AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON _______________
REGISTRATION NO. 333-66853
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Credit Concepts, Inc.
----------------------------------------------
(Name of small business issuer in its charter)
Oregon 6141 93-1236587
- --------------------- --------------------- -------------------
(State or jurisdic- (Primary Standard (IRS Employer
tion of incorporation Industrial Classi- Identification No.)
or organization) fication Code Number)
2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401 (541) 342-8545
--------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
(Same)
---------------------------------------------------
(Address of principal place of business or intended
principal place of business)
Tom W. Palmer, President
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
(541) 342-8545
Copy to:
Mike Liles, Jr.
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, Washington 98101
(206) 224-8068
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: May 5, 1999
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________________________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
===============================================================================
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- -------------------------------------------------------------------------------
Title of Each Dollar Proposed Proposed
Class of Amount Maximum Maximum Amount of
Securities To To Be Offering Price Aggregate Registration
Be Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment
Certificates $5,000,000.00 $1,000,000.00 $5,000,000.00 $2,780
- -------------------------------------------------------------------------------
</TABLE>
NOTE. If the filing fee is calculated pursuant to Rule 457(o) under
the Securities Act, only the title of the class of securities to be
registered, the proposed maximum aggregate offering price for that class
of securities and the amount of registration fee need to appear in the
Calculation of Registration Fee table. Any difference between the dollar
amount of securities registered for such offering and the dollar amount of
securities sold may be carried forward on a future registration statement
pursuant to Rule 429 under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus dated January __, 2000
CREDIT CONCEPTS, Inc.
SHORT-TERM and LONG-TERM INVESTMENT CERTIFICATES
Minimum Investment: $5,000
YOU MAY LIQUIDATE YOUR INVESTMENT CERTIFICATES AT ANY TIME PRIOR TO
MATURITY UPON 90 DAYS NOTICE TO CREDIT CONCEPTS, BUT IF YOU DO, YOU WILL EARN NO
INTEREST ON THE INVESTMENT CERTIFICATES DURING THE NOTICE PERIOD.
The interest rate for the investment certificates is fixed and is
determined at the time of sale. Investment certificates purchased as different
times may have different rates of interest. The terms of the investment
certificates are two years for the short-term investment certificates and four
years for the long-term investment certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For certain risks of which you should be aware, see Risk Factors beginning
at page __.
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
<S> <C>
Offering Summary
Risk Factors
Use of Proceeds
Capitalization
Statement of Income
Management's Discussion and Analysis of Results of Operations
Business
Property
Management
Principal Shareholders
Description of Securities
Plan of Distribution
Legal Matters
Experts
Additional Information
Financial Statements
Subscription Form
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
OFFERING SUMMARY
----------------
CREDIT CONCEPTS:
- ----------------
Credit Concepts, Inc. is in the business of purchasing retail installment
contracts that have been originated by regional used automobile dealers in
connection with the financing of used vehicles. The interest receivable on the
contracts is significantly greater than Credit Concepts' cost of borrowed funds.
Credit Concepts seeks to collect the principal and interest due, and to recover
on the vehicles that serve as collateral on defaulted contracts, with sufficient
efficiency to cover all its costs and return a profit. Credit Concepts'
operations consist primarily of evaluating which contracts to purchase,
negotiating the terms of the purchase, and arranging for Credit Concepts'
financing of the purchase.
Credit Concepts holds a Consumer Finance License by the Oregon Department
of Consumer and Business Services, which allows Credit Concepts to make loans
directly to purchasers of used automobiles in addition to purchasing the loan in
the form of contracts from the dealers after the loans have been made.
Credit Concepts commenced operations in October, 1997. Its principal
offices are located at 2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401, and
its telephone number is (541) 342-8545.
SECURITIES:
- -----------
$5,000,000 of investment certificates, consisting of $2,500,000 of fixed-
rate short-term investment certificates and $2,500,000 of fixed-rate long-term
investment certificates, in denominations of $1,000.
TERM:
- -----
The terms of the investment certificates are two years for the short-term
investment certificates and four years for the long-term investment
certificates.
INTEREST RATE:
- --------------
Interest on the investment certificates accrues at a fixed rate, which is
determined at the time of sale. The interest rate for investment certificates
sold in any month is determined by reference to the prime rate of interest as
reported by the Wall Street Journal on the last day of the previous month. The
interest rate for short-term investment certificates is 1.50% over the prime
rate, but shall not exceed 11.00% nor be less than 6.00%. The interest rate for
long-term investment certificates is 2.00% over the prime rate, but shall not
exceed 12.00% nor be less than 6.00%.
MINIMUM INVESTMENT:
- -------------------
$5,000.
INVESTMENT LIMITATIONS:
- -----------------------
In order to be eligible to invest in this offering, you must have either a
net worth of at least $150,000 OR a net worth of at least $75,000 plus a net
income of at least $75,000. In addition, purchases of investment certificates
in the aggregate may not exceed 10% of your net worth. IN CALCULATING "NET
WORTH," THE VALUE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES IS
EXCLUDED, AND ALL ASSETS ARE VALUED AT FAIR MARKET VALUE.
COLLATERAL:
- -----------
The investment certificates are not secured by any form of collateral.
SUBORDINATION:
- --------------
The investment certificates are subordinated to all bank indebtedness for
moneys borrowed. At October 31, 1999, Credit Concepts had $2,647,954 of bank
indebtedness outstanding. This bank indebtedness is secured by all of the
Credit Concepts' assets, including contracts receivable.
SINKING FUND:
- -------------
Credit Concepts will not maintain a sinking fund for the investment
certificates.
NO TRUSTEE:
- -----------
The investment certificates are not subject to the Trust Indenture Act of
1939, and there is no indenture or indenture trustee empowered to act on your
behalf should Credit Concepts default in the payment to you of principal or
interest on the investment certificates.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL INFORMATION
---------------------
Set forth below is summary financial data for Credit Concepts' operations
from inception to December 31, 1997 and for the seven months ended July 31, 1998
and for the fiscal year ended July 31, 1999, as well as a balance sheet showing
Credit Concepts' financial position at July 31, 1999 and October 31, 1999. In
interpreting this information please refer to the financial statements and
footnotes at the end of this prospectus.
<TABLE>
<CAPTION>
INCOME STATEMENT 1999 1998 1997
- ----------------- ---------- ---------- -----------
<S> <C> <C> <C>
Total Revenues $1,300,110 $ 471,256 $ 6,147
Interest Expense $ 468,719 $ 154,671 $ 3,815
Provision for Credit Losses $ 336,558 $ 231,129 $ -
Salaries $ 200,631 $ 79,584 $ 30,408
Total Expenses $1,231,120 $ 536,828 $ 49,305
Net Income (Loss) $ 68,990 $ (65,572) $ (43,158)
<CAPTION>
October 31 July 31,
BALANCE SHEET 1999 1999
- ------------- ---------- -----------
<S> <C> <C>
Assets
Cash $ 89,959 $ 81,904
Net Finance Receivables $3,949,534 $4,024,841
Total Assets $4,161,232 $4,229,237
Liabilities
Bank Line of Credit $2,647,954 $2,695,509
Subordinated Notes Payable to
Stockholders $ 882,304 $ 938,908
Total Liabilities $3,832,959 $3,928,977
Total Stockholders' equity $ 328,273 $ 300,260
Total Liabilities and Stockholders' equity $4,161,232 $4,229,237
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
------------
THE FOLLOWING ARE CERTAIN RISKS THAT YOU SHOULD CONSIDER IN DECIDING
WHETHER OR NOT TO PURCHASE INVESTMENT CERTIFICATES IN THIS OFFERING. THESE RISK
FACTORS ARE NOT PRESENTED IN ANY PARTICULAR ORDER OF SIGNIFICANCE.
LOW PRIORITY OF INVESTMENT CERTIFICATES MAY INTERFERE WITH THEIR REPAYMENT.
Investment certificates are unsecured general obligations of Credit Concepts.
There is no collateral or security interest securing repayment of the investment
certificates, and repayment of the investment certificates is not guaranteed or
insured by any governmental agency or other third party. As an unsecured
general creditor of Credit Concepts, in the event of liquidation of Credit
Concepts, you as a holder of investment certificates would share equally with
other general creditors of Credit Concepts in the remaining unsecured assets of
Credit Concepts, if any. However, investment certificates are subordinated to
Credit Concepts' past and future bank indebtedness, and the bank indebtedness is
secured by all of Credit Concepts' assets, including contracts receivable.
These contracts receivable, which constitute Credit Concepts' principal asset,
would first be applied to satisfy that bank indebtedness upon any liquidation of
Credit Concepts before being available to general creditors such as you as a
holder of the investment certificates. At October 31, 1999, Credit Concepts had
$2,647,954 of secured bank borrowings outstanding and $213,500 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. Credit
Concepts commenced operations in October, 1997 and for the three months ended
October 31, 1999 has generated $317,458 of revenues and $28,013 of net operating
profit. For the fiscal year ended July 31, 1999, Credit Concepts generated
revenues of $1,300,110 and $68,990 of net operating profit. At October 31,
1999, Credit Concepts had approximately $89,959 in cash, $3,949,534 in net
finance receivables, after deducting an allowance for credit losses of $325,321
and unearned discounts on contracts of $3,807 and adding capitalized loan
origination costs of $53,763, approximately $3,832,959 of indebtedness of all
types and a shareholders' equity of approximately $328,273. There can be no
assurance that Credit Concepts' operations will generate sufficient revenues,
earnings or cash flows to pay the principal and interest on the investment
certificates when they become due.
CREDIT CONCEPTS IS DEPENDENT UPON ONGOING FINANCING, BUT HAS NO
ARRANGEMENTS FOR ADDITIONAL FINANCING OTHER THAN THIS OFFERING. The nature of
Credit Concepts' business is such that it is required to engage in ongoing
financing in order to have the funds to continue to purchase contracts. Credit
Concepts has begun to reach the limits of its presently available bank credit
and is now seeking to finance its contracts through the sale of unsecured
investment certificates. Credit Concepts has not previously attempted to
finance its purchase of contracts in this manner, and the success of this
approach is uncertain. Should Credit Concepts fail to sell sufficient
investment certificates on an ongoing basis to enable it to purchase a
satisfactory amount of contracts, Credit Concepts will be required to seek other
methods of financing the contracts or Credit Concepts would self-liquidate over
time as investment certificates and contracts mature. Credit Concepts does not
presently have any arrangements for alternate financing and may not be able to
timely arrange alternate financing on acceptable terms should it seek to do so.
There can be no assurance that Credit Concepts' founders will be willing to
continue to guarantee bank lines-of-credit as they have for existing bank lines-
of-credit or that Credit Concepts will be able to continue to secure bank lines-
of-credit in the future beyond existing renewal dates.
CREDIT CONCEPTS' PLANNED SUBSTANTIAL INCREASES IN CORPORATE INDEBTEDNESS
AND RELATED DEBT-SERVICE OBLIGATIONS INCREASE THE RISK THAT THE INVESTMENT
CERTIFICATES MAY NOT BE REPAID WHEN DUE. Credit Concepts plans significant
growth in its business in ensuing years through the purchase of contracts and
the origination of loans. Virtually all of this increase in business is
expected to be financed by a corresponding increase in indebtedness of all
types, including bank indebtedness that will be secured and prior in right of
payment to the investment certificates in this offering, as well as unsecured
debt that will be on a parity with the investment certificates. Although this
increase in business is expected to increase assets and revenues and generate
earnings, it will concurrently increase the level of debt service required, and
should Credit Concepts' anticipated operational success fail to materialize as
planned, the increased burden of this debt service could adversely affect Credit
Concepts' ability to timely pay interest and principal on the certificates when
they become due.
ANY SIGNIFICANT ADJUSTMENTS TO DEBT SERVICE COVERAGE ESTIMATES, WHICH ARE
UNCERTAIN BECAUSE OF LACK OF CREDIT LOSS EXPERIENCE FOR CONTRACTS RECEIVABLE,
COULD RESULT IN DEFAULT ON FINANCIAL COVENANTS FOR BANK INDEBTEDNESS, WHICH
INDEBTEDNESS HAS PRIORITY OVER THE INVESTMENT CERTIFICATES. Because the
provision for credit losses on Credit Concepts' financial statements is such a
significant portion of the charge against its revenues in the determination of
net income, any significant adjustments to the allowance for credit losses
through significant charges against the provision for credit losses is apt to
have a material effect upon net income, which could be adverse. In this regard,
the contracts in Credit Concepts' loan portfolio are primarily "higher risk"
loan contracts originated by dealers in used vehicles. Furthermore, the
statistics for credit losses on used vehicle contracts in the industry within
recent years reflect to some extent the health of the U.S. economy during that
period, and may not prove valid during periods of recession. Any significant
adverse adjustments to the allowance for credit losses could result in a default
under the loan covenants for Credit Concepts' bank indebtedness. That bank
indebtedness has priority in right of payment over the investment certificates
in this offering.
THE RECEIPT BY CREDIT CONCEPTS OF MULTIPLE PRE-MATURITY LIQUIDATION NOTICES
COULD PRECIPITATE A LIQUIDITY CRISIS AND IMPAIR TIMELY PAYMENT OF INVESTMENT
CERTIFICATES. Should Credit Concepts receive over a short period of time an
unexpectedly large number of pre-maturity liquidation notices from investors in
the certificates, Credit Concepts may not then have available sufficient cash
and credit resources to retire these certificates in an orderly fashion and may
be required under the circumstances to liquidate contracts in the market on
unfavorable terms in order to meet its obligations under the terms of the
certificates, to Credit Concepts' detriment. Such an event might occur because
of liquidity requirements of investors in the event of a sharp economic
recession, or because of a sudden appearance of alternative investments with
more attractive rates within the areas in which Credit Concepts' investment
certificates have been sold, as well as for other possible reasons. There can
be no assurance, should Credit Concepts receive an unanticipated volume of
liquidation notices within a short period of time, that Credit Concepts would be
able to sell sufficient contracts to meet these obligations, and Credit Concepts
might be required to make payment beyond the 90 day period provided in the
certificates, which would constitute a default under the terms of the
certificates and the cross-default provisions of Credit Concepts' secured bank
loans.
INVESTORS MAY NOT BE ABLE TO TIMELY PROTECT THEMSELVES IN THE EVENT OF A
DEFAULT ON BANK LOAN COVENANTS BECAUSE, ALTHOUGH A DEFAULT ON BANK INDEBTEDNESS
WOULD ACCELERATE BANK DEBT MATURITIES, A DEFAULT ON BANK INDEBTEDNESS WOULD NOT
ACCELERATE INVESTMENT CERTIFICATE MATURITIES. Credit Concepts' loan agreements
and promissory notes in connection with Credit Concepts' bank lines-of-credit
require Credit Concepts to comply with and maintain various financial and other
covenants in order to avoid default. Any default upon Credit Concepts' bank
lines-of-credit, which are secured by all of Credit Concepts' assets, including
contracts receivable, and senior in right of payment to the investment
certificates, could immediately severely and adversely affect Credit Concepts'
ability to pay the investment certificates. The investment certificates do not
have cross-default provisions, so that any default upon Credit Concepts' bank
indebtedness or other obligations would not result in an acceleration of
maturities or provide other default remedies to you as a holder of the
investment certificates.
