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As filed with the Securities and Exchange Commission on May 7, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CREDIT DEPOT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
581909265
(I.R.S. Employer Identification No.)
700 Wachovia Center, Gainesville, Georgia 30501, (770) 531-9927
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Ralph DeBee, President, Credit Depot Corporation, 700 Wachovia Center,
Gainesville, Georgia 30501, (770) 531-9927
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Jonathan B. Reisman, Esq.
Reisman & Associates, P.A.
5100 Town Center Circle, Suite 330
Boca Raton, Florida 33486
(561) 361-9300
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous
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basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment
plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Calculation of Registration Fee (1)
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<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration Fee
Registered Registered (2) Per Unit (3) Offering Price
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, 6,729,745 shares $.96 $6,460,555.20 $2,065.00
$.001 par value
</TABLE>
(1) Pursuant to Rule 429 under the Securities Act of 1933, in addition to
the shares being registered hereby, the Prospectus which is a part of
this Registration Statement also relates to an aggregate of 1,689,885
shares of the Registrant's Common Stock, $.001 par value, which are
being carried forward from the Registrant's Registration Statement on
Form S-3, File No. 333-10125 for which a filing fee of $8,922.88 has
previously been paid.
(2) Pursuant to Rule 416 under the Securities Act of 1933, there are also
being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions.
(3) Based on the average of the closing high bid and low asked prices of
the Common Stock as reported on the Nasdaq stock market on May 1, 1998.
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus which is a
part of this Registration Statement is a combined Prospectus which also relates
to 1,689,885 shares of the Registrant's Common Stock, $.001 par value, which
were registered pursuant to the Registrant's Registration Statement on Form S-3,
File No. 333-10125.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1993 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED MAY 7, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
CREDIT DEPOT CORPORATION
8,419,630 SHARES OF COMMON STOCK
This Prospectus relates to the public offering of up to 8,419,630 shares of
Common Stock, $.001 par value (the "Common Stock") by the holders thereof (the
"Selling Securityholders"). The Common Stock offered by the Selling
Securityholders hereunder is outstanding or is issuable upon conversion or
exercise of currently outstanding shares of 11% Convertible Redeemable Preferred
Stock (the 11% Preferred Stock), a convertible bridge loan, 10% Convertible
Secured Notes (the "10% Notes"), and warrants to purchase Common Stock. The
Selling Securityholders directly, through agents designated from time to time,
or through dealers or underwriters also to be designated, may sell the Common
Stock from time to time on terms to be determined at the time of sale. To the
extent required, the specific Common Stock to be sold, names of the Selling
Securityholders, purchase price, public offering price, the names of any such
agent, dealer or underwriter, and any applicable commission or discount with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Selling Securityholders" and "Plan of Distribution."
The Selling Securityholders and any broker-dealer, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act") and any commission received by
them and any profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. The
Company and the Selling Securityholders have agreed to indemnify each other
under certain circumstances. See "Plan of Distribution."
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On the date of this Prospectus, the Common Stock of the Company was traded
in the over-the-counter market and was quoted on the Nasdaq SmallCap Market
("NASDAQ") under the symbol LEND. Such Common Stock may, however, be delisted
from NASDAQ. See "Risk Factors." The last sale price of the Common Stock as
reported by NASDAQ on May 4, 1998 was $1.00 per share.
The Company is paying all the expenses of registering the Common Stock
under the Securities Act as well as certain states (including related filing,
legal, accounting, printing and miscellaneous fees and expenses) which are
estimated at $20,000. The Company will not receive any of the proceeds from any
sale of the Common Stock by the Selling Securityholders. The Selling
Securityholders will severally pay or assume underwriting discounts, brokerage
commissions or other charges incurred in any respective sale by them of the
Common Stock.
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS. SEE "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the Commission's public reference facilities located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issuers, such as the Company, that file
electronically with the Commission. The address of the web site is
http://www.sec.gov.
The Company has filed registration statements on Form S-3 with the
Commission (such registration statements including all amendments and exhibits
thereto, called the "Registration Statements") under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statements. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statements. Statements contained in the
Prospectus concerning provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such references.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus should be read in conjunction with the following documents
of the Company which have been filed with the Commission and are hereby
incorporated by reference into this Prospectus:
(i) the Company's Annual Report on Form 10-KSB, as amended, for
the fiscal year ended June 30, 1997;
(ii) the Company's Proxy Statement dated November 21, 1997 for
the Annual Meeting held on December 23, 1997;
(iii) Supplement dated December 8, 1997 to the Company's Proxy
Statement dated November 21, 1997;
(iv) the Company's Quarterly Reports on Form 10-QSB for the
quarters ended September 30, 1997, and December 31, 1997;
(v) the Company's Current Report on Form 8-K dated February 9,
1998 (the "February Current Report");
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(vi) the Company's Issuer Tender Offer Statement filed on
Schedule 13E-4 dated September 26, 1997;
(vii) the Company's Current Report on Form 8-K dated October 27,
1997; and
(viii) all other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the
termination of this offering.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering shall be deemed to be incorporated by reference
in the Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein, in any supplement or amendment hereto
or in a document all or any portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any supplement or amendment hereto modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
supplement or amendment hereto.
Neither the delivery of this Prospectus nor any sale of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or its affiliates since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
Copies of any information incorporated by reference herein will be provided
without charge (other than exhibits to the information, unless such exhibits are
themselves specifically incorporated by reference) to any person to who receives
this Prospectus upon written or oral request of such person. Requests for such
copies are to be directed to the Chief Financial Officer of the Company, at the
Company's offices located at 700 Wachovia Center, Gainesville, Georgia 30501.
The Company's telephone number is (770) 531-9927.
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PROSPECTUS SUMMARY
THE COMPANY
Credit Depot Corporation (the "Company") is a mortgage finance company
engaged in originating, purchasing, and selling first and second mortgage loans
secured by single family (one to four family) residences made to credit-impaired
individuals who are generally unable to obtain financing from conventional
lending sources. The Company's customers borrow funds generally for debt
consolidation or to refinance first mortgages on the customer's primary
residence. The Company's mortgage loans are at higher interest rates than
conventional mortgage loans, which the Company's customers are willing to incur
because of their inability to obtain financing from conventional sources. While
the typical borrowers from the Company may not have attractive credit histories
due to a pattern of credit weakness, unverifiable income, insufficient credit
history or a previous bankruptcy or insolvency, it is the Company's experience
that these borrowers nevertheless have generally demonstrated an ability to make
payments due under their loans. The Company believes its underwriting procedures
generally enable it to determine which borrowers with substandard credit
histories are likely to meet their mortgage obligations.
The Company was incorporated in Delaware in 1990 and is the successor
by merger to a corporation organized in 1986. Unless the context otherwise
requires, reference to the "Company" includes the Company, its predecessor and
its wholly-owned subsidiaries. The Company's principal executive offices are
located at Wachovia Center, Suite 700, Gainesville, Georgia 30501 and its
telephone number is 770-531-9927.
All dollar amounts in this Prospectus, other than those relating the
prices per share of the Common Stock have been rounded to the nearest $1,000.
THE OFFERING
This Prospectus relates to the public offering of up to 8,419,630
shares of Common Stock, $.001 par value (the "Common Stock") by the holders
thereof (the "Selling Securityholders "). The Common Stock offered by the
Selling Securityholders hereunder is outstanding or is issuable upon conversion
or exercise of currently outstanding shares of 11% Convertible Redeemable
Preferred Stock (the 11% Preferred Stock), a convertible bridge loan, 10%
Convertible Secured Notes (the "10% Notes"), and warrants to purchase Common
Stock. The Selling Securityholders directly, through agents designated from time
to time, or through dealers or underwriters also to be designated, may sell the
Common Stock from time to time on terms to be determined at the time of sale. To
the extent required, the specific Common Stock to be sold, names of the Selling
Securityholders, purchase price, public offering price, the names of any such
agent, dealer or underwriter, and any applicable commission or discount with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Selling Securityholders" and "Plan of Distribution."
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RISK FACTORS
An investment in the Common Stock offered hereby is speculative and involves
substantial risks. Prospective purchasers of the Common Stock offered hereby
should carefully consider the following risk factors in addition to the other
information included or incorporated by reference in this Prospectus before
purchasing the Common Stock offered hereby.
LIMITED REVENUES AND CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT.
Although the Company's revenues increased to $5,918,000 for the year ended June
30, 1997, from $2,279,000 for the year ended June 30, 1996, during the fiscal
year ended June 30, 1997, the Company incurred losses of $3,363,000 compared to
losses of $4,115,000 for the fiscal year ended June 30, 1996. For the nine
months ended March 31, 1998, the Company incurred losses of $9,932,000
($6,420,000 of which were non-cash expenses recorded in conversion of debt to
equity in October 1997) compared to losses of $1,022,000 for the nine months
ended March 31, 1997, on revenues of $3,275,000 compared to $4,973,000 for the
nine months ended March 31, 1997. In addition, at June 30, 1997, and March 31,
1998, the Company had accumulated deficits of $16,063,000 and $26,313,000,
respectively. Although the Company had modest earnings for its 1992 fiscal year,
it has incurred losses during all of its other fiscal years since 1991. Although
the Company believes that the reduction of expenses associated with the
conversion of debt to equity in October 1997, combined with expense reductions
in certain operational areas and increased loan sales, will allow the Company to
move toward or achieve profitability, there can be no assurance that the Company
will not continue to post operating losses or that it will ever be able to
achieve profitability.
LIQUIDITY AND FINANCING REQUIREMENTS; REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS. The Company will require substantial additional capital in order to
retire bridge loans and participations due July 31 and June 30, 1998,
respectively, and to meet its operating expenses and finance its operations
prior to the time, if ever, that the Company's operations result in positive
cash flow. To the extent that sufficient financing is not available in the
future, it could affect the Company's ability to originate and acquire mortgage
loans. While the Company considers its warehouse lines of credit adequate for
current levels of loan originations, there can be no assurance that the lines
will be maintained, renewed or increased as future needs may require. In the
absence of warehouse lines of credit, the Company would be required to cease
operations. See the response to Item 5 of the February Current Report.
