<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------
Date of Report (Date of earliest event reported) November 5, 1999
------------------------
FINANTRA CAPITAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-22681 13-3571419
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
150 SOUTH PINE ISLAND ROAD, SUITE 500, PLANTATION, FLORIDA
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (954) 577-9225
-----------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
As previously disclosed in the Company's Form 10-QSB for the period
ended September 30, 1999, on November 5, 1999, but effective as of September 30,
1999 for all operating, financial, tax and accounting purposes, the Company,
through its Acquisition Co. subsidiary, acquired, in a privately negotiated,
arms-length transaction, all of the outstanding capital stock of Travelers (and
its subsidiaries), a California-based provider of specialty consumer financing.
The financial statements of Travelers and the pro forma financial
information required to be filed in accordance with Item 7 of Form 8-K are filed
herewith.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a) Audited Financial Statements of Travelers Investment Corporation for
the years ended December 31, 1998 and 1997 and Unaudited Financial
Statements for the nine months ended September 30, 1999.
b) Finantra Capital, Inc. Pro Forma Combined Balance Sheets at December
31, 1998; Pro Forma Combined Statements of Operations for the Year
Ended December 31, 1998 and Nine Months Ended September 30, 1999.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINANTRA CAPITAL, INC.
By: /s/ Charles V. Litt
--------------------------------------------
Charles V. Litt, President
Dated: January 18, 1999
-3-
<PAGE> 4
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
BUSINESS ACQUIRED - TRAVELERS INVESTMENT CORPORATION
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 Income for the years ended
December 31, 1998 and 1997 F-10
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998 and 1997 F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-12
Notes to Consolidated Financial Statements F-13
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 1999 (unaudited) F-18
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1999 and 1998 (unaudited) F-20
Notes to Condensed Consolidated Financial Statements F-21
</TABLE>
<PAGE> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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-8
<PAGE> 12
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-9
<PAGE> 13
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-10
<PAGE> 14
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-11
<PAGE> 15
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-12
<PAGE> 16
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-13
<PAGE> 17
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-14
<PAGE> 18
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-15
<PAGE> 19
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-16
<PAGE> 20
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-17
<PAGE> 21
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-18
<PAGE> 22
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-19
<PAGE> 23
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-20
<PAGE> 24
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-21
<PAGE> 25
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-22
<PAGE> 26
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-23
<PAGE> 27
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-24
<PAGE> 28
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.
F-25
