<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 333-66853
CREDIT CONCEPTS, INC.
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(Exact name of small business issuer as specified in its charter)
Oregon 91-1236587
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401
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(Address of principal executive offices)
(541) 342-8545
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of October 31, 2000, 300 shares of common stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets at October 31, 2000 (unaudited) and July 31, 2000
Statements of Income for the Three Months Ended October 31, 2000
and 1999 (unaudited)
Statements of Cash Flows for the Three Months Ended October 31,
2000 and 1999 (unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
October 31 July 31
2000 2000
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(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 79,350 $ 94,357
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Finance receivables:
Purchased loans 3,948,755 3,886,937
Direct loans 869,774 768,450
Net deferred loan organization costs 18,492 24,349
Allowance for credit losses (370,174) (371,000)
Discounts on loans purchased (32,294) (23,095)
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4,434,553 4,285,641
Interest receivable 88,748 75,802
Equipment and leasehold improvements, net 31,913 30,455
Other assets 32,941 24,133
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Total assets $4,667,505 $4,510,388
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt:
Bank line of credit $3,051,952 $3,000,000
Subordinated notes payable to stockholders 786,745 821,848
Investment certificates 432,000 332,000
Notes payable 161,000 161,000
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Total debt 4,431,697 4,314,848
Interest payable 56,438 35,545
Accounts payable and accrued expenses 24,062 28,903
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Total liabilities 4,512,197 4,379,296
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STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000 shares
authorized, 300 issued and outstanding 150,000 150,000
Stock subscription receivable (60,000) (60,000)
Additional paid-in-capital 58,903 91,029
Retained earnings (deficit) 6,405 (49,937)
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Total stockholders' equity 155,308 131,092
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Total liabilities and stockholders' equity $4,667,505 $4,510,388
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See accountant's review report and accompanying note.
</TABLE>
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<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF INCOME
<CAPTION>
Three Months
Ended October 31
(Unaudited)
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2000 1999
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<S> <C> <C>
REVENUES
Interest on contracts $ 369,330 $ 310,751
Other income 15,864 6,707
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Total revenues 385,194 317,458
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EXPENSES
Interest 148,415 118,107
Salaries and benefits 75,684 60,686
Provision for credit losses 50,400 49,127
Other operating expenses 54,353 61,525
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Total expenses 328,852 289,445
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NET INCOME $ 56,342 $ 28,013
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See accountant's review report and accompanying note.
</TABLE>
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<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
OCTOBER 31, 2000
<CAPTION>
Stock Additional
Common Subscription Paid-in Retained
Stock Receivable Capital Earnings Total
--------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1998 $150,000 $(120,000) $206,842 $(65,572) $171,270
Payments received - 60,000 - - 60,000
Net income - - - 68,990 68,990
--------- --------- --------- --------- ---------
BALANCE, July 31, 1999 150,000 (60,000) 206,842 3,418 300,260
Distribution of Contributed
Capital - - (115,813) - (115,813)
Net income (loss) - - - (53,355) (53,355)
--------- --------- --------- --------- ---------
BALANCE, July 31, 2000 150,000 (60,000) 91,029 (49,937) 131,092
Distribution of Contributed
Capital - - (32,126) - (32,126)
Net income - - - 56,342 6,342
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BALANCE, October 31, 2000 $150,000 $(60,000) $ 58,903 $ 6,405 $155,308
========= ========= ========= ========= =========
See accountant's review report and accompanying note.
</TABLE>
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<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months
Ended October 31
(Unaudited)
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2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
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Net income $ 56,342 $ 28,013
Adjustments to reconcile net income to net cash
from operating activities:
Provision for credit losses 50,400 49,127
Depreciation 2,200 8,183
Changes in assets and liabilities:
Interest receivable (12,946) (3,823)
Other assets (8,808) 518
Interest payable 20,893 -
Accounts payable and accrued expenses (4,841) 3,641
Deferred income 2,000
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Net cash from operating activities 103,240 87,659
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CASH FLOWS FROM INVESTING ACTIVITIES
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Loans and contracts originated or purchased (1,069,333) (602,837)
Loans and contracts repaid 889,241 560,180
Additions to equipment (3,658) (4,125)
Recoveries on finance receivables
previously charged off (19,220) 68,837
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Net cash from investing activities (202,970) 22,055
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net borrowings on line of credit 51,952 (47,555)
Proceeds from notes payable to stockholders 12,000 -
Repayment of notes payable to stockholders (47,103) (89,104)
Proceeds from issuance of investment certificates 100,000 35,000
Stockholder distributions (32,126) -
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Net cash from financing activities 84,723 (101,659)
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NET INCREASE (DECREASE) IN CASH (15,007) 8,055
CASH, beginning of period 94,357 81,904
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CASH, end of period $ 79,350 $ 89,959
============ ============
See accountant's review report and accompanying note.
