<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 333-50103
CREDITRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1754916
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7000 SECURITY BLVD., BALTIMORE, MD 21244-2543
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 410-594-7000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS YES [X] NO [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
MAY 30, 2000 WAS 10,453,548.
<PAGE>
CREDITRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
<S> <C>
Consolidated Statements of Earnings
For the Three Months Ended March 31, 1999 and 2000.......................... 1
Consolidated Balance Sheets
As of December 31, 1999 and March 31, 2000.................................. 2
Consolidated Statements of Stockholders' Equity and Comprehensive
Income as of December 31, 1999 and March 31, 2000........................... 3
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 2000.......................... 4
Notes to Consolidated Financial Statements.................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 16
Item 2. Changes in Securities and Use of Proceeds................................. 16
Item 3. Defaults Upon Senior Securities........................................... 16
Item 5. Other Information......................................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
SIGNATURE............................................................................. 18
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
Revenue
Income on finance receivables..................... $ 9,132 $ 19,496
Servicing fees.................................... 1,563 1,028
Income on investment in securitizations........... 1,329 961
---------- -----------
12,024 21,485
---------- -----------
Expenses
Personnel......................................... 5,660 9,454
Communications.................................... 545 978
Rent and other occupancy.......................... 475 1,384
Professional fees................................. 715 1,526
Other expenses.................................... 249 1,120
---------- -----------
7,644 14,462
---------- -----------
Earnings from operations................................ 4,380 7,023
Other income (expense)
Interest and other income......................... 148 164
Interest expense.................................. (543) (2,895)
---------- -----------
Earnings before income taxes............................ 3,985 4,292
Provision for income taxes.............................. 1,555 1,674
---------- -----------
Net earnings............................................ $ 2,430 $ 2,618
========== ===========
Basic earnings per common share......................... $ .29 $ .25
---------- -----------
Weighted-average number of basic common shares
outstanding....................................... 8,358,889 10,453,548
========== ===========
Diluted earnings per common share....................... $ .28 $ .25
---------- -----------
Weighted-average number of diluted common shares
outstanding....................................... 8,673,070 10,453,548
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) DECEMBER 31, MARCH 31,
------------ ---------
1999 2000
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents, including restricted cash of $3.3 million as of
December 31, 1999 and March 31, 2000............................................. $ 11,927 $ 8,281
Finance receivables held for sale................................................... 3,126 --
Finance receivables................................................................. 184,858 183,741
Investment in securitizations....................................................... 31,169 29,741
Property and equipment, net......................................................... 9,297 10,184
Deferred costs, net................................................................. 3,111 6,061
Other assets........................................................................ 2,087 1,038
-------- --------
Total assets............................................................. $245,575 $239,046
======== ========
Liabilities and Stockholders' Equity
Notes payable....................................................................... $111,306 $ 99,044
Accounts payable and accrued expenses............................................... 4,986 7,453
Capitalized lease obligations....................................................... 5,208 5,536
Deferred tax liability.............................................................. 20,132 20,875
Other liabilities................................................................... 1,606 1,610
-------- --------
Total liabilities........................................................ 143,238 134,518
-------- --------
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued and
outstanding................................................................. -- --
Common stock, $.01 par value; 20,000,000 shares authorized, 10,484,588 shares
issued and 10,453,548 outstanding at December 31, 1999 and
March 31, 2000.............................................................. 105 105
Paid-in capital................................................................ 71,078 72,109
Stock held for benefit plans................................................... (269) (269)
Net unrealized gains on available for sale securities.......................... 2,259 801
Retained earnings.............................................................. 29,164 31,782
-------- --------
Total stockholders' equity............................................... 102,337 104,528
-------- --------
Total liabilities and stockholders' equity............................... $245,575 $239,046
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
STOCK ACCUMULATED
----- -----------
COMMON STOCK ADDITIONAL PREFERRED STOCK HELD FOR OTHER
------------ ---------- --------------- -------- -----
PAID-IN BENEFIT COMPREHENSIVE RETAINED
------- ------- ------------ --------
SHARES AMOUNT CAPITAL SHARES AMOUNT PLANS INCOME EARNINGS TOTAL
------ ------ ------- ------ ------ ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999...... 7,984,480 $ 80 $ 27,754 -- $ -- $ (269) $ 6,714 $ 12,146 $ 46,425
Common stock offering........... 2,400,000 24 42,429 -- -- -- -- -- 42,453
Common stock issued on options
and warrants exercised........ 69,068 1 895 -- -- -- -- -- 896
Net earnings.................... -- -- -- -- -- -- -- 17,018 17,018
Other comprehensive income,
decrease in unrealized gains
on available for sale
securities, net of taxes
of $2,288..................... -- -- -- -- -- -- (4,455) -- (4,455)
--------
Total comprehensive income...... 12,563
---------- ------ -------- ------ ------ ------ ------- -------- --------
Balance at December 31, 1999.... 10,453,548 105 71,078 -- -- (269) 2,259 29,164 102,337
Value of common stock purchase
warrants issued in connection
with debt financing........... -- -- 1,031 -- -- -- -- -- 1,031
Net earnings.................... -- -- -- -- -- -- -- 2,618 2,618
Other comprehensive income,
decrease in unrealized gains
on available for sale
securities, net of taxes
of $932....................... -- -- -- -- -- -- (1,458) -- (1,458)
--------
Total comprehensive income...... 1,160
---------- ------ -------- ------ ------ ------ ------- -------- --------