As of March 31, 1998, the Company's debt under the 10% Notes was
$1,170,000, the balance of outstanding bridge loans was $2,200,000, the balance
of unpaid advances received against the Interest-Only Strip Receivable was
$2,028,000. On the same date, the Company had other borrowings of $500,000 and
the Company's other indebtedness was $11,818,000 and the Company had a working
capital deficiency of $2,121,000.
The Company is currently experiencing and, in the past, has experienced
significant cash shortages resulting from the substantial outlays of cash
required for its financing operations and losses from its operations. These cash
shortages have negatively impacted loan originations, and in the absence of
sufficient warehouse lines of credit, could be expected to do so in the future.
The Company currently operates with a relatively small amount of unrestricted
cash and has no cash reserves for any significant
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unplanned expenses. The Company has been seeking, and is continuing to seek,
additional financing to meet its cash requirements and, most immediately, retire
outstanding bridge loans and other indebtedness which is currently or will
shortly become payable. There can be no assurance that the Company will be able
to obtain necessary financing on terms not unfavorable to the Company, if at
all. Furthermore, the Company will require substantial additional capital in the
future. To the extent that the Company experiences cash shortages in the future,
it may be required to sell mortgage loans on less favorable terms than it might
otherwise be able to obtain and to curtail or eliminate its lending activities.
There can be no assurance that the Company will be able to obtain, on acceptable
terms, additional funds under lines of credit, or otherwise. If the Company
experiences cash shortages and unless adequate funds are obtained, the Company
will be required to curtail its lending activities and would be unable to comply
with the terms of covenants contained in the agreements relating to
indebtedness. The Company has not obtained any commitments with respect to any
additional capital.
Even if the Company is successful in raising additional capital, the
Company may still require additional capital in the future. In recent years, the
Company has financed its operations through private placements of debt and
equity securities. There can be no assurance that the Company will not continue
to require additional capital or that such capital, if required, will be
available on terms not unfavorable to the Company, if at all. In the past, the
Company has sought equity or debt financing or sold mortgage loans on terms less
favorable than might otherwise be available to meet its capital requirements
under these circumstances. The Company has, in the past, issued convertible
securities which have resulted in substantial dilution to holders of Common
Stock and future financings, if necessary, could result in further dilution to
holders of Common Stock.
The report of the Company's independent public accountants with respect
to the Company's financial statements for the fiscal year ended June 30, 1997
included an explanatory paragraph which expressed substantial doubt concerning
the ability of the Company to continue as a going concern.
LOAN REPURCHASE AND LOSS OBLIGATIONS. The Company has sold loans
pursuant to arrangements that require the Company to repurchase, at the request
of the purchaser, certain loans, including any loan that becomes past due by
over 90 days. The aggregate outstanding balance of all such loans subject to
repurchase was $887,000 at March 31, 1998. On the same date, none of such loans
was so overdue. From March 1996 to September 1997, the Company sold $108,626,000
of loans with a "first loss" provision, meaning if the purchaser forecloses upon
a loan and takes a loss (or gain), the Company would be obligated to reimburse
the purchaser for the loss (or be entitled to receive the proceeds from a gain).
At March 31, 1998, loans sold in this manner had an outstanding balance of
$72,016,000 and 2 such loans had been foreclosed upon and an aggregate loss of
$44,000 was incurred by the Company. Pursuant to the terms of the Company's
warehouse lines of credit, the lenders could request the Company to repurchase
loans having an aggregate outstanding balance of $13,718,000 on March 31, 1998.
The Company maintains a loan loss reserve which, in the opinion of management,
is adequate to cover losses both from loans held by the Company for its own
portfolio and for loans sold subject to repurchase and loss obligations. In the
event, however, of increased rates of default, the Company may be required to
repurchase additional loans or reimburse foreclosure losses or incur losses
which would reduce the value of the Company's retained interest in the mortgage
loans sold, which could have a material adverse effect on the Company's ability
to originate or acquire new mortgage loans and on the financial condition and
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operations of the Company. There can be no assurance that the Company will have
sufficient available cash to meet its repurchase and foreclosure loss
obligations which would have a material adverse effect on the Company's ability
to originate or acquire new mortgage loans and on the financial condition and
operations of the Company.
SERVICING ASSET/INTEREST-ONLY STRIP RECEIVABLE. Prior to December
1994, the Company sold the majority of its loans with the servicing retained and
received a servicing fee and the right to receive a portion of the interest to
be received on the mortgage loans. In addition, loans sold to a securitizer,
while service released, were sold on the basis wherein the Company retained an
ownership interest in a portion of the interest to be received on the mortgage
loans. A large portion of the Company's revenue from both of these types of
sales is recognized as a gain on sale of mortgage loan receivables, which
primarily represents the present value of the cash flow resulting from the
difference between the interest rate charged by the Company to a borrower and
the interest rate received by the purchaser of the loan receivable (the
"Spread"). If the Company retains the servicing, the Spread is reduced by a
normal loan servicing fee, and the Company will record a corresponding asset
equal to the amount of the gain as the Servicing Asset (the "SA"). If the
Company retains an interest in the sold loan but does not perform the servicing,
as in the case of the sales to Access Financial Corporation ("Access"), an
Interest-Only Strip Receivable (the "I/O Strip") is recorded as the
corresponding asset equal to the amount of the gain. The Company recognizes such
gain on sale of loans in the fiscal year in which such loans are sold, although
cash (representing SA and servicing fees or just the I/O Strip) is received by
the Company over the lives of the loans. Both the SA and I/O Strip are computed
in part based upon, and amortized over, the estimated lives of the loans.
From March 1996 until September 1997 the Company sold substantially all
of its mortgage loans to Access. The Company's gain on sale in these
transactions was in the form of I/O Strips representing unsecured payment
obligations of Access. In the event of a bankruptcy, insolvency or other
financial difficulty of Access or if Access does not properly service the loans,
the Company's ability to receive payments on account of the I/O Strips could be
materially adversely affected and the Company could be required to write down
their carrying value.
Because the gain recognized in the year of sale is equal to the present
value of the estimated future cash flows from the SA or I/O Strip, the amount of
cash which the Company is entitled to receive over the lives of the loans can
exceed the gain recognized at the time the loans were sold. In the subsequent
years, the Company would recognize additional income and fees to the extent
actual cash flows from such loans exceed the amortization of the SA or I/O
Strip. If actual prepayments with respect to sold loans occur faster than they
were projected at the time such loans were sold or loans go into foreclosure,
the carrying value of the SA or I/O Strip is written down through a charge to
earnings in the period of adjustment. During the year ended June 30, 1997 and
the nine months ended March 31, 1998, the actual prepayments exceeded those
previously anticipated at the time of the sale of the loans for the SA and the
Company reduced the value of the SA previously recorded by $39,000 and $22,000
respectively, to reflect the actual prepayments incurred. In connection with the
nine months ended March 31, 1998, the Company reduced the value of the I/O Strip
previously recorded by $2,006,000 to reflect continued prepayment at higher than
anticipated levels. See the response to Item 5 of the February Current Report.
There can be no assurance that a change in the prepayment speed of the loans
underlying the SA or I/O
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Strip or other change in the assumptions used to calculate the original value of
the SA or I/O Strip will not necessitate a significant write-down in the
carrying value of the SA or I/O Strip in the future.
LEVERAGE AND DEBT SERVICE. As of March 31, 1998, the Company's
aggregate indebtedness, excluding trade payables and accrued liabilities, was
$17,716,000 of which $13,718,000 pertained to warehouse lines of credit or
mortgage participations secured by the underlying mortgage loans. Since December
31, 1997, the Company has added $750,000 to a bridge loan maturing on July 31,
1998, bringing the total of the bridge loans to $2,200,000. The Company may
incur additional indebtedness in the future.
The degree to which the Company is leveraged may materially adversely
affect the Company for the following reasons, among others: (i) the Company's
ability to obtain additional financing in the future for working capital,
general corporate purposes or other purposes may be limited or impaired; (ii)
certain of the Company's borrowings are and will continue to be at variable
rates of interest, which could result in higher interest expenses in the event
of increases in interest rates; and (iii) certain of the instruments governing
such indebtedness contains financial and restrictive covenants, the failure to
comply with which will result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company
DEFAULTS ON CUSTOMER LOANS; HIGH DELINQUENCY RATE. The lending business
is subject to the risk that borrowers will not satisfy their debt service
payments, including interest charges and principal amortization obligations. The
Company's borrowers typically do not meet the credit standards established by
commercial banks and other conventional lenders because of the borrowers' credit
histories (due to circumstances such as a pattern of credit weakness,
unverifiable income, insufficient credit history or previous bankruptcies or
insolvencies) or other factors. Thus, there can be no assurance that such
borrowers will be able to meet their repayment obligations to the Company. If
the Company experiences defaults on its loans and if the properties securing
such loans cannot be sold for amounts sufficient to repay the balances of the
outstanding loans and expenses related thereto, the Company will not recover the
balances of the originated loans. Further, in the event of a default by a
borrower, the Company may experience procedural or other delays in enforcing its
rights as a mortgagee and may incur significant costs associated with protecting
its investment. Of the 194 mortgage loans originated by the Company from July 1,
1994, through March 31, 1998, which were held by the Company on March 31, 1998
or sold prior thereto on a service retained basis, having an aggregate principal
balance of $8,858,000, two mortgage loans have been foreclosed (0.4% of such
aggregate principal balance) and borrowers under 13 mortgage loans, with an
aggregate principal balance of $430,000 (4.9% of such aggregate principal
balance), have sought protection from creditors pursuant to Federal bankruptcy
laws. In addition, at March 31, 1998, $633,000 aggregate principal balance
outstanding (7.1% of the principal balance of loans outstanding at such date)
were overdue by more than 60 days.
