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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-18270
COMMAND CREDIT CORPORATION
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(Exact name of the registrant as specified in its charter)
NEW YORK 11-2857523
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Garden City Plaza, Garden City, New York 11530
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(Address of principal executive offices)
(Registrant's telephone number, including area code) (516) 739-8800
Securities registered under Section 12 (b) of the Exchange Act:
Name of each exchange on which
Title of each class registered
NONE
____________________________________ _________________________________
____________________________________ _________________________________
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, par value $ .0001 per share NASD
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of September 19, 1996, there were 44,769,719 shares outstanding having an
aggregate market value of $1,331,899. This amount reflects a One Hundred Fifty
(150) to One (1) reverse stock split effective October 27, 1995.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I.
ITEM I. Business
Command Credit Acceptance Corporation ("Acceptance") was incorporated in
Florida on September 9, 1985. On October 12, 1988, Acceptance was acquired by
Video Plan International Corp. ("VPI"), a New York corporation with virtually no
business activity since 1980. Simultaneously, VPI changed its name to Command
Credit Corporation ("Command").
Command is a diversified financial services company whose primary business
is the marketing and servicing, through its subsidiaries, of secured bank credit
cards. Command's line of financial products is marketed to both businesses and
consumers. The Company is involved principally in credit card marketing, credit
card operations and servicing, retail and commercial mortgages, full service
commercial and business leasing, computer system and computer network design and
implementation and merchant banking. Command has eight subsidiaries, seven of
which are wholly owned and one which Command owns eighty-five percent (85%).
Command currently earns its revenues through the revenues generated from four of
its operating subsidiaries: Berwyn Holdings, Inc., ("Berwyn"), Integrated
Systems International, Inc. ("ISI"), Franklin Credit and Leasing Corp.
("Franklin"), and Fidelity Holding Corp. ("Fidelity").
In order to implement Command's complete turn-key credit card programs, in
March 1995, Command through its wholly owned subsidiary, Command America Corp.,
concluded the acquisition of 100% of Berwyn Holdings, Inc. a bank credit card
servicing company located in Wilmington, Delaware. Berwyn was acquired
specifically to provide all aspects of front and back office servicing of
secured bank credit cards for financial institutions. Berwyn has been servicing
secured credit cards since its inception in 1993. Berwyn has brought to Command
a professional and experienced credit card operations management team and staff
that possess over 50 years of combined credit card experience. Berwyn currently
provides a full line of services to several banks, including European American
Bank (EAB), Fleet Bank and CorTrust Bank. Berwyn has also signed a contract to
implement its program with Wawel Savings Bank, SLA. Berwyn is marketing its
services across the country and is currently in negotiation with other major
banks to provide them with a complete turn-key secured card operation. Berwyn is
a service member of the American Bankers Association (ABA), a licensed
Independent Sales Organization (ISO) for Visa and a registered Member Service
Provider (MSP) for MasterCard.
Berwyn generates its revenues from two sources, credit card fees and
student loan processing fees. Credit card fees are made up of application
processing fees, which are earned when Berwyn processes the application; account
set-up fees, which are earned when Berwyn performs marketing services for credit
cards; and servicing income, which is earned on a monthly basis as Berwyn
services its portfolio of client credit card accounts. Student loan processing
fees are earned when Berwyn underwrites student loan applications. Berwyn also
earns a monthly servicing fee on each student loan that is issued.
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As part of Command's business plan to add significant revenue to the
Company, in May 1996, Command acquired 85% of Integrated Systems International,
Inc. ISI was founded in 1995 to provide medium and large corporate clients
within high-tech environments with computer and network design systems. ISI has
expertise in implementing specific network solutions and integrating diverse
network systems and applications. ISI provides a complete turn key technology
which provides their clients with a clear advantage over their competition. ISI
generates revenues from consulting fees charged to clients for planning,
installing and administering communication oriented computer networks.
Command's research identified the potential of leasing as a growth
opportunity for financial services companies and banks. Thus in July 1993,
Command acquired Franklin Credit and Leasing Corp., a commercial and equipment
leasing company. Franklin has developed a variety of lease products which it
markets to both small and middle market companies for all types of heavy
equipment and machinery. The leases range in size from approximately $50,000 to
$5,000,000. Although the leasing business on the whole has expanded quite
rapidly over the past decade, many businesses, like their consumer counterparts,
don't have perfect credit. Most, if not all, of the major players in the leasing
industry, whether traditional banks or non-bank lenders, have increased their
rejection of business credit, thereby creating a niche market for companies like
Franklin. Franklin management draws upon several major funding resources and
develops custom leases for companies with minor credit problems. The rates are
more costly and the terms and conditions are a bit more stringent, but many
companies accept these factors in order to realize their goals. Franklin is
another Command subsidiary that has concentrated on providing needed products to
service a niche market.
As an adjunct to the regular leasing services of Franklin, its officers and
employees provide commercial real estate and other loan referral services (e.g.
Small Business Administration [SBA]) to its existing and newly developed
clientele. Franklin also provides Command with an introduction to banks who are
interested in Command's secured bank credit card programs.
Franklin generates its revenues from the commissions received on the
structuring and sale by it of commercial leases. Franklin also receives
financing revenues comprised of fees and commissions involved in the arranging
and placing of commercial loans.
In an effort to expand its leasing operations, in October 1995, Command
acquired Fidelity Holding Corp, an aircraft leasing company, Fidelity was a
wholly-owned subsidiary of Jetlease Finance Corp. ("Jetlease"). Fidelity
generates revenues from the payments due on two outstanding promissory notes
issued to it by Jetlease in the principal amount of $10,000,000 in the
aggregate, which promissory notes bear interest at twelve percent (12%) per
annum payable by Jetlease directly to Command as follows: interest only of 1% of
the principal amount payable monthly for a term of twenty-four months, or
$1,200,000 per annum. The promissory notes are secured by two Boeing 727
aircraft. The principal amount of the promissory notes approximated the October
1995 appraised value of these aircraft. These notes are currently in default.
Command has not received any interest payments on the
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two promissory notes, however, Command has accrued interest income on these
notes in the amount of $600,000 which represents accrued interest for the period
January 1, 1996 through June 30, 1996. Management believes the probability of
receiving this accrued interest is favorable.
On April 21, 1996, an involuntary petition under Chapter 7 (liquidation) of
the United States Bankruptcy Code was filed against Jetlease in the United
States Bankruptcy Court for the Southern District of Florida. Jetlease consented
to the entry of an order for relief, to convert the case to a case under Chapter
11 (reorganization) and the appointment of a trustee. Subsequent to June 30,
1996, Command was informed by its legal counsel that the collateral securing
these promissory notes had been misrepresented to Command. Command had been
supplied with fraudulent appraisals. Based upon this information, the Company
has written down the value of the two promissory notes to $1,875,000, the
current market value of the two aircraft. This amount was determined by a
subsequent appraisal of the aircraft ordered by the Judge of the United States
Bankruptcy Court, for the Southern District of Florida. However, this
transaction is still subject to litigation in the Bankruptcy court.
Furthermore, the Company has established and/or acquired additional
strategic niche market subsidiaries. Command America Corp., a New York
corporation formed in August 1990 which markets bank credit card products, and
programs for banks. Command America offers a program designed to build a
portfolio through issuing credit cards to Affinity groups (i.e., a group of
individuals involved in a special interest organization such as charities,
alumni groups, trade and labor unions, and political parties, etc.) and
retailers (co-branded cards). This program enables a bank to issue both secured
and unsecured bank credit cards, providing the means to develop a high profit
card portfolio with low acquisition costs, increased activation rates and
decreased attrition.