Balance at March 31, 2000....... 10,453,548 $ 105 $ 72,109 -- $ -- $ (269) $ 801 $ 31,782 $104,528
========== ====== ======== ====== ====== ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings.............................................................. $ 2,430 $ 2,618
Adjustments to reconcile net earnings to net cash (used in) provided
by operating activities:
Depreciation and amortization....................................... 148 918
Deferred tax expense................................................ 1,555 1,674
Income on investment in securitization.............................. (1,329) (961)
Changes in assets and liabilities:
(Increase) decrease in other assets................................. (945) 1,049
Increase in accounts payable and accrued expenses................... 1,477 2,467
(Decrease) increase in other liabilities............................ (6) 4
-------- --------
Net cash and cash equivalents provided by operating activities.................. 3,330 7,769
-------- --------
Cash flows from investing activities
Collections applied to principal (accretion) on finance receivables....... (3,157) 1,117
Increase in cash reserves on securitizations.............................. (2,610) --
Purchases of property and equipment....................................... (164) (1,204)
Proceeds from sale of finance receivables held for sale................... -- 3,126
Acquisitions of finance receivables....................................... (37,943) --
-------- --------
Net cash and cash equivalents (used in) provided by investing activities........ (43,874) 3,039
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock.................................... 42,504 --
(Payments on) proceeds from notes payable, net............................ 37,972 (11,231)
Proceeds from sale-leaseback transaction.................................. -- 512
Payments on capital lease obligations..................................... (135) (440)
Deferred costs............................................................ (44) (3,295)
-------- --------
Net cash and cash equivalents provided by (used in) financing activities........ 80,297 (14,454)
-------- --------
Net increase (decrease) in cash and cash equivalents............................ 39,753 (3,646)
Cash and cash equivalents at beginning of period................................ 7,906 11,927
-------- --------
Cash and cash equivalents at end of period...................................... $ 47,659 $ 8,281
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands except share data)
Note A--Recent Events Affecting Operations
Subsequent to March 31, 2000 a number of events have occurred that will impact
the future operations and liquidity of Creditrust Corporation (the "Company").
As more fully discussed below in Notes E, F and H, effective May 1, 2000, Asset
Guaranty Insurance Company, (AGI), the bond insurer on three of the Company's
privately placed securitizations, has not renewed Creditrust as the servicer on
two of the three securitizations, Creditrust Receivables Backed Notes, Series
1998-2 (not consolidated) and Creditrust Receivables Backed Warehouse Notes,
Series 1998-A (consolidated). Norwest Bank Minnesota, National Association, as
trustee and back up servicer, has selected a third party successor servicer
effective as of May 1, 2000. The Company's servicing fees on these two
transactions have approximated $600,000 a month in recent months. Norwest Bank,
as Trustee for Series 1998-2, has indicated that the Company is in servicer
default, which causes the technical cross-default of Creditrust Receivables
Backed Notes Series 1999-1, a consolidated securitization not insured by AGI.
The trustee for the bondholders of Series 1999-1 has notified the Company that
it is in cross default and that effective May 4, 2000, the Company has been
terminated as servicer. In subsequent discussions, the bondholders have asked
the Company to continue to service the accounts for an indeterminate period of
time.
In addition, the Company has received notice from Sunrock Capital Corporation
that the Company's revolving line of credit is in default due to a failure on
the part of the Company to make the payments due for the months of April and May
2000. Sunrock Capital Corporation is collateralized by all of the Company's
assets except receivables included in securitizations and the SPV99-2 financing.
The default on the Sunrock credit facility caused the cross default for the
Series 1998-1 securitization (not consolidated), the third securitization for
which AGI is the insurer. The Series 1998-1 securitization is expected to pay
off in the third quarter of 2000. The Company does not believe that Series
1998-1 securitization will be affected by the cross default.
The Company has been profitable and has equity, however the Company has been
unable to meet all of its debt service obligations and operating expenses due to
a) the loss of contractual servicing fees on its Series 1998-2 securitization
and warehouse credit facility, and b) the Company's inability to raise
additional financing or sell receivables. The Company did not meet its debt
service payments to Sunrock Capital and a default has been declared. The default
would enable the lender to accelerate the loan. In addition, this caused a cross
default under the Series 1999-2 facility and the Series 1998-1 facility, which
could be accelerated. The servicing on Series 1998-2, 1999-1 and the warehouse
have been terminated which directly affects the Company's resources to pay
operating costs and debt service. Although our loans are in servicer default and
cross default, the loans have not been accelerated.
The accompanying financial statements do not include any adjustments that will
be necessary as a result of the Company's defaults on its facilities and loss of
its servicing on the securitizations during the second quarter of 2000. However,
in the quarter ending June 30, 2000, the Company will reduce the fair value of
the investment in the Series 1998-2 securitization by approximately $1.4 million
due to the fact that the servicing was moved to a third party until the bond is
retired. Net earnings would be reduced by approximately $312,000 after tax, and
unrealized gain in stockholders' equity would be reduced by $561,000 after tax.
In addition, in the quarter ended June 30, 2000, the Company will review the
deferred costs associated with the defaults of the facilities to determine what,
if any, write downs will be required.
The Company's default of the revolving line of credit and other defaults and
occurrences described above may raise doubt about the Company's ability to
continue as a going concern. The Company is currently working with all of its
lenders and investors to obtain the necessary waivers under the terms of the
agreements and is negotiating with them to stabilize its lender relationships by
establishing certain internal operating plans. The Company has also retained
the services of an outside consulting firm to assist in creating programs to
accomplish management's objectives. The Company is also evaluating the disposal
of certain assets, raising new capital for future operations and reducing
operating costs by certain staff and other cost reductions. However, there can
be no assurance that the Company will be successful in achieving its objectives.
