<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
---------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended July 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 333-66853
CREDIT CONCEPTS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
-----------------------
Oregon 93-1236587
-------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2149 Centennial Plaza, Suite 2, Eugene, OR 97401
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (541) 342-8545
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on
which registered
------------------------------------- ------------------------------------
------------------------------------- ------------------------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
------------------------------------------------------------------------------
(Title of Class)
------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 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 [X]
No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $1,273,478
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.): NONE OF CREDIT CONCEPTS'
COMMON EQUITY IS HELD BY NON-AFFILIATES.
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
-----------------------------------------------------------------------
Check whether the issuer has 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 [ ] INAPPLICABLE
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
-----------------------------------------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 300 SHARES OF COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
Transitional Small Business Disclosure Form (Check one): Yes [ ] No [X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
----------------------------------
Credit Concepts, Inc. (the Company) is primarily in the business of
purchasing retail installment contracts that have been originated by automobile
dealers in connection with their financing of new and used automobiles. The
Company has also been issued a consumer finance license by the Oregon
Department of Consumer and Business Services, which allows it to make loans
directly to the purchasers of used vehicles. The Company's operations consist
primarily of evaluating which contracts to purchase, negotiating the terms of
purchase, arranging for its financing of the purchase, and servicing of the
contracts and loans in its portfolio. Upon the origination of a loan or
purchase of a contract, we obtain the right to receive all remaining payments
under the contract or loan and a security interest in the vehicle financed.
The Company seeks to collect the principal and interest due on contracts that
it purchases. We do not acquire contracts in bulk but acquire 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
approximately match the maturities of its investment certificates with contract
payment schedules in order to reduce the financial risks associated with
unforeseen declines in interest rates. The Company expects to continue to
develop and maintain its portfolio of finance receivables through the purchase
of contracts from dealers and the origination of direct loans.
AUTOMOBILE FINANCE BUSINESS
---------------------------
Through a referral network of automobile dealers, Credit Concepts is
engaged in the business of providing financing programs to buyers of new and
used cars and trucks who meet the Company's lending requirements, but who do
not meet the lending requirements of traditional lenders, such as banks or
credit unions. These requirements include such matters as the age of the
vehicle being financed and/or the customer's credit history. In contrast to
traditional lenders that focus primarily on the customers credit history, the
Company will acquire installment contracts for customers who have experienced
credit difficulty and/or are buying an older model vehicle. Our management
uses several factors to evaluate each applicant's installment contract
including: length of time at current and past employment, debt to income
ratios, past credit history with installment obligations, value and type of
vehicle financed and the terms of the contract being purchased. The Company
purchases contracts primarily in Lane County, Oregon, and to a lesser extent in
surrounding counties including Linn, Benton, Douglas, Marion and Polk. For the
period beginning August 1, 1999 to July 31, 2000, the Company purchased a total
of 579 retail installment contracts for an initial aggregate amount of
$2,940,288. The average initial principal amount was $5,078 with an average
term of 37 months.
Credit Concepts purchases contracts from automobile dealers that have
agreed to the terms and conditions set forth in the Dealer Agreement provided
by the Company. The Company will purchase a dealer contract after negotiating
the price and terms on an individual basis. Other stipulations apply to the
borrower such as obtaining full coverage insurance naming Credit Concepts as
the loss payee, proof of income and employment and verification of residence.
The dealer is funded only after these conditions have been met and the original
contract and related document are received. Title to the vehicle is held as
collateral for the entire term of the contract. Although most of the contracts
in the Company's loan portfolio have been acquired without recourse, the dealer
remains liable to Credit Concepts for liabilities arising from certain
representations and warranties made by the dealer with respect to compliance
with applicable federal and state laws and valid transfer of title to the
vehicle. As of July 31, 2000 and 1999, loans purchased from dealers accounted
for $3,886,937 (83.5%) and $3,807,582 (88.6%) of total finance receivables,
respectively.
DIRECT CONSUMER LOANS
---------------------
The Company is licensed by the Department of Consumer and Business
Services to make direct loans to consumers. We offer loans primarily to
borrowers that are current and/or past customers. The Company uses the same
lending criteria for evaluating a borrower for a direct loan as it does for the
purchase of a contract. In addition, the Company has the opportunity to
conduct a personal interview with the borrower and inspect underlying
collateral. The Company offers other products including extended service
contracts, credit life insurance and credit disability insurance. As the
customer base grows, it is the goal of the Company to increase the volume of
the direct loan portion of the portfolio. This will result in an increase of
ancillary income from insurance and extended service contracts.
For the period August 1, 1999 to July 31, 2000, Credit Concepts made 158
direct consumer loans for an aggregate principal amount of $659,504. As of
July 31, 2000 and 1999, direct loans accounted for $786,450 (16.9%) and
$489,597 (11.4%) of total finance receivables, respectively.
