<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NO. 333-66853
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Credit Concepts, Inc.
----------------------------------------------
(Name of small business issuer in its charter)
Oregon 6141 93-1236587
- --------------------- --------------------- -------------------
(State or jurisdic- (Primary Standard (IRS Employer
tion of incorporation Industrial Classi- Identification No.)
or organization) fication Code Number)
2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401 (541) 342-8545
--------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
(Same)
---------------------------------------------------
(Address of principal place of business or intended
principal place of business)
Tom W. Palmer, President
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
(541) 342-8545
Copy to:
Mike Liles, Jr.
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, Washington 98101
(206) 224-8068
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public ___________.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________________________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
===============================================================================
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- -------------------------------------------------------------------------------
Title of Each Dollar Proposed Proposed
Class of Amount Maximum Maximum Amount of
Securities To To Be Offering Price Aggregate Registration
Be Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment
Certificates $5,000,000.00 $1,000,000.00 $5,000,000.00 $2,780
- -------------------------------------------------------------------------------
</TABLE>
NOTE. If the filing fee is calculated pursuant to Rule 457(o) under
the Securities Act, only the title of the class of securities to be
registered, the proposed maximum aggregate offering price for that class
of securities and the amount of registration fee need to appear in the
Calculation of Registration Fee table. Any difference between the dollar
amount of securities registered for such offering and the dollar amount of
securities sold may be carried forward on a future registration statement
pursuant to Rule 429 under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus dated April __, 1999
CREDIT CONCEPTS, Inc.
SHORT-TERM and LONG-TERM INVESTMENT CERTIFICATES
Minimum Investment: $5,000
YOU MAY LIQUIDATE YOUR INVESTMENT CERTIFICATES AT ANY TIME PRIOR TO
MATURITY UPON 90 DAYS NOTICE TO CREDIT CONCEPTS, BUT IF YOU DO, YOU WILL EARN
NO INTEREST ON THE INVESTMENT CERTIFICATES DURING THE NOTICE PERIOD.
The interest rate for the investment certificates is fixed and is
determined at the time of sale. The terms of the investment certificates are
two years for the short-term investment certificates and four years for the
long-term investment certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For certain risks of which you should be aware, see Risk Factors beginning
at page __.
<PAGE>
TABLE OF CONTENTS
PAGE
Offering Summary
Risk Factors
Use of Proceeds
Capitalization
Statement of Income
Management's Discussion and Analysis of Results of Operations
Business
Property
Management
Principal Shareholders
Description of Securities
Plan of Distribution
Legal Matters
Experts
Additional Information
Financial Statements
Subscription Form
<PAGE>
- ------------------------------------------------------------------------------
OFFERING SUMMARY
----------------
CREDIT CONCEPTS:
- ----------------
Credit Concepts, Inc. is in the business of purchasing retail installment
contracts that have been originated by regional used automobile dealers in
connection with the financing of used vehicles. The interest receivable on the
contracts is significantly greater than Credit Concepts' cost of borrowed
funds. Credit Concepts seeks to collect the principal and interest due, and to
recover on the vehicles that serve as collateral on defaulted contracts, with
sufficient efficiency to cover all its costs and return a profit. Credit
Concepts' operations consist primarily of evaluating which contracts to
purchase, negotiating the terms of the purchase, and arranging for Credit
Concepts' financing of the purchase.
Credit Concepts has recently been granted a Consumer Finance License by
the Oregon Department of Consumer and Business Services, which allows Credit
Concepts to make loans directly to purchasers of used automobiles in addition
to purchasing the loan in the form of contracts from the dealers after the
loans have been made.
Credit Concepts commenced operations in October, 1997. Its principal
offices are located at 2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401,
and its telephone number is (541) 342-8545.
SECURITIES:
- -----------
$5,000,000 of investment certificates, consisting of $2,500,000 of fixed-
rate short-term investment certificates and $2,500,000 of fixed-rate long-term
investment certificates, in denominations of $1,000.
TERM:
- -----
The terms of the investment certificates are two years for the short-term
investment certificates and four years for the long-term investment
certificates.
INTEREST RATE:
- --------------
Interest on the investment certificates accrues at a fixed rate, which is
determined at the time of sale. The interest rate for investment certificates
sold in any month is determined by reference to the prime rate of interest as
reported by the Wall Street Journal on the last day of the previous month. The
interest rate for short-term investment certificates is 0.25% over the prime
rate, but shall not exceed 11.00% nor be less than 6.00%. The interest rate
for long-term investment certificates is 1.00% over the prime rate, but shall
not exceed 12.00% nor be less than 6.00%.
MINIMUM INVESTMENT:
- -------------------
$5,000.
INVESTMENT LIMITATIONS:
- -----------------------
In order to be eligible to invest in this offering, you must have either a
net worth of at least $150,000 OR a net worth of at least $75,000 plus a net
income of at least $75,000. In addition, purchases of investment certificates
in the aggregate may not exceed 10% of your net worth. IN CALCULATING "NET
WORTH," THE VALUE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES IS
EXCLUDED, AND ALL ASSETS ARE VALUED AT FAIR MARKET VALUE.
COLLATERAL:
- -----------
The investment certificates are not secured by any form of collateral.
SUBORDINATION:
- --------------
The investment certificates are subordinated to all bank indebtedness for
moneys borrowed. At January 31, 1999, Credit Concepts had $2,704,670 of bank
indebtedness outstanding. This bank indebtedness is secured by all of the
Credit Concepts' assets, including contracts receivable.
SINKING FUND:
- -------------
Credit Concepts will not maintain a sinking fund for the investment
certificates.
NO TRUSTEE:
- -----------
The investment certificates are not subject to the Trust Indenture Act of
1939, and there is no indenture or indenture trustee empowered to act on your
behalf should Credit Concepts default in the payment to you of principal or
interest on the investment certificates.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL INFORMATION
----------------------
Set forth below is summary financial data for Credit Concepts' operations
from inception to December 31, 1997 and for the seven months ended July 31,
1998 and for the six months ended January 31, 1999, as well as a balance sheet
showing Credit Concepts' financial position at July 31, 1998 and January 31,
1999. In interpreting this information please refer to the financial
statements and footnotes at the end of this prospectus.
<TABLE>
<CAPTION>
INCOME STATEMENT 1999 1998 1997
- ----------------- --------- ---------- -----------
<S> <C> <C> <C>
Total Revenues $ 693,500 $ 471,256 $ 6,147
Interest Expense $ 258,536 $ 154,671 $ 3,815
Provision for Credit Losses $ 198,812 231,129 -
Salaries $ 93,316 79,017 30,408
Total Expenses $ 675,995 $ 536,828 $ 49,305
Net Income (Loss) $ 17,505 $ (65,572) $ (43,158)
<CAPTION>
January 31 July 31,
BALANCE SHEET 1999 1998
- ------------- ---------- -----------
<S> <C> <C>
Assets
Cash $ 46,012 $ 55,003
Net Finance Receivables $4,140,848 $4,169,310
Total Assets $4,424,134 $4,483,631
Liabilities
Bank Line of Credit $2,704,670 $2,687,431
Subordinated Notes Payable to
Stockholders $1,056,262 $1,165,976
Total Liabilities $4,115,359 $4,192,361
Total Stockholders' equity $ 308,775 $ 291,270
Total Liabilities and Stockholders' equity $4,424,134 $4,483,631
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
------------
THE FOLLOWING ARE CERTAIN RISKS THAT YOU SHOULD CONSIDER IN DECIDING WHETHER OR
NOT TO PURCHASE INVESTMENT CERTIFICATES IN THIS OFFERING. THESE RISK FACTORS
ARE NOT PRESENTED IN ANY PARTICULAR ORDER OF SIGNIFICANCE.
LOW PRIORITY OF INVESTMENT CERTIFICATES MAY INTERFERE WITH THEIR REPAYMENT.
- ---------------------------------------------------------------------------
Investment certificates are unsecured general obligations of Credit
Concepts. There is no collateral or security interest securing repayment of
the investment certificates, and repayment of the investment certificates is
not guaranteed or insured by any governmental agency or other third party. As
an unsecured general creditor of Credit Concepts, in the event of liquidation
of Credit Concepts, you as a holder of investment certificates would share
equally with other general creditors of Credit Concepts in the remaining
unsecured assets of Credit Concepts, if any. However, investment certificates
are subordinated to Credit Concepts' past and future bank indebtedness, and the
bank indebtedness is secured by all of the Credit Concepts' assets, including
contracts receivable. These contracts receivable, which constitute Credit
Concepts' principal asset, would first be applied to satisfy that bank
indebtedness upon any liquidation of Credit Concepts before being available to
general creditors such as you as a holder of the investment certificates. At
January 31, 1999, Credit Concepts had $2,704,670 of secured bank borrowings
outstanding and $285,272 of unsecured borrowings of all kinds.
PAYMENT OF ENTIRE INVESTMENT CERTIFICATE AT MATURITY MAY IMPEDE CREDIT
CONCEPTS' ABILITY TO PAY.
- ----------------------------------------------------------------------
The investment certificates do not provide for the payment of any amount
of principal prior to maturity, whether in installments or otherwise, nor has
Credit Concepts established a reserve for the payment of principal or interest
through a payment pool or sinking fund. Accordingly, the entire amount of the
principal must be paid by Credit Concepts at the date of maturity or at such
earlier date as may be required under a pre-maturity liquidation notice. The
ability of Credit Concepts to pay you upon maturity of the investment
certificates or upon a pre-maturity liquidation notice will depend upon the
status of Credit Concepts' cash and credit resources at the time such payment
is required.
ANY RESALE OF THIS INVESTMENT TO OTHERS MAY BE DIFFICULT DUE TO THE LACK OF A
TRADING MARKET FOR THE INVESTMENT CERTIFICATES.
- -----------------------------------------------------------------------------
Although the investment certificates may be transferred on Credit
Concepts' investment certificate ownership records by signing the form of
assignment on the back of the investment certificate and delivering it to the
new owner, there is no trading market for Credit Concepts' investment
certificates, and Credit Concepts does not expect that a trading market will
arise in the future. Accordingly, you should be prepared to rely solely upon
Credit Concepts' ability to repay the investment certificates as general
unsecured obligations when they become due.
CREDIT CONCEPTS HAS BUT A LIMITED OPERATING HISTORY AND HAS NEVER MADE A
PROFIT.
- ------------------------------------------------------------------------
Credit Concepts commenced operations in October, 1997 and through January
31, 1999 has generated $1,170,903 of revenues and $91,225 of net operating
losses. At January 31, 1999, Credit Concepts had approximately $46,012 in
cash, $4,140,848 in net finance receivables, after deducting an allowance for
credit losses of $298,987 and adding capitalized loan origination costs of
$55,683 , approximately $4,115,359 of indebtedness of all types and a
shareholders' equity of approximately $308,775. Credit Concepts has no
relevant operating history upon which an evaluation of its prospects can be
made. Accordingly, there can be no assurance that Credit Concepts' operations
will generate sufficient revenues, earnings or cash flows to pay the principal
and interest on the investment certificates when they become due.
CREDIT CONCEPTS IS DEPENDENT UPON ONGOING FINANCING, BUT HAS NO ARRANGEMENTS
FOR ADDITIONAL FINANCING OTHER THAN THIS OFFERING.
- ----------------------------------------------------------------------------
The nature of Credit Concepts' business is such that it is required to
engage in ongoing financing in order to have the funds to continue to purchase
contracts. Credit Concepts has begun to reach the limits of its presently
available bank credit and is now seeking to finance its contracts through the
sale of unsecured investment certificates. Credit Concepts has not previously
attempted to finance its purchase of contracts in this manner, and the success
of this approach is uncertain. Should Credit Concepts fail to sell sufficient
investment certificates on an ongoing basis to enable it to purchase a
satisfactory amount of contracts, Credit Concepts will be required to seek
other methods of financing the contracts or Credit Concepts would self-
liquidate over time as investment certificates and contracts mature. Credit
Concepts does not presently have any arrangements for alternate financing and
may not be able to timely arrange alternate financing on acceptable terms
should it seek to do so. There can be no assurance that Credit Concepts'
founders will be willing to continue to guarantee bank lines-of-credit as they
have for existing bank lines-of-credit or that Credit Concepts will be able to
continue to secure bank lines-of-credit in the future beyond existing renewal
dates.
CREDIT CONCEPTS' PLANNED SUBSTANTIAL INCREASES IN CORPORATE INDEBTEDNESS AND
RELATED DEBT-SERVICE OBLIGATIONS INCREASE THE RISK THAT THE INVESTMENT
CERTIFICATES MAY NOT BE REPAID WHEN DUE.
- ----------------------------------------------------------------------------
Credit Concepts plans significant growth in its business in ensuing years
through the purchase of contracts and the origination of loans. Virtually all
of this increase in business is expected to be financed by a corresponding
increase in indebtedness of all types, including bank indebtedness that will be
secured and prior in right of payment to the investment certificates in this
offering, as well as unsecured debt that will be on a parity with the
investment certificates. Although this increase in business is expected to
increase assets and revenues and generate earnings, it will concurrently
increase the level of debt service required, and should Credit Concepts'
anticipated operational success fail to materialize as planned, the increased
burden of this debt service could adversely affect Credit Concepts' ability to
timely pay interest and principal on the certificates when they become due.
ANY SIGNIFICANT ADJUSTMENTS TO DEBT SERVICE COVERAGE ESTIMATES, WHICH ARE
UNCERTAIN BECAUSE OF LACK OF CREDIT LOSS EXPERIENCE FOR CONTRACTS RECEIVABLE,
COULD RESULT IN DEFAULT ON FINANCIAL COVENANTS FOR BANK INDEBTEDNESS, WHICH
INDEBTEDNESS HAS PRIORITY OVER THE INVESTMENT CERTIFICATES.
- -----------------------------------------------------------------------------
Because the provision for credit losses on Credit Concepts' financial
statements is such a significant portion of the charge against its revenues in
the determination of net income, any significant adjustments to the allowance
for credit losses through significant charges against the provision for credit
losses is apt to have a material effect upon net income, which could be
adverse. In this regard, the contracts in Credit Concepts' loan portfolio are
primarily "higher risk" loan contracts originated by dealers in used vehicles.
Furthermore, the statistics for credit losses on used vehicle contracts in the
industry within recent years reflect to some extent the health of the U.S.
economy during that period, and may not prove valid during periods of
recession. Any significant adverse adjustments to the allowance for credit
losses could result in a default under the loan covenants for Credit Concepts'
bank indebtedness. That bank indebtedness has priority in right of payment
over the investment certificates in this offering.
THE RECEIPT BY CREDIT CONCEPTS OF MULTIPLE PRE-MATURITY LIQUIDATION NOTICES
COULD PRECIPITATE A LIQUIDITY CRISIS AND IMPAIR TIMELY PAYMENT OF INVESTMENT
CERTIFICATES.
