475,000
Finance receivables, net 412,000 412,000
Due from related parties 868,377 868,377
Prepaid expenses 296,705 296,705
Deposits 46,233 46,233
Goodwill 2,684,175 (A) 11,771,874 14,456,049
Other intangibles,net 64,542 64,542
------------ ------------
5,847,032 -- 11,771,874 17,618,906
------------ ------------ ------------ ------------
Total assets $ 13,618,188 $ 29,721,849 $ 11,271,874 $ 54,611,911
============ ============ ============ ============
</TABLE>
F-3
<PAGE> 46
FINANTRA CAPITAL, INC.
PROFORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FINANTRA TRAVELERS
CAPITAL INVESTMENT PROFORMA PROFORMA
INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,491,909 $ 146,302 $ 1,638,211
Recission payable 100,000 -- 100,000
Line of credit 2,643,571 11,550,000 (A) 5,413,000 19,606,571
Current portion of long term debt 297,756 -- (A) 3,650,000 3,947,756
Obligations under capital leases 7,217 --
Notes payable-related parties 300,000 --
Dividends payable-preferred stock 129,585 -- 129,585
Client reserves 1,035,130 4,089,639 5,124,769
Client payouts -- 1,754,974 1,754,974
Lease deposits -- 52,653 52,653
------------ ------------ ------------
Total current liabilities 6,005,168 17,593,568 9,063,000 32,661,736
------------ ------------ ------------ ------------
Other liabilities:
Deferred income 12,933 -- 12,933
Obligations under capital lease 2,112 -- 2,112
Notes payable, net of current portion 81,802 -- 81,802
Notes payable-sellers -- -- (A) 5,000,000 5,000,000
------------ ------------ ------------ ------------
Total liabilities 6,102,015 17,593,568 14,063,000 37,758,583
------------ ------------ ------------ ------------
Minority interest 17,089 17,089
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized,
3,458,817 issued
Series A 10% redeemable convertible preferred stock,
$.01 par value, 2, 958,817 shares issued and outstanding
(liquidation value of $2,958,817 plus accumulated dividend) 29,588 29,588
Series B convertible preferred stock, $.01 par value, 500,000
shares authorized, 500,000 issued and outstanding 5,000 5,000
Series C 6% convertible preferred stock, $.01 par value, 3780 (B) 38 38
shares authorized, 3780 issued and outstanding --
Common stock, $.01 par value, 10,000,000 shares authorized,
4,112,127 issued and outstanding 41,121 (C) 19,680 60,801
Common stock, no par value, 5,000,000 shares authorized,
142,312 shares issued and outstanding 1,541,387 (D) (1,541,387) --
Treasury stock, 14,600 shares at cost (34,644) (34,644)
Additional paid-in capital 11,450,149 (B,C) 10,105,645 21,555,794
Accumulated deficit (3,992,130) 10,586,894 (D) (11,375,102) (4,780,338)
------------ ------------ ------------ ------------
Total stockholders' equity 7,499,084 12,128,281 (2,791,126) 16,836,239
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 13,618,188 $ 29,721,849 $ 11,271,874 $ 54,611,911
============ ============ ============ ============
</TABLE>
F-4
<PAGE> 47
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
PROFORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FINANTRA TRAVELERS
CAPITAL INVESTMENT PROFORMA PROFORMA
INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Financial services $ 4,437,664 $ -- $ 4,437,664
Medical billing 709,521 -- 709,521
Equipment leasing and equipment sales 3,440,434 182,257 3,622,691
Factoring income 889,791 -- 889,791
Finance income on contracts -- 6,220,234 6,220,234
Data processing fees -- 1,879,226 1,879,226
Collection agency income -- 667,271 667,271
Contract servicing fees -- 239,702 239,702
Interest income 257,530 42,739 300,269
Other income -- 251,463 251,463
------------ ------------ ------------
Total revenues 9,734,940 9,482,892 19,217,832
------------ ------------ ------------
Costs and expenses:
Leasing and equipment cost 3,189,162 -- 3,189,162
General and administrative 6,187,523 5,654,753 (E) 784,792 12,627,068
Provision for collection losses 1,107,269 1,305,328 2,412,597
Interest 201,276 945,851 1,147,127
------------ ------------ ------------
Total costs and expenses 10,685,230 7,905,932 784,792 19,375,954
------------ ------------ ------------
Income (loss) from operations (950,290) 1,576,960 (784,792) (158,122)
Other expenses:
Loss on disposal of assets 2,002 -- 2,002
Loss on securities available for sale -- -- --
------------ ------------ ------------
Total other expenses 2,002 -- 2,002
------------ ------------
Income (loss) before provision for income taxes (952,292) 1,576,960 (784,792) (160,124)
Benefit for income taxes (expense) 65,960 (55,000) (F) 55,000 65,960
Minority interest in net income of subsidiaries (11,749) -- (11,749)
------------ ------------ ------------
Net income (loss) $ (898,081) $ 1,521,960 $ (729,792) $ (105,913)
============ ============ ============ ============
Net income (loss) applicable to common shareholders $ (1,192,685) $ (400,518)
============ ============
Net income (loss) per common share (basic and diluted) $ (0.32) $ (0.07)
============ ============
Weighted average number of shares outstanding 3,691,956 5,602,456
============ ============
</TABLE>
F-5
<PAGE> 48
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
PROFORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FINANTRA TRAVELERS
CAPITAL INVESTMENT PROFORMA PROFORMA
INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Financial services $ 1,187,403 $ -- $ 1,187,403
Medical billing 430,775 -- 430,775
Equipment leasing and equipment sales 2,996,060 244,243 3,240,303
Factoring income 1,370,327 -- 1,370,327
Mortgage origination 2,435,569 -- 2,435,569
Finance income on contracts -- 5,299,856 5,299,856
Data processing fees -- 1,347,997 1,347,997
Collection agency income -- 749,797 749,797
Interest income 176,020 51,302 227,322
Other income -- 353,672 353,672
------------ ------------ ------------
Total revenues 8,596,154 8,046,867 16,643,021
------------ ------------ ------------
Costs and expenses:
Leasing and equipment cost 2,767,506 -- 2,767,506
General and administrative 6,320,079 4,967,921 (E) 588,594 11,876,594
Provision for collection losses 60,000 1,130,971 1,190,971
Interest 305,889 829,437 1,135,326
------------ ------------ ------------
Total costs and expenses 9,453,474 6,928,329 588,594 16,970,397
------------ ------------ ------------ ------------
Income (loss) from operations (857,320) 1,118,538 (588,594) (327,376)
Minority interest in net income of subsidiaries 11,800 -- -- 11,800
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes (845,520) 1,118,538 (588,594) (315,576)
Benefit for income taxes (expense) -- (39,200) (F) 39,200 --
------------ ------------ ------------ ------------
Net income (loss) $ (845,520) $ 1,079,338 $ (549,394) $ (315,576)
============ ============ ============ ============
Net income (loss) applicable to common shareholders $ (1,050,120) $ (520,176)
============ ============
Net income (loss) per common share (basic and diluted) $ (0.32) $ (0.08)
============ ============
Weighted average number of shares outstanding 5,703,901 6,725,401
============ ============
</TABLE>
F-6
<PAGE> 49
FINANTRA CAPITAL, INC.
NOTES TO PROFORMA COMBINED FINANCIAL STATEMENTS
(A) The purchase price for the acquisition of Travelers Investment
Corporation was $20,000,000 in cash and notes. Costs and fees added
approximately $3,400,000, bringing the total acquisition price to
$23,400,000. Goodwill of approximately $11,772,000 has been recorded
for this purchase. The acquisition has been accounted for under the
purchase method of accounting.