ECONOMY OF LANE COUNTY, OREGON
------------------------------
The availability and credit-worthiness of underlying borrowers on the
Company's 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 76% of our 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 the region has been impacted from the location of
various technology companies in the area. 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, in 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, we believe 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> <S> <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>
NUMBER OF
YEAR VEHICLE LICENSES
---- ----------------
<S> <C> <C>
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
1998 276,031
1999 282,815
</TABLE>
MARKETING
---------
Credit Concepts relies primarily upon used automobile dealers in the Lane
County, Oregon area to originate and acquire contracts for the Company. In
connection with its ongoing purchase of contracts, the Company has entered into
Master Dealer Agreements with forty-one automobile dealers that sell used
automobiles to borrowers primarily in Lane County and to lesser extent dealers
that sell used automobiles to borrowers located in the neighboring counties of
Linn, Marion, Benton, Douglas and Polk. These dealers also sell contracts to
certain of the Company's competitors.
The Company has been able to purchase an adequate supply of contracts from
dealers that sell to borrowers in Lane County and neighboring counties and
expects to be able to continue to do so for the foreseeable future. During the
twelve months ended July 31, 2000, we have purchased 21% in value of our
vehicle contracts from AA Auto Sales, 16% in value from Larry Lassen Chevrolet,
and 10% in value from Romania Enterprises. We expect purchases of contracts
outside of Lane County will increase in the future as we pursue our goal of
diversifying the geographic concentration of the portfolio by purchasing
contracts from a larger number of dealers.
Under the Master Dealer Agreements, a contract may be purchased with full
or partial guarantees of the dealers. Before entering into a Master Dealer
Agreement with a used automobile dealer, we investigate the ability of the
dealer to perform on its guarantees and obligations to repurchase contracts in
the event of default on the contracts by the underlying borrowers.
Approximately 6.6% of the dollar value of contracts outstanding on July 31,
2000 were covered by full or partial guarantees by the used automobile dealers
supplying contracts to the Company.
VEHICLE INSTALLMENT CONTRACTS
-----------------------------
The majority of Credit Concepts' finance receivables consist of vehicle
installment contracts purchased from used automobile dealers. The form of the
installment contract is standardized, and one widely used within the automobile
industry. The price that the Company 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 provide a return to the
Company. Under 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' personnel review the credit record of the underlying
borrower for each contract that it purchases and, based upon that review, make
the decision whether or not to purchase the contract. The Company purchases
contracts individually after such a credit review and as a matter of policy
does not purchase contracts in bulk. The Company considers a number of factors
in determining the credit-worthiness of the underlying borrowers of the
contracts it purchases. We generally limit contract purchases to those
borrowers that work or reside within seventy miles of the Company's office. In
this regard, a significant number of the borrowers under our contracts make
their contract payments by personal visit to the Company's offices in Eugene,
Oregon. Close proximity to dealers and borrowers allows employees to inspect
vehicles before a contract is purchased and assists in repossession upon a
default, should either be necessary or desirable. We do not buy contracts on
vehicles owned by persons who are not both employed and have a permanent
residence in and around Lane County or other locales we serve.
Certain information for finance receivables as of July 31, 2000, and July
31, 1999, is shown below:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Number of Contracts 1,272 1,234
Net Finance Receivables Outstanding $4,285,641 $4,002,910
Average Annual Percentage Rate (APR) of Interest 30.5% 30.9%
Average Contract Balance $3,630 $5,213
Average Term of Contract 37 months 37 months
Average Age of Contract 12 months 11 months
Average Payment per Month $200 $217
</TABLE>
The Company purchases contracts for a large variety of borrowers and
vehicles. The largest, smallest and average contracts purchased during the six
months ended January 31, 2000 were $18,995, $930 and $4,626, respectively. The
largest, smallest and average contracts purchased during the six months ended
July 31, 2000 were $16,895, $900 and $4,379 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 sufficient
operating experience to confirm the adequacy of its provisions for credit
losses for contracts reflected on the Company's financial statements. As of
July 31, 2000 and 1999, , the Company had established a provision for credit
losses at a level that is consistent with industry standards for this type of
lending.
At July 31, 2000, total balances owing on finance receivables past due
from 60 to 89 days was $114,686, or 2.5% of total finance receivables, and
finance receivables past due 90 days and over was $102,560, or 2.2% of total
finance receivables. At July 31, 1999, the total balance owing on finance
receivables past due from 60 to 89 days was $87,601, or 2.0% of total finance
receivables, and on finance receivables past due 90 days and over was $99,537,
or 2.3% of total finance receivables.
A contract receivable is considered past due if any portion of any
installment is or remains 30 or more days delinquent. The Company stops
accruing interest on a past due loan 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 principal and interest becomes doubtful.
Credit Concepts itself does not repossess collateral, 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
provisions of the collateral agreement, the Company pursues any deficiencies to
a judgment against the borrower and seeks to collect 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
the Company to repossess and resell vehicles, or to enforce a deficiency
judgment against a borrower. 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 the Company's right to collect the contract balance in
situations where we do not obtain possession of the vehicle or to collect
damages where the vehicle has been wrongfully damaged. It is the policy of the
Company to aggressively pursue collection of any deficiencies from borrowers.
In addition, the Company may determine 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 vehicles as
collateral for the contracts it originates on purchases, Oregon state law
provides for the priority over the Company's 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 loans. Those laws may result in the loss of our priority security interest
in confiscated property or in additional expenses in recovering confiscated
property that serves as collateral for our loans. To date, none of the
vehicles serving as collateral for the Company's loans has been confiscated.