- -----------------------------------------------------------------------------
Should Credit Concepts receive over a short period of time an unexpectedly
large number of pre-maturity liquidation notices from investors in the
certificates, Credit Concepts may not then have available sufficient cash and
credit resources to retire these certificates in an orderly fashion and may be
required under the circumstances to liquidate contracts in the market on
unfavorable terms in order to meet its obligations under the terms of the
certificates, to Credit Concepts' detriment. Such an event might occur because
of liquidity requirements of investors in the event of a sharp economic
recession, or because of a sudden appearance of alternative investments with
more attractive rates within the areas in which Credit Concepts' investment
certificates have been sold, as well as for other possible reasons. There can
be no assurance, should Credit Concepts receive an unanticipated volume of
liquidation notices within a short period of time, that Credit Concepts would
be able to sell sufficient contracts to meet these obligations, and Credit
Concepts might be required to make payment beyond the 90 day period provided in
the certificates, which would constitute a default under the terms of the
certificates and the cross-default provisions of Credit Concepts' secured bank
loans.
INVESTORS MAY NOT BE ABLE TO TIMELY PROTECT THEMSELVES IN THE EVENT OF A
DEFAULT ON BANK LOAN COVENANTS BECAUSE, ALTHOUGH A DEFAULT ON BANK INDEBTEDNESS
WOULD ACCELERATE BANK DEBT MATURITIES, A DEFAULT ON BANK INDEBTEDNESS WOULD NOT
ACCELERATE INVESTMENT CERTIFICATE MATURITIES.
- -------------------------------------------------------------------------------
Credit Concepts' loan agreements and promissory notes in connection with
Credit Concepts' bank lines-of-credit require Credit Concepts to comply with
and maintain various financial and other covenants in order to avoid default.
Any default upon Credit Concepts' bank lines-of-credit, which are secured by
all of Credit Concepts' assets, including contracts receivable, and senior in
right of payment to the investment certificates, could immediately severely and
adversely affect Credit Concepts' ability to pay the investment certificates.
The investment certificates do not have cross-default provisions, so that any
default upon Credit Concepts' bank indebtedness or other obligations would not
result in an acceleration of maturities or provide other default remedies to
you as a holder of the investment certificates.
CREDIT CONCEPTS IS SUBJECT TO RISKS FROM ITS LACK OF KEY PERSONNEL EMPLOYMENT
AGREEMENTS AND INSURANCE.
- -----------------------------------------------------------------------------
Credit Concepts is highly dependent upon the skills and efforts of its
employees, including those that serve as its management, for the operation of
its business. However, except for Credit Concepts' General Manager, Credit
Concepts does not have employment contracts with any of its management or
employees, nor does it maintain key man insurance on any of their lives, except
for insurance on the life of the General Manager and insurance payable to
Credit Concepts' bank. There is no guarantee that any of Credit Concepts'
current employees will continue to be employed by Credit Concepts in the
future, and if key employees should unexpectedly leave the employment of Credit
Concepts, voluntarily or by reason of death or disability, such could have a
material adverse effect on Credit Concepts and its ability to pay investment
certificates.
CREDIT CONCEPTS COULD BE ADVERSELY AFFECTED BY A DOWNTURN IN THE LOCAL ECONOMY
OF LANE COUNTY, OREGON.
- ------------------------------------------------------------------------------
The availability and credit-worthiness of the underlying borrowers on
Credit Concepts' contracts are influenced by the state of the economy for Lane
County, Oregon, the market area for the used automobile dealers that originate
Credit Concepts' contracts. Should there be an economic downturn within this
area, whether as a result of weakness in the economy of the region or in the
U.S. economy as a whole, the ability of Credit Concepts to collect on its
contracts and ultimately to pay on its certificates could be adversely
affected. The same effect would apply to loans made directly to the purchasers
of vehicles under Credit Concepts' recently-obtained Oregon consumer finance
license.
CREDIT CONCEPTS COULD SUFFER BUSINESS DISRUPTION FROM COMPUTER APPLICATION
FAILURE AT YEAR 2000.
- ---------------------------------------------------------------------------
Because the real-time clocks in many existing computer chips do not
properly recognize a year that begins with "20" rather than "19," many computer
applications based upon those chips could fail or create erroneous results at
and after midnight on December 31, 1999. Because many of these chips are
embedded in existing items of equipment and are non-programmable, components or
all of the equipment must be replaced to obviate these failures or erroneous
results. To the extent that faulty chips are not replaced in critical
components of equipment, heat, power, telephone and other services to Credit
Concepts, as well as Credit Concepts' own computers, could fail, causing
disruption to Credit Concepts' business. Credit Concepts has made inquiry of
its computer, communications, power and automobile suppliers, and, in
particular, has inquired of its automobile dealers whether any computer chip
component in any make of used automobile that serves as collateral for Credit
Concepts contracts contains a real-time clock that could be subject to failure,
and has received assurances that no failures will occur. However, in view of
the subtlety of the problem and the unfamiliarity with the scope of the problem
by many in the business community, there can be no assurance that Credit
Concepts will not encounter some form of computer or service failures at or
after midnight on December 31, 1999 which could result in disruption of Credit
Concepts' business, perhaps materially so, to Credit Concepts' detriment.
CREDIT CONCEPTS' BUSINESS IS DEPENDENT UPON THIRD PARTY SUPPLIERS OF CONTRACTS,
OVER WHICH CREDIT CONCEPTS HAS NO CONTROL.
- ------------------------------------------------------------------------------
Although Credit Concepts believes that it will be able to continue to be
able to purchase a reasonable number of contracts upon advantageous terms from
dealers within Lane County, there can be no assurance that it will be able to
continue to do so. Even though Credit Concepts has been issued a consumer
finance license allowing it to originate loans directly from borrowers
purchasing vehicles, Credit Concepts will in all probability remain dependent
upon dealers for the major portion of the contracts in its portfolio of
accounts receivable.
THE FINANCIAL VIABILITY OF AUTOMOBILE DEALERS GUARANTEEING CREDIT CONCEPTS'
CONTRACTS RECEIVABLE IS UNCERTAIN.
- ---------------------------------------------------------------------------
Although Credit Concepts investigates the viability of the used automobile
dealers that sell contracts to Credit Concepts, there is a risk that one or
more of such suppliers of contracts to Credit Concepts may not be able to
perform its guarantee or obligation to repurchase contracts in the event of
defaults on the contracts by the underlying borrowers. Any such default by a
contract supplier could adversely affect Credit Concepts, perhaps materially
so. At January 31, 1999, $348,370, or approximately 8% of the dollar value, of
contracts then outstanding were covered by full or partial guarantees by the
used automobile dealer suppliers of contracts to Credit Concepts.
SUBJECTIVE NATURE OF CREDIT DECISIONS ON UNDERLYING BORROWERS UNDER THE
CONTRACTS MAY LEAD TO CUMULATIVE ERROR.
- -----------------------------------------------------------------------
Although Credit Concepts considers a number of standardized factors in
determining the credit-worthiness of the underlying borrowers for the contracts
it purchases, Credit Concepts' credit decisions in these purchases are to some
extent subjective in nature and to that extent dependent upon the skills of
Credit Concepts' General Manager, who makes the credit and contract purchase
decisions. Although Credit Concepts believes that its General Manager is
highly skilled, because Credit Concepts only uses the services of its General
Manager to make contract purchase decisions, should the General Manager repeat
the same type of subjective error in the evaluation of a number of separate
credit reports, any such an error could be cumulative and result in losses that
could be material in the aggregate.
BANKRUPTCIES AND DEFICIENCY JUDGMENTS AGAINST BORROWERS MAY IMPEDE COLLECTION
UNDER CONTRACTS AND LOANS AND INCREASE OPERATING COSTS.
- ------------------------------------------------------------------------------
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws applicable to individuals, may limit or delay the ability of
Credit Concepts to repossess and resell vehicles serving as collateral to
secure payment of the contracts or loans, or to enforce a deficiency judgment
against a borrower under the contract. In the event that a significant number
of deficiency judgments are not obtained, are not satisfied, are satisfied at a
discount or are discharged in whole or in part in bankruptcy proceedings, the
vehicles securing the contracts and loans would not serve their intended
purpose of providing collateral with an underlying realizable value, thereby
reducing the collectability of the contracts or loans, which may increase
Credit Concepts' costs and adversely affect the ability of Credit Concepts to
pay the investment certificates.
PRIORITY LIENS IN FAVOR OF OTHERS ON VEHICLE COLLATERAL FOR CREDIT CONCEPTS'
CONTRACTS AND LOANS MAY ADVERSELY AFFECT CREDIT CONCEPTS' ABILITY TO PAY
PRINCIPAL AND INTEREST ON INVESTMENT CERTIFICATES.
- ----------------------------------------------------------------------------
The imposition of a significant number of liens for repairs or taxes, or a
substantial confiscation of vehicles because of use for unlawful activities,
during the term of any contracts or loans, could adversely affect their value
as collateral under the contracts and adversely affect Credit Concepts' ability
to pay interest or principal on the investment certificates.
CREDIT CONCEPTS' INTERNAL BUDGETS AND FORWARD-LOOKING INFORMATION ARE
UNCERTAIN.
- ---------------------------------------------------------------------
Although Credit Concepts has prepared its internal budgets and its other
forward-looking information, some of which is reflected in this prospectus, in
accordance with the best of management's knowledge and belief, there will be
differences between the projected and actual results because events and
circumstances frequently do not occur as expected, and those differences may be
material and adverse. Credit Concepts forward-looking information is based on
a number of estimates and assumptions that, though considered reasonable by
Credit Concepts' management, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of Credit
Concepts or its management and upon assumptions with respect to future business
decisions which are subject to change. Accordingly, there can be no assurance
that the anticipated results will be realized, and actual results may vary from
those projected. If actual results are lower than those anticipated, or if the
assumptions used in making the projections are not realized, Credit Concepts'
ability to achieve reasonable rates of revenues and earnings and to make timely
payment of its investment certificates may be adversely affected.
<PAGE>
USE OF PROCEEDS
---------------
The net proceeds from the sale of the investment certificates in this
offering, after deducting offering expenses estimated to be $100,000, is
expected to be $4,900,000 if all of the investment certificates are sold.
Funds will be available to Credit Concepts as received.
All of the net proceeds from this offering will be used as working
capital, primarily to finance the purchase of contracts in the ordinary course
of Credit Concepts' business.
Pending use of the proceeds in the above manner, they will be used to
reduce outstanding indebtedness under Credit Concepts' bank line-of-credit or
invested in U. S. Government obligations or other near-cash investments.
CAPITALIZATION
--------------
The following table sets forth the capitalization of Credit Concepts as of
January 31, 1999.
<TABLE>
<CAPTION>
At
January 31, 1999
----------------
<S> <C>
Long-term debt, exclusive of current
portion (1) $ 1,341,534
Investment Certificates $ -
Common Stock, no par value, 1,000
shares authorized, 300 shares
outstanding: $ 150,000
- -----------------------------
(1) Excludes $2,704,670 of secured bank indebtedness pursuant to a loan
agreement dated April 6, 1998 with Pacific Continental Bank that
establishes a $3,000,000 line-of-credit secured by Credit Concepts'
assets, including its contract and loan portfolio. Under the terms of the
loan agreement, Credit Concepts may borrow an amount equal to 70% of
eligible contract and loan accounts and is obligated, among other things,
to maintain: a tangible net worth of not less than $300,000 as of
December 31, 1998, a debt to tangible net worth ratio of 5 to 1, life
insurance on each of the lives of Tom W. Palmer and Eugene C. Albert of
$250,000, personal guarantees of the loan of $3,000,000 by Tom W. Palmer
and Eugene C. Albert and of $1,000,000 by Ted W. Palmer, and compliance
with the terms and conditions of all other agreements to which it is a
party.
</TABLE>
<TABLE>
STATEMENT OF INCOME
Statement of Income and Retained Earnings
For the Three and Six Months Ended January 31, 1999
----------------------------------------------------
<CAPTION>
3 Months 6 Months
--------- ---------
<S> <C> <C>
REVENUES
Interest on contracts $326,406 $678,633
Insurance and fees 12,980 12,980
Other income 1,077 1,887
Total Revenues 340,463 693,500
EXPENSES
Interest 117,642 258,536
Salaries 53,943 93,316
Provision for credit losses 91,863 198,812
Other operating expenses 66,234 125,331
Total Expenses 329,682 675,995
NET INCOME 10,781 17,505
RETAINED EARNINGS, BEGINNING OF PERIOD (58,848) (65,572)
--------- ---------
RETAINED EARNINGS, END OF PERIOD $ 48,067) $(48,067)
========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
--------------------------------------------------------------
Credit Concepts commenced operations in October, 1997 and through January
31, 1999 has generated $1,170,903 of revenues and $91,225 of net operating
losses. At January 31, 1999 Credit Concepts had approximately $46,012 in cash,
$4,140,848 in net finance receivables (after deducting an allowance for credit
losses of $298,987 and adding capitalized loan origination costs of $55,683,
approximately $4,115,359 of indebtedness of all types and a shareholders'
equity of approximately $308,775.
Credit Concepts has no relevant operating history upon which an evaluation
of its prospects can be made. In particular, Credit Concepts has not yet had
sufficient operating experience to confirm the adequacy of the provisions for
credit losses on its contracts reflected on Credit Concepts' financial
statements.
Credit Concepts expects to be able to sell all or a substantial portion of
the $5,000,000 of investment certificates in this offering within the ensuing
twelve months and to use the net proceeds to purchase vehicle contracts with
reliable borrowers within the Lane County, Oregon region. Because the
investment certificates are subordinated to bank borrowings and the contracts
purchased do not collateralize the investment certificates but may be used to
collateralize future bank borrowings, Credit Concepts expects to be able to
borrow at least an additional $8,500,000 from banks if all of the investment
certificates are sold and used in this fashion. If Credit Concepts is able to
properly manage the credit losses on the vehicle contracts it thus purchases,
so that a significant portion of the spread between the 31% effective interest
rate on the vehicle contracts and the 8% to 12% cost of funds is retained, it
should be able to meet all of the debt service obligations of the bank
indebtedness and investment certificates, including a reserve in the form of
provision for credit losses, and generate in addition a meaningful profit. It
is Credit Concepts' intention to implement this plan within the ensuing twelve
months, and to become profitable within the ensuing six months. There can be
no assurance that Credit Concepts will be successful in this endeavor.
Credit Concepts' business is not seasonal in nature. Its fiscal year ends
July 31.
UNCERTAINTY OF INTERNAL BUDGETS AND FORWARD-LOOKING INFORMATION.