(B) To record issuance of Series C convertible preferred stock.
(C) To record issuance of common stock sold to raise cash for the
acquisition and stock issued for costs and services in connection with
the acquisition.
(D) To eliminate equity of the acquired company included in the purchase
price.
(E) To record amortization of goodwill created by the acquisition over a
fifteen year period.
(F) To adjust the income taxes to reflect the combined net operating loss.
F-7
<PAGE> 50
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
OF CERTIFIED PUBLIC ACCOUNTANTS
MICHAEL I. DASZKAL, CPA, P.A.
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-8
<PAGE> 51
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-9
<PAGE> 52
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 stockholders' equity $ 13,618,188 $ 4,955,831
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 53
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) (696,070)
-------------- -----------
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-11
<PAGE> 54
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- -------------------- TREASURY PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL DEFICIT (DEFICIT)
--------- --------- --------- -------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 1, 1997 0 $ 0 1,680,000 $ 16,800 $ 0 $ 1,532,206 $(1,807,266) $ (258,260)
Issuance of warrants 0 0 0 0 0 153,488 0 153,488
Preferred stock dividends 0 0 0 0 0 0 (296,109) (296,109)
Net loss 0 0 0 0 0 0 (696,070) (696,070)
Sale of stock, net of
issuance costs 0 0 1,017,382 10,174 0 4,636,116 0 4,646,290
Purchase and retirement of
treasury stock 0 0 (30,000) (300) 0 (164,700) 0 (165,000)
Restatement of preferred
stock 2,958,817 29,588 0 0 0 790,693 0 820,281
--------- --------- --------- -------- --------- ----------- ----------- ----------
Balance, at December 31,
1997 2,958,817 29,588 2,667,382 26,674 0 6,947,803 (2,799,445) 4,204,620
Issuance of warrants 0 0 0 0 0 0 0 0
Preferred stock dividends 0 0 0 0 0 0 (294,604) (294,604)
Stock issued 0 0 30,000 300 0 0 0 300
Acquisitions 0 0 975,855 9,758 0 3,167,588 0 3,177,346
Stock issued for services 0 0 412,600 4,126 0 574,854 0 578,980
Preferred stock Series B to
be issued 0 5,000 0 0 0 495,000 0 500,000
Private placement, net of
issuance costs, to be
issued 0 0 0 0 0 400,578 0 400,578
Net loss 0 0 0 0 0 0 (898,081) (898,081)
Purchase of treasury stock 0 0 0 0 (34,644) 0 0 (34,644)
Purchase and retirement
of treasury stock 0 0 (10,000) (100) 0 (54,900) 0 (55,000)
Common stock rescission 0 0 0 0 0 (100,000) 0 (100,000)
Sale of stock, net of
issuance costs 0 0 36,290 363 0 19,226 0 19,589
--------- --------- --------- -------- --------- ----------- ----------- ----------
Balance, at December 31,
1998 2,958,817 $ 34,588 4,112,127 $ 41,121 $ (34,644) $11,450,149 $(3,992,130) $7,499,084
========= ========= ========= ======== ========= =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 55
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
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-13
<PAGE> 56
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-14
<PAGE> 57
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 slaes
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 receivable 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.
F-15
<PAGE> 58
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 its 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 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:
F-16
<PAGE> 59
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
("AIM"), 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.("MFC"). 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.
F-17
<PAGE> 60
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONTINUED)
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.
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, INC. SERVICES, INC. SYSTEMS CORP. AIM GROUP, INC. TOTAL
-------------- -------------- ------------ -------------- ----------- ------------- -------------
<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 0,000 20,185 100,851
Current liabilities 13,387 (77,633) (43,153) (100,193) (14,367) (149,885) (371,844)
Non-current (65,500) 0 0 (8,424) 0 0,000 (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>
F-18
<PAGE> 61
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 6 - RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, 1998 and 1997:
1998 1997
----------- ------------
Equipment, at cost $ 0 $ 106,094
Less, accumulated depreciation 0 (36,135)
----------- ------------
Net rental equipment $ 0 $ 69,959
=========== ============
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:
1998 1997
----------- ----------
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
=========== ==========
Depreciation expense on property and equipment for the years ended December 31,
1998 and 1997, was $60,824 and $9,007, respectively.
F-19
<PAGE> 62
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-20
<PAGE> 63
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% to 0 113,020
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-21
<PAGE> 64
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 1999. 35,000 0
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 are as follows:
1999 $297,756
2000 51,342
2001 30,460
--------
Total $379,558
========
</TABLE>
F-22
<PAGE> 65
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-23
<PAGE> 66
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 principle 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.
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.
F-24
<PAGE> 67
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONCENTRATION OF CREDIT RISK (CONTINUED)
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 is hereby providing
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-25
<PAGE> 68
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 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 are 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-26
<PAGE> 69
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-27
<PAGE> 70
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:
YEAR ENDING CAPITAL OPERATING
DECEMBER 31 LEASES LEASES
----------- -------- ---------
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
========
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-28
<PAGE> 71
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - INCOME TAXES
The provision (benefit) for income taxes is as follows:
1998 1997
--------- ---------
Taxes currently payable $ 0 $ 0
Deferred income taxes 0 0
Change in beginning valuation allowance 0 0
--------- ---------
Provision for income taxes $ 0 $ 0
========= =========
Reconciliation of the Federal statutory income tax rate to the Company's
effective income tax rate is as follows:
1998 1997
--------- ---------
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) $ (65,960) $ 0
========= =========
The components of the deferred tax asset were as follows at December 31, 1998
and 1997:
1998 1997
--------- ---------
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
========= =========
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-29
<PAGE> 72
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 income 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-30
<PAGE> 73
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
(157,000 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 over subscriptions. During the period, the Company raised an additional
$2,063,585 net of offering expense.
