The market for acquiring consumer receivable portfolios is becoming more competitive, thereby possibly diminishing our ability to acquire such portfolios at attractive prices in future periods. The growth in consumer debt may also be affected by:
Any slowing of the consumer debt growth trend could result in a decrease in the availability for purchase of consumer receivable portfolios that could affect the purchase prices of such portfolios. Any increase in the prices we are required to pay for such assets in turn will reduce the possible profit, if any, we generate from such assets.
We acquire and collect on consumer receivable portfolios that contain charged-off receivables. In order to operate profitably over the long term, we must continually purchase and collect on a sufficient volume of receivables to generate revenue that exceeds our costs. Our inability to realize value from our receivable portfolios in excess of our expenses may compromise our ability to remain as a going concern. For accounts that are charged-off, the originators or interim owners of the receivables generally have:
These receivable portfolios are purchased at significant discounts to the actual amounts the obligors owe. These receivables are difficult to collect and actual recoveries may vary and be less than the amount expected. In addition, our collections may worsen in a weak economic cycle. We may not recover amounts in excess of our acquisition and servicing costs.
Our ability to recover on our consumer receivable portfolios and produce sufficient returns can be negatively impacted by the quality of the purchased receivables. In the normal course of our portfolio acquisitions, some receivables may be included in the portfolios that fail to conform to certain terms of the purchase agreements and we may seek to return these receivables to the seller for payment or replacement receivables. However, we cannot guarantee that any of such sellers will be able to meet their payment obligations to us. Accounts that we are unable to return to sellers may yield no return. If cash flows from operations are less than anticipated as a result of our inability to collect sufficient amounts on our receivables, our ability to satisfy our debt obligations, purchase new portfolios and our future growth and profitability may be materially adversely affected.
We are subject to intense competition for the purchase of consumer receivables that may affect our ability to purchase distressed assets at acceptable prices or at all.
We compete with other purchasers of consumer receivable portfolios, with third-party collection agencies and with financial services companies that manage their own portfolios of these portfolios. We compete on the basis of reputation, industry experience and performance. Some of our competitors have greater capital, personnel and other resources than we have. The possible entry of new competitors, including competitors that historically have focused on the acquisition of different asset types, and the expected increase in competition from current market participants, may reduce our access to consumer receivable portfolios. Aggressive pricing by our competitors could raise the price of such distressed assets above levels that we are willing to pay, which could reduce the amount of such assets suitable for us to purchase or, if purchased by us, reduce the profits, if any, generated by such assets. If we are unable to purchase distressed assets at favorable prices or at all, our revenues and our ability to cover operating expenses may be negatively impacted and our earnings could be materially reduced.
We are dependent upon third parties, in particular, the law firm of Ragan & Ragan, P.C., to service the legal collection process of our consumer receivable portfolios.
We are dependent upon the efforts of our third party servicers, in particular the law firm of Ragan & Ragan, P.C., to service and collect our consumer receivables. Any failure by our third party servicers to adequately perform collection services for us or remit such collections to us could materially reduce our revenues and possibly our profitability. In addition, our revenues and profitability could be materially adversely affected if we are not able to secure replacement servicers. Until December 2004, our sole servicer had been the law firm of Ragan & Ragan, P.C., the principals of which are W. Peter Ragan, Sr. and W. Peter Ragan, Jr., our vice president and a director, and president of our wholly-owned subsidiary, VI, respectively. Since December 2004, we have purchased portfolios with receivables from obligors in all 50 states, and entered into third party servicing arrangements with approximately 85 law firms under which such attorneys service and collect our consumer receivables.
It is a conflict of interest for W. Peter Ragan, Sr. to serve as a director and officer of our company and for W. Peter Ragan, Jr. to serve as an officer of our company, while also being the principals of Ragan & Ragan, P.C., our third party servicer in the State of New Jersey.