The Company's credit loss experience for the twelve months ended July 31,
2000 and the twelve months ended July 31, 1999 is as follows:
<TABLE>
CREDIT LOSS EXPERIENCE
----------------------
<CAPTION>
Additions
Reserve at to reserve Charge Reserve
Year beginning charged to off net of at end
Ending of year operations recoveries of year
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
July 31, 1999 $191,000 $336,558 $201,558 $326,000
(5.9%)(1) (2.4%)(2) (7.6%)(3)
July 31, 2000 $326,000 $253,852 $208,852 $371,000
(7.1%)(1) (4.4%)(2) (7.9%)(3)
-------------------------
(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 acquiring finance contracts
from automobile dealers as vehicles are sold to qualified borrowers. To date
the Company has relied primarily upon bank borrowings and the purchase of debt
and equity by its founders and others for this purpose. However, the Company
has begun to reach the limits of its presently available bank credit and, like
certain of its competitors, is now seeking to finance a portion of its
contracts through the public offer and sale of unsecured investment
certificates. The Company intends to finance a portion of its loans in this
manner for the indefinite future.
In August of 2000, the Company received final approval for a new $5
million credit line with Summit Commercial of Morrisville, Pennsylvania.
Summit Commercial is a division of Summit Bank, headquartered in Princeton, New
Jersey. The terms of the agreement are similar to the current bank credit line
with Pacific Continental Bank. The Company's 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 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 certificates and
the purchase of contracts with the proceeds will increase the assets of the
Company available as collateral for its bank line-of-credit and is expected to
allow the Company to increase the size of our bank line-of-credit should we
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 the Company's indebtedness of all types, including
bank indebtedness and the sale and issuance of investment certificates.
In 1999, Credit Concepts amended its investment certificates to pay
interest at a rate that is more competitive and to apply the proceeds to pay
down the balance on its existing line of credit. 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 the Company's borrowing ability.
COMPETITION
-----------
Credit Concepts consumer credit business is highly competitive with other
consumer credit businesses in and around Lane County, Oregon. Most of the
Company's competitors are more established, larger and have greater resources
than does the Company. In addition to companies that engage in the consumer
credit business in and around Lane County, Oregon, many banks, financial
institutions and other types of finance companies in the Company's market area
originate and purchase used vehicle contracts and offer consumers debt
investment instruments in competition with the Company. 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 our market area may decrease the return
from such contracts to the Company.
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 the Company's loans, and retail installment
contracts. Some laws and regulations with which the Company 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, the Company must continue to maintain its consumer finance
license from the state of Oregon in good standing.
The Company believes it currently holds all material licenses necessary to
carry on its business as presently conducted in the state of Oregon. Any
failure of the Company to maintain its licenses should not affect the quality
of its then existing portfolio of contracts.
EMPLOYEES
---------
Credit Concepts has a total of seven full-time employees, including its
management, of which two are engaged in credit analysis and contract
purchasing, two are engaged in contract collection, including vehicle
repossession, and three are administrative and clerical. The Company also uses
the services of an independent contractor in repossession efforts and another
for bookkeeping services.
The Company provides partial medical benefits to its employees. We have
recently established an IRA program for our employees and will contribute
matching funds, subject to certain limitations. We believe that our relations
with our employees are satisfactory.
RISK FACTORS
------------
LOW PRIORITY OF INVESTMENT CERTIFICATES MAY INTERFERE WITH THEIR
REPAYMENT. Investment certificates are unsecured general obligations of the
Company. 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 the Company, in the event of liquidation of the
Company, you as a holder of investment certificates would share equally with
other general creditors of the Company in the remaining unsecured assets of the
Company, if any. However, investment certificates are subordinated to the
Company' past and future bank indebtedness, and the bank indebtedness is
secured by all of the Company' assets, including contracts receivable. These
contracts receivable, which constitute the Company' principal asset, would
first be applied to satisfy that bank indebtedness upon any liquidation of the
Company before being available to general creditors such as you as a holder of
the investment certificates. At July 31, 2000, the Company had $3,000,000 of
secured bank borrowings outstanding and $1,314,848 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 A LIMITED OPERATING AND PROFIT HISTORY. For the 12
months ended July 31, 2000, Credit Concepts has generated revenues of
$1,273,478 and $53,355 of net operating losses. At July 31, 2000, Credit
Concepts had $94,357 in cash, $4,285,641 of net finance receivables, $4,379,296
of indebtedness of all types and a shareholders' equity of $131,092. There can
be no assurance that Credit Concepts' operations will continue to 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, as well as unsecured debt that is 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 LIMITED 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 is 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, 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
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
ECONOMIES OF LANE COUNTY, OREGON AND NEIGHBORING COUNTIES. The availability
and credit-worthiness of the underlying borrowers on Credit Concepts' contracts
are influenced by the state of the economies for Lane County, Oregon and
neighboring counties, 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' Oregon consumer finance license.
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 and
neighboring counties, 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 used automobile 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 July 31, 2000 and
1999, $305,323 and $365,169, or approximately 6.6% and 8.0%, respectively, 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' personnel who makes
the credit and contract purchase decisions. Although Credit Concepts believes
that these personnel are highly skilled, because Credit Concepts only uses the
services of these personnel to make contract purchase decisions, and they
primarily communicate with one another in establishing the weight to be
attributed to these credit worthiness factors, should these persons as a group
establish and repeat the same type of 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 collectibility 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 report,
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.