The accompanying financial statements do not include any adjustments that might
be necessary in the event that the Company is unable to continue as a going
concern, or as a result of the facilities defaults, or loss of servicing.
Note B--Organization and Business
The Company was incorporated in Maryland on October 17, 1991. The Company
purchases, collects and manages defaulted consumer receivables from credit
grantors, including banks, finance companies, retail merchants and other service
providers. The Company's customers are located throughout the United States. The
Company has funded its receivables purchases and the expansion of its business
through a combination of bank and other warehouse funding, public and private
equity funding and asset-backed securitizations.
5
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except share data)
Note C--Summary of Significant Accounting Policies
Basis of Accounting
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments (consisting only of normal recurring items)
necessary for their fair presentation in conformity with generally accepted
accounting principles. Interim results are not necessarily indicative of results
for a full year. The information included in these Statements should be read in
conjunction with Management's Discussion and Analysis of financial condition and
results of operations, and consolidated financial statements and notes thereto
included in the Company's Corporation's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1999.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Creditrust Funding I LLC, Creditrust Card
Services Corp., Creditrust SPV99-1, LLC, Creditrust SPV99-2 Capital, Inc., and
Creditrust SPV99-2, LLC. All material inter-company accounts and transactions
have been eliminated.
Significant Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Significant estimates have been made by management with respect to the amount of
future cash flows of portfolios. The estimated future cash flows of the
portfolios are used to recognize income on finance receivables and to estimate
the fair value of investment in securitizations. Actual results could differ
from these estimates, making it reasonably possible that a change in these
estimates could occur within one year. On a quarterly basis, management reviews
the estimate of future collections, and it is reasonably possible that its
assessment may change based on actual results and other factors. The change
could be material (See Note E).
Note D--Earnings per Common Share
The Company's options and warrants were anti-dilutive for the three months ended
March 31, 2000. The following table reconciles basic and diluted EPS for the
three months ended March 31, 1999:
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------
<TABLE>
<CAPTION>
PER
EARNINGS SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Net earnings............................. $2,430 8,358,889 $.29
Effect of dilutive securities
Warrants................................. -- 211,952
Stock options............................ -- 102,229
------ ---------
Diluted EPS
Net earnings plus assumed conversions.... $2,430 8,673,070 $.28
====== ========= ====
</TABLE>
6
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note E--Finance Receivables
The Company purchases defaulted consumer receivables at a discount from the
actual principal balance. The following summarizes the change in finance
receivables for the three months ended March 31, 2000:
Balance, at beginning of period................................... $ 184,858
Purchases of finance receivables........................ --
Accretion to principal.................................. 3,669
Amortization of principal............................... (4,786)
----------
Balance, at end of period......................................... $ 183,741
==========
Unrecorded discount............................................... $2,457,652
==========
To the extent that the carrying amount of a static pool exceeds its fair value,
a valuation allowance would be recognized in the amount of such impairment. As
of December 31, 1999 and March 31, 2000, no provision for loss has been
recorded.
In the first quarter ended March 31, 2000, the Company sold $3.1 million of
purchased finance receivables that had been classified as held for sale. All of
the finance receivables held for sale were sold for cost and therefore no gain
or loss was recognized.
As of May 30, 2000, and as more fully described in Note H, the Company is in
payment default on its revolving line of credit and in technical cross defaults
on the warehouse, SPV99-2 and SPV99-1 facilities. The impact on the carrying
values of the finance receivables secured under each of these facilities is
currently not determinable. No acceleration of any debt has occurred, though the
servicing on the warehouse facility and SPV99-1 has been terminated. The
carrying value of each of the pools of receivables as of March 31, 2000 was:
Warehouse Facility................... $ 23,772
Revolving Line of Credit............. 21,023
SPV99-2.............................. 40,113
SPV99-1.............................. 90,751
Other................................ 8,082
--------
$183,741
========
Changes in Estimates
The Company monitors its projection models with a view towards enhancing
predictability of both the amount and timing of collections. In the first
quarter of 2000, the Company reduced the remaining estimates by 6% to reflect
historical collections. The effect of the change in estimate was to reduce
earnings in the first quarter by $2.3 million, or $1.4 million after tax.
As a result of events subsequent to March 31, 2000, as discussed in Note A,
there could be further reductions in estimates and carrying values of
finance receivables.
Note F--Investment in Securitizations
Investment in securitizations for the three months ended March 31, 2000 is
comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
CASH AMORTIZED UNREALIZED FAIR
RESERVES COST GAINS VALUE
-------- ---- -------------- -----
<S> <C> <C> <C> <C>
Balance at beginning of period..... $ 4,550 $22,434 $ 4,185 $31,169
Deposits to reserves............... -- -- -- --
Income on investment............... -- 961 -- 961
Decrease in unrealized gains....... -- -- (2,389) (2,389)
------- ------- ------- -------
Balance at end of period........... $ 4,550 $23,395 $ 1,796 $29,741
======= ======= ======= =======
</TABLE>
7
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note F--Investment in Securitizations (Continued)
The investment in securitizations accrues interest at 12% per annum. The net
after tax effect of unrealized gains is reflected as a separate component of
stockholders' equity and is included in other comprehensive income. Fair value,
absent actual market quotations for similar securities, was calculated by a
discounted cash flow valuation.