F-31
<PAGE> 74
FINANTRA CAPITAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Current assets:
Cash $ 2,727,552
Loans held for resale 4,709,008
Accounts receivable, net 33,451,083
Finance receivables, net 3,703,005
Accrued interest receivable 8,963
Notes and other receivables 1,079,743
Prepaid expenses 1,275,527
-----------
Total current assets 46,954,881
-----------
Property and equipment, net 620,226
-----------
Other assets:
Certificate of deposit-restricted 1,450,000
Finance receivable, net 412,000
Due from related parties 578,779
Deposits 45,973
Goodwill, net 13,941,518
Other intangibles, net 289,395
Other 313,058
-----------
Total other assets 17,030,723
-----------
Total assets $64,605,830
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE> 75
FINANTRA CAPITAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Current liabilities:
Accounts payable $ 1,582,768
Accrued expenses 429,068
Client payouts 1,253,926
Client reserves 4,192,645
Line-of-credit 27,319,082
Notes payable 500,000
Current portion of long-term debt 803,091
Obligation under capital lease 3,791
Notes payable - related parties 130,000
Due to factoring clients 1,281,651
Dividends payable - preferred stock 91,281
------------
Total current liabilities 37,587,303
Other liabilities:
Deferred lease interest 161,991
Notes payable, net of current portion 8,545,823
------------
Total long-term debt 8,707,814
------------
Total liabilities 46,295,117
------------
Minority interest 24,289
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, 3,458,817 issued:
Series A 10% redeemable convertible preferred stock, $.01 par
value, 2,958,817 shares issued and outstanding ( liquidation value
of $2,958,817 plus accumulated dividends) 29,587
Series B convertible preferred stock, $.01 par value, 500,000 shares
authorized, 500,000 shares issued and outstanding 5,000
Series C 6% convertible preferred stock, $.01 par value, 3780 shares
authorized, 3780 shares issued and outstanding 38
Common Stock, $.01 par value, 10,000,000 shares authorized,
6,389,927 shares issued and outstanding 85,093
Treasury stock, 14,600 shares at cost (34,644)
Additional paid-in-capital 23,258,389
Accumulated deficit (5,057,039)
------------
Total stockholders' equity 18,286,424
------------
Total liabilities and stockholders' equity $ 64,605,830
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE> 76
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Financial services $ 140,920 $ 1,251,596 $ 1,187,403 $ 3,116,314
Medical billing 119,608 145,175 430,775 616,709
Equipment leasing and equipment sales 46,825 2,694,530 2,996,060 2,694,530
Factoring income 347,299 340,612 1,370,327 437,901
Mortgage origination 1,481,092 -- 2,435,569 --
Interest income 77,287 68,130 176,020 269,864
----------- ----------- ----------- -----------
Total revenues 2,213,031 4,500,043 8,596,154 7,135,318
Costs and expenses:
Leasing and equipment cost 40,000 2,569,405 2,767,506 2,569,405
Depreciation and amortization 95,601 98,267 231,675 203,299
Bad debts 30,000 -- 60,000 --
General and administrative 2,167,251 1,503,635 6,088,404 3,858,570
----------- ----------- ----------- -----------
Total costs and expenses 2,332,852 4,171,307 9,147,585 6,631,274
Income(loss) from operations (119,821) 328,736 (551,431) 504,044
Other expenses:
Interest expense 96,283 94,773 305,889 125,608
----------- ----------- ----------- -----------
Total other expenses 96,283 94,773 305,889 125,608
Net income(loss) before minority interest (216,104) 233,963 (857,320) 378,436
Minority interest in subsidiaries -- -- 11,800 --
Net income(loss) $ (216,104) $ 233,963 $ (845,520) $ 378,436
=========== =========== =========== ===========
Net income(loss) applicable to common shareholders $ (284,304) $ 165,763 $(1,050,120) $ 173,836
=========== =========== =========== ===========
Net income(loss) per common share $ (0.04) $ 0.04 $ (0.18) $ 0.05
=========== =========== =========== ===========
Weighted average number of shares outstanding and to
be issued 6,389,927 3,723,000 5,703,901 3,472,000
=========== =========== =========== ===========
</TABLE>
F-34
<PAGE> 77
FINANTRA CAPITAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net cash (used) by operating activities $ (1,459,761) $ (1,351,577)
Cash flows from investing activities
Cash used for acquisition (23,400,065) --
Cash acquired in acquisitions 1,794,998 46,044
(Increase) decrease in factored accounts receivable,
net of due to factoring clients 1,176,391 --
(Increase) decrease in related party loans 289,598 --
Purchase of equipment (522,989) (147,943)
Decrease in certificate of deposit 25,000 --
Net advances to (from) affiliates -- (142,883)
Notes receivable-stockholders -- (260,000)
Notes acquired for cash -- (2,824,402)
------------ ------------
(20,637,067) (3,329,184)
------------ ------------
Cash flows from financing activities
Increase (decrease) in line of credit 3,016,053 2,832,964
Increase in notes payable 1,000,000 --
Increase(repayment) in long-term debt 8,464,021 (104,628)
Payments under capital leases (5,538) --
Repayment of related party debt (170,000) --
Payment of preferred stock dividends (204,600) (204,600)
Issuance of common stock, net 7,972,684 364,621
Issuance of preferred stock 3,780,000 --
------------ ------------
23,852,620 2,888,357
------------ ------------
Net increase in cash 1,755,792 (1,792,404)
Cash - beginning 971,760 4,106,803
Cash - end $ 2,727,552 $ 2,314,399
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 89,055 $ 125,608
============ ============
Supplemental noncash investing and financial activities:
Issuance of common stock for acquisition of subsidiaries $ 52,500 $ 2,631,862
============ ============
Issuance of commom stock for services $ 237,050 $ --
============ ============
</TABLE>
F-35
<PAGE> 78
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim periods presented have been
included.
NOTE 3 - ACQUISITIONS
TRAVELERS INVESTMENT CORP.
The Company, through a wholly-owned subsidiary, acquired 100% of the outstanding
capital stock of Travelers Investment Corporation and Subsidiaries effective
September 30, 1999. The purchase price of $20,000,000 was paid as follows: (I)
$15,000,000 in cash at closing; (ii) the sellers taking back a promissory note
for $5,000,000.
In addition to the seller note above, the Company incurred the following debt in
connection with the purchase:
Finova Capital Corporation, based upon the increase in the funding rate
on its warehouse line, provided $5,413,621. The loan from Finova
aggregated $32,500,000 which replaced the credit facility previously
utilized by Travelers Investment Corp. The loan was based on the
advance rate utilized by Finova as opposed to the Company's prior
lender, Bank of America. The facility charges interest at 2% per annum
above the prime rate and is payable interest only monthly during its
term. The facility matures August 31, 2004. The borrowers under this
facility are the operating subsidiaries of Travelers Investment
Corporation. The loan is guaranteed by Finantra as well as the
acquiring subsidiary, Travelers Acquisition Corporation.
BHC Interim Funding provided a loan in the amount of $3,650,000.
$3,500,000 was used for closing and the balance for fees and costs. The
loan carries interest at the rate of 13.5% per annum. The loan matures
on October 20, 2000.
The seller note calls for interest at 10% per annum and requires payment of
$500,000 in principal during the first year amortized in 12 equal monthly
installments. A $500,000 balloon payment is required in the 13th month, and the
remaining principal balance on the note paid over the next two years in equal
monthly installments.
The balance of cash to close(other than from the Company's working capital) was
raised through the sale of 6% Class "C" convertible preferred stock for
$3,500,000.
The total investment with all fees and costs equaled $23,400,000 and resulted in
goodwill from the transaction of $11,771,000 being recorded on the books of
Travelers Investment Corporation. This goodwill will be amortized over 15 years.
F-36
<PAGE> 79
NOTE 4 - DIVIDENDS PAYABLE-PREFERRED STOCK
The Company has paid $204,600 of dividends on its preferred stock at September
30, 1999.
NOTE 5 - MORTGAGE LOANS HELD FOR SALE AND WAREHOUSE LINE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
At September 30, 1999 the principal balance for mortgage loans held for sale was
$4,709,008, of that amount, $4,709,008 was borrowed from the Company's warehouse
lines. Interest is prime plus 2%. All mortgage loans held for sale are
collateralized by the property covered by said loans and are used as collateral
for the Company's borrowings. The warehouse lines are repaid as the loans are
sold.
NOTE 6 - BORROWINGS
Effective March 26, 1999, the Company entered into a mortgage loan warehouse and
security agreement with a bank. The maximum amount the Company can borrow under
this agreement is $10,000,000. The principal is repaid as the related mortgages
are sold to secondary market purchasers. The entire principal amount together
with accrued and unpaid interest is due on demand. On July 1, 1999, the Company
entered into a second mortgage warehouse line with Republic National Bank. Under
the agreement the bank will provide up to $5,000,000 to the Company in order to
fund certain first mortgages. The advances are repaid and the related mortgages
are sold to secondary market purchasers. Any unpaid principal balance will be
due June 30, 2000.
F-37
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
Travelers Investment Corporation:
We have audited the accompanying consolidated balance sheets of Travelers
Investment Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Travelers Investment Corporation
and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and of their cash flows for the years then ended in conformity with
generally accepted accounting principles.