ITEM 2. DESCRIPTION OF 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 expired on October 31, 2000. The current annual rental rate is
$15,840. Payments under the lease are guaranteed by two of Credit Concepts'
founders. The annual rental rate beginning November 1, 2000, will be $16,317
and will increase to $16,806 beginning November 1, 2001. The Company expects
that its offices will be adequate for its purposes for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
----------------------------
Except for routine litigation by the Company 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
--------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year ended
July 31, 2000 to a vote of the Company's security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
-------------------------------------------------------------------
Credit Concepts has not sold any of its common stock or other equity
securities during the period covered by this report. During the twelve months
ended July 31, 2000, the Company made distributions of $115,813 to
stockholders. Dividends have not been declared in previous years.
With respect to the registration under the Securities Act of 1933 of
Credit Concepts' investment certificates that became effective May 5, 1999
(Registration No. 333-66853), the Company commenced offering the investment
certificates directly and without an underwriter on May 5, 1999 and has
continued to offer them in that manner since that date. As of July 31, 2000,
the Company had sold eleven of the investment certificates and had incurred
expenses of $91,809 in connection with the offering, no expenses were direct or
indirect payments to directors or officers of Credit Concepts or their
associates, to any of the Company's 10% or greater shareholders, or to any
affiliates of Credit Concepts. In January of 2000, the Company amended the
interest rates paid on its investment certificates from 9.00% to 11.50% to make
them more competitive in the current market.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
--------------------------------------------------------------------
For the twelve months ended July 31, 2000 Credit Concepts has generated
$1,273,478 of revenues and $53,355 of net operating losses. At July 31, 2000,
the Company had $94,357 in cash, $4,285,641 in net finance receivables (after
deducting an allowance for credit losses of $371,000, discounts on loans
purchased of $23,095, and adding capitalized loan origination costs of
$24,349), $4,379,296 of indebtedness of all types and a shareholders' equity of
$131,092.
The Company expects to be able to sell all or a substantial portion of its
$5,000,000 of investment certificates and to use the net proceeds to purchase
vehicle contracts with reliable borrowers primarily 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, the
Company 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 the Company 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 9% 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.
UNCERTAINTY OF INTERNAL BUDGETS AND FORWARD-LOOKING INFORMATION
---------------------------------------------------------------
The accompanying report contains 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. The Company's forward-looking information is based on a number of
estimates and assumptions that, though considered reasonable by the Company's
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Company 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, the Company's
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 YEAR ENDED JULY 31, 2000
------------------------------------------------------------
The Company's total finance receivables increased $282,731, or 7.1% during
the twelve months ended July 31, 2000 from $4,002,910 to $4,285,641. Interest
income was $1,241,014 with other miscellaneous income of $32,464 for a total of
$1,273,478. Through the use of its consumer finance license, the Company's
plans to increase revenues in the future at little 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.
Financial results for the twelve months ended July 31, 2000 were
negatively affected by employee misappropriation of customer payments. This
incident is reflected in reduced interest income and a one-time charge of
$40,000 to the provision for credit losses during the third quarter plus a
charge to other operating expenses of $50,141 to account for the estimate of
lost revenues. Operating results for the period were further impacted by an
increase in interest expense due to additional bank borrowing, the expenditure
of $25,000 for application costs associated with the new credit line and higher
salaries costs resulting from added personnel. These charges had an overall
effect of reducing income by $115,141, which resulted in a net operating loss
for the fiscal year end of $53,355.
Net charge offs for the twelve-months period were $208,852 or 4.7% of
average finance receivables outstanding during the period. However, the
allowance for credit losses of $371,000, representing 8.3% of average finance
receivables, includes $253,852 added to the allowance and charged to operations
for the period.
Reflecting in part the $253,852 provision for credit losses charged to
expense, which constituted 19.1% of the $1,326,833 of total expenses for the
twelve-months period, the negative effect of employee misappropriation of
customer payments and the resulting adjustments to the provision for credit
losses and increased bank charges related to the new credit line, the Company
reported a net loss for the period of $53,355. Interest expense of $483,499
constituted 36.4% of these total expenses, and salaries and benefits of
$267,074 constituted 20.1%. The Company plans to reduce the impact of interest
expense in future periods by borrowing through the sale of investment
certificates at interest rates that are lower than those it is currently
paying. Even though the Company experienced a net loss for the period of
$53,355, net cash flows for the period were $12,453, with operating activities
generating a positive cash flow of $202,673.
RESULTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1999
-------------------------------------------------------
Credit Concepts generated $1,300,108 of revenues and $68,990 of net
operating income during the twelve months ended July 31, 1999. At July 31,
1999 Credit Concepts had $81,904 in cash, $4,002,910 in net finance receivables
(after deducting an allowance for credit losses of $326,000 and adding
capitalized loan origination costs of $31,731), $3,907,046 of indebtedness of
all types and a shareholders' equity of $300,260.
The Company originated $2,886,555 of loans and contracts during the
period, which accounted for approximately 72% of total finance receivables
outstanding during the period. Contract and loan receivables declined by
$144,469, or 3.5% from $4,363,631 to $4,002,910. Net income during the period
was $68,990 reflecting a higher and more seasoned finance receivable base and
added fees from direct lending activities. The allowance for credit losses was
increased from $191,000 at July 31, 1998 to $326,000 at July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The finance nature of the Company's 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 the Company borrowed an aggregate of $1,200,000 from its
management and $472,500 from friends and family of management in private
transactions. Most of these funds were borrowed pursuant to 12% promissory
notes, and are payable upon demand. Certain of these borrowings have been
repaid and an aggregate of $1,314,848 remained outstanding at July 31, 2000.
