<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 333-66853
CREDIT CONCEPTS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oregon 91-1236587
- --------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401
----------------------------------------------------
(Address of principal executive offices)
(541) 342-8545
--------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 15, 2000, 300 shares of common stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets at January 31, 2000 (unaudited), January 31, 1999
(unaudited) and July 31, 1999
Statements of Income for the Three Months Ended January 31, 2000
(unaudited) and January 31, 1999 (unaudited)
Statements of Income for the Six Months Ended January 31, 2000
(unaudited) and for the Six Months Ended January 31, 1999
(unaudited)
Statement of Stockholders' Equity for the Three Months Ended
October 31, 1999 (unaudited) and January 31, 2000 (unaudited)
Statements of Cash Flows for the Six Months Ended January 31,
2000 (unaudited) and for the Six Months Ended January 31, 1999
(unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
------
January 31, July 31,
(Unaudited)
--------------------------- ------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 50,782 $ 46,012 $ 81,904
------------ ------------ ------------
Finance receivables:
Contracts 3,830,205 4,159,635 3,807,582
Loans 601,878 224,517 489,597
Loan origination costs 54,499 55,683 53,662
Unearned discounts on contracts (7,633) - -
Allowance for credit losses (337,607) (298,987) (326,000)
----------- ----------- -----------
Finance Receivables, Net 4,141,342 4,140,848 4,024,841
----------- ----------- -----------
Interest receivable on contracts 82,341 72,538 67,300
Equipment and leasehold
improvements, net 26,447 32,498 29,079
Other assets 41,065 12,238 26,113
----------- ------------ ------------
TOTAL $ 4,341,977 $ 4,304,134 $ 4,229,237
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
January 31, July 31,
(Unaudited)
--------------------------- ------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES
Debt:
Bank line of credit $ 2,765,610 $ 2,704,670 $ 2,695,509
Other notes payable 173,500 285,272 211,000
Subordinated notes payable
to stockholders 843,311 1,056,262 938,908
Investment certificates 120,000 - -
Accounts payable and
accrued expenses 17,903 33,236 14,800
Interest payable 35,526 35,919 40,294
Deferred income 29,720 - 28,466
Income taxes payable 10 - -
------------ ------------ ------------
Total Liabilities 3,985,580 4,115,359 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 subscriptions receivable (60,000) (120,000) (60,000)
Additional paid-in-capital 206,842 206,842 206,842
Retained earnings (deficit) 59,555 (48,067) 3,418
------------ ------------ ------------
Total Stockholders' Equity 356,397 188,775 300,260
------------ ------------ ------------
TOTAL $ 4,341,977 $ 4,304,134 $ 4,229,237
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF INCOME
<CAPTION>
Three Months
Ended January 31,
(Unaudited)
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Interest on contracts $ 311,366 $ 326,406
Other income 11,900 14,057
----------- -----------
Total Revenues 323,266 340,463
----------- -----------
EXPENSES
Interest 111,816 117,642
Salaries and benefits 73,996 53,943
Provision for credit losses 41,500 91,863
Other operating expenses 67,830 66,234
----------- -----------
Total Expenses 295,142 329,682
----------- -----------
NET INCOME 28,124 10,781
RETAINED EARNINGS (DEFICIT),
BEGINNING OF PERIOD 31,431 (58,848)
----------- -----------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD $ 59,555 $ (48,067)
=========== ===========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF INCOME
<CAPTION>
Six Months
Ended January 31,
(Unaudited)
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Interest on contracts $ 622,116 $ 678,633
Other income 18,607 14,867
---------- ----------
Total Revenues 640,723 693,500
---------- ----------
EXPENSES
Interest 224,342 258,536
Salaries 131,851 93,316
Provision for credit losses 97,000 198,812
Other operating expenses 131,393 125,331
---------- ----------
Total Expenses 584,586 675,995
---------- ----------
NET INCOME 56,137 17,505
RETAINED EARNINGS (DEFICIT),
BEGINNING OF PERIOD 3,418 (65,572)
---------- ----------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD $ 59,555 $ (48,067)
========== ==========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
STOCK ADDITIONAL
COMMON SUBSCRIPTION PAID-IN RETAINED
STOCK RECEIVABLE CAPITAL EARNINGS TOTAL
---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT
JULY 31, 1999 $ 150,000 $ (60,000) $ 206,842 $ 3,418 $ 300,260
NET INCOME - - - 28,013 28,013
--------- ---------- ---------- -------- ---------
BALANCE AT
OCTOBER 31, 1999 150,000 (60,000) 206,842 31,431 328,273
NET INCOME - - - 28,124 28,124
--------- ---------- ---------- -------- ---------
BALANCE AT
JANUARY 31, 2000 $ 150,000 $ (60,000) $ 206,842 $ 59,555 $ 356,397
========= ========== ========= ======== =========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months
Ended January 31,
(Unaudited)
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 56,137 $ 17,505
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for credit losses on
finance receivables 97,000 198,812
Depreciation and amortization 14,610 11,614