In addition, in May 1996, Command acquired 100% of Prestige Aircraft and
Leasing Corp. ("Prestige"). Prestige is the registered owner of a 401A twin
engine Cessna aircraft valued at approximately $146,000, which the Company
intends to offer for lease. This is the only asset Prestige had at the time of
acquisition. Command acquired Prestige to expand its leasing operations.
Command's has two additional subsidiaries, Capital One Corp., a Delaware
corporation formed in January 1994, as a merchant banking firm which provides
financial information to clients seeking investments. Capital One Corp. has had
little activity in the past several months, however, it is looking to hire a new
president who is licensed as an investment banker so it may pursue its business
objectives; and First Equities Corp., a Delaware corporation formed in June 1993
as a mortgage banking firm which develops specialized mortgage products which
are currently being tested.
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Company History
Command was originally organized as a research and development company for
the purpose of developing an international database of credit card information
and statistics. The database was designed to compare the characteristics of a
bank credit card customer and the usage of credit cards across many countries.
The database included behavioral spending characteristics of individuals who use
bank credit cards and the classification of individuals who preferred bank
credit cards over internationally accepted charge cards (e.g. American Express,
Diners Club, Carte Blanche, etc.). The early management of Command conducted
this research with the intention of providing banks with detailed information on
the issuance, processing, servicing and usage of a bank credit card. It was the
intention of Command to market segments of this information, along with
financial models, to the international banking community, particularly those
banks who were about to enter the bank credit card market.
In the course of this strategic activity, it became clear that the
information gathered by Command was extremely valuable and so conclusive, that
by 1992, the Company decided to enter the bank credit card business itself. The
Company conducted a rigorous analysis of data which showed that between the
years 1989 and 1992 the rejection rate for unsolicited bankcard applications
rose from approximately 56% to approximately 75%. More important, these results
underscored the realization that the use of advanced computer models had made
monitoring and tracking individual consumers of credit cards a high-level
science. Unfortunately, the same level of sophistication associated with the
risks and rewards of lending to different types of individual credit consumers,
virtually eliminated a means of entry to the mainstream world of credit and
credit cards for many individuals.
Under today's standards of evaluation, an individual with no credit history
is considered to have a bad credit history and thereby warrants rejection. Minor
credit infractions, such as a thirty day late payment to a department store two
years prior, could result in rejection for credit even though that individual's
credit from that date on had been perfect.
Segmentation analyses were a major part of Command's research into the
credit card markets. This data helped the Company to identify and further
understand some of the types of individuals who were not gaining entry to the
consumer credit card markets. Some of the groups that have problems obtaining
credit are: recent immigrants, new members of the work force, women (who
previously relied on their husband's credit, but are now either widowed or
divorced), students, members of the armed forces and senior citizens. This
entire segment of the population is disenfranchised due to what might be called
"computer discrimination."
To satisfy financial institutions needs for low risks in lending and
consumer needs for available credit, Command has developed credit card marketing
programs for financial institutions to capture a significant portion of this
highly volatile, but potentially profitable consumer market with minimal
financial risk.
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During the past several years, Command has concentrated its efforts on its
credit card programs. This strategy, however, proved to be difficult due to a
number of factors, most of which were beyond the immediate control of the
Company. Initially, Command marketed bankcards through American National Bank
(ANB). In mid-1991 Command learned that ANB was having financial difficulties
and in January 1992, ANB was declared insolvent and was taken over by Resolution
Trust Company. Command, at that time, had just entered the secured bank credit
card business and was servicing approximately 10,000 bank credit cards through
ANB. When Command learned ANB was having financial difficulties, Command decided
to seek to purchase its own bank. In June 1991, Command made a bid to purchase
Republic National Bank of Arizona, a $30,000,000 asset bank which was under a
Federal MOU (Memorandum of Understanding). The banking regulators took more than
16 months to evaluate the purchase of the bank. By the time a decision was
reached Command's option to purchase the bank had expired. In the meantime, with
Command's financial assistance, the bank was able to turn itself around and
decided to withdraw its offer to sell.
In addition, in 1991, Command acquired a bankcard servicing company with a
portfolio of 20,000 credit cards issued through First National Bank of Marin
(FNBM). Within 45 days, Command, through its own marketing efforts, added 10,000
additional cards to this credit card portfolio. However, FNBM encountered
financial difficulties and reneged on its servicing contract with the bankcard
servicing company. Command instituted suit and recovered the payments due but,
unfortunately, lost the servicing and marketing contract. Command later was
informed that the bank had reneged on the contract because another processing
company had offered to invest in the bank if FNBM switched to them as their
servicer.
In September 1993, Command learned of yet another bank that was for sale,
Suburban Bank of Lake Worth, Florida, a $250,000,000 bank. The bank was under a
Cease and Desist (C&D) notice from the Federal Regulators because the bank was
below its minimum capital requirements. Command offered to meet the minimum
capital requirements, which were initially set at $2,000,000, only to discover
that $6,000,000 was actually the funds required. Unfortunately, this process
took almost nine months and while pending approval, Command was informed by the
banking regulators that it could only issue credit cards equal to 26% of the
banks total business. As a result of this restriction, Command's management
decided not to purchase Suburban Bank.
Finally, in March 1995, Command acquired 100% of an existing bankcard
servicer, Berwyn Holdings Inc. Command has spent significant resources on
upgrading the software and hardware systems to develop this servicer into a
state-of-the-art operations center. Berwyn has received full approval from both
MasterCard and Visa, is now servicing credit card portfolios for a number of
banks and has become a significant source of income for the Company.
Command Credit Card Programs
Command offers two secured credit card programs to lending institutions;
the first makes it possible for institutions to establish a credit card program,
and the second makes it possible for institutions with existing credit card
programs to further expand their credit card programs
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to consumers. Each of Command's secured card programs require the non-credit
worthy consumer to deposit with the lending institution an amount of money equal
to the line of credit the consumer desires.
Command's program for institutions that do not offer credit cards (denovo
issuers) is designed to attract institutions which are inexperienced in the
credit card industry, too small to implement such a service on their own, and
concerned about the staffing requirements for such an undertaking. Most small
lending institutions lack credit card business experience and do not have a
large enough asset base to participate in a major credit card program. Command
provides all of the associated functions required to operate a back office
credit card service through its subsidiary, Berwyn Holdings, Inc., and assumes
the responsibility for marketing and implementing the program. Berwyn handles
all the bank's credit card servicing, and reviews, investigates, processes and
verifies all credit card applications subject to parameters set by the lending
institution. The lending institution is also provided with long term deposits,
from which it can finance all of its new credit card business. The security of
the deposits assures the institutions of payment on any credit card default.
Command's program for institutions which already offer unsecured Visa
and/or MasterCards to credit consumers (established issuers) enables them to
expand their customer bases by offering secured cards to "non-established credit
consumers" with minimal financial risk. All credit decisions are made by the
lending institutions. Command markets the secured card products and will service
the secured card customer. If the cardholder is able to maintain a perfect
payment record over a consecutive period of 18 months, is able to maintain a
good credit standing with his or her other creditors, and meets certain other
pre-established criteria, he or she will receive an unsecured credit card from
either the original card issuer or another participating institution, and his or
her deposit will be returned. This program appeals to non-established credit
consumers and those who want to re-establish their credit-worthiness among
issuers of credit. The secured bank credit card market is comprised of many
individuals who "slipped through the cracks", and many individuals such as young
adults with little or no borrowing experience, divorced or widowed individuals
without credit in their own name, people who experienced minor cash flow
problems in their past but eventually met their obligations, high school
graduates and college students, resident immigrants, senior citizens and others.