On June 15, 1999 the Company renewed its loan agreement with Pacific
Continental Bank that established a $3,000,000 line-of-credit secured by the
Company's assets, including its contract and loan portfolio. Under the terms
of the loan agreement, the Company could borrow an amount equal to 75% of
eligible contract and loan accounts and was obligated, among other things, to
maintain tangible net worth of not less than $300,000, a debt to tangible net
worth ratio of less than 10 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 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, 2000 Credit Concepts had outstanding secured bank
indebtedness of $3,000,000 pursuant to this credit facility.
In August of 2000, the Company received approval for a $5,000,000 credit
line with Summit Commercial, a division of Summit Bank in Princeton, New
Jersey. Under the terms of the loan agreement, the Company is required to
maintain a tangible net worth, including all subordinate debt of $1,500,000 and
the borrowing base was increased to 80% of eligible receivables.
The finance agreement from Summit Bank also includes the following terms
and conditions.
(a) The Company will provide an audited financial statement within
90 days after the close of the fiscal year. Credit Concepts fiscal year ends
July 31.
(b) The Company will provide a reviewed financial statement within
45 days after the close of each fiscal quarter.
(c) The Company will provide an internally generated financial
statement within 30 days after the close of each calendar month.
(d) The Company will complete an Availability and Compliance
Certificate and a Schedule of Eligible Receivables within 15 days of the end of
each calendar month.
(e) The Company must maintain a tangible net worth of at least $1.5
million. Tangible net worth includes all subordinate debt, including
investment certificates, and shareholder equity.
(f) The senior debt to tangible net worth ratio should not be
greater than 4.0 to 1.0 and will be tested on the last day of each month.
(g) The Company will maintain a bad debt reserve, or provision for
credit losses, of not less than the actual losses to average net receivables to
the then most recent twelve-month period.
As yet, Credit Concepts has not experienced difficulties in obtaining
financing. Because the proceeds from the sale of investment certificates have
been 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 gives the Company the
ability to borrow from commercial banks. If the Company is able to
successfully sell investment certificates at interest rates that are lower than
the rates charged by commercial banks, as the Company's competitors have been
able to do over the years, we plan in the future to rely upon the sale of
investment certificates over bank borrowings to fund our portfolio of contracts
and loans.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
--------------------------------------
INDEPENDENT AUDITOR'S REPORT AND
FINANCIAL STATEMENTS
---------------------------------------
JULY 31, 2000 AND 1999
<PAGE>
<TABLE>
CONTENTS
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of operations 3
Statement of changes in stockholders' equity 4
Statements of cash flows 5
Notes to financial statements 6
</TABLE>
<PAGE>
MOSS ADAMS LLP
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
222 SW Columbia Street, Suite 400
Portland, OR 97201
Phone 503.242.1447
Fax 503.274.2789
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Credit Concepts, Inc.
We have audited the accompanying balance sheets of Credit Concepts, Inc. as of
July 31, 2000 and 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Portland, Oregon
September 21, 2000
F-1
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
JULY 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 94,357 $ 81,904
------------ ------------
Finance receivables:
Purchased loans 3,886,937 3,807,582
Direct loans 768,450 489,597
Net deferred loan origination costs 24,349 31,731
Allowance for credit losses (371,000) (326,000)
Discounts on loans purchased (23,095) -
------------ ------------
4,285,641 4,002,910
------------ ------------
Interest receivable 75,802 67,300
Equipment and leasehold improvements, net 30,455 29,079
Other assets 24,133 26,113
------------ ------------
Total Assets $ 4,510,388 $ 4,207,306
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt
Bank line-of-credit $ 3,000,000 $ 2,695,509
Subordinated notes payable to stockholders 821,848 938,908
Investment certificates 332,000 -
Notes payable 161,000 211,000
------------ ------------
4,314,848 3,845,417
Interest payable 35,545 46,829
Accounts payable and accrued expenses 28,903 14,800
------------ ------------
Total Liabilities 4,379,296 3,907,046
============ ============
COMMITMENTS AND CONTINGENCIES (Note 5)
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 91,029 206,842
Retained earnings (49,937) 3,418
------------ ------------
Total Stockholders' equity 131,092 300,260
------------ ------------
Total liabilities and Stockholders' equity $ 4,510,388 $ 4,207,306
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
JULY 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Interest on finance receivables $ 1,241,014 $ 1,272,452
Other income 32,464 27,656
------------ ------------
Total revenues 1,273,478 1,300,108
------------ ------------
EXPENSES
Interest 483,499 485,969
Provision for credit losses 253,852 336,558
Salaries and benefits 267,074 200,629
Other operating expenses 322,408 207,962
------------ ------------
Total expenses 1,326,833 1,231,118
------------ ------------
NET INCOME (LOSS) $ (53,355) $ 68,990
============ ============
See accompanying notes.