CREDIT CONCEPTS IS SUBJECT TO RISKS FROM ITS LACK OF KEY PERSONNEL
EMPLOYMENT AGREEMENTS AND INSURANCE. Credit Concepts is highly dependent upon
the skills and efforts of its employees, including those that serve as its
management, for the operation of its business. However, 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 economy 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' recently-obtained Oregon consumer finance license.
CREDIT CONCEPTS COULD STILL SUFFER BUSINESS DISRUPTION FROM YEAR 2000
COMPUTER APPLICATION FAILURE. Because the real-time clocks in some existing
computer chips do not properly recognize a year that begins with "20" rather
than "19," certain computer applications based upon those chips could fail or
create erroneous results now that the Year 2000 has commenced. Because many of
these chips are embedded in existing items of equipment and are non-
programmable, components or all of the equipment must be replaced to obviate
these failures or erroneous results. To the extent that faulty chips have not
been replaced in critical components of equipment, a variety of services to
Credit Concepts could fail, causing disruption to Credit Concepts' business.
Prior to January 1, 2000, Credit Concepts made inquiry of its computer,
communications, power and automobile suppliers, and, in particular, inquired of
its automobile dealers whether any computer chip component in any make of used
automobile that serves as collateral for Credit Concepts contracts contains a
real-time clock that could be subject to failure, and received assurances that
no failures would occur. Fortunately, subsequent to midnight on December 31,
1999 nothing has occurred that would suggest that the computers of Credit
Concepts or of its suppliers, or imbedded in the vehicles that serve as
collateral for its contracts receivable, are not Year 2000 compliant, and there
has been no disruption of any type in Credit Concepts' business. However, in
view of the subtlety of the problem and the unfamiliarity with the depth of the
problem by many in the business community, it is possible that Credit Concepts
may yet encounter some form of delayed computer or service failures in coming
weeks or months that are attributable directly or indirectly to Y2K non-
compliance, which could perhaps be material, to Credit Concepts' detriment.
CREDIT CONCEPTS' BUSINESS IS DEPENDENT UPON THIRD PARTY SUPPLIERS OF
CONTRACTS, OVER WHICH CREDIT CONCEPTS HAS NO CONTROL. Although Credit Concepts
believes that it will be able to continue to be able to purchase a reasonable
number of contracts upon advantageous terms from dealers within Lane County 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 October 31, 1999, approximately 8% of the dollar
value of contracts then outstanding were covered by full or partial guarantees
by the used automobile dealer suppliers of contracts to Credit Concepts.
SUBJECTIVE NATURE OF CREDIT DECISIONS ON UNDERLYING BORROWERS UNDER THE
CONTRACTS MAY LEAD TO CUMULATIVE ERROR. Although Credit Concepts considers a
number of standardized factors in determining the credit-worthiness of the
underlying borrowers for the contracts it purchases, Credit Concepts' credit
decisions in these purchases are to some extent subjective in nature and to that
extent dependent upon the skills of Credit Concepts' personnel, who make 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 subjective error in the evaluation of a
number of separate credit reports, any such an error could be cumulative and
result in losses that could be material in the aggregate.
BANKRUPTCIES AND DEFICIENCY JUDGMENTS AGAINST BORROWERS MAY IMPEDE
COLLECTION UNDER CONTRACTS AND LOANS AND INCREASE OPERATING COSTS. Certain
statutory provisions, including federal and state bankruptcy and insolvency laws
applicable to individuals, may limit or delay the ability of Credit Concepts to
repossess and resell vehicles serving as collateral to secure payment of the
contracts or loans, or to enforce a deficiency judgment against a borrower under
the contract. In the event that a significant number of deficiency judgments are
not obtained, are not satisfied, are satisfied at a discount or are discharged
in whole or in part in bankruptcy proceedings, the vehicles securing the
contracts and loans would not serve their intended purpose of providing
collateral with an underlying realizable value, thereby reducing the
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
prospectus, in accordance with the best of management's knowledge and belief,
there will be differences between the projected and actual results because
events and circumstances frequently do not occur as expected, and those
differences may be material and adverse. Credit Concepts forward-looking
information is based on a number of estimates and assumptions that, though
considered reasonable by Credit Concepts' management, are inherently subject to
significant economic and competitive uncertainties and contingencies beyond the
control of Credit Concepts or its management and upon assumptions with respect
to future business decisions which are subject to change. Accordingly, there
can be no assurance that the anticipated results will be realized, and actual
results may vary from those projected. If actual results are lower than those
anticipated, or if the assumptions used in making the projections are not
realized, Credit Concepts' ability to achieve reasonable rates of revenues and
earnings and to make timely payment of its investment certificates may be
adversely affected.
<PAGE>
USE OF PROCEEDS
---------------
The net proceeds from the sale of the investment certificates in this
offering, after deducting offering expenses estimated to be $100,000, is
expected to be $4,900,000 if all of the investment certificates are sold.
Funds will be available to Credit Concepts as received.
All of the net proceeds from this offering will be used as working
capital, primarily to finance the purchase of contracts in the ordinary course
of Credit Concepts' business.
Pending use of the proceeds in the above manner, they will be used to
reduce outstanding indebtedness under Credit Concepts' bank line-of-credit or
invested in U. S. Government obligations or other near-cash investments.
CAPITALIZATION
--------------
The following table sets forth the capitalization of Credit Concepts as of
October 31, 1999.
<TABLE>
<CAPTION>
At
October 31, 1999
----------------
<S> <C>
Long-term debt, exclusive of
current portion(1) $ 1,060,804
Investment Certificates $ 35,000
Common Stock, no par value,
1,000 shares authorized,
300 shares outstanding: $ 150,000
- ----------------------------
1 Excludes $2,647,954 of secured bank indebtedness pursuant to a loan
agreement dated June 15, 1999 with Pacific Continental Bank that
establishes a $3,000,000 line-of-credit secured by Credit Concepts'
assets, including its contract and loan portfolio. Under the terms
of the loan agreement, Credit Concepts may borrow an amount equal to
75% of eligible contract and loan accounts and is obligated, among other
things, to maintain: a tangible net worth of not less than $300,000 as of
December 31, 1999, a debt to tangible net worth ratio of 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 of $3,000,000 by Tom W. Palmer
and Eugene C. Albert and of $1,000,000 by Ted W. Palmer, and compliance
with the terms and conditions of all other agreements to which it is a
party.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF INCOME
For the Year Ended July 31, 1999 and
the Three Months Ended October 31, 1999
------------------------------------------
<CAPTION>
3 Months
Year Ended Ended
July 31 October 31
----------- -----------
<S> <C> <C>
REVENUES
Interest on contracts $1,295,228 $310,751
Collection charges - 5,079
Other income 4,882 1,628
---------- --------
Total Revenues 1,300,110 317,458
---------- --------
EXPENSES
Interest 468,719 112,527
Salaries and benefits 200,631 58,924
Provision for credit losses 336,558 55,500
Other operating expenses 225,212 62,494
---------- ---------
Total Expenses 1,231,120 289,445
---------- ---------
NET INCOME $ 68,990 $ 28,013
========== =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
For the three months ended October 31, 1999, Credit Concepts has generated
$317,458 of revenues and $28,013 of net operating profits. At October 31, 1999
Credit Concepts had approximately $89,959 in cash, $3,949,534 in net finance
receivables (after deducting an allowance for credit losses of $325,321 and
unearned discounts on contracts of $3,807 and adding capitalized loan
origination costs of $53,763), approximately $3,832,959 of indebtedness of all
types and a stockholders' equity of approximately $328,273.
PLAN OF OPERATION.
- ------------------
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. If Credit Concepts is able to properly manage
the credit losses on the vehicle contracts it thus purchases, so that a
significant portion of the spread between the 31% effective interest rate on
the vehicle contracts and the 8% to 12% cost of funds is retained, it should be
able to meet all of the debt service obligations of the bank indebtedness and
investment certificates, including a reserve in the form of provision for
credit losses, and generate in addition a meaningful profit. It is Credit
Concepts' intention to implement this plan within the ensuing twelve months,
and to become profitable within the ensuing six months. There can be no
assurance that Credit Concepts will be successful in this endeavor.
Over the next twelve months, it is the goal of management to increase the
loan portfolio by 20 to 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.
- ----------------------------------------------------------------
Although Credit Concepts has prepared its internal budgets and its other
forward-looking information, some of which is reflected in this prospectus, in
accordance with the best of management's knowledge and belief, there will be
differences between the projected and actual results because events and
circumstances frequently do not occur as expected, and those differences may be
material and adverse. Credit Concepts' forward-looking information is based on
a number of estimates and assumptions that, though considered reasonable by
Credit Concepts' management, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of Credit
Concepts or its management and upon assumptions with respect to future business
decisions which are subject to change. Accordingly, there can be no assurance
that the anticipated results will be realized, and actual results may vary from
those projected. If actual results are lower than those anticipated, or if the
assumptions used in making the projections are not realized, Credit Concepts'
ability to achieve reasonable rates of revenues and earnings and to make timely
payment of its investment certificates may be adversely affected.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1999.
- ------------------------------------------------------------------
Credit Concepts generated $317,458 of revenues and $28,013 of net
operating income during the three months ended October 31, 1999. At October
31, 1999 Credit Concepts had approximately $89,959 in cash, $3,949,534 in net
finance receivables (after deducting an allowance for credit losses of $325,321
and unearned discounts on contracts of $3,807 and adding capitalized loan
origination costs of $53,763), approximately $3,832,959 of indebtedness of all
types and a stockholders' equity of approximately $328,273.
Credit Concepts purchased or originated approximately $606,543 of
contracts and loans during the period, which accounted for approximately 18%
of total finance receivables outstanding during the period. Contracts
receivable declined by $131,807 from $3,807,582 to $3,675,775 due to attrition
and refinancing into direct loans. Net income during the period was $28,013
reflecting a higher and more seasoned finance receivable base and added fees
from direct lending activities The allowance for credit losses was $325,321,
or approximately 8% of contract and direct loan receivables of $4,224,899 as of
October 31, 1999.
Net chargeoffs for the three-month period were $56,179 or 1.3% of average
finance receivables outstanding during the period. Recoveries for charged off
receivables was $62,464. Other charges against cash flow included the
provision for credit losses of $55,500 and depreciation and amortization of
$8,183 for the period. Credit Concepts expects that additional loss provisions
in excess of net chargeoffs will be charged to operations in future periods,
with the result that over time the allowance for credit losses will increase
both in absolute terms and as a percentage of finance receivables outstanding
at the end of future periods.
Interest expense of $112,527 constituted 38.9% of total expenses, and
salaries of $58,924 constituted 20.4%. Credit Concepts plans to reduce the
impact of interest expense in future periods by borrowing through the sale of
investment certificates in this offering at interest rates that are lower than
those it is currently paying. Net cash flows for the period were $8,055, with
operating activities generating a positive cash flow of $160,202.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JULY 31, 1999.
- ----------------------------------------------------------------
Credit Concepts generated $1,300,110 of revenues and $68,990 of net
operating profit during the twelve months ended July 31, 1999. At July 31,
1999, Credit Concepts had approximately $81,904 in cash, $4,024,841 in net
finance receivables (after deducting an allowance for credit losses of $326,000
and adding capitalized loan origination costs of $53,662), approximately
$3,928,977 of indebtedness of all types and stockholders' equity of
approximately $300,260.
Credit Concepts purchased or originated approximately $2,886,555 of
contracts or loans during the period, which accounted for approximately 67.2%
of total finance receivables outstanding during the period. Contracts
receivables declined by $517,580 from $4,325,162 to $3,807,582 due to attrition
and refinancing into direct loans. Direct loans receivable went from zero to
$489,597 or approximately 11.4% of total finance receivables outstanding during
the period. Net income for the period was $68,990 compared to a net loss for
the previous period of $65,572, reflecting a more seasoned finance receivables
base and added fees from direct lending activities.
Net chargeoffs for the twelve month period were $201,558 or 4.6% of
average finance receivables outstanding during the period. The provision for
credit losses was increased by $135,000 from $191,000 in 1998 to $326,000, or
7.6% of total finance receivables for the period.
Administrative and operating expenses were higher compared to fiscal 1998
due to the extended reporting period of twelve months in 1999 versus seven
months for 1998. Interest expense of $468,719 constituted 38% of these total
expenses, and salaries and benefits of $200,631 constituted 16.3%. Credit
Concepts plans to reduce the impact of interest expense in future periods by
borrowing through the sale of investment certificates in this offering at
interest rates that are lower than those it is currently paying. Along with
the net income for the period of $68,990, net cash flows for the period were
$26,901, with operating activities generating a positive cash flow of $757,619.
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
The finance nature of Credit Concepts' business results in its being
capital intensive. To date, Credit Concepts has relied primarily on secured
bank financing and shareholder loans to fund its purchase of contracts.
From inception to December 31, 1997, Credit Concepts borrowed an aggregate
of $386,000 from its management, and during the ensuing seven months ended July
31, 1998, it borrowed an additional $814,000 from Credit Concepts management
and $472,500 from friends and family of management in private transactions.
Most of these funds were borrowed pursuant to 12% promissory notes, most of
which are payable upon demand. Certain of these borrowings have been repaid
and an aggregate of $1,060,804 remained outstanding at October 31, 1999.
On June 15, 1999 Credit Concepts renewed its credit facility with Pacific
Continental Bank that establishes a $3,000,000 line-of-credit secured by Credit
Concepts' assets, including its contract and loan portfolio. Under the terms
of the loan agreement, Credit Concepts may borrow an amount equal to 75% of
eligible contract and loan accounts and is obligated, among other things, to
maintain: a tangible net worth of not less than $300,000, a debt to tangible
net worth ratio of 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 of
$3,000,000 by Tom W. Palmer and Eugene C. Albert and of $1,000,000 by Ted W.
Palmer, and compliance with the terms and conditions of all other agreements to
which it is a party. At October 31, 1999 Credit Concepts had outstanding
secured bank indebtedness of $2,647,954 pursuant to this credit facility.
As yet, Credit Concepts has not experienced difficulties in obtaining
financing. However, it has begun to reach the limits of its current bank line-
of-credit and expects to rely increasingly upon sales of the investment
certificates in the present offering 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 sell all of the $5,000,000 of investment
certificates in this offering within the ensuing twelve months, it does not
anticipate the need to raise additional funds from other sources, other than
through bank borrowings which it believes will then be available to it, within
that period. On June 15, 1999, Credit Concepts successfully renewed its credit
facility with Pacific Continental Bank, which provides a credit line of $3
million with a maturity date of December 15, 2000.
YEAR 2000 ISSUES.
