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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) May 22, 1998
CREDIT DEPOT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-19420 58-1909265
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(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
700 Wachovia Center
Gainesville, Georgia
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(Address of principal executive offices)
30501
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(Zip code)
(770) 531-9927
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On May 22, 1998, Credit Depot Corporation (the "Company") received a letter
from the Nasdaq Stock Market ("Nasdaq") notifying the Company that because the
Company had net tangible assets of less than $2,000,000 on March 31, 1998, the
Company failed to meet the that requirement for continued listing of the
Company's common stock (the "Common Stock") on the Nasdaq SmallCap Market (the
"Market"). Nasdaq gave the Company until June 8, 1998 to respond or face
delisting of the Common Stock from the Market. The Company's timely response to
Nasdaq described an agreement for the conversion of $2,100,000 of debt to
preferred stock that would increase the Company's net tangible assets above the
required amount. The terms of the conversion are described below. Although the
Company believes that the conversion will satisfy the continued listing
requirement based upon net tangible assets, there can be no assurance that
Nasdaq will agree. If Nasdaq does not so agree, the Common Stock would be
delisted from the Market and trading of the Common Stock would be subject to
additional sales practices as set forth in the Company's Current Report on Form
8-K dated February 9, 1998.
As previously reported in the Company's Current Report on Form 8-K dated
February 9, 1998, a wholly-owned subsidiary of the Company (the "Subsidiary") is
the defendant in an action brought by a plaintiff and a purported class of
others alleging the Subsidiary made payments to mortgage brokers in violation of
the Real Estate Settlement Procedures Act ("RESPA"). This action was brought
against the Subsidiary in the United States District Court for the Northern
District of Mississippi. The Company has become aware that the United States
Court of Appeals for the Eleventh Circuit (the "Eleventh Circuit"), in an action
in which the Company was not a party, held that certain fees paid to mortgage
brokers represent "yield spread premiums" which constitute referral fees in
violation of RESPA. Certain Federal District Courts have reached similar
conclusions. The Company believes that the defendant will seek to have the
Eleventh Circuit reconsider its holding and, if necessary, ultimately appeal the
holding to the United States Supreme Court. The Eleventh Circuit is the federal
appellate court for cases arising in the Federal District Courts in Alabama,
Florida and Georgia. A significant portion of the Company's loan originations
are made in those States. The Company has and intends to continue to pay yield
spread premiums to its mortgage brokers and the Company has taken steps to
disclose the nature of such fees to its borrowers. In addition to possible
criminal violations for unlawful payments in violation of RESPA, a payor can be
held liable for damages in the amount of 300% of the unlawful payments. If the
Company is ever found to be liable to such extent, the Company would not have
sufficient resources with which to pay such damages and could be expected to
file for bankruptcy protection.
On June 5, 1998, the Company entered into an agreement with the investment
advisor to The Global Opportunity Fund Limited ("Global") pursuant to which
Global has agreed to convert $2,100,000 of debt to Global owed by the Company
into 21,000 shares of a new class of convertible preferred stock (the "Preferred
Stock"). The debt plus interest, if not converted, would be payable on July 31,
1998. Global is the single largest holder of convertible debt issued by the
Company. Each share of the Preferred Stock entitles the holder to quarterly
cumulative dividends, when and if declared by the Company's Board of Directors,
at the annual rate of $10 in cash or in shares of Common Stock at market value.
Commencing June 1999, if dividends are
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paid in Common Stock, for purposes of determining the number of shares of Common
Stock to be issued, the market value will be discounted by 25%. Each share of
the Preferred Stock will initially be convertible into 133 1/3 shares of Common
Stock, subject to customary adjustments. If however, the average closing sale of
the Common Stock over any consecutive twenty day period is less than or equal to
$.75 per share prior to December 31, 1998, each share of the Preferred Stock
will then become convertible into two hundred shares of Common Stock, subject to
customary adjustments. In connection with the conversion, the Company has agreed
to issue to Global five year Warrants (the "Warrants") to purchase 2,800,000
shares of Common Stock for $1.25 per share, subject to customary adjustments.
The Company can redeem the Preferred Stock and the Warrants for $.01 each if the
average closing sales price of the Common Stock exceeds $1.50 per share in the
case of the Preferred Stock or $2.50 per share in the case of the Warrants for
twenty consecutive trading days. The Preferred Stock will have a $100 per share
liquidation preference. The Company has agreed to register the Common Stock
underlying the Preferred Stock and the Warrants under the Securities Act of
1933.
Heiko H. Thieme is the Chief Executive Officer of Global and its investment
advisor.
The Company intends to offer other convertible note holders, whose notes
total $1,270,000, the same opportunity to convert their notes into Preferred
Stock, although there can be no assurance that any of the other holders will
convert.
A pro forma balance sheet and income statement is included in Exhibit 99.1
of this Current Report to illustrate the effect of the debt conversion by Global
on the financial statements of the Company as of March 31, 1998. A summary of
the effects on the financial statements are as follows (no Statement of Cash
Flows is presented as no additional cash is being received from the conversion
and expenses to effect the conversion are nominal):
Balance sheet - The asset "Deferred financing costs" was reduced by
approximately $172,000 for previously capitalized debt
financing costs, such amount representing the
portion of debt that was converted. Convertible debt was
reduced by $2,100,000, representing the principal amount
of the debt converted by Global. A new line item was
added in the equity section for the 21,000 shares of
the Preferred Stock to be issued to Global.
