FRESHSTART VENTURE CAPITAL CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1996, 1995, AND 1994
TABLE OF CONTENTS
Page
Independent Auditors' Report F-3
Statements of Financial Position of Freshstart
Venture Capital Corp. as of May 31, 1995 and 1996 F-4
Statements of Operations for the Years
Ended May 31, 1994, 1995 and 1996 F-6
Statements of Stockholders' Equity for the Years
Ended May 31, 1994, 1995 and 1996 F-7
Statements of Cash Flows for the Years
Ended May 31, 1994, 1995 and 1996 F-8
Notes to the Financial Statements F-9
Supplemental Schedules F-16
Selected Per Share Data and Ratios F-17
Board of Directors
Freshstart Venture Capital Corp.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying Statements of financial
position of Freshstart Venture Capital Corp. (the "Company")
as of May 31, 1996 and 1995 and the related statements of
operations, stockholders' equity and cash flows for each of
the three years in the period ended May 31, 1996 and selected
per share data and ratios for each of the five years in the
period ended May 31, 1996. 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 audit.
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 audits provide
a reasonable basis for our opinion.
As described in Note 2, these financial statements were
prepared in conformity with the accounting practices
prescribed by the Small Business Administration, which
provide for specific allocations of certain types of income
to specific capital accounts. As explained in Note 2, the
financial statements include securities valued at $8,417,457
and $8,132,484 on May 31, 1996 and 1995 (266% and 257%
respectively of net assets), whose values have been
estimated by the Board of Directors in absence of readily
ascertainable market values..
We have reviewed the procedures used by the Board of
Directors in arriving at its estimate of such securities and
have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and
the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values
differ significantly from the values that would have been
used had a ready market for the securities existed, and the
differences could be material.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of the Company as of May 31, 1996 and 1995 and the
results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
New York, New York
June 28, 1996
Michael C. Finkelstein
Certified Public Accountant
F-3
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 1 ORGANIZATION
Freshstart Venture Capital Corp., a New York
Corporation (the "Company"), was formed on March
4, 1982 for the purpose of operating as a
specialized small business investment company
("SSBIC"), licensed under the Small Business
Investment Act of 1958 and regulated and financed
in part by the U.S. Small Business Administration
("SBA"). The Company has also registered as an
investment company under the Investment Company
Act of 1940. The Company's business is to provide
financing to persons who qualify under SBA
regulations as socially or economically
disadvantaged and to entities which are at least
fifty (50%) percent owned by such individuals.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant
accounting policies applied by the Company in the
preparation of its financial statements. The
Company maintains its accounts and prepares its
financial statements on the accrual basis of
accounting in conformity with generally accepted
accounting principles for investment companies.
Valuation of Loans and Investments
The Board of Directors has valued the investment
portfolio based upon the cost of such investments,
less a provision for loan losses. However,
because of the inherent uncertainty of the
valuation, the estimated values might otherwise be
significantly higher or lower than values that
would exist in a ready market for such loans,
which market has not in the past and does not now
exist. The provision for loan losses represents a
good faith determination by the Board of Directors
maintained at a level that, in its judgment, is
adequate to absorb losses. The balance in the
reserve account is adjusted periodically by the
Board of Directors on the basis of the fair value
of the collateral held and past loss experience.
Approximately seventy four (74%) percent of the
Company's loan portfolio consists of loans made
for the financing of taxi cab medallions and
related assets. The remaining portion of the
loans are made to various small commercial
enterprises. Substantially all loans are
collateralized by either NYC taxi medallions or
real estate and the personal guarantees of the
individual owners.
Depreciation and Amortization
Depreciation and amortization of furniture,
fixtures and leasehold improvements is computed on
the straight line method at rates adequate to
allocate the costs of applicable assets over their
expected useful lives.
Recognition of Interest Income
It is the Company's policy to record interest on
loans and debt securities only to the extent that
management and the Board of Directors anticipate
such amounts may be collected. Interest on
doubtful accounts and accounts which are 180 days
past due is not recorded until actually received.