- -----------------
Prior to January 1, 2000, Credit Concepts made inquiry of its computer,
communications, power and automobile suppliers, and, in particular, inquired of
its dealers whether any computer chip component in any make of used automobile
that serves as collateral for the Company's Contracts contains a real-time
clock that could be subject to failure, and received assurances that no
failures would occur. Further, Credit Concepts' automobile dealer suppliers
indicated that they did not expect any disruption in the availability and sale
of used vehicles as the result directly or indirectly of Year 2000 systems
failures. Fortunately, subsequent to December 31, 1999 nothing has occurred
that would suggest that the computers of Credit Concepts or of its suppliers,
or imbedded in the vehicles that serve as collateral for its contracts
receivable, are not Year 2000 compliant, and there has been no disruption of
any type in Credit Concepts' business. However, in view of the subtlety of the
problem and the unfamiliarity with the scope of the problem by many in the
business community, Credit Concepts could yet directly of indirectly encounter
some form of computer or service failures in future weeks or months that are
attributable to Year 2000 non-compliance. Nevertheless, Credit Concepts does
not expect that any such computer or service failures will have any material
effect upon Credit Concepts or its operations.
<PAGE>
BUSINESS
--------
Credit Concepts, Inc. is in the business of purchasing retail installment
contracts that have been originated by regional used automobile dealers in
connection with the financing of used automobiles and other vehicles. Upon the
purchase of a contract, Credit Concepts obtains the right to receive all
remaining payments under the contract and a security interest in the vehicle
financed. Credit Concepts seeks to collect the principal and interest due on
the contracts that it purchases. Credit Concepts does not acquire contracts in
bulk but acquires them individually, usually from originating used automobile
dealers, after a credit review and analysis of the specific borrower. Payments
under the contracts extend for up to 66 months, and it is the strategy of the
company to match approximately the maturities of the investment certificates in
this offering with the payment schedules under the contracts it purchases in
order to reduce the financial risks associated with unforeseen declines in
interest rates. Credit Concepts' operations consist primarily of evaluating
which contracts to purchase, negotiating the terms of the purchase, and
arranging for Credit Concepts' financing of the purchase.
Credit Concepts has recently received from the Oregon Department of
Consumer and Business Services a consumer finance license, which allows Credit
Concepts to make loans directly to the purchasers, primarily current and past
customers, of used vehicles. While Credit Concepts has not yet originated any
significant number of direct loans, it expects to continue to develop and
maintain its portfolio of accounts receivable primarily through the purchase of
contracts from dealers.
ECONOMY OF LANE COUNTY, OREGON.
- -------------------------------
The availability and credit-worthiness of the underlying borrowers on the
Credit Concepts' contracts are influenced by the state of the economy for Lane
County, Oregon, which includes the cities of Eugene and Springfield, the market
area for the used automobile dealers that originate Credit Concepts' contracts.
The timber and forest products industry and the University of Oregon have
historically been significant influences on the economy of Lane County, Oregon,
although in recent years an impact has resulted from the location of various
technology companies in the region. In recent years California has been an
important source of in-migration. In view of the sprawling lay-out of the
cities of Eugene and Springfield and surrounding neighborhoods, and of the fact
that, on the average, 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.
The following table shows population growth for Lane County since 1960:
<TABLE>
POPULATION OF LANE COUNTY, OREGON 1960 - 1990
---------------------------------------------
<CAPTION>
10-Year
Year Population Change
---- ---------- -------
<S> <C> <C> <C>
1960 162,890
1970 215,401 +32.2%
1980 275,226 +27.8%
1990 282,912 +2.8%
</TABLE>
The number of vehicles registered in Lane County has increased each year
over the past ten years. The following table shows the number of vehicle
licenses issued for vehicles in Lane County for each of the past ten years for
which information is available:
<TABLE>
NUMBER OF VEHICLE LICENSES ISSUED
FOR VEHICLES IN LANE COUNTY
---------------------------------
<CAPTION>
Year Number of Vehicle Licenses
---- --------------------------
<S> <C> <C>
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
</TABLE>
MARKETING.
- ----------
Credit Concepts does not originate a significant number of its own loans
on the sale of vehicles but relies primarily upon used automobile dealers in
the Lane County, Oregon area to originate them and sell the contracts to Credit
Concepts. In connection with its ongoing purchase of contracts, Credit
Concepts has entered into master dealer agreements with eighteen automobile
dealers that sell used automobiles to borrowers in Lane County, with three
dealers that sell used automobiles to borrowers in the neighboring counties of
Linn, Marion, Polk and Coos. These dealers also sell contracts to certain of
Credit Concepts' competitors.
Credit Concepts' has been able to purchase a reasonable number of
contracts upon advantageous terms from dealers that sell to borrowers within
Lane County and neighboring counties and expects to be able to continue to do
so for the foreseeable future. During the twelve months ended July 31, 1999,
Credit Concepts has purchased 25% in value of its vehicle contracts from Lithia
Toyota of Springfield, 14% in value of its vehicle contracts from Lithia Nissan
of Eugene, and 10% in value of its vehicle contracts from Kieffer's Eugene
Mazda. No other dealer has accounted for as much as 10% of the value of
vehicle contracts purchased during this period. Credit Concepts expects that
the purchase of contracts outside of Lane County will increase in the future as
management pursues its goal of improving the quality of the contract portfolio
by selecting contracts from a larger number of nearby dealers.
Credit Concepts has been issued by the Oregon Department of Consumer and
Business Services a consumer finance license that allows Credit Concepts to
make loans directly to the purchasers of used automobiles rather than having to
purchase the loans from the dealers after they have been made. However, Credit
Concepts expects to continue to purchase the major portion of the contracts in
its portfolio from used automobile dealers in and around Lane County.
Under the master dealer agreements, a contract may be purchased with full
and partial guarantees of the used automobile dealers selling the contracts.
Before entering into a master dealer agreement with a used automobile dealer,
Credit Concepts investigates the viability of the dealer to assess the ability
of the dealer to perform its guarantee or obligation to repurchase contracts in
the event of defaults on the contracts by the underlying borrowers.
Approximately 9.5% of the dollar value of contracts outstanding on July 31,
1999 were covered by full or partial guarantees by the used automobile dealers
supplying contracts to Credit Concepts.
VEHICLE CONTRACTS.
- ------------------
Almost all of Credit Concepts' business consists of the purchase and
collection of vehicle contracts from used automobile dealers. The form of the
contract is a standard one widely used within the automobile industry. The
price that Credit Concepts pays for a contract anticipates that total payments
under the contract will exceed the net cost of the vehicles, plus anticipated
financing and other costs, and a return to Credit Concepts. Under the terms of
the contract, the borrower is obligated to maintain, insure and pay taxes on
the vehicle for the term of the contract.
Credit Concepts' credit personnel personally review the credit record of
the underlying borrower for each contract that Credit Concepts purchases and,
based upon that review, make the decision whether or not to purchase the
contract. Credit Concepts purchases contracts individually after such a credit
review and as a matter of policy does not purchase contracts in bulk. Credit
Concepts considers a number of factors in determining the credit-worthiness of
the underlying borrowers for the contracts it purchases. Recently, for ease of
servicing the contracts, Credit Concepts has decided to limit its contract
purchases to those with borrowers that reside within seventy miles of Credit
Concepts' office. In this regard, roughly 35% of the borrowers under Credit
Concepts' contracts make their contract payments by personal visit to Credit
Concepts' office in Eugene, Oregon. Further, Credit Concepts' employees are
within a relatively short drive to most of the dealers from which it purchases
contracts and to the residences of the underlying borrowers, which allows the
employees to inspect vehicles before a contract is purchased and assists in
repossession upon a default, should either be necessary or desirable. The
close working relationship which Credit Concepts maintains with its automobile
dealers allows Credit Concepts' credit personnel to be apprised of surpluses
and shortages of particular makes and models of used automobiles in and around
Lane County, which provides insight at the time of contract purchase into the
extent of realization on the vehicle collateral in the event of default.
Credit Concepts does not buy contracts on vehicles owned by persons who are not
both employed and permanent residents of Lane County or a neighboring county.
Credit Concepts purchases contracts on a variety of vehicles. Certain
information for contract receivables as of July 31, 1999, and October 31, 1999,
is shown below:
<TABLE>
CERTAIN INFORMATION FOR CONTRACT AND LOAN RECEIVABLES
AS OF JULY 31, 1999 AND OCTOBER 31, 1999
--------------------------------------------
<CAPTION>
July 31 October 31
------------- ------------
<S> <C> <C>
Number of Contracts and Loans 1,234 1,375
Cost of Contracts and Loans $6,440,294 $7,008,506
Contract and Loan Receivables Outstanding $4,297,179 $4,224,899
Average Annual Percentage Rate (APR)
of Interest 30.9% 30.9%
Average Balance $ 4,293 $ 3,073
Average Term 37 months 36 months
Average Age 11 months 12.5 months
Average Payment per Month $ 217 $ 215
</TABLE>
Credit Concepts purchases contracts for a large variety of borrowers and
vehicles. The largest, smallest and average contracts purchased during the
twelve months ended July 31, 1999 were $20,771, $160 and $4,467, respectively.
The largest, smallest and average contracts purchased during the three months
ended October 31, 1999 were $14,500, $445 and $4,295, 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 had sufficient
operating experience to confirm the adequacy of the provisions for credit
losses on its contracts reflected on Credit Concepts' financial statements.
For the twelve months ended July 31, 1999, Credit Concepts has increased the
provision for credit losses to a level that is consistent with those of the
industry for this type of lending.
At July 31, 1999, the total balances owing on contracts receivable past
due from 60 to 89 days was $87,600, or 2.04% of total contracts receivable, and
on contracts receivable past due 90 days and over was $99,537, or 2.32% of
total contracts receivable. At October 31, 1999, total balances owing on
contracts and loans receivable past due from 60 to 89 days was $69,789, or 1.7%
of total contracts and loans receivable, and on contracts and loans past due 90
days and over was $97,721, or 2.7% of total contracts and loans receivable.
A contract receivable is considered past due if any portion of any
installment is or remains 30 days delinquent. Credit Concepts' policy is not
to extend or renew past due accounts. Credit Concepts stops accruing revenue
on a past due receivable when the account is in litigation, the vehicle is
repossessed, or at such earlier time as, in the judgment of management, full
collection of the contract becomes doubtful.
Credit Concepts itself does not engage in repossessions of collateral
vehicles but uses for this purpose the services of a licensed and bonded
independent contractor that specializes in vehicle repossessions. After the
vehicle is sold under the procedures of the collateral agreement, Credit
Concepts pursues the deficiencies to a judgment against the borrower and
collects by garnishment or other appropriate procedure.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws applicable to individuals, may limit or delay the ability of
Credit Concepts to repossess and resell vehicles under the contracts or
anticipated loans, or to enforce a deficiency judgment against a borrower under
a contract. Oregon law prohibits the collection of a deficiency judgment
following the repossession or voluntary surrender of a vehicle where the
balance due on the contract or loan is less than $1,250, but does not limit
Credit Concepts' right to collect the contract balance in situations where
Credit Concepts does not obtain possession of the vehicle or to collect damages
where the vehicle has been wrongfully damaged. In addition, Credit Concepts
may determine in its discretion that a deficiency judgment is not an
appropriate or economically viable remedy against a particular borrower, or may
settle at a significant discount any deficiency judgment that it does obtain.
Although Credit Concepts may obtain a security interest in the vehicles
for the payment of the contracts it acquires, and, when properly licensed will
include the loans it originates, Oregon state law provides for the priority
over Credit Concepts' security interest of statutory liens for certain repairs
made to or unpaid taxes assessed against a vehicle. In addition, federal laws
permit the confiscation of a vehicle used in unlawful activities - drugs or
prostitution, for example - that may serve as collateral for contracts and
loans. Those laws may result in the loss of Credit Concepts' priority security
interests in confiscated property or in additional expenses in recovering
confiscated property that serves as collateral for contracts or for loans. To
date, none of the vehicles serving as collateral for Credit Concepts' contracts
has been confiscated.
The following table shows Credit Concepts' realization experience on those
past due contracts receivable for which realization efforts have been completed
during the twelve months ended July 31, 1999, and the three months ended
October 31, 1999.
<TABLE>
PAST DUE CONTRACT RECEIVABLES FOR WHICH
REALIZATION EFFORTS HAVE BEEN COMPLETED
---------------------------------------
<CAPTION>
Number of Total Total Average
Period Past Due Amount Amount Percentage
Ending Contracts Past Due Realized Realized
- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C>
July 31 99 $504,007 $302,449 60.0%
October 31 31 $118,643 $ 62,464 53.0%
</TABLE>
The credit loss experience of Credit Concepts for the twelve months ended
July 31, 1999 and the three months ended October 31, 1999 is as follows:
<TABLE>
CREDIT LOSS EXPERIENCE
----------------------
<CAPTION>
Reserve at Additions to Chargeoff Reserve
Period beginning reserve charged net of at end
Ending of period to operations recoveries of period
- -------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
July 31 $191,000 $336,558 $201,558 $326,000
(8.3%)(1) (4.7%)(2) (7.7%)(3)
October 31 $326,000 $55,500 $56,179 $325,321
(7.8%) (1.5%) (7.7%)
- ---------------------
1 Percentage of new receivables for the period.
2 Percentage of average receivables outstanding.
3 Percentage of receivables outstanding at end of period.
</TABLE>
FINANCING OF CONTRACTS.
- -----------------------
Credit Concepts is continuously engaged in financing in order to be able
to purchase contracts from automobile dealers as vehicles are sold to qualified
borrowers. To date Credit Concepts has relied primarily upon bank borrowings
and the purchase of debt and equity by its founders and others for this
purpose. However, Credit Concepts has begun to reach the limits of its
presently available bank credit and, like certain of its competitors, is now
seeking to finance a portion of its contracts through the sale of unsecured
investment certificates, which is the purpose of this offering. Credit
Concepts intends to finance the purchase a portion of its contracts in this
manner for the indefinite future.
Credit Concepts has entered into loan agreements and issued promissory
notes in connection with its bank lines-of-credit. Those agreements and
promissory notes require Credit Concepts to comply with and maintain various
financial and other covenants in order to avoid default. Those covenants
include the necessity to maintain a minimum net worth of $300,000 and a debt to
tangible net worth ratio of 10 to 1 at December 31, 1999, which it did, as well
as for it to comply with payment and performance obligations of its bank lines-
of-credit and other contractual obligations. Credit Concepts' bank
indebtedness is secured by all of its assets, including its finance receivable
portfolio. The investment certificates are unsecured, but the proceeds from
their sale will be used to purchase contracts that serve as collateral for the
bank indebtedness. For this reason, the unsecured debt represented by the
certificates will be treated as equity for purposes of the ratios and capital
minimums that must be maintained under the bank line-of-credit agreement. As a
result, sale of the certificates in this offering and the purchase of contracts
with the proceeds will increase the assets of Credit Concepts available as
collateral for its bank line-of-credit and is expected to allow Credit Concepts
to increase the size of its bank line of credit should it desire to do so.
Credit Concepts plans for its business to grow significantly in ensuing
years through the purchase of contracts and the origination of loans.
Virtually all of this increase in business is expected to be financed by a
corresponding increase in Credit Concepts' indebtedness of all types, including
bank indebtedness and the sale and issuance of investment certificates.
Credit Concepts intends to apply the proceeds from the present offering of
investment certificates 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 Credit Concepts'
borrowing ability. To the extent that the proceeds from this offering are used
to purchase contracts rather than to pay down the line of credit, these
contracts will serve as additional collateral under the line of credit and
increase the amount that may be borrowed. It is expected that these credit
resources will enable the orderly repayment of principal and interest on the
investment certificates as they come due.