February 10, 1999
F-38
<PAGE> 81
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- - - - - - - - - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,078,014 $ 2,521,390
Finance receivables, net 24,171,594 23,976,505
Net investment in direct financing leases 672,191 956,702
Equipment to be leased 938,567
Notes and other receivables 1,474,202 1,269,806
Income taxes receivable 86,285
Prepaid expenses and other assets 168,338 160,129
Property, equipment and leasehold improvements (net of
accumulated depreciation and amortization of $709,236
and $595,072, respectively) 218,943 343,229
----------- -----------
TOTAL $29,721,849 $29,314,046
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under lines of credit $11,550,000 $10,350,000
Accounts payable and accrued liabilities 146,302 223,823
Client reserves 4,089,639 4,137,124
Client payouts 1,754,974 1,494,180
Lease deposits 52,653 165,950
----------- -----------
Total liabilities 17,593,568 16,371,077
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value; authorized - 5,000,000 shares;
outstanding - 142,312 and 147,608 shares, respectively 1,541,387 1,567,867
Retained earnings 10,586,894 11,375,102
----------- -----------
Total shareholders' equity 12,128,281 12,942,969
----------- -----------
TOTAL $29,721,849 $29,314,046
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE> 82
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- - - - - - - - - - --------------------------------------------------------------------------------
1998 1997
----------- -----------
REVENUES:
Finance income on contracts $ 6,220,234 $ 6,440,234
Data processing fees 1,879,226 1,559,174
Collection agency income 667,271 878,201
Contract servicing fees 239,702 401,126
Income from direct financing leases .. 182,257 93,291
Interest 42,739 24,515
Other income 251,463 505,346
----------- -----------
Total revenues 9,482,892 9,901,887
----------- -----------
EXPENSES:
Collection, general and administrative 5,654,753 6,352,893
Provision for collection losses 1,305,328 1,139,755
Interest 945,851 1,008,243
----------- -----------
Total expenses 7,905,932 8,500,891
----------- -----------
INCOME BEFORE INCOME TAX BENEFIT 1,576,960 1,400,996
INCOME TAX BENEFIT/(EXPENSE) (55,000) 397,429
----------- -----------
NET INCOME $ 1,521,960 $ 1,798,425
=========== ===========
See notes to consolidated financial statements.
F-40
<PAGE> 83
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- - - - - - - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number of Retained
Shares Amount Earnings Total
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 440,708 $ 1,533,367 $ 11,100,714 $ 12,634,081
Net income 1,798,425 1,798,425
Purchase of common stock (7,500) (37,500) (127,500) (165,000)
Sale of common stock 14,400 72,000 72,000
Distribution (1,396,537) (1,396,537)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 447,608 1,567,867 11,375,102 12,942,969
Net income 1,521,960 1,521,960
Purchase of common stock (5,296) (26,480) (90,032) (116,512)
Distribution (2,220,136) (2,220,136)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 442,312 $ 1,541,387 $ 10,586,894 $ 12,128,281
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE> 84
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- - - - - - - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,521,960 $ 1,798,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for collection losses 1,282,509 1,139,755
Depreciation and amortization, net 164,087 180,378
Loss on sale of property and equipment 253 432
Changes in assets and liabilities:
Deferred income taxes (288,029)
Prepaid expenses and other assets (8,209) 41,656
Accounts payable and accrued liabilities (77,521) (746,685)
Income taxes receivable 86,285 102,647
Lease deposits (113,297) 139,020
----------- -----------
Net cash provided by operating activities 2,856,067 2,367,599
----------- -----------
INVESTING ACTIVITIES:
Net increase (decrease) in finance receivables (net of client
reserves and payouts) (1,264,289) 2,988,181
Net increase in investment in direct financing leases (654,056) (646,751)
Net increase in notes and other receivables (204,396) (224,269)
Acquisition of property and equipment (40,054) (59,083)
Proceeds from sale of property and equipment 500
----------- -----------
Net cash provided by (used by) investing activities (2,162,795) 2,058,578
----------- -----------
FINANCING ACTIVITIES:
Net payments (borrowings) under lines of credit 1,200,000 (2,650,000)
Payments on notes payable (530,236)
Purchase of common stock (116,512) (165,000)
Sale of common stock 72,000
Distributions paid (2,220,136) (1,396,537)
----------- -----------
Net cash used in financing activities (1,136,648) (4,669,773)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (443,376) (243,596)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,521,390 2,764,986
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,078,014 $ 2,521,390
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 945,670 $ 1,004,562
=========== ===========
Income taxes $ -- $ 104,538
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-42
<PAGE> 85
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- - - - - - - - - - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Company is in the business of purchasing
installment contracts from clients (primarily used automobiles,
campgrounds, dating club memberships and providers of educational and
professional services and elective medical procedures) and leasing various
types of equipment. Additional significant operations of the Company
include a collection agency and a billing service.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Travelers Investment Corporation
("TIC"), a California Subchapter S corporation and its wholly-owned
subsidiary, Allar-TIC Financial Services, Inc. ("Allar-TIC") and
subsidiaries, a California Subchapter S corporation. All material
intercompany transactions and accounts have been eliminated in
consolidation.
STATEMENTS OF CASH FLOWS - The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to
be cash equivalents.
REVENUE RECOGNITION - Installment contracts are purchased from clients at
a discount. The amount of the discount depends on the credit-worthiness of
the debtor, the term and the interest rate of the contract. The majority
of contracts are acquired with limited recourse to the client. In many
cases, secondary security is obtained from clients to further ensure both
the collectibility of the contracts and the enforceability of any recourse
provisions.
Client reserves represent amounts withheld on contracts purchased by the
Company. Through historical experience and an evaluation of current
economic conditions, management considers such reserves to be adequate to
absorb the majority of credit losses. The face amount of the contract less
the discount and reserve is paid in cash to the client at the time of
purchase. The discount is reflected as deferred income and is amortized
over the remaining life of the contract using the effective interest
method.
Client payouts represent amounts collected on contracts serviced and
amounts payable on contracts purchased by the Company which have not yet
been forwarded to the client.
The direct financing leases normally have payment terms of three years.
Income on such leases is recognized over the lease term using the
effective interest method.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Property, equipment and
leasehold improvements are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful
lives of the assets (generally three to five years).
ALLOWANCE FOR COLLECTION LOSSES - The Company provides for estimated
losses on receivables in excess of client reserves by evaluating
individual receivables, potential losses inherent in the portfolio and a
general reserve based on historical experience and an evaluation of
current economic conditions. Accounts are written-off when, in
management's opinion, collection is no longer probable.
F-43
<PAGE> 86
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 disclosure 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.
INCOME TAXES - During 1996, the Company elected to become taxed as an "S"
corporation. Accordingly, income or losses pass through to the
stockholders of the Company. The Company received an income tax benefit
due to the reversal of its deferred income tax liability.