As officers and, in the case of W. Peter Ragan, Sr., also as a director, of our company, Messrs. Ragan and Ragan have a fiduciary duty to our stockholders. However, their position as the principals of the law firm Ragan & Ragan, P.C., the primary third party servicer of our consumer receivable portfolios, interests in distressed real property and tax lien certificates, may compromise their ability to make decisions in the best interests of our stockholders.
Each of Messrs. Ragan and Ragan devotes approximately 50% of his business time to our affairs in accordance with the terms of his respective employment agreement and the balance of his business time to his law practice which includes the representation of companies that may be deemed our competitors. Accordingly, there are potential conflicts of interest inherent in such relationship. The current agreement by and between our wholly-owned subsidiary, VI, and Ragan & Ragan P.C. is for one calendar year, and automatically extends for additional periods of one calendar year each unless terminated by us. The agreement provides for the payment to such firm of a contingency fee equal to 25% of all amounts collected and paid by the obligors. The shareholders of Ragan & Ragan, P.C. are W. Peter Ragan, Sr., our vice president and a director, and W. Peter Ragan Jr., president of our wholly-owned subsidiary, VI. During 2007 and 2006, we paid Ragan & Ragan, P.C an aggregate of $1,134,345 and $1,241,244 respectively, for services rendered in accordance with the terms of the agreements between our subsidiaries and Ragan & Ragan, P.C. Pursuant to an employment agreement dated January 1, 2004, by and between W. Peter Ragan, Sr. and us, Mr. Ragan, Sr. is entitled to an annual salary of $100,000 in consideration for his position as our Vice President and president of our wholly-owned subsidiaries, J. Holder, Inc. (“JHI”) and VOM, LLC. In addition, pursuant to an employment agreement dated January 1, 2004, by and between W. Peter Ragan, Jr. and us, Mr. Ragan, Jr. is entitled to an annual salary of $100,000 per year in consideration for his position as president of our wholly owned subsidiary, VI.
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Our subsidiary, JHI, has entered into a one-year retainer agreement with the law firm of Ragan & Ragan, P.C. and such firm has agreed to provide legal services at varying hourly rates in connection with the purchase and sale of JHI’s interests in distressed real property with a minimum fee of $1,500 per each purchase and sale. In addition, such firm is entitled to receive a finder’s fee equal to 15% of JHI’s net profit, if any, at the time of sale of any property interest referred to us by Ragan & Ragan, P.C. The retainer agreement is for a one year period commencing January 1, 2005, and renews for successive periods of one year each unless terminated by our subsidiary.
Each of Messrs. Ragan and Ragan beneficially own approximately 13.7% of our issued and outstanding shares of common stock.
Our subsidiary, VOM has entered into a retainer agreement with the law firm of Ragan & Ragan, P.C., in which such firm has agreed to provide legal services at varying hourly rates in connection with the foreclosure of tax lien certificates with a minimum fee of $1,500 per foreclosed tax lien certificate and a commission equal to 15% of VOM’s net profit, if any, at the time of sale of any real property acquired by VOM upon foreclosure of a tax lien certificate.
Ragan & Ragan, P.C. is currently our third party servicer for collections in the State of New Jersey. Our third party servicing agreements with Ragan & Ragan, P.C. have terms no more favorable than our third party servicing agreements with other third party servicers in other states.
The loss of any of our executive officers may adversely affect our operations and our ability to successfully acquire distressed assets.
John C. Kleinert, our president and chief executive officer, W. Peter Ragan, Sr., our vice president, W. Peter Ragan, Jr., president of our wholly-owned subsidiary, VI, and Mr. James J. Mastriani, our chief financial officer, chief legal officer, treasurer and secretary, are responsible for making substantially all management decisions, including determining which distressed assets to purchase, the purchase price and other material terms of such acquisitions. Although we have entered into employment agreements with each of such individuals, the loss of any of their services could disrupt our operations and adversely affect our ability to successfully acquire consumer receivable portfolios, interests in distressed real property and tax lien certificates. In addition, we have not obtained “key man” life insurance on the lives of Mr. Kleinert, Mr. Ragan, Sr., Mr. Ragan, Jr. and Mr. Mastriani.