In April 2000, the Company received notification from the note insurer, AGI,
that it was terminating the Company's servicing rights effective May 1, 2000 on
the Series 1998-2 securitization, and transferred to a third party at a
servicing fee of 30% on monthly collections. The Company had initially
determined the fair value of the investment based on a discounted cash flow
analysis, including a 20% marginal cost of servicing. Due to the contractual
payment to the third party of 30% until the underlying bond is paid off, the
discounted cash flow for the fair value of investment in securitization will be
revised in the second quarter of 2000 to account for the increased cost of
servicing during the estimated bond period. Once the bond is retired in full
including all interest and other administrative expenses of the trust, the
servicing will revert to the Company. On April 11, 2000, the Company was
notified by AGI of a non-payment related default on collection targets. AGI
could attempt to accelerate the bond and possibly seek to sell the receivables
securing the securitization. The Company would attempt to vigorously prevent
such actions. The effect of the third party servicing or possible acceleration
on the fair value of the investment in the securitization for Series 1998-2
cannot be determined at this time. The carrying value of Series 1998-2 at March
31, 2000 is $20.9 million and the outstanding bond balance is $12.2 million.
The Company is in technical servicer cross default on the Series 1998-1
securitization as a result of its default under its revolving line of credit.
No notice of default has been received and the servicing remains with the
Company. The carrying value of Series 1998-1 at March 31, 2000 is $8.7 million
and the outstanding bond balance is $1.5 million. The Company expects that the
bond will be retired in the third quarter of 2000 from collections.
All of the cash reserve accounts are assignable as additional collateral to the
warehouse facility once the Series 1998-1 and 1998-2 bonds are retired pursuant
to an amendment to the warehouse facility in December 1999. The cash reserve
balances as of March 31, 2000 were $1.3 million and $3.3 million, for the Series
1998-1 and 1998-2 bonds, respectively.
Note G--Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at:
December 31, March 31,
1999 2000
------ ------
Accounts payable.............................. $1,453 $2,377
Accrued salaries, taxes and fringe benefits... 1,550 1,488
Accrued conversion fee SPV99-2 financing...... -- 1,713
Accrued other liabilities..................... 1,983 1,875
------ ------
$4,986 $7,453
====== ======
Note H--Notes Payable
Warehouse Facility
In September 1998, the Company established through a wholly owned consolidated
special purpose finance subsidiary, Creditrust Funding I LLC, an initial $30
million revolving warehouse facility for use in acquiring finance receivables.
The warehouse facility carried a floating interest rate of LIBOR plus .65%, with
the revolving period expiring in October 2000. The final due date of all
payments due under the facility is October 2005. The warehouse facility is
secured solely by a trust estate, primarily consisting of specific consumer
receivables that the Company has absolutely assigned to the newly formed special
purpose finance subsidiary, and is non-recourse to the parent company and its
other assets. Generally, the warehouse facility provided 95% of the acquisition
costs of receivables purchased, with the Company funding the remaining 5% and a
one-time $900,000 liquidity reserve requirement. The $900,000 reserve account is
included in cash on the balance sheet and restricted as to use until the
warehouse facility is retired. It is anticipated that the designated cash
reserves available after pay off of the Company's initial and second
securitizations will be applied as additional reserves for the warehouse
facility.
8
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note H--Notes Payable (Continued)
The Company's right to service the receivables funded by the warehouse facility
automatically terminates on a monthly basis subject to reappointment by the note
insurer. The note insurer notified the Company that they were not re-appointing
the Company as servicer effective April 1, 2000. The Trustee, as back-up
servicer, appointed the Company to be servicer for the month of April 2000 and
thereafter, selected a third party until the facility is repaid in full. Once
the facility is repaid, the servicing will revert back to the Company. The
facility contains financial covenants the most restrictive of which requires
that the Company maintains a net worth of $1.8 million plus 75% of net earnings.
The indenture and servicing agreement was amended in February 2000, requiring
the facility to be reduced to $19 million by July 10, 2000. Debt service on the
Warehouse facility is interest only during a six-month revolving period and
thereafter comprised of all collections from receivables less a 20% servicing
fee. In February 2000, the servicing fee increased to 35% pursuant to the
amended indenture and servicing agreement. These servicing fees are eliminated
in consolidation. As described in above Note E, AGI notified the Company that
the warehouse facility was in default due to a cross default provision in Series
1998-2.
Interest expense, trustee fees and guarantee fees aggregated $325,000 and
$464,000 for the periods ending March 31, 1999 and 2000, respectively. As of
March 31, 2000, the amount outstanding was $21.7 million and the carrying value
of the assets included in the warehouse facility was $23.8 million.
Revolving Line of Credit
In October 1998, the Company entered into a $20 million revolving line of
credit with a commercial lender to provide receivables financing. The facility
has a term of three years, during which time the Company may borrow and repay
funds to purchase receivables at 80% of acquisition cost. Interest was based on
prime plus 0.5%, or LIBOR plus 2.5% at the option of the Company on each
advance. Pursuant to an amendment to the loan documents in March 2000, interest
is prime plus 2.5% effective April 1, 2000. The facility is secured by any
receivables purchased under the facility and substantially all the Company's
other assets. Outstanding debt on the line as of March 31, 2000 was $15.1
million, and the carrying value of the finance receivables under this facility
was $21.0 million. Interest expense totaled $250,000 and $337,000 for the
periods ending March 31, 1999 and 2000, respectively. The facility contains
financial covenants the most restrictive of which requires that the Company
maintains a net worth of $30.0 million plus 50% of net earnings. Debt service
on the revolving facility is interest only for six months following the purchase
of receivables. After six months, principal is payable over twenty-four months.
The Company did not make its principal or interest payments for April and May
2000. The lender has declared a default, but has not accelerated the loan. The
Company is negotiating to modify the terms of the agreement.
SPV99-2 Financing
In August 1999, the Company entered into a $40.0 million interim credit
facility to fund purchases of additional portfolios of defaulted receivables.