2. FINANCE RECEIVABLES
Finance receivables as of December 31, 1998 and 1997 are comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -----------------------------
AMOUNT % AMOUNT %
<S> <C> <C> <C> <C>
Installment contracts purchased:
Used automobiles $ 5,648,984 19% $ 6,159,606 22%
Education tuition and seminar fees 7,448,798 25 6,390,376 22
Leisure activity memberships 5,273,415 18 6,125,317 21
Fitness 2,266,420 8 2,345,611 8
Dating club membership 2,348,579 8 1,683,783 6
Exercise equipment 1,758,931 6 2,114,274 8
Medical 532,045 2 656,989 2
Other 4,026,678 14 3,236,235 11
-------------- ---- -------------- -----
Total 29,303,850 100% 28,712,191 100%
=== ===
Deferred income (4,168,468) (3,839,448)
Allowance for collection losses (963,788) (896,238)
-------------- -------------
Finance receivables - net $ 24,171,594 $ 23,976,505
============== ==============
</TABLE>
A reconciliation of the allowance for collection losses for the years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Balance, beginning of year $ 896,238 $ 560,202
Provision for collection losses 1,282,509 1,139,755
Write-off of uncollectivle accounts (1,532,332) (878,438)
Recoveries of accounts previsouly written off 317,373 74,719
----------- ----------
Balance, end of year $ 963,788 $ 896,238
=========== ==========
</TABLE>
3. CONTRACT SERVICING
The Company services other contracts which are not purchased from clients
due to the relatively poor credit quality of the debtors. Contract
servicing fees and data processing fees are based on a percentage of
payments received and based on account charges, respectively. If contracts
are determined to be uncollectible, the receivables are returned to the
client. Since the Company does not own such receivables, they are excluded
from the consolidated balance sheets.
F-44
<PAGE> 87
Contracts held under service agreements at December 31, 1998 and 1997 and
corresponding revenues for those years are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Face amount of contracts serviced at year end $2,356,308 $4,412,462
---------- ----------
Unearned fees on serviced accounts at year end $ 304,280 $ 475,544
---------- ----------
Fees earned on serviced accounts during the year $ 239,702 $ 401,126
---------- ----------
</TABLE>
4. NET INVESTMENT IN DIRECT FINANCING LEASES
Net investment in direct financing leases as of December 31, 1998 and 1997
is comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Minimum lease payments receivable $ 809,840 $1,045,000
Estimated unguaranteed residual value of
leased equipment 75,005 146,158
---------- ----------
884,845 1,191,158
Unearned interest income (212,654) (234,456)
---------- ----------
Total $ 672,191 $ 956,702
========== ==========
</TABLE>
Future minimum lease payments receivable as of December 31, 1998 are as
follows:
Year Ending December 31,
------------------------
1999 $ 320,721
2000 319,020
201 170,099
----------
Total $ 809,840
==========
For the years ended December 31, 1998 and 1997, there were no write-offs
or recoveries.
5. EQUIPMENT TO BE LEASED
Equipment to be leased consists of the following at December 31, 1998:
Golf club cleaning equipment $612,195
Fitness and vending equipment 313,520
Other 12,852
--------
$938,567
========
F-45
<PAGE> 88
6. LINES OF CREDIT
At December 31, 1998 and 1997, the Company has a bank line of credit of
$18,000,000 expiring June 1999 for financing business activities.
A total of $11,550,000 and $10,350,000 was outstanding at December 31,
1998 and 1997, respectively. Borrowings on the $18,000,000 line of credit
are generally limited to 75% of outstanding finance receivables net of
unearned income and client reserves. The lines of credit are secured by
all finance receivables and direct finance leases, respectively. Interest
accrues on the outstanding balance under the $18,000,000 bank line of
credit at the bank's prime rate (7.75% at December 31, 1998) plus 1% or at
a short-term fixed rate option. At December 31, 1998, $11,560,000 was
accruing interest at the prime rate plus 1%.
The line of credit agreement contains various covenants that include
maintaining minimum net worth amounts and restricting the ratio of debt to
equity, dividends, loans to affiliates, capital expenditures and future
indebtedness. The line of credit is guaranteed by TIC and Allar-TIC.
7. COMMON STOCK TRANSACTIONS
The Company purchased 5,296 and 7,500 shares of its common stock from
shareholders for a total of $116,500 and $165,000 for fiscal years 1998
and 1997, respectively. The acquired shares were retired and returned to
authorized but unissued corporate shares.
During fiscal 1997, key employees exercised stock options and the Company
issued 14,400 shares of its common stock for a total of $72,000. No
options were granted during 1998 or 1997.
Information regarding options is as follows for the year ended December
31, 1997:
Exercise
Shares Price
------ --------
Outstanding at January 1 21,600 $8.20
Exercised (14,400) $8.20
Repurchased (7,200) $8.20
-------
Outstanding at December 31 $ 0
=======
8. INCOME TAXES
The components of income tax benefit (provision) for the years ended
December 31, 1998 and 1997 are as follows:
1998 1997
-------- --------
Current tax (provision) benefit:
State $(55,000) $(57,612)
Net effect of S-corp election 455,041
-------- --------
Total $(55,000) $397,429
======== ========
F-46
<PAGE> 89
9. RELATED PARTY TRANSACTIONS
CONSULTING FEES - In accordance with a consulting agreement which expires
in May 2003, the Company pays to an affiliate 12.5% of pretax lease and
finance profits, as defined in the consulting agreement, plus .5% of all
collections on collection accounts. Fees paid under this contract amounted
to $224,919 and $223,279 in 1998 and 1997, respectively. In addition, the
Company pays an affiliate 35% of the annual bonus pool, as defined, which
totalled $66,246 and $59,332 in 1998 and 1997, respectively.
See also Notes 7 and 11.
10. COMMITMENTS AND CONTINGENCIES
Future non-cancelable minimum lease payments for the existing corporate
offices and additional locations for the operating subsidiaries as of
December 31, 1998 are as follows:
Year Ending December 31,
------------------------
1999 $205,232
========
Rent expense for the year ended December 31, 1998 was $271,544.
11. EMPLOYEE BENEFIT PLAN
401(k) PLAN - The Company has a 401(k) Plan for the benefit of its
employees. Participants may elect to defer up to a maximum of 23% of
compensation or $10,000 annually, whichever is less. The Company may
contribute to the participant accounts a variable matching percentage of
the individual's contribution which is not in excess of 10% of
compensation. The Company's total expense for benefit plans was $18,652 in
1998. A favorable determination letter has been received from the Internal
Revenue Service to qualify the Plan under IRS Code Section 401(k).
12. SUBSEQUENT EVENT
LETTER OF INTENT - Subsequent to December 31, 1998, the Company signed a
Letter of Intent with two unrelated parties for the purchase of Travelers
Investment Corporation and all of its subsidiaries and divisions.
