-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SXfQfW6+1mcn/JN2sHtJo4oyiXzncCr4UgYistrviLip7aScMPCN0LStAe/hkhC+ cpn7rsMMbMJFPgMYeQTENg== 0000950144-98-007315.txt : 19980612 0000950144-98-007315.hdr.sgml : 19980612 ACCESSION NUMBER: 0000950144-98-007315 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980522 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980611 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDIT DEPOT CORP CENTRAL INDEX KEY: 0000869276 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 581909265 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19420 FILM NUMBER: 98646166 BUSINESS ADDRESS: STREET 1: 700 WACHOVIA CENTER CITY: GAINESVILLE STATE: GA ZIP: 30501 BUSINESS PHONE: 7705319927 MAIL ADDRESS: STREET 1: 700 WACHOVIA CENTER CITY: GAINESVILLE STATE: GA ZIP: 30501 8-K 1 CREDIT DEPOT 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20459 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported) May 22, 1998 CREDIT DEPOT CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-19420 58-1909265 -------- ------- ---------- (State or other jurisdiction of (Commission file number) (I.R.S. Employer incorporation or organization) Identification No.) 700 Wachovia Center Gainesville, Georgia -------------------- (Address of principal executive offices) 30501 ----- (Zip code) (770) 531-9927 -------------- (Registrant's telephone number, including area code) 1 2 ITEM 5. OTHER EVENTS On May 22, 1998, Credit Depot Corporation (the "Company") received a letter from the Nasdaq Stock Market ("Nasdaq") notifying the Company that because the Company had net tangible assets of less than $2,000,000 on March 31, 1998, the Company failed to meet the that requirement for continued listing of the Company's common stock (the "Common Stock") on the Nasdaq SmallCap Market (the "Market"). Nasdaq gave the Company until June 8, 1998 to respond or face delisting of the Common Stock from the Market. The Company's timely response to Nasdaq described an agreement for the conversion of $2,100,000 of debt to preferred stock that would increase the Company's net tangible assets above the required amount. The terms of the conversion are described below. Although the Company believes that the conversion will satisfy the continued listing requirement based upon net tangible assets, there can be no assurance that Nasdaq will agree. If Nasdaq does not so agree, the Common Stock would be delisted from the Market and trading of the Common Stock would be subject to additional sales practices as set forth in the Company's Current Report on Form 8-K dated February 9, 1998. As previously reported in the Company's Current Report on Form 8-K dated February 9, 1998, a wholly-owned subsidiary of the Company (the "Subsidiary") is the defendant in an action brought by a plaintiff and a purported class of others alleging the Subsidiary made payments to mortgage brokers in violation of the Real Estate Settlement Procedures Act ("RESPA"). This action was brought against the Subsidiary in the United States District Court for the Northern District of Mississippi. The Company has become aware that the United States Court of Appeals for the Eleventh Circuit (the "Eleventh Circuit"), in an action in which the Company was not a party, held that certain fees paid to mortgage brokers represent "yield spread premiums" which constitute referral fees in violation of RESPA. Certain Federal District Courts have reached similar conclusions. The Company believes that the defendant will seek to have the Eleventh Circuit reconsider its holding and, if necessary, ultimately appeal the holding to the United States Supreme Court. The Eleventh Circuit is the federal appellate court for cases arising in the Federal District Courts in Alabama, Florida and Georgia. A significant portion of the Company's loan originations are made in those States. The Company has and intends to continue to pay yield spread premiums to its mortgage brokers and the Company has taken steps to disclose the nature of such fees to its borrowers. In addition to possible criminal violations for unlawful payments in violation of RESPA, a payor can be held liable for damages in the amount of 300% of the unlawful payments. If the Company is ever found to be liable to such extent, the Company would not have sufficient resources with which to pay such damages and could be expected to file for bankruptcy protection. On June 5, 1998, the Company entered into