If we are unable to access external sources of financing we may not be able to fund and grow our operations.
We depend on loans from our credit facility and other external sources to fund and expand our operations. Our ability to grow our business is dependent on our access to additional financing and capital resources at acceptable rates. The failure to obtain financing and capital on acceptable financing terms as needed would limit our ability to purchase consumer receivable portfolios, interests in distressed real property and tax lien certificates and achieve our growth plans.
Our agreement with Wells Fargo, our credit facility, is limited to $22,500,000. As of April 15, 2008, we have approximately $9,000,000 of credit remaining available. As such, we may have insufficient credit lines available to purchase additional receivables, unless we successfully obtain additional credit.
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We may also consider raising additional capital from time to time which financings may take the forms of private placement offerings, pipes or public offerings of equity or debt securities, or a combination thereof. Although we have no specific capital raising transactions currently under negotiation, we may determine to undertake such transactions at any time. Such transactions could include the sale of equity at less than the market price of our common stock at the time of such transaction, although we have no present intention to undertake below market transactions, and could be for gross proceeds of as low as $1,000,000 to approximately $10,000,000 or more. The terms of any such capital raising transaction would be considered by the Board of Directors at the time it is proposed by management.
We may incur substantial indebtedness from time to time in connection with our operations.
We may incur substantial debt from time to time in connection with our purchase of consumer receivable portfolios which could affect our ability to obtain additional funds and may increase our vulnerability to economic downturns. In particular,
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· | we could be required to dedicate a portion of our cash flows from operations to pay debt service costs and, as a result, we would have less funds available for operations, future acquisitions of consumer receivable portfolios, interests in distressed real property and tax lien certificates, and other purposes; |
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· | it may be more difficult and expensive to obtain additional funding through financings, if available at all; |
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· | we would be more vulnerable to economic downturns and fluctuations in interest rates, less able to withstand competitive pressures and less flexible in reacting to changes in our industry and general economic conditions; and |
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· | if we defaulted under our existing senior credit facility or other indebtedness or if our lenders demanded payment of a portion or all of our indebtedness, we may not have sufficient funds to make such payments. |
If an event of default occurs under our secured financing arrangements, it could seriously harm our operations.
On January 27, 2005, VI entered into a Loan and Security Agreement with Wells Fargo, through which Wells Fargo agreed to provide VI with a three year $12,500,000 senior credit facility (the “Initial Credit Facility”) to finance up to 60% of the purchase price of the acquisition of individual pools of unsecured consumer receivables that are approved by Wells Fargo under specific eligibility criteria set forth in the Loan and Security Agreement. On February 27, 2006, VI entered into a First Amendment to the Loan and Security Agreement with Wells Fargo (the “Amended and Restated Loan Agreement”). Pursuant to the Amended and Restated Loan Agreement, Wells Fargo extended the Initial Credit Facility until January 27, 2009 (formerly January 27, 2008) and agreed to increase the advance rate under the credit facility to 75% (up from 60%) of the purchase price of individual pools of unsecured consumer receivables that are approved by Wells Fargo. Wells Fargo also agreed to reduce the interest rate on the loan from 3.5% above the prime rate of Wells Fargo Bank, N.A. to 1.5% above such prime rate. In addition, the amortization schedule for each portfolio has been extended from twenty-four to thirty months. Wells Fargo also agreed to reduce the personal guarantees associated with the line from $1,000,000 to $250,000. On February 23, 2007, Wells Fargo increased the line to $17,500,000 pursuant to the Third Amendment to the Loan and Security Agreement. On February 29, 2008, Wells Fargo increased the line to $22,500,000, extended the maturity date of the facility to January 2011 and eliminated limited personal guarantees, pursuant to the Fourth Amendment to the Loan and Security Agreement.