Income Taxes
The Company has elected to be taxed as a regulated
investment company under the Internal Revenue
Code. A regulated investment company can
generally avoid taxation at the corporate level to
the extent that ninety (90%) percent of its income
is distributed to its stockholders. Therefore, no
provision for federal income taxes has been made.
The financial statements include provisions for
New York State and local minimum taxes.
F-9
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings Per Share
Earnings per share are based on a weighted average
number of shares outstanding during the period,
less accrued dividends on cumulative preferred
stock.
Assets Acquired in Liquidation of Portfolio
Securities.
Assets acquired in liquidation of portfolio
securities are carried at estimated net realizable
value. Expenses incurred at the time of
foreclosure are charged against the assets and
adjusted to the estimated net realizable value.
Subsequent reductions in estimated net realizable
value are recorded as losses.
Recently Issued Accounting Standards.
Statement of Financial Accounting Standard No.
114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS 114") was issued in May 1993 and is
effective for fiscal years beginning after
December 15, 1994. SFAS 114 generally requires
all creditors to account for impaired loans,
except those loans that are accounted for at fair
value or at the lower of cost or fair value, at
the present value of expected future cash flows
discounted at the loans' effective interest rate.
Creditors may account for impaired loans at the
fair value of the collateral or at the observable
market price of the loan if one exists. Due to
the nature of the Company's loan portfolio, SFAS
114 is not expected to have a material effect on
the Company's financial condition or results of
operations.
Other
Certain information from the prior years has been
reclassified to conform its presentation to the
current financial statements.
NOTE 3 LOANS RECEIVABLE
The Company's loan portfolio includes
participations with other lenders as presented in
the following schedule. The following is a
breakdown of the outstanding loans receivable:
<TABLE>
May 31,
1995 1996
<S> <C> <C>
Outstanding Loans $8,649,412 $11,093,622
Loan Participations (336,370) (2,495,607)
--------- ----------
Net Loans Outstanding $8,313,042 $8,598,015
========= =========
</TABLE>
Loans on non-accrual status as of May 31, 1995 and
1994 were approximately $1,021,419 and $918,706,
respectively, Additionally, the total amount of
interest income not accrued was $417,018 ,
$398,343 and $ during the years ended May
31, 1996, 1995 and 1994.
Reconciliation of Loan Loss Reserve
A reconciliation of loan loss reserve is as follows:
F-10
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 3 LOANS RECEIVABLE
(Continued)
<TABLE>
Year Ended May 31,
1994 1995 1996
<S> <C> <C> <C>
Balance, Beginning $180,000 $178,159 $180,558
Provision for Loan Losses 78,161 2,399 35,000
Charge-Offs (80,002) -- (35,000)
------- ------- -------
Balance, Ending $178,159 $180,559 $180,558
======= ======= =======
</TABLE>
NOTE 4 ASSETS ACQUIRED IN LIQUIDATION OF PORTFOLIO
SECURITIES
The Company foreclosed on two loans during the
fiscal years ended May 31, 1994 and 1993. Both
loans were collateralized by real estate. The
Company's cost of the loans plus costs to obtain
title to such properties is included in the
carrying value of the assets acquired in
liquidation. The Company wrote off the balance
remaining of $13,344 against its earnings for the
fiscal period ending May 31, 1996.
NOTE 5 LOANS PAYABLE - LINE OF CREDIT
Effective October 23, 1992, the Company
established a $1,500,000 line of credit with
Extebank. On January 15, 1995, the Company
entered into a new agreement with Extebank
providing for a $1,100,000 discretionary line of
credit without any officer guarantees, expiring
December 15, 1995. Upon maturity, the Company
anticipates extending the line of credit for
another year with the bank. All advances bear
interest at .5% above the prime rate. Pursuant to
the terms of the line of credit, the Company is
required to comply with certain terms, covenants
and conditions. The Company pledged its loans
receivable as collateral for the above line of
credit and is required to maintain a minimum of
$100,000 non-interest bearing collected balance
with Extebank during the term of the line of
credit. The balance outstanding as of May 31,
1996 and 1995 was $0 and $5,000, respectively.