The following table sets forth the delinquency rate on mortgage loans
originated by the Company which were held on the dates indicated or sold prior
thereto on a servicing retained basis:
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<TABLE>
<CAPTION>
March 31,
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1998 1997 1996 1995
---- ---- ---- ----
DELINQUENCY RATES
<S> <C> <C> <C> <C>
30-59 days 0.30% 1.11% 4.23% 6.77%
60-89 days 0.35% 0.23% 0.51% 3.30%
90-119 days 0.53% 1.96% 0.38% 0.00%
120 days & over 6.61% 5.25% 6.99% 6.11%
</TABLE>
CHANGES IN COMPANY STRATEGY. The Company had adopted a strategy of
geographical expansion to increase its mortgage loan production and sales of
mortgage loans to Access in transactions in which the Company's premiums were in
the form of the the I/O Strip. While this strategy increased the Company's
revenues on sale of mortgage loans, it also increased the Company's capital
requirements because the gain on sale was in the form of a non-cash receivable
which would only be reduced to cash over the lives of the mortgage loans. The
Company has recently determined that it would require too much additional
capital to continue this strategy. Accordingly, since September 1997, all
mortgage loans sold by the Company have been sold on a whole loan basis in
transactions in which the premiums were paid in cash. Sales of mortgage loans on
this basis are expected to result in lower gains on sale and, therefore, the
Company will need to substantially increase its loan volume to reduce its
operating losses and become profitable. To do so, the Company will require
additional capital and maintain its current warehouse credit facilities. There
can be no assurance that the Company will be successful and that the Company
will not continue to incur losses. See "Recent Developments."
LOWER CREDIT STANDARDS FOR BORROWERS. Although the Company has
maintained a policy of originating mortgage loans only to borrowers whom it
believes will make payments on such loans, the Company's credit standards are
lower than the credit standards typically established by commercial banks and
other conventional lenders. The Company's borrowers typically would not have
satisfied the creditworthiness standards established by commercial banks and
other conventional lenders because of the borrowers' credit histories, income
levels, or a combination of these factors, and many of such borrowers would be
categorized as "high risk" by conventional lenders and would generally be unable
to obtain mortgage financing from such lenders. Thus, there can be no assurance
that the Company's borrowers will be able to pay all sums due under their loans,
including scheduled principal and interest payments thereunder. In addition, the
Company does not typically restrict a borrower from incurring indebtedness
secured by the property subject to the Company's mortgage which is subordinate
to the Company's first mortgage. Accordingly, borrowers may incur indebtedness
in excess of their abilities to pay, thereby impairing their ability to repay
the mortgage loans.
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<PAGE> 14
POSSIBLE DECLINE IN REAL ESTATE VALUES; ECONOMIC CONDITIONS. An overall
decline in the residential real estate market or in the residential real estate
market in particular states in which the Company originates mortgage loans or
the general condition of particular properties, together with other related
factors, could adversely affect the values of the properties securing the
Company's mortgage loans. Therefore, in a continuing period of economic decline,
the rates of delinquencies, foreclosures and losses on mortgage loans could be
higher than those heretofore experienced by the Company and in the mortgage
lending industry in general. In addition, adverse economic conditions (which may
adversely affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the mortgage loans.
To the extent real estate values may decline, the amount which may be recovered
on the foreclosure and sale of properties upon mortgage loan defaults may also
decline, and the Company may be unable to sell such foreclosed properties on a
timely basis or on terms acceptable to the Company. As of March 31, 1998, the
Company held real estate acquired as a result of foreclosures representing a
principal balance of defaulted loans of $38,000, which properties may or may not
be sold at prices equal to the value of the principal and accrued interest on
the foreclosed loans. There can be no assurance that the loan-to-value ratios of
such loans, determined as of a date subsequent to the origination date, will be
the same or lower than the loan-to-value ratios for such loans, determined as of
the origination date.
INTEREST RATE FLUCTUATIONS AND PREPAYMENT. The Company is directly
affected by the level of and fluctuations in interest rates and is dependent
upon the Company's ability to earn a spread between the earnings on its assets
and the costs of its liabilities, including the interest rates payable on the
indebtedness incurred by the Company to provide funds for the origination or
acquisition of mortgage loans. Additionally, the value and effective maturity of
the Company's assets and the cost and duration of its liabilities are affected
by changes in interest rates. While the Company monitors the interest rate
environment, there can be no assurance that the potential profitability and/or
liquidity of the Company would not be adversely affected during any period of
unexpected volatility in the interest rate environment. A continued or
significant reduction in interest rates also could decrease the number of the
loans underlying the Interest-Only Strip Receivable and Servicing Asset by
increasing the level of loan prepayments, and thereby result in write-down of
those assets. See the response to Item 5 in the February Current Report.
DEPENDENCE ON SECONDARY MARKETS. The Company originates and acquires
mortgage loans with a view to selling the mortgage loans to third parties rather
than holding such mortgage loans for its own account. Accordingly, the Company
is dependent upon its ability to sell its loans to third party investors. In the
event that the Company's mortgage loans are or become unattractive to investors
or investors choose not to purchase the Company's loans for any other reason,
the Company's inability to sell its loans would have a material adverse effect
on the business and operations of the Company.
BALLOON MORTGAGES. Until October 1994, substantially all of the
Company's mortgage loans had been balloon loans that provided for equal monthly
payments, consisting of principal and interest, based generally on a 15-year
amortization schedule, and a single payment of the remaining balance of the
balloon loan five years after origination. Amortization of a balloon loan based
on a scheduled period that is longer than the term of the loan results in a
remaining principal balance at maturity that is substantially larger than the
regular scheduled payments. If borrowers are unable to refinance the amounts due
upon
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<PAGE> 15
the maturity date of the balloon mortgage loans, borrowers may default on the
"balloon" principal payments due at maturity. At March 31, 1998, the Company was
servicing $2,872,000 of balloon loans either in the Company's own portfolio or
for other entities with respect to which the Company is liable for any defaults.
ENVIRONMENTAL CONSIDERATIONS. In certain circumstances, state and
Federal laws may impose statutory liens for the cleanup costs expended by state
or Federal governments on account of hazardous wastes or hazardous substances
released or disposed of improperly. Such a lien generally will have priority
over all subsequent liens on the property and, in certain instances may have
priority over prior recorded liens, including the lien of a mortgage. In
addition, under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), owners and operators of a contaminated property are
among the class of persons and entities liable for such cleanup costs. CERCLA
provides a "security interest exemption" under Section 101(20) for persons who,
without participating in the management of a contaminated facility, hold an
"indicia of ownership" in the property primarily to protect a security interest.
Such a party may, however, lose this exemption in the event that: (i) the party
participates in management activities to an extent beyond merely protecting its
security interest; or (ii) the party forecloses on the contaminated property and
thereafter conducts itself in such a way as to engage in management beyond mere
protection of a security interest. While the Company intends to make every
effort to comply with the foregoing guidelines, there can be no assurance that
the Company, after acquisition of title to a property following default, may not
engage in activities which may cause it to lose its security interest exemption
with respect to specific properties.
LEGAL CONSIDERATIONS; GOVERNMENT REGULATIONS. The origination,
servicing and collection of mortgage loans are subject to state regulation and
law with respect to interest rates, permissible charges, disclosure to
borrowers, legal and equitable principles regarding protection of consumers and
unfair and deceptive practices. The origination, servicing and closing of
mortgage loans are also subject to Federal laws, including: (i) the Federal
Truth-in-Lending Act and Regulation Z promulgated thereunder, which require
certain disclosures to the borrowers regarding the terms of the mortgage loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder,
which prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience; and (iv) the Real
Estate Settlement Procedures Act ("RESPA"). See the response to Item 5 of the
February Current Report.
The Company's mortgage banking business is subject to extensive
regulation, supervision and licensing by Federal and state authorities.
Regulated matters include, without limitation, maximum interest rates and fees
which may be charged by the Company, disclosures in connection with loan
originations, credit reporting requirements, servicing requirements, Federal and
state taxation, and multiple qualification and licensing requirements for doing
business in various jurisdictions. While the Company believes that it maintains
all requisite licenses, permits and approvals and is in compliance in all
material respects with applicable Federal and state regulations, there can be no
assurance that more restrictive laws or regulations will not be adopted which
could make compliance in the future more difficult and/or more expensive.
Legislative and regulatory proposals are periodically advanced which,
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<PAGE> 16
if adopted, could adversely affect the Company's profitability or the manner in
which the Company conducts its activities. See the response to Item 5 of the
February Current Report.
RISKS ASSOCIATED WITH TRUTH-IN-LENDING ACT LAWSUITS. Borrowers have
brought and may continue to bring lawsuits against lenders, many in the form of
class action suits, asserting violations of the Truth-In-Lending Act ("TILA")
and RESPA, including the alleged failure of mortgage lenders to properly
disclose to the borrowers certain fees associated with the subject mortgage
loans. Judgments entered against lenders have been harsh, including mandatory
civil penalties and rescinding mortgage loans. There can be no assurance that
the Company will not be involved in similar lawsuits in the future, the result
of which could have a material adverse affect on the future of the Company. To
date, the Company has been involved in one such action, which was settled for
nominal consideration, and is a defendant in another action. See the response to
Item 5 of the February Current Report.
RISKS OF EXPANSION. The Company is pursuing a growth strategy and
intends to hire additional personnel in the future. The success of the Company's
planned expansion will depend on numerous factors, many of which are beyond the
Company's control, including, among other factors, the securing of necessary
governmental permits and regulatory approvals, the hiring and training of
management personnel, the terms and availability of financing and other general
economic and business conditions. Any problems or delays encountered in any one
or more of these areas can result in delays in the opening of branch offices.
There can be no assurance that the Company will effectively manage its expanding
operations and anticipate all of the changing demands that its planned expansion
will impose on its resources.