* * * * * *
F-47
<PAGE> 90
TRAVELERS INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------ MONTH YEAR
ENDING ENDING
09-30-99 12-31-98
------------ ------------
<S> <C> <C>
CASH $ 1,791,111 $ 2,078,014
RECEIVABLES
FINANCE RECEIVABLES 35,544,885 29,303,850
LESS: DEFERRED FINANCE INCOME (4,572,792) (4,168,468)
ALLOWANCE FOR UNCOLLECTABLE AMTS (1,831,182) (963,788)
------------ ------------
TOTAL RECEIVABLES 29,140,911 24,171,594
INV. IN LEASES, NET OF UNEARNED INCOME 1,248,730 1,610,758
PREPAID EXPENSES AND OTHER ASSETS 147,752 168,338
INCOME TAX RECEIVABLE 0 0
PROPERTY AND EQUIPMENT (NET) 147,573 218,943
DUE FROM AFFILIATES 0 0
NOTES & OTHER RECEIVABLES 780,243 1,474,202
------------ ------------
TOTAL ASSETS $ 33,256,320 $ 29,721,849
============ ============
</TABLE>
FOR INTERNAL USE ONLY-UNAUDITED
F-48
<PAGE> 91
TRAVELERS INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
MONTH YEAR
ENDING ENDING
09-30-99 12-31-98
------------ ------------
<S> <C> <C>
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 793,946 $ 146,302
CLIENT PAYOUTS 1,253,926 1,754,974
CLIENT RESERVES 4,192,645 4,089,639
DEFERRED INCOME TAXES (85,301)
LINE OF CREDIT 14,950,000 11,550,000
LEASE DEPOSITS 22,823 52,653
NOTES & OTHER PAYABLES 0 0
------------ ------------
TOTAL LIABILITIES 21,128,039 17,593,568
STOCKHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE: 5,000,000
SHARES AUTHORIZED. 442,312 SHARES O/S 1,541,387 1,541,387
RETAINED EARNINGS 10,586,894 10,586,894
------------ ------------
TOTAL STOCKHOLDER'S EQUITY 12,128,281 12,128,281
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 33,256,320 $ 29,721,849
============ ============
0 0
</TABLE>
FOR INTERNAL USE ONLY-UNAUDITED
F-49
<PAGE> 92
TRAVELERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT 30, 1999 SEPT 30, 1998
------------- -------------
<S> <C> <C>
REVENUE:
FINANCE INCOME $5,299,856 $4,652,230
EARNED INCOME (TYPE 2) 103,796 192,636
INTEREST INCOME-FIN. LEASES 140,447 145,298
DATA SERVICES 1,347,997 1,371,502
TRACE COLLECTIONS 749,797 489,550
MANAGEMENT INCOME 0
INTEREST INCOME 51,302 18,514
OTHER INCOME 353,672 429,598
---------- ----------
TOTAL REVENUES 8,046,867 7,299,328
COSTS AND EXPENSES:
INTEREST EXPENSE 829,437 691,129
PROVISIONS FOR COLLECTION LOSSES
FINANCE RECEIVABLES 858,407 974,673
LEASES 272,564
GAIN FROM LEASE SALE 0
OTHER GENERAL AND ADMIN. 4,967,921 4,256,923
---------- ----------
TOTAL COSTS AND EXPENSES 6,928,329 5,922,725
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,118,538 1,376,603
PROVISION FOR INCOME TAXES 39,200 48,200
---------- ----------
NET INCOME BEFORE EXTRAORD. ITEMS 1,079,338 1,328,403
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES
---------- ----------
NET INCOME 1,079,338 1,328,403
========== ==========
</TABLE>
FOR INTERNAL USE ONLY-UNAUDITED
F-50
<PAGE> 93
TRAVELERS INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
YEAR ENDED DECEMBER 31, 1998
- - - - - - - - - - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Company is in the business of purchasing
installment contracts from clients (primarily used automobiles,
campgrounds, dating club memberships and providers of educational and
professional services and elective medical procedures) and leasing
various types of equipment. Additional significant operations of the
Company include a collection agency and a billing service.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Travelers Investment Corporation
("TIC"), a California Subchapter S corporation and its wholly owned
subsidiary, Allar-TIC Financial Services, inc. ("Allar-TIC") and
subsidiaries, a California Subchapter S corporation. All material
intercompany transactions and accounts have been eliminated in
consolidation.
STATEMENTS OF CASH FLOWS - The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less
to be cash equivalents.
REVENUE RECOGNITION - Installment contracts are purchased from clients
at a discount. The amount of the discount depends on the credit
worthiness of the debtor, the term and the interest rate of the
contract. The majority of contracts are acquired with limited recourse
to the client. In many cases, secondary security is obtained from
clients to further ensure both the collectability of the contracts and
the unenforceability of any recourse provisions.
Client reserves represent amounts withheld on contracts purchased by
the Company. Through historical experience and an evaluation of current
economic conditions, management considers such reserves to be adequate
to absorb the majority of credit losses. The face amount of the
contract less the discount and reserve is paid in cash to the client at
the time of purchase. The discount is reflected as deferred income and
it amortized over the remaining life of the contract using the
effective interest method.
Client payouts represent amounts collected on contracts serviced and
amounts payable on contracts purchased by the Company which have not
yet been forwarded to the client.
The direct financing leases normally have payment terms of three years.
Income on such lease is recognized over the lease term using the
effective interest method.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Property, equipment
and leasehold improvements are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the assets (generally three to five years).
ALLOWANCE FOR COLLECTION LOSSES - The Company provides for estimated
losses on receivables in excess of client reserves by evaluating
individual receivables, potential losses inherent in the portfolio and
a general reserve based on historical experience and an evaluation of
current economic conditions. Accounts are written-off when, in
management's opinion, collection is not longer probable.
F-51
<PAGE> 94
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 disclosure 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.
INCOME TAXES - During 1996, the Company elected to become taxed as an
"S" corporation. Accordingly, income or losses pass through to the
stockholders of the Company. The Company received an income tax benefit
due to the reversal of its deferred income tax liability.
2. FINANCE RECEIVABLES
Finance receivables as of September 30, 1999 and December 31, 1998 are
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ ---------------------
Amount % Amount %
<S> <C> <C> <C> <C>
Installment contracts purchased
Used automobiles 6,738,646 20% 5,648,984 19%
Education tuition and seminar fees 10,334,664 29 7,448,798 25
Leisure activity memberships 4,110,735 12 5,273,415 18
Fitness 1,728,968 5 2,266,420 8
Dating club membership 3,530,432 10 2,348,579 8
Exercise equipment 528,000 1 1,758,931 6
Medical 818,696 2 532,045 2
Other 7,754,744 21 4,026,678 14
----------- --- ---------- ---
Total 35,544,885 100% 29,303,850 100%
==== ====
Deferred income (4,572,792) (4,168,468)
Allowance for collection losses (1,831,182) (963,788)
----------- -----------
Finance receivables - net 29,140,911 24,171,594
=========== ===========
</TABLE>
A reconciliation of the allowance for collection losses for the nine months
ended September 30, 1999 and the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Balance, beginning of year $ 963,788 $ 896,238
Provision for collection losses 869,419 1,282,509
Write-off of uncollectible accounts (640,221) (1,532,332)
Recoveries of accounts previously written off 108,438 317,373
Net provision of receivables with reserve 529,758 --
---------- -----------
Balance, end of year $1,831,182 $ 963,788
========== ===========
</TABLE>
F-52
<PAGE> 95
3. CONTRACT SERVICING
The Company services other contracts which are not purchased from
clients due to the relatively poor credit quality of the debtors.
Contract servicing fees and data processing fees are based on a
percentage of payments received and based on account charges,
respectively. If contracts are determined to be uncollectible, the
receivables are returned to the client. Since the Company does not own
such receivables, they are excluded from the consolidated balance
sheets.
Contracts held under service agreements at September 30, 1999 and December 31,
1998 and corresponding revenues for those periods are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Face amount of contracts serviced at year end $2,543,296 $2,356,308
---------- ----------
Unearned fees on serviced accounts at year end $ 522,392 $ 304,280
----------
Fees earned on serviced accounts during the year $ 103,796 $ 239,702
---------- ----------
</TABLE>
4. NET INVESTMENT IN DIRECT FINANCING LEASES
Net investment in direct financing leases as of September 30, 1999 and
December 31, 1998 is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Minimum lease payments receivable $ 954,557 $ 809,840
Estimated unguaranteed residual value of
leased equipment $ 94,079 $ 75,005
----------- ---------
1,048,636 884,845
Unearned interest income (234,285) (212,654)
Allowance for bad debt (340,586) --
Total $ 473,765 $ 672,191
=========== =========
</TABLE>
5. EQUIPMENT TO BE LEASED
Equipment to be leased consists of the following at September 30, 1999
and December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Golf club cleaning equipment $612,195 $320,721
Fitness and vending equipment 149,918 319,020
Other 12,852 170,099
-------- --------
$774,965 $809,840
======== ========
</TABLE>
6. LINES OF CREDIT
At September 30, 1999 and December 31, 1998, the Company has a bank
line of credit of $18,000,000 expiring June 2000 for financing business
activities.