</TABLE>
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CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The financial information included in this interim report has been prepared by
management and reviewed by independent public accountants. The Company's
annual report contains audited financial statements, and all adjustments
including normal recurring accruals necessary for fair presentation of results
of operations for the interim periods included herein have been made. The
results of operations for the three and nine months ended April 30, 2000 are
not necessarily indicative of results to be anticipated for the year ending
July 31, 2000.
Certain reclassifications have been made to prior period financial statements
to conform with current period presentation. Such reclassifications had no
effect on previously reported stockholders equity or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
For the three months ended October 31, 2000, Credit Concepts has
generated $385,194 of revenues and $56,342 of net operating profit. At October
31, 2000 Credit Concepts had approximately $79,350 in cash, $4,434,553 in net
finance receivables (after deducting an allowance for credit losses of $370,174
and unearned discounts on contracts of $32,294 and adding capitalized loan
origination costs of $18,492), approximately $4,431,697 of indebtedness of all
types and a shareholders' equity of approximately $155,308.
PLAN OF OPERATION.
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Credit Concepts expects to be able to sell all or a substantial portion
of the $5,000,000 of investment certificates 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. As of October 31, 2000, Credit Concepts has
sold $432,000 worth of two and four-year certificates.
Over the next twelve months, it is the goal of management to increase
the loan portfolio by 20-25%. This increase will be primarily obtained through
the purchase of retail installment contracts from automobile dealers.
Credit Concepts' business is not seasonal in nature. Its fiscal year
ends July 31.
UNCERTAINTY OF INTERNAL BUDGETS AND FORWARD-LOOKING INFORMATION.
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Although Credit Concepts has prepared its internal budgets and its other
forward-looking information 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 THREE MONTHS ENDED OCTOBER 31, 2000.
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Credit Concepts generated $385,194 of revenue for the three months ended
October 31, 2000, an increase of $67,736 from $317,458 at October 31, 1999.
This increase in revenues is attributed to the increase in finance receivables.
Net operating profits during the three months ended October 31, 2000 were
$56,342 as compared to net income of $28,013 for the three months ended October
31, 1999. At October 31, 2000 Credit Concepts had approximately $79,350 in
cash, $4,434,553 in net finance receivables (after deducting an allowance for
credit losses of $370,174 and unearned discounts on contracts of $32,294 and
adding capitalized loan origination costs of $18,492), approximately $4,431,697
of indebtedness of all types and a shareholders' equity of approximately
$155,308.
Credit Concepts purchased or originated $1,069,333 of contracts and
loans during the three-month period ending October 31, 2000, which accounted
for 22.2% of total finance receivables outstanding during the period.
Contracts and loans receivable increased by $163,142 to $4,818,529 at October
31, 2000 from $4,655,387 at July 31, 2000. Net profit during the period
increased by $28,329 to $56,342 compared to $28,013 at October 31, 2000.
Interest expense of $148,415 constituted 45.1% of the total expenses,
and salaries of $75,684 constituted 23.0%. The increase in interest expense is
a result of an increase in the outstanding balance on the bank credit lines.
Salaries and benefits increased by $14,998 for the period reflecting the
increased costs of management. The provision for credit losses was decreased
by $826 to $370,174 from $371,000 at July 31, 2000. Net cash flows for the
period decreased by $15,007, with operating activities generating a positive
cash flow of $103,240.
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 $947,745 remained outstanding at October 31,
2000.
On August 23, 2000 Credit Concepts obtained a new credit facility with
Summit Commercial, a division of Summit Bank, that establishes a $5,000,000
line-of-credit for a three year term 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 80% of eligible
contract and loan accounts and is obligated, among other things, to maintain a
tangible net worth (including tangible assets and subordinated debt) of not
less than $1,500,000, personal guarantees of the loan of $5,000,000 by Tom W.
Palmer and Eugene C. Albert, and compliance with the terms and conditions of
all other agreements to which it is a party. At October 31, 2000 Credit
Concepts had outstanding secured bank indebtedness of $3,051,952 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, 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 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
three months ended October 31, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit 15 Accountant's Review Report, from Moss Adams, LLP
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CREDIT CONCEPTS, INC.
Date: December 15, 2000 By: /s/ Tom W. Palmer
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Tom W. Palmer, President