</TABLE>
F-3
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Stock Retained Stockholders'
Common Subscription Additional Earnings Equity
Stock Receivable Paid-in Capital (deficit) 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 loss - - - (53,355) (53,355)
---------- ----------- ----------- ---------- -----------
BALANCE, July 31, 2000 $150,000 $ (60,000) $ 91,029 $ (49,937) $ 131,092
========= =========== =========== ========== ===========
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
JULY 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (53,355) $ 68,990
Adjustments to reconcile net income
(loss) to net cash from
operating activities:
Provision for credit losses 253,852 336,558
Depreciation and amortization 5,879 9,810
Changes in assets and liabilities:
Interest receivable (8,502) (2,800)
Other assets 1,980 15,020
Accounts payable and accrued expenses 2,819 17,640
------------ ------------
Net cash from operating activities 202,673 445,218
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated or
purchased (3,599,792) (2,886,555)
Loans and contracts repaid 2,906,198 2,410,531
Additions to equipment and leasehold
improvements (7,255) (5,204)
Discounts on loans purchased 23,095 -
Net deferred loan origination costs 7,382 9,952
Recoveries of finance receivables
previously charged off 126,534 302,449
Disposition of equipment and leasehold
improvements - -
Increase in cash surrender value of
life insurance - -
------------ ------------
Net cash from investing activities (543,838) (168,827)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 636,346 507,545
Proceeds from issuance of investment
certificates 332,000 -
Repayment of debt (498,915) (817,035)
Redemption of investment certificates - -
Members' contributions - -
Stockholder distributions (115,813) -
Stock subscription proceeds - 60,000
------------ ------------
Net cash from financing activities 353,618 (249,490)
------------ ------------
NET INCREASE IN CASH 12,453 26,901
CASH, beginning of year 81,904 55,003
------------ ------------
CASH, end of year $ 94,357 $ 81,904
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 470,400 $ 451,574
============ ============
See accompanying notes.
</TABLE>
F-5
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION - Credit Concepts, Inc. (the Company) purchases retail installment
contracts from automobile dealers in connection with the financing of used
automobiles and makes loans directly to consumers. The Company was founded in
August 1997, and conducts all business from its headquarters in Eugene, Oregon.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates and assumptions.
FINANCE RECEIVABLES, NET OF ALLOWANCE FOR CREDIT LOSSES AND UNEARNED INCOME -
Finance receivables are stated at the amount of unpaid principal reduced by an
allowance for credit losses and unearned income. Interest on finance
receivables is calculated by using the simple-interest method on daily balances
of the principal amount outstanding. The allowance for credit losses is
established through a provision for credit losses charged to expenses. Finance
receivables are charged against the allowance for credit losses when management
believes that the collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb possible losses
on existing finance receivables that may become uncollectible, based on
evaluations of the collectibility of finance receivables and prior loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, review of
specific problem credits, and current economic conditions that may affect the
borrower's ability to pay.
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's market price, or
the fair value of the collateral if the loan is collateral dependent. Accrual
of interest is discontinued on impaired loans when management believes, after
considering economic and business conditions, collection efforts, and
collateral position, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received.
Loan origination fees, certain direct origination costs, and loan discounts are
capitalized and recognized as an adjustment of the yield of the related loan.
F-6
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
POLICIES - (continued)
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, accounts are relieved of the related costs and accumulated depreciation
and resulting gains or losses are recognized in operations.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current year presentation.
INCOME TAXES - As an S Corporation, the income tax liability arising from the
taxable earnings of the Company is the responsibility of the stockholders. The
Company reports its income for tax purposes on a calendar year basis.
Differences exist between the financial statement and tax basis of certain
assets and liabilities, including differences related to the allowance for loan
losses and the loan portfolio fair value.
The Company periodically makes distributions in an amount sufficient to cover
the income tax consequences of its stockholders.
NOTE 2 - FINANCE RECEIVABLES
Summary information regarding finance receivables is as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Number of contracts $1,272 $1,234
Average annual percentage rate (APR)
of interest 30.5% 30.9%
Average contract balance $3,630 $5,213
Average term of contract 154 wks. 160 wks.
Average age of contract 55 wks. 48 wks.
Average payment per week $50 $50
Ratio of cash collections to average
period-end balances 65% 56%
</TABLE>
F-7
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - FINANCE RECEIVABLES - (continued)
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
contractual maturity dates. Cash collections of finance receivables for the
years ended July 31, 2000 and 1999, were $2,906,198 and $2,410,531,
respectively.
Change in the allowance for credit losses is as follows:
<TABLE>
<S> <C>
BALANCE, July 31, 1998 $ 191,000
Provision charged to expense 336,558
Accounts charged-off (504,007)
Recoveries 302,449
------------
BALANCE, July 31, 1999 326,000
Provision charged to expense 253,852
Accounts charged-off (335,386)
Recoveries 126,534
------------
BALANCE, July 31, 2000 $ 371,000
============
</TABLE>
Impaired loans and loans on nonaccrual status were immaterial at July 31, 2000
and 1999, and for the years then ended.