These individuals are a diverse group representing different socio-economic
backgrounds and income levels, which represent Command's marketplace. It has
been estimated by researchers and published in numerous trade periodicals and
newspapers that this market represents over sixty million Americans.
Secured cardholders are required to deposit with the credit card issuing
bank a minimum of $250, up to a maximum of $5,000, based upon their desired
credit line. Banks pay the consumer interest on such deposits. Credit
cardholders are subject to interest and late payment charges allowable within
the bank's geographical area. Fees payable by the bank to Command are subject to
negotiation. All consumer fees are collected directly by the bank and passed on
to Command, where applicable.
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Command's programs enable participating institutions to expand their
business base and attract new customers who may become resources for other
consumer services offered by the card issuer. Small lenders who wanted to issue
credit cards were previously required to do so through larger banks, which would
pay the small lender a modest fee for the customer, keeping the profits and,
often, the customer. Under Command's programs, any bona fide lending institution
can become a credit card issuer, or expand its customer base, taking less
financial risk than is associated with an unsecured card portfolio.
Ability To Provide Services
All prospective bank clients of Command must first be licensed by
MasterCard or Visa and then accepted by a third party processor such as FDR
(First Data Resources), a supplier of data processing services for the financial
community, or another reputable processing company. Upon acceptance by the
processor, the participating bank will be charged a one time account set-up fee
of approximately $10,000. The fee covers the computer programming and
implementation of the institution's unique account number and the set up of the
bank in the payment system. Regular monthly fees of approximately $3.00 per card
per month will be billed for services, compliance, storage of credit card usage
records, sales reports, management reports, and credit card monitoring.
The primary focus of the Company's credit card business will be the
continued implementation of secured card marketing programs that have been
tested and proven in the past. Of late, the marketplace is being bombarded with
credit card solicitations, offers, reduced prices, teaser rates, etc., in an
attempt to capture or recapture market share. The Company's prior test marketing
programs seem to indicate that leveraging certain combinations of product
enhancements work best to acquire and retain cardholders. The Company's findings
suggest that some of these combinations include a loyalty driven Affinity or
co-branded card with fair terms, rates and conditions, gold card benefits and
virtually assured acceptance. The Company's dual secured and unsecured credit
card offering is receiving remarkable acceptance with large Affinity groups, and
bankcard issuers. To date, Command has contracted with Affinity groups and
Retailers representing a prospective target market of nearly 12 million people.
The company has contracts with Essence Magazine, The Outlaw Music Group, and
other national, regional and community based groups mainly in the magazine
industry, to provide their members and customers with bank credit cards. The
Company is continuing negotiations with other groups and retailers to provide
similar services.
Government Regulations
Although the credit card industry and the banking industry are highly
regulated by Federal and State government, Command does not come within the
scope of such laws in providing marketing services. However, it is necessary to
maintain conformity with industry rules and regulations established for
financial institutions that actually issue and own the credit card accounts and
receive all deposits and credit card payments. No assurances can be given that
such laws will not be modified, or that new laws and regulations will not be
enacted in the future, which might have a material beneficial or adverse effect
upon Command's operations.
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Competition
The financial services industry and the credit card business are highly
competitive. Command has and will continue to encounter competition from
numerous other firms and established institutions, many of which are larger,
have longer histories of operations, and have greater financial, marketing and
other resources. With respect to its operations directed to non-creditworthy
applicants, Command will face the task of educating lending institutions as to
the advantages of its programs, the minimal risk for the participating
institution and the benefits to the consumer. Of course, no assurances can be
given that Command will be successful in its efforts to obtain market acceptance
or that, even if successful, will be able to attract sufficient sales to make
its operations commercially profitable.
To the best of Command's knowledge, there are approximately 50 banks and
non-bank banks throughout the United States which compete with the Company's
secured bank credit card operations by offering credit cards to non-established
or credit-risk consumers. The programs offered by such competitors, typically do
not re-establish the consumer's credit worthiness, guarantee return of
consumer's deposit if monthly payments are made on time, or provide ongoing
consumer education programs. The Company believes it is the only company that
currently offers an extended benefits program and computerized behavioral
monitoring to its participating bank credit cardholders. To Command's knowledge,
no other company offers a more comprehensive secured and unsecured credit card
program to Affinity groups and retailers. With the national unsecured and
unsolicited application rejection rate in excess of 80% at the largest banks,
Command's program is an important alternative to ordinary unsecured credit card
programs.
To the best of Command's knowledge, there are a significant number of
companies similar to Franklin who handle commercial and equipment leasing.
Command is not aware of any who are dominant in the industry.
To the best of Command's knowledge, the design and implementation of
computer systems and networking provided by ISI is a highly competitive business
and there are many companies which are larger, have longer histories of
operations, and have greater financial, marketing and other resources.
To the best of Command's knowledge, there are approximately six companies
in competition to Fidelity that provide aircraft leasing services. The company
considered dominant in this industry is Jetlease Finance Corp.
Employees
The Company and its subsidiaries currently employ approximately 35
employees, two of which are employed part-time. The Company believes it enjoys a
good relationship with its employees. The Company has not entered into any
collective bargaining agreements regarding its employees.
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ITEM 2. Properties
The Company maintains its principal executive and marketing offices at 100
Garden City Plaza, Garden City, New York, 11530, where it leases approximately
11,500 square feet of office space from an unaffiliated third party. Prior to
December, 1995 the Company leased approximately 9,500 square feet. This space is
rented pursuant to a five year lease which commenced on February 1, 1994 at an
annual rental of $94,710 through July 31, 1995; thereafter increasing to
$142,065 through February 25, 1996; thereafter increasing to $172,065 through
December 31, 1999.
The Company believes that its current facilities are well maintained and
are adequate to meet its immediate requirements.
ITEM 3. Legal Proceedings
In November 1994, Command acquired 88% of Prime Source Managed Total Care,
Inc. ("Prime"), a medical administrative and billing service that also provided
managed health care, located in Salt Lake City, Utah. Prime appeared to be an
excellent opportunity for Command with respect to their experience in issuing
credit cards (Command was going to develop and issue a medical credit card in
conjunction with Prime) and Prime's existing business. Prime represented that
they had enough business to not only show a large profit in their own company,
but that they would be able to subsidize Command's credit card program as well.
Command later discovered substantial problems with the financial statements
delivered to Command by Prime. When Command discovered these problems, Command,
pursuant to an arbitration clause contained in its written contract with Prime,
entered into a Demand for Arbitration with Prime. The nature of the dispute is
fraud and misrepresentation, and the relief sought is recision of the
transaction and return of the Company's investment. In addition, Command, as the
principal shareholder of Prime, has brought a shareholder's derivative action
against the principal officers of Prime alleging fraud, misrepresentation and
abuse of their fiduciary duties to Prime. Upon extensive review by a management
team that was sent by Command to Salt Lake City, Utah, to evaluate Prime, it was
decided that the best course of action for Command was to cut its losses and
cause Prime to close down. Therefore, on September 30, 1995, Command wrote-off
its entire investment in Prime and closed its operations.
In October 1995, Command acquired 100% of the common stock of Fidelity
Holding Corp., a wholly owned subsidiary of Jetlease Finance Corp. (the
"Jetlease Transaction"). The Jetlease Transaction provided for Jetlease to issue
promissory notes in the principal amount of $10,000,000 in the aggregate, at 12%
interest payable at $100,000 per month commencing January 18, 1996. These notes
are secured by two Boeing 727 aircraft valued at the time of this transaction by
an appraiser collectively at $10,000,000. As part of the Jetlease Transaction,
Jetlease received $12,000,000 worth of Command restricted common stock. The
first interest payment of $100,000 which was due by Jetlease in January, 1996
was not paid. Command notified Jetlease and the Federal Aviation Administration
("FAA") of the default and commenced an action to foreclose on its collateral,
the aircraft. Command also commenced an
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action against Jetlease, its principals and others, for damages. In April 1996,
the FAA recorded Command as registered owner holding full title to the aircraft
which served as collateral for the notes issued in the Jetlease Transaction.