COMPETITION.
- ------------
Credit Concepts consumer credit business is highly competitive with other
consumer credit businesses in Lane County, Oregon and neighboring counties.
Most of Credit Concepts' competitors are more established, larger and have
greater resources than does Credit Concepts. In addition to companies that
engage in the consumer credit business in and around Lane County, Oregon, many
banks, financial institutions and other types of finance companies in Credit
Concepts' market area originate and purchase used vehicle contracts and offer
consumers debt investment instruments in competition with Credit Concepts.
Competition is generally based upon the price paid for contracts, which
determines the rate of return, and the interest rate on the investment
instruments, as well as the credit-worthiness of the underlying borrowers. An
increase in competition in the financing of vehicle contracts in Credit
Concepts' market area may decrease the return from such contracts to Credit
Concepts.
GOVERNMENTAL REGULATION.
- ------------------------
Credit Concepts is subject to significant governmental regulation at both
the federal and state levels. Numerous federal and state consumer laws and
related regulations impose substantial requirements upon lenders and services
involved in consumer finance, and upon the origination and collection of
consumer loans, including Credit Concepts' loans, and retail installment
contracts. Some laws and regulations with which Credit Concepts must comply
include, together with other similar federal and state laws:
o The Truth-in-Lending Act
o The Equal Credit Opportunity Act
o The Federal Trade Commission Act
o The Fair Credit Billing Act
o The Fair Credit Reporting Act
o The Fair Debt Collection Practices Act
o The Magnuson-Moss Warranty Act
o The Federal Reserve Board's Regulations B and Z
o The Federal Consumer Credit Protection Act
o The Oregon Unlawful Debt Collection Practices
Oregon law also contains express statutory provisions regulating the form,
content, terms and enforcement of retail installment contracts involving motor
vehicles.
A rule of the Federal Trade Commission and certain provisions of Oregon
law have the effect of subjecting Credit Concepts to all claims and defenses
which the borrower in the transaction could assert against the automobile
dealer that sold the vehicle. In addition, in order to conduct its consumer
loan business, Credit Concepts must continue to maintain its consumer finance
license from the state of Oregon in good standing.
Credit Concepts believes it currently holds all material licenses
necessary to carry on its business as presently conducted in the state of
Oregon. Any failure of Credit Concepts to maintain its licenses should not
affect the quality of its then existing portfolio of contracts.
EMPLOYEES.
- ----------
Credit Concepts has a total of 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. Credit Concepts also
uses the services of an independent contractor in repossession efforts and
another for bookkeeping services.
Credit Concepts provides partial medical benefits to its employees.
Credit Concepts has recently established an IRA program for its employees and
will contribute matching funds, subject to certain limitations. Credit
Concepts believes that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS.
- ------------------
Except for routine litigation by Credit Concepts to obtain deficiency
judgments upon defaulted contracts in the ordinary course of its business,
neither Credit Concepts nor any of its property is a party to any pending legal
proceeding.
PROPERTY
--------
Credit Concepts maintains an approximately 1,300 square foot leased office
at 2149 Centennial Plaza, Suite 2, Eugene, Oregon pursuant to a three-year
lease that expires on October 31, 2000. The annual rental rate is currently
$15,233, which will increase to $15,840 in the third year. Payments under the
lease are guaranteed by two of Credit Concepts' founders. Credit Concepts owns
certain computer equipment and office furniture at its office and is expected
to acquire similar equipment needed as operations expand. Credit Concepts
expects that its offices will be adequate for its purposes for the foreseeable
future.
MANAGEMENT
----------
The Officers and Directors of Credit Concepts are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C> <C>
Tom W. Palmer President and Director
Eugene C. Albert Vice-President, Secretary and Director
F. Scott Graham Vice-President 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 and Director. Tom W. Palmer has been the
Company's President and Chief Executive Officer since it was founded in August,
1997. Mr. Palmer's duties with Credit Concepts include developing and
maintaining banking and investor relations, managing the purchasing of
contracts for Credit Concepts' loan portfolio, financial management, business
development and the development and implementation of Credit Concepts
investment certificate financing program described in this prospectus. For in
excess of five years prior to that time he was president and a director of RDS
Inc. d.b.a. Mobile Advantage of Eugene, Oregon, which designs and manufactures
custom food delivery vehicles, primarily for retail food outlets. Mr. Palmer
also served as secretary and director of Woodcrafters Cabinets Inc., which
ceased doing business in 1997.
EUGENE C. ALBERT, 42, Vice-President, Secretary and Director. Eugene C.
Albert has acted as Credit Concepts' Vice President, Secretary and Chief
Financial Officer since its inception in August, 1997. His duties include
coordination of capital funding of Credit Concepts, evaluating and managing
credit losses, and the supervision of financing and credit operations. For in
excess of five years prior to his employment by Credit Concepts, Mr. Albert
served as secretary-treasurer and a director of Mansell Development. Inc., a
real estate development company in Eugene, Oregon, for which he was responsible
for arranging development and long-term financing.
F. SCOTT GRAHAM, 37, Vice President of Operations. F. Scott Graham has
been employed in the financial service industry since 1981. Mr. Graham has
held various positions, more recently vice president of operations, for the
Auto Finance Division of The Money Store. During Mr. Graham's tenure with The
Money Store, he supervised indirect auto financing for its Western Division,
which consisted of 20 dealer service centers and had assets in excess of $250
million. Mr. Graham supervised the operations in marketing, risk management,
compliance, training, lending, collections, profit and loss, locations and
human resource issues.
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.
COMPENSATION.
- -------------
The cash and other direct remuneration of members of management of Credit
Concepts for the fiscal year ended July 31, 1999 is as follows:
<TABLE>
DIRECT COMPENSATION TO MANAGEMENT FOR 1999
------------------------------------------
<CAPTION>
Name Position Salary Other
---- -------- -------- -------
<S> <C> <C> <C> <C>
Officers, Directors and Management as a Group 1 $148,608 $16,903
- -----------------
1 Consists of Tom W. Palmer, Eugene C. Albert, Kimberly M. Coleman and Ted
W. Palmer. Ms. Coleman resigned as General Manager of Credit Concepts
effective June 4, 1999.
</TABLE>
Credit Concepts had entered into a five-year employment agreement expiring
September 15, 2002 with Kimberly M. Coleman pursuant to which Ms. Coleman acted
as Credit Concepts' General Manager. Under the terms of the agreement, Ms.
Coleman received an annual salary commencing at $48,000 and increasing to
$60,000, plus annual bonuses of 0.85% of contracts receivable booked, with
limits of $15,000 the first year and $20,000 the second year, and thereafter of
6% of Credit Concepts' net profits, without limitation. The agreement
precludes Ms. Coleman from competing with Credit Concepts for two years
following termination, except for termination by Credit Concepts without cause.
Ms. Coleman resigned as General manager of Credit Concepts effective June 4,
1999.
CERTAIN TRANSACTIONS.
- ---------------------
In connection with the founding of Credit Concepts in August, 1997, Tom W.
Palmer, Eugene C. Albert and Ted W. Palmer were issued equal amounts of the
equity interests of Credit Concepts, L.L.C., and on January 20, 1998 the assets
of that limited liability company were transferred to Credit Concepts, Inc. On
January 20, 1998, each of those persons purchased 100 shares of capital stock
of that corporation for $50,000. Each of such persons paid $10,000 of such
amount in cash and $40,000 of such amount by giving a $40,000 promissory note
to Credit Concepts. In July, 1999 the shareholders converted an additional
$20,000 each from shareholder notes receivable to reduce Stock Subscriptions
Receivable by $60,000.
By 12% unsecured demand loans, Eugene C. Albert, the Vice-President,
Secretary and a Director of Credit Concepts, lent an aggregate of $78,000 to
Credit Concepts between October 1997 and March 1998. By similar loans,
Kimberly M. Coleman, the General Manager of Credit Concepts, and her husband
lent an aggregate of $67,500 to Credit Concepts between January and April 1998.
By similar loans, Tom W. Palmer, the President and a Director of Credit
Concepts, and his wife lent an aggregate of $173,000 to Credit Concepts between
November 1997 and June 1998. By similar loans, Ted W. Palmer, a Director of
Credit Concepts, lent an aggregate of $600,000 to Credit Concepts between
October 1997 and June 1998. These unsecured loans are on a parity with the
investment certificates in the present offering.
In addition, Tom W. Palmer and Eugene C. Albert have each guaranteed an
aggregate of $3,000,000 under Credit Concepts' secured bank line-of-credit, and
Ted W. Palmer has guaranteed an aggregate of $1,000,000 under that line-of-
credit. If Tom W. Palmer, Ted W. Palmer and Eugene C. Albert should be required
to pay under the guarantees bank indebtedness, they would succeed to the banks'
secured rights with respect to the indebtedness, including rights to
collateral.
In July, 1998, Tom W. Palmer, Eugene C. Albert and Ted W. Palmer became
personally liable on a $450,000 unsecured loan by South Umpqua State Bank.
This loan accrues interest at the rate of 9.25% per annum and is due in full on
August 1, 2000. These persons lent the money to Credit Concepts on the same
basis.
In April and June, 1998, Credit Concepts borrowed $40,000 and $70,000,
respectively, from Amvesco, Inc. dba Western Pioneer Title Co. of Lane County.
Tom W. Palmer and Eugene C. Albert are personally obligated on these loans, and
Mr. Albert has collateralized these loans with real estate owned by him.
Credit Concepts' founders, Tom W. Palmer, Eugene C. Albert and Ted W.
Palmer, have agreed not to demand payment of the notes they hold until on or
after December 31, 2000.
Tom W. Palmer and Eugene Albert have personally guaranteed the payments
under the three-year lease of Credit Concepts' principal offices, which expires
October 31, 2000. The current annual rental rate under the lease is $15,233,
which increases to $15,840 in the third year.
In the future, all material transactions and loans between Credit Concepts
and affiliated persons, including its owners and directors Tom W. Palmer,
Eugene C. Albert and Ted W. Palmer, will be entered into on terms that are no
less favorable to Credit Concepts than those that can be obtained from
unaffiliated third parties. Further, all future transactions and loans, and
any forgiveness of loans, with affiliated persons will be approved by a
majority of Credit Concepts' then independent directors who do not have an
interest in the transactions and who have had access, at Credit Concepts'
expense, to Credit Concepts' or independent legal counsel.
<PAGE>
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth information concerning the shares of Credit
Concepts' common stock presently owned of record and beneficially by each
person known to Credit Concepts to own of record or beneficially 5% or more of
Credit Concepts' common stock; each officer or director of Credit Concepts who
owns of record or beneficially any common stock; and stock holdings of all
officers and directors of Credit Concepts as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------------------------
OWNER'S PERCENT AFTER
NAME & ADDRESS SHARES PERCENT THIS OFFERING
- -------------- ------ ------- -------------
<S> <C> <C> <C>
Tom W. Palmer 100 33.3% 33.3%
2274 Marie Lane
Eugene, OR 97408
Eugene C. Albert 100 33.3% 33.3%
2358 Birch Lane
Eugene, OR 97403
Ted W. Palmer Trust 100 33.3% 33.3%
Almost Idaho Ranch
Shearer Lake on Bench Road
Newport, WA 99156
(All Officers and
Directors as a Group) 300 100.0% 100.0%
</TABLE>
Tom W. Palmer, Eugene C. Albert and Ted W. Palmer may be deemed to be
promoters and parents of Credit Concepts within the meaning of the Securities
Act of 1933 and state securities laws.
Tom W. Palmer, Eugene C. Albert and Ted W. Palmer through the Ted W.
Palmer Trust have entered into an agreement granting each other a right to
purchase their respective shares in Credit Concepts from each other and an
option first for Credit Concepts to purchase, and then for each other to
purchase, the shares of any of them that may become deceased, disabled or
divorced. This arrangement is intended to foster stability within Credit
Concepts by inhibiting a change in control of Credit Concepts upon the death,
disability or divorce of any of the founding shareholders.
<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
Credit Concepts' three directors are its founders and the owners of all of
its outstanding capital stock, all of which is common stock.
The only other securities outstanding as of July 31, 1999 are $1,149,908
of unsecured promissory notes, most of which accrue interest at the rate of 12%
per annum, held by Credit Concepts' management and others with relationships to
Credit Concepts or its management. These promissory notes and the investment
certificates in this offering are unsecured obligations that are on a par with
one another in right of payment; that is, holders of the promissory notes and
investment certificates would both share as general creditors of Credit
Concepts in the event of any liquidation of Credit Concepts. Credit Concepts'
existing $3,000,000 line-of-credit, of which $2,695,509 was outstanding at July
31, 1999, and all future lines of credit from third party lenders, is and shall
be secured by Credit Concepts' assets, including its contract and loan
portfolio, which constitutes Credit Concepts' principal asset.
INVESTMENT CERTIFICATES.
- ------------------------
The investment certificates in this offering consist of fixed-rate short-
term investment certificates and fixed-rate long-term investment certificates
that are unsecured general obligations of Credit Concepts. Certificates are
being offered in denominations of $1,000, and purchasers will be registered as
the holders of the certificates on the books of Credit Concepts. Interest on
the certificates will be paid to holders within the first five days of each
calendar quarter.
Interest on the investment certificates accrues at a fixed rate, which is
determined at the time of sale. The interest rate for investment certificates
sold in any month is determined by reference to the prime rate of interest as
reported by the Wall Street Journal on the last day of the previous month. The
interest rate for short-term investment certificates is 1.50% over the prime
rate, but shall not exceed 11.00% nor be less than 6.00%. The interest rate
for long-term investment certificates is 2.00% over the prime rate, but shall
not exceed 12.00% nor be less than 6.00%. Any changes in the interest rate
applicable to new certificates will have no effect upon the interest rate or
terms applicable to certificates then outstanding.
The terms of the investment certificates are two years for the short-term
investment certificates and four years for the long-term investment
certificates.
You may liquidate your certificates at any time prior to the date of
maturity upon 90 days notice to Credit Concepts, but upon Credit Concepts'
receipt of such pre-maturity liquidation notice, no interest will be earned on
the certificates after receipt of the notice. On the date of maturity of a
certificate, you should present it to Credit Concepts for payment, as interest
on the certificate ceases to accrue after that date.
If interest on an investment certificate is not timely paid within ten
days of the payment date, the entire sum of principal and interest shall, at
your option, immediately become due and payable upon written demand to Credit
Concepts. In the event you are required to institute collection proceedings on
an investment certificate, Credit Concepts will pay all your costs, including
reasonable attorneys fees.
There is no collateral or security interest securing repayment of the
certificates, no guarantees or insurance by governmental agencies or other
third parties assuring repayment of the certificates, no sinking fund, and no
provision for the payment of any amount of principal prior to maturity. As an
unsecured general creditor of Credit Concepts, in the event of liquidation of
Credit Concepts, you as a holder of certificates would share equally with other
general creditors of Credit Concepts in the remaining unsecured assets of
Credit Concepts, if any. The certificates are subordinated to any and all
third party loans to Credit Concepts both now and in the future.