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Any indebtedness that we incur under such line of credit is secured by a first lien upon all of our assets, including all of our portfolios of consumer receivables acquired for liquidation. If we default under the indebtedness secured by our assets, those assets would be available to the secured creditor to satisfy our obligations to the secured creditor. Any of these consequences could adversely affect our ability to acquire consumer receivable portfolios, interests in distressed real property and tax lien certificates, and operate our business.
The restrictions contained in the secured financings could negatively impact our ability to obtain financing from other sources and to operate our business.
VI has agreed to maintain certain ratios with respect to outstanding advances on the Credit Facility against the estimated remaining return value on Wells Fargo financed portfolios. As of February 29, 2008, VI has agreed to maintain at least $14,000,000 in VI’s member’s equity. In addition, the net income of VI for each calendar quarter will not be less than $350,000. We have also agreed to maintain at least $25,000,000 in stockholders’ equity and subordinated debt for the duration of the facility and the net income for each calendar quarter will not be less than $200,000.
Our loan and security agreement contains certain restrictive covenants that may restrict our ability to operate our business. Furthermore, the failure to satisfy any of these covenants could:
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· | cause our indebtedness to become immediately payable; |
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· | preclude us from further borrowings from these existing sources; and |
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· | prevent us from securing alternative sources of financing necessary to purchase consumer receivable portfolios, interests in distressed real property and tax lien certificates and to operate our business. |
As a result of our line of credit with Wells Fargo, we anticipate that we will incur significant increases in interest expense offset, over time, by expected increased revenues from consumer receivable portfolios purchased utilizing funds under such line of credit. No assurance can be given that the expected revenues from such purchased portfolios will exceed the additional interest expense.
Our collections on unsecured consumer receivables may decrease if bankruptcy filings increase.
During times of economic recession, the amount of defaulted consumer receivables generally increases, which contributes to an increase in the amount of personal bankruptcy filings. Under certain bankruptcy filings an obligor’s assets are sold to repay credit originators, but since certain of the receivables we purchase are unsecured, we often would not be able to collect on those receivables. We cannot assure you that our collection experience would not decline with an increase in bankruptcy filings. If our actual collection experience with respect to our unsecured receivable portfolios is significantly lower than we projected when we purchased the portfolios, our realization on those assets may decline and our earnings could be negatively affected. We use estimates for recognizing revenue on a majority of our receivable portfolio investments and our earnings would be reduced if actual results are less than estimated.
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We may not be able to acquire consumer receivables of new asset types or implement a new pricing structure.
We may pursue the acquisition of consumer receivable portfolios of asset types in which we have little current experience. We may not be able to complete any acquisitions of receivables of these asset types and our limited experience in these asset types may impair our ability to collect on these receivables. This may cause us to pay too much for these receivables, and consequently, we may not generate a profit from these receivable portfolio acquisitions.
If we fail to manage our growth effectively, we may not be able to execute our business strategy.
We have experienced rapid growth over the past several years and expect to maintain our growth. However, our growth will place demands on our resources and we cannot be sure that we will be able to manage our growth effectively. Future internal growth will depend on a number of factors, including:
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· | the effective and timely initiation and development of relationships with sellers of consumer receivable portfolios and strategic partners; |
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· | our ability to efficiently collect consumer receivables; and |
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· | the recruitment, motivation and retention of qualified personnel. |
Sustaining growth will also require the implementation of enhancements to our operational and financial systems and will require additional management, operational and financial resources. There can be no assurance that we will be able to manage our expanding operations effectively or that we will be able to maintain or accelerate our growth and any failure to do so could adversely affect our ability to generate revenues and control our expenses.
Our operations could suffer from telecommunications or technology downtime, disruption or increased costs.
Our ability to execute our business strategy depends in part on sophisticated telecommunications and computer systems. The temporary loss of our computer and telecommunications systems, through casualty, operating malfunction or servicer’s failure, could disrupt our operations. In addition, we must record and process significant amounts of data quickly and accurately to properly bid on prospective acquisitions of consumer receivable portfolios and to access, maintain and expand the databases we use for our collection and monitoring activities. Any failure of our information systems and their backup systems would interrupt our operations. We may not have adequate backup arrangements for all of our operations and we may incur significant losses if an outage occurs. Any interruption in our operations could have an adverse effect on our results of operations and financial condition.