Income Statement - A non-cash charge of $1,749,000 is recorded as a "Debt
Conversion Expense" pursuant to the guidelines of
Financial Accounting Standards Board Statement No. 84
"Induced Conversions of Convertible Debt." The
calculation of this figure assumes a market price of the
Common Stock at conversion of $1.00 per share. Pursuant
to the guidelines, this charge is credited to "Paid-In
Capital". Also, approximately $172,000 of deferred
financing charges incurred during the original issuance
of the debt were charged to expense as a result of the
conversion of the debt.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit No.
99.1 Pro Forma Balance Sheet and Income Statement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDIT DEPOT CORPORATION
(Registrant)
Date: June 10, 1998 /s/ Ralph J. DeBee, Jr.
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Ralph J. DeBee, Jr.
(President)
Date: June 10, 1998 /s/ Charles D. Farrahar
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Charles D. Farrahar
(Vice President and Chief Financial
Officer)
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EXHIBIT 99.1
CREDIT DEPOT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998
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Actual Adjustments* Pro Forma
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<S> <C> <C> <C>
ASSETS
Loans receivable
Consumer, collateralized by real estate $ 11,543,716 $ 11,543,716
Allowance for credit losses (267,352) (267,352)
------------ ------------
Net loans receivable 11,276,364 11,276,364
Cash 135,129 135,129
Cash subject to withdrawal restrictions 1,449,490 1,449,490
Property and equipment, net 360,005 360,005
Real estate held for resale 37,944 37,944
Other assets:
Receivables due from related parties 16,073 16,073
Prepaid expenses and other assets 282,479 282,479
Servicing asset 45,596 45,596
Interest-only strips receivable 4,822,628 4,822,628
Accrued interest receivable 123,458 123,458
Deferred financing costs 420,917 (172,000) 248,917
Goodwill 850,105 850,105
------------ ------------ ------------
TOTAL ASSETS $ 19,820,188 (172,000) $ 19,648,188
============ ============ ============
LIABILITIES
Convertible notes 4,770,000 (2,100,000) 2,670,000
Warehouse line of credit 10,417,514 10,417,514
Advance on interest-only strips receivable 2,028,219 2,028,219
Other borrowings 500,000 500,000
Accounts payable 328,232 328,232
Accrued liabilities 248,621 248,621
Dividends payable 46,035 46,035
------------ ------------ ------------
Total Liabilities 18,338,621 (2,100,000) 16,238,621
STOCKHOLDERS' EQUITY
Series "B" Preferred Stock, $.001 par value: 60,000 17 17
shares authorized, 16,740 shares outstanding at
March 31, 1998
Series "C" Preferred Stock, $.001 par value: 34,000 -- 21 21
shares authorized, 21,000 shares issued
Common stock, $.001 par value: 35,000,000 shares 5,749 5,749
authorized, 5,748,575 shares outstanding at March
31, 1998
Additional paid-in capital 29,602,597 3,848,979 33,451,576
Accumulated deficit (28,126,796) (1,921,000) (30,047,796)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,481,567 1,928,818 3,410,385
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,820,188 (172,000) $ 19,648,188
============ ============ ============
</TABLE>
* As detailed in Item 5, Other Information
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================================================================================
CREDIT DEPOT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
ACTUAL Period Ended PRO FORMA Period Ended
March 31, 1998 March 31, 1998
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Three Months Nine Months Adjustments* Three Months Nine Months
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Finance income and fees earned ($1,347,981) ($473,399) ($1,347,981) ($473,399)
Gain on sale of receivable 1,108,938 3,032,203 1,108,938 3,032,203
Other 2,232 2,530 2,232 2,530
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(236,811) 2,561,334 (236,811) 2,561,334
EXPENSES:
Salaries and employee benefits 1,127,799 3,570,180 1,127,799 3,570,180
legal and professional fees 201,873 486,734 201,873 486,734
Other operating expenses 611,698 2,074,365 611,698 2,074,365
Provision for credit losses 108,750 271,875 108,750 271,875
Debt conversion expense - 5,576,000 1,749,000 1,749,000 7,325,000
Interest expense and amortization
of financing costs 493,186 2,328,135 172,000 665,186 2,500,135
------------ ------------ ------------ ------------ -----------
2,543,306 14,307,289 1,921,000 4,464,306 16,228,289
------------ ------------ ------------ ------------ -----------
Loss before provision for income
taxes (2,780,117) (11,745,955) (1,921,000) (4,701,117) (13,666,955)
Provision for income taxes - - - - -
------------ ------------- ------------ ------------ ------------
NET LOSS ($2,780,117) ($11,745,955) ($1,921,000) ($4,701,117) ($13,666,955)
------------ ------------ ------------ ------------ ------------
Induced conversion of preferred
stock - 3,584,700 - 3,584,700
Dividends on preferred stock 46,035 317,744 46,035 317,744
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS ($2,826,152) ($15,648,399) ($1,921,000) ($4,747,152) ($17,569,399)
============ ============ ============ ============= ============
Net loss per share of common
stock ($0.49) ($3.82) ($0.49) ($3.82)
====== ====== ====== ======
Net loss per share of common
stock, diluted ($0.49) ($3.82) ($0.49) ($3.82)
====== ====== ====== ======
Weighted average shares
outstanding 5,731,635 4,096,719 5,731,635 4,096,719
========= ========= ========= =========
Weighted average shares 10,915,310 9,142,593 10,915,310 9,142,593
outstanding, diluted ========== ========= ========== =========
</TABLE>
* As detailed in Item 5, Other Information
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