You may transfer your certificates on Credit Concepts' certificate
ownership records by signing the form of assignment on the back of the
certificate and delivering it to Credit Concepts for registration of the
transfer on Credit Concepts' books so that the new owner may receive subsequent
interest payments. However, there is no trading market for Credit Concepts
investment certificates, and Credit Concepts does not expect that a trading
market will arise in the future.
COMMON STOCK.
- -------------
All of the shares of common stock of Credit Concepts are owned by Credit
Concepts founders and no common stock is being offered to investors in this
offering.
Each holder of common stock is entitled to one vote for each share held of
record and to a pro-rata share of any dividends declared on the common stock by
the Board of Directors from funds legally available therefor. Upon liquidation
of Credit Concepts, each stockholder is entitled to share ratably in any assets
available for distribution after payment of all debts, including all investment
certificates. Stockholders have no preemptive, conversion or other
subscription rights and there are no redemption rights or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are validly issued, fully paid and non-assessable.
<PAGE>
PLAN OF DISTRIBUTION
--------------------
Credit Concepts is offering the investment certificates directly to
investors through Tom W. Palmer, the President and a Director of the Company,
and Eugene C. Albert, the Vice-President and a Director of the Company, who
will not receive a commission or other special compensation for these efforts.
In order to be eligible to invest in this offering, you must have:
o Either a net worth of at least $150,000.
OR
o A net worth of at least $75,000 plus a net income of at least
$75,000.
o In addition, purchases of investment certificates in the aggregate
may not exceed 10% of your net worth.
In calculating "net worth," the value of home, home furnishings and
personal automobiles should be excluded, and all assets should be valued at
fair market value.
Credit Concepts is required to make a reasonable effort to determine
whether or not an investment in the investment certificates is suitable and an
appropriate investment for you based upon your financial situation and
investment objectives. Accordingly, you must affirmatively represent the
existence of these investment criteria and other personal circumstances on the
subscription agreement used in purchasing your investment certificates. A copy
of the subscription agreement appears at the end of this prospectus. You may
obtain additional copies of the subscription agreement from Credit Concepts
upon request.
Credit Concepts will not sell investment certificates during any period in
which its "debt to net worth" ratio exceeds 6 to 1 without the injection of
sufficient capital into Credit Concepts to bring that ratio below that level.
This debt to net worth ratio will be determined on the last day of each fiscal
quarter and calculated as a ratio of total liabilities to adjusted net worth.
For purposes of the ratio, "adjusted net worth" means total capital and surplus
(net stockholders' equity), plus debt which is subordinated to bank borrowings,
minus the sum of equipment and leasehold improvements net of depreciation and
amortization and goodwill, going concern value and other intangibles as
reflected on the balance sheet.
As corporate officers and directors, Messrs. Palmer and Albert are subject
to indemnification under Credit Concepts' by-laws against, among other things,
liability under the Securities Act of 1933. To the extent that indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
Messrs. Palmer and Albert, Credit Concepts has been advised that in the opinion
of the Securities and Exchange Commission this indemnification is against
public policy as expressed in that act and is, therefore, unenforceable.
- -------------------------------------------------------------------------------
In order to purchase investment certificates, investors should fill out
the subscription agreement at the end of, or accompanying, this prospectus and
forward it, together with a check or money order for the purchase price, to Tom
W. Palmer, President, or Eugene C. Albert, Vice-President, Credit Concepts,
Inc., 2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401, telephone (541) 342-
8545. The purchased investment certificates, in denominations of $1,000, will
be registered in the names of the respective investors on the books of Credit
Concepts and promptly forwarded to them at the addresses set forth on the
subscription agreement.
- -------------------------------------------------------------------------------
LEGAL MATTERS
-------------
The legality of the investment certificates has been passed upon by Karr
Tuttle Campbell, Portland, Oregon.
EXPERTS
-------
The balance sheets as of July 31, 1999 and the related statements of
income, cash flows and changes in stockholders' equity for the twelve months
ended July 31, 1999 included in this prospectus have been included in reliance
on the report of Moss Adams LLP, independent auditors, given upon the authority
of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
----------------------
Credit Concepts has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 with
respect to the investment certificates. This prospectus, which constitutes a
part of the registration statement, omits certain information contained in
accordance with the Securities Act and the rules and regulations of the
Commission thereunder. For further information with respect to Credit Concepts
and the investment certificates, please see the registration statement and its
exhibits and schedules filed with the Commission. Statements contained in this
prospectus concerning the provisions of such documents are necessarily
summaries of such documents, and you should refer to the copy of the applicable
document filed with the Commission as an exhibit to the registration statement
for complete details. The registration statement and the exhibits thereto may
be inspected, without charge, at the public reference facilities of the
Commission at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and its public reference facilities in New York, New York, and Chicago,
Illinois, at prescribed rates. In addition, the registration statement and its
exhibits and schedules may be accessed electronically at the Commission's Web
site on the Internet at www.sec.gov.
Credit Concepts is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended and, in files periodic reports and
other information with the Commission. Such reports and other information can
be inspected and copied at the addresses, and may be accessed electronically at
the above web site.
<PAGE>
CREDIT CONCEPTS, INC.
---------------------
FINANCIAL STATEMENTS
Year Ended July 31, 1999 and 7 Months
Ended July 31, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to the Financial Statements 6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Credit Concepts, Inc.
Eugene, Oregon
We have audited the accompanying balance sheets of Credit Concepts, Inc. as of
July 31, 1999 and 1998, and the related statements of income, stockholders'
equity, and cash flows for the year ended July 31, 1999, and period from
January 1, 1998, to July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Credit Concepts, Inc. as of
July 31, 1999 and 1998, and the results of its operations and its cash flows
for the year and period then ended, in conformity with generally accepted
accounting principles.
/s/ Moss Adams LLP
Portland, Oregon
September 15, 1999
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
July 31, 1999 and 1998
<CAPTION>
ASSETS
------
1999 1998
----------- -----------
<S> <C> <C>
Cash $ 81,904 $ 55,003
----------- -----------
Finance receivables (Note 2):
Contracts 3,807,582 4,325,162
Direct loans 489,597 -
Loan origination costs 53,662 35,148
Allowance for credit losses (326,000) (191,000)
----------- -----------
Finance Receivables, Net 4,024,841 4,169,310
Interest receivable on contracts 67,300 64,500
Equipment and leasehold improvements,
net (Note 3) 29,079 33,685
Other assets 26,113 41,133
----------- -----------
TOTAL $4,229,237 $4,363,631
- ----- =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
- -----------
Debt (Note 4):
Bank line of credit $2,695,509 $2,687,431
Other notes payable 211,000 301,500
Subordinated notes payable to stockholders 938,908 1,165,976
Accounts payable and accrued expenses 14,800 14,305
Interest payable 40,294 23,149
Deferred income 28,466 -
----------- -----------
Total Liabilities 3,928,977 4,192,361
----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, no par value, 1,000 shares
authorized, 300 issued and outstanding 150,000 150,000
Stock subscription receivable (60,000) (120,000)
Additional paid-in-capital 206,842 206,842
Retained earnings 3,418 (65,572)
----------- -----------
Total Stockholders' Equity 300,260 171,270
----------- -----------
TOTAL $4,229,237 $4,363,631
- ----- =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF INCOME
For The Year Ended July 31, 1999 And The 7 Months Ended July 31, 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
- --------
Interest on contracts $1,295,228 $ 468,116
Other income 4,882 3,140
---------- -----------
Total Revenues 1,300,110 471,256
---------- -----------
EXPENSES
- --------
Interest 468,719 154,671
Salaries and benefits 200,631 79,584
Provision for credit losses (Note 2) 336,558 231,129
Other operating expenses 225,212 71,444
---------- -----------
Total Expenses 1,231,120 536,828
---------- -----------
NET INCOME (LOSS) $ 68,990 $ (65,572)
- ----------------- ========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For The Year Ended July 31, 1999 and the
7 Months Ended July 31, 1998
<CAPTION>
Credit
Concepts,
LLC Credit Concepts, Inc.
---------- -----------------------------------------------------------------
Stock Additional
Members' Common Subscription Paid-in Retained
Equity Stock Receivable Capital Earnings Totals
---------- ----------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at $ 407,842 $ - $ - $ - $ - $ 407,842
December 31, 1997
Transfer of Interest
to Corporation at
1/1/98 in exchange
for:
Stocks (236,842) 30,000 - 206,842 - -
Notes (171,000) - - - - (171,000)
Additional stock
subscriptions - 120,000 (120,000) - - -
Net (loss) - - - - (65,572) (65,572)
---------- ----------- ------------ ---------- --------- ----------
Balance at
July 31, 1998 - 150,000 (120,000) 206,842 (65,572) 171,270
Payments received - - 60,000 - - 60,000
Net Income - - - - 68,990 68,990
---------- ----------- ------------ ---------- --------- ----------
Balance at
July 31, 1999 $ - $ 150,000 $ (60,000) $ 206,842 $ 3,418 $ 300,260
========== =========== ============ ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
For The Year Ended July 31, 1999 and the
7 Months Ended July 31, 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net Income (Loss) $ 68,990 $ (65,572)
----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for credit losses on
finance receivables 336,558 231,129
Depreciation and amortization 9,810 37,616
Recoveries of finance receivables
previously charged off 302,449 42,665
Changes in assets and liabilities:
Accrued interest on finance receivables (2,800) (64,500)
Loan origination costs (18,514) (35,148)
Other assets 15,020 (57,081)
Accounts payable, accrued and other
liabilities 17,640 34,174
Deferred income 28,466 -
----------- ----------
Total Adjustments 688,629 188,855
----------- ----------
Net Cash Provided by Operating Activities 757,619 123,283
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
- -----------------------------------
Loans and contracts originated or
purchased (2,886,555) (4,410,614)
Loans and contracts repaid 2,410,531 478,778
Additions to equipment and
leasehold improvements (5,204) (8,655)
----------- -----------
Net Cash (Used) by Investing Activities (481,228) (3,940,491)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from debt 507,545 4,506,664
Repayment of debt (757,035) (662,757)
----------- -----------
Net Cash Provided (Used) by Financing
Activities (249,490) 3,843,907
----------- ----------
NET INCREASE IN CASH 26,901 26,699
- --------------------
CASH AT BEGINNING OF PERIOD 55,003 28,304
- --------------------------- ----------- -----------
CASH AT END OF PERIOD $ 81,904 $ 55,003
- --------------------- =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business Activity
- -----------------
Credit Concepts, Inc. (the Company) is in the business of purchasing retail
installment contracts from automobile dealers in connection with the financing
of used automobiles and making loans directly to consumers. The Company
originally formed on August 29, 1997, as Credit Concepts, L.L.C. and began
operations during October 1997. Effective January 1, 1998, the Company
incorporated the operations into the existing entity via a tax-free
incorporation.
Use Of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Finance Receivables
- -------------------
Finance receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by any charge-off or specific
valuation accounts and net of any deferred fees or costs on originated loans,
or unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related contract or loan.
Provisions for credit losses are recognized in amounts sufficient to maintain
the allowance for credit losses at a level adequate to cover losses of
principal and accrued interest in the existing finance receivable portfolio.
The allowance for credit losses is based upon management's evaluation of the
economic environment and the condition of outstanding loans and contracts
receivable at year end. In addition, management reviews comparable industry
information, delinquency status of loans and recency of payments received. All
of these elements are considered in determining the adequacy of the provision
for credit losses.
During the year, the unpaid balances of delinquent contracts receivable in
excess of any related dealer guarantees are charged against the allowance for
credit losses when management determines that no further collection efforts are
economically beneficial. Changes in the allowance for credit losses may occur
in the near term and such changes may be material to the financial position,
results of operations and cash flows.
Interest Income Recognition
- ---------------------------
For financial statement purposes, interest income from finance receivables is
recognized using the interest method. Accrual of interest income on finance
receivables is suspended when the Company's management determines the loan
recovery to be doubtful. While a loan is classified as nonaccrual and the
future collectibility of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction of principal.
Equipment And Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization is provided on a straight-line basis over the estimated useful
lives of the related assets. Maintenance and repairs are charged to expense as
incurred; expenditures for additions, improvements and replacements are
capitalized. Upon disposal or retirement of assets, the accounts are relieved
of the related costs and accumulated depreciation and resulting gains or losses
are recognized in operations.
Deferred Income
- ---------------
Deferred income consists of deferred loan fees and insurance commissions.
These are recognized into income as an adjustment to yield using the straight-
line method over the term of the related contracts or loans.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Corporate Form And Income Taxes
- -------------------------------
As noted, on January 1, 1998, Credit Concepts, Inc. converted from a Limited
Liability Company to an S Corporation pursuant to the Internal Revenue Code.
As an S Corporation, the income tax liability arising from the taxable earnings
of the Company is the responsibility of the stockholders. 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. These differences were not significant at July 31, 1999.
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.
NOTE 2 - FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
- -------------------------------------------------------------
As of July 31, 1999, information regarding the finance receivables is as
follows:
<TABLE>
<S> <C>
Number of contracts and loans 1,234
Average Annual Percentage Rate (APR) of interest 30.9%
Average original balance $ 5,213
Average term of contract 160 wks
Average age of contract 48 wks
Average payment per week $ 50
</TABLE>
The terms of contracts are generally from one to five years. The Company
anticipates that a majority of contracts will be paid or renewed prior to
contractual maturity dates. Cash collections of finance receivables from
August 1, 1998 to July 31, 1999, were $2,410,531. Additionally, the ratio of
cash collections to average period-end balances was approximately 56% for the
year ended July 31, 1999.
Change in the allowance for credit losses is as follows:
<TABLE>
<S> <C>
Balance at January 1, 1998 $ -
Provision charged to expense 231,129
Accounts charged off (82,794)
Recoveries 42,665
-------------
Balance at July 31, 1998 191,000
Provisions charged to expense 336,558
Accounts charged off (504,007)
Recoveries 302,449
-------------
Balance at July 31, 1999 $ 326,000
=============
</TABLE>
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- ----------------------------------------------
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Computer equipment $ 25,945 $ 21,777
Office furniture and equipment 14,817 13,705
Leasehold improvements 2,142 2,223
----------- ----------
42,904 37,705
Less: Accumulated depreciation and
amortization (13,835) (4,020)
----------- ----------
$ 29,079 $ 33,685
=========== ==========
</TABLE>
NOTE 4 - DEBT
- -------------
Following is a summary of all debt held by the Company at July 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Bank line of credit (available credit line -
$3,000,000) - without collateral, interest
at the institution's prime rate (8% at July
31, 1999) plus 2%, due December 15, 2000,
guaranteed by the stockholders of Credit
Concepts, Inc. $ 2,695,509 $ 2,687,431
----------- -----------
Notes payable to various individuals - without
collateral, maturities to 2004, with interest
from 10% to 12%. 211,000 240,000
Notes payable to related party - without
collateral, no maturity, with interest at 12%. - 61,500
----------- -----------
Total other notes payable 211,000 301,500
Subordinated notes payable to stockholders -
without collateral, no stated maturity, with
interest at 12%. 938,908 1,165,976
----------- -----------
Total $ 3,845,417 $ 4,154,907
=========== ===========
</TABLE>
The subordinated notes payable provide for subordination to any present and
future debt owed by Credit Concepts, Inc. to any bank, insurance company or
other financial institution. Subordinated debt with stockholders and officers
of Credit Concepts, Inc. of $938,908 is also subordinated to other notes
payable of $211,000.