The Company did not renew the line of credit.
NOTE 6 LONG TERM DEBT
The long term debt to the SBA consisted of the
following subordinated debentures as of February
28, 1996 with interest payable semi-annually:
<TABLE>
Interest
Rate
Period
Maturity Date First Second Face Amount
<S> <C> <C> <C>
June 1, 2005 6.690% 6.690% $520,000
December 1, 2005 6.540% 6.540% 520,000
May 14, 1996 4.375% 7.375% 120,000
May 14, 1996 4.375% 7.375% 120,000
February 6, 1997 4.125% 7.125% 75,000
February 6, 1997 4.125% 7.125% 75,000
March 17, 1998 5.625% 8.625% 75,000
March 17, 1998 5.625% 8.625% 75,000
September 22, 1999 5.000% 8.000% 750,000
June 9, 1999 6.000% 9.000% 750,000
December 16,2002 4.510% 7.510% 1,300,000
---------
$4,380,000
=========
</TABLE>
F-11
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 6 LONG TERM DEBT
(Continued)
During the fiscal period ended May 31, 1996, the
Company paid off $1,000,000 in subsidized
debentures through the sale of two, $520,000
unsubsidized subordinated debentures, due June 1,
2005 and December 1, 2005 with interest at 6.69%
and 6.54%, respectively.
Under the terms of the subordinated debentures,
the Company may not repurchase or retire any of
its capital stock or make any distributions to its
stockholders other than dividends out of retained
earnings without the prior written approval of the
SBA.
NOTE 7 PREFERRED STOCK
As of May 31, 1992, the Company was authorized to
issue 4,000,000 shares of $1 par value, 3%
cumulative preferred stock. Dividends are not
required to be paid to the SBA on an annual of
other periodic basis, so long as cumulative
dividends are paid to the SBA before any other
distributions are made to investors. Effective
November 21, 1989, Congress passed legislation
which required all preferred stock sold subsequent
to the effective date to pay a four percent
cumulative dividend and to provide for a mandatory
fifteen year redemption. Subsequently, the
Company amended its certificate of incorporation
creating a Class A Preferred Stock, $1 par value,
which consisted of the 1,520,000 outstanding
shares of preferred stock and to change the
existing 2,480,000 authorized but unissued shares
of preferred stock into a new Class B Preferred
Stock, $1 par value, which will carry a four
percent cumulative dividend rate and a mandatory
fifteen year redemption.
All preferred shares are restricted solely for
issuance to the SBA. Effective November, 1994,
the Company amended its certificate of
incorporation authorizing an additional 1,000,000
shares of four percent preferred stock and
reclassifying all 1,520,000 authorized and
unissued shares of three percent preferred stock
as 4 percent preferred stock. The effect of the
amendment authorized 5,000,000 shares of 4 percent
cumulative preferred stock. Effective October 13,
1994 and July 11, 1992, the Company sold 760,000
and 650,000 shares, respectively, of its $1 par
value 4 percent cumulative, 15 year redeemable
preferred stock to the SBA for $760,000 and
$650,000 respectively.
NOTE 8 RESTRICTED CAPITAL - UNREALIZED GAIN ON
REDEMPTION
Repurchase of 3% Preferred Stock
The Company and the SBA entered into a repurchase
agreement dated May 10, 1993. Pursuant to the
agreement, the Company repurchased all 1,520,000
shares of its $1 par value, 3 percent cumulative
preferred stock from the SBA for a purchase price
of $.36225670 per share, or an aggregate of
$550,630. The repurchase price was at a
substantial discount to the original sale price of
the 3 percent preferred stock which was sold to
the SBA at par value or $1.00 per share.