CONTROL BY OFFICERS AND DIRECTORS. The Company believes that its
executive officers and directors beneficially owned or may be deemed to,
directly or indirectly, otherwise have voting control of 538,334 shares of
Common Stock as of March 31, 1998, representing approximately 9.4% of the
Company's shares of Common Stock outstanding at such date. The foregoing
includes shares held by affiliates of such persons and shares which may be
acquired upon exercise or conversion of securities held by them. As a result of
such ownership, they will as a practical matter, have the ability to direct
substantially all matters requiring approval by the stockholders of the Company,
including the election of directors. Furthermore, such ownership could
discourage the possible takeover of the Company or make the removal of
management of the Company more difficult, discourage hostile bids for control of
the Company in which stockholders may receive premiums for their shares of
Common Stock, or otherwise dilute the rights of holders of Common Stock and the
market price of Common Stock.
RESTRICTIVE COVENANTS. The security agreement pursuant to which
$1,170,000 of 10% Notes are still outstanding contains various operating
covenants including, among others, restrictions on the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to make
certain payments and investments, to pay dividends on Common Stock and to sell
or otherwise dispose of assets and merge or consolidate with another entity
without approval of a requisite majority of the 10% Note holders. Any failure of
the Company to comply with the covenants contained in the 10% Notes could result
in an event of default under the Notes which could permit acceleration of the
obligations thereunder and acceleration of debt under other instruments that may
contain cross-acceleration or
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<PAGE> 17
cross-default provisions. Other indebtedness of the Company in the future could
contain financial and other covenants more restrictive than those contained in
the 10% Notes.
In connection with bridge loans of the Company aggregating $2,200,000
and which are payable on July 31, 1998, the Company has agreed to various
operating covenants including, among others, restrictions on the ability of the
Company to incur additional indebtedness, to create liens or other encumbrances,
to make certain payments and investments, to pay dividends on Common Stock and
to sell or otherwise dispose of assets and merge or consolidate with another
entity. Any failure of the Company to repay the bridge loans when due or to
comply with such would result in an event of default which could permit
acceleration of the obligations thereunder and acceleration of debt under other
instruments that contain cross-acceleration or cross-default provisions. Other
indebtedness of the Company in the future including any future warehouse
financing facility that the Company is likely to seek could contain financial
and other covenants more restrictive than those described above.
SHARES ELIGIBLE FOR FUTURE SALE. At March 31, 1998, the Company had
5,748,575 shares of Common Stock outstanding. Of these shares, 1,883,171 are
freely transferable without restriction or further registration under the
Securities Act. The remaining shares of Common Stock currently outstanding are
"restricted securities" or owned by affiliates within the meaning of such term
in Rule 144 promulgated under the Securities Act, and which are currently
eligible for sale in the public market in reliance upon Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined in Rule 144, is entitled to sell within any
three-month period a number of restricted shares beneficially owned for at least
one year that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock, or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the filing of a
prescribed notice with the Commission with respect to such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and the availability of current public information about the Company.
Where a minimum of two years has elapsed between the later of the date of the
acquisition of restricted securities from an issuer or from an affiliate of an
issuer and any resale thereof in reliance on Rule 144 for the account of either
the initial acquiror or any subsequent holder, a person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale is entitled to sell such securities under Rule 144 without regard to any of
the limitations described above. Sales of substantial amounts of Common Stock in
the public market under Rule 144, pursuant to registration statements or
otherwise could adversely affect the prevailing market price of the Common
Stock.
EFFECT OF OUTSTANDING CONVERTIBLE SECURITIES, OPTIONS AND WARRANTS. The
Company has outstanding (i) securities convertible into 2,341,742 shares of
Common Stock, (ii) warrants for the purchase of an aggregate of 2,462,184 shares
of Common Stock and (iii) options to purchase an aggregate of 334,900 shares of
Common Stock. Additional shares of Common Stock could become issuable pursuant
to anti-dilution adjustments under the terms of such securities. The Company has
an additional 566,600 shares of Common Stock reserved for issuance under its
1993 Stock Option Plan. For the respective terms of such convertible securities,
warrants and options, the holders thereof are given an opportunity to profit
from a rise in the market price of the Company's Common Stock with a resulting
dilution in the interests of the other stockholders. Further, the terms on which
the Company may obtain
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<PAGE> 18
additional financing during that period may be adversely affected by the
existence of such convertible securities, options and warrants. The holders of
the convertible securities, warrants and options may convert or exercise them at
a time when the Company might be able to obtain additional capital through a new
offering of securities on terms more favorable than those provided therein.
MARKET FOR COMMON STOCK. There is not significant trading volume in
the Company's Common Stock and, accordingly, there can be no assurance that
holders of the Company's Common Stock will be able to sell their Common Stock
when they desire to do so. The market price of the Common Stock is subject to
rapid and significant fluctuations based upon general market conditions and in
response to press releases and reporting of quarterly financial results by the
Company. The reaction in the stock market to such news can often be unrelated or
disproportionate to the operating performance of the Company.
POSSIBLE DELISTING FROM NASDAQ. Although the Company believes that the
continued listing of the Company's Common Stock on NASDAQ is important for the
marketability of the Common Stock and the prestige of the Company in the
financial community, the Company's Common Stock may be delisted from NASDAQ for
failure of the Company to meet the minimum tangible net worth or minimum bid
price requirements for continued listing on NASDAQ. See the response to Item 5
of the February Current Report. In addition, the Company has been notified by
NASDAQ that unless the Company's Common Stock has a closing bid price of at
least $1.00 for ten consecutive trading days on or before July 6, 1998, the
Company's Common Stock may be delisted from NASDAQ.
DIVIDEND POLICY AND RESTRICTIONS. THE COMPANY HAS NEVER PAID ANY CASH
DIVIDENDS ON ITS COMMON STOCK AND HAS NO PRESENT INTENTION TO DECLARE OR TO PAY
CASH DIVIDENDS ON ITS COMMON STOCK. IT IS THE PRESENT POLICY OF THE COMPANY TO
RETAIN ANY EARNINGS TO FINANCE THE GROWTH AND DEVELOPMENT OF THE COMPANY'S
BUSINESS. THE COMPANY WILL BE RESTRICTED FROM PAYING DIVIDENDS ON THE COMMON
STOCK UNLESS CUMULATIVE DIVIDENDS ON THE COMPANY'S OUTSTANDING PREFERRED STOCK
HAVE FIRST BEEN PAID. PROVISIONS WITHIN THE SECURITY AGREEMENT FOR THE 10% NOTES
ALSO RESTRICT PAYMENT OF DIVIDENDS ON COMMON STOCK.
COMPETITION. As a marketer of sub-prime mortgage loans, the Company
faces intense competition. Many of the competitors are substantially larger and
have more capital and resources than the Company. Competition can take many
forms including convenience in obtaining a loan, customer service, marketing and
distribution channels, and interest or credit terms.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance is
dependent to a significant degree upon the services of its key executive
officers. The loss of services of key officers could have a material adverse
impact on the Company. Additionally, the loss of several key operations
personnel during a short period of time could negatively impact the Company's
expansion plans and impair the ability of the Company to recruit qualified
personnel.
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<PAGE> 19
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements contained in the "Prospectus Summary" and "Risk Factors"
regarding matters that are not statements of historical fact, including
statements relating to plans, strategies, expectations and future economic
results, are forward-looking statements within the meaning of Section 27A of the
Securities Act. Actual results may differ materially from the statements made,
as a result of various factors, including risks associated with the Company's
mortgage loan investments, such as the risks of defaults on mortgage loans,
economic and other factors which impact real estate values and prevailing
interest rates, the Company's ability to originate a sufficient volume of
mortgage loans, the Company's ability to resell the mortgage loans in the
secondary market, and other factors which are listed from time to time in the
Company's Securities and Exchange Commission filings.
RECENT DEVELOPMENTS
The Company's target customer base consists of homeowners with equity
of at least 20% in their homes (typically with values ranging from $35,000 to
$300,000), a debt-to-gross-income ratio averaging 35%, and stable employment.
Although the Company typically requires that the loan-to-value (as reflected in
an appraisal) ratio for mortgage loans that it originates or acquires be no
greater than 80%, the Company's standards with respect to the other three
criteria have been lower than those typically applied by conventional lenders.
During the nine months ended March 31, 1997 and 1998, the Company originated
$64,584,000 and $61,923,000 of loans, respectively. The average original
principal balance of the loans originated by the Company during the nine months
ended March 31, 1997 and 1998, was $51,000 and $52,000, respectively, with an
average annual interest rate to the Company of approximately 11.8% and 11.1%,
respectively. During the year ended June 30, 1997, and the nine months ended
March 31, 1998, approximately 92% and 91%, respectively, of the Company's loans
originated for each period had an original principal balance of between $10,000
and $150,000. For the year ended June 30, 1997 and the nine months ended March
31, 1998, the weighted average loan-to-value ratio at the time of origination of
the Company's loans originated was 69% and 74%, respectively, and the weighted
average debt-to-gross-income ratio for the Company's borrowers was 36% and 35%,
respectively.
In September 1997, the Company began selling its loans to several
different investors and was therefore able to expand its product line to include
second mortgages, adjustable rate mortgages, combination fixed and adjustable
rate mortgages, and other products the Company was previously restricted in
selling due to liquidity concerns and the Company's sales arrangement with a
particular purchaser of the Company's loans.
The Company's sales strategy since September 1997 has been to sell the
loans originated by it for a cash premium received at the time of sale, with no
further interest in the loan or retention of servicing rights (referred to as
selling loans "Whole").
From March 1996 to September 1997, the Company sold $108,626,000 of
loans originated or acquired by it (most of its production) to Access. Access
accumulated loans from the Company
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<PAGE> 20
and other companies and placed the loans into mortgage pools which were then
sold to investors in securitization transactions. Access retained the servicing
rights to the sold loans, and the Company did not receive any premium on loan
sales to Access at the time of sale. Instead, the agreement between the Company
and Access provided that the Company receive the difference between the interest
rate charged to the borrower on the sold loan, and the lower contractual rate
between the Company and Access, in cash each month as the borrower made payments
on the loan. The Company recorded as the gain on sale from these transactions
the present value of the portion of the stream of interest payments due the
Company over the life of the loan, with several assumptions included in the
calculation. The corresponding asset created is referred to as an "Interest-Only
Strip Receivable" and is reported on the Company's balance sheet. Pursuant to
the agreement with Access, the Company is obligated to reimburse Access for any
losses incurred by Access on sales of foreclosed loans, and is also obligated to
repurchase a loan previously sold under certain circumstances. A modification of
the agreement in November 1997 permitted the Company to receive a partial cash
advance against the interest stream due to the Company over the life of loan.