Scheduled maturities of debt in subsequent fiscal years are as follows:
<TABLE>
<S> <C> <C>
2000 $ 2,755,509
2001 -
2002 -
2003 -
2004 -
Thereafter 1,089,908
------------
3,845,417
============
</TABLE>
NOTE 5- OPERATING LEASES
- ------------------------
The company leases its office space in Eugene, Oregon under an operating lease
expiring on October 31, 2000.
The minimum future rental payments under this non-cancelable operating lease
are:
<TABLE>
<S> <C> <C>
Year ending July 31, 2000 $ 15,690
" " " " 2001 3,960
------------
$ 19,650
============
</TABLE>
NOTE 6 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Cash paid during the year for interest $ 451,574 $ 131,522
</TABLE>
Non-cash financing activities consisted of issuance of additional stock
subscriptions in the amount of $120,000, during 1998.
NOTE 7 - 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 interest rates as of July 31, 1999.
NOTE 8 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
Financial investments which potentially subject the company to credit risk
consist of cash and finance receivables. The company's cash balances are with
reputable banks and periodically exceed insured limits. The company's finance
receivables are from customers in the Eugene/Springfield area of Oregon.
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
------
October 31
(Unaudited) July 31
-------------------------- ------------
1999 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Cash $ 89,959 $ 118,324 $ 81,904
------------ ------------ ------------
Finance receivables:
Contracts 3,675,775 4,505,247 3,807,582
Loans 549,124 - 489,597
Loan origination costs 53,763 64,955 53,662
Unearned discounts on contracts (3,807) - -
Allowance for credit losses (325,321) (257,000) (326,000)
------------ ------------ ------------
Finance Receivables, Net 3,949,534 4,313,202 4,024,841
------------ ------------ ------------
Interest receivable on contracts 71,123 63,000 67,300
Equipment and leasehold
improvements, net 30,602 35,465 29,079
Other assets 20,014 19,129 26,113
------------ ------------ ------------
TOTAL $ 4,161,232 $ 4,549,120 $ 4,229,237
============ =========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
October 31
(Unaudited) July 31
--------------------------- ------------
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES
- -----------
Debt:
Bank line of credit $ 2,647,954 $ 2,935,431 $ 2,695,509
Other notes payable 178,500 294,643 211,000
Subordinated notes payable
to stockholders 882,304 1,102,599 938,908
Investment certificates 35,000 - -
Accounts payable and accrued
expenses 24,459 5,619 14,800
Interest payable 34,276 32,834 40,294
Deferred income 30,466 - 28,466
------------ ------------ ------------
Total Liabilities 3,832,959 4,371,126 3,928,977
------------ ------------ ------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, no par value,
1,000 shares authorized,
300 issued and outstanding 150,000 150,000 150,000
Stock subscription receivable (60,000) (120,000) (60,000)
Additional paid-in-capital 206,842 206,842 206,842
Retained earnings (deficit) 31,431 (58,848) 3,418
------------ ------------ ------------
Total Stockholder's Equity 328,273 177,994 300,260
------------ ------------ ------------
TOTAL $ 4,161,232 $ 4,549,120 $ 4,229,237
- ----- ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF INCOME
<CAPTION>
Three Months
Ended October 31
(Unaudited)
-------------------------
1999 1998
--------- ----------
<S> <C> <C>
REVENUES
- --------
Interest on contracts $ 310,751 $ 352,227
Other income 1,628 810
Collection charges 5,079 -
--------- ----------
Total Revenues 317,458 353,037
--------- ----------
EXPENSES
- --------
Interest 112,527 140,894
Salaries and benefits 58,924 39,373
Provision for credit losses 55,500 106,949
Other operating expenses 62,494 59,097
--------- ----------
Total Expenses 289,445 346,313
--------- ----------
NET INCOME 28,013 6,724
- ----------
RETAINED EARNINGS (DEFICIT), Beginning of period 3,418 (65,572)
- ------------------------------------------------ --------- ----------
RETAINED EARNINGS (DEFICIT), End of period $ 31,431 $ (58,848)
- ------------------------------------------ ========= ==========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months
Ended October 31
(Unaudited)
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Income $ 28,013 $ 6,724
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for credit losses on finance
receivables 55,500 106,949
Depreciation and amortization 8,183 4,691
Recoveries of finance receivables
previously charged off 62,464 75,824
Changes in assets and liabilities:
Accrued interest on finance receivables (3,823) 1,500
Loan origination costs (101) (29,807)
Unearned discounts on finance receivables 3,807 -
Other assets 518 19,073
Accounts payable, accrued and other
liabilities 3,641 999
Deferred income 2,000 -
----------- -----------
Total Adjustments 132,189 179,229
----------- -----------
Net Cash Provided by Operating
Activities 160,202 185,953
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Loans and contracts originated or purchased (606,543) (533,364)
Loans and contracts repaid 560,180 236,506
Additions to equipment and leasehold
improvements (4,125) (3,540)
----------- -----------
Net Cash (Used) by Investing Activities (50,488) (300,398)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds from debt - 177,766
Net payments on line of credit (47,555) -
Proceeds from investment certificates 35,000 -
Repayment of debt (89,104) -
----------- -----------
Net Cash Provided (Used) by Financing
Activities (101,659) 177,766
----------- -----------
NET INCREASE (DECREASE) in CASH 8,055 63,321
- -------------------------------
CASH, BEGINNING OF PERIOD 81,904 55,003
- ------------------------- ----------- -----------
CASH, END OF PERIOD $ 89,959 $ 118,324
- ------------------- =========== ===========
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
The Company's financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results of
operations for the periods presented. The financial statements for the three-
month periods should be read in conjunction with the financial statements and
notes thereto for the periods ended July 31, 1999 and 1998, included in the
Company's annual report on Form 10-KSB filed with the Securities and Exchange
Commission on October 29, 1999.
Reclassifications
- -----------------
Certain reclassifications have been made to the financial statements for the
periods presented from amounts previously reported to conform with
classifications currently adopted. Such reclassifications had no effect on
previously reported shareholders' equity or results of operations.
<PAGE>
SUBSCRIPTION AGREEMENT
Credit Concepts, Inc.
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
Attention: President
1. SUBSCRIPTION. I hereby subscribe to purchase $_________________
(must be multiples of $1,000) principal amount of Short-Term Investment
Certificates and $___________ (must be multiples of $1,000) principal amount of
Long-Term Investment Certificates of Credit Concepts, Inc. ("Company") as
described in the Company's Prospectus dated _________, 2000 (the "Prospectus").
The Short-Term Investment Certificates and the Long-Term Investment
Certificates are sometimes together referred to herein as the "Securities." I
enclose a check or money order for the full amount of the purchase price with
this Subscription Agreement. I understand that this Subscription Agreement
must be accepted by the Company before it becomes binding.
By execution of this Subscription Agreement, I hereby acknowledge
that I understand that the Company is relying upon the accuracy and
completeness of all information I have provided and all representations and
warranties I have made in complying with the Company's obligations under
applicable state securities laws. I further acknowledge and certify that I
have received, read, and am familiar with the Prospectus.
2. LACK OF TRADING MARKET. I acknowledge that there is currently no
trading market in the Securities, and it is unlikely that there will ever be a
public trading market for the Securities, with consequent possible indefinite
illiquidity of the Securities except through redemption by the Company, and I
represent that I have no reason to expect a need for liquidity with respect to
my investment prior to maturity of the Securities that I am purchasing;
3. SUITABILITY STANDARDS, REPRESENTATIONS, AND WARRANTIES. I represent
and warrant that all of the information which I have furnished in this
Subscription Agreement and accompanying Offeree Questionnaire is correct and
complete as of the date of this Subscription Agreement, and will be correct and
complete on the closing of the sale of Securities subscribed for, and that the
representations and warranties and the agreements herein shall survive the
closing date and may be relied upon by the Company in its compliance with state
securities laws.
4. MISCELLANEOUS.
(a) All notices or other communications given or made hereunder
shall be in writing and shall be delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, to the Company at the address
set forth above and to the undersigned at the address set forth on the
signature page hereof.
(b) This Subscription Agreement and accompanying Offeree
Questionnaire constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any prior or contemporaneous
representations, warranties, or agreements (whether oral or written), and may
be amended, modified or waived only by a writing executed by the party to be
bound.
(c) If more than one person is signing this Subscription Agreement,
each representation, warranty and agreement made herein shall be a joint and
several representation, warranty or agreement of each person and entity on
behalf of which this Subscription Agreement is signed.
(d) This Subscription Agreement is severable, so that if any
provision hereof shall be deemed to be unenforceable, it shall be automatically
revised (including, if necessary, deletion of the offending provision) to the
extent, but only to the extent, that it shall then be deemed enforceable, and
any such enforceable revised portion and all other provisions hereof shall
remain in full force and effect.
(e) This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon, with venue laid in Lane
County, Oregon. In the event either party commences or threatens an action
based in any way upon the investment to which this Subscription Agreement
relates, the losing party shall pay all of the costs of the prevailing party
with respect thereto, including the prevailing party's reasonable attorneys
fees.
<PAGE>
OFFEREE QUESTIONNAIRE
(For Individuals)
In order to comply with the requirements of state securities laws,
Securities of Credit Concepts, Inc. (the "Company") may be sold only to persons
meeting the suitability standards established by the Company.
The purpose of this Offeree Questionnaire is to obtain information from
each prospective investor relating to his, her or its ability to bear the
economic risks of the proposed investment and whether or not the investment is
suitable for the investor based upon the investor's financial situation and
investment objectives. Such information is required in order to determine
whether or not the suitability standards set forth herein and in the Prospectus
have been met by the prospective investor.
By signing this Offeree Questionnaire you agree that it may be shown to
such authorized persons as the Company may deem appropriate to establish that
the offer and sale of this investment in the Company will not result in any
violation of state securities laws or regulations.
A separate Offeree Questionnaire must be completed for each co-owner of
Securities. Additional forms are available from the Company.
You make the following representations with the intent that they may be
relied upon by the Company, its officers, employees and agents designated by
the Company.
(Please Print or Type; if more than one subscriber,
please provide additional pages with same entries
completed for each subscriber)
I. BIOGRAPHICAL INFORMATION.
- -----------------------------
A. Name, Address and Birth date:
Name: ___________________________________
(Please print)
Address: ___________________________________
___________________________________
Birth Date: ___________________________________
B. Employer or Business Association and Position:
___________________________________
___________________________________
C. Business Address and Telephone Number:
____________________________________
D. Marital Status: _____ Single _____ Married
E. State of Residence: _________________________
Voter Registration in Same State: _____ Yes _____ No
Resident Income Tax Return (if any)
Filed for Same State in 200_: ____ Yes ____ No ____ (Inapplicable)
F. Additional Information:
Driver's License Number: _____________ State: ______________
G. Please indicate which statements qualify you for an investment in the
Company's securities.
I hereby confirm to you that:
(PLEASE INDICATE WITH YOUR INITIALS WHICH STATEMENT IS APPLICABLE.):
_____ (i) I am a natural person whose individual net worth, or
joint net worth with my spouse, at the time of purchase, exceeds $150,000;
OR:
_____ (ii) I am a natural person who had an individual income or
joint income together with my spouse of in excess of $75,000 during the most
recent year and my individual net worth, or joint net worth with my spouse, at
the time of purchase, exceeds $75,000;
IN ADDITION, I hereby confirm to you that (PLEASE INDICATE WITH YOUR
INITIALS):
_____ The total amount of my investment in Securities of the
Company, both those being purchased now and those purchased previously that are
still outstanding, does not exceed 10% of my individual net worth, or joint net
worth with my spouse, at the time of the present purchase.
In calculating "net worth" as required above, the value of home, home
furnishings and personal automobiles is excluded, and all assets are valued at
fair market value.
I represent and warrant to the Company that (PLEASE DESIGNATE WITH
YOUR INITIALS, AS APPLICABLE):
_____ Either my spouse or I am presently employed full-time.
_____ My spouse and I are retired and live off our savings.
_____ I handle my own financial affairs.
_____ I have advised others in handling their financial affairs.
_____ I have made other investments, including those in the
securities of other companies, based upon my own personal assessment of their
prospects and worth.
_____ I have previously made illiquid investments, including one or
more of the following: real estate, stock in a family or other closely-held
corporation, limited partnership interests, limited liability company
interests, or investment-grade artwork, antiques or collectables.
_____ I have assumed a management role in at least one business with
which I have been associated.
_____ I have previously engaged in speculative investments, including
one or more of the following: speculative stocks, options, commodities futures
or similar risky investments.
_____ I have a degree in business administration or have taken
business courses in accounting, investments and management.
_____ I have made use of the following professional advisor to advise
me in the present investment: __________________________________
II. SUBSCRIPTION INFORMATION.
-------------------------
Amount of Short-Term Investment Certificates
Subscribed For: $ _______________
Amount of Long-Term Investment Certificates
Subscribed For: $ _______________
Total Purchase Price of Investment Certificates
Subscribed For: $________________
Method of Payment: $________ Check; $__________ Money Order
Make Checks payable to "CREDIT CONCEPTS, INC." and mail payment with
a completed and executed Subscription Agreement to:
CREDIT CONCEPTS, INC.
2149 Centennial Plaza, Suite 2
Eugene, Oregon 97401
Manner in which title is to be held:
_______ Community property (one signature).
_______ Individual ownership.
_______ Joint tenancy (both sign).
_______ Tenancy-in-common (all sign).
_______ Corporation
_______ Partnership
_______ Trust
_______ Other (Please indicate) ______________________
<PAGE>
SIGNATURE PAGE
(For Individuals)
TO BE COMPLETED AND SIGNED BY ALL INDIVIDUAL INVESTORS
This page constitutes the Signature Page for INDIVIDUALS for the following
documents: (a) Subscription Agreement and (b) Offeree Questionnaire.
Execution of this Signature Page constitutes execution of such documents.
IN WITNESS WHEREOF, the undersigned has executed the Subscription
Agreement and the Offeree Questionnaire this _____ day of ___________,
200__.
- ------------------------------ -----------------------------
Signature of Individual Signature of Spouse (or
Joint Purchaser, if any)
- ------------------------------ ------------------------------
Print Name of Individual Print Name of Spouse (or
Joint Purchaser, if any)
- ------------------------------ ------------------------------
Social Security Number Social Security Number
- ------------------------------ ------------------------------
Legal Residence Address of Legal Residence Address of
Individual (Do not use P.O. Joint Purchaser, if any, (Do
Joint Purchaser, if any, not use P.O. Box) (If different
from address of other joint
purchaser)
- ------------------------------ ------------------------------
City City
- ------------------------------ ------------------------------
State Zip Code State Zip Code
FOR COMPANY USE ONLY:
SUBSCRIPTION ACCEPTED: CREDIT CONCEPTS, INC.