As a condition precedent to the repurchase, the
Company granted the SBA a liquidating interest
in a newly created restricted capital
surplus account. The surplus account is equal to
the amount of the repurchase, less $14,373 of
expenses incurred in connection with the
repurchase, and is being amortized over a sixty
(60) month period on a straight-line basis.
Should the Company be in default under the
repurchase agreement at any time, the liquidating
interest will become fixed at the level
immediately preceding the event of default and
will not decline further until such time as the
default has been cured or waived. The liquidating
interest will expire on the later of (I) sixty
(60) months from the date of the repurchase
agreement, or (ii) if any event of default has
occurred and such default has been cured or
waived, such later date on which the liquidating
interest is fully amortized.
F-12
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
Should the Company voluntarily or involuntarily
liquidate prior to the amortization of the
liquidating interest, any assets which are
available, after the payment of all debts of the
Company, shall be distributed first to the SBA
until the amount of the then remaining liquidating
interest has been distributed to the SBA. Such
payment, if any, would be prior in right to any
payments made to the Company's shareholders.
NOTE 9 DIVIDENDS
Dividends paid to the SBA for each of the fiscal
years ended May 31, 1996 and 1995 were $56,400 and
$45,092, respectively. Total dividends paid to
common stockholders for the fiscal years ended May
31, 1996, 1995 and 1994 were $296,106, $296,108
and $263,206 respectively. The Company is
contingently liable to the SBA for $23,500 in
preferred dividends due for the five months ended
May 31, 1996. Effective May 31, 1996, and for the
five month period then ended, the Board of Directors
declared a three percent dividend to holders of
common stock totaling $98,702. This dividend will
be paid in August, 1996
NOTE 10 MONEY PURCHASE PLAN
Effective for the fiscal year ending May 31, 1989
the Company initiated a defined contribution
pension plan. The eligibility requirements for
participation in the plan are a minimum age of 21
years old and 24 months of continuous employment
with the Company. Contributions are currently
limited to ten percent of each participants
compensation. Total contributions made for the
fiscal years ended May 31, 1996, 1995 and 1994
were $16,180, $17,942 and $18,073 respectively.
Total contributions provided for the nine months
ended February 28, 1996 and 1995 were $12,895 and
$13,458, respectively, All contributions to the
plan have been funded on a current basis.
NOTE 11 MANAGEMENT FEES
The SBA approved the Company's total compensation
of $225,000. Compensation is inclusive of
officers' and staff salaries and pension
contributions.
NOTE 12 STOCKHOLDERS' EQUITY - PRIVATE PLACEMENT
Effective April 21, 1992, pursuant to a private
placement, the Company sold 56,304 shares of
common stock at a price of $12 per share to
accredited investors. Total capital raised was
$675,648 less private placement costs of $16,274,
including $9,660 paid during the six months ended
November 30, 1992. Substantially all of the
proceeds were used to repurchase the 1,520,000
shares of its $1 par value, 3% Preferred Stock
held by the SBA and to make additional
investments. The net proceeds received also
enabled the Company to obtain additional leverage
from the SBA in the form of preferred stock and
debentures.
Pursuant to SBA regulations, all SSBIC's issuing
debentures subsequent to April 25, 1994 were
required to amend their certificates of
incorporation to indicate that they have
consented, in advance, to the SBA's right to
require the removal of officers or directors and
to the appointment of the SBA or its designee to
take such action in the event of the occurrence of
certain events of default. Effective November,
1994, the Company amended its certificate of
incorporation in accordance with the relevant
provisions of the SBA regulations.
F-13
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 12 STOCKHOLDERS' EQUITY - PRIVATE PLACEMENT
(Continued)
On January 12, 1996, the Company filed an
amendment to its certificate of incorporation
which increased the number of authorized shares to
13,0000,000 shares of capital stock consisting of
10,000,000 shares of $1 par value, 4 percent
cumulative, 15 year redeemable preferred stock and
3,000,000 shares of $.01 pare value, common
shares. The financial statements are presented
after giving effect to these changes.