Under this arrangement, Creditrust SPV99-2, LLC (Series 1999-2), a newly formed
special purpose subsidiary issued secured, interim short-term notes in a private
placement to institutional investors. The notes are backed by a parent
guarantee from the Company. The Company used the proceeds of the interim credit
facility to purchase portfolios including purchases under forward flow
contracts. The Company was initially obligated to retire this facility with
proceeds from any capital markets transactions or certain asset sales prior to
the May 2000 initial maturity date. Interest was initially payable at 12% per
annum. Debt service was initially all collections on the receivables. The
notes converted to long-term financing effective March 1, 2000, at which time
the interest rate changed to 15% per annum and the maturity extended to
September 2002. Pursuant to the conversion of the notes, effective March 1,
2000, the Company may utilize up to $20.0 million from capital markets
transactions or certain asset sales for working capital purposes in lieu of
retiring the loan balance. Warrants in the amount of 1,236,138 shares of common
stock of the Company were issued to the lenders based on the average stock price
under a defined formula at market value. An original issue discount of $1.0
million was recorded pursuant to the issuance of the stock warrants. The
lenders will receive a conversion fee of 8.25% of the outstanding debt on March
1, 2000, or $2.8 million, payable from collections on the receivables. Debt
service, including
9
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note H--Notes Payable (Continued)
payment of the conversion fee, is all collections less a 40% servicing fee paid
to the Company. Servicing fees are eliminated in consolidation. As of March
31, 2000, the Company had $33.8 million outstanding under this facility.
Interest expense totaled $1.1 million for the period ended March 31, 2000. The
facility includes a technical cross default on the revolving line of credit and
securitizations, but the Company has not been notified by the lenders of any
action.
Non Recourse SPV99-1 Securitization Note
In August 1999, the Company issued a $40.0 million asset backed
securitization note through its newly formed special purpose subsidiary
Creditrust SPV99-1, LLC (Series 1999-1). The Note is secured by the receivables
pledged to the note holders and is non-recourse to the parent Company and its
other assets. Interest is payable at 9.43% per annum and the final maturity
date of the Note is July 2004. Interest expense totaled $876,000 for the period
ended March 31, 2000. A one-time $2.4 million liquidity reserve is included in
cash on the balance sheet and restricted as to use until the note is retired.
The securitization did not qualify for gain on sale accounting under generally
accepted accounting principles, with the result that the securitization notes
are treated as a secured borrowing and appear as debt on the consolidated
financial statements of the Company. As of March 31, 2000, the Company had
$29.4 million outstanding under this facility. Debt service is paid from all
collections on the receivables less a 20% servicing fee. Servicing fees are
eliminated in consolidation.
Due to a cross default provision with any other defaulted securitization, the
trustee notified the Company that a servicer default had occurred. On May 4,
2000, the Company was notified by the trustee for the bondholders that effective
immediately, Creditrust was terminated of all its duties and obligations under
the servicing agreement. In subsequent discussions, the bondholders have
requested the Company to continue servicing the receivables for an indeterminate
period. The amount of the servicing fee has averaged approximately $450,000
per month during the quarter.
As of March 31, 2000, required minimum principal payments payable by the Company
were as follows:
<TABLE>
<S> <C>
Year ending December 31,
2000 $ 69,193
2001 26,217
2002 4,665
--------
Total minimum principal payments 100,075
--------
Original issue discount on warrants issued from SPV99-2 financing 1,031
--------
Fair value of debt recorded $ 99,044
========
</TABLE>
The above table does not reflect the impact of potential acceleration of any
loans caused by defaults subsequent to March 31, 2000 as discussed in Note A.
Note I--Commitments and Contingencies
Forward Flow Agreements
Beginning in September 1998, the Company entered into multiple forward flow
agreements with certain financial institutions, which obligate the Company to
purchase, on a monthly basis, portfolios of charged-off receivables meeting
certain criteria. As of March 31, 2000, the Company had no commitments under
forward flow agreements.
10
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note I--Commitments and Contingencies (Continued)
Litigation
The Company is involved in various litigation arising in the ordinary course of
business. Management believes these items, individually or in aggregate, will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
The Company brought a declaratory judgement action against a seller of charged
off receivables asking the US District Court for the District Court of Delaware
to agree with the Company's interpretation that the agreement has been
terminated pursuant to its terms. The seller has responded, as anticipated by
the Company, by denying that the agreement has terminated, and is seeking, among
other things, liquidated damages of $600,000 plus legal fees. While it is not
possible for the Company to estimate the potential for loss, if any, the Company
will vigorously prosecute its action against the seller and defend any claims
made in the proceeding.
On April 4, 2000, the Company filed in The United States District Court for the
District of Maryland an 18-count suit for $130 million in compensatory damages
against Enhanced Financial Services (NYSE:EFS), AGI, and Charles Henneman,
Senior Vice President of EFS. The Company is also asking for $390 million in
punitive damages from the three defendants. EFS is the parent company of AGI,
which insures three of the Company's four asset backed bonds. The suit alleges
that EFS, through its Senior Vice President Charles Henneman, secretly posted
maliciously false and disparaging statements about the Company on the Yahoo!
message board, an internet web site, at which the Company is the dedicated topic
of discussion.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Revenues. Total revenues increased by $9.5 million, or 78.7%, from $12.0
million for the three months ended March 31, 1999 to $21.5 million for the three
months ended March 31, 2000. The increase was largely due to a $10.4 million
increase in income on finance receivables resulting from receivables purchases
during 1999. The Company expects that revenue in future periods will consist
primarily of income on finance receivables.