On April 21, 1996, an involuntary petition under Chapter 7 (liquidation) of
the United States Bankruptcy Code was filed against Jetlease in the United
States Bankruptcy Court for the Southern District of Florida. Jetlease consented
to the entry of an order for relief, to convert the case to a case under Chapter
11 (reorganization) and the appointment of a trustee. Command holds a position
as a secured creditor. Subsequent to June 30 1996, Command was informed by its
legal counsel that the collateral securing these promissory notes had been
misrepresented to Command. Command had been supplied with fraudulent appraisals.
Based upon this information, the Company has written down the value of the two
promissory notes to $1,875,000, the current market value of the two aircraft.
This amount was determined by a subsequent appraisal of the aircraft ordered by
the Judge of the United States Bankruptcy Court, for the Southern District of
Florida. However, this transaction is still subject to litigation in the
Bankruptcy court.
Command signed a lease commencing January 15, 1992, for office space in
Davie, Florida. Due to non-performance of the landlord, litigation ensued which
resulted in favor of the landlord. Command appealed the case and lost the
appeal. This outcome did not have a material effect to the Company's financial
position, results of operations or liquidity.
Command, in the normal course of business, is a plaintiff in a number of
legal proceedings.
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PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The principal market on which the Company's shares of Common Stock are
traded is the over-the-counter market ("OTC Bulletin Board"). The Common Stock
was accepted for trading on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) Small Cap Market from March 29, 1992 to
October 5, 1995. On October 5, 1995, the Common Stock was delisted from the
NASDAQ Small Cap Market.
The following table sets forth, for the periods indicated, the range of
high and low bid quotations for the Company's shares of Common Stock which were
obtained from the National Quotation Bureau and are between dealers, do not
include retail mark-ups, mark-downs, or other fees or commissions, and may not
necessarily represent actual transactions:
Quarter Ended Bid
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High Low
9/30/95........................ 13.50 4.50
12/31/95........................ 6.12 .75
3/31/96........................ 1.25 .33
6/30/96........................ .29 .24
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The quoted share prices for the above periods reflect the 150 to 1 reverse stock
split effected by the Company on October 27, 1995.
The number of the Company's recorded holders of Common Stock on June 30
1996, was 1,172. As of June 30 1996, there were approximately twenty market
makers for the Company's securities.
The Company has not paid any dividends on its Common Stock, except for
Warrants distributed to shareholders of record on October 12, 1988, (all such
unexercised Warrants were redeemed by the Company at a redemption price of $.01
per Warrant), and except for certain stock purchase warrants distributed to
shareholders of record on October 26, 1995. The Company does not intend to pay
any dividends in the foreseeable future. If the Company generates earnings, it
is Management's policy to retain such earnings for further development of the
Company's business. It is expected that this policy will be maintained as long
as necessary to provide funds for the Company's operations. Any dividends that
may be declared and paid in the future, of which there can be no assurance, will
be determined by the Board of Directors in light of conditions then existing,
including the Company's earnings, financial condition, capital requirements and
other factors. There are no contractual restrictions on the Company's present or
future ability to pay dividends.
In conjunction with the Company's one hundred fifty to one reverse stock
split, effective on October 27, 1995, the Board of Directors of Command
authorized the Company to issue a 300% warrant dividend to all shareholders of
record as of the close of business on Thursday,
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October 26, 1995. For every one post reverse split share, a shareholder received
three warrants. The warrants were issued at no cost to the individual
shareholders. After eighteen months, the warrant holders may exercise their
warrants to purchase common shares at a conversion price of $3.50 per share. All
unexercised warrants will automatically expire after a three year period.
ITEM 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion and analysis should be read in conjunction with the
Company's audited financial statements and related notes thereto, which appear
elsewhere in this report.
Results of Operations
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues. Revenues for the years ended June 30, 1996 and 1995 were
$1,425,433 and $891,873, respectively. The increase in revenues is due primarily
to interest income accrued on two outstanding note receivables. In addition,
revenue increased due to the improved operations of Command's subsidiaries,
specifically, the addition of Berwyn's contracts with European American Bank
(EAB) and Fleet Bank and the ability of Franklin to market and issue a greater
number of equipment leases in the year ended June 30, 1996, than had been the
case in the previous year.
Selling and Administrative Expenses. Selling and Administrative expenses
for the years ended June 30, 1996 and 1995 were $3,752,641 and $3,206,816,
respectively. This increase is due primarily to an increase of approximately
$300,000 in professional fees, specifically, legal fees incurred in connection
with Command's arbitration proceeding against Prime; litigation regarding a
lease for space in Davie, Florida and litigation with regard to the Jetlease
transaction.
Cost of Shares Issued for Services Rendered. The Cost of Shares Issued for
Services Rendered for the years ended June 30, 1996 and 1995, were $12,089,321
and $2,165,096, respectively. This increase is a result of Command's efforts to
preserve cash by issuing, from time to time, shares of its Common Stock to
various consultants and professional servicers for consulting, marketing, public
relations and research and development services. The Company believes these
services are critical to the Company's ability to attract additional business
and investor interest. These shares have been issued at a discount and the
difference between the discounted price and the market price has been recorded
as a consulting, marketing public relations, and/or research and development
expense of the Company. As the market price of the Company's shares has declined
over the past year, the discount which Command has had to offer on shares issued
for services unfortunately has increased dramatically. The Company recognizes
that the issuance of these shares has had a significant dilutive effect,
however, the Company believes that the share issuances were absolutely necessary
for the Company to
13
<PAGE>
implement its many plans and programs including a major multi-million dollar
project for EAB. In this regard, Command's bottom line profit in its credit card
program is expected to result in a $12 per credit card profit per annum. EAB
pays Berwyn a $15.00 application processing fee per application whether or not a
credit card is issued. Command currently has contracts with a number of Affinity
groups (i.e., a group of individuals involved in a special interest organization
such as charities, alumni groups, trade and labor unions, and political parties)
and retailers that represent approximately 5 million members. Command
anticipates placing a portion of this membership through its EAB contract.
Management believes that within the next 18 months Command has the potential to
service 1,000,000 credit card applications.
Loss on Investment and Bad-Debt Expense. Loss on Investment for the years
ended June 30, 1996 and 1995 were $1,910,304 and $-0-, respectively. Bad-debt
expense for the years ended June 30, 1996 and 1995 were $792,713 and $25,213,
respectively. These increases are due to a number of factors. In November 1994,
Command acquired 88% of Prime, a medical billing service that also provided
managed health care, located in Salt Lake City, Utah. Prime appeared to be an
excellent opportunity for Command with respect to their experience in issuing
credit cards (Command was going to develop and issue a medical credit card in
conjunction with Prime) and Prime's existing business. Prime represented that
they had enough business to not only show a large profit in their own company,
but would be able to subsidize Command's credit card program as well. Command
later discovered substantial problems with the financial statements presented by
Prime. When Command discovered these problems, Command, pursuant to an
arbitration clause contained in its written contract with Prime, entered into a
Demand for Arbitration with Prime. The nature of the dispute is fraud and
misrepresentation, and the relief sought is recision of the transaction and
return of the Company' investment. In addition, Command, as the principal
shareholder of Prime, has brought a shareholder's derivative action against the
principal officers of Prime alleging fraud, misrepresentation and abuse of their
fiduciary responsibility to Prime. Upon extensive review by a management team
that was sent by Command to Salt Lake City, Utah, to evaluate Prime, it was
decided that the best course of action was to close down Prime. Therefore, on
September 30, 1995, Command wrote-off its entire investment in Prime as a loss
on investment and closed Prime's operations.