The amended certificate of incorporation will also
provide for a 2 for 1 stock split with respect to
the Company's shares of common stock, $.01 par
value per share, for two shares of common stock
for $.01 par value per share. The effect of the
amendment will be to increase the 274,172 issued
and outstanding shares of common stock to 548,344
shares.
The Stockholders' Equity section of the financial
statements is presented after giving effect to an
amendment to the certificate of incorporation
occurring in November, 1994 and January, 1996.
NOTE 13 RELATED PARTY TRANSACTION
The Company currently leases office space from a
real estate partnership, whose partners consist of
certain officers and directors of the Company, for
$1,500 per month plus certain extraordinary
operating expenses. The lease expires in
November, 1997 with a minimum annual rental of
$18,000. Total rental expense under this lease
was $18,000, $18,000 and $26,700 for the years
ended May 31, 1996, 1995 and 1994 respectively.
Certain officers and directors of the Company are
also shareholders of the Company. Officers'
salaries are set by the Board of Directors and are
also subject to maximum compensation set by the
SBA. For each of the fiscal years ended May 31,
1996, 1995 and 1994, $159,661 in officers'
salaries, including pension contributions, were
paid.
NOTE 14 SIGNIFICANT CONCENTRATION OF CREDIT RISK
Approximately seventy four (74%) percent of the
Company's loan portfolio consists of loans made
for the financing and purchase of New York City
taxicab medallions and related assets.
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS
The Company maintained approximately $267,468 in
one bank in excess of amounts that would be
insured by the Federal Depository Insurance
Corporation.
NOTE 16 SUBSEQUENT EVENTS
The Company intends to file a registration
statement with the Securities and Exchange
Commission to sell up to 1,000,000 shares of
common stock , at a public offering price of $5.00
per common share, for an aggregate offering price
of $5,000,000.
Effective June, 1996, the Company foreclosed on
one of its loans. The total value of the loan
including past due interest is $182,864. The loan
is collateralized by real estate. The
Company anticipates to recover the entire balance
outstanding including past due interest.
F-14
FRESHSTART VENTURE CAPITAL CORP.
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 17 COMMITMENTS AND CONTINGENCIES
Minimum future lease obligations on the Company's
long term non-cancelable operating lease will
total $27,000 over the remaining eighteen (18)
months of the lease term ending November, 1997.
The Company is contingently liable to Scott
Printing for printing work performed during the
Company's proposed public offering. The Company
is in the process of contesting the amount claimed.
The outcome of this dispute is uncertain as to the
amount, which could range from $5,000 - $50,000.
F-15
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
May 31,
1995 1996
<S> <C> <C>
Loans Receivable:
Long Term Portion (Notes 2 and 3) $8,313,042 $8,598,015
Less: Unrealized Depreciation on
Loans Receivable (Note 3) (180,558) (180,558)
---------- ----------
8,132,484 8,417,457
Less: Current Maturities - Loans Receivable (1,140,416) 1,178,444
---------- ---------
Total Loans Receivable -
Net of Current Maturities 6,992,068 7,239,013
--------- ---------
Assets Acquired in Liquidation of
Portfolio Securities (Note 4) 13,344 -
--------- ---------
CURRENT ASSETS
Cash (Note 15) 745,359 415,102
Accrued Interest (Notes 2 and 3) 71,497 92,946