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Computer equipment $ 31,386 $ 25,945
Office furniture and equipment 16,631 14,817
Leasehold improvements 2,142 2,142
---------- ----------
50,159 42,904
Less accumulated depreciation and amortization (19,704) (13,825)
---------- ----------
$ 30,455 $ 29,079
========== =========
</TABLE>
F-8
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - DEBT
Following is a summary of all debt held by the Company:
<TABLE>
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
Bank line-of-credit bearing interest at
the Bank's prime rate plus 2% (11.5% and
10.00% at July 31, 2000 and 1999,
respectively) due December 15, 2000,
guaranteed by the Company stockholders
and collateralized by finance receivables $3,000,000 $ 2,695,509
Uncollateralized notes payable to various
individuals, bearing interest from 10%
to 12%, with no stated maturity 161,000 211,000
Uncollateralized subordinated notes payable
to stockholders, bearing interest at 11%
to 12%, with no stated maturity 821,848 938,908
Uncollateralized investment certificates,
bearing interest at rates ranging from
9.00% to 11.50%, due on demand with stated
maturities ranging from May 2002 to
August 2004 332,000 -
------------ -----------
$4,314,848 $ 3,845,417
============ ===========
</TABLE>
The scheduled maturities of debt are as follows:
<TABLE>
<S> <C>
2001 $ 3,000,000
2002 32,000
2003 -
2004 300,000
2005 -
No Stated Maturity 982,848
------------
$ 4,314,84
============
</TABLE>
F-9
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases its office space in Eugene, Oregon under
an operating lease expiring on October 31, 2000. Future rental payments under
this non-cancelable operating lease are $3,960. A verbal agreement is in place
for a renewal of this lease through October 31, 2002. The written agreement is
expected to be finalized before October 31, 2000.
LITIGATION - The Company is periodically involved in litigation in the ordinary
course of operations to pursue collection of past due loans. Such activities
are not expected to adversely impact the Company's financial position or
results of operations.
NOTE 6 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - For cash, the carrying amount is the estimated fair
value.
FINANCE RECEIVABLES - There are generally no quoted market prices available for
finance receivables. The net fair value of such receivables is estimated to
approximate the net carrying value based upon an analysis of prevailing
interest rates as of July 31, 2000 and 1999.
DEBT - The fair value of debt that is due on demand or has no stated maturity
period, such as the Bank line-of-credit, subordinated notes payable to
stockholders and other notes payable, is equal to the amount payable on demand.
The fair value of investment certificates is estimated using the rates
currently offered for investment certificates of similar maturities. The
carrying value of investment certificates is $332,000, the estimated fair value
is $324,000 at July 31, 2000.
NOTE 7 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist of cash and finance receivables. The Company's cash balances are with
reputable banks and may periodically exceed insured limits. The Company's
finance receivables are primarily collateralized by used automobiles with
F-10
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CONCENTRATION OF CREDIT RISK - (continued)
customers in the Eugene/Springfield area of Oregon. The Company generally has
the right to repossess the underlying collateral in the event of default by the
borrower, and when possible, also obtains dealer guarantees.
NOTE 8 - SUBSEQUENT EVENTS
In August 2000, the Company opened a new $5,000,000 line-of-credit with Summit
Bank. The proceeds from this new line were used to pay off the existing line-of-
credit. The terms of this new agreement are substantially similar to the
existing line-of-credit, bearing interest at prime plus 1.50% (11.0% at July
31, 2000), due in August 2003. The line-of-credit is guaranteed by the Company
stockholders and collateralized by finance receivables and equipment.
F-11
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
-------------------------------------------------------------------------
Effective on September 1, 1999, Yergen and Meyer, LLP merged its practice
with Moss Adams LLP and, accordingly, the independent certified public
accountant for this filing for Credit Concepts, Inc. is Moss Adams LLP. Yergen
and Meyer, LLP audited the Company's financial statements as of July 31, 1998
and for the periods from inception on October 27, 1997 to July 31, 1998, and
rendered its unqualified opinion thereon. There have not been any
disagreements between the Company and Yergen and Meyer, LLP or Moss Adams LLP.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
-----------------------------------------------------------------------
The Officers and Directors of Credit Concepts are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C> <C>
Tom W. Palmer President, Chief Executive Officer, and Director
Eugene C. Albert Vice-President, Chief Financial Officer,
Secretary and Director
Jason G. Moon General Manager of Operations
Ted W. Palmer Director
</TABLE>
Tom W. Palmer is the son of Ted W. Palmer.
The career experience of the Credit Concepts' key personnel is as follows:
TOM W. PALMER, 44, President, Chief Executive Officer, 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. 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.
EUGENE C. ALBERT, 42, Vice-President, Chief Financial Officer, Secretary
and Director. Mr. Albert has acted as Credit Concepts' Vice-President, Chief
Financial Officer and Secretary since its inception in August 1997. His duties
include coordination of capital funding of the Company, 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.
JASON G. MOON, 30, General Manager of Operations. Jason G. Moon has
worked in the consumer finance industry since 1993. Prior to entering consumer
finance, Mr. Moon gained automotive experience in sales and finance while
employed at a Eugene Chevrolet dealership. Mr. Moon then joined United
Finance Company to work in the legal department and was soon promoted to
collection manager of the Eugene office. From there, Mr. Moon was promoted to
manager of the fourth largest office of twenty-two locations. During his three
years there, he maintained a 3.5% delinquency rate on all accounts and a return
on investment of 13.5% each year. Mr. Moon manages the training, collections,
lending, and compliance activities of the Company.
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.
