<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 April 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 333-66853
CREDIT CONCEPTS, INC.
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(Exact name of small business issuer as specified in its charter)
Oregon 91-1236587
--------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2149 Centennial Plaza, Suite 2, Eugene, Oregon 97401
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(Address of principal executive offices)
(541) 342-8545
--------------------------
(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 14, 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 April 30, 2000 (unaudited), April 30, 1999
(unaudited) and July 31, 1999
Statements of Income for the Three Months Ended April 30, 2000
(unaudited) and April 30, 1999 (unaudited)
Statements of Income for the Nine Months Ended April 30, 2000
(unaudited) and April 30, 1999 (unaudited)
Statements of Cash Flows for the Nine Months Ended April 30
2000 (unaudited) and April 30, 1999 (unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
ASSETS
April 30,
(Unaudited) July 31,
------------------------- ------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 109,444 $ 74,930 $ 81,904
------------ ------------ ------------
Finance receivables:
Contracts 3,779,143 3,844,074 3,807,582
Loans 647,048 381,898 489,597
Loan origination costs 58,764 49,819 53,662
Unearned discounts on contracts (16,824) - -
Allowance for credit losses (354,100) (333,787) (326,000)
------------ ------------ ------------
Finance receivables, net 4,114,031 3,942,004 4,024,841
------------ ------------ ------------
Interest receivable on contracts 75,802 72,753 67,300
Equipment and leasehold
improvements, net 25,621 31,775 29,079
Other assets 20,729 5,659 26,113
------------ ------------ ------------
TOTAL $ 4,345,627 $ 4,127,121 $ 4,229,237
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30,
(Unaudited) July 31,
------------------------- ------------
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES
Debt:
Bank line of credit $ 2,971,574 $ 2,564,064 $ 2,695,509
Other notes payable 173,500 285,272 211,000
Subordinated notes payable to
stockholders 806,571 1,013,839 938,908
Investment certificates 127,000 - -
Accounts payable and accrued
expenses 25,772 21,217 14,800
Interest payable 35,851 38,669 40,294
Deferred income 47,212 - 28,566
------------ ------------ ------------
Total liabilities 4,187,480 3,923,061 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 110,529 206,842 206,842
Retained earnings (deficit) (42,382) (32,782) 3,418
------------ ------------ ------------
Total stockholders' equity 158,147 204,060 300,260
------------ ------------ ------------
TOTAL $ 4,345,627 $ 4,127,121 $ 4,229,237
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months
Ended April 30,
(Unaudited)
---------------------------
2000 1999
----------- ----------
<S> <C> <C>
REVENUES
Interest on contracts $ 263,695 $ 284,159
Other income 4,922 20,456
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Total revenues 268,617 304,615
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EXPENSES
Interest 116,497 85,287
Salaries and benefits 67,967 52,031
Provision for credit losses 122,785 95,179
Other operating expenses 63,305 56,833
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Total expenses 370,554 289,330
----------- ----------
NET INCOME (LOSS) $ (101,937) $ 15,285
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</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Nine Months
Ended April 30,
(Unaudited)
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Interest on contracts $ 893,111 $ 962,791
Other income 16,229 33,648
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Total revenues 909,340 996,439
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EXPENSES
Interest 340,839 343,823
Salaries 199,819 145,347
Provision for credit losses 219,785 293,991
Other operating expenses 194,697 180,488
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Total expenses 955,140 963,649
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NET INCOME (LOSS) $ (45,800) $ 32,790
========== ==========
</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
Stockholder distributions - - (96,313) - (96,313)
Net loss - - - (45,800) (45,800)
--------- --------- --------- --------- ---------
Balance April 30, 2000 $150,000 $(60,000) $110,529 $(42,382) $158,147
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
CREDIT CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months
Ended April 30,
(Unaudited)
-----------------------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (45,800) $ 32,790
------------- ------------
Adjustments to reconcile net income
to net cash from operating activities:
Provision for credit losses on