Current Maturities - Loans Receivable 1,140,416 1,178,444
Prepaid Expenses and Other Assets 236,088 287,351
--------- ---------
Total Current Assets 2,193,360 1,973,843
--------- ---------
Fixed Assets - Net of Accumulated Depreciation
of $16,369 and $10,852 respectively (Note 2) 3,614 25,903
--------- ---------
Total Assets $9,202,386 $9,238,759
========= =========
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statement
F-4
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF FINANCIAL POSITION
ASSETS
<TABLE>
May 31,
1995 1996
<S> <C> <C>
LONG TERM DEBT:
Debentures Payable to SBA (Note 6) 4,340,000 4,340,000
4% Cumulative, 15 Year Redeemable
Preferred Stock ( Note 7) 1,410,000 1,410,000
--------- ---------
Total Long Term Debt 5,750,000 5,790,000
--------- ---------
CURRENT LIABILITIES:
Loans Payable - Line of Credit (Note 5) 5,000 -
Accrued Interest 128,330 121,603
Other Current Liabilities 37,512 34,493
Dividends Payable (Note 9) 112,802 112,202
--------- ---------
Total Current Liabilities 283,644 278,298
--------- ---------
Total Liabilities 6,033,644 6,068,298
--------- ---------
Commitments and Contingencies
(Notes 14 and 16) - -
STOCKHOLDERS EQUITY:
4% Cumulative, 15 Year Redeemable Preferred
Stock- $1 Par Value; 10,000, 000 Shares
Authorized, 650,000 and 1,410,000 Shares
Issued and Outstanding, respectively (See Long
Term Debt) (Note 7) - -
3% Cumulative Preferred Stock - $1 Par Value:
No Shares Issued and Outstanding
Notes 7 and 12) - -
Common Stock - $.01 Par Value: 3,000,000 Shares
Authorized, 548,344 Shares Issued and
Outstanding (Note 12) 5,483 5,483
Additional Paid in Capital (Note 8) 2,576,601 2,767,600
Retained Earnings 13,660 15,379
Restricted Capital - Realized Gain on
Redemption (Note 8) 572,998 381,999
--------- ---------
Total Stockholders' Equity 3,168,742 3,170,461
--------- ---------
Total Liabilities and Stockholders' Equity $9,202,386 $9,238,759
========= =========
Net Assets Per Share $5.78 $5.78
========= =========
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statements
F-5
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
Years Ended May 31,
1994 1995 1996
<S> <C> <C> <C>
REVENUE:
Interest Earned on
Outstanding Receivables $1,033,638 $996,534 $1,027,815
Interest Income - Idle Funds 9,433 8,750 6,129
---------- -------- ----------
Total Revenue (Note 2) 1,043,071 1,005,284 1,033,944
---------- --------- ----------
EXPENSES:
Interest (Note 6) 315,213 322,806 307,764
Professional Fees 62,629 45,415 50,776
Officers' Salaries (Notes 11 and 13) 145,146 145,146 145,146
Other Salaries (Note 11) 35,586 35,472 23,126
Other Operating Expenses 90,958 89,353 90,450
Pension Expense (Notes 10 and 11) 18,073 17,942 16,180
Depreciation and Amortization (Note 2) 5,605 5,999 9,710
--------- --------- ---------
Total Expenses 673,210 662,133 643,152
--------- --------- ---------
Net Investment Income 369,861 343,151 390,792
Unrealized Depreciation in Value of
Investments (Notes 2 and 3) 78,161 2,399 35,000
--------- --------- ---------
291,700 340,752 355,792
PROVISION FOR TAXES:
Current Income Taxes (Note 2) 985 1,836 1,567
--------- --------- ---------
Net Income $290,715 $338,916 $354,225
========= ========= =========
Earnings Per Share of Common Stock
(Note 2) $ 0.48 $ 0.54 $ 0.55
========= ========= =========
Dividends Paid Per Share
of Common Stock $ 0.48 $ 0.54 $ 0.54
========= ========= =========
Weighted Average Shares of Common
Stock Outstanding 548,344 548,344 548,344
========= ========= =========
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statements
F-6
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Years Ended May 31,