- ---------------------------, 200-- By------------------------------
Its-----------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
- ----------------------------------------------------
The Oregon Business Corporation Act (Or. Rev. Stat. Section 60.047(2)(3)
and Sections 60.387 to 60.414) authorizes a corporation, through its articles
of incorporation and bylaws, to limit the liability of directors and to grant
indemnity to directors, officers, employees or agents for actions taken with
respect to the corporation in their respective capacities as directors,
officers, employees or agents. Indemnification for such liabilities may be
provided to an officer, director, employee or agent based upon the
determination by a vote of the disinterested Board of Directors, a vote by a
special committee of the Board of Directors, by the determination of a special
legal counsel or by a vote of the shareholders that the director, officer,
employee or agent may properly be indemnified under the statute. Except as set
forth below, this includes liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article VI of the Company's Articles of Incorporation (Exhibit 3(a)
hereto) limits a director's liability to the Company or its shareholders for
monetary damages arising out of his or her conduct as a director, except in
certain circumstances involving breach of the director's duty of loyalty to the
Company or its shareholders, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of the law, any unlawful
distribution under ORS 60.367, or any unlawful distribution or any transaction
in which the director derived an improper personal benefit. Article V of the
Company's Bylaws (Exhibit 3(b) hereto) provide for indemnification of the
Company's directors in cases in which the director successfully defends the
action and in certain other circumstances in which the director acts in good
faith, believes the conduct to be in the corporation's best interest or not
opposed to it, and (for alleged criminal conduct) has no reasonable cause to
believe the conduct to have been unlawful, except for acts for which the
director is ultimately adjudged liable to the corporation. The Company may
also advance litigation expenses to directors, officers, agents and employees
under certain circumstances.
Item 25. Other Expenses of Issuance and Distribution.
- ------------------------------------------------------
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the non-accountable expense
allowance payable by the Company in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated except the SEC Registration Fee.
<TABLE>
<S> <C> <C>
SEC Registration Fee $ 2,780
Blue Sky Fees and Expenses $ 500
Printing and Engraving Expenses $ 10,000
Legal Fees and Expenses $ 70,000
Accounting Fees and Expenses $ 35,000
Miscellaneous Expenses $ 1,720
--------
Total $130,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
- --------------------------------------------------
(a) In connection with the founding of the Company in August, 1997, Tom
W. Palmer, Eugene C. Albert and Ted W. Palmer, currently the Company's
President and a Director, the Company's Vice-President and a Director and a
Company Director, respectively, were issued all of the equity interests in
Credit Concepts, L.L.C., the Company's predecessor, in reliance upon Section
4(2) of the Securities Act.
(b) On October 15, 1997, the Company sold a $50,000 promissory note
bearing interest at 12% per annum to Ted W. Palmer, a Director of the Company,
in reliance upon Section 4(2) of the Securities Act.
(c) On October 16, 1997, the Company sold a $5,000 promissory note
bearing interest at 12% per annum to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, in reliance upon Section 4(2) of the
Securities Act.
(d) On November 15, 1997, the Company sold a $30,000 promissory note
bearing interest at 12% per annum to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, and a $100,000 promissory note bearing
interest at 12% per annum to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act.
(e) On November 18, 1997, the Company sold a $116,000 promissory note
without interest to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(f) On December 10, 1997, the Company sold a $150,000 promissory note
bearing interest at 12% per annum to Ted W. Palmer, a Director of the Company,
in reliance upon Section 4(2) of the Securities Act.
(g) On January 15, 1998, the Company sold a $40,000 promissory note
bearing interest at 12% per annum to Kimberly M. Coleman, the General Manager
of the Company, and her husband in reliance upon Section 4(2) of the Securities
Act.
(h) On January 20, 1998, Tom W. Palmer, Eugene C. Albert and Ted W.
Palmer Trust each purchased 100 shares of capital stock of Credit Concepts,
Inc. for $50,000 in reliance upon Section 4(2) of the Securities Act.
(i) On February 24, 1998, the Company sold a $30,000 promissory note
bearing interest at 12% per annum to Eugene C. Albert, the Vice-President,
Secretary and a Director of the Company, in reliance upon Section 4(2) of the
Securities Act.
(j) On March 9, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% per annum to Eugene C. Albert, the Vice-President, Secretary
and a Director of the Company, and a $15,000 promissory note bearing interest
at 13% per annum to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(k) On March 16, 1998, the Company sold two $50,000 promissory notes,
each bearing interest at 12% per annum, to Ted W. Palmer, a Director of the
Company, in reliance upon Section 4(2) of the Securities Act.
(l) On March 25, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% per annum to Kimberly M. Coleman, the General Manager of the
Company, and her husband in reliance upon Section 4(2) of the Securities Act.
(m) On March 26, 1998, the Company sold a $3,000 promissory note bearing
interest at 12% per annum to Eugene C. Albert, the Vice-President, Secretary
and a Director of the Company, and a $7,000 promissory note bearing interest at
12% per annum to Tom W. Palmer, the President and a Director of the Company,
and his wife in reliance upon Section 4(2) of the Securities Act.
(n) On April 1, 1998, the Company sold a $10,000 promissory note bearing
interest at 12% per annum to Kimberly M. Coleman, the General Manager of the
Company, and her husband in reliance upon Section 4(2) of the Securities Act.
On the same date, the Company sold a $50,000 promissory note bearing
interest at 12% per annum to M. Jacobs Fine Furniture Profit Sharing Plan, the
"accredited" owner and operator of which furniture store is the trustee under
the Plan. Members of the Company's management had an existing personal and
business relationship with the owner-operator of this furniture store, and the
transaction was made in reliance upon Section 4(2) of the Securities Act.
(o) On April 8, 1998, the Company sold a $40,000 promissory note bearing
interest at 12% per annum to Amvesco, Inc. dba Western Pioneer Title Co. of
Lane County, with whom members of the Company's management had an existing
personal and business relationship, in reliance upon Section 4(2) of the
Securities Act.
(p) On April 15, 1998, the Company sold a $60,000 promissory note bearing
interest at 12% per annum to Bjarnie & Elsie Abrahamson, "accredited" persons
with whom members of the Company's management had an existing personal and
business relationship, in reliance upon Section 4(2) of the Securities Act.
(q) On May 4, 1998, the Company sold a $100,000 promissory note bearing
interest at 12% per annum to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act.
(r) On May 18, 1998, the Company sold a $32,000 promissory note bearing
interest at 12% per annum to Melvin S. Martinson and Leorne E. Martinson,
"accredited" persons with whom members of the Company's management had an
existing personal and business relationship, in reliance upon Section 4(2) of
the Securities Act.
(s) On May 28, 1998, the Company sold a $25,000 promissory note bearing
interest at 12% per annum to William and Debra Cox, "accredited" persons with
whom members of the Company's management had an existing personal and business
relationship, in reliance upon Section 4(2) of the Securities Act.
(t) On June 18, 1998, the Company sold a $4,500 promissory note bearing
interest at 12% per annum to Tom W. Palmer, the President and a Director of the
Company, and his wife in reliance upon Section 4(2) of the Securities Act.
(u) On June 25, 1998, the Company sold a $100,000 promissory note bearing
interest at 12% per annum to Ted W. Palmer, a Director of the Company, in
reliance upon Section 4(2) of the Securities Act. On the same date, the
Company sold a $70,000 promissory note bearing interest at 12% per annum to
Amvesco, Inc. dba Western Pioneer Title Co. of Lane County, with whom members of
the Company's management had an existing personal and business relationship, in
reliance upon Section 4(2) of the Securities Act.
(v) On June 30, 1998, the Company sold a $15,500 promissory note bearing
interest at 12% per annum to Tom W. Palmer, the President and a Director of the
Company, and his wife in reliance upon Section 4(2) of the Securities Act.
(w) On July 14, 1998, the Company sold a $10,000 promissory note bearing
interest at 10% per annum to Stanley B. Woods and Jo Ellen Woods, "accredited"
persons with whom members of the Company's management had an existing personal
and business relationship, in reliance upon Section 4(2) of the Securities Act.
(x) On July 27, 1998, the Company sold a $450,000 promissory note bearing
interest at 12% per annum to Ted W. Palmer, a Director of the Company, Tom W.
Palmer, the President and a Director of the Company, and Eugene C. Albert, the
Vice-President, Secretary and a Director of the Company, in reliance upon
Section 4(2) of the Securities Act.
The registrant is relying upon Rule 152 of the Securities Act to preclude
the integration of present offering with the offer and sale of the above equity
interests, shares and promissory notes in connection with registrant's reliance
upon Section 4(2) in the offer and sale of the above equity interests, shares
and promissory notes.
Item 27. Exhibits and Financial Statement Schedules.
- -----------------------------------------------------
NUMBER DESCRIPTION
- ------ -----------
3(a) Articles of Incorporation
3(b) By-Laws
4(a) Specimen Short-Term Investment Certificate *
4(b) Specimen Long-Term Investment Certificate *
5(a) Opinion of Karr Tuttle Campbell *
10(a) Form of Master Dealer Agreement with automobile dealers,
including Amendment to Master Dealer Agreement
10(b) Form of Contract purchased from automobile dealers
10(c) Bill of Sale and Assumption of Liabilities dated January 20,
1998 with Albert Credit, LLC
10(d) Loan Agreement dated April 6, 1998 with Pacific Continental
Bank, and Amendment to Loan Agreement dated November 4, 1998
10(e) Promissory Note in favor of Pacific Continental Bank dated
April 6, 1998
10(f) Commercial Guaranty by Thomas W. Palmer dated April 6, 1998
10(g) Commercial Guaranty by Eugene C. Albert dated April 6, 1998
10(h) Commercial Guaranty by Ted W. Palmer dated April 6, 1998
10(i) Commercial Security Agreement dated April 6, 1998 with
Pacific Continental Bank
10(j) Commercial Security Agreement dated April 6, 1998 with Pacific
Continental Bank, including as collateral Thomas W. Palmer's
life insurance policy
10(k) Commercial Security Agreement dated April 6, 1998 with Pacific
Continental Bank, including as collateral Eugene C. Albert's
life insurance policy
10(l) Agreement to Provide Insurance dated April 6, 1998 with Pacific
Continental Bank
10(m) Assignment of Life Insurance Policy as Collateral dated
March 10, 1998 with Pacific Continental Bank for
Thomas W. Palmer's life insurance policy
10(n) Assignment of Life Insurance Policy as Collateral dated
March 10, 1998 with Pacific Continental Bank for Eugene C.
Albert's life insurance policy
10(o) Employment Agreement dated September 24, 1997 with
Kimberly M. Coleman
10(p) Buy-Sell Agreement dated January 20, 1998 between Ted W.
Palmer, Thomas W. Palmer and Eugene C. Albert
10(q) Lease Agreement dated October 14, 1997 with Keypac Leasing,
including Limited Guaranty
10(r) Form of Promissory Note evidencing loans from private investors
10(s) Master Dealer Agreement dated October 23, 1997 with Hutchins
Imported Motors, Inc. (now known as "Lithia Toyota of
Springfield")
10(t) Master Dealer Agreement dated November 11, 1997 with Hutchins
Eugene Nissan, Inc. (now known as "Lithia Nissan of Eugene")
10(u) Master Dealer Agreement dated February 4, 1998 with JKL
Automotive, Inc. d/b/a Kieffer's Eugene Mazda
10(v) Master Dealer Agreement dated November 28, 1997 with Kendall
Ford Inc.
10(w) Master Dealer Agreement dated December 15, 1997 with
Guaranty Chev Pont Olds Co. Inc.
10(x) Forbearance Agreement dated March 23, 1999 by Thomas W. Palmer
10(y) Forbearance Agreement dated March 24, 1999 by Eugene C. Albert
10(z) Forbearance Agreement dated March 24, 1999 by Ted W. Palmer
23(a) Consent dated August 19, 1998 of Yergen and Meyer LLP
23(b) Consent dated March 23, 1999 of Yergen and Meyer LLP
23(c) Consent dated April 28, 1999 of Yergen and Meyer LLP
23(d) Consent dated January 7, 2000 of Moss Adams LLP *
- Consent of Karr Tuttle Campbell **
24(a) Power of Attorney by signers of registration statement***
27 Financial Data Schedule *
- --------------------------------------
* Filed herewith.
** Included as part of Exhibit 5(a), Opinion of Karr Tuttle Campbell.
*** Set forth on signature page of registration statement.
Item 28. Undertakings.
- -----------------------
(a) INDEMNIFICATION FOR LIABILITIES.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(b) RULE 430A UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(i) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time declared effective.
(ii) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amendment
to registration statement to be signed on its behalf by the undersigned in the
city of Eugene, state of Oregon, on January 12, 2000.
CREDIT CONCEPTS, INC.
(Registrant)
By: /s/ Tom W. Palmer
------------------------
(Tom W. Palmer) President
(Signature and Title)
/s/ Tom W. Palmer President and Director January 12, 2000
- --------------------- (Title) ----------------
(Tom W. Palmer) (Date)
Eugene C. Albert Vice-President, January 12, 2000
Secretary and Director ----------------
By: /s/ Tom W. Palmer (Title) (Date)
-----------------
(Tom W. Palmer*)
Ted W. Palmer Director January 12, 2000
(Title) ----------------
By: /s/ Tom W. Palmer (Date)
-----------------
(Tom W. Palmer*)
- ---------------------
* Pursuant to Power of Attorney dated November 5, 1998 accompanying the
signature page of the registration statement as initially filed.
<PAGE>
EXHIBIT 4(a)
Certificate Number: ____________ Principal Amount:________________
Date of Maturity: ______________ Interest Rate:___________________
CREDIT CONCEPTS, Inc.
SHORT-TERM INVESTMENT CERTIFICATE
This is to certify that Credit Concepts, Inc., an Oregon corporation (the
"Company") promises to pay to __________________________________, or assigns
("Holder") the sum of ________________________ thousand and no/100 dollars
($___,000.00) at the principal offices of the Company on ______________________
("Date of Maturity"), which is two (2) years from the date hereof. This
Investment Certificate shall bear simple interest at the rate of ______________
percent (___%) per annum. Interest on this Investment Certificate shall be
paid and mailed to the Holder's address as registered on the books of the
Company, within five days following the end of each fiscal quarter of the
Company. By written notice to the Company, accompanied by delivery of the
original of this Certificate, the Holder may accelerate the Date of Maturity to
the ninetieth (90th) day following the date of the Company's receipt of the
notice and Certificate, but in such event no interest will accrue between the
date of receipt of the notice and the Date of Maturity as so accelerated.