finance receivables 219,785 293,991
Depreciation and amortization 20,850 20,256
Recoveries of finance receivables
previously charged off 110,769 267,827
Changes in assets and liabilities:
Accrued interest on finance receivables (8,502) (8,253)
Loan origination costs (5,102) 9,272
Unearned discounts on finance receivables 16,824 -
Other assets (7,534) 21,131
Accounts payable, accrued expenses and
other liabilities 6,529 22,432
Deferred income 18,746 -
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Total adjustments 372,365 627,656
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Net cash from operating activities 326,565 660,446
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CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated or purchased (2,624,225) (2,082,614)
Loans and contracts repaid 2,192,759 1,738,830
Additions to equipment and leasehold
improvements (4,474) (5,003)
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Net cash from investing activities (435,940) (348,787)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit 276,065 -
Proceeds from investment certificates 127,000 -
Repayment of debt (169,837) (297,732)
Dividends paid (96,313) -
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Net cash from financing activities 136,915 (297,732)
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NET INCREASE IN CASH 27,540 19,927
CASH, beginning of period 81,904 55,003
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CASH, end of period $ 109,444 $ 74,930
============= ============
</TABLE>
<PAGE>
CREDIT CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The financial information included in this interim report has been prepared by
management and reviewed by independent public accountants. The Company's
annual report contains audited financial statements, and all adjustments
including normal recurring accruals necessary for fair presentation of results
of operations for the interim periods included herein have been made. The
results of operations for the three and nine months ended April 30, 2000 are
not necessarily indicative of results to be anticipated for the year ending
July 31, 2000.
Certain reclassifications have been made to prior period financial statements
to conform with current period presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
For the three months ended April 30, 2000, Credit Concepts has generated
$268,617 of revenues and $101,937 of net operating losses. At April 30, 2000
Credit Concepts had approximately $109,444 in cash, $4,114,031 in net finance
receivables (after deducting an allowance for credit losses of $354,100 and
unearned discounts on contracts of $16,824 and adding capitalized loan
origination costs of $58,764, approximately $4,187,480 of indebtedness of all
types and a shareholders' equity of approximately $158,147.
Financial results for the three months ended April 30, 2000 were
negatively affected by employee misappropriation of customer payments. This
incident is reflected in reduced interest income and a one-time charge of
$40,000 to the provision for credit losses. Operating results for the period
were further impacted by an increase in interest expense due to additional bank
borrowing and higher salaries costs resulting from added personnel.
Management expects to recover a substantial amount of the misappropriated
funds and is currently pursuing all remedies available to do so. Management
has reviewed existing operating procedures and the necessary changes have been
made to reduce the possibility of recurrence of the employee defalcation.
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 April 30, 2000, Credit Concepts has sold
$127,000 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.
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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 APRIL 30, 2000.
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Credit Concepts generated $268,617 of revenue for the three months ended
April 30, 2000, a decrease of $35,998 from $305,615 at April 30, 1999. This
decrease is primarily attributable to the loss of interest revenues resulting
from the employee incident noted above. Net operating losses during the three
months ended April 30, 2000 were $101,937 as compared to net income of $15,285
for the three months ended April 30, 1999. This is due to reduced revenues
realized and increased operating expenses. At April 30, 2000 Credit Concepts
had approximately $109,444 in cash, $4,114,031 in net finance receivables
(after deducting an allowance for credit losses of $354,100 and unearned
discounts on contracts of $16,824 and adding capitalized loan origination costs
of $58,764), approximately $4,187,480 of indebtedness of all types and a
shareholders' equity of approximately $158,147.