Income on finance receivables increased by $10.4 million, or 113.5%, from $9.1
million for the three months ended March 31, 1999 to $19.5 million for the three
months ended March 31, 2000. This increase was attributable to the purchase of
receivables in the last three quarters of 1999 with proceeds from the follow on
public offering, the Company's two credit facilities, the SPV99-2 financing, and
the August 1999 securitization. Collections on managed receivables increased by
$12.1 million, or 90.3%, from $13.4 million for the three months ended March 31,
1999 to $25.5 million for the three months ended March 31, 2000.
Expenses from Operations. Total expenses from operations increased by $6.9
million, or 89.2%, from $7.6 million for the three months ended March 31, 1999
to $14.5 million for the three months ended March 31, 2000. Operating expenses
increased primarily as a result of increased personnel expenses associated with
the growth of the Company's managed receivables base and associated recovery
efforts as the Company built infrastructure to support the expansion of its
operations.
Personnel expenses increased by $3.8 million, or 67.0%, from $5.6 million for
the three months ended March 31, 1999 to $9.4 million for the three months ended
March 31, 2000. Major categories of personnel expense increases included: (a)
recruiting, training and compensation costs associated with the increase in the
number of employees needed to service the larger volume of managed receivables,
and (b) additional costs for development, installation and training associated
with the Company's expanded information technology systems.
Communications costs increased by $433,000, or 79.3%, from $545,000 for the
three months ended March 31, 1999 to $978,000 for the three months ended March
31, 2000. This increase was due to greater use of long distance telephone
services and credit reporting to service the higher volume of managed
receivables purchased in the last three quarters of 1999.
Rent and occupancy expenses increased by $909,000, or 191.2%, from $475,000 for
the three months ended March 31, 1999 to $1.4 million for the three months ended
March 31, 2000. This increase was due to the opening of the Company's third
operations center in September 1999.
Professional fees and other expenses increased $1.6 million, or 174.5%, from
$964,000 for the three months ended March 31, 1999 to $2.6 million for the three
months ended March 31, 2000, as a result of increased accounting fees, investor
relations expenses, contingency legal and court costs, other consulting fees,
and miscellaneous other administrative costs.
Earnings from Operations. Earnings from operations increased by $2.7 million
from $4.3 million for the three months ended March 31, 1999 to $7.0 million for
the three months ended March 31, 2000. This increase resulted from numerous
factors, particularly the increase in income on finance receivables, which more
than offset the planned growth in operating costs associated with the additions
of recovery personnel to support a substantially larger volume of receivables.
Other Income (Expense). Other income (expense) decreased $2.3 million, from a
net expense of $395,000 for the three months ended March 31, 1999 to a net
expense of $2.7 million for the three months ended March 31, 2000. This
decrease resulted from a $16,000 increase in interest and other income earned on
short term cash equivalent investments offset by an increase in interest expense
of $2.3 million as a result of higher borrowing incurred in connection with the
credit facilities, SPV99-2 finance facility and the August 1999 securitization.
Earnings Before Income Taxes. Earnings before income taxes increased from $4.0
million for the three months ended March 31, 1999 to $4.3 million for the three
months ended March 31, 2000 primarily due to the increase in earnings from
operations offset by the increase in interest expense.
Provision for Income Taxes. Income tax rates were 39% for the three months ended
March 31, 1999 and 2000. The Company's effective tax rate may fluctuate as a
result of changes in pre-tax income and nondeductible expenses.
12
<PAGE>
Net Earnings. Net earnings increased by $189,000 from $2.4 million for the
three months ended March 31, 1999 to $2.6 million for the three months ended
March 31, 2000. This increase resulted from the same factors which affected
earnings from operations offset by the increase in interest expense.
EBITDA. EBITDA increased $3.4 million, or 73.3%, from $4.7 million for the three
months ended March 31, 1999 to $8.1 million for the three months ended March 31,
2000. EBITDA increased more than earnings from operations primarily because of
growth in depreciation expense for the three months ended March 31, 2000 over
the same period for 1999 due the increase in fixed assets needed to accommodate
the Company's expanded infrastructure.
Financial Condition
Cash and Cash Equivalents. Cash and cash equivalents decreased from $11.9
million as of December 31, 1999 to $8.3 million as of March 31, 2000 due to net
cash used in financing activities exceeding net cash provided by operating
activities and investing activities.
Finance Receivables. Investment in finance receivables decreased $1.1 million to
$183.7 million, as of March 31, 2000 from $184.9 million as of December 31,
1999. The Company made no purchases of finance receivables during the three
months ended March 31, 2000. Net amortization to principal on finance
receivables of $1.1 million was recorded for the three months ended March 31,
2000 as collections exceeded recorded income on finance receivables.
Finance Receivables Held for Sale. Finance receivables held for sale of $3.1
million were sold for cost during the period ended March 31, 2000.
Investment in Securitizations. Investment in securitizations decreased from
$31.2 million at December 31, 1999 to $29.7 million as of March 31, 2000. As of
March 31, 2000, the fair value of investment in securitizations was $29.7
million and the unrealized gain was $1.8 million pre-tax, or $801,000 net of
taxes. Unrealized gains may fluctuate based upon changes in the discount rate
utilized by the Company and changes in collection patterns.
Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses
increased $2.5 million, or 49.5%, from $5.0 million at December 31, 1999 to $7.5
million at March 31, 2000. The increase was due to increased trade payables and
accrued expenses.
Notes Payable and Capitalized Lease Obligations. Notes payable decreased from
$111.3 million as of December 31, 1999 to $99.0 million as of March 31, 2000.
The decrease in notes payable was attributable to the repayments on two of the
Company's credit facilities. Notes payable of $99.0 million are presented net
of an original issue discount of $1.0 million from the issuance of warrants in
connection with the conversion of the SPV99-2 financing to a term note on March
1, 2000.