F-53
<PAGE> 96
A total of $14,950,000 and $11,550,000 was outstanding at September 30,
1999 and December 31, 1998, respectively. Borrowings on the $18,000,000
line of credit are generally limited to 75% of outstanding finance
receivables net of unearned income and client reserves. The lines of
credit are secured by all finance receivables and direct finance
leases, respectively. Interest accrues on the outstanding balance under
the $18,000,000 bank line of credit at the bank's prime rate (8.25% at
September 30, 1999) plus 1% or at a short-term fixed rate option. At
September 30, 1999, $14,950,000 was accruing interest at the prime rate
plus 1%.
The line of credit agreement contains various covenants that include
maintaining minimum net worth amounts and restricting the ratio of debt
to equity, dividends, loans to affiliates, capital expenditures and
future indebtedness. The line of credit is guaranteed by TIC and
Allar-TIC.
7. INCOME TAXES
The components of income tax benefit (provision) for the nine months
ended September 30, 1999 and the year ended December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Current tax (provision) expense (benefit):
State $ 39,200 $ (55,000)
--------- ----------
Total $ 39,200 $ (55,000)
========= ==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
CONSULTING FEES - In accordance with a consulting agreement which
expires in May 2003, the Company pays to an affiliate 12.5% of pretax
lease and finance profits, as defined in the consulting agreement, plus
.5% of all collections on collection accounts. Fees paid under this
contract amounted to $191,530 and $224,919 for the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively.
In addition, the Company pays an affiliate 35% of the annual bonus
pool, as defined, which totaled $56,000 and $66,246 for the nine months
ended September 30, 1999 and the year ended December 31, 1998,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Future non-cancelable minimum lease payments for the existing corporate
offices and additional locations for the operating subsidiaries as of
September 30, 1999 are as follows:
NINE MONTHS ENDING SEPTEMBER 30, 1999 $51,331
=======
Rent expense for the nine months ended September 30, 1999 was $217,739.
10. EMPLOYEE BENEFIT PLAN
401(K) PLAN - The Company has a 401(k) Plan for the benefit of its
employees. Participants may elect to defer up to a maximum of 23% of
compensation or $10,000 annually, whichever is less. The Company may
contribute to the participant accounts a variable matching percentage
of the individual's contribution which is not in excess of 10% of
F-54
<PAGE> 97
compensation. The Company's total expense for benefit plans was $12,328
for the nine months ended September 30, 1999. A favorable determination
letter has been received from the Internal Revenue Service to qualify
the Plan under IRS Code Section 401(k).
11. SUBSEQUENT EVENTS
Effective October 1, 1999, the Company ceased "S" corporation status
and became taxed as a "C" corporation. The Company established a new
credit line with FINOVA Credit Facility. The FINOVA Credit Facility is
in the principal amount of $32.5 million, has a five-year term and
bears interest, payable monthly, at the rate which, from time to time,
is 2% above FINOVA's stated "prime rate." Advances under the FINOVA
Credit Facility are limited, generally, to an amount not to exceed 85%
of Traveler's eligible receivables and eligible leases (each as
defined). The Company's obligations under the FINOVA Credit Facility
have been secured by the Company's grant of a first lien on, and
security interest in, all of the Company's assets, and a pledge, on a
subordinated basis, of all of the capital stock of the Company.
On November 5, 1999, but effective as of September 30, 1999 for all
operating, financial, tax and accounting purposes, the Company was
acquired by a wholly owned subsidiary of Finantra Capital, Inc., in a
privately negotiated, arms-length transaction. The purchase price of
$20,000,000 was paid as follows: (i) $15,000,000 in cash at closing;
and (ii) the sellers taking back a promissory note for $5,000,000.
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<PAGE> 98
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware provides that a corporation may
limit the liability of each director to the corporation or its stockholders for
monetary damages except for liability
o for any breach of the director's duty of loyalty to the
corporation or its stockholders;
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o in respect of certain unlawful dividend payments or stock
redemptions or repurchases; and
o for any transaction from which the director derives an
improper personal benefit.
Our certificate of incorporation provides for the elimination and
limitation of the personal liability of our directors for monetary damages to
the fullest extent permitted by the General Corporation Law of Delaware. In
addition, the certificate of incorporation provides that if the General
Corporation Law of Delaware is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended. The effect of this provision is to
eliminate our rights and our stockholders (through stockholders' derivative
suits on our behalf) to recover monetary damages against a director for breach
of the fiduciary duty of care as a director (including breaches resulting from
negligence or grossly negligent behavior), except in the situations described
above. This provision does not limit or eliminate our rights or any stockholder
to seek non-monetary relief such as an injunction or rescission in the event of
a breach of a director's duty of care. The certificate of incorporation also
provides that we shall, to the full extent permitted by the General Corporation
Law of Delaware, as amended from time to time, indemnify and advance expenses to
each of our currently acting and former directors, officers, employees and
agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration and Filing Fee................................................. $ 7,224
Legal Fees and Expenses*........................................................ 25,000
Accounting Fees and Expenses*................................................... 25,000
Financial Printing*............................................................. 15,000
Transfer Agent Fees*............................................................ 5,000
Blue Sky Fees and Expenses*..................................................... 2,500
Miscellaneous*.................................................................. 5,276
-------
TOTAL................................................................. $85,000
</TABLE>
* Estimated
None of the foregoing expenses are being paid by the selling securityholders.
II-1
<PAGE> 99
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During December 1998, the Company sold to an accredited investor, in an
isolated, privately negotiated transaction, 500,000 shares of the Company's
Series B Preferred Stock for $500,000 or $1.00 per share. The securities were
exempt from registration pursuant to Section 4(2) of the Securities and Exchange
Act of 1933, as amended.
During the First Quarter 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 shares 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).
During Second Quarter 1999, the Company consummated an "offshore offering" in
accordance with the procedures enumerated in Regulation S promulgated under the
Securities Act of 1933, as amended (the "Reg. S Offering"). Pursuant to the Reg.
S Offering, the Company issued and sold to 13 investors, 63 units (the "Units"),
each Unit consisting of 10,000 shares of the Company's Common Stock and 10,000
warrants (the "Warrants"). Each Warrant entitles the holder to purchase one
share of the Company's Common Stock for $3.25 at any time through November 9,
2001. The Warrants are redeemable by the Company upon notice of not less than 30
days at a price of $0.25 per 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 Warrants (currently $4.875,
subject to adjustment). The Units were offered and sold for $21,250 per Unit.
The Company also issued five Units as compensation to those persons abroad who
assisted in consummating the Reg. S Offering. Net proceeds to the Company from
the Reg. S Offering were approximately $1,338,750.