Our inability to obtain or renew required licenses could have a material adverse effect upon our results of operations and financial condition.
�� We currently hold a number of licenses issued under applicable consumer credit laws. Certain of our current licenses and any licenses that we may be required to obtain in the future may be subject to periodic renewal provisions and/or other requirements. Our inability to renew such licenses or take any other required action with respect to such licenses could limit our ability to collect on some of our receivables and otherwise have a material adverse effect upon our results of operations and financial condition.
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Risk Factors Relating to Our Industry
Government regulations may limit our ability to recover and enforce the collection of our consumer receivables.
Federal, state and municipal laws, rules, regulations and ordinances may limit our ability to recover and enforce our rights with respect to the consumer receivables acquired by us. These laws include, but are not limited to, the following Federal statutes and related regulations and comparable statutes in states where obligors reside and/or where creditors are located:
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· | the Fair Debt Collection Practices Act; |
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· | the Federal Trade Commission Act; |
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· | the Truth-In-Lending Act; |
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· | the Fair Credit Billing Act; |
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· | the Equal Credit Opportunity Act; |
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· | the Fair Credit Reporting Act; and |
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· | the Fair Foreclosure Act. |
We may be precluded from collecting consumer receivables we purchase where the creditors or other previous owners or servicers failed to comply with applicable law in originating or servicing such acquired receivables. Laws relating to the collection of consumer debt also directly apply to our business. Our failure to comply with any laws applicable to us, including state licensing laws, could limit our ability to recover on our receivables and could subject us to fines and penalties, which could reduce our earnings and result in a default under our loan arrangements.
Additional laws may be enacted that could impose additional restrictions on the servicing and collection of consumer receivables. Such new laws may adversely affect the ability to collect on our receivables which could also adversely affect our revenues and earnings.
Class action suits and other litigation in our industry could divert our management’s attention from operating our business and increase our expenses.
Certain originators and servicers in the consumer credit industry have been subject to class actions and other litigation. Claims have included failure to comply with applicable laws and regulations and improper or deceptive origination and servicing practices. If we become a party to any such class action suit or other litigation, our results of operations and financial condition could be materially adversely affected.
Risk Factors Relating to Our Securities
Our quarterly operating results may fluctuate and cause our stock price to decline.
Because of the nature of our business, our quarterly operating results may fluctuate, which may adversely affect the market price of our common stock. Our results may fluctuate as a result of any of the following:
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· | the timing and amount of collections on our consumer receivable portfolios; |
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· | our inability to identify and acquire additional consumer receivable portfolios; |
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· | a decline in the estimated value of our consumer receivable portfolio recoveries; |
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· | the timing of sales of interests in distressed real property and redemption of tax lien certificates; |
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· | increases in operating expenses associated with the growth of our operations; and |
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· | general and economic market conditions. |
Because three stockholders own a large percentage of our voting stock, other stockholders’ voting power may be limited.
As of April 15, 2008, John C. Kleinert, W. Peter Ragan, Sr. and W. Peter Ragan, Jr., three of our executive officers, beneficially owned or controlled approximately 81.9% (including shares issuable upon exercise of warrants owned by such stockholders) of our shares. If those stockholders act together, they will have the ability to control matters submitted to our stockholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result, our other stockholders may have little or no influence over matters submitted for stockholder approval. In addition, the ownership of such three stockholders could preclude any unsolicited acquisition of us, and consequently, materially adversely affect the price of our common stock. These stockholders may make decisions that are adverse to your interests.
Our organizational documents and Delaware law make it more difficult for us to be acquired without the consent and cooperation of our board of directors and management.
Provisions of our organizational documents and Delaware law may deter or prevent a takeover attempt, including a takeover attempt in which the potential purchaser offers to pay a per share price greater than the current market price of our common stock. Under the terms of our certificate of incorporation, our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of such shares. The ability to issue shares of preferred stock could tend to discourage takeover or acquisition proposals not supported by our current board of directors. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock.