In addition, Command had two inactive subsidiaries, BanServ, Inc. (BanServ)
and Command Credit Limited (Limited). BanServ, a California corporation,
purchased in January 1992, was a bankcard servicing company which issued cards
through First National Bank of Marin (FNBM). FNBM, however, encountered
financial difficulties and FNBM reneged on its servicing contract. Litigation
ensued and upon settlement Command wrote-off items related to this subsidiary.
Specifically, Command wrote-off a receivable from BanServ as a bad-debt expense.
Limited was organized in the United Kingdom in January, 1989 as a bankcard
servicing center in Europe. Command capitalized its costs associated with the
start-up of this company. However, Command was unable to secure a credit card
relationship with an English bank and therefore, Command canceled this project.
As a result, Command wrote-off
14
<PAGE>
a receivable from Limited as a bad-debt expense and wrote-off its acquisition
costs as a loss on investment.
Net Losses. For the years ended June 30, 1996 and 1995, Command had net
losses of $17,499,567 and $4,889,041, respectively. The increase in losses is
due primarily to the increase in the cost of shares issued for services which
have been recorded as an expense to the Company and explained in detail above.
In addition, losses increased due to expenses incurred in connection with the
continued promotion and development of the business operations of the Company
and its subsidiaries, and the operating losses of its subsidiaries.
Liquidity and Capital Resources
As of June 30, 1996 Command held cash and cash equivalents of approximately
$45,000. Command had total assets of $4,015,307 and total liabilities of
$2,963,834, compared with $4,428,757 and $2,854,968, respectively at June 30,
1995. The decrease in assets is due primarily to a decrease in goodwill
attributable to the acquisition of Prime in November 1994 and subsequently
written-off in September 1995, offset, in part, by an increase in notes
receivable attributable to the acquisition of Fidelity. The increase in
liabilities is due primarily to an increase in loans payable to the Chairman of
Command as well as an increase in long-term notes payable to third party
lenders, offset, in part by a decrease in trade payables and payroll taxes
payable.
In the past, the Company has experienced cash flow difficulties as a result
of the substantial effort and expense incurred to implement its credit card
programs. The Company generates its cash flow almost exclusively from its
operating activities. As described under Certain Relationships and Related Party
Transactions, when the Company experienced its cash flow difficulties, William
G. Lucas, Chairman of Command, has from time to time lent the Company money at
virtually no interest. Mr. Lucas has also not drawn a salary for the past
several months and is currently not drawing a salary. In addition, in past years
Mr. Lucas has forgiven a significant portion of his salary. The Company may
increase its liquidity and capital resources through its currently growing bank
credit card service program. Berwyn expects to sign a number of new bank
contracts which are currently in final stages of negotiations. It should be
noted that cash flows have been increasing every day as a result of the addition
of new credit card applications. However, the Company is disappointed that the
amount of new credit card applications is not at the rate it expected.
Management believes that these new credit card applications will begin to
increase as EAB becomes more experienced in the secured credit card program.
The Company currently has no material commitments for capital expenditures.
The Company continues to explore new means to increase its capital base to
finance current operations and to implement its business plan.
15
<PAGE>
Inflation and Seasonality
Management does not believe that inflation will have a material effect on
the operations of Command or that there are any seasonal aspects that will have
a material effect on its financial condition or results of operations.
ITEM 8: Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Mr. Charles Davitian has voluntarily resigned due to his retirement from
practice. Mr. Davitian's opinion for the past two years did not contain an
adverse opinion or disclaimer of opinion nor was it modified as to uncertainty,
audit scope, or accounting principles.
The Company has engaged Gulian & Company as its principal accountant to
audit the Company's financial statements for the years ended June 30, 1996 and
1995. Command's Board of Directors has approved the appointment of Gulian &
Company as its principal accountant.
16
<PAGE>
GULIAN & COMPANY
Certified Public Accountants
62 West 47th Street
Suite 912
New York, New York 10036
----------
(212) 730-5798
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Command Credit Corporation
100 Garden City Plaza
Garden City, NY 11530
Gentlemen:
We have audited the accompanying consolidated statements of financial position
of Command Credit Corporation and subsidiaries at June 30, 1996 and 1995 and the
related statements of operations, changes in shareholder's equity, cash flows
and supporting schedules for the years ended June 30, 1996 and 1995. 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 disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
statement presentation. We believe our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respect, the consolidated financial position of Command Credit
Corporation and subsidiaries at June 30, 1996 and 1995, and the results of its
consolidated operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Gulian & Company
- --------------------
Gulian & Company
New York, NY
September 25, 1996
F-1
<PAGE>
PART II: Financial Information
ITEM 7: Financial Statements
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
June 30 June 30
1996 1995
---------- ----------
Current Assets:
Cash and Cash Equivalents (Note 2) $ 45,295 $ 228,098
Accounts Receivable, net (Note 3) 248,465 285,114
Note Receivable (Note 4) 2,485,000 360,000
Prepaid Expenses 9,913 19,308
Interest Receivable (Note 5) 600,000 120,900
---------- ----------
Total Current Assets 3,388,673 1,013,420
---------- ----------
Fixed Assets:
Equipment 729,117 768,880
Furniture & Fixtures 166,400 339,482
Leasehold Improvements 225,003 228,603
---------- ----------
1,120,520 1,336,965
Less: Accumulated Depreciation
and Amortization 743,723 962,786
---------- ----------
Total Net Fixed Assets 376,797 374,179
---------- ----------
Other Assets:
Bank/Data Center Acquisition -0- 260,993
Marketable Equity Securities (Note 6) 14,500 268,139
Organization Expenses 677 30,525
Computer Software 119,992 47,412
Goodwill 75,967 2,399,848
Security Deposits 38,701 34,241
---------- ----------
Total Other Assets 249,837 3,041,158
---------- ----------
Total Assets $4,015,307 $4,428,757
========== ==========
The accompanying notes are an integral part of this report.
F-2
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES & SHAREHOLDERS' EQUITY
June 30 June 30
1996 1995
------------- -------------
Current Liabilities:
Accounts Payable & Accrued Expenses (Note 7) $ 784,517 $ 1,329,419
Leases Payable 20,141 76,388
Payroll Taxes Payable 239,462 493,060
Notes Payable (Note 8) 203,065 169,112
Salaries Payable (Note 9) 158,944 82,917
Loans Payable (Note 8) 484,622 171,626
------------ ------------
Total Current Liabilities 1,890,751 2,322,522
------------ ------------
Long Term Liabilities:
Leases Payable 31,868 30,484
Notes Payable (Note 8) 911,259 501,962
------------ ------------
Total Long Term Liabilities 943,127 532,446
------------ ------------
Total Liabilities 2,833,878 2,854,968
------------ ------------
Shareholders' Equity:
Common Stock - Authorized 150 Mill. Shares,
$.0001 Par Value, 25,406,312 Issued and
24,384,899 Outstanding at 6/96 2,540 7,757
Paid-In-Capital in Excess of Par Value 43,929,791 27,134,965
Paid-In-Capital from Treasury Stock 946,434 946,434
Paid-In-Capital from Warrants Exercised 902,389 902,389
Translation Adjustment 5,528 19,560
Retained (Deficit) (43,575,706) (26,220,284)
------------ ------------
Total Shareholders' Equity 2,210,976 2,790,821
Less: Treasury Shares at Cost (1,029,547) (619,700)
Stock Subscriptions Receivable -0- (597,332)
------------ ------------
Net Shareholders' Equity 1,181,429 1,573,789
------------ ------------
Total Liabilities and Shareholders' Equity $ 4,015,307 $ 4,428,757
============ ============
The accompanying notes are an integral part of this report.