Deferred Tax Liability. The Company's deferred tax liability at March 31, 2000
was $20.9 million compared to $20.1 million as of December 31, 1999. This
increase of $800,000 was attributable to an increase of $1.7 million in deferred
tax expenses resulting from the timing differences of recognizing income on
finance receivables on the cost recovery method for tax and securitization
transactions treated as financing for tax offset by a decrease of $932,000 in
deferred tax liability and amortization of comprehensive income.
Total Stockholders' Equity. Total stockholders' equity increased $2.2 million to
$104.5 million at March 31, 2000 from $102.3 million at December 31, 1999 as a
result of net income of $2.6 million during the three months ended March 31,
2000, $1.0 million of additional paid in capital resulting from the issuance of
warrants relating to the conversion of the SPV99-2 Financing to a term note,
reduced by $1.4 million (net of taxes) from a decrease of unrealized gains
related to the fair value of the Company's investment in securitizations.
Liquidity and Capital Resources
Historically, the Company has derived substantially all of its cash flow from
collections on finance receivables and servicing income. The primary sources of
funds to purchase receivables are cash flow, asset backed securitizations, the
SPV99-2 credit facility, borrowings under two credit facilities and equity
capital.
As of March 31, 2000, the Company had cash and cash equivalents of $8.3 million.
Cash provided by operating activities was $7.8 million for the three months
ended March 31, 2000. There were no purchases of finance receivables for the
three months ended March 31, 2000. No credit was available under the Company's
credit facilities at March 31, 2000.
13
<PAGE>
The Company had entered into forward flow contracts with a number of credit
grantors. These contracts obligated the Company to make monthly purchases of
receivables portfolios provided they met certain agreed-upon criteria. These
commitments have expired or terminated. The Company does not currently intend
to enter into new forward flow contracts. Instead, the Company will purchase
receivables that meet the Company's criteria as such receivables become
available.
The debt service requirements associated with borrowings under the Company's
credit facilities have significantly increased liquidity requirements. Both the
line of credit facility and the warehouse facility interest only periods have
expired and no further borrowings are permitted under the warehouse facility,
and the line of credit facility is subject to lender approval. The Company has
experienced difficulty in obtaining financing with principal payments and other
terms appropriately matched to the anticipated cash flows from receivables that
would be purchased with the financing. The Company believes that other
receivables purchasers have experienced similar difficulties in this financial
market.
Subsequent to March 31, 2000, a number of events have occurred that will impact
the Company's future operations and liquidity. As more fully discussed in Notes
E, F and H to the financials, effective May 1, 2000, Asset Guarantee Insurance
Company, (AGI), the bond insurer on three of the Company's privately placed
securitizations, has not renewed Creditrust as the servicer on two of the three
securitizations, Creditrust Receivables Backed Notes, Series 1998-2 (not
consolidated) and Creditrust Receivables Backed Warehouse Notes, Series 1998-A
(consolidated). Norwest Bank Minnesota, National Association, as trustee and
back up servicer, has selected a third party successor servicer effective as of
May 1, 2000. The Company's servicing fees on these two transactions have
approximated $600,000 a month in recent months. Norwest Bank, as Trustee for
Series 1998-2, has indicated that the Company is in servicer default, which
causes the technical cross-default of Creditrust Receivables Backed Notes Series
1999-1, a consolidated securitization not insured by AGI. The trustee for the
bondholders of Series 1999-1 has notified the Company that it is in cross
default and that effective May 4, 2000, the Company has been terminated as
servicer. In subsequent discussions, the bondholders have asked the Company to
continue to service the accounts for an indeterminate period of time.
In addition, the Company has received notice from Sunrock Capital Corporation
that the Company's revolving line of credit is in default due to a failure on
the part of the Company to make the payments due for the months of April and May
2000. Sunrock Capital Corporation is generally collateralized by all of the
Company's assets except receivables included in securitizations and the SPV99-2
financing. The default on the Sunrock credit facility caused the cross default
for the Series 1998-1 securitization (not consolidated), the third
securitization for which AGI is the insurer. The Series 1998-1 securitization is
expected to pay off in the third quarter of 2000. The Company does not believe
that Series 1998-1 securitization will be affected by the cross default.
The Company has been profitable and has equity, however the Company has been
unable to meet all of its debt service obligations and operating expenses due to
a) the loss of contractual servicing fees on its Series 1998-2 securitization
and warehouse credit facility, and b) the Company's inability to raise
additional financing or sell receivables. The Company did not meet its debt
service payments to Sunrock Capital and a default has been declared. The default
would enable the lender to accelerate the loan. In addition, this caused a cross
default under the Series 1999-2 facility and the Series 1998-1 facility, which
could also be accelerated. The servicing on Series 1998-2, 1999-1 and the
warehouse have been terminated which directly affects the Company's resources to
pay operating costs and debt service. Although our loans are in servicer default
and cross default, the loans have not been accelerated.
The Company's default of the revolving line of credit and other defaults and
occurrences described above may raise doubt about the Company's ability to
continue as a going concern. The Company is currently working with all of its
lenders and investors to obtain the necessary waivers under the terms of the
agreements and is negotiating with them to stabilize its lender relationships by
establishing certain internal operating plans. The Company has also retained
the services of an outside consulting firm to assist in creating programs to
accomplish management's objectives. The Company has also evaluated the disposal
of certain assets, raising new capital for future operations and reducing
operating costs by certain staff and other cost reductions. However, there can
be no assurance that the Company will be successful in achieving its objectives.