- ----------------------------------------------------------------
Although Credit Concepts has prepared its internal budgets and its other
forward-looking information, some of which is reflected in this prospectus, in
accordance with the best of management's knowledge and belief, there will be
differences between the projected and actual results because events and
circumstances frequently do not occur as expected, and those differences may be
material and adverse. Credit Concepts' forward-looking information is based on
a number of estimates and assumptions that, though considered reasonable by
Credit Concepts' management, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of Credit
Concepts or its management and upon assumptions with respect to future business
decisions which are subject to change. Accordingly, there can be no assurance
that the anticipated results will be realized, and actual results may vary from
those projected. If actual results are lower than those anticipated, or if the
assumptions used in making the projections are not realized, Credit Concepts'
ability to achieve reasonable rates of revenues and earnings and to make timely
payment of its investment certificates may be adversely affected.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1999.
- ----------------------------------------------------------------
Credit Concepts generated $693,500 of revenues and $17,505 of net
operating income during the six months ended January 31, 1999. At January 31,
1999 Credit Concepts had approximately $46,012 in cash, $4,140,848 in net
finance receivables (after deducting an allowance for credit losses of $298,987
and adding capitalized loan origination costs of $55,683), approximately
$4,115,359 of indebtedness of all types and a shareholders' equity of
approximately $308,775.
Credit Concepts originated approximately $638,667 of loans and contracts
during the period, which accounted for approximately 13% of total finance
receivables outstanding during the period. Contract receivables declined by
$165,527 from $4,325,162 to $4,159,635 due to attrition and refinancing into
direct loans. Overall, total gross finance receivables increased by 1.4% to
$4,384,152. Net income during the period was $17,505 reflecting a higher and
more seasoned finance receivable base and added fees from direct lending
activities that had not existed during the immediately preceding seven months
period ended July 31, 1998. The allowance for credit losses was increased from
$191,000 at July 31, 1998 to $298,987 at January 31, 1999.
RESULTS OF OPERATIONS FOR SEVEN MONTHS ENDED JULY 31, 1998.
- -----------------------------------------------------------
Credit Concepts experienced rapid growth during the first seven months of
1998. In particular, as the result of the purchase of contracts, finance
receivables increased by 803% from $476,120 at December 31, 1997 to $4,298,310
at July 31, 1998. Interest on finance receivables contributed $468,116, or
99.3%, to the total revenues of $471,256 for the seven months ending July 31,
1998. Through use of its recently obtained consumer finance license, Credit
Concepts plans to increase revenues in the future with little or no additional
expense through the generation of loan and other fees by originating loans
directly with borrowers purchasing vehicles in addition to purchasing contracts
from dealers.
Net chargeoffs for the seven-months period were $40,129 or 1.7% of average
finance receivables outstanding during the period. However, a loss provision
of $231,129, representing 4.7% of new finance receivables, was established and
charged to operations for the period. This resulted in an allowance for credit
losses of $191,000, or 4.4% of finance receivables outstanding at the end of
the period. Credit Concepts expects that additional loss provisions in excess
of net chargeoffs will be charged to operations in future periods, with the
result that over time the allowance for credit losses will increase both in
absolute terms and as a percentage of finance receivables outstanding at the
end of future periods.
Reflecting in part the $231,129 provision for credit losses, which
constituted 43.1% of the $536,828 of total expenses for the seven-months
period, Credit Concepts incurred a net loss for the period of $65,572.
Interest expense of $154,671 constituted 28.8% of these total expenses, and
salaries of $79,017 constituted 14.7%. Credit Concepts plans to reduce the
impact of interest expense in future periods by borrowing through the sale of
investment certificates in this offering at interest rates that are lower than
those it is currently paying. Even though Credit Concepts incurred a net loss
for the period of $65,572, net cash flows for the period were $26,699, with
operating activities generating a positive cash flow of $123,283.
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
The finance nature of Credit Concepts' business results in its being
capital intensive. To date, Credit Concepts has relied primarily on secured
bank financing and shareholder loans to fund its purchase of contracts.
From inception to December 31, 1997, Credit Concepts borrowed an aggregate
of $386,000 from its management, and during the ensuing seven months ended July
31, 1998, it borrowed an additional $814,000 from Credit Concepts management
and $472,500 from friends and family of management in private transactions.
Most of these funds were borrowed pursuant to 12% promissory notes, most of
which are payable upon demand. Certain of these borrowings have been repaid
and an aggregate of $1,467,476 remained outstanding at July 31, 1998.
On April 6, 1998 Credit Concepts entered into a loan agreement with
Pacific Continental Bank that establishes a $3,000,000 line-of-credit secured
by Credit Concepts' assets, including its contract and loan portfolio. Under
the terms of the loan agreement, Credit Concepts may borrow an amount equal to
70% of eligible contract and loan accounts and is obligated, among other
things, to maintain: a tangible net worth of not less than $300,000, a debt to
tangible net worth ratio of 5 to 1, life insurance on each of the lives of Tom
W. Palmer and Eugene C. Albert of $250,000, personal guarantees of the loan of
$3,000,000 by Tom W. Palmer and Eugene C. Albert and of $1,000,000 by Ted W.
Palmer, and compliance with the terms and conditions of all other agreements to
which it is a party. At July 31, 1998 Credit Concepts had outstanding secured
bank indebtedness of $2,687,431 pursuant to this credit facility.
As yet, Credit Concepts has not experienced difficulties in obtaining
financing. However, it has begun to reach the limits of its current bank line-
of-credit and expects to rely increasingly upon sales of the investment
certificates in the present offering, which have lower interest rates than
interest rates that Credit Concepts is currently paying, for financing the
purchase of contracts and the funding of loans in the future. Because the
proceeds from the sale of investment certificates will be used to purchase
contracts and originate loans that serve as collateral for bank borrowings, and
because the investment certificates are subordinated to bank borrowings, the
sale of investment certificates is expected to increase the ability of Credit
Concepts to borrow from commercial banks. If Credit Concepts is able to
successfully sell investment certificates at interest rates that are lower than
the rates charged by commercial banks, as Credit Concepts' competitors have
been able to do over the years, Credit Concepts plans in the future to rely
upon the sale of investment certificates over bank borrowings to fund its
portfolio of contracts and loans.
If Credit Concepts is able to sell all of the $5,000,000 of investment
certificates in this offering within the ensuing twelve months, it does not
anticipate the need to raise additional funds from other sources, other than
through bank borrowings which it believes will then be available to it, within
that period. In this regard, based upon discussions with Credit Concepts'
banks, Credit Concepts expects to refinance the outstanding $2.7 million line-
of-credit due June 15, 1999 to Pacific Continental Bank; however, Credit
Concepts presently has no commitment from any bank to do so. Credit Concepts
met the covenants of the loan agreement with Pacific Continental Bank at
December 31, 1998, including the requirement that Credit Concepts have a
tangible net worth of not less than $300,000 at December 31, 1998. Credit
Concepts expects to extend this line of credit beyond its termination date of
June 15, 1999 with either Pacific Continental bank or another lender on terms
at least as good as the present ones. However, Credit Concepts presently has
no commitment for such an extension, and there can be no assurance that it will
timely obtain one on favorable terms.
YEAR 2000 ISSUES.
- -----------------
Credit Concepts has made inquiry of its computer, communications, power
and automobile suppliers, and, in particular, has inquired of its dealers
whether any computer chip component in any make of used automobile that serves
as collateral for the Company's Contracts contains a real-time clock that could
be subject to failure, and has received assurances that no failures will occur.
Further, Credit Concepts' automobile dealer suppliers have indicated that they
do not expect any disruption in the availability and sale of used vehicles as
the result directly or indirectly of Year 2000 systems failures. However, in
view of the subtlety of the problem and the unfamiliarity with the scope of the
problem by many in the business community, Credit Concepts expects to develop
contingency plans in the event it should encounter some form of computer or
service failures at or after midnight on December 31, 1999 as the result of
Year 2000 problems. Credit Concepts is continuing to explore the scope and
nature of the effects upon its business that may result from Year 2000 computer
failures and errors and has deferred the establishment of contingency plans
pending the development of further information concerning the impact of the
Year 2000 issue upon Credit Concepts and the alternatives available to it.
However, Credit Concepts does not expect that the costs associated with these
contingency plans will be material.
<PAGE>
BUSINESS
--------
Credit Concepts, Inc. is in the business of purchasing retail installment
contracts that have been originated by regional used automobile dealers in
connection with the financing of used automobiles and other vehicles. Upon the
purchase of a contract, Credit Concepts obtains the right to receive all
remaining payments under the contract and a security interest in the vehicle
financed. Credit Concepts seeks to collect the principal and interest due on
the contracts that it purchases. Credit Concepts does not acquire contracts in
bulk but acquires them individually, usually from originating used automobile
dealers, after a credit review and analysis of the specific borrower. Payments
under the contracts extend for up to 66 months, and it is the strategy of the
company to match approximately the maturities of the investment certificates in
this offering with the payment schedules under the contracts it purchases in
order to reduce the financial risks associated with unforeseen declines in
interest rates. Credit Concepts' operations consist primarily of evaluating
which contracts to purchase, negotiating the terms of the purchase, and
arranging for Credit Concepts' financing of the purchase.
Credit Concepts has recently received from the Oregon Department of
Consumer and Business Services a consumer finance license, which allows Credit
Concepts to make loans directly to the purchasers of used vehicles rather than
having Credit Concepts purchase the loans from the dealers after they have been
made. However, Credit Concepts has not yet originated any significant number
of loans and expects to continue to develop its portfolio of accounts
receivable primarily from contracts purchased from dealers.
ECONOMY OF LANE COUNTY, OREGON.
- -------------------------------
The availability and credit-worthiness of the underlying borrowers on the
Credit Concepts' contracts are influenced by the state of the economy for Lane
County, Oregon, which includes the cities of Eugene and Springfield, the market
area for the used automobile dealers that originate Credit Concepts' contracts.
The timber and forest products industry and the University of Oregon have
historically been significant influences on the economy of Lane County, Oregon,
although in recent years an impact has resulted from the location of various
technology companies in the region. In recent years California has been an
important source of in-migration. In view of the sprawling lay-out of the
cities of Eugene and Springfield and surrounding neighborhoods, and of the fact
that on the average on over one-third of the days during the year there is
measurable precipitation, most workers in the Lane County area regularly
commute to work by automobile, and, indeed, for many jobs, automobile
transportation is the only practical means of commuting to work. For this
reason, Credit Concepts believes that access to an automobile is essential to
job retention for a significant portion of the Lane County work force and that
this influences the payment priority for many workers in the region with
outstanding consumer credit.
The following table shows population growth for Lane County since 1960:
<TABLE>
Population of Lane County, Oregon 1960 - 1990
---------------------------------------------
<CAPTION>
10-Year
Year Population Change
---- ---------- -------
<S> <C> <C> <C>
1960 162,890
1970 215,401 +32.2%
1980 275,226 +27.8%
1990 282,912 +2.8%
</TABLE>
The number of vehicles registered in Lane County has increased each year
over the past ten years. The following table shows the number of vehicle
licenses issued for vehicles in Lane County for each of the past ten years for
which information is available:
<TABLE>
Number of Vehicle Licenses Issued
for Vehicles in Lane County
-----------------------------------------
<CAPTION>
Year Number of Vehicle Licenses
---- --------------------------
<S> <C> <C>
1988 223,840
1989 235,771
1990 237,045
1991 241,959
1992 243,817
1993 249,398
1994 254,689
1995 255,790
1996 263,066
1997 271,285
</TABLE>
MARKETING.
- ----------
Credit Concepts does not originate a significant number of its own loans
on the sale of vehicles but relies primarily upon used automobile dealers in
the Lane County, Oregon area to originate them and sell the contracts to Credit
Concepts. In connection with its ongoing purchase of contracts, Credit
Concepts has entered into master dealer agreements with fourteen automobile
dealers that sell used automobiles to borrowers in Lane County. These dealers
also sell contracts to certain of Credit Concepts' competitors.
Credit Concepts has been able to purchase a reasonable number of contracts
upon advantageous terms from dealers that sell to borrowers within Lane County
and expects to be able to continue to do so for the foreseeable future. During
the twelve months ended December 31, 1998, Credit Concepts has purchased 27% in
value of its vehicle contracts from Lithia Toyota of Springfield, 16% in value
of its vehicle contracts from Lithia Nissan of Eugene, 13% in value of its
vehicle contracts from Kieffer's Eugene Mazda, 11% in value of its vehicle
contracts from Kendall Ford Inc. and 10% in value of its vehicle contracts from
Guaranty Chev Pont Olds Inc. No other dealer has accounted for as much as 10%
of the value of vehicle contracts purchased during this period.
Credit Concepts has recently received from the Oregon Department of
Consumer and Business Services a consumer finance license, which allows Credit
Concepts to make loans directly to the purchasers of used automobiles rather
than having to purchase the loans from the dealers after they have been made.
Although Credit Concepts has recently been issued a consumer finance license to
originate loans directly from borrowers purchasing vehicles, Credit Concepts
expects to continue to purchase the major portion of the contracts in its
portfolio from used automobile dealers in Lane County.
Under the master dealer agreements, a contract may be purchased with full
and partial guarantees of the used automobile dealers selling the contracts.
Before entering into a master dealer agreement with a used automobile dealer,
Credit Concepts investigates the viability of the dealer to assess the ability
of the dealer to perform its guarantee or obligation to repurchase contracts in
the event of defaults on the contracts by the underlying borrowers.
Approximately 10% of the dollar value of contracts outstanding on July 31, 1998
were covered by full or partial guarantees by the used automobile dealers
supplying contracts to Credit Concepts.
VEHICLE CONTRACTS.
- ------------------
Almost all of Credit Concepts' business consists of the purchase and
collection of vehicle contracts from used automobile dealers. The form of the
contract is a standard one widely used within the automobile industry. The
price that Credit Concepts pays for a contract anticipates that total payments
under the contract will exceed the net cost of the vehicles, plus anticipated
financing and other costs, and a return to Credit Concepts. Under the terms of
the contract, the borrower is obligated to maintain, insure and pay taxes on
the vehicle for the term of the contract.
Credit Concepts General Manager personally reviews the credit record of
the underlying borrower for each contract that Credit Concepts purchases and,
based upon that review, makes the decision whether or not to purchase the
contract. Credit Concepts purchases contracts individually after such a credit
review and as a matter of policy does not purchase contracts in bulk. Credit
Concepts considers a number of factors in determining the credit-worthiness of
the underlying borrowers for the contracts it purchases. Recently, for ease of
servicing the contracts, Credit Concepts has decided to limit its contract
purchases to those with borrowers that reside within seventy miles of Credit
Concepts' offices. In this regard, approximately half of the borrowers under
Credit Concepts' contracts make their contract payments by personal visit to
Credit Concepts' offices in Eugene, Oregon. Further, Credit Concepts'
employees are within a relatively short drive to most of the dealers from which
it purchases contracts and to the residences of the underlying borrowers, which
allows the employees to inspect vehicles before a contract is purchased and
assists in repossession upon a default, should either be necessary or
desirable. The close working relationship which Credit Concepts maintains with
its automobile dealers allows Credit Concepts' General Manager to be apprised
of surpluses and shortages of particular makes and models of used automobiles
within Lane County, which provides insight at the time of contract purchase
into the extent of realization on the vehicle collateral in the event of
default. Credit Concepts does not buy contracts on vehicles owned by students
who are not both employed and permanent residents of Lane County.