In November 1999, the Company sold, in an arm's-length, privately negotiated
transaction with 10 accredited investors, in consideration for $3.5 million, an
aggregate of 3,500 shares of the Company's Series C Preferred Stock. In
connection therewith, the Company also issued to the purchasers of the Series C
Preferred Stock (or their designees) Preferred Warrants entitling the holders
thereof the right to acquire, in the aggregate, up to 700,000 shares of the
Company's common stock, $.01 par value per share (the "Common Stock"). The
Preferred Warrants are exercisable at any time within the five-year period
immediately following the Closing at an exercise price of $3.28.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Description of Document
3.1 Amended and Restated Certificate of Incorporation of the Company (the
"Restated Certificate")(3.1)(1)
3.2 Certificate of Amendment to the Restated Certificate(3.1)(2)
3.3 Certificate of Designation, Rights and Preferences relating to shares
of the Company's Series A 10% Convertible Preferred Stock(3.2)(1)
3.4 Certificate of the Powers, Designations, Preferences and Rights of the
Company's Series B Preferred Stock(3.4)(6)
3.5 Certificate of Designation, Rights and Preferences relating to shares
of the Company's Series C 6% Convertible Preferred Stock.(8)
3.6 By-Laws of the Company(3.3)(1)
4.1 Specimen Common Stock Certificate (4.1)(1)
4.2 Specimen Warrant Certificate (4.3) (1)
4.3 Warrant Agency Agreement, dated December 1997, between the Company and
American Stock Transfer & Trust Company (4.3)(1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(8)
10.1 Employment Agreement, dated as of March 1, 1998 between Robert D. Press
and the Company(10.1)(3)
10.2 Amendment, dated December 31, 1998, to Employment Agreement between
Robert D. Press and the Company.(10.2)(6)
10.3 Agreement, dated March 4, 1998, among the Company, Frederick Horwin and
Tom Wheatley(10.2)(3)
10.5 Employment Agreement, dated as of March 4, 1998, between AFG and Tom
Wheatley(10.4)(3)
10.17 Syndication Agreement, dated February 1, 1998, among the Company, Barry
Goldstein and Randy Wool (10.23)(3)
10.18 Loan and Security Agreement, dated May 8, 1998, between AFG and FINOVA
(10.28)(3)
10.19 Continuing Corporate Guaranty, dated May 8, 1998 issued by the Company
to FINOVA (10.29)(3)
10.20 Stock Pledge Agreement, dated December 24, 1997, between Medley Group
and the Company(10.30)(3)
10.21 Letter Agreement, dated December 24, 1997, between Medley Group and the
Company (10.31)(3)
10.22 The Company's 1997 Stock Option Plan (10.06)(1)
10.24 Promissory Note, date March 9, 1998, issued by Tract 4, Inc. to the
Company in the principal amount of $200,000(10.2)(4)
10.27 Stock Exchange Agreement, dated July 20, 1998, among Ameri-Cap Finance
Group, Inc., certain individuals named therein, the Company and
Ameritrust (10.1)(5)
10.28 Amendment, dated October 21, 1998, to Stock Exchange Agreement between
Ameri-Cap Finance Group, Inc., the Company and Ameritrust (10.2)(5)
10.29 Employment Agreement, dated November 1998, between Ameritrust and Larry
Schwartz(10.3)(5)
10.33 Employment Agreement, dated December 23, 1998, between the Company and
Maynard J. Hellman(10.33)(6)
10.34 Stock Purchase Agreement, dated December 31, 1998, between Ameri-Cap
Mortgage, Maynard J. Hellman and the Company(10.34)(6)
10.35 Stock Exchange Agreement, dated December 16, 1998, between Maynard J.
Hellman, Ameri-Cap Factors and the Company(10.35)(6)
10.36 Stock Exchange Agreement, dated December 16, 1998, between Maynard J.
Hellman and the Company(10.36)(6)
II-2
<PAGE> 100
10.37 Warrant for 500,000 shares of Common Stock, dated October 16, 1998,
issued by the Company to Maynard J. Hellman(10.37)(6)
10.38 Agreement, dated December 31, 1998, between the Company and Medley
Group(10.38)(6)
10.39 Lease Agreement, dated November 4, 1998, between SKW II Real Estate
Partnership and the Company(10.39)(6)
10.40 Stock Purchase Agreement, dated October 1999, among the Company,
Acquisition Co., Travelers and the Shareholders of Travelers(10.1)(7)
10.41 First Amendment, dated October 1999, to Stock Purchase Agreement dated
October 1999 among the Company, Acquisition Co., Travelers and the
Shareholders of Travelers(10.2)(7)
10.42 Loan and Security Agreement, dated November 5, 1999, between FINOVA and
TAC, TLC and Trace.(8)
10.43 Securities Purchase Agreement, dated as of November 5, 1999, among the
Company, Esquire Trade & Finance Inc., Austinvest Anstalt Balzers,
Nesher Inc., Amro International, S.A., Altra Trading & Investment,
S.A., The Gross Foundation, Libra Finance, S.A., Talbiya B. Investments
Ltd., Ellis Enterprises and Ronald Nash.(8)
10.44 Form of Preferred Warrant.(8)
10.45 Loan and Security Agreement, dated as of November 5, 1999, between
Acquisition Co. and BHC.(8)
10.46 Form of Travelers Warrant.(8)
10.47 Form of Finantra Warrant.(8)
21 Subsidiaries of the Company(8)
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in such
firm's opinion filed as Exhibit 5.1)(8)
23.2 Consent of Daszkal, Bolton & Manela, CPAs*
23.3 Consent of Deloitte & Touche*
27.1 Financial Data Schedule(3)(6)(7)
- - - - - - - - - - ------------------
* Filed herewith.
(1) Incorporated by reference to the exhibit number indicated as filed with
the Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-24937).
(2) Incorporated by reference to the exhibit number indicated as filed with
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998.
(3) Incorporated by reference to the exhibit number indicated as filed with
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1997.
(4) Incorporated by reference to the exhibit number indicated as filed with
the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999.
(5) Incorporated by reference to the exhibit number indicated as filed with
the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998.
(6) Incorporated by reference to the exhibit number indicated as filed with
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1998.
(7) Incorporated by reference to the exhibit number indicated as filed with
the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.
(8) To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
II-3
<PAGE> 101
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Plantation, Florida on January 4, 2000.
FINANTRA CAPITAL, INC.
By: /s/ Robert D. Press
--------------------------------------
Robert D. Press
Chairman, Chief Executive Officer
and Chief Financial Officer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Press Chairman of the Board of Directors, January 4, 2000
- - - - - - - - - - --------------------------- Chief Executive Officer and Chief
Robert D. Press Financial Officer
/s/ Charles Litt President and Director January 4, 2000
- - - - - - - - - - ---------------------------
Charles Litt
/s/ Maynard Hellman Director January 4, 2000
- - - - - - - - - - --------------------------
Maynard Hellman
/s/ Arthur J. Press Director January 4, 2000
- - - - - - - - - - --------------------------
Arthur J. Press
/s/ Evaldo F. Dupuy Director January 4, 2000
- - - - - - - - - - ----------------------
Evaldo F. Dupuy
/s/ Thomas W. Dwyer Director January 4, 2000
- - - - - - - - - - -------------------
Thomas W. Dwyer
/s/ Alyce B. Schreiber Director January 4, 2000
- - - - - - - - - - ----------------------
Alyce B. Schreiber
</TABLE>
<PAGE> 1
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
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.
MICHAEL S. KRIDEL, CPA
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the incorporation by reference in this Registration
Statement on Form SB-2 of Finantra Capital, Inc. and Subsidiaries, for the years
ended December 31, 1998 and 1997, to our report dated March 13, 1999, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us as "Experts" in such Prospectus.
/s/ DASZKAL BOLTON MANELA DEVLIN & CO. CPAs
DASZKAL BOLTON MANELA DEVLIN & CO. CPAs
Boca Raton, Florida
January 4, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
WE consent to the use in this Registration Statement of Finantra Capital, Inc.
on Form SB-2 of our report on the consolidated financial statements of
Travelers Investment Corporation and subsidiaries for the years ended December
31, 1998 and 1997, dated February 10, 1999, appearing in the Prospectus which
is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- - - - - - - - - - ---------------------------
Deloitte & Touche LLP
San Diego, California
January 4, 2000