While the type of sales agreement with Access generally results in a higher gain
on sale than loans sold Whole, the Company believes the improved cash flow and
lower contingency risk associated with the Whole loan sale is presently more
beneficial to the Company and the Company's present plans now call for continued
Whole loan sales.
In March 1998, the Company received data on the recent performance of
mortgage loan pools the Company sold to Access. Sales of loans to Access during
this period generated the I/O Strip (the "Asset"). This data indicate that the
assumptions used to estimate the value of the Asset (primarily the prepayment
assumption) have changed significantly. Based upon such data, the Company
reduced the amount of the Asset on the Company's balance sheet at March 31, 1998
by $2,006,000 to record an impairment loss, primarily to reflect the recent
increase in prepayment speed of the mortgage pools. The Company monitors the
performance of the mortgage pools underlying the Asset and will make further
adjustments to the value of the Asset on a quarterly basis if the loan servicer
reports indicate that the assumptions used to value the Asset have changed
significantly.
The Company has offices in thirteen states (Florida, Georgia, Illinois,
Indiana, Kentucky, Maryland, Michigan, Mississippi, North Carolina, Ohio, South
Carolina, Tennessee and Virginia) from which mortgage loans are originated.
Subject to the availability of capital, the Company currently plans to continue
to expand geographically by adding sales representatives in selected additional
states and in states where the Company already does business. The sales
representatives are based in their home or in a small executive suite. The
Company has loan processing capabilities in three offices located in Georgia,
North Carolina, and Ohio, and may add additional processing centers if loan
production volume levels increase to certain levels.
USE OF PROCEEDS
The Common Stock offered hereby will be offered by the Selling
Securityholders. See "Selling Securityholders" and "Plan of Distribution." The
Company will not receive any proceeds from the sale of the Common Stock.
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<PAGE> 21
SELLING SECURITYHOLDERS
The following table sets forth certain information as of the date
hereof, with respect to the Common Stock held by each Selling Securityholder.
Except as set forth below, none of the Selling Securityholders has had any
position, office or other material relationship with the Company or any of its
predecessors or affiliates within the past three years other than as a result of
the ownership of the Common Stock. The Common Stock offered by this Prospectus
may be offered from time to time by the Selling Securityholders named below:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Raymond A. Abt 16,180 0.28% 16,180
14463 Washington Blvd.
University Hgts, OH 44118-4662
Dipl. Ing. Roland Agne 152,221 2.65% 115,221
Informationsbuero
Friesenplatz 5 D-50672
Cologne, Germany
Yong S. Ahn 53,920 0.93% 53,920
219 Hidden Pond Path
Franklin Lakes, NJ 07417
Alfredo Ambrosetti 34,839 0.60% 24,339
Ambrosetti Group
Via delgi Omenoni 2
20121 Milan Italy
Applebaum Family Limited Partnership 16,180 0.28% 16,180
Irv Applebaum
4 Birnawoods Ln.
St. Louis, MO 63132
</TABLE>
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<PAGE> 22
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Arkansas Teacher's Retirement System 371,441 6.07% 299,441
c/o Kennedy Capital Mgmt.
10829 Olive Blvd.
St. Louis, MO 63141
E. H. Arnold 100,000 1.71% 100,000
100 Wall St. 10th Floor
New York, NY 10005
Robert E. Atkins 10,790 0.19% 10,790
22 Parkside Drive
Great Neck, NY 11021
Auer Von Welsbach AG 152,260 2.58% 136,510
c/o AvW Invest AG
Haupstrasse 118
A-9201 Krumpendorf, Austria
BAii Asset Management 36,499 0.63% 25,498
c/o T. Finn & Co.
Chase
P.O. Box 50000
Newark, NJ 07101-8006
BAii Asset Management 23,225 0.40% 16,226
c/o Hare & Co.
Bank of New York
One Wall St.
New York, NY 10286
</TABLE>
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<PAGE> 23
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
BAii Asset Management 9,958 0.17% 6,957
c/o Fram & Co.
200 Liberty Street
New York, NY 10281
John & Elizabeth Barrott 20,636 0.36% 16,636
852 St. Ives Pl.
Cincinnati, OH 45255
J. M. Bearden 16,180 0.28% 16,180
P.O. Box 229
Isola, MS 38754
Richard S. Benson 10,790 0.19% 10,790
95 River St.
Hoboken, NJ 07030
Ronald Bero 10,790 0.19% 10,790
14550 Ridgemoor Dr.
Elm Grove, WI 53122
Leonard Blade 10,790 0.19% 10,790
1207 N. Nokomis N.E.
Alexandria, MN 56308
Charles Brand 27,298 0.47% 24,098
175 Boundary Rd..
Colts Neck, NJ 07722
David Braunstein 10,790 0.19% 10,790
1604 Ugale Rd..
Wilmington, DE 19810
</TABLE>
20
<PAGE> 24
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
James H. Brennan III 10,000 0.17% 10,000
735 Broad St.
Chattanooga, TN 37402
Peter M. Burns (2) 5,022 0.09% 5,022
100 Wall St. 10th Fl
New York, NY 10005
O. Beirne Chisolm 41,271 0.71% 33,271
21 Stepping Stone Lane
Greenwich, CT 06830
Barbara B. Chisolm 20,636 0.36% 16,636
21 Stepping Stone Ln.
Greenwich, CT 06830
O. Beirne & Barbara Chisolm 20,636 0.36% 16,636
21 Stepping Stone Ln.
Greenwich, CT 06830
Corbert L. Jr. Clark 16,180 0.28% 16,180
210 Benson Drive
Walnut Ridge, AR 72476
John C. Clifford 123,814 2.11% 99,814
5305 S. Van Marter Ct.
Spokane, WA 99206
Maria Conte 34,839 0.60% 24,339
Ambrosetti Group
Via delgi Omenoni 2
20121 Milan Italy
</TABLE>
21
<PAGE> 25
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Ronald D. Cowan 10,790 0.19% 10,790
10201 Cr. 3050
Rolla, MO 65402
Joseph & Antonina D'Amadeo 29,460 0.51% 29,460
150 Freedom Ave
Staten Island, NY 10314
Guerino & Frances DeLuca 26,960 0.47% 26,960
5953 Belmont St.
Dearborn Heights, MI 48127
Steven J. Dennis 10,790 0.19% 10,790
24 Mentone Dr.
Carmel, CA 93923
Samuel R. Dunlap, Jr. 62,813 1.08% 17,000
341 Normandy Circle
Gainesville, GA 30506
Douglas A. Dyer 10,000 0.17% 10,000
735 Broad St.
Chattanooga, TN 37402
Robert Edmondson 16,180 0.28% 16,180
1158 5th Ave
New York, NY 10029
Harry or Cynthia Farnham 16,180 0.28% 16,180
7006 McKamy Blvd.
Dallas, TX 75248
</TABLE>
22
<PAGE> 26
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Lawrence Feldhacker 16,180 0.28% 16,180
14949 Chandler Rd..
Omaha, NE 68138
Dipl. Ing. Friedrich Forstbach 34,839 0.60% 24,339
Informationsbuero
Friesenplatz 5 D-50672
Cologne, Germany
Dennis Fortin 53,920 0.93% 53,920
26 Brookside Dr.
Easton, CT 06612
John Friedman 16,180 0.28% 16,180
c/o Katretas Food Inc.
1012 Tuckerton Court Rd..
Reading, Pa 19605
Kent B. Garlinghouse 32,360 0.56% 32,360
2001 Wildwood Lane
Topeka, KS 66614
Gary Garson 3,000 0.05% 3,000
55 Public Square
Cleveland, OH 44113
James Gerchow 26,960 0.47% 26,960
404 Union
Bronson, MI 49028
The Global Opportunity Fund, Ltd. 1,267,099 18.06% 1,160,849
Charlotte St. P.O. Box N-9204
Nassau, Bahamas
</TABLE>
23
<PAGE> 27
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Hans Gruter 41,271 0.71% 33,271
Informationsbuero
Friesenplatz 5 D-50672
Cologne, Germany
Douglas Hailey (2) 5,022 0.09% 5,022
100 Wall St. 10th Fl
New York, NY 10005
Howard Hall Jr. 20,636 0.36% 16,636
3539 Mary Taylor Rd.
Birmingham, AL 35235
Howard Hall Sr. 41,271 0.71% 33,271
3539 Mary Taylor Road
Birmingham, AL 35235
Tommy Harman 10,790 0.19% 10,790
5475 Mark Dabling Blvd.
Ste. 200
Colorado Springs, CO 80918
Heckert Construction Co., Inc. 21,570 0.37% 21,570
746 E. 520th Ave
Pittsburgh, KS 66762
Samuel S. Hemingway 25,000 0.43% 25,000
801 N.W. 42nd St.
Seattle, WA 98107
</TABLE>
24
<PAGE> 28
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Rainer Heubach 365,817 5.98% 255,567