Credit Concepts purchases contracts on a variety of vehicles. Certain
information for contract receivables as of July 31, 1998, and January 31, 1999,
is shown below:
<TABLE>
Certain Information for Contract Receivables as of July 31, 1998
----------------------------------------------------------------
<CAPTION>
JULY 31 JAN. 31
----------- ----------
<S> <C> <C>
Number of Contracts.....................................842.............958
Cost of Contracts................................$4,867,499......$5,277,494
Contract Receivables Outstanding.................$4,325,162......$4,149,635
Average Annual Percentage Rate
(APR) of Interest..................................30.8%...........30.8%
Average Contract Balance.............................$5,212..........$4,323
Average Term of Contract..........................41 months.......39 months
Average Age of Contract..........................4.5 months........9 months
Average Payment per Month..............................$230............$212
</TABLE>
Credit Concepts purchases contracts for a large variety of borrowers and
vehicles. The largest, smallest and average contracts purchased during the
seven months ended July 31, 1998 were $20,167, $761 and $5,781, respectively.
The largest, smallest and average contracts purchased during the six months
ended January 31, 1999 were $19,698, $398 and $4,630, respectively. The
longest term was 66 months and the shortest was 6 months for both periods.
CREDIT LOSS EXPERIENCE.
- -----------------------
Credit Concepts commenced business in October, 1997 and has not yet had
sufficient operating experience to confirm the adequacy of the provisions for
credit losses on its contracts reflected on Credit Concepts' financial
statements.
At July 31, 1998, the total balances owing on contracts receivable past
due from 60 to 89 days was $6,599, or 0.15% of total contracts receivable, and
on contracts receivable past due 90 days and over was $2,075, or 0.05% of total
contracts receivable. At January 31, 1999, total balances owing on contracts
and loans receivable past due from 60 to 89 days was $78,115, or 1.78% of total
contracts and loans receivable, and on contracts and loans past due 90 days and
over was $104,104, or 2.37% of total contracts and loans receivable.
A contract receivable is considered past due if any portion of any
installment is or remains 30 days delinquent. Credit Concepts' policy is not
to extend or renew past due accounts. Credit Concepts stops accruing revenue
on a past due receivable when the account is in litigation, the vehicle is
repossessed, or at such earlier time as, in the judgment of management, full
collection of the contract becomes doubtful.
Credit Concepts itself does not engage in repossessions of collateral
vehicles but uses for this purpose the services of a licensed and bonded
independent contractor that specializes in vehicle repossessions. After the
vehicle is sold under the procedures of the collateral agreement, Credit
Concepts pursues the deficiencies to a judgment against the borrower and
collects by garnishment or other appropriate procedure.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws applicable to individuals, may limit or delay the ability of
Credit Concepts to repossess and resell vehicles under the contracts or
anticipated loans, or to enforce a deficiency judgment against a borrower under
a contract. Oregon law prohibits the collection of a deficiency judgment
following the repossession or voluntary surrender of a vehicle where the
balance due on the contract or loan is less than $1,250, but does not limit
Credit Concepts' right to collect the contract balance in situations where
Credit Concepts does not obtain possession of the vehicle or to collect damages
where the vehicle has been wrongfully damaged. In addition, Credit Concepts
may determine in its discretion that a deficiency judgment is not an
appropriate or economically viable remedy against a particular borrower, or may
settle at a significant discount any deficiency judgment that it does obtain.
Although Credit Concepts may obtain a security interest in the vehicles
for the payment of the contracts it acquires, and, when properly licensed will
include the loans it originates, Oregon state law provides for the priority
over Credit Concepts' security interest of statutory liens for certain repairs
made to or unpaid taxes assessed against a vehicle. In addition, federal laws
permit the confiscation of a vehicle used in unlawful activities - drugs or
prostitution, for example - that may serve as collateral for contracts and
loans. Those laws may result in the loss of Credit Concepts' priority security
interests in confiscated property or in additional expenses in recovering
confiscated property that serves as collateral for contracts or for loans. To
date, none of the vehicles serving as collateral for Credit Concepts' contracts
has been confiscated.
The following table shows Credit Concepts' realization experience on those
past due contracts receivable for which realization efforts have been completed
during the seven months ended July 31, 1998, and the six months ended January
31, 1999.
<TABLE>
Past Due Contract Receivables for Which
Realization Efforts Have Been Completed
------------------------------------------------------------
<CAPTION>
Number of Total Total Average
Period Past Due Amount Amount Percentage
Ending Contracts Past Due Realized Realized
- ------- --------- -------- -------- ----------
<S> <C> <C> <C> <C>
July 31 17 $ 82,794 $ 42,665 51.5%
January 31 48 $270,067 $179,242 66.4%
</TABLE>
The credit loss experience of Credit Concepts for the seven months ended
July 31, 1998 and the six months ended January 31, 1999 is as follows:
<TABLE>
Credit Loss Experience
------------------------------------------------------------------
<CAPTION>
Reserve at Additions to Chargeoff Reserve
Period beginning reserve charged net of at end
Ending of period to operations recoveries of period
- -------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
July 31 $ - $231,129 $40,129 $191,000
(4.7%) (1) (1.7%) (2) (4.4%) (3)
January 31 $191,000 $198,812 $90,825 $298,987
(16.9%) (2.2%) (7.2%)
- ----------------------------
(1) Percentage of new receivables for the period.
(2) Percentage of average receivables outstanding.
(3) Percentage of receivables outstanding at end of period.
</TABLE>
FINANCING OF CONTRACTS.
- -----------------------
Credit Concepts is continuously engaged in financing in order to be able
to purchase contracts from automobile dealers as vehicles are sold to qualified
borrowers. To date Credit Concepts has relied primarily upon bank borrowings
and the purchase of debt and equity by its founders and others for this
purpose. However, Credit Concepts has begun to reach the limits of its
presently available bank credit and, like certain of its competitors, is now
seeking to finance its contracts through the sale of unsecured investment
certificates, which is the purpose of this offering. Credit Concepts intends
to finance the purchase of its contracts in this manner for the indefinite
future.
Credit Concepts has entered into loan agreements and issued promissory
notes in connection with its bank lines-of-credit. Those agreements and
promissory notes require Credit Concepts to comply with and maintain various
financial and other covenants in order to avoid default. Those covenants
include the necessity to maintain a minimum net worth of $300,000 and a debt to
tangible net worth ratio of 5 to 1 at December 31, 1998, which it did, as well
as for it to comply with payment and performance obligations of its bank lines-
of-credit and other contractual obligations. Credit Concepts' bank
indebtedness is secured by all of its assets, including its finance receivable
portfolio. The investment certificates are unsecured, but the proceeds from
their sale will be used to purchase contracts that serve as collateral for the
bank indebtedness. For this reason, the unsecured debt represented by the
certificates will be treated as equity for purposes of the ratios and capital
minimums that must be maintained under the bank line-of-credit agreement. As a
result, sale of the certificates in this offering and the purchase of contracts
with the proceeds will increase the assets of Credit Concepts available as
collateral for its bank line-of-credit and is expected to allow Credit Concepts
to increase the size of its bank line of credit should it desire to do so.
Credit Concepts plans for its business to grow significantly in ensuing
years through the purchase of contracts and the origination of loans.
Virtually all of this increase in business is expected to be financed by a
corresponding increase in Credit Concepts' indebtedness of all types, including
bank indebtedness and the sale and issuance of investment certificates.
Credit Concepts intends apply the proceeds from the present offering of
investment certificates to pay down the balance on its existing line of credit.
Because the interest it is now paying on its line of credit is higher than what
will be paid on the investment certificates, and because the investment
certificates are subordinated to bank indebtedness and thus not included as
debt in the financial covenants of the bank loan agreements, this application
of proceeds should strengthen both Credit Concepts' financial position and its
borrowing ability. To the extent that the proceeds from this offering are used
to purchase contracts rather than to pay down the line of credit, these
contracts will serve as additional collateral under the line of credit and
increase the amount that may be borrowed. It is expected that these credit
resources will enable the orderly repayment of principal and interest on the
investment certificates as they come due.
COMPETITION.
- ------------
Credit Concepts consumer credit business is highly competitive with other
consumer credit businesses in Lane County, Oregon. Most of Credit Concepts'
competitors are more established, larger and have greater resources than does
Credit Concepts. In addition to companies that engage in the consumer credit
business in Lane County, Oregon, many banks, financial institutions and other
types of finance companies in Credit Concepts' market area originate and
purchase used vehicle contracts and offer consumers debt investment
instruments in competition with Credit Concepts. Competition is generally
based upon the price paid for contracts, which determines the rate of return,
and the interest rate on the investment instruments, as well as the credit-
worthiness of the underlying borrowers. An increase in competition in the
financing of vehicle contracts in Credit Concepts' market area may decrease the
return from such contracts to Credit Concepts.
GOVERNMENTAL REGULATION.
- ------------------------
Credit Concepts is subject to significant governmental regulation at both
the federal and state levels. Numerous federal and state consumer laws and
related regulations impose substantial requirements upon lenders and services
involved in consumer finance, and upon the origination and collection of
consumer loans, including Credit Concepts' loans, and retail installment
contracts. Some laws and regulations with which Credit Concepts must comply
include, together with other similar federal and state laws:
- The Truth-in-Lending Act
- The Equal Credit Opportunity Act
- The Federal Trade Commission Act
- The Fair Credit Billing Act
- The Fair Credit Reporting Act
- The Fair Debt Collection Practices Act
- The Magnuson-Moss Warranty Act
- The Federal Reserve Board's Regulations B and Z
- The Federal Consumer Credit Protection Act
- The Oregon Unlawful Debt Collection Practices
Oregon law also contains express statutory provisions regulating the form,
content, terms and enforcement of retail installment contracts involving motor
vehicles.
A rule of the Federal Trade Commission and certain provisions of Oregon
law have the effect of subjecting Credit Concepts to all claims and defenses
which the borrower in the transaction could assert against the automobile
dealer that sold the vehicle. In addition, in order to conduct its consumer
loan business, Credit Concepts must continue to maintain its consumer finance
license from the state of Oregon in good standing.
Credit Concepts believes it currently holds all material licenses
necessary to carry on its business as presently conducted in the state of
Oregon. Any failure of Credit Concepts to maintain its licenses should not
affect the quality of its then existing portfolio of contracts.
EMPLOYEES.
- ----------
Credit Concepts has a total of six full-time employees, including its
management, of which one is engaged in credit analysis and contract purchasing,
two are engaged in contract collection, including vehicle repossession, and
four are administrative and clerical. Credit Concepts also uses the services
of an independent contractor in repossession efforts and another for
bookkeeping services.
Credit Concepts provides partial medical benefits to its employees.
Credit Concepts believes that its relations with its employees are
satisfactory.
LEGAL PROCEEDINGS.
- ------------------
Except for routine litigation by Credit Concepts to obtain deficiency
judgments upon defaulted contracts in the ordinary course of its business,
neither Credit Concepts nor any of its property is a party to any pending legal
proceeding.
PROPERTY
--------
Credit Concepts maintains an approximately 1,300 square foot leased office
at 2149 Centennial Plaza, Suite 2, Eugene, Oregon pursuant to a three-year
lease that expires on October 31, 2000. The annual rental rate is currently
$15,233, which will increase to $15,840 in the third year. Payments under the
lease are guaranteed by two of Credit Concepts' founders. Credit Concepts owns
certain computer equipment and office furniture at its office and is expected
to acquire similar equipment needed as operations expand. Credit Concepts
expects that its offices will be adequate for its purposes for the foreseeable
future.
<PAGE>
MANAGEMENT
-----------
The Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C> <C>
Tom W. Palmer President and Director
Eugene C. Albert Vice-President, Secretary and Director
Ted W. Palmer Director
</TABLE>
Tom W. Palmer is the son of Ted W. Palmer.
The career experience of the Company's key personnel is as follows:
TOM W. PALMER, 43, President and Director. Tom W. Palmer has been the
Company's President and Chief Executive Officer since it was founded in August,
1997. Mr. Palmer's duties with Credit Concepts include developing and
maintaining banking and investor relations, managing the purchasing of
contracts for Credit Concepts' loan portfolio, financial management, business
development and the development and implementation of Credit Concepts
investment certificate financing program described in this prospectus. For in
excess of five years prior to that time he was president and a director of RDS
Inc. d.b.a. Mobile Advantage of Eugene, Oregon, which designs and manufactures
custom food delivery vehicles, primarily for retail food outlets. Mr. Palmer
also served as secretary and director of Woodcrafters Cabinets Inc., which
ceased doing business in 1997.
EUGENE C. ALBERT, 41, Vice-President, Secretary and Director. Eugene C.
Albert has acted as Credit Concepts' Vice President, Secretary and Chief
Financial Officer since its inception in August, 1997. His duties include
coordination of capital funding of Credit Concepts, evaluating and managing
credit losses, and the supervision of financing and credit operations. For in
excess of five years prior to his employment by Credit Concepts , Mr. Albert
served as secretary-treasurer and a director of Mansell Development. Inc., a
real estate development company in Eugene, Oregon, for which he was responsible
for arranging development and long-term financing.
TED W. PALMER, 66, Director. Ted W. Palmer was a founder, major
shareholder, president and chairman of Kalama Chemical, Inc., now a wholly-
owned subsidiary of B.F. Goodrich Company. Mr. Palmer sold his interest in
Kalama Chemical, Inc. in 1986 and since his retirement as Chairman and Chief
Executive Officer of Kalama Chemical, Inc. in 1989 has been primarily engaged
in the management of his personal investment portfolio. Since 1996, Mr. Palmer
has been a director of Pend Oreille Bank, a state-chartered commercial bank in
Newport, Washington.
KIMBERLY M. COLEMAN, 41, General Manager. Kimberly M. Coleman has served
as the General Manager of Credit Concepts since its inception in August, 1997.
Ms. Coleman's duties include reviewing borrower credit records and making the
purchase decision for each contract acquired by Credit Concepts for its
contract loan portfolio, as well as initiating initial follow-up communications
with delinquent borrowers. For one year prior to that she was business manager
for Kendall Honda, an automobile dealer in Eugene, Oregon, for one year prior
to that she acted as the assistant manager of WFS Financial Services, a
consumer finance company in Salem, Oregon, and for two years prior to that she
served as operations manager of Northwest Auto Credit, a consumer finance
company in Portland, Oregon. For five years prior to that, Ms. Coleman served
as business and collection manager for Ron Tonkin Auto Acceptance, Portland,
Oregon, a high-risk automobile finance company lending through the Ron Tonkin
automobile dealerships.
COMPENSATION.