F-3
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30TH
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Operating Revenue $ 821,073 $ 845,105
Interest Income 604,360 46,768
------------ ------------
Total Revenue $ 1,425,433 $ 891,873
------------ ------------
Operating Expenses:
Selling and Administrative Expenses (Schedule I) 3,752,641 3,206,816
Cost of Shares for Services Rendered (Schedule II) 12,089,321 2,165,096
Loss on Investment 1,910,304 -0-
Bad Debt Expense 792,713 25,213
Taxes 192,521 118,774
------------ ------------
Total Operating Expenses $ 18,737,500 $ 5,515,899
------------ ------------
Net (Loss) from Operations (17,312,067) $ (4,624,026)
------------ ------------
Non-Operating & Non-Recurring:
Gain (Loss) on Sale of Marketable Equity Securities (43,355) (265,015)
------------ ------------
Net (Loss) ($17,355,422) ($ 4,889,041)
============ ============
Net (Loss) per Outstanding
Common Share (Note 12) ($ 2.20) ($ 18.52)*
============ ============
</TABLE>
* NOTE: This amount reflects a One Hundred Fifty (150) to One (1) reverse stock
split effective October 27, 1995.
The accompanying notes are an integral part of this report.
F-4
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 & 1995
<TABLE>
<CAPTION>
Net
Par Paid-In Translation Treasury Subscriptions Retained Shareholders'
Shares Value Capital Adjustment Stock Receivable Deficit Equity
---------- ---------- ---------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994 26,688,233 2,669 25,514,827 18,875 (617,950) (597,332) (21,331,243) 2,989,846
Acquisition of Businesses 4,969,987 497 1,149,197 1,149,694
Issued for Consulting 27,400,000 2,740 1,163,518 1,166,258
Stock Sold and Issued 18,516,357 1,851 1,156,246 1,158,097
Translation Adjustment 685 685
Treasury Stock (1,750) (1,750)
(Loss) for the Period (4,889,041) (4,889,041)
---------- ---------- ---------- ------- -------- -------- ----------- ----------
Balance June 30, 1995 77,574,577 7,757 28,983,788 19,560 (619,700) (597,332) (26,220,284) 1,573,789
========== ========== ========== ======= ======== ======== =========== ==========
<CAPTION>
Stock Net
Par Paid-In Translation Treasury Subscriptions Retained Shareholders'
Shares Value Capital Adjustment Stock Receivable Deficit Equity
---------- ---------- ---------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1995 77,574,577 7,757 28,983,788 19,560 (619,700) (597,332) (26,220,284) 1,573,789
Reverse Stock
Split Adjustment (77,045,413) (7,705) 7,705 -0-
Acquisition of Businesses 4,055,945 406 3,715,377 3,715,783
Issued for Services 20,821,203 2,082 13,071,744 13,073,826
Translation Adjustment (14,032) (14,032)
Treasury Stock (409,847) (409,847)
Stock Subscriptions
Receivable 597,332 597,332
(Loss) for the Period (17,355,422) (17,355,422)
---------- ---------- ---------- ------- ---------- ------- ----------- -----------
Balance June 30, 1996 25,406,312 2,540 45,778,614 5,528 (1,029,547) -0- (43,575,706) 1,181,429
========== ========== ========== ======= ========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of this report.
F-5
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JUNE 30TH
<TABLE>
<CAPTION>
1996 1995
Cash Flow from Operations: ------------ ------------
- -------------------------
<S> <C> <C>
Net (Loss) ($17,355,422) ($ 4,889,041)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operations
Depreciation & Amortization (219,063) 317,054
(Gain)/Loss on Sale of Marketable Equity Securities 43,355 265,015
Foreign Currency Translation Adjustment (14,032) 685
(Increase) Decrease in:
Notes Receivable (2,125,000) (360,000)
Prepaid Expenses 9,395 68,166
Interest Receivable (479,100) (41,810)
Accounts Receivable 36,649 (250,850)
Organization Expenses 29,848 (17,523)
Security Deposits (4,460) (1,769)
Computer Software (72,580) (47,412)
Increase (Decrease) in:
Accounts Payable (544,902) 823,422
Leases Payable (54,863) 41,136
Taxes Payable (253,598) 397,658
Notes Payable 443,250 639,272
Salaries Payable 76,027 82,917
Loans Payable 312,996 171,626
------------ ------------
Net Cash Used (Provided) by Operations (20,171,500) (2,801,454)
------------ ------------
Cash Flow from Financing Activities:
- ------------------------------------
Proceeds from Issuance of Common Stock 17,386,941 5,369,299
Purchase of Treasury Stock (409,847) (1,750)
------------ ------------
Net Cash Flow from Financing Activities 16,977,094 5,367,549
------------ ------------
Cash Flow from Investing Activities:
- ------------------------------------
Capital Expenditures Paid in Cash 216,445 (418,135)
Bank/Data Center Acquisition 260,993 -0-
Goodwill 2,323,881 (1,983,126)
Proceeds from Sale of Marketable Equity Securities 224,784 143,203
Purchase of Marketable Equity Securities (14,500) (187,500)
------------ ------------
Net Cash (Used) by Investing Activities 3,011,603 (2,445,558)
------------ ------------
Net Increase in Cash and Cash Equivalents (182,803) 120,537
Cash and Cash Equivalents Beginning of Period 228,098 107,561
------------ ------------
Cash and Cash Equivalents End of Period $ 45,295 $ 228,098
============ ============
</TABLE>
The accompanying notes are an integral part of this report.
F-6
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
SUPPORTING SCHEDULES
FOR THE YEARS ENDED JUNE 30TH
SCHEDULE I 1996 1995
- ---------- ----------- -----------
Selling Expenses:
Salaries & Outside Services $ 226,558 $ 282,684
Travel & Entertainment 254,882 283,103
Telephone 104,528 96,288
Advertising 11,924 29,101
Commissions 250,486 89,036
Processing Charges 35,146 12,643
Trade Shows 7,600 34,966
----------- -----------
Total Selling Expenses $ 891,124 $ 827,821
=========== ===========
Administrative Expenses:
Salaries & Outside Services $ 1,116,368 $ 1,175,970
Professional Fees 758,416 428,848
Office Expenses 25,057 21,561
Stock Transfer Fees 20,335 25,142
Rent 210,691 133,755
Stationery, Messenger, Printing & Postage 87,587 98,136
Insurance 143,718 118,221
Repair & Maintenance 41,096 30,645
Building & Equipment Leasing 36,386 65,306
Depreciation & Amortization 125,406 179,542
Utilities & Sundry Expenses 181,978 62,160
Interest Expense 114,479 19,289
Relocation Expense -0- 466
Meeting Expense -0- 19,954
----------- -----------
Total Administrative Expenses $ 2,861,517 $ 2,378,995
=========== ===========
TOTAL SELLING AND ADMINISTRATIVE EXPENSES $ 3,752,641 $ 3,206,816
=========== ===========
SCHEDULE II
- -----------
Cost of Shares for Services Rendered:
Consulting $ 4,052,211 $ 965,925
Marketing 2,172,506 514,425
Public Relations 5,648,320 684,746
Research & Development 216,284 -0-
----------- -----------
TOTAL COST OF SHARES FOR SERVICES RENDERED $12,089,321 $ 2,165,096
=========== ===========
The accompanying notes are an integral part of this report.