Unterbergstrasse 104
A-5084 Grossgmain
Salzburg Austria
Jeffrey Hipp 16,180 0.28% 16,180
5 Jamie Way
Norwalk, Oh 44857
John E. Houser 10,790 0.19% 10,790
20 Savannah Cir.
Union Grove, AL 35125
Intergroup Corp., The 323,550 5.33% 323,550
P.O. Box 80037
San Diego, CA 92138-0037
Scott Isaak 16,180 0.28% 16,180
11450 Hwy 2 E
Coulee City, WA 99115
Jackt Holdings Corp. 500,000 8.00% 500,000
Avieneda Justo Arrosemena, Calle 32
Panama 5, Rep. of Panama
Kadish, Hinkle, Weibell & Co. 1,000 0.02% 1,000
1717 East 9th St. Suite 2112
Cleveland, OH 44114
Armin Kaiser 100,000 1.71% 100,000
Drosselweg 13 D-70839
Gerlingen Germany
</TABLE>
25
<PAGE> 29
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Dwain Kasel 7,550 0.13% 7,550
2440 N. Dunlap
Roseville, MN 55113
Leslie A. Kaser 16,180 0.28% 16,180
806 Apollo Ave
Osborne, KS 67473
Dipl. Ing. Friedel Kellermann 34,839 0.60% 24,339
Informationsbuero
Friesenplatz 5 D-50672
Cologne, Germany
Donald Kent 16,180 0.28% 16,180
715 Georgia Ave
Chattanooga, TN 37402
Celia Klein 20,636 0.36% 16,636
215 Beaumont St.
Brooklyn, NY 11235
Ronald R. Koch Living Trust 26,960 0.47% 26,960
P.O. Box 51053
Palo Alto, CA 94303
Richard Kramer 10,318 0.18% 8,318
730 Oak Lane
Franklin Lakes, NJ 0741
Lancer Offshore, Inc. 144,449 2.45% 116,449
Kaya Flamboyan 9
Curacao Netherlands Antilles
</TABLE>
26
<PAGE> 30
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Lancer Partners, L.P. 680,975 10.59% 548,975
237 Park Ave.
New York, NY 10017
Larson Family Trust c/o Miles & Joan 20,636 0.36% 16,636
115-44th St.
Newport Bch, CA 92663
Gustave Levinson 26,960 0.47% 26,960
1200 Merriman Rd..
Akron, Oh 44313
Michael Lyon 10,790 0.19% 10,790
3326 Prince Charles Ct.
Falls Church, VA 22044
Michael Madie 10,790 0.19% 10,790
277 West End Ave #1D
New York, NY 10023
John Marcus 26,960 0.47% 26,960
11559 Rock Island Ct.
Maryland, Heights, MO 63043
Donald & Jacqueline McCulloch 10,790 0.19% 10,790
820 Oakmere Pl.
N. Muskegon, MI 49445
Richard P. McKibben Trust 41,271 0.71% 33,271
1167 W. Samalayuca Dr
Tucson, AZ 85704
</TABLE>
27
<PAGE> 31
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Geneva A. Meis 10,790 0.19% 10,790
25 Jade Dr.
Victoria, TX 77904
Michigan Employee's Retirement 807,925 12.32% 665,425
System
c/o Kennedy Capital Mgmt.
10829 Olive Blvd.
St. Louis, MO 63141
Rudolph Miles 16,180 0.28% 16,180
3905 Elamingo Dr.
El Paso, TX 79902
Thomas Morrissey 26,960 0.47% 26,960
236 W. Detweiller Dr.
Peoria, IL 61615
Muico & Company 209,038 3.51% 146,038
c/o Putnam Investments
One Post Office Square
Boston, MA 02116
Carlos Munoz 13,000 0.23% 3,000
589 Fifth Avenue
New York, NY 10017
Ronald Officer 16,180 0.28% 16,180
23699 Hearthside Dr.
Barrington, IL 60010
</TABLE>
28
<PAGE> 32
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Richard Oh (2) 1,000 0.02% 1,000
100 Wall St. 10th Fl
New York, NY 10005
Fred Ostad 10,790 0.19% 10,790
320 E. 65th St. #619
NY, NY 10021
Vincent Palmieri (2) 1,000 0.02% 1,000
100 Wall St. 10th Fl
New York, NY 10005
Jay Petschek 7,842 0.14% 6,322
87 Sheldrake Rd.
Scarsdale, NY 10583
Thea Petschek Trust 23,112 0.40% 18,632
87 Sheldrake Road
Scarsdale, NY 10583
James Poole 26,960 0.47% 26,960
P.O. Box 81
Eutaw, AL 35462
Portsmouth Square 107,850 1.84% 107,850
P.O. Box 80037
San Diego, CA 92138-0037
Dr. Dieter Quast 34,839 0.60% 24,339
Informationsbuero
Friesenplatz 5 D-50672
Cologne, Germany
</TABLE>
29
<PAGE> 33
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Quintus Trust (Kingsley & Co.) 261,298 4.35% 182,548
c/o Coyers Dill & Pearman, TTEE
Clarendon House Church St.
Hamilton, Bermuda
Steven Raddochia 3,327 0.06% 3,327
100 San Rico Drive
Manchester, CT 06040
Lousi E. Randle, Jr. 10,790 0.19% 10,790
P.O. Box 681248
Indianapolis, IN 46268
Michael E. Recca (2) 10,044 0.17% 10,044
100 Wall St. 10th Fl
New York, NY 10005
Dietrich Frhr. Von der Recke 123,814 2.11% 99,814
Ander Trift 17 D-31515
Steinhude Germany
Fritz Reimann 300,000 4.96% 300,000
Osterkampsweg 48
D-26131 Oldenburg Germany
Robert Riccio 12,381 0.21% 9,981
78 Chelsea Road
Garden City, NY 11530
Dennis Roby 10,790 0.19% 10,790
R R #1, Box 87
Warrensburg, IL 62573
</TABLE>
30
<PAGE> 34
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Jeffery & Barbara Sadar 16,180 0.28% 16,180
6640 Ridgebury Blvd.
Mayfield Hts, OH 44124
Eric Sanderson 21,570 0.37% 21,570
20 Old Stagecoach Dr.
Monson, MA 01057
Santa Fe Financial Corp. 323,550 5.33% 323,550
P.O. Box 80037
San Diego, CA 92138-0037
Alan Schiff 15,600 0.27% 15,600
14 Laurel Hill Lane
Pepper Pike, OH 44124
Shelby Springs Stock Farm 20,636 0.36% 16,636
3539 Mary Taylor Rd..
Birmingham, AL 35235
Jeffrey Sicular 16,180 0.28% 16,180
99 North Broadway
Hicksvill, NY 11801
Alan Solomon 10,400 0.18% 10,400
8251 Pine Creek Ct.
Chargrin Falls, OH 44023
William Steele 12,940 0.22% 12,940
216 Release Circle
Raleigh, NC 27615
</TABLE>
31
<PAGE> 35
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Arthur & Marie Sterling 33,017 0.57% 26,617
3000 Northmoor Trail
Long Beach, IN 46360
Gerald F. Sullivan 51,000 0.88% 50,000
5255 Porter Lane
Gainesville, GA 30506
Franz Sveceny 34,839 0.60% 24,339
Jorgerstr. 14
1180 Vienna
Austria
Sydney Investments Corp., Ltd. 69,679 1.20% 48,679
1370 Avenue of the Americas
New York, NY 10044
Garland S. Sydnor,. Jr. 37,750 0.65% 37,750
8 Tapoan Rd..
Richmond, VA 23226
Eugene Szczepanski 21,570 0.37% 21,570
35 Highland Ave
Worthington, OH 43085
James Tadych 21,570 0.37% 21,570
602 Meadowood Ln.
Brillion, WI 54110
Robert F. Taglich (2) 41,336 0.71% 39,336
100 Wall St. 10th Fl
New York, NY 10005
</TABLE>
32
<PAGE> 36
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Michael Taglich (2) 41,336 0.71% 39,336
100 Wall St. 10th Fl
New York, NY 10005
Thai Thai (2) 1,916 0.03% 1,916
100 Wall St. 10th Fl
New York, NY 10005
Dr. Uwe Thieme 104,519 1.79% 73,019
1370 Avenue of the Americas
New York, NY 10019
Heiko H. Thieme 333,334 5.48% 333,334
1370 Avenue of the Americas
New York, NY 10019
John C. Thomas 45,517 0.79% 28,000
200 N. Cobb Parkway Suite 200
Marietta, GA 30062
George Unbehaun 104,519 1.79% 73,019
Reinberger Felbermaier & Partner
Bahnhofplatz 5
D-89073 Ulm
Germany
Vandergrift Fwd. Co. 6,191 0.11% 4,991
1 Evertrust Plaza
Jersey City, NJ 07302
</TABLE>
33
<PAGE> 37
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Von Graffenried AG Privatbank 209,038 3.51% 146,038
Marktgass-Passage 3
Postfach 3000 Bern 7
Switzerland
VPM Verwaltungs AG 458,605 7.39% 243,397
Thierwilerstrasse 10 CH-4103
Bottingham Switzerland
Thomas J. Waggoner 26,960 0.47% 26,960
119-A W 6th St.
Briston, OK 74010
William Watkins 10,790 0.19% 10,790
1204 Deerfield Ln.
Jackson, MS 39211
Roy Wescott, Sr. 10,790 0.19% 10,790
P.O. Box 716
Manteo, NE 27954
Louis & Joanne Westfall 10,790 0.19% 10,790
1 Westview Dr.
Sanford, NC 04073
Dr. Argil J.Wheelock 34,839 0.60% 24,339
fbo Associated Urologists of
Chattanooga Deferred PSP
710 West Brow Road
Lookout Mountain, TN 37350
</TABLE>
34
<PAGE> 38
<TABLE>
SHARES OF
COMMON STOCK PERCENTAGE OF NUMBER OF
BENEFICIALLY SHARES SHARES BEING
NAME & ADDRESS OWNED (1) OUTSTANDING OFFERED
-------------- --------- ----------- -------
<S> <C> <C> <C>
Joel C. Williams 20,000 0.35% 20,000
2 East Bryan St. 8th Floor
Savannah, GA 31401
Tad Wilson 16,180 0.28% 16,180
877 Maple Dr.
Spencer, IN 47460
Paul Winters 10,790 0.19% 10,790
1910 E. 86th St
Apt. 126
Bloomington, MN 55425
Dr. Lutz Wolfram 41,271 0.71% 33,271
Vieringhausen 51 D-45857
Remscheid Germany
Totals 9,689,403 8,419,630
</TABLE>
- ---------------
(1) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock beneficially
owned by them. For purposes hereof, a person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from the
date hereof upon the exercise of warrants or options or the conversion of
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that any such warrants, options or convertible securities
that are held by such person (but not those held by any other person) and which
are exercisable within 60 days from the date hereof, have been exercised or
converted, as the case may be.