- -------------
The cash and other direct remuneration of members of management of Credit
Concepts for the calendar year 1998 is as follows:
<TABLE>
Direct Compensation to Management for 1998
------------------------------------------
<CAPTION>
Name Position Salary Other
------------- -------------- --------- -----------
<S> <C> <C> <C> <C>
Tom W. Palmer President, CEO $41,250 $788
(Officers, Directors and
Management as a Group) (1) $129,500 $17,364(2)
- --------------------------------------------------
(1) Consists of Tom W. Palmer, Eugene C. Albert, Kimberly M. Coleman and Ted
W. Palmer.
(2) Reflects payment of Ms. Coleman's $15,000 bonus.
</TABLE>
Credit Concepts has entered into a five-year employment agreement expiring
September 15, 2002 with Kimberly M. Coleman pursuant to which Ms. Coleman will
act as Credit Concepts' General Manager. Under the terms of the agreement, Ms.
Coleman will receive an annual salary commencing at $48,000 and increasing to
$60,000, plus annual bonuses of 0.85% of contracts receivable booked, with
limits of $15,000 the first year and $20,000 the second year, and thereafter of
6% of Credit Concepts' net profits, without limitation. The agreement
precludes Ms. Coleman from competing with Credit Concepts for two years
following termination, except for termination by Credit Concepts without cause.
CERTAIN TRANSACTIONS.
- ---------------------
In connection with the founding of Credit Concepts in August, 1997, Tom W.
Palmer, Eugene C. Albert and Ted W. Palmer were issued equal amounts of the
equity interests of Credit Concepts, L.L.C., and on January 20, 1998 the assets
of that limited liability company were transferred to Credit Concepts, Inc. On
January 20, 1998, each of those persons purchased 100 shares of capital stock
of that corporation for $50,000. Each of such persons paid $10,000 of such
amount in cash and $40,000 of such amount by giving a $40,000 promissory note
to Credit Concepts.
By 12% unsecured demand loans, Eugene C. Albert, the Vice-President,
Secretary and a Director of Credit Concepts, lent an aggregate of $78,000 to
Credit Concepts between October 1997 and March 1998. By similar loans,
Kimberly M. Coleman, the General Manager of Credit Concepts, and her husband
lent an aggregate of $67,500 to Credit Concepts between January and April 1998.
By similar loans, Tom W. Palmer, the President and a Director of Credit
Concepts, and his wife lent an aggregate of $173,000 to Credit Concepts between
November 1997 and June 1998. By similar loans, Ted W. Palmer, a Director of
Credit Concepts, lent an aggregate of $600,000 to Credit Concepts between
October 1997 and June 1998. These unsecured loans are on a parity with the
investment certificates in the present offering.
In addition, Tom W. Palmer and Eugene C. Albert have each guaranteed an
aggregate of $3,000,000 under Credit Concepts' secured bank line-of-credit, and
Ted W. Palmer has guaranteed an aggregate of $1,000,000 under that line-of-
credit. If Tom W. Palmer, Ted W. Palmer and Eugene C. Albert should be required
to pay under the guarantees bank indebtedness, they would succeed to the banks'
secured rights with respect to the indebtedness, including rights to
collateral.
In July, 1998, Tom W. Palmer, Eugene C. Albert and Ted W. Palmer became
personally liable on a $450,000 unsecured loan by South Umpqua State Bank.
This loan accrues interest at the rate of 9.25% per annum and is due in full on
August 1, 2000. These persons lent the money to Credit Concepts on the same
basis.
In April and June, 1998, Credit Concepts borrowed $40,000 and $70,000,
respectively, from Amvesco, Inc. dba Western Pioneer Title Co. of Lane County.
Tom W. Palmer and Eugene C. Albert are personally obligated on these loans, and
Mr. Albert has collateralized these loans with real estate owned by him.
Credit Concepts' founders, Tom W. Palmer, Eugene C. Albert and Ted W.
Palmer, have agreed not to demand payment of the notes they hold until on or
after December 31, 2000.
Tom W. Palmer and Eugene Albert have personally guaranteed the payments
under the three-year lease of Credit Concepts' principal offices, which expires
October 31, 2000. The current annual rental rate under the lease is $15,233,
which increases to $15,840 in the third year.
In the future, all material transactions and loans between Credit Concepts
and affiliated persons, including its owners and directors Tom W. Palmer,
Eugene C. Albert and Ted W. Palmer, will be entered into on terms that are no
less favorable to Credit Concepts than those that can be obtained from
unaffiliated third parties. Further, all future transactions and loans, and
any forgiveness of loans, with affiliated persons will be approved by a
majority of Credit Concepts' then independent directors who do not have an
interest in the transactions and who have had access, at Credit Concepts'
expense, to Credit Concepts' or independent legal counsel.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the shares of Credit
Concepts' common stock presently owned of record and beneficially by each
person known to Credit Concepts to own of record or beneficially 5% or more of
Credit Concepts' common stock; each officer or director of Credit Concepts who
owns of record or beneficially any common stock; and stock holdings of all
officers and directors of Credit Concepts as a group.
<TABLE>
<CAPTION>
Beneficial Ownership
---------------------------------
Owner's Percent after
Name & Address Shares Percent this Offering
- -------------- ------ ------- -------------
<S> <C> <C> <C>
Tom W. Palmer 100 33.3% 33.3%
2274 Marie Lane
Eugene, OR 97408
Eugene C. Albert 100 33.3% 33.3%
2358 Birch Lane
Eugene, OR 97403
Ted W. Palmer Trust 100 33.3% 33.3%
Almost Idaho Ranch
Shearer Lake on Bench Road
Newport, WA 99156
(All Officers and
Directors as a Group) 300 100.0% 100.0%
</TABLE>
Tom W. Palmer, Eugene C. Albert and Ted W. Palmer may be deemed to be
promoters and parents of Credit Concepts within the meaning of the Securities
Act of 1933 and state securities laws.
Tom W. Palmer, Eugene C. Albert and Ted W. Palmer through the Ted W.
Palmer Trust have entered into an agreement granting each other a right to
purchase their respective shares in Credit Concepts from each other and an
option first for Credit Concepts to purchase, and then for each other to
purchase, the shares of any of them that may become deceased, disabled or
divorced. This arrangement is intended to foster stability within Credit
Concepts by inhibiting a change in control of Credit Concepts upon the death,
disability or divorce of any of the founding shareholders.
<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
Credit Concepts' three directors are its founders and the owners of all of
its outstanding capital stock, all of which is common stock.
The only other securities outstanding as of January 31, 1999 are
$1,341,534 of unsecured promissory notes, most of which accrue interest at the
rate of 12% per annum, held by Credit Concepts' management and others with
relationships to Credit Concepts or its management. These promissory notes and
the investment certificates in this offering are unsecured obligations that are
on a par with each other in right of payment; that is, holders of the
promissory notes and investment certificates would both share as general
creditors of Credit Concepts in the event of any liquidation of Credit
Concepts. Credit Concepts' $3,000,000 bank line-of-credit, of which $2,704,670
was outstanding at January 31, 1999, is secured by all of Credit Concepts'
assets, including its contract and loan portfolio, which constitutes Credit
Concepts' principal asset.
INVESTMENT CERTIFICATES.
- ------------------------
The investment certificates in this offering consist of fixed-rate short-
term investment certificates and fixed-rate long-term investment certificates
that are unsecured general obligations of Credit Concepts. Certificates are
being offered in denominations of $1,000, and purchasers will be registered as
the holders of the certificates on the books of Credit Concepts. Interest on
the certificates will be paid to holders within the first five days of each
calendar quarter.
Interest on the investment certificates accrues at a fixed rate, which is
determined at the time of sale. The interest rate for investment certificates
sold in any month is determined by reference to the prime rate of interest as
reported by the Wall Street Journal on the last day of the previous month. The
interest rate for short-term investment certificates is 0.25% over the prime
rate, but shall not exceed 11.00% nor be less than 6.00%. The interest rate
for long-term investment certificates is 1.00% over the prime rate, but shall
not exceed 12.00% nor be less than 6.00%. Any changes in the interest rate
applicable to new certificates will have no effect upon the interest rate or
terms applicable to certificates then outstanding.
The terms of the investment certificates are two years for the short-term
investment certificates and four years for the long-term investment
certificates.
You may liquidate your certificates at any time prior to maturity upon 90
days notice to Credit Concepts, but upon such pre-maturity liquidation no
interest will be earned on the certificates during the notice period. On the
date of maturity of a certificate, you should present it to Credit Concepts for
payment, as interest on the certificate ceases to accrue after that date.
If interest on an investment certificate is not timely paid within ten
days of the payment date, the entire sum of principal and interest shall, at
your option, immediately become due and payable without notice. In the event
you are required to institute collection proceedings on an investment
certificate, Credit Concepts will pay all your costs, including reasonable
attorneys fees.
There is no collateral or security interest securing repayment of the
certificates, no guarantees or insurance by governmental agencies or other
third parties assuring repayment of the certificates, no sinking fund, and no
provision for the payment of any amount of principal prior to maturity. As an
unsecured general creditor of Credit Concepts, in the event of liquidation of
Credit Concepts, you as a holder of certificates would share equally with other
general creditors of Credit Concepts in the remaining unsecured assets of
Credit Concepts, if any. The certificates are subordinated to all bank
borrowings by Credit Concepts both now and in the future.
You may transfer your certificates on Credit Concepts' certificate
ownership records by signing the form of assignment on the back of the
certificate and delivering it to Credit Concepts for registration of the
transfer on Credit Concepts' books so that the new owner may receive subsequent
interest payments. However, there is no trading market for Credit Concepts
investment certificates, and Credit Concepts does not expect that a trading
market will arise in the future.
COMMON STOCK.
- -------------
All of the shares of common stock of Credit Concepts are owned by Credit
Concepts founders and no common stock is being offered to investors in this
offering.
Each holder of common stock is entitled to one vote for each share held of
record and to a pro-rata share of any dividends declared on the common stock by
the Board of Directors from funds legally available therefor. Upon liquidation
of Credit Concepts, each stockholder is entitled to share ratably in any assets
available for distribution after payment of all debts, including all investment
certificates. Stockholders have no preemptive, conversion or other
subscription rights and there are no redemption rights or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are validly issued, fully paid and non-assessable.
<PAGE>
PLAN OF DISTRIBUTION
--------------------
Credit Concepts is offering the investment certificates directly to
investors through Tom W. Palmer, the President and a Director of the Company,
and Eugene C. Albert, the Vice-President and a Director of the Company, who
will not receive a commission or other special compensation for these efforts.
In order to be eligible to invest in this offering, you must have:
Either a net worth of at least $150,000.
Or
A net worth of at least $75,000 plus a net income of
at least $75,000.
In addition, purchases of investment certificates in the
aggregate may not exceed 10% of your net worth.
In calculating "net worth," the value of home, home furnishings and
personal automobiles should be excluded, and all assets should be valued at
fair market value.
Credit Concepts is required to make a reasonable effort to determine
whether or not an investment in the investment certificates is suitable and an
appropriate investment for you based upon your financial situation and
investment objectives. Accordingly, you must affirmatively represent the
existence of these investment criteria and other personal circumstances on the
subscription agreement used in purchasing your investment certificates. A copy
of the subscription agreement appears at the end of this prospectus. You may
obtain additional copies of the subscription agreement from Credit Concepts
upon request.
Credit Concepts will not sell investment certificates during any period in
which its "debt to net worth" ratio exceeds 6 to 1 without the injection of
sufficient capital into Credit Concepts to bring that ratio below that level.
This debt to net worth ratio will be determined on the last day of each fiscal
quarter and calculated as a ratio of total liabilities to adjusted net worth.
For purposes of the ratio, "adjusted net worth" means total capital and surplus
(net stockholders' equity), plus debt which is subordinated to bank borrowings,
minus the sum of equipment and leasehold improvements net of depreciation and
amortization and goodwill, going concern value and other intangibles as
reflected on the balance sheet.
As corporate officers and directors, Messrs. Palmer and Albert are subject
to indemnification under Credit Concepts' by-laws against, among other things,
liability under the Securities Act of 1933. To the extent that indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
Messrs. Palmer and Albert, Credit Concepts has been advised that in the opinion
of the Securities and Exchange Commission this indemnification is against
public policy as expressed in that act and is, therefore, unenforceable.
In order to purchase investment certificates, investors should fill out
the subscription agreement at the end of, or accompanying, this prospectus and
forward it, together with a check or money order for the purchase price, to Tom
W. Palmer, President, or Eugene C. Albert, Vice-President, Credit Concepts,
Inc., 2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401, telephone (541) 342-
8545. The purchased investment certificates, in denominations of $1,000, will
be registered in the names of the respective investors on the books of Credit
Concepts and promptly forwarded to them at the addresses set forth on the
subscription agreement.
LEGAL MATTERS
-------------
The legality of the investment certificates has been passed upon by Karr
Tuttle Campbell, Portland, Oregon.
EXPERTS
-------
The balance sheets as of July 31, 1998 and the related statements of
income, cash flows and changes in shareholders' equity for the seven months
ended July 31, 1998 included in this prospectus have been included in reliance
on the report of Yergen and Meyer LLP, independent auditors, given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
----------------------
Credit Concepts has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 with
respect to the investment certificates. This prospectus, which constitutes a
part of the registration statement, omits certain information contained in
accordance with the Securities Act and the rules and regulations of the
Commission thereunder. For further information with respect to Credit Concepts
and the investment certificates, please see the registration statement and its
exhibits and schedules filed with the Commission. Statements contained in this
prospectus concerning the provisions of such documents are necessarily
summaries of such documents, and you should refer to the copy of the applicable
document filed with the Commission as an exhibit to the registration statement
for complete details. The registration statement and the exhibits thereto may
be inspected, without charge, at the public reference facilities of the
Commission at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and its public reference facilities in New York, New York, and Chicago,
Illinois, at prescribed rates. In addition, the registration statement and its
exhibits and schedules may be accessed electronically at the Commission's Web
site on the Internet at www.sec.gov.
Credit Concepts is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended and, in files periodic reports and
other information with the Commission. Such reports and other information can
be inspected and copied at the addresses, and may be accessed electronically at
the above web site.
===============================================================================
<PAGE>
CREDIT CONCEPTS, INC.
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
Period Ended July 31, 1998
<PAGE>
Yergen and Meyer LLP
--------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Credit Concepts, Inc.
Eugene, Oregon
We have audited the accompanying balance sheet of Credit Concepts, Inc. as of
July 31, 1998, and the related statements of income, stockholders' equity, and
cash flows for the periods from inception (October 1, 1997) to December 31,
1997, and January 1, 1998, to July 31, 1998. 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 audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Credit Concepts, Inc. as of
July 31, 1998, and the results of its operations and its cash flows for the
initial period then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the company began operating
October 1, 1997, as a limited liability company (LLC) and incorporated the
business effective January 1, 1998. These financial statements report the
cumulative results of operations.