F-7
<PAGE>
COMMAND CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Method of Accounting: Command Credit Corporation ("Command") utilizes the
accrual method of accounting in recording all transactions.
B) Consolidation: Command Credit Acceptance Corporation ("Acceptance") was
incorporated in Florida on September 9, 1985. On October 12, 1988, Acceptance
was acquired by Video Plan International Corp. ("VPI"), a New York corporation
with virtually no business activity since 1980. Simultaneously, VPI changed its
name to Command Credit Corporation ("Command"). Results of operations of Command
and its subsidiaries are reported on a consolidated basis.
C) Foreign Currency: Currency fluctuations resulting from the consolidation of
Foreign Offices are accumulated as prescribed by translation of foreign
operations under FASB 52. The resulting translation gains and losses are shown
as component of Stockholders' Equity.
D) Depreciation & Amortization: Depreciation of fixed assets is being computed
on a straight line basis over a period of five years. Organization expense and
Goodwill are being amortized over five and thirty year periods, respectively.
Leasehold improvements are amortized over the shorter of the life of the lease
or the estimated useful life.
E) Revenue Recognition: All revenue is recognized when earned.
F) Income taxes: Command recognizes taxes on income as the liability is
incurred. To date Command has accumulated net operating losses which can be used
to offset future earnings.
NOTE 2: CASH AND CASH EQUIVALENTS
Cash and cash equivalents represents amounts available for current operations
held in cash, checking accounts and interest bearing accounts.
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of trade receivables in connection with
our credit card division as well as receivables in connection with consulting
services. There is no allowance for doubtful accounts because all receivables
are deemed collectible.
F-8
<PAGE>
NOTE 4: NOTE RECEIVABLE
In October 1995, Command signed a definitive agreement with Jetlease Finance
Corp., a Florida corporation ("Jetlease"), to acquire 100% of the common stock
of Fidelity Holding Corp., ("Fidelity") a wholly-owned subsidiary of Jetlease.
Jetlease is primarily engaged in the leasing of small, medium and large aircraft
to corporations and high net worth individuals. This acquisition resulted in two
promissory notes totaling ten million dollars ($10,000,000). Each note carries a
12% per annum interest rate with the first payment commencing on January 18,
1996. These notes are interest only for twenty-four (24) months with the entire
principal due at the end of twenty-four (24) months. One note is collateralized
by a 1974 Boeing 727-200F and the other note is collateralized by a 1971 Boeing
727-100.
These notes are currently in default. Command has not received any interest
payments on the two promissory notes, however, Command has accrued interest
income on these notes in the amount of $600,000 which represents accrued
interest for the period January 1, 1996 through June 30, 1996. Management
believes the probability of collecting this accrued interest is favorable.
On April 21, 1996, an involuntary petition under Chapter 7 (liquidation) of
the United States Bankruptcy Code was filed against Jetlease in the United
States Bankruptcy Court for the Southern District of Florida. Jetlease consented
to the entry of an order for relief, to convert the case to a case under Chapter
11 (reorganization) and the appointment of a trustee. Subsequent to June 30,
1996, Command was informed by its legal counsel that the collateral securing
these promissory notes had been misrepresented to Command. Command had been
supplied with fraudulent appraisals. Based upon this information, the Company
has written down the value of the two promissory notes to $1,875,000, the
current market value of the two aircraft. This amount was determined by a
subsequent appraisal of the aircraft which was ordered by the Judge of the
United States Bankruptcy Court, for the Southern District of Florida. However,
this transaction is still subject to litigation in the Bankruptcy court.
In addition, the Company has a note receivable as a result of a guaranteed
investment.
NOTE 5: INTEREST RECEIVABLE
Interest receivable consists of amounts due from Jetlease as payment on the two
promissory notes (see Note 4).
NOTE 6: MARKETABLE EQUITY SECURITIES
Command has equity investments in one publicly held corporation for which it
paid cash and recorded at cost.
F-9
<PAGE>
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consists of miscellaneous trade payables and amounts due to
vendors. Accrued expenses consist primarily of expenses incurred during the
period but invoiced after June 30, 1996.
NOTE 8: NOTES AND LOANS PAYABLE
Current notes payable consist of amounts due to the principals of Berwyn as well
as an amount due to a third party lender, payable with interest at prime plus 2%
with a maturity date of May 1997. Current loans payable consists of amounts lent
to the Company by William G. Lucas, Chairman of Command as well as amounts due
to third party short-term lenders. Long-term notes payable consist of amount due
to a third party lender. This lender provides funds on an as needed basis at a
rate of 10% per annum. Command will repay these notes at such time when there is
sufficient revenue generated from the imminent implementation of the Company's
programs.
NOTE 9: SALARIES PAYABLE
Salaries payable consists of amounts owed to William G. Lucas, Chairman of
Command. Mr. Lucas has not drawn a salary for the past several months and will
continue not to draw a salary until such time when significant revenues are
generated from the imminent implementation of the Company's programs. Mr. Lucas
has also forgiven a significant portion of his salary in prior years.
NOTE 10: SHAREHOLDERS' EQUITY
At June 30, 1996 Command had outstanding 25,406,312 shares of common stock.
Management believes that the Company's common stock is greatly undervalued, and
therefore, has from time to time purchased its securities on the open market. To
date, Command has reacquired 1,071,413 shares of common stock. These shares were
accounted for at cost to the issuer and at June 30, 1996 all such shares are
held in the treasury.
On October 4, 1995, Command's Board of Directors approved a reverse stock split
of its common shares, pursuant to which every one hundred fifty (150) shares of
the Company's issued and outstanding common stock was converted to one (1)
share. This reverse split became effective on October 27, 1995. In addition, the
Company has issued to shareholders of record as of the close of business on
Thursday, October 26, 1995, a warrant equivalent to a 300% common stock dividend
(post-reverse split), at no cost to the shareholder. Eighteen months from
October 27, 1995, the warrants may be exercised at a price of $3.50 per share
and converted into common stock. All unexercised warrants will automatically
expire after a three year period.
F-10
<PAGE>
NOTE 11: COMMITMENTS & CONTINGENCIES
A) Command is obligated under employment contracts to officers and certain
employees.
B) Command has the following obligation under a lease for its office space. In
Garden City, New York Command leases approximately 11,500 square feet of office
space pursuant to a five year lease commencing February 1, 1994 at an annual
rent of $94,710 through July 31, 1995; thereafter increasing to $142,065 through
February 25, 1996; thereafter increasing to $172,065 through December 31, 1999.
NOTE 12: LOSS PER SHARE
Loss per share was computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period. The weighted average
number of common shares outstanding during the years ended June 1996 and 1995
were 7,894,552 and 264,029, respectively. The amount for the year ended June 30,
1996 has been restated to reflect a one hundred fifty to one reverse split in
October 1995.
F-11
<PAGE>
PART III
ITEM 9. Directors and Executive Officers of the Registrant
The directors and executive officers of Command are as follows:
Director Principal Occupation During the
Name Age Since Past Five Years
---- --- -------- -------------------------------
William G. Lucas 63 1990 Chairman of the Board, President
and Chief Executive Officer;
(since 1990); and Chief Financial
since 1995); Consultant to
Command and other clients for
more than five years. He has
extensive experience in computer
automation, was head of the
market data system for the New
York Stock exchange (NYSE) and
has developed computer monitoring
and control systems for banks,
insurance companies and credit
card companies. Mr. Lucas was
part of the team that developed
and implemented the American
Airlines Sabre System which
ultimately became the forerunner
for all airline reservation
systems throughout the world.