an agreement with the investment advisor to The Global Opportunity Fund Limited ("Global") pursuant to which Global has agreed to convert $2,100,000 of debt to Global owed by the Company into 21,000 shares of a new class of convertible preferred stock (the "Preferred Stock"). The debt plus interest, if not converted, would be payable on July 31, 1998. Global is the single largest holder of convertible debt issued by the Company. Each share of the Preferred Stock entitles the holder to quarterly cumulative dividends, when and if declared by the Company's Board of Directors, at the annual rate of $10 in cash or in shares of Common Stock at market value. Commencing June 1999, if dividends are 2 3 paid in Common Stock, for purposes of determining the number of shares of Common Stock to be issued, the market value will be discounted by 25%. Each share of the Preferred Stock will initially be convertible into 133 1/3 shares of Common Stock, subject to customary adjustments. If however, the average closing sale of the Common Stock over any consecutive twenty day period is less than or equal to $.75 per share prior to December 31, 1998, each share of the Preferred Stock will then become convertible into two hundred shares of Common Stock, subject to customary adjustments. In connection with the conversion, the Company has agreed to issue to Global five year Warrants (the "Warrants") to purchase 2,800,000 shares of Common Stock for $1.25 per share, subject to customary adjustments. The Company can redeem the Preferred Stock and the Warrants for $.01 each if the average closing sales price of the Common Stock exceeds $1.50 per share in the case of the Preferred Stock or $2.50 per share in the case of the Warrants for twenty consecutive trading days. The Preferred Stock will have a $100 per share liquidation preference. The Company has agreed to register the Common Stock underlying the Preferred Stock and the Warrants under the Securities Act of 1933. Heiko H. Thieme is the Chief Executive Officer of Global and its investment advisor. The Company intends to offer other convertible note holders, whose notes total $1,270,000, the same opportunity to convert their notes into Preferred Stock, although there can be no assurance that any of the other holders will convert. A pro forma balance sheet and income statement is included in Exhibit 99.1 of this Current Report to illustrate the effect of the debt conversion by Global on the financial statements of the Company as of March 31, 1998. A summary of the effects on the financial statements are as follows (no Statement of Cash Flows is presented as no additional cash is being received from the conversion and expenses to effect the conversion are nominal): Balance sheet - The asset "Deferred financing costs" was reduced by approximately $172,000 for previously capitalized debt financing costs, such amount representing the portion of debt that was converted. Convertible debt was reduced by $2,100,000, representing the principal amount of the debt converted by Global. A new line item was added in the equity section for the 21,000 shares of the Preferred Stock to be issued to Global. Income Statement - A non-cash charge of $1,749,000 is recorded as a "Debt Conversion Expense" pursuant to the guidelines of Financial Accounting Standards Board Statement No. 84 "Induced Conversions of Convertible Debt." The calculation of this figure assumes a market price of the Common Stock at conversion of $1.00 per share. Pursuant to the guidelines, this charge is credited to "Paid-In Capital". Also, approximately $172,000 of deferred financing charges incurred during the original issuance of the debt were charged to expense as a result of the conversion of the debt. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits Exhibit No. 99.1 Pro Forma Balance Sheet and Income Statement 3 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CREDIT DEPOT CORPORATION (Registrant) Date: June 10, 1998 /s/ Ralph J. DeBee, Jr. -------------------------------------- Ralph J. DeBee, Jr. (President) Date: June 10, 1998 /s/ Charles D. Farrahar -------------------------------------- Charles D. Farrahar (Vice President and Chief Financial Officer) 4 EX-99.1 2 PRO FORMA BALANCE SHEET AND INCOME STATEMENT 1 EXHIBIT 99.1 CREDIT DEPOT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 1998 ------------------------------------------------ Actual Adjustments* Pro Forma ------------ ------------ ------------ ASSETS Loans receivable Consumer, collateralized by real estate $ 11,543,716 $ 11,543,716 Allowance for credit losses (267,352) (267,352) ------------ ------------ Net loans receivable 11,276,364 11,276,364 Cash 135,129 135,129 Cash subject to withdrawal restrictions 1,449,490 1,449,490 Property and equipment, net 360,005 360,005 Real estate held for resale 37,944 37,944 Other assets: Receivables due from related parties 16,073 16,073 Prepaid expenses and other assets 282,479 282,479 Servicing asset 45,596 45,596 Interest-only strips receivable 4,822,628 4,822,628 Accrued interest receivable 123,458 123,458 Deferred financing costs 420,917 (172,000) 248,917 Goodwill 850,105 850,105 ------------ ------------ ------------ TOTAL ASSETS $ 19,820,188 (172,000) $ 19,648,188 ============ ============ ============ LIABILITIES Convertible notes 4,770,000 (2,100,000) 2,670,000 Warehouse line of credit 10,417,514 10,417,514 Advance on interest-only strips receivable 2,028,219 2,028,219 Other borrowings 500,000 500,000 Accounts payable 328,232 328,232 Accrued liabilities 248,621 248,621 Dividends payable 46,035 46,035 ------------ ------------ ------------ Total Liabilities 18,338,621 (2,100,000) 16,238,621 STOCKHOLDERS' EQUITY Series "B" Preferred Stock, $.001 par value: 60,000 17 17 shares authorized, 16,740 shares outstanding at March 31, 1998 Series "C" Preferred Stock, $.001 par value: 34,000 -- 21 21 shares authorized, 21,000 shares issued Common stock, $.001 par value: 35,000,000 shares 5,749 5,749 authorized, 5,748,575 shares outstanding at March 31, 1998 Additional paid-in capital 29,602,597 3,848,979 33,451,576 Accumulated deficit (28,126,796) (1,921,000) (30,047,796) ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 1,481,567 1,928,818 3,410,385 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,820,188 (172,000) $ 19,648,188 ============ ============ ============
* As detailed in Item 5, Other Information 1 2 ================================================================================ CREDIT DEPOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
ACTUAL Period Ended PRO FORMA Period Ended March 31, 1998 March 31, 1998 ---------------------------- -------------------------------- Three Months Nine Months Adjustments* Three Months Nine Months ------------ ------------ ------------ ------------ ----------- REVENUES: Finance income and fees earned ($1,347,981) ($473,399) ($1,347,981) ($473,399) Gain on sale of receivable 1,108,938 3,032,203 1,108,938 3,032,203 Other 2,232 2,530 2,232 2,530 ------------ ------------ ------------ ----------- (236,811) 2,561,334 (236,811) 2,561,334 EXPENSES: Salaries and employee benefits 1,127,799 3,570,180 1,127,799 3,570,180 legal and professional fees 201,873 486,734 201,873 486,734 Other operating expenses 611,698 2,074,365 611,698 2,074,365 Provision for credit losses 108,750 271,875 108,750 271,875 Debt conversion expense - 5,576,000 1,749,000 1,749,000 7,325,000 Interest expense and amortization of financing costs 493,186 2,328,135 172,000 665,186 2,500,135 ------------ ------------ ------------ ------------ ----------- 2,543,306 14,307,289 1,921,000 4,464,306 16,228,289 ------------ ------------ ------------ ------------ ----------- Loss before provision for income taxes (2,780,117) (11,745,955) (1,921,000) (4,701,117) (13,666,955) Provision for income taxes - - - - - ------------ ------------- ------------ ------------ ------------ NET LOSS ($2,780,117) ($11,745,955) ($1,921,000) ($4,701,117) ($13,666,955) ------------ ------------ ------------ ------------ ------------ Induced conversion of preferred stock - 3,584,700 - 3,584,700 Dividends on preferred stock 46,035 317,744 46,035 317,744 ------------ ------------ ------------ ------------ NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ($2,826,152) ($15,648,399) ($1,921,000) ($4,747,152) ($17,569,399) ============ ============ ============ ============= ============ Net loss per share of common stock ($0.49) ($3.82) ($0.49) ($3.82) ====== ====== ====== ====== Net loss per share of common stock, diluted ($0.49) ($3.82) ($0.49) ($3.82) ====== ====== ====== ====== Weighted average shares outstanding 5,731,635 4,096,719 5,731,635 4,096,719 ========= ========= ========= ========= Weighted average shares 10,915,310 9,142,593 10,915,310 9,142,593 outstanding, diluted ========== ========= ========== =========
* As detailed in Item 5, Other Information 2 -----END PRIVACY-ENHANCED MESSAGE-----