/s/ Yergen and Meyer, LLP
Portland, Oregon
August 19, 1998
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEET
July 31, 1998
<CAPTION>
ASSETS
------
<S> <C>
Cash $ 55,003
-------------
Finance receivables:
Contracts 4,325,162
Loan origination costs 35,148
Allowance for credit losses (191,000)
-------------
Finance Receivables, Net 4,169,310
Interest receivable on contracts 64,500
Stock subscriptions receivable 120,000
Equipment and leasehold improvements, net 33,685
Other assets 41,133
-------------
TOTAL $ 4,483,631
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Debt:
Bank line of credit $ 2,687,431
Other notes payable 301,500
Subordinated notes payable to stockholders 1,165,976
Accounts payable and accrued expenses 14,305
Interest payable 23,149
-------------
Total Liabilities 4,192,361
-------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000 shares
authorized, 300 issued and outstanding 150,000
Additional paid-in-capital 206,842
Retained earnings (65,572)
-------------
Total Stockholders' Equity 291,270
-------------
TOTAL $ 4,483,631
=============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE> CREDIT CONCEPTS, INC.
STATEMENT OF INCOME
For the 7 Months Ended July 31, 1998 and
the Period from Inception (October 1, 1997) to December 31, 1997
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Interest on contracts $ 468,116 $ 5,901
Other income 3,140 246
------------ ------------
Total Revenues 471,256 6,147
------------ ------------
EXPENSES
Interest 154,671 3,815
Salaries 79,017 30,408
Provision for credit losses 231,129 -
Other operating expenses 72,011 15,082
------------ ------------
Total Expenses 536,828 49,305
------------ ------------
NET INCOME (LOSS) $ (65,572) $ (43,158)
============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the 7 Months Ended July 31, 1998 and
the Period from Inception (October 1, 1997) to December 31, 1997
<CAPTION>
Credit
Concepts, LLC Credit Concepts, Inc.
------------ ----------------------------------------------------
Additional
Members Common Paid-in Retained
Equity Stock Capital Earnings Totals
------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Members Contribution
at Inception $ 451,000 $ - $ - $ - $ 451,000
Net (loss) (43,158) (43,158)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 $ 407,842 $ - $ - $ - $ 407,842
Transfer of Interest to Corporation
at 1/1/98 in exchange for:
Stock (236,842) 30,000 206,842 $ -
Notes (171,000) (171,000)
Additional stock subscriptions 120,000 120,000
Net (loss) (65,572) (65,572)
----------- ----------- ----------- ----------- -----------
Balance at July 31, 1998 $ - $ 150,000 $ 206,842 $ (65,572) $ 291,270
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF CASH FLOWS
For the 7 Months Ended July 31, 1998 and
the Period from Inception (October 1, 1997) to December 31, 1997
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (65,572) $ (43,158)
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses on finance
receivables 231,129 -
Depreciation and amortization 37,616 561
Recoveries of finance receivables
previously charged off 42,665 -
Changes in assets and liabilities:
Accrued interest on finance receivables (64,500) -
Loan origination costs (35,148) -
Other assets (57,081) (18,209)
Accounts payable, accrued and other
liabilities 34,174 3,280
------------ ------------
Total Adjustments 188,855 (14,368)
------------ ------------
Net Cash Provided (Used) by Operating
Activities 123,283 (57,526)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans and contracts originated or purchased (4,410,614) (479,843)
Loans and contracts repaid 478,778 3,723
Additions to equipment and leasehold
improvements (8,655) (29,050)
------------ ------------
Net Cash (Used) by Investing Activities (3,940,491) (505,170)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 4,506,664 140,000
Repayment of debt (662,757) -
Members' contributions - 451,000
------------ ------------
Net Cash Provided by Financing Activities 3,843,907 591,000
------------ ------------
NET INCREASE IN CASH 26,699 28,304
CASH AT BEGINNING OF PERIOD 28,304 -
------------ ------------
CASH AT END OF PERIOD $ 55,003 $ 28,304
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY - Credit Concepts, Inc. (the Company) is in the business of
purchasing retail installment contracts from automobile dealers in connection
with the financing of used automobiles. The Company originally formed on
August 29, 1997, as Credit Concepts, L.L.C. and began operations during
October 1997. Effective January 20, 1998, the Company incorporated the
operations into the existing entity via a tax-free incorporation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
FINANCE RECEIVABLES - Finance receivables that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding unpaid principal balances reduced by any
chargeoff or specific valuation accounts and net of any deferred fees or costs
on originated loans, or unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment to yield using the interest method over the term of
the related contract.
Provisions for credit losses are recognized in amounts sufficient to maintain
the allowance for credit losses at a level adequate to cover losses of
principal and accrued interest in the existing finance receivable portfolio.
The allowance for credit losses is based upon management's evaluation of the
economic environment and the condition of outstanding loans and contracts
receivable at year end. In addition, management reviews comparable industry
information, delinquency status of contracts and recency of payments received.
All of these elements are considered in determining the adequacy of the
provision for credit losses.
During the year, the unpaid balances of delinquent contracts receivable in
excess of any related dealer guarantees are charged against the allowance for
credit losses when management determines that no further collection efforts are
economically beneficial. Changes in the allowance for credit losses may occur
in the near term and such changes may be material to the financial position,
results of operations and cash flows.
INTEREST INCOME RECOGNITION - For financial statement purposes, interest income
from finance receivables is recognized using the interest method. Accrual of
interest income on finance receivables is suspended when the Company's
management determines the loan recovery to be doubtful. This generally occurs
if no payments have been received for 90 days. Other circumstances may dictate
reclassification such as bankruptcy filing, death claim, disability claim, or
notification of total loss due to accident or theft. While a contract is
classified as nonaccrual and the future collectability of the recorded
receivable balance is doubtful, collections of interest and principal are
generally applied as a reduction of principal. As of July 31, 1998, the ratio
of nonaccrual loans to total loans is 1.6%.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements are
stated at cost. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the related assets. Maintenance and
repairs are charged to expense as incurred; expenditures for additions,
improvements and replacements are capitalized. Upon disposal or retirement of
assets, the accounts are relieved of the related costs and accumulated
depreciation and resulting gains or losses are recognized in operations.
INCOME TAXES - As noted, on January 20, 1998, Credit Concepts, Inc. converted
from a Limited Liability Company to an S Corporation pursuant to the Internal
Revenue Code. As an S Corporation, the income tax liability arising from the
taxable earnings of the Company is the responsibility of the stockholders.
NOTE 2 - FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
As of July 31, 1998, information regarding the finance receivables is as
follows:
<TABLE>
<S> <C>
Number of contracts 842
Average Annual Percentage Rate (APR) of interest 30.8%
Average contract balance $ 5,212
Average term of contract 41 mos.
Average age of contract 4.5 mos.
Average payment per month $ 230
</TABLE>
The terms of contracts are generally from one to five years. The Company
anticipates that a majority of contracts will be paid or renewed prior to
contractural maturity dates. Cash collections of finance receivables for the
period of inception to July 31, 1998, were $482,501. Additionally, the ratio
of cash collections to average period-end balances was approximately 19.6%.
Change in the allowance for credit losses is as follows:
<TABLE>
<S> <C>
Balance at inception (October 1, 1997) $ -
Provision charged to expense 231,084
Accounts charged off (82,749)
Recoveries 42,665
----------
Balance as of July 31, 1998 $ 191,000
==========
</TABLE>
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Balances as of July 31, 1998, are as follows:
<TABLE>
<S> <C>
Computer equipment $ 21,777
Leasehold improvements 2,223
Office furniture and equipment 13,705
------------
37,705
Accumulated depreciation and amortization (4,020)
------------
$ 33,685
============
</TABLE>
NOTE 4 - DEBT
Following is a summary of all debt held by the Company at July 31, 1998:
<TABLE>
<S> <C>
Bank line of credit (available credit line -
$3,000,000) - without collateral, interest at
the institution's prime rate (8.5% at July 31, 1998)
plus 2.25% due June 15, 1999, guaranteed by the
stockholders of Credit Concepts, Inc. $ 2,687,431
------------
Notes payable to various individuals - without
collateral, maturities to 2004, with interest
from 10% to 12%. 240,000
Notes payable to related party - without collateral,
no maturity with interest at 12%. 61,500
------------
Total other notes payable 301,500
------------
Subordinated notes payable to stockholders - without
collateral, no stated maturity, with interest at 12% 1,165,976
------------
Total $ 4,154,907
============
</TABLE>
The subordinated notes payable provide for subordination to any present and
future debt owed by Credit Concepts, Inc. to any bank, insurance company or
other financial institution. Subordinated debt with stockholders and officers
of Credit Concepts, Inc. of $1,165,976 is also subordinated to other notes
payable of $301,500.
Scheduled maturities of debt in subsequent fiscal years are as follows:
<TABLE>
<S> <C> <C>
1999 $ 2,737,431
2000 10,000
2001 -
2002 -
2003 -
Thereafter 1,437,476
------------
$ 4,184,917
============
</TABLE>
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash paid during the year for interest $ 131,522 $ 3,815
</TABLE>
Non-cash financing activities consisted of issuance of additional stock
subscriptions in the amount of $120,000, during 1998.
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The information provided below is required by FASB Statement No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. These amounts represent
estimates of fair value of financial instruments at a point in time.
Significant estimates using available market information and appropriate
valuation methodologies were used for the purposes of this disclosure. The
estimates are not necessarily indicative of the amounts the company could
realize in a current market exchange, and the use of different assumptions or
methodologies could have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
---------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 55,003 $ 55,003
Finance receivables 4,169,130 4,014,297
Liabilities
Debt 4,184,917 4,184,917
Accounts payable 14,305 14,305
</TABLE>
NOTE 7 - CAPITAL STRUCTURE
The company originally formed on August 29, 1997, as an Oregon limited
liability company (L.L.C.) and began operations during October 1997. Effective
January 1998, the company incorporated the operations into the existing entity
via a tax-free incorporation. At December 31, 1997, the three L.L.C. members
had a combined equity of $407,842 which was transferred to the corporation as
follows:
<TABLE>
<S> <C>
Subordinated notes payable to stockholders $ 171,000
300 shares of common stock, no par value 30,000
Additional paid in capital 206,842
----------
$ 407,842
</TABLE>
The stock was subscribed at $500 per share for a total of $150,000. As of July
31, 1998, the stockholders had paid $30,000 of this amount leaving a balance
owed the company of $120,000. There are currently no agreements to issue any
additional shares of stock.
NOTE 8 - SEGMENT INFORMATION
The company operates exclusively in Lane County, Oregon, providing automobile
financing. As such, the company's entire business activities comprise a single
operating segment.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
OPERATING EXPENSES
For the 7 Months Ended July 31, 1998 and
the Period from Inception (October 1, 1997) to December 31, 1997
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Accounting services $ 3,840 $ 143
Advertising 102 -
Amortization 21,549 2,146
Automobile expense 23 -
Bank charges 13 88
Business meetings 509 -
Collection and repossession charges 1,898 -
Commission expense - 3,895
Contributions 55 -
Depreciation 3,459 561
Dues and subscriptions 1,284 359
Employee benefits 567 150
Equipment repairs 9 154
Insurance 888 617
Legal services 5,222 -
Licenses, fees and permits 90 -
Life insurance 2,156 -
Meals and entertainment 2,829 264
Miscellaneous 4,978 -
Office rent 8,712 2,489
Office supplies and expense 7,398 2,367
Telephone 4,757 787
Travel 1,673 1,062
----------- ------------
TOTAL OTHER OPERATING EXPENSES $ 72,011 $ 15,082
============ ============
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
For the Three and Six Months Ended January 31, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to the Financial Statements 5
SUPPLEMENTARY INFORMATION
Other Operating Expenses 9
</TABLE>
<PAGE>
Yergen and Meyer LLP
--------------------------------------------
Certified Public Accountants and Consultants
To the Board of Directors
Credit Concepts, Inc.
Eugene, Oregon
We have reviewed the accompanying balance sheet of Credit Concepts, Inc.
as of January 31, 1999, and the related statement of income and retained
earnings and cash flows for the three and six months ended January 31, 1999, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Credit Concepts, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modification that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
Our review was made for the purposes of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The information included in the accompanying
supplementary information is presented only for supplementary analysis
purposes. Such information has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements, and we are
not aware of any material modifications that should be made thereto.
/s/ Yergen and Meyer, LLP
Portland, Oregon
March 15, 1999
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEET
JANUARY 31, 1999
<CAPTION>
ASSETS
------
<S> <C>
Cash $ 46,012
-----------
Finance receivables:
Contracts 4,159,635
Loans 224,517
Loan origination costs 55,683
Allowance for credit losses (298,987)
-----------
Finance Receivables, Net 4,140,848
-----------
Interest receivable on contracts and loans 72,538
Stock subscriptions receivable 120,000
Equipment and leasehold improvements, net 32,498
Other assets 12,238
-----------
TOTAL $4,424,134
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Debt:
Bank line of credit $2,704,670
Other notes payable 285,272
Subordinated notes payable
to stockholders 1,056,262
Accounts payable and accrued expenses 33,236
Interest payable 35,919
-----------
Total liabilities 4,115,359
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000 shares
authorized, 300 issued and outstanding 150,000
Additional paid-in-capital 206,842
Retained earnings (48,067)
-----------
Total Stockholders' Equity 308,775
-----------
TOTAL $4,424,134
===========
See accompanying notes and accountants' report.
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999
<CAPTION>
3 Months 6 Months
----------- -----------
<S> <C> <C>
REVENUES
Interest on contracts $ 326,406 $ 678,633
Insurance and fees 12,980 12,980
Other income 1,077 1,887
---------- ----------
Total Revenues 340,463 693,500
---------- ----------
EXPENSES
Interest 117,642 258,536
Salaries 53,943 93,316
Provision for credit losses 91,863 198,812
Other operating expenses 66,234 125,331
---------- ----------
Total Expenses 329,682 675,995
---------- ----------
NET INCOME 10,781 17,505
RETAINED EARNINGS,
Beginning of Period (58,848) (65,572)
---------- ----------
RETAINED EARNINGS, End of Period $ (48,067) $ (48,067)
========== ==========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999
<CAPTION>
3 Months 6 Months
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,781 $ 17,505
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for credit losses on
finance receivables 91,863 198,812
Depreciation and amortization 6,923 11,614
Recoveries of finance receivables
previously charged off 142,498 218,322
Changes in assets and liabilities:
Accrued interest on finance receivables (9,538) (8,038)
Loan origination costs (29,807) (59,614)
Other assets 2,935 22,008
Accounts payable, accrued and
other liabilities 30,702 31,701
---------- ----------
Total Adjustments 235,576 414,805
---------- ----------
Net Cash Provided by Operating Activities 246,357 432,310
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Loans and contracts originated
or purchased (638,667) (1,172,031)
Loans and contracts repaid 606,467 842,973
Additions to equipment and leasehold
improvements - (3,540)
---------- ----------
Net Cash (Used) by Investing Activities (32,200) (332,598)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt, net of borrowings (286,469) (108,703)
---------- ----------
Net Cash (Used) by Financing Activities (286,469) (108,703)
---------- ----------
NET DECREASE IN CASH (72,312) (8,991)
CASH, BEGINNING OF PERIOD 118,324 55,003
---------- ----------
CASH, END OF PERIOD $ 46,012 $ 46,012
========== ==========
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
BUSINESS ACTIVITY - Credit Concepts, Inc. (the Company) is in the business of
purchasing retail installment contracts from automobile dealers in connection
with the financing of used automobiles. The Company is also engaged in making
direct consumer loans and selling credit life, credit accident and health
insurance, and other related insurance products. The Company was originally
formed on August 29, 1997, as Credit Concepts, L.L.C., and began operations
during October 1997. Effective January 20, 1998, the Company incorporated the
operations into the existing entity via a tax-free incorporation (see Note 7).