John G. George 51 1985 Treasurer (since 1989) and
Director; Self-employed attorney
and prior to that and for more
than five years Partner of Mineo,
Booth & George, a Florida law
firm. Former President of Command
(1989-1990). Mr. George's legal
specialties are corporate and tax
law. In the past he has served as
a business tax attorney for the
Internal Revenue Service. He
later served as a Broward County
Assistant Public Defender.
Robert W. Seiffert 41 1985 Director; Self-employed attorney
since 1985; Partner of Irving
Singer, Attorney at Law, a New
York law firm from 1983 to 1985.
- ----------
John G. George is a first cousin of William G. Lucas.
The members of the Board of Directors are elected annually by the
shareholders for a term of one year. The Board of Directors does not have a
standing audit, nominating and compensation committees, or committees performing
similar functions.
17
<PAGE>
ITEM 10. Executive Compensation
Set forth below is cash compensation paid and accrued for the year ending
June 30, 1996, to the three highest paid executive officers whose compensation
exceeded $60,000, and to all executive officers as a group.
Other Annual
Name & Title Year Salary Bonus Compensation
------------ ---- ------ ----- ------------
William G. Lucas 1996 $130,000 -0- $-0-
President & CEO
Richard E. Finnis 1996 115,000 -0- -0-
All executive officers 297,000 -0- -0-
as a group (3 persons)
Mr. Lucas' current salary is $130,000 per year pursuant to the terms of his
five year employment agreement dated as of August 1, 1990. However, Mr. Lucas
has not drawn a salary for the past several months and will continue not to draw
a salary until such time when significant revenues are generated from the
imminent implementation of the Company's programs. Mr. Lucas has also forgiven a
significant portion of his salary in prior years.
Mr. Finnis served as Executive Vice President of Command and received a
salary of $160,000 per year under a five year contract effective August 1, 1990.
In August 1992, the contract was amended and the term extended to August 1997
after a 10% salary cut. In November 1994 Mr. Finnis took an additional voluntary
salary cut. In January 1996, Command accepted Mr. Finnis' resignation as officer
and director of Command.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of the date of this report information
with respect to the beneficial ownership of Common Stock by (i) each person who
is known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Common Stock, (ii) each Director of the company, (iii)
each of the named executive officers, and (iv) all Directors and executive
officers of the Company as a group. The Company believes that each of the
shareholders listed below have sole voting and investment power with respect to
the shares of Common Stock beneficially owned.
18
<PAGE>
Name & Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class
- ---------------- ------------------ ----------------
Directors and Executive
Officers
William G. Lucas 1,224,918 4.82%
100 Garden City Plaza
Garden City, NY 11530
John G. George (1) 23 *
880 N.W. 116th Avenue
Plantation Acres, FL 33325
Robert W. Seiffert 27 *
254 Amos Avenue
Oceanside, NY 11572
Officers & Directors
as a group 1,224,968 4.82%
(Three persons)
- ----------
* Less than 0.01%
(1) Includes shares beneficially owned by family members.
ITEM 13. Certain Relationships and Related Party Transactions
In the past the Company has experienced cash flow difficulties, and as a
result, Mr. William Lucas has lent the Company money at virtually no interest.
At June 30, 1996 and 1995, the Company owed Mr. Lucas for amounts lent to the
company, approximately $335,000 and $75,000, respectively, which amounts did not
bear interest. Mr. Lucas has also not drawn a salary for the past several months
and is currently not drawing a salary. In addition, in past years Mr. Lucas has
forgiven a significant portion of his salary.
On December 26, 1995 and April 15, 1996, Mr. Lucas acquired 200,000 and
1,000,000 shares of the Company's Common Stock pursuant to stock options at an
exercise price equal to 50% of the market price of the Company's Common Stock on
such dates, namely, $0.50 and $0.105, respectively.
19
<PAGE>
ITEM 14. Exhibits and Reports on Form 8-K
(a) EXHIBITS
(3.0) (i) Articles of Incorporation, incorporated by reference to Exhibit 3 of
the Company's Annual Report on Form 10-K for the year ended June 30,
1990, File # 0-18270.
(ii) By-Laws, incorporated by reference to Exhibit 3 of the Company's
Annual Report on Form 10-K for the year ended June 30, 1990, File #
0-18270.
(10.8) William G. Lucas Employment Agreement incorporated by reference to
Exhibit 10.8 of the 1990 10-K and amended herein by reference to Item
II.
(10.9) Richard E. Finnis Employment Agreement incorporated by reference to
Exhibit 10.8 of the 1990 10-K and amended herein by reference to Item
II.
(10.14) Garden City Lease Agreement incorporated by reference to Exhibit
10.14 of the 1994 10-K.
(11.0) Statement re: Computation of per share earnings. See Footnote 14
attached to the financial Statement filed herewith.
(22.0) Subsidiaries of the Registrant:
Integrated Systems International, Inc. - a Florida corporation
acquired in May 1996.
Prestige Aircraft and Leasing Corp. - a Delaware corporation acquired
in May 1996.
Fidelity Holding Corp. - a Florida corporation acquired in October
1995.
Berwyn Holdings, Inc. - a Delaware corporation acquired in March
1995.
Command America Corp. - a New York corporation formed in August 1990.
Franklin Credit and Leasing Corp. - a New York corporation acquired
in July 1993.
Capital One Corp. - a Delaware corporation formed in January 1994.
First Equities Corp. - a Delaware corporation formed in June 1993.
(23.0) Consent of Independent Auditors.
(b) REPORTS ON FORM 8-K
NONE.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: SEPTEMBER 25, 1996 COMMAND CREDIT CORPORATION
By: /s/ William G. Lucas
------------------------
William G. Lucas
Chairman, President, Chief Executive
Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons on behalf of the Registration the
capacities and on the date indicated.
/s/William G. Lucas Chairman, President, September 25, 1996
- ---------------------- Chief Executive Officer and
William G. Lucas Chief Financial Officer
/s/John G. George Treasurer & Director September 25, 1996
- ----------------------
John G. George
/s/Robert W. Seiffert Director September 25, 1996
- ----------------------
Robert W. Seiffert
21
<PAGE>
EXHIBIT 16
CHARLES J. DAVITIAN, C.P.A.
101 PARK AVENUE
NEW YORK, NEW YORK 10178
(212) 922-0130
United States Security and Exchange Commission
Washington, D.C. 20549
Gentleman:
This letter will confirm that I am in agreement with the statement made by the
Company with regard to my voluntary resignation.
/s/ Charles J. Davitian
- -----------------------
Charles J. Davitian
New York, New York
September 26, 1996
<PAGE>
EXHIBIT 23
GULIAN & COMPANY
Certified Public Accountants
62 West 47th Street
Suite 912
New York, New York 10036
----------
(212) 730-5798
United States Security and Exchange Commission
Washington, D.C. 20549
CONSENT OF CERTIFIED PUBLIC ACCOUNTANT
We have issued our reports dated September 25, 1996, relating to the
consolidated statements of financial position of Command Credit Corporation and
subsidiaries at June 30, 1996 and 1995 and the related statements of operations,
changes in shareholder's equity, cash flows and supporting schedules for the
years ended June 30, 1996 and 1995. We consent to their use in the Company's
Annual Report on Form 10-KSB.
/s/ Gulian & Company
- --------------------
Gulian & Company
New York, New York
September 25, 1996
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
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<SECURITIES> 14,500
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