The issuance of authorized shares of preferred stock and additional common stock may result in dilution to existing stockholders, adversely affect the rights of existing stockholders and depress the price of our common stock.
We have 10,000,000 shares of authorized “blank check” preferred stock, the terms of which may be fixed by our board of directors. Our board of directors has the authority, without stockholder approval, to create and issue one or more series of such preferred stock and to determine the voting, dividend and other rights of the holders of such preferred stock. Depending on the rights, preferences and privileges granted when the preferred stock is issued, it may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders, may discourage bids for our common stock at a premium over the market price of the common stock and may adversely affect the market price of and voting and other rights of the holders of our common stock. In connection with this Placement, we agreed that for a time period commencing upon the initial closing date and continuing until the date which is twelve months from the date hereof, that we would not grant any right to any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities; provided, however, that the foregoing shall not preclude the entering into share-based adjustment provisions for stock splits, mergers, consolidations and the like.
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As of April 15, 2008, there were 1,380,000 shares of preferred stock outstanding. In addition to the preferred stock, we are authorized to issue 40,000,000 shares of our common stock. As of April 15, 2008, there were 17,066,821 shares of our common stock issued and outstanding. However, the total number of shares of common stock issued and outstanding does not include outstanding unexercised options, warrants, convertible debt or convertible preferred shares exercisable for 10,109,410 of shares of common stock. As of April 15, 2008, we have reserved up to 10,109,410 shares of our common stock for issuance upon exercise of outstanding stock options, warrants, convertible debt and convertible preferred stock. We have reserved a total of 1,000,000 shares of common stock under our 2004 Equity Incentive Program. As of April 15, 2008, 232,000 shares have been issued.
Under most circumstances, our board of directors has the right, without stockholder approval, to issue authorized but unissued and nonreserved shares of our common stock. If all of these shares were issued, it would dilute the existing stockholders and may depress the price of our common stock.
Any of (i) the exercise of the outstanding options and warrants, (ii) the conversion of the preferred stock, or (iii) the conversion by the convertible note holders of such notes into shares of our common stock will reduce the percentage of common stock held by the public stockholders. Further, the terms on which we could obtain additional capital during the life of the options and warrants may be adversely affected, and it should be expected that the holders of the options and the warrants would exercise them at a time when we would be able to obtain equity capital on terms more favorable than those provided for by such options and warrants. As a result, any issuance of additional shares of common stock may cause our current stockholders to suffer significant dilution and depress the price of our common stock.
Common stock eligible for future sale may depress the price of our common stock in the market.
As of April 15, 2008, there were 17,066,821 shares of common stock held by our present stockholders, and approximately 14,247,720 shares may be available for public sale by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. 3,100,063 shares, 1,364,005 shares and 1,076,250 shares may be sold pursuant to current registration statements effective on August 12, 2005, December 29, 2005 and December 18, 2007, respectively. In general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated stockholders (or stockholders whose shares are aggregated) may, under certain circumstances, sell within any three month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale and (ii) non-affiliated stockholders may sell without such limitations, provided we are current in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates that have satisfied a one year holding period without any limitation or restriction. Based on the number of shares of common stock outstanding, approximately 3,100,000 shares could be sold under Rule 144 during the next 90 days. The sale of such a large number of shares may cause the price of our common stock to decline.
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The limited prior public market and trading market may cause possible volatility in the price of our securities.
There has only been a limited public market for our securities and there can be no assurance that an active trading market in our securities will be maintained. In addition, the overall market for securities in recent years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies. The trading price of our common stock is expected to be subject to significant fluctuations including, but not limited to, the following:
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· | quarterly variations in operating results and achievement of key business metrics; |
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· | changes in earnings estimates by securities analysts, if any; |
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· | any differences between reported results and securities analysts’ published or unpublished expectations; |
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· | announcements of new contracts or service offerings by us or our competitors; |
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· | market reaction to any acquisitions, divestitures, joint ventures or strategic investments announced by us or our competitors; |
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· | demand for our services and products; |
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· | shares being sold pursuant to Rule 144 or upon exercise of warrants; and |
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· | general economic or stock market conditions unrelated to our operating performance. |
These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our securities.