1994 1995 1996
<S> <C> <C> <C>
4% Cumulative, 15 Year Redeemable
Preferred Stock - $1 Par Value:
10,000,000 Shares Authorized,
650,000 and 1,410,000 Shares Issued
and Outstanding (See Long Term Debt)
(Note 7) - - -
--------- --------- ---------
Common Stock - $.01 Par Value:
3,000,000 Shares Authorized, 548,344
Shares Issued and Outstanding 5,483 5,483 5,483
--------- --------- ---------
Additional Paid in Capital -
Beginning of Period 2,194,602 2,385,601 2,576,601
Amortization of Restricted
Capital (Note 8) 190,999 191,000 190,999
--------- --------- ---------
Additional Paid in Capital -
End of Period 2,385,601 2,576,601 2,767,600
--------- --------- ---------
Retained Earnings
Balance, Beginning of Period 14,435 15,944 13,660
Net Income 290,715 338,916 354,225
Dividends Paid and Accrued (289,206) (341,200) (352,506)
--------- --------- ---------
Balance, End of Period 15,944 13,660 15,379
--------- --------- ---------
Restricted Capital
Gain on Redemption of 3% Preferred
Stock (See Note 8) 954,997 763,998 572,998
Amortization of Gain (190,999) (191,000) (190,999)
--------- --------- ---------
Balance, End of Period (Note 8) 763,998 572,998 381,999
--------- --------- ---------
Total Stockholders' Equity $3,171,026 $3,168,742 $3,170,461
========= ========= =========
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statements
F-7
FRESHSTART VENTURE CAPITAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended May 31,
1994 1995 1996
CASH FLOWS PROVIDED (USED) BY <S> <C> <C>
OPERATING ACTIVITIES:
Net Income $290,715 $338,916 $354,225
Depreciation and Amortization Expense 5,605 5,999 9,710
Provision for Losses on Loans Receivable 78,161 2,399 35,000
Decrease (Increase) in Accrued Interest 31,540 15,015 (21,449)
Decrease (Increase) in Other Assets (8,346) (195,878) (57,326)
Increase (Decrease) in Accrued Liabilities (201,386) (20,113) (346)
Dividends Paid and Accrued (289,206) (341,200) (352,506)
--------- --------- ---------
Net Cash Provided (Used) By
Operating Activities (92,917) (194,862) (32,692)
--------- --------- ---------
CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES:
Increase in Loans Receivable (3,179,900) (3,626,250) (4,594,750)
Repayment of Loans Receivable 3,497,946 3,259,799 2,115,540
Increase in Loan Participations 66,000 125,000 2,227,000
Repayment of Loan Participation (180,689) (164,434) (67,763)
Increase in Fixed Assets (1,475) (2,578) (25,936)
Decrease (Increase) in Assets
Acquired in Liquidation (167,510) 148,287 13,344
--------- --------- ---------
Net Cash Provided (Used) By
Investing Activities 34,372 (260,176) (332,565)
--------- --------- ---------
CASH FLOWS (USED) PROVIDED BY
FINANCING ACTIVITIES:
(Decrease) in Line of Credit (300,000) (29,488) (5,000)
(Decrease) in Restricted Capital (190,999) (191,000) (190,999)
Increase in Debenture Payable to SBA (Net) - - 40,000
Sale of 4% Preferred Stock - 760,000 -
Increase in Additional Paid in Capital 190,999 191,000 (190,999)
--------- --------- ---------
Net Cash (Used) Provided by
Financing Activities (300,000) 730,512 35,000
--------- --------- ---------
Net Increase (Decrease) in Cash (358,545) 275,474 (330,257)
Cash Balance - Beginning of Period 828,430 469,885 745,359
--------- --------- ---------
Cash Balance - End of Period $ 469,885 $ 745,359 $ 415,102
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 308,488 $ 312,142 $ 314,491
--------- --------- ---------
Taxes $ 985 $ 1,836 $ 1,567
--------- --------- ---------
</TABLE>
See Accountants' Review Report and
Notes to the Financial Statement
F-8
FRESHSTART VENTURE CAPITAL CORP.