Credit Concepts purchased or originated approximately $857,699 of
contracts and loans during the three-month period ending April 30, 2000, which
accounted for approximately 19.4% of total finance receivables outstanding
during the period. Contracts and loans receivable decreased by $5,892 from
$4,432,083 to $4,426,191 due to less activity from the dealers and lower demand
for direct loans for the period. Net losses during the period were $101,937
due to circumstances described above. The allowance for credit losses was
$354,100 or approximately 8% of contract and direct loan receivables of
$4,426,191 for the period ending April 30, 2000.
Interest expense of $116,497 constituted 31.4% of the total expenses,
and salaries of $67,967 constituted 18.3%. The increase in interest expense is
a result of increasing the outstanding balance on the bank credit lines.
Salaries and benefits increased by $15,936 for the period reflecting the
increased costs of management. The provision for credit losses was increased
by $27,606 compared to the same period in 1999. 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
$50,782, with operating activities generating a positive cash flow of $67,442.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED APRIL 30, 2000 COMPARED WITH NINE
MONTHS ENDED APRIL 30, 1999
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Revenues and Net Income
-----------------------
Total revenues decreased for the nine-month period prior to April 30,
2000 by $87,099 or 8.7% from $996,439 at April 30, 1999 to $909,340 at April
30, 2000. Interest income decreased by $69,680 to $893,111 at April 30, 2000
from $962,791 at April 30, 1999. This decrease was a result of a lower
receivable base early in the period and the loss of revenues to employee
defalcation. Cash at the end of April 30, 2000 was $109,444 compared to
$74,930 at April 30, 1999. The net loss for the period was $45,800 compared to
net income of $32,790 for the same period in 1999. This was primarily
attributable to the incident of employee defalcation as noted above and the
resulting charge against income to supplement the provision for credit losses.
Expenses
--------
Interest expense totaled $340,839 at April 30, 2000, a decrease of
$2,984 from the $343,823 at April 30, 1999. Salary expense increased by
$54,472 to $199,819 at April 30, 2000 from $145,347 at April 30, 1999. This
increase was primarily attributable to an increase in the amount paid to the
manager. Operating expenses (excluding the provision for credit losses)
increased $14,209 for the period
Finance Receivables
-------------------
The contracts and loans receivable balance totaled $4,426,191 at April
30, 2000, an increase of $200,219 or 4.7% from the $4,225,972 at April 30,
1999. Loans and contracts purchased increased by $541,611 to $2,624,225 at
April 30, 2000 compared to $2,082,614 at April 30, 1999. This increase is the
result of an increase in the number of direct loans originated and the addition
of new automobile dealers supplying installment contracts for purchase.
Liabilities and Stockholders Equity
-----------------------------------
Credit Concepts had indebtedness of all types of $4,187,480 at April 30,
2000 compared to $3,923,061 at April 30, 1999. The outstanding balance on the
line of credit increased by $407,510 to $2,971,574 at April 30, 2000 from
$2,564,064 at April 30, 1999. This increase is attributed to the overall
growth in the portfolio. Other notes payable (excluding accounts payable,
interest payable, deferred income and income taxes payable) decreased by
$192,040, to $1,107,071 at April 30, 2000 from $1,299,111 at April 30, 1999.
This decrease is attributable to the payment of several maturing notes and the
reduction of stock subscription receivables by $60,000. Shareholders' equity
decreased by $45,913 to $158,147 at April 30, 2000 from $204,060 at April 30,
1999. This decrease was a result of shareholder distributions for tax
purposes.
Allowance for Credit Losses and Liquidity
-----------------------------------------
The allowance for credit losses increased by $20,313 to $354,100 at
April 30, 2000 from $333,787 at April 30, 1999. Credit Concepts had net cash
at April 30, 2000 of $109,444 compared to $74,930 at April 30, 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 $1,107,071 remained outstanding at April 30,
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 (not including tangible assets and
subordinated debt) 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 April 30, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit 15 Letter on unaudited financial information, from
Moss Adams, LLP
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: June 14, 2000 By: /s/ Tom W. Palmer
------------------------------
Tom W. Palmer, President