We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock for the foreseeable future; therefore, returns on your investment may only be realized by the appreciation in value of our securities, if any.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We plan to retain any future earnings to finance growth. Because of this, investors who purchase our common stock and/or convert their warrants into common stock may only realize a return on their investment if the value of our common stock appreciates. If we determine that we will pay dividends to the holders of our common stock, there is no assurance or guarantee that such dividends will be paid on a timely basis.
We may be de-listed from the AMEX if we do not meet continued listing requirements.
If we do not meet the continued listing requirements of the AMEX and our common stock is delisted by the AMEX, trading of our common stock would thereafter likely be conducted on the OTC Bulletin Board. In such case, the market liquidity for our common stock would likely be negatively affected, which may make it more difficult for holders of our common stock and preferred stock to sell their securities in the open market and we could face difficulty raising capital necessary for our continued operations.
As set forth in AMEX Company Guide Section 1002:
The Board of Governors of AMEX may, in its discretion, at any time, and without notice, suspend dealings in, or may remove any security from, listing or unlisted trading privileges.
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AMEX, as a matter of policy, will consider the suspension of trading in, or removal from listing or unlisted trading of, any security when, in their opinion:
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· | the financial condition and/or operating results of the issuer appear to be unsatisfactory; or |
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· | it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make further dealings on the AMEX inadvisable; or |
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· | the issuer has sold or otherwise disposed of its principal operating assets, or has ceased to be an operating company; or |
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· | the issuer has failed to comply with its listing agreements with the AMEX; or |
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· | any other event shall occur or any condition shall exist which makes further dealings on the AMEX unwarranted. |
Risks Related to this Private Placement
There is no minimum offering size and no escrow.
We are selling the Notes on a “best efforts” basis. There is no minimum amount of Notes which we must sell before we receive, and have the right to expend, the net proceeds from the sale of any Notes. The proceeds from the sale of the Notes will not be held in escrow, and we, upon accepting subscription, at our discretion may immediately expend the subscription proceeds.
Subscription to this placement is restricted to accredited investors. There is no assurance that you will receive a return on your investment because securities acquired in this placement will be restricted.
We are offering the Notes pursuant to exemptions from registration that depend in part on the investment intent of the investors. In order to purchase the Note, you will be required to represent that you are purchasing the securities for your own account for investment purposes and not with a view to resale or distribution. We will place a restrictive legend on the securities that we sell in this placement.
You should be prepared to bear the economic risk of your investment for an indefinite period. Our cash flows from operations are not sufficient to pay our operating expenses. We rely on outside financing, including the proceeds from the sale of our shares of common stock and the proceeds of this placement to provide necessary working capital. You should be able to withstand the total loss of your investment.
This placement is on a “best efforts” basis, which means that we may not be ale to raise the funds we expect to raise. We may not raise the Maximum Amount, and even if we do, we may not be able to fund our working capital requirements without additional financing.
The Notes are being offered hereby on a “best efforts” basis and not on a “firm commitment” basis and as a result, we may not be able to consummate this placement. There can be no assurance that the Maximum Amount will be raised. There is no assurance as to how long our funding will enable us to operate without additional financing. We may close upon amounts less than the Maximum Amount. We may require additional capital in order to continue to support and increase our acquisition of consumer receivable portfolios. If you purchase Notes, you will do so without any assurance that we will raise enough money to meet our ongoing working capital needs.
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You should consult your own tax and legal advisors concerning income tax risks.
We urge our prospective investors to consult with their own representatives, including their own tax and legal advisors, with respect to the federal (as well as state and local) income tax consequences of this investment before subscribing to this private placement. Prospective investors