Recoveries of finance receivables
previously charged off 82,723 218,322
Changes in assets and liabilities:
Accrued interest on finance receivables (15,041) (8,038)
Loan origination costs (837) (59,614)
Unearned discounts on finance receivables 7,633 -
Other assets (24,180) 22,008
Accounts payable, accrued and other
liabilities (1,655) 31,701
Deferred income 1,254 -
------------ ------------
Total Adjustments 161,507 414,805
------------ ------------
Net Cash From Operating Activities 217,644 432,310
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated or
purchased (1,720,302) (1,172,031)
Loans and contracts repaid 1,417,282 842,973
Additions to equipment and leasehold
improvements (2,750) (3,540)
------------ ------------
Net Cash From Investing Activities (305,770) (332,598)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on line of credit 70,101 (108,703)
Proceeds from investment certificates 120,000 -
Repayment of debt (133,097) -
------------ ------------
Net Cash From Financing Activities 57,004 (108,703)
------------ ------------
NET INCREASE (DECREASE) IN CASH (31,122) (8,991)
CASH, BEGINNING OF PERIOD 81,904 55,003
------------ ------------
CASH, END OF PERIOD $ 50,782 $ 46,012
============ ============
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE 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 and six-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>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
For the three months ended January 31, 2000, Credit Concepts has
generated $323,266 of revenues and $28,124 of net operating profits. At
January 31, 2000 Credit Concepts had approximately $50,782 in cash, $4,141,342
in net finance receivables (after deducting an allowance for credit losses of
$337,607 and unearned discounts on contracts of $7,633 and adding capitalized
loan origination costs of $54,499), approximately $3,985,580 of indebtedness of
all types and a shareholders' equity of approximately $356,397.
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. As of January 31, 2000, Credit Concepts has
sold $120,000 worth of four year certificates.
Over the next twelve months, it is the goal of management to increase
the loan portfolio by 20-25%. This increase will be primarily obtained through
the purchase of retail installment contracts from automobile dealers.
Credit Concepts' business is not seasonal in nature. Its fiscal year
ends July 31.
UNCERTAINTY OF INTERNAL BUDGETS AND FORWARD-LOOKING INFORMATION.
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 JANUARY 31, 2000.
Credit Concepts generated $323,266 of revenues and $28,124 of net
operating income during the three months ended January 31, 2000. At January
31, 2000 Credit Concepts had approximately $50,782 in cash, $4,141,342 in net
finance receivables (after deducting an allowance for credit losses of $337,607
and unearned discounts on contracts of $7,633 and adding capitalized loan
origination costs of $54,499), approximately $3,985,580 of indebtedness of all
types and a shareholders' equity of approximately $356,397.
Credit Concepts purchased or originated approximately $1,113,759 of
contracts and loans during the period, which accounted for approximately 39% of
total finance receivables outstanding during the period. Contracts receivable
increased by $207,184 from $4,224,899 to $4,432,083 due to improved marketing
and an increase in business from new dealers. Net income during the period
remained steady at $28,124 due to an increase in employee costs and
expenditures relating to Y2K improvements to the network computer system. The
allowance for credit losses was $337,607 or approximately 8% of contract and
direct loan receivables of $4,432,083 for the period.
Net chargeoffs for the three-month period were $49,474 or 0.9% of
average finance receivables outstanding during the period. Recoveries for
charged off receivables was $20,260. Other charges against cash flow included
the provision for credit losses of $41,500 and depreciation and amortization of
$6,427 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 $111,816 constituted 37.9% of these total expenses,
and salaries of $73,966 constituted 25.1%. 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 $39,177, with
operating activities generating a positive cash flow of $57,442.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JANUARY 31, 2000 COMPARED WITH SIX
MONTHS ENDED JANUARY 31, 1999
Revenues and Net Income
-----------------------
Total revenues for the six-month period prior to January 31, 2000
decreased by $52,777 or 7.6.0% from $693,500 at January 31, 1999 to $640,723 at
January 31, 2000. This decrease in revenues was due to a lower receivable base
early in the period, which resulted in lower interest revenues. Other income
increased $3,740 or 25.2% from $14,867 at January 31, 1999 to $18,607 at
January 31, 2000. This increase in other income was due to the implementation
of an acquisition fee for dealers for the purchase of contracts from them.
Cash at the end of January 31, 2000 was $50,782 compared to $46,012 at January
31, 1999. Net income increased $38,632 from $17,505 at January 31, 1999 to
$56,137 at January 31, 2000. This increase in net income was primarily
attributable to less aggressive funding of the provision for credit losses
during the period.