(2) These persons are employed by Taglich Brothers, D'Amadeo, Wagner & Co.,
Inc.
The Selling Securityholders have advised the Company that the shares of
Common Stock to be offered by the Selling Securityholders represents all of such
shares beneficially owned by them as of the date of this Prospectus.
35
<PAGE> 39
Since December 1997, Heiko H. Thieme has been a member of the Company's
Board of Directors and its Chairman. Mr. Thieme is the President of The Global
Opportunity Fund Limited ("Global") and its investment advisor. Reference is
made to the Supplement dated December 8, 1997 to the Company's Proxy Statement
dated November 21, 1997 with respect to certain material relationships between
the Company and Mr. Thieme and his affiliates. Taglich Brothers, D'Amadeo,
Wagner & Co., Inc. has provided consulting services to the Company since
November 1997 and has agreed to continue to do so until May 1998. Such firm also
acted as the Placement Agent for the Company's sale of 11% Preferred Stock for
which it received a commission of $167,000.
Between July 31, 1997 and March 13, 1998, Global loaned an aggregate of
$1,100,000 to the Company for which it received the Company's 10% promissory
notes in such aggregate amount due on April 30, 1998 and warrants for the
purchase of an aggregate of 550,000 shares of the Company's Common Stock at a
weighted average exercise price of $2.00 per share. In connection with such
loans, the Company paid aggregate commissions of $35,000 to Thieme Securities,
Inc.
Reference is made to the documents incorporated herein by reference with
respect to other relationships between certain Selling Securityholders and the
Company.
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time to purchasers directly by
any of the Selling Securityholders. Alternatively, the Selling Securityholders
may from time to time offer the Common Stock through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Securityholders for whom they may
act as agent. The Selling Securityholders and any underwriters, dealers or
agents that participate in the distribution of Common Stock may be deemed to by
underwriters, and any commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of Common
Stock is made, to the extent required, a Prospectus Supplement will be
distributed which will set forth the terms of the offering, including the name
or names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The Common Stock may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. The Company will pay substantially
all of the expenses incident to the offering and sale of the Common Stock to the
public other than commissions and discounts of underwriters, dealers or agents.
Under agreements entered into with the Company, the Selling Securityholders, and
any underwriter they may utilize, will be indemnified by the Company against
certain civil liabilities, including liabilities under the Securities Act.
36
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
GENERAL
Set forth below is a description of the material terms and provisions of
the capital stock of the Company, which should be read in conjunction with the
Certificate of Incorporation, as amended, of the Company (the "Certificate of
Incorporation"), and the By-Laws, as amended, of the Company (the "By-Laws").
The Certificate of Incorporation and the By-Laws, are exhibits to the Company's
Registration Statement on Form S-1 (Registration No. 33-37416) and are available
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates or may be requested by writing to the
Chief Financial Officer of the Company, at Wachovia Center, Suite 700,
Gainesville, Georgia 30501.
COMMON STOCK
The holders of Common Stock are entitled to one vote at all meetings of
stockholders for each share held by them with respect to all matters upon which
they have a right to vote. Shares of Common Stock have no preemptive rights and
have no other rights to subscribe for additional shares of the Company, nor do
the shares of Common Stock have any conversion rights or rights of redemption.
All shares of Common Stock will participate equally in dividends, when, as and
if declared by the Board of Directors, out of funds legally available therefor,
and in net assets upon liquidation, subject to the rights of holders of
preferred stock, if any. All shares of Common Stock currently outstanding and
those which may be issued upon conversion of the 10% Notes, 11% Preferred Stock,
convertible warehouse line or exercise of warrants are and will be duly
authorized, validly issued, fully paid and nonassessable by the Company upon
issuance. At March 31, 1998, there were 5,748,575 shares of Common Stock
outstanding.
Transfer Agent. The Company's transfer agent is Continental Stock Transfer
& Trust Company, New York, New York.
PREFERRED STOCK
General. The Certificate of Incorporation of the Company authorizes the
issuance of 2,000,000 shares of Preferred Stock. The Board of Directors, within
the limitations and restrictions contained in the Certificate of Incorporation,
as amended, and without further action by the Company's stockholders, has the
authority to issue shares of Preferred Stock from time to time in one or more
series and to fix the number of shares and the relative rights, conversion
rights, voting rights, and terms of redemption, liquidation preferences and any
other preferences, special rights and qualifications of any such series. An
issuance of Preferred Stock could, under certain circumstances, have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock.
37
<PAGE> 41
9% Convertible Preferred Stock. Pursuant to a Certificate of Designation
filed with the Secretary of the State of Delaware, the Company was authorized to
issue a series of up to 320,000 shares of 9% convertible preferred stock
(referred to as "Series A"), all of which was issued in October 1995. In October
1997 a conversion offer was approved by the Board of Directors, and holders of
all remaining outstanding shares of the Series A Preferred Stock subsequently
converted their Preferred Stock into Common Stock. No shares of Series A
Preferred Stock are currently authorized or outstanding.
11% Convertible Preferred Stock. Pursuant to a Certificate of Designation
filed with the Secretary of the State of Delaware, the Company is authorized to
issue a series of up to 60,000 shares of 11% convertible redeemable preferred
stock (referred to as "Series B"). In April 1997, 16,740 shares were issued, all
of which is currently outstanding. The following is a summary of the terms of
the Series B Preferred Stock.
Dividends The holders of the Series B Preferred Stock are entitled to
receive, if, when and as declared by the Board of Directors out of funds legally
available as prescribed by statute, cumulative dividends at the rate of 11% per
annum per share on the liquidation preference of the Series B Preferred Stock,
payable quarterly. Dividends will accrue and be cumulative to the extent not
paid on any dividend payment date. No dividends may be paid on any shares of
capital stock ranking junior to the Series B Preferred Stock (including Common
Stock) unless and until all accumulated and unpaid dividends on the Series B
Preferred Stock have been declared and paid in full. The Board of Directors has,
at its discretion, an option to pay the quarterly dividend in the form of
additional Series B Preferred Stock instead of cash until the quarterly payment
of June 30, 1998, at a rate equivalent to the market price of the Common Stock.
Dividends paid in Series B Preferred Stock after July 1, 1998 would be at a rate
equivalent to 80% of the market price of the Common Stock. Furthermore, the
dividend rate will increase 2% per quarter, commencing April 1, 2000, up to a
maximum rate of 24% on any Series B Preferred Stock still outstanding at that
time.
Conversion Each share of Series B Preferred Stock is convertible, at any
time prior to redemption, at the option of the holder, into shares of Common
Stock at a conversion price initially equivalent to $2.50 per share. The number
of shares of Series B Preferred Stock to be received upon conversion, and the
price per shares of Common Stock are subject to adjustment from time to time in
the event of (I) the combination, subdivision or reclassification of the Common
Stock; (ii) the issuance of Common Stock as a dividend or distribution on any
class of capital stock of the Company; and (iii) the distribution to all holders
of Common Stock of evidences of the Company's indebtedness or assets (including
securities, but excluding cash dividends or distributions paid out of earned
surplus). Payment of accumulated and unpaid dividends will be made upon
conversion to the extent of legally available funds. The conversion price of
Series B Preferred Stock is subject to decrease based on the weighted average of
the price of the Common Stock issued or issuable on conversion or exercise of
securities convertible or exercisable for Common Stock, through April 16, 1998,
subject to certain exclusions. During the second half of 1997, the Company
effected a one-for-
38
<PAGE> 42
five reverse stock spilt and issued convertible debt, which adjusted the
conversion price to $2.00 per share. The Company may purchase the Series B
Preferred Stock for $.01 per share if the average closing price of the Common
Stock for 20 out of 30 trading days is 200% or more of the conversion price upon
30 days notice.
Redemption The Company may at its option, commencing in September 1999,
redeem the shares of Series B Preferred Stock, in whole or in part, at a
redemption price of $100.00 per share plus any accrued and unpaid dividends.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, before any payment or distribution of the assets of
the Company (whether capital or surplus), or the proceeds thereof, may be made
or set apart for the holders of the Common Stock or any series or class of stock
ranking junior to the Series B Preferred Stock, the holders of the Series B
Preferred Stock will be entitled to receive, out of the assets of the Company
available for distribution to stockholders, a liquidating distribution of
$100.00 per share plus any accumulated and unpaid dividends.
Delaware Anti-Takeover Law. The Company is governed by the provisions of
Section 203 of the General Corporation Law of the State of Delaware ("DGCL"), an
anti-takeover law enacted in 1988. In general, this law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is defined as
a person who, together with affiliates and associates, owns (or, within the
prior three years, did own) 15% or more of the corporation's voting stock. The
DGCL contains provisions enabling a corporation to avoid the statutory
restrictions described above through an amendment to its certificate of
incorporation.
DISCLOSURE OF COMMISSION POSITION AND INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Indemnification of Directors and Officers. ARTICLE Seven of the
Registrant's Certificate of Incorporation, as amended, provides as follows:
39
<PAGE> 43
SEVENTH: Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative
(whether or not by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, incorporator, employee, or
agent of the Corporation, or is or was serving a the request of the
Corporation as a director, officer, incorporator, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
shall be entitled to be indemnified by the Corporation to the full extent
then permitted by law or to the extent that a court of competent
jurisdiction shall deem proper or permissible under the circumstances,
whichever is greater against expenses (including attorneys' fees),
judgments, fines and amount paid in settlement incurred by him in
connection with such action, suit or proceeding. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Article SEVENTH. Such right of
indemnification shall continue as to a person who has ceased to be a
director, officer, incorporator, employee, or agent and shall inure to the
benefit of the heirs and personal representatives of such person.