Credit Concepts does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, and thus the
beneficial owners of more than 10% of its common stock (which is its only class
of equity securities outstanding), and its directors and officers, are not
subject to the requirements of Section 16(a) of that Act.
ITEM 10. EXECUTIVE COMPENSATION.
---------------------------------
The cash and other direct remuneration of members of management of Credit
Concepts for the fiscal year ended July 31, 2000 is as follows:
<TABLE>
DIRECT COMPENSATION TO MANAGEMENT FOR 2000
------------------------------------------
<CAPTION>
Name Salary Other
---- -------- -------
<S> <C> <C>
Officers, Directors and Management
as a Group(1) $194,100 $4,848
--------------------
(1) Consists of Tom W. Palmer, Eugene C. Albert, F. Scott Graham, Jason G.
Moon and Ted W. Palmer
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------------------------------------------------------------------------
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 the Company to own of record or beneficially 5% or more of the
Company's common stock; each officer or director of the Company who owns of
record or beneficially any common stock; and stock holdings of all officers and
directors of the Company 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 the Company 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 the Company by inhibiting a
change in control of the Company upon the death, disability or divorce of any
of the founding shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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. During 1999, $60,000 was received to pay down the stock
subscription receivable.
By 12% unsecured demand loans, Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, loaned an aggregate of $78,000 to the
Company between October 1997 and March 1998. By similar loans, Kimberly M.
Coleman, the General Manager of the Company, and her husband loaned an
aggregate of $67,500 to the Company between January and April 1998, which has
been paid back in full. By similar loans, Tom W. Palmer, the President and a
Director of Credit Concepts, and his wife loaned an aggregate of $173,000 to
the Company between November 1997 and June 1998. By similar loans, Ted W.
Palmer, a Director of Credit Concepts, loaned an aggregate of $600,000 to the
Company between October 1997 and June 1998. These unsecured loans are on
parity with the Company's investment certificates.
In addition, Tom W. Palmer and Eugene C. Albert have each guaranteed an
aggregate of $5,000,000 under the Company's new secured bank line-of-credit. If
Mr. Palmer and Mr. Albert should be required to pay bank indebtedness under the
guarantees, they would succeed to the banks' secured rights with respect to the
indebtedness, including rights to collateral.
In July 1998, the Company entered into an unsecured loan with Tom W.
Palmer, Eugene C. Albert and Ted W. Palmer for $450,000. This loan accrues
interest at the rate of 11% per year and became due in full on August 1, 2000.
As of July 31, 2000, the balance of this loan was $192,535. The stockholder
creditors have agreed to extend the loan under the same terms for a period of
no less than two years until August 1, 2002.
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, 2002.
Tom W. Palmer and Eugene Albert have personally guaranteed the payments
under the three-year lease of the Company's principal offices, which expires
October 31, 2000. The current annual rental rate under the lease is $15,840.
The Company has a verbal agreement with the landlord, which extends the lease
until October 31, 2002. The annual rental rate beginning November 1, 2000 will
be $16,317 and will increase to $16,806 beginning November 1, 2001.
In the future, all material transactions and loans between the Company 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 the Company 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 the
Company's then independent directors who do not have an interest in the
transactions and who have had access, at the Company's expense, to the Company
or independent legal counsel.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------------------
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<S> <C>
3(a) Articles of Incorporation**
3(b) By-Laws**
4(a) Specimen Short-Term Investment Certificate**
4(b) Specimen Long-Term Investment Certificate**
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**
10(aa) Finance Agreement dated August 2000 with Summit Bank***
10(bb) Revolving Credit Agreement in favor of Summit Bank dated
August 2000***
10(cc) Personal Guaranty by Tom W. Palmer dated August 2000***
10(dd) Personal Guaranty by Eugene C. Albert dated August 2000***
10(ee) Master Dealer Agreement with AA Auto Sales Inc. dated
September 25, 1998***
10(ff) Master Dealer Agreement with Joe Romania Chevrolet, Inc. dated
December 22, 1997***
10(gg) Master Dealer Agreement with Larry Lassen Chevrolet-Toyota, Inc.
dated July 28, 1999***
23.1 Consent of Moss Adams LLP***
24(a) Power of Attorney (see signature page of Registration Statement)*
27 Financial Data Schedule***
--------------------------------------
* Incorporated by reference to registrant's Registration Statement on Form
SB-2 dated November 5, 1998 and filed with the Securities and Exchange
Commission on November 5, 1998.
** Incorporated by reference to registrant's Amendment No. 2 to Registration
Statement on Form SB-2 dated April 28, 1999 and filed with the Securities
and Exchange Commission on April 29, 1999.
*** Filed herewith.
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CREDIT CONCEPTS, INC. (Registrant)
By: /s/ Tom W. Palmer
-----------------------------
Tom W. Palmer, President
Date: 11/15/00
-----------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Tom W. Palmer President, Chief Executive 11/15/00
----------------- Officer and Director -------------------
Tom W. Palmer (Title) (Date)
Vice-President,
/s/ Eugene C. Albert Chief Financial Officer, 11/15/00
-------------------- Secretary and Director -------------------
Eugene C. Albert (Title) (Date)
/s/ Ted W. Palmer Director 11/15/00
----------------- -------------------
Ted W. Palmer (Title) (Date)