SUPPLEMENTAL SCHEDULES
MAY 31, 1996
SCHEDULE 1 - LOANS RECEIVABLE
<TABLE>
<S> <C> <C> <C> <C>
Balance
Number of Outstanding
Type of Loan Loans Interest Rate Maturity Date May 31, 1996
NYC Taxi Medallion 142 10.00% - 15.00% 1-7 years $ 6,364,937
Services 1 14.50% - 15.00% 1-7 years 94,717
Auto Repair Service 8 10.00% - 15.00% 1-4 years 652,565
Auto Dealership 1 12.00% 1 year 69,830
Renovation and Construction 1 10.50% 5 years 134,852
Retail Establishment 3 11.25% - 15.00% 1-4 years 306,557
Restaurant 3 9.00% - 15.00% 1 year 237,509
Gasoline Service Station 3 9.375% - 10.00% 1 year 286,616
Manufacturing 1 15.00% 1 year 151,572
Laundromat and Dry Cleaners 5 12.00% - 15.00% 1-4 years 158,630
Medical Offices 2 11.63% - 15.00% 1-3 years 118,052
Video Rental 1 14.00% 6 years 22,178
--- ---------
TOTAL 171 $8,598,015
=== ==========
</TABLE>
Substantially all of the above loans are collateralized by either
New York City taxi medallions or real estate holdings.
SCHEDULE VII - SHORT TERM BORROWINGS
Short term borrowing activities for the periods presented were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Weighted
Balance Average Maximum Amount Average Amount
Category of End of Interest Outstanding Outstanding
Borrowing Period Rate During Period During Period (1)
May 31, 1994 $ 34,488 7.63% $ 634,489 $ 280,322
May 31, 1995 $ 5,000 9.45% $ 34,489 $ 17,361
May 31, 1996 $ - 9.29% $ 5,000 $ 2,500
(1) Computed based on weighted average of amount
outstanding during the period.
(2) The Company did not renew its Line of Credit.
F-16
FRESHSTART VENTURE CAPITAL CORP.
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIONS
FOR THE FIVE YEARS ENDED
MAY 31, 1992, 1993, 1994, 1995, and 1996
</TABLE>
<TABLE>
For the Years Ended May 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Per Share Data
Investment Income $ 2.55 $ 2.01 $ 1.90 $ 1.83 $ 1.88
Investment Expenses (1.82) (1.20) (1.23) (1.21) (1.17)
------- ------- ------- ------- -------
Net Investment Income 0.73 0.81 0.67 0.62 0.71
Net Realized and Unrealized
Gains and Losses on
Securities (0.29) (0.15) (0.14) - (0.06)
Private Placement Costs - (0.02) - - -
Gain on Preferred Stock
Buy Back - 0.61 - - -
Dividends - Common Stock (0.35) (0.60) (0.48) (0.54) (0.54)
Dividends - Preferred Stock (0.05) (0.05) (0.05) (0.08) (0.11)
Sale of Common Stock 1.24 - - - -
------- ------- ------- ------- -------
Net Increase/Decrease
in Net Asset Value 1.28 0.60 - - -
Net Asset Value - Beginning
of Period 3.90 5.18 5.78 5.78 5.78
------- ------- ------- ------- -------
Net Asset Value - End of
Year $ 5.18(1) $ 5.78(1) $ 5.78(1) $ 5.78 $ 5.78(1)
======== ======== ======== ====== =========
Net Asset Value - End of
Year Excluding Retained
Earnings (2) $ 5.75(1) $ 5.75(1) $ 5.75(1) $ 5.75 $ 5.75(1)
======== ======== ======== ====== ========
Ratios
Ratios of Expenses to
Average Net Assets 45.8% 24.3% 21.3% 20.9% 20.3%
======== ======== ======== ====== ========
Ratio of Net Income to
Average Net Assets 5.6% 10.4% 9.3% 10.6% 11.2%
========= ======== ======== ====== ========
Weighted Average of Common
Shares Outstanding 428,866 548,344 548,344 548,344 548,344
--------- -------- -------- -------- --------
</TABLE>
(1) The net as
set value includes the unamortized portion of
the realized gain from the repurchase of three 3% percent
stock and the undistributed retained earnings at the end of
the period. The unamortized balance remaining in the
preferred restricted capital account is $381,999.
(2) Excluded undistributed retained earnings at the end of
the period.
F-17