Although this Investment Certificate is not a negotiable instrument, this
Investment Certificate may be assigned but only through use of the form of
assignment appearing on the reverse side of this Investment Certificate. In
the event of assignment, the assignee should submit this Certificate to the
Company so that it may be registered in the name of the assignee on the
Company's books and the assignee will become the Holder of record entitled to
interest payments paid after that date. If interest is not timely paid within
ten days of the payment date, the entire sum of principal and interest shall,
at the option of the Holder, become immediately due and payable upon written
demand to the Company. In the event the Holder is required to institute
collection proceedings on this Investment Certificate, the Company shall pay
all costs thereof, including reasonable attorneys fees. On the Date of
Maturity the Holder must present this Certificate to the Company for payment,
as interest on this Certificate ceases to accrue after that date. PAYMENT OF
PRINCIPAL AND INTEREST DUE UNDER THIS INVESTMENT CERTIFICATE IS EXPRESSLY
SUBORDINATE AND JUNIOR TO THE RIGHTS OF ANY ONE OR MORE LENDERS (EACH A "THIRD
PARTY LENDER") WHICH, NOW OR IN THE FUTURE, MAKES A LOAN OR OTHERWISE EXTENDS
CREDIT TO THE COMPANY. THE THIRD PARTY LENDER'S INDEBTEDNESS MAY BE SECURED BY
A SECURITY INTEREST IN PART OR ALL OF THE COMPANY'S CONTRACTS, RECEIVABLES AND
THEIR PROCEEDS. ABSENT A DEFAULT IN THE COMPANY'S OBLIGATIONS TO SUCH THIRD
PARTY LENDER(S), PRINCIPAL AND INTEREST PAYMENTS MAY BE MADE TO THE HOLDER OF
THIS CERTIFICATE. HOWEVER, IN THE EVENT THE COMPANY DEFAULTS IN ITS
OBLIGATIONS OWED TO THE THIRD PARTY LENDER(S), NO PRINCIPAL OR INTEREST
PAYMENTS PAID OR FALLING DUE UNDER THIS CERTIFICATE AFTER THAT DATE MAY BE MADE
BY THE COMPANY OR RETAINED BY THE HOLDER UNTIL ALL OBLIGATIONS TO THE THIRD
PARTY LENDER(S) HAVE BEEN PAID IN FULL. NO PAYMENT SHALL BE REQUIRED UNDER
THIS CERTIFICATE IF THE PAYMENT WOULD CAUSE AN EVENT OF DEFAULT UNDER THE
COMPANY'S OBLIGATIONS TO THE THIRD PARTY LENDER(S). IN THE EVENT OF A
BANKRUPTCY BY THE COMPANY, THE THIRD PARTY LENDER(S) SHALL BE ENTITLED TO FILE
AND VOTE THE CLAIMS OF THE HOLDERS OF THESE CERTIFICATES.
IN WITNESS WHEREOF, the Company has caused this Investment Certificate to
be signed below by its duly authorized officers as of this ___ day of
_______________, 200__.
____________________________ (Corporate Seal) ____________________________
(Tom W. Palmer) President (Eugene C. Albert) Secretary
<PAGE>
[BACK OF INVESTMENT CERTIFICATE]
ASSIGNMENT
----------
To transfer your Investment Certificate to someone else, sign the
following form of Assignment and deliver this certificate to the new owner.
The new owner should promptly submit this Investment Certificate to Credit
Concepts, Inc. to be transferred on the official records of the Company so that
the new owner will be recognized as such by the Company and the interest
payments can be made to the new owner. A substitute Investment Certificate
registered in the name of the new owner will be forwarded to the new owner
directly by the Company.
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the undersigned do(es) hereby assign and transfer this
Investment Certificate to ___________________________________________ (here
indicate name of new owner(s) into which name(s) the transferred Investment
Certificate is to be registered), whose address(es) and taxpayer identification
numbers are as follows: _______________________________________________________
___________________________________________________________
(Name - Please print exactly as your name(s)
appear(s) on the face of the Investment Certificate)
X__________________________________________________________
(Signature of or on behalf of assigning owner)
Title, if owner not individual: ______________________
X__________________________________________________________
(Signature of assigning co-owner, if any)
Date: _______________________
REQUEST FOR PAYMENT
-------------------
To request payment of the full principal amount of your Investment
Certificate, please provide the following information and make your request
using the following form. Please submit your request directly to the Company.
The undersigned owner(s) of this Investment Certificate hereby request
full payment of this Investment Certificate, as follows (please check one or
more, as appropriate).
If payment is to be made in cash upon maturity, please initial here: _____
If payment is to be used to purchase a new Investment Certificate, please
initial here: _______
If payment is to be made prior to maturity, please initial here: _______
(90 days notice period begins upon submission of Investment Certificate
- no interest accrues during notice period)
___________________________________________________________
(Name - Please print exactly as your name(s)
appear(s) on the face of the Investment Certificate)
X____________________________________________________
(Signature of or on behalf of requesting owner)
Title, if owner not individual: ______________________
X__________________________________________________________
(Signature of requesting co-owner, if any)
Date: _______________________
<PAGE>
EXHIBIT 4(b)
Certificate Number: ____________ Principal Amount:______________
Date of Maturity: ______________ Interest Rate:_________________
CREDIT CONCEPTS, Inc.
LONG-TERM INVESTMENT CERTIFICATE
This is to certify that Credit Concepts, Inc., an Oregon corporation (the
"Company") promises to pay to _________________________________, or assigns
("Holder") the sum of _______________________ thousand and no/100 dollars
($___,000.00) at the principal offices of the Company on ______________________
("Date of Maturity"), which is four (4) years from the date hereof. This
Investment Certificate shall bear simple at the rate of ________________
percent (_____%) per annum. Interest on this Investment Certificate shall be
paid and mailed to the Holder's address as registered on the books of the
Company, within five days following the end of each fiscal quarter of the
Company. By written notice to the Company, accompanied by delivery of the
original of this Certificate, the Holder may accelerate the Date of Maturity to
the ninetieth (90th) day following the date of the Company's receipt of the
notice and Certificate, but in such event no interest will accrue between the
date of receipt of the notice and the Date of Maturity as so accelerated.
Although this Investment Certificate is not a negotiable instrument, this
Investment Certificate may be assigned but only through use of the form of
assignment appearing on the reverse side of this Investment Certificate. In
the event of assignment, the assignee should submit this Certificate to the
Company so that it may be registered in the name of the assignee on the
Company's books and the assignee will become the Holder of record entitled to
interest payments paid after that date. If interest is not timely paid within
ten days of the payment date, the entire sum of principal and interest shall,
at the option of the Holder, become immediately due and payable upon written
demand to the Company. In the event the Holder is required to institute
collection proceedings on this Investment Certificate, the Company shall pay
all costs thereof, including reasonable attorneys fees. On the Date of
Maturity the Holder must present this Certificate to the Company for payment,
as interest on this Certificate ceases to accrue after that date. PAYMENT OF
PRINCIPAL AND INTEREST DUE UNDER THIS INVESTMENT CERTIFICATE IS EXPRESSLY
SUBORDINATE AND JUNIOR TO THE RIGHTS OF ANY ONE OR MORE LENDERS (EACH A "THIRD
PARTY LENDER") WHICH, NOW OR IN THE FUTURE, MAKES A LOAN OR OTHERWISE EXTENDS
CREDIT TO THE COMPANY. THE THIRD PARTY LENDER'S INDEBTEDNESS MAY BE SECURED BY
A SECURITY INTEREST IN PART OR ALL OF THE COMPANY'S CONTRACTS, RECEIVABLES AND
THEIR PROCEEDS. ABSENT A DEFAULT IN THE COMPANY'S OBLIGATIONS TO SUCH THIRD
PARTY LENDER(S), PRINCIPAL AND INTEREST PAYMENTS MAY BE MADE TO THE HOLDER OF
THIS CERTIFICATE. HOWEVER, IN THE EVENT THE COMPANY DEFAULTS IN ITS
OBLIGATIONS OWED TO THE THIRD PARTY LENDER(S), NO PRINCIPAL OR INTEREST
PAYMENTS PAID OR FALLING DUE UNDER THIS CERTIFICATE AFTER THAT DATE MAY BE MADE
BY THE COMPANY OR RETAINED BY THE HOLDER UNTIL ALL OBLIGATIONS TO THE THIRD
PARTY LENDER(S) HAVE BEEN PAID IN FULL. NO PAYMENT SHALL BE REQUIRED UNDER
THIS CERTIFICATE IF THE PAYMENT WOULD CAUSE AN EVENT OF DEFAULT UNDER THE
COMPANY'S OBLIGATIONS TO THE THIRD PARTY LENDER(S). IN THE EVENT OF A
BANKRUPTCY BY THE COMPANY, THE THIRD PARTY LENDER(S) SHALL BE ENTITLED TO FILE
AND VOTE THE CLAIMS OF THE HOLDERS OF THESE CERTIFICATES.
IN WITNESS WHEREOF, the Company has caused this Investment Certificate to
be signed below by its duly authorized officers as of this ___ day of
_______________, 200__.
___________________________ (Corporate Seal) ____________________________
(Tom W. Palmer) President (Eugene C. Albert) Secretary
<PAGE>
[BACK OF INVESTMENT CERTIFICATE]
ASSIGNMENT
----------
To transfer your Investment Certificate to someone else, sign the
following form of Assignment and deliver this certificate to the new owner.
The new owner should promptly submit this Investment Certificate to Credit
Concepts, Inc. to be transferred on the official records of the Company so that
the new owner will be recognized as such by the Company and the interest
payments can be made to the new owner. A substitute Investment Certificate
registered in the name of the new owner will be forwarded to the new owner
directly by the Company.
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the undersigned do(es) hereby assign and transfer this
Investment Certificate to ___________________________________________ (here
indicate name of new owner(s) into which name(s) the transferred Investment
Certificate is to be registered), whose address(es) and taxpayer identification
numbers are as follows: _______________________________________________________
___________________________________________________________
(Name - Please print exactly as your name(s)
appear(s) on the face of the Investment Certificate)
X__________________________________________________________
(Signature of or on behalf of assigning owner)
Title, if owner not individual: ______________________
X__________________________________________________________
(Signature of assigning co-owner, if any)
Date: _______________________
REQUEST FOR PAYMENT
-------------------
To request payment of the full principal amount of your Investment
Certificate, please provide the following information and make your request
using the following form. Please submit your request directly to the Company.
The undersigned owner(s) of this Investment Certificate hereby request
full payment of this Investment Certificate, as follows (please check one or
more, as appropriate).
If payment is to be made in cash upon maturity, please initial here: _____
If payment is to be used to purchase a new Investment Certificate, please
initial here: _______
If payment is to be made prior to maturity, please initial here: _______
(90 days notice period begins upon submission of Investment Certificate
- no interest accrues during notice period)
___________________________________________________________
(Name - Please print exactly as your name(s)
appear(s) on the face of the Investment Certificate)
X____________________________________________________
(Signature of or on behalf of requesting owner)
Title, if owner not individual: ______________________
X__________________________________________________________
(Signature of requesting co-owner, if any)
Date: _______________________
<PAGE>
EXHIBIT 5(a)
KARR TUTTLE CAMPBELL
A Professional Services Corporation
1201 Third Avenue, Suite 2900 Seattle, Washington 98101
Telephone (206) 223-1313, Facsimile (206) 682-7100
January 11, 2000
Securities and Exchange Commission
Washington, D.C. 20549
RE: Credit Concepts, Inc.
File No. 333-66853
Ladies and Gentlemen:
We are special counsel for Credit Concepts, Inc., an Oregon corporation,
(the "issuer") in its proposed offer and sale of $5,000,000 of fixed-rate
investment certificates (the "Investment Certificates"), consisting of Short-
Term Investment Certificates in the aggregate principal amount of $2,500,000
and fixed-rate Long-Term Investment Certificates in the aggregate principal
amount of $2,500,000. The Investment Certificates have been included in the
issuer's registration statement under the Securities Act of 1933, as amended
(File No. 333-66853) (the "Registration Statement").
In rendering this opinion, we have made such review and inquiry as we deem
necessary for purposes hereof, including review of the issuer's articles of
incorporation, by-laws and certain consent resolutions by the issuer's board of
directors, all of which have been provided to us by management of the issuer.
For purposes hereof, we have assumed that all signatures on documents reviewed
are genuine and that copies of documents and other materials reviewed are
accurate and complete reproductions of what they purport to be.
We are members of the Bars of the States of Washington and Oregon and do
not herein express any opinion as to matters governed by the laws of any
jurisdiction other than the internal laws of the States of Washington and
Oregon and the federal law of the United States.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that:
1. All corporate action on the part of the issuer, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of all of its obligations under the Investment Certificates has
been taken; and
2. When offered and sold in the manner contemplated by Part I of the
Registration Statement, the Investment Certificates will constitute valid and
legally binding obligations of the issuer, legally enforceable against the
issuer in accordance with their terms.
Our opinion concerning the validity, binding effect and enforceability of
the Investment Certificates means that (a) the Investment Certificates
constitute effective contracts under applicable law, (b) none of the Investment
Certificates are invalid in their entirety because of a specific statutory
prohibition or public policy or are subject in their entirety to a contractual
defense, and (c) subject to the last sentence of this paragraph, some remedy is
available if the issuer is in material default under any of the Investment
Certificates. This opinion does not mean that (a) any particular remedy is
available upon a material default, or (b) every provision of the Investment
Certificates will be upheld or enforced in any or each circumstance by a court.
Furthermore, the validity, binding effect, and enforceability of the Investment
Certificates may be limited or otherwise affected by (a) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
statutes, rules, regulations, or other laws affecting the enforcement of
creditors' rights and remedies generally, (b) the unavailability of, or
limitation on the availability of, a particular right or remedy (whether in a
proceeding in equity or at law) because of an equitable principle or a
requirement as to commercial reasonableness, conscionability or good faith, and
(c) applicable state and federal securities laws.
This opinion is furnished to you by us as special counsel for the issuer
and is rendered solely in connection with the above registration of the
Investment Certificates. This opinion may be relied upon only in connection
with such registration and may not be relied upon for any other purpose without
our prior written consent.
Very truly yours,
KARR TUTTLE CAMPBELL
/s/ Karr Tuttle Campbell
<PAGE>
EXHIBIT 23(d)
MOSS ADAMS LLP
- -------------------------------------------------------------------------------
Certified Public Accountants 4650 S.W. Macadam, Suite 300
P.O. Box 69509
Portland, OR 97201
Phone 503.295.1288
Fax 503.295.1299
Offices in Principal Cities of
Washington, Oregon and California
We hereby consent to the use of our report dated September 15, 1999, on the
financial statements of Credit Concepts, Inc. in the Post-Effective Amendment
No. 1 to Form SB-2, Registration Statement Under the Securities Act of 1933
(File No. 333-66853).
/s/ Moss Adams LLP
Portland, Oregon
January 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED OCTOBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 89,959
<SECURITIES> 0
<RECEIVABLES> 4,274,855
<ALLOWANCES> 325,321
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 47,029
<DEPRECIATION> 16,427
<TOTAL-ASSETS> 4,161,232
<CURRENT-LIABILITIES> 58,735
<BONDS> 3,743,758
0
0
<COMMON> 150,000
<OTHER-SE> 178,273
<TOTAL-LIABILITY-AND-EQUITY> 4,161,232
<SALES> 0
<TOTAL-REVENUES> 317,458
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 289,445
<LOSS-PROVISION> 55,500
<INTEREST-EXPENSE> 112,527
<INCOME-PRETAX> 28,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,013
<EPS-BASIC> 93.377
<EPS-DILUTED> 93.377
</TABLE>