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who is, or is threatened to be made, a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative )other than an action by or in the right of such corporation)
by reason of the fact that such person is or was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of any other corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation, may indemnify officers and directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which he actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under a corporation's by-laws, by agreement, vote, or otherwise.
Insofar as indemnification arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
40
<PAGE> 44
EXPERTS
The consolidated financial statements of the Company at June 30, 1997 and
1996, and for each of the three years in the period ended June 30, 1997,
appearing in the Company's Annual Report on Form 10-KSB, as amended, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph describing conditions that
raise substantial doubt about the Company's ability to continue as a going
concern as described in Note 12 to the consolidated financial statements) and
incorporated herein by reference, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby has been
passed upon for the Company by Reisman & Associates, P.A., Boca Raton, Florida.
41
<PAGE> 45
PART II
ITEM 14. INFORMATION NOT REQUIRED IN THE PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
S.E.C. Registration Fee $ 2,065
Professional Fees and Expenses $ 16,500
Miscellaneous $ 1,435
--------
Total $20,000
</TABLE>
All of the above expenses will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ARTICLE Seven of the Registrant's Certificate of Incorporation, as
amended provides as follows:
SEVENTH: Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, or
investigative (whether or not by or in the right of the
Corporation) by reason of the fact that he is or was a director,
officer, incorporator, employee, or agent of the Corporation, or
is or was serving a the request of the Corporation as a director,
officer, incorporator, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise shall be
entitled to be indemnified by the Corporation to the full extent
then permitted by law or to the extent that a court of competent
jurisdiction shall deem proper or permissible under the
circumstances, whichever is greater against expenses (including
attorneys' fees), judgments, fines and amount paid in settlement
incurred by him in connection with such action, suit or
proceeding. Such right of indemnification shall inure whether or
not the claim asserted is based on matters which antedate the
adoption of this Article SEVENTH. Such right of indemnification
shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, or agent and shall inure to the
benefit of the heirs and personal representatives of such person.
II-1
<PAGE> 46
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of any other
corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under a corporation's by-laws, by
agreement, vote, or otherwise.
ITEM 16. EXHIBITS
3.1(a) Certificate of Incorporation of the Registrant, as amended prior to
January 3, 1996. (1)
3.1(b) Certificate of Designation dated October 10, 1995. (2)
3.1(c) Amendment to Certificate of Incorporation dated January 3, 1996.
3.1(d) Amendment to Certificate of Incorporation dated January 30, 1997. (3)
3.1(e) Certificate of Designation dated April 22, 1997. (4)
3.1(f) Amendment to Certificate of Incorporation dated October 24, 1997.
3.2 Certificate of Merger of Equithrift, Inc., a Georgia corporation, with
and into the Registrant. (1)
3.2 By-Laws of the Registrant. (1)
4.1 Specimen Common Stock certificate. (1)
5.1 Opinion re legality.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Reisman & Associates, P.A. (included in Exhibit 5.1)
24.1 Power of Attorney. (included on signature page)
- ---------------
II-2
<PAGE> 47
(1) These exhibits were filed as exhibits to the Registrant's Registration
Statement on Form S-1 File No. 33-37416 and are incorporated herein by
reference.
(2) This exhibit was filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the year ended June 30, 1996 and is incorporated herein by
reference.
(3) This exhibit was filed as an exhibit to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended December 31, 1996 and is
incorporated herein by reference.
(4) This exhibit was filed as an exhibit to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended March 31, 1997 and is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sells securities, a
post-effective amendment to this registration statements to: (i)
include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement; and (iii) include
any additional or changed material information on to the plan of
distribution.
(2) That, for determining liability under the Securities Act, each
such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering
of the securities at that time shall be deemed to be the initial
bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the
II-3
<PAGE> 48
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Gainesville, State of Georgia, on this
5th day of May, 1998.
CREDIT DEPOT CORPORATION
By: /s/ RALPH J. DeBEE, JR.
------------------------------------
Ralph J. DeBee, Jr. President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures
appears below under the heading "Signature" constitutes and appoints Ralph J.
DeBee, Jr. and Charles Farrahar, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign any or all amendments to this
registration statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
II-5
<PAGE> 50
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/RALPH J. DeBEE, JR. President, Chief Executive Officer May 6, 1998
- -------------------- and Director
Ralph J. DeBee, Jr.
/S/CHARLES FARRAHAR Chief Financial Officer May 6, 1998
- ------------------
Charles Farrahar
/S/MARVIN V. BOLT Director May 6, 1998
- ----------------
Marvin V. Bolt
/S/GERALD F. SULLIVAN Director May 6, 1998
- --------------
Gerald F. Sullivan
/S/JOHN C. THOMAS, JR. Director May 6, 1998
- ---------------------
John C. Thomas, Jr.
/S/HEIKO H. THIEME Director May 6, 1998
- -----------------
Heiko H. Thieme
</TABLE>
II-6
<PAGE> 1
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION, AS AMENDED, OF
CREDIT DEPOT CORPORATION
CREDIT DEPOT CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: That a meeting of the Board of Directors of Credit
Depot Corporation, a resolution was duly adopted setting forth the proposed
amendment to the Certificate of Incorporation, as amended, of the Credit Depot
Corporation, declaring such amendment advisable, and declaring that approval of
such amendment be considered at the next Annual Meeting of Stockholders.
SECOND: The Board of Directors, at such meeting, resolved that
Article 4.1 of the Certificate of Incorporation, as amended, of Credit Depot
Corporation should be amended by deleting such Article 4.1 in its entity and
substituting in lieu thereof the following:
"FOURTH. 4.1 The total number of shares of all classes of
stock which the Corporation shall be authorized to issue shall be twenty-four
million five hundred (24,500,000) shares, which are to be divided into two
classes as follows:
22,500,000 shares of Common Stock, par value $.001 per share;
and
2,000,000 shares of Preferred Stock, par value $.001 per
share."
THIRD: That thereafter, pursuant to resolution of its Board of
Directors, and upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, a meeting was held at which meeting
the necessary number of shares as required by statute were voted in favor of
said amendment.
FOURTH: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, CREDIT DEPOT CORPORATION has caused this
Certificate to be executed by Gerald F. Sullivan, its authorized officer, this
3rd day of January, 1996.
<PAGE> 2
CREDIT DEPOT CORPORATION
By:/s/ Gerald F. Sullivan
--------------------------------
Gerald F. Sullivan
Name: Gerald F. Sullivan
Title: President/CEO
ATTEST:
/s/ John C. Thomas
- --------------------------
Name: John C. Thomas
Title: Secretary/Treasurer
<PAGE> 1
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
CREDIT DEPOT CORPORATION
Credit Depot Corporation (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
A. The name of the Corporation is Credit Depot Corporation. A
Certificate of Incorporation of the Corporation originally was filed by the
Corporation with the Secretary of State of Delaware on August 7, 1990, a
Certificate of Agreement of Merger of the Corporation was filed with the
Secretary of State of Delaware on August 23, 1990, a Certificate of Amendment
was filed with the Secretary of State of Delaware on October 10, 1990, a
Certificate of Designation was filed with the Secretary of State of Delaware on
October 10, 1995, a Certificate of Amendment was filed with the Secretary of
State of Delaware on January 18, 1996, a Certificate of Amendment was filed with
the Secretary of State of Delaware on February 7, 1997, and a Certificate of
Designation was filed with the Secretary of State of Delaware on April 22, 1997.
B. This Amendment to the Certificate of Incorporation was duly adopted
and approved by written consent of the stockholders of the Corporation in
accordance with the provisions of Section 242 of the General Corporation Law.
C. (1) Each issued and outstanding share of the Common Stock and each
share held in treasury shall be, without any further action on the part of the
Corporation or any stockholder, automatically changed and reclassified into
one-fifth of a share of Common Stock of the Corporation (the "Recapitalization")
and each certificate representing outstanding shares of Common Stock shall
automatically and without further action on the part of the holder thereof
represent the number of shares of Common Stock issuable with respect to the
number of shares of Common Stock represented by such certificate.
(2) No fractional shares of Common Stock shall be issued in connection
with the Recapitalization and the number of shares of Common Stock issuable in
connection with the Recapitalization shall be rounded up to the next highest
number.
<PAGE> 2
(3) The Recapitalization shall be deemed to be effectuated immediately
upon the filing of this Amendment.
IN WITNESS WHEREOF, the undersigned has caused this Fourth Certificate
of Amendment to the Certificate of Incorporation to be duly executed on its
behalf as of the 24th day of October, 1997.
CREDIT DEPOT CORPORATION
By:/s/ Gerald F. Sullivan
-------------------------------
President
<PAGE> 1
EXHIBIT 5.1
LAW OFFICES
REISMAN & ASSOCIATES, P.A.
SUITE 330
5100 TOWN CENTER CIRCLE
BOCA RATON, FLORIDA 33486
TELEPHONE (561) 361-9300 TELECOPIER (561) 416-9249
May 6, 1998
Credit Depot Corporation
700 Wachovia Center
Gainesville, Georgia 30501
Ladies & Gentlemen:
We have acted as your counsel in connection with its filing of a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act") covering 8,419,630 shares of
Common Stock, $.001 par value (the "Shares").
We have examined such originals or certified, conformed or photostatic
copies, the authenticity of which we have assumed, of certificates of public
officials and your corporate officers and other documents, certificates,
records, authorizations and proceedings as we have deemed relevant and necessary
as the basis for the opinion expressed herein. In all such examinations, we have
assumed the genuineness of all signatures on original and certified documents
and all copies submitted to us as conformed or photostatic copies.
On the basis of the foregoing, it is our opinion that the Shares will,
when sold as contemplated by the Registration Statement, be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
/s/Reisman & Associates, P.A.
REISMAN & ASSOCIATES, P.A.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of Credit
Depot Corporation for the registration of 8,419,630 shares of its common stock
and to the incorporation by reference therein of our report dated August 29,
1997 with respect to the consolidated financial statements of Credit Depot
Corporation included in its Annual Report (Form 10-KSB/A) for the year ended
June 30, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
May 4, 1998