Expenses
--------
Interest expense totaled $224,342 at January 31, 2000, a decrease of
13.2% from the $258,536 at January 31, 1999. This decrease in interest expense
is due to a reduction in notes payable. Operating expenses, excluding
provision for credit losses and interest expense, increased $44,597 from
$218,647 at January 31, 1999 to $263,244 at January 31, 2000. This increase of
20% was primarily attributable to an increase in salaries from added personnel
and increased general operating expenses.
Finance Receivables
-------------------
The contracts and loans receivable balance totaled $4,432,083 at January
31, 2000, an increase of 1.1% from the $4,384,152 at January 31, 1999. Loans
and contracts purchased increased by $548,271 to $1,720,302 at January 31, 2000
compared to $1,172,031 at January 31, 1999. This increase is the result of an
increase in the number of automobile dealers supplying installment contracts
for purchase.
Liabilities and Stockholders Equity
-----------------------------------
Credit Concepts had indebtedness of all types of $3,985,580 at January
31, 2000 compared to $4,115,359 at January 31, 1999. The outstanding balance
on the line of credit increased by $60,940 to $2,765,610 at January 31, 2000
from $2,704,670 at January 31, 1999. Other notes payable (excluding accounts
payable, interest payable, deferred income and income taxes payable) decreased
by $227,723 to $1,113,811 at January 31, 2000 from $1,341,534 at January 31,
1999. This decrease is attributable to the payment of several maturing notes
and the reduction of stock subscription receivables by $60,000. Shareholders'
equity increased by $167,622 to $356,397 at January 31, 2000 from $188,775 at
January 31, 1999.
Allowance for Credit Losses and Liquidity
-----------------------------------------
The allowance for credit losses was increased by $38,620 to $337,607 at
January 31, 2000 from $298,987 at January 31, 1999. Credit Concepts had net
cash at January 31, 2000 of $50,782 compared to $46,012 at January 31, 1999.
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 $1,016,811 remained outstanding at January 31,
2000.
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 January 31, 2000 Credit Concepts had outstanding
secured bank indebtedness of $2,765,610 pursuant to this credit facility.
As yet, Credit Concepts has not experienced difficulties in obtaining
financing. However, it has begun to reach the limits of its current bank line-
of-credit and expects to rely increasingly upon sales of the investment
certificates in the present offering, which have lower interest rates than
interest rates that Credit Concepts is currently paying, for financing the
purchase of contracts and the funding of loans in the future. Because the
proceeds from the sale of investment certificates will be used to purchase
contracts and originate loans that serve as collateral for bank borrowings, and
because the investment certificates are subordinated to bank borrowings, the
sale of investment certificates is expected to increase the ability of Credit
Concepts to borrow from commercial banks. If Credit Concepts is able to
successfully sell investment certificates at interest rates that are lower than
the rates charged by commercial banks, as Credit Concepts' competitors have
been able to do over the years, Credit Concepts plans in the future to rely
upon the sale of investment certificates over bank borrowings to fund its
portfolio of contracts and loans.
If Credit Concepts is able to sell all of the $5,000,000 of investment
certificates in this offering within the ensuing twelve months, it does not
anticipate the need to raise additional funds from other sources, other than
through bank borrowings, which it believes, will then be available to it,
within that period. 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
three months ended January 31, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CREDIT CONCEPTS, INC.
Date: March 31, 2000 By: /s/ Tom W. Palmer
------------------------------
Tom W. Palmer, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF INCOME OF THE COMPANY'S FORM 10-QSB FOR THE THREE
MONTHS AND SIX MONTHS ENDED JANUARY 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-1999
<PERIOD-START> NOV-01-1999 AUG-01-1999
<PERIOD-END> JAN-31-2000 JAN-31-2000
<CASH> 50,782 50,782
<SECURITIES> 0 0
<RECEIVABLES> 4,486,582 4,486,582
<ALLOWANCES> 337,607 337,607
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 45,654 45,654
<DEPRECIATION> 19,207 19,207
<TOTAL-ASSETS> 4,341,977 4,341,977
<CURRENT-LIABILITIES> 53,439 53,439
<BONDS> 3,902,421 3,902,421
0 0
0 0
<COMMON> 150,000 150,000
<OTHER-SE> 206,397 206,397
<TOTAL-LIABILITY-AND-EQUITY> 4,341,977 4,341,977
<SALES> 0 0
<TOTAL-REVENUES> 323,266 640,723
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 295,142 584,586
<LOSS-PROVISION> 41,500 97,000
<INTEREST-EXPENSE> 111,816 224,342
<INCOME-PRETAX> 28,124 56,137
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 28,124 56,137
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,124 56,137
<EPS-BASIC> 93.747 187.123
<EPS-DILUTED> 93.747 187.123
</TABLE>