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
FINANCE RECEIVABLES - Finance receivables that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding unpaid principal balances reduced by any
chargeoff or specific valuation accounts and net of any deferred fees or costs
on originated loans, or unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment to yield using the interest method over the term of
the related contracts.
Provisions for credit losses are recognized in amounts sufficient to maintain
the allowance for credit losses at a level adequate to cover losses of
principal and accrued interest in the existing finance receivable portfolio.
The allowance for credit losses is based upon management's evaluation of the
economic environment and the condition of outstanding loans and contracts
receivable at year end. In addition, management reviews comparable industry
information, delinquency status of loans and recency of payments received. All
of these elements are considered in determining the adequacy of the provision
for credit losses.
During the year, the unpaid balances of delinquent contracts receivable in
excess of any related dealer guarantees are charged against the allowance for
credit losses when management determines that no further collection efforts are
economically beneficial. Changes in the allowance for credit losses may occur
in the near term and such changes may be material to the financial position,
results of operations and cash flows.
INTEREST INCOME RECOGNITION - For financial statement purposes, interest income
from finance receivables is recognized using the interest method. Accrual of
interest income on finance receivables is suspended when the Company's
management determines the loan recovery to be doubtful. This generally occurs
if no payments have been received for 90 days. Other circumstances may dictate
reclassification such as a bankruptcy filing, death claim, disability claim, or
notification of total loss due to accident or theft. While a loan is
classified as nonaccrual and the future collectability of the recorded loan
balance is doubtful, collections of interest and principal are generally
applied as a reduction of principal. As of January 31, 1999, the ratio of
nonaccrual loans to total loans is 4.2%.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements are
stated at cost. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the related assets. Maintenance and
repairs are charged to expense as incurred; expenditures for additions,
improvements and replacements are capitalized. Upon disposal or retirement of
assets, the accounts are relieved of the related costs and accumulated
depreciation and resulting gains or losses are recognized in operations.
INCOME TAXES - As noted, on January 20, 1998, Credit Concepts, Inc. converted
from a Limited Liability Company to an S Corporation pursuant to the Internal
Revenue Code. As an S Corporation, the income tax liability arising from the
taxable earnings of the Company is the responsibility of the stockholders.
NOTE 2 - FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
- -------------------------------------------------------------
As of January 31, 1999, information regarding the
finance receivables is as follows:
<TABLE>
<S> <C>
Number of contracts 958
Average Annual Percentage Rate (APR) of interest 30.8%
Average contract balance $4,323
Average term of contract 39 mos.
Average age of contract 9 mos.
Average payment per month $212
</TABLE>
The terms of contracts are generally from one to five years. The Company
anticipates that a majority of contracts will be paid or renewed prior to
contractural maturity dates. Cash collections of finance receivables from
October 31, 1998 to January 31, 1999, were $638,667.
Change in the allowance for credit losses is as follows:
<TABLE>
<S> <C>
Balance at July 31, 1998 $ 191,000
Provision charged to expense 106,949
Accounts charged off (116,773)
Recoveries 75,824
----------
Balance at October 31, 1998 257,000
Provision charged to expense 91,863
Accounts charged off (153,295)
Recoveries 103,419
----------
Balance as of January 31, 1999 $ 298,987
===========
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- ----------------------------------------------
Balances as of January 31, 1999, are as follows:
<TABLE>
<S> <C>
Computer equipment $ 24,442
Leasehold improvements 2,141
Office furniture and equipment 14,617
41,200
Accumulated depreciation and amortization (8,702)
-----------
Net Book Value $ 32,498
==========
</TABLE>
NOTE 4 - DEBT
- --------------
Following is a summary of all debt held by the Company at January 31, 1999:
<TABLE>
<S> <C>
Bank line of credit (available credit line -
$3,000,000) - without collateral, interest at
the institution's prime rate (8.0% at
January 31, 1999) plus 2.25%, due
June 15, 1999, guaranteed by the stockholders
of Credit Concepts, Inc. $ 2,704,670
-----------
Notes payable to various individuals -
without collateral, maturities to 2004,
with interest from 10% to 12%. 223,772
Notes payable to related party -
without collateral, no maturity with
interest at 12%. 61,500
----------
Total other notes payable 285,272
----------
Subordinated notes payable to stockholders -
without collateral, no stated maturity,
with interest at 12%. 1,056,262
-----------
Total $ 4,046,204
===========
</TABLE>
The subordinated notes payable provide for subordination to any present and
future debt owed by Credit Concepts, Inc. to any bank, insurance company or
other financial institution. Subordinated debt with stockholders and officers
of Credit Concepts, Inc. of $1,056,526 is also subordinated to other notes
payable of $285,272.
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- ----------------------------------------------------------
Cash paid during the period for interest $ 114,664
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
The information provided below is required by FASB Statement No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. These amounts represent
estimates of fair value of financial instruments at a point in time.
Significant estimates using available market information and appropriate
valuation methodologies were used for the purposes of this disclosure. The
estimates are not necessarily indicative of the amounts the company could
realize in a current market exchange, and the use of different market
assumptions or methodologies could have a material effect on the estimated fair
value amounts.
<TABLE>
<CAPTION>
JANUARY 31, 1999
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 46,012 $ 46,012
Finance receivables 4,140,848 4,046,324
Liabilities
Debt 4,046,204 4,046,204
Accounts payable 33,236 33,236
</TABLE>
NOTE 7 - CAPITAL STRUCTURE
- --------------------------
The company originally formed on August 29, 1997, as an Oregon limited
liability company (L.L.C.) and began operations during October 1997. Effective
January 20, 1998, the Company incorporated the operations into the existing
entity via a tax-free incorporation. At December 31, 1997, the three L.L.C.
members had a combined equity of $407,842 which was transferred to the
corporation as follows:
<TABLE>
<S> <C>
Subordinated notes payable to stockholders $ 171,000
300 shares of common stock, no par value 30,000
Additional paid in capital 206,842
----------
$ 407,842
==========
</TABLE>
The stock was subscribed at $500 per share for a total of $150,000. As of
January 31, 1999, the stockholders had paid $30,000 of this amount leaving a
balance owed the Company of $120,000.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
OTHER OPERATING EXPENSES
For the 7 Months Ended July 31, 1998 and
the Period from Inception (October 1, 1997) to December 31, 1997
<CAPTION>
3 Months 6 Months
------------ -------------
<S> <C> <C>
Accounting services $ 12,930 $ 29,871
Advertising 313 528
Amortization 3,956 6,887
Automobile expense 337 362
Bank charges 183 213
Business meetings 380 485
Collection and repossession charges 5,773 9,169
Depreciation 2,927 4,687
Dues and subscriptions 3,039 3,884
Employee benefits 423 572
Insurance 781 942
Legal services 15,326 31,094
Licenses, fees and permits 3,455 3,950
Life insurance 378 586
Meals and entertainment 1,975 3,142
Miscellaneous 1,675 3,056
Office rent 3,808 7,542
Office supplies and expense 4,637 8,864
Telephone 2,552 5,649
Travel 1,386 3,848
----------- ------------
TOTAL OTHER OPERATING EXPENSES $ 66,234 $ 125,331
============ ============
</TABLE>
<PAGE>
SUBSCRIPTION AGREEMENT
Credit Concepts, Inc.
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
Attention: President
1. SUBSCRIPTION. I hereby subscribe to purchase $_________________
(must be multiples of $1,000) principal amount of Short-Term Investment
Certificates and $___________ (must be multiples of $1,000) principal amount of
Long-Term Investment Certificates of Credit Concepts, Inc. ("Company") as
described in the Company's Prospectus dated April __, 1999 (the "Prospectus").
The Short-Term Investment Certificates and the Long-Term Investment
Certificates are sometimes together referred to herein as the "Securities." I
enclose a check or money order for the full amount of the purchase price with
this Subscription Agreement. I understand that this Subscription Agreement
must be accepted by the Company before it becomes binding.
By execution of this Subscription Agreement, I hereby acknowledge
that I understand that the Company is relying upon the accuracy and
completeness of all information I have provided and all representations and
warranties I have made in complying with the Company's obligations under
applicable state securities laws. I further acknowledge and certify that I
have received, read, and am familiar with the Prospectus.
2. LACK OF TRADING MARKET. I acknowledge that there is currently no
trading market in the Securities, and it is unlikely that there will ever be a
public trading market for the Securities, with consequent possible indefinite
illiquidity of the Securities except through redemption by the Company, and I
represent that I have no reason to expect a need for liquidity with respect to
my investment prior to maturity of the Securities that I am purchasing;
3. SUITABILITY STANDARDS, REPRESENTATIONS, AND WARRANTIES. I represent
and warrant that all of the information which I have furnished in this
Subscription Agreement and accompanying Offeree Questionnaire is correct and
complete as of the date of this Subscription Agreement, and will be correct and
complete on the closing of the sale of Securities subscribed for, and that the
representations and warranties and the agreements herein shall survive the
closing date and may be relied upon by the Company in its compliance with state
securities laws.
4. MISCELLANEOUS.
(a) All notices or other communications given or made hereunder
shall be in writing and shall be delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, to the Company at the address
set forth above and to the undersigned at the address set forth on the
signature page hereof.
(b) This Subscription Agreement and accompanying Offeree
Questionnaire constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any prior or contemporaneous
representations, warranties, or agreements (whether oral or written), and may
be amended, modified or waived only by a writing executed by the party to be
bound.
(c) If more than one person is signing this Subscription Agreement,
each representation, warranty and agreement made herein shall be a joint and
several representation, warranty or agreement of each person and entity on
behalf of which this Subscription Agreement is signed.
(d) This Subscription Agreement is severable, so that if any
provision hereof shall be deemed to be unenforceable, it shall be automatically
revised (including, if necessary, deletion of the offending provision) to the
extent, but only to the extent, that it shall then be deemed enforceable, and
any such enforceable revised portion and all other provisions hereof shall
remain in full force and effect.
(e) This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon, with venue laid in Lane
County, Oregon. In the event either party commences or threatens an action
based in any way upon the investment to which this Subscription Agreement
relates, the losing party shall pay all of the costs of the prevailing party
with respect thereto, including the prevailing party's reasonable attorneys
fees.
<PAGE>
OFFEREE QUESTIONNAIRE
(For Individuals)
In order to comply with the requirements of state securities laws,
Securities of Credit Concepts, Inc. (the "Company") may be sold only to persons
meeting the suitability standards established by the Company.
The purpose of this Offeree Questionnaire is to obtain information from
each prospective investor relating to his, her or its ability to bear the
economic risks of the proposed investment and whether or not the investment is
suitable for the investor based upon the investor's financial situation and
investment objectives. Such information is required in order to determine
whether or not the suitability standards set forth herein and in the Prospectus
have been met by the prospective investor.
By signing this Offeree Questionnaire you agree that it may be shown to
such authorized persons as the Company may deem appropriate to establish that
the offer and sale of this investment in the Company will not result in any
violation of state securities laws or regulations.
A separate Offeree Questionnaire must be completed for each co-owner of
Securities. Additional forms are available from the Company.
You make the following representations with the intent that they may be
relied upon by the Company, its officers, employees and agents designated by
the Company.
(Please Print or Type; if more than one subscriber,
please provide additional pages with same entries
completed for each subscriber)
I. BIOGRAPHICAL INFORMATION.
- -----------------------------
A. Name, Address and Birth date:
Name: ___________________________________
(Please print)
Address: ___________________________________
___________________________________
Birth Date: ___________________________________
B. Employer or Business Association and Position:
___________________________________
___________________________________
C. Business Address and Telephone Number:
____________________________________
D. Marital Status: _____ Single _____ Married
E. State of Residence: _________________________
Voter Registration in Same State: _____ Yes _____ No
Resident Income Tax Return (if any)
Filed for Same State in 199_: ____ Yes ____ No ____ (Inapplicable)
F. Additional Information:
Driver's License Number: _____________ State: ______________
G. Please indicate which statements qualify you for an investment in the
Company's securities.
I hereby confirm to you that:
(PLEASE INDICATE WITH YOUR INITIALS WHICH STATEMENT IS APPLICABLE.):
_____ (i) I am a natural person whose individual net worth, or
joint net worth with my spouse, at the time of purchase, exceeds $150,000;
OR:
_____ (ii) I am a natural person who had an individual income or
joint income together with my spouse of in excess of $75,000 during the most
recent year and my individual net worth, or joint net worth with my spouse, at
the time of purchase, exceeds $75,000;
IN ADDITION, I hereby confirm to you that (PLEASE INDICATE WITH YOUR
INITIALS):
_____ The total amount of my investment in Securities of the
Company, both those being purchased now and those purchased previously that are
still outstanding, does not exceed 10% of my individual net worth, or joint net
worth with my spouse, at the time of the present purchase.
In calculating "net worth" as required above, the value of home, home
furnishings and personal automobiles is excluded, and all assets are valued at
fair market value.
I represent and warrant to the Company that (PLEASE DESIGNATE WITH
YOUR INITIALS, AS APPLICABLE):
_____ Either my spouse or I am presently employed full-time.
_____ My spouse and I are retired and live off our savings.
_____ I handle my own financial affairs.
_____ I have advised others in handling their financial affairs.
_____ I have made other investments, including those in the
securities of other companies, based upon my own personal assessment of their
prospects and worth.
_____ I have previously made illiquid investments, including one or
more of the following: real estate, stock in a family or other closely-held
corporation, limited partnership interests, limited liability company
interests, or investment-grade artwork, antiques or collectables.
_____ I have assumed a management role in at least one business with
which I have been associated.
_____ I have previously engaged in speculative investments, including
one or more of the following: speculative stocks, options, commodities futures
or similar risky investments.
_____ I have a degree in business administration or have taken
business courses in accounting, investments and management.
_____ I have made use of the following professional advisor to advise
me in the present investment: __________________________________
II. SUBSCRIPTION INFORMATION.
-------------------------
Amount of Short-Term Investment Certificates
Subscribed For: $ _______________
Amount of Long-Term Investment Certificates
Subscribed For: $ _______________
Total Purchase Price of Investment Certificates
Subscribed For: $________________
Method of Payment: $________ Check; $__________ Money Order
Make Checks payable to "CREDIT CONCEPTS, INC." and mail payment with
a completed and executed Subscription Agreement to:
CREDIT CONCEPTS, INC.