The accompanying financial statements do not include any adjustments that might
be necessary in the event that the Company is unable to continue as a going
concern, or as a result of the facilities defaults, or loss of servicing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company retains an investment in securitizations with respect to its
securitized receivables which are market risk sensitive financial instruments
held for purposes other than trading; it does not invest in derivative financial
or commodity instruments. This investment exposes the Company to market risk,
which may arise in the credit standing of the investment in securitizations and
in interest and discount rates applicable to this investment. The impact of a
1% increase in the discount rate used by the Company in the fair value
calculations would decrease the fair value reflected on the Company's balance
sheet by $398,000 as of March 31, 2000. There would be no impact on the
Company's future cash flows.
14
<PAGE>
Year 2000
The Year 2000 issue arises out of potential problems with computer systems or
any equipment with computer chips that use dates where the date has been stored
as just two digits (e.g. 99 for 1999). On January 1, 2000, any clock or date
recording mechanism, including date sensitive software, which uses only two
digits to represent the year, may recognize a date using 00 as the year 1900
rather than the year 2000. As of the date of this filing, the Company had not
experienced any significant system failures, miscalculations, or any disruption
of operations including, among other things, a temporary inability to process
transactions, send letters and statements or engage in similar activities.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the three months ended March 31, 1999 and 2000.
15
<PAGE>
PART II
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has filed in The United States District Court for the District of
Maryland an 18-count suit for $130 million in compensatory damages against
Enhanced Financial Services (NYSE:EFS), Asset Guaranty Insurance Company (AGI),
and Charles Hennemen, Senior Vice President of EFS. The Company is also asking
for $390 million in punitive damages from the three defendants. EFS is the
parent company of AGI, which insures three of the Company's four asset backed
bonds. The suit alleges that EFS, through its Senior Vice President Charles
Henneman, secretly posted maliciously false and disparaging statements about the
Company on the Yahoo! message board, an internet web site, at which the Company
is the dedicated topic of discussion.
Item 2. Changes in Securities and Use of Proceeds.
Effective March 1, 2000, the Company converted its interim financing, Series
1999-2, to a term loan due September 30, 2002. Pursuant to the conversion,
warrants to purchase 1.2 million shares of common stock were issued at a strike
price of $1.86. The warrants were privately placed in accordance with Section
4(a) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
The Company is in payment default under its line of credit facility, which had
an outstanding principal balance of $15.1 million as of March 31, 2000. The
Company failed to make principal and interest payments in April and May 2000.
Further, the Company has been notified of a non-payment related default with
regard to its Series 1998-2 securitization. These defaults caused the Company to
be in technical cross default with regard to its warehouse and Series 1999-2
facilities, and its Series 1998-1 and Series 1999-1 securitizations. As of May
30, 2000, none of the above loans have been accelerated.
Item 4 is not applicable and has been omitted.
Item 5. Other Information
Risk Factors and Forward-Looking Statements
The Company's business prospects are highly dependant on a variety of factors
within and beyond the Company's control which may affect the timing and amount
of collections on the Company's portfolios of previously defaulted consumer
receivables. Future growth of the Company will depend on numerous factors,
including the development and expansion of relationships with credit grantors,
the availability of adequate financing to purchase additional receivables, the
ability to securitize receivables, the ability to maintain the quality of
services the Company provides to its customers and to credit grantors, the
recruitment, training and retention of qualified personnel, the enhancement and
maintenance of the Company's information technology, operational, and financial
systems, any higher than anticipated rate of personnel turnover and the
continued availability of receivables that meet the Company's requirements. The
Company's future prospects may be significantly affected either positively or
negatively depending upon the circumstances of the marketplace and competitive
developments. There can be no assurance that the Company will be able to
maintain its historical collection rates, or that it will be able to maintain or
accelerate its growth, and any failure to do so could have a material adverse
effect on the Company's business, results of operations, and financial
condition.
The Company's quarterly operating results may fluctuate in the future because of
a variety of factors. These factors include (1) the timing and amount of
collections on the Company's receivables, (2) any charge to earnings resulting
from a decline in value of the Company's existing investment in securitizations,
(3) increases in operating expenses associated with the growth of the Company's
operations, (4) the accuracy of the Company's pricing models and (5) the
resolution of defaults on its credit facilities. No assurance can be given that
unanticipated future events, including further refinements to the Company's
collection models, will not result in changes in estimates in future periods
which could adversely affect quarter-to-quarter comparisons. The Company does
not intend to securitize assets in the future that result in gain on sale
transactions.
16
<PAGE>
Statements made herein and in other written and oral statements of the Company
may include the plans and objectives of management for future operations,
including plans and objectives relating to future growth in the number of
receivables and availability of adequate third-party financing. Any forward-
looking statements are based on current expectations which involve numerous
risks and uncertainties. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive, and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that any of the forward-
looking statements will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or by any other person that the objectives and plans of the Company will
be achieved.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Amended No. 1 to Bridge Loan Agreement dated as of
August 2, 1999 among Creditrust SPV99-2, LLC, CRDT
SPV99-2 Capital, Inc., Creditrust Corporation, the
lenders named therein and Norwest Bank Minnesota,
National Association
10.2 Form of Warrant Certificate
10.3 Amended and Restated Servicing Agreement between
Creditrust SPV99-2, LLC, Creditrust Corporation and
Norwest Bank Minnesota, National Association
27.1 Financial Data Schedule
(B) Reports on Form 8-K
Creditrust Corporation filed no reports on Form 8-K during the quarter ended
March 31, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Baltimore, State of Maryland, on May 30, 2000.
CREDITRUST CORPORATION
/s/ RICHARD J. PALMER
By: ----------------------------------------
Richard J. Palmer
Vice President and Chief Financial Officer
18