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
Manner in which title is to be held:
_______ Community property (one signature).
_______ Individual ownership.
_______ Joint tenancy (both sign).
_______ Tenancy-in-common (all sign).
_______ Corporation
_______ Partnership
_______ Trust
_______ Other (Please indicate) ______________________
<PAGE>
SIGNATURE PAGE
(For Individuals)
TO BE COMPLETED AND SIGNED BY ALL INDIVIDUAL INVESTORS
This page constitutes the Signature Page for INDIVIDUALS for the following
documents: (a) Subscription Agreement and (b) Offeree Questionnaire.
Execution of this Signature Page constitutes execution of such documents.
IN WITNESS WHEREOF, the undersigned has executed the Subscription
Agreement and the Offeree Questionnaire this _____ day of ___________,
199__.
- ------------------------------ -----------------------------
Signature of Individual Signature of Spouse (or
Joint Purchaser, if any)
- ------------------------------ ------------------------------
Print Name of Individual Print Name of Spouse (or
Joint Purchaser, if any)
- ------------------------------ ------------------------------
Social Security Number Social Security Number
- ------------------------------ ------------------------------
Legal Residence Address of Legal Residence Address of
Individual (Do not use P.O. Joint Purchaser, if any, (Do
Joint Purchaser, if any, not use P.O. Box) (If different
from address of other joint
purchaser)
- ------------------------------ ------------------------------
City City
- ------------------------------ ------------------------------
State Zip Code State Zip Code
FOR COMPANY USE ONLY:
SUBSCRIPTION ACCEPTED: CREDIT CONCEPTS, INC.
- ---------------------------, 199-- By------------------------------
Its-----------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Oregon Business Corporation Act (Or. Rev. Stat. Section 60.047(2)(3)
and Sections 60.387 to 60.414) authorizes a corporation, through its articles
of incorporation and bylaws, to limit the liability of directors and to grant
indemnity to directors, officers, employees or agents for actions taken with
respect to the corporation in their respective capacities as directors,
officers, employees or agents. Indemnification for such liabilities may be
provided to an officer, director, employee or agent based upon the
determination by a vote of the disinterested Board of Directors, a vote by a
special committee of the Board of Directors, by the determination of a special
legal counsel or by a vote of the shareholders that the director, officer,
employee or agent may properly be indemnified under the statute. Except as set
forth below, this includes liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article VI of the Company's Articles of Incorporation (Exhibit 3(a)
hereto) limits a director's liability to the Company or its shareholders for
monetary damages arising out of his or her conduct as a director, except in
certain circumstances involving breach of the director's duty of loyalty to the
Company or its shareholders, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of the law, any unlawful
distribution under ORS 60.367, or any unlawful distribution or any transaction
in which the director derived an improper personal benefit. Article V of the
Company's Bylaws (Exhibit 3(b) hereto) provide for indemnification of the
Company's directors in cases in which the director successfully defends the
action and in certain other circumstances in which the director acts in good
faith, believes the conduct to be in the corporation's best interest or not
opposed to it, and (for alleged criminal conduct) has no reasonable cause to
believe the conduct to have been unlawful, except for acts for which the
director is ultimately adjudged liable to the corporation. The Company may
also advance litigation expenses to directors, officers, agents and employees
under certain circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the non-accountable expense
allowance payable by the Company in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated except the SEC Registration Fee.
<TABLE>
<S> <C>
SEC Registration Fee $ 2,780
Blue Sky Fees and Expenses $ 500
Printing and Engraving Expenses $ 10,000
Legal Fees and Expenses $ 60,000
Accounting Fees and Expenses $ 25,000
Miscellaneous Expenses $ 1,720
-----------
Total $100,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In connection with the founding of the Company in August, 1997, Tom
W. Palmer, Eugene C. Albert and Ted W. Palmer, currently the Company's
President and a Director, the Company's Vice-President and a Director and a
Company Director, respectively, were issued all of the equity interests in
Credit Concepts, L.L.C., the Company's predecessor, in reliance upon Section
4(2) of the Securities Act.
(b) On October 15, 1997, the Company sold a $50,000 promissory note
bearing interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company,
in reliance upon Section 4(2) of the Securities Act.
(c) On October 16, 1997, the Company sold a $5,000 promissory note
bearing interest at 12% PER ANNUM to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, in reliance upon Section 4(2) of the
Securities Act.
(d) On November 15, 1997, the Company sold a $30,000 promissory note
bearing interest at 12% PER ANNUM to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, and a $100,000 promissory note bearing
interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act.
(e) On November 18, 1997, the Company sold a $116,000 promissory note
without interest to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(f) On December 10, 1997, the Company sold a $150,000 promissory note
bearing interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company,
in reliance upon Section 4(2) of the Securities Act.
(g) On January 15, 1998, the Company sold a $40,000 promissory note
bearing interest at 12% PER ANNUM to Kimberly M. Coleman, the General Manager
of the Company, and her husband in reliance upon Section 4(2) of the Securities
Act.
(h) On January 20, 1998, Tom W. Palmer, Eugene C. Albert and Ted W.
Palmer Trust each purchased 100 shares of capital stock of Credit Concepts,
Inc. for $50,000 in reliance upon Section 4(2) of the Securities Act.
(i) On February 24, 1998, the Company sold a $30,000 promissory note
bearing interest at 12% PER ANNUM to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, in reliance upon Section 4(2) of the
Securities Act.
(j) On March 9, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% PER ANNUM to Eugene C. Albert, the Vice-President, Secretary
and a Director of the Company, and a $15,000 promissory note bearing interest
at 13% PER ANNUM to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(k) On March 16, 1998, the Company sold two $50,000 promissory notes,
each bearing interest at 12% PER ANNUM, to Ted W. Palmer, a Director of the
Company, in reliance upon Section 4(2) of the Securities Act.
(l) On March 25, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% PER ANNUM to Kimberly M. Coleman, the General Manager of the
Company, and her husband in reliance upon Section 4(2) of the Securities Act.
(m) On March 26, 1998, the Company sold a $3,000 promissory note bearing
interest at 12% PER ANNUM to Eugene C. Albert, the Vice-President, Secretary
and a Director of the Company, and a $7,000 promissory note bearing interest at
12% PER ANNUM to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(n) On April 1, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% PER ANNUM to Kimberly M. Coleman, the General Manager of the
Company, and her husband in reliance upon Section 4(2) of the Securities Act.
On the same date, the Company sold a $50,000 promissory note bearing interest
at 12% PER ANNUM to M. Jacobs Fine Furniture Profit Sharing Plan, the
"accredited" owner and operator of which furniture store is the trustee under
the Plan. Members of the Company's management had an existing personal and
business relationship with the owner-operator of this furniture store, and the
transaction was made in reliance upon Section 4(2) of the Securities Act.
(o) On April 8, 1998, the Company sold a $40,000 promissory note bearing
interest at 12% PER ANNUM to Amvesco, Inc. dba Western Pioneer Title Co. of
Lane County, with whom members of the Company's management had an existing
personal and business relationship, in reliance upon Section 4(2) of the
Securities Act.
(p) On April 15, 1998, the Company sold a $60,000 promissory note bearing
interest at 12% PER ANNUM to Bjarnie & Elsie Abrahamson, "accredited" persons
with whom members of the Company's management had an existing personal and
business relationship, in reliance upon Section 4(2) of the Securities Act.
(q) On May 4, 1998, the Company sold a $100,000 promissory note bearing
interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act.
(s) On May 18, 1998, the Company sold a $32,000 promissory note bearing
interest at 12% PER ANNUM to Melvin S. Martinson and Leorne E. Martinson,
"accredited" persons with whom members of the Company's management had an
existing personal and business relationship, in reliance upon Section 4(2) of
the Securities Act.
(t) On May 28, 1998, the Company sold a $25,000 promissory note bearing
interest at 12% PER ANNUM to William and Debra Cox, "accredited" persons with
whom members of the Company's management had an existing personal and business
relationship, in reliance upon Section 4(2) of the Securities Act.
(u) On June 18, 1998, the Company sold a $4,500 promissory note bearing
interest at 12% PER ANNUM to Tom W. Palmer, the President and a Director of the
Company, and his wife in reliance upon Section 4(2) of the Securities Act.
(v) On June 25, 1998, the Company sold a $100,000 promissory note bearing
interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act. On the same date, the
Company sold a $70,000 promissory note bearing interest at 12% PER ANNUM to
Amvesco, Inc. dba Western Pioneer Title Co. of Lane County, with whom members
of the Company's management had an existing personal and business relationship,
in reliance upon Section 4(2) of the Securities Act.
(w) On June 30, 1998, the Company sold a $15,500 promissory note bearing
interest at 12% PER ANNUM to Tom W. Palmer, the President and a Director of the
Company, and his wife in reliance upon Section 4(2) of the Securities Act.
(x) On July 14, 1998, the Company sold a $10,000 promissory note bearing
interest at 10% PER ANNUM to Stanley B. Woods and Jo Ellen Woods, "accredited"
persons with whom members of the Company's management had an existing personal
and business relationship, in reliance upon Section 4(2) of the Securities Act.
(y) On July 27, 1998, the Company sold a $450,000 promissory note bearing
interest at 12% PER ANNUM to Ted W. Palmer, a Director of the Company, Tom W.
Palmer, the President and a Director of the Company, and Eugene C. Albert, the
Vice-President, Secretary and a Director of the Company, in reliance upon
Section 4(2) of the Securities Act.
The registrant is relying upon Rule 152 of the Securities Act to preclude
the integration of present offering with the offer and sale of the above equity
interests, shares and promissory notes in connection with registrant's reliance
upon Section 4(2) in the offer and sale of the above equity interests, shares
and promissory notes.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
- -----------------------------------------------------
NUMBER DESCRIPTION
- ------ -----------
3(a) Articles of Incorporation
3(b) By-Laws
4(a) Specimen Short-Term Investment Certificate
4(b) Specimen Long-Term Investment Certificate
5(a) Opinion of Karr Tuttle Campbell
10(a) Form of Master Dealer Agreement with automobile dealers,
including Amendment to Master Dealer Agreement
10(b) Form of Contract purchased from automobile dealers
10(c) Bill of Sale and Assumption of Liabilities dated January 20,
1998 with Albert Credit, LLC
10(d) Loan Agreement dated April 6, 1998 with Pacific Continental
Bank, and Amendment to Loan Agreement dated November 4, 1998
10(e) Promissory Note in favor of Pacific Continental Bank dated
April 6, 1998
10(f) Commercial Guaranty by Thomas W. Palmer dated April 6, 1998
10(g) Commercial Guaranty by Eugene C. Albert dated April 6, 1998
10(h) Commercial Guaranty by Ted W. Palmer dated April 6, 1998
10(i) Commercial Security Agreement dated April 6, 1998 with
Pacific Continental Bank
10(j) Commercial Security Agreement dated April 6, 1998 with Pacific
Continental Bank, including as collateral Thomas W. Palmer's
life insurance policy
10(k) Commercial Security Agreement dated April 6, 1998 with Pacific
Continental Bank, including as collateral Eugene C. Albert's
life insurance policy
10(l) Agreement to Provide Insurance dated April 6, 1998 with Pacific
Continental Bank
10(m) Assignment of Life Insurance Policy as Collateral dated
March 10, 1998 with Pacific Continental Bank for
Thomas W. Palmer's life insurance policy
10(n) Assignment of Life Insurance Policy as Collateral dated
March 10, 1998 with Pacific Continental Bank for Eugene C.
Albert's life insurance policy
10(o) Employment Agreement dated September 24, 1997 with
Kimberly M. Coleman
10(p) Buy-Sell Agreement dated January 20, 1998 between Ted W.
Palmer, Thomas W. Palmer and Eugene C. Albert
10(q) Lease Agreement dated October 14, 1997 with Keypac Leasing,
including Limited Guaranty
10(r) Form of Promissory Note evidencing loans from private investors
10(s) Master Dealer Agreement dated October 23, 1997 with Hutchins
Imported Motors, Inc. (now known as "Lithia Toyota of
Springfield")
10(t) Master Dealer Agreement dated November 11, 1997 with Hutchins
Eugene Nissan, Inc. (now known as "Lithia Nissan of Eugene")
10(u) Master Dealer Agreement dated February 4, 1998 with JKL
Automotive, Inc. d/b/a Kieffer's Eugene Mazda
10(v) Master Dealer Agreement dated November 28, 1997 with Kendall
Ford Inc.
10(w) Master Dealer Agreement dated December 15, 1997 with
Guaranty Chev Pont Olds Co. Inc.
10(x) Forbearance Agreement dated March 23, 1999 by Thomas W. Palmer
10(y) Forbearance Agreement dated March 24, 1999 by Eugene C. Albert
10(z) Forbearance Agreement dated March 24, 1999 by Ted W. Palmer
23(a) Consent dated August 19, 1998 of Yergen and Meyer LLP
23(b) Consent dated March 23, 1999 of Yergen and Meyer LLP
23(c) Consent dated April 28, 1999 of Yergen and Meyer LLP *
- Consent of Karr Tuttle Campbell **
24(a) Power of Attorney by signers of registration statement***
27 Financial Data Schedule
- --------------------------------------
* Filed herewith.
** Included as part of Exhibit 5(a), Opinion of Karr Tuttle Campbell.
*** Set forth on signature page of registration statement.
Item 28. Undertakings.
- -----------------------
(a) INDEMNIFICATION FOR LIABILITIES.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(b) RULE 430A UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(i) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time declared effective.
(ii) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amendment
to registration statement to be signed on its behalf by the undersigned in the
city of Eugene, state of Oregon, on April 28, 1999.
Credit Concepts, Inc.
(Registrant)
By: /s/ Tom W. Palmer
------------------------
(Tom W. Palmer) President
(Signature and Title)
/s/ Tom W. Palmer President and Director April 28, 1999
- --------------------- (Title) ---------------
(Tom W. Palmer) (Date)
Eugene C. Albert Vice-President, April 28, 1999
Secretary and Director ---------------
By: /s/ Tom W. Palmer (Title) (Date)
-----------------
(Tom W. Palmer*)
Ted W. Palmer Director April 28, 1999
(Title) ---------------
By: /s/ Tom W. Palmer (Date)
-----------------
(Tom W. Palmer*)
- ---------------------
* Pursuant to Power of Attorney dated November 5, 1998 accompanying the
signature page of the registration statement as initially filed.
<PAGE>
EXHIBIT 23(c)
We hereby consent to the reference under the captions "Financial Information,"
"Selected Financial Data" and "Experts" and to the use of our report dated
August 19, 1998, on the financial statements and supplementary information of
Credit Concepts, Inc. in the Registration Statement on Form SB-2 (File No. 333-
66853) and related prospectus of Credit Concepts, Inc. for the registration and
sale of its investment certificates.
/s/ Yergen and Meyer, LLP
Portland, Oregon
April 28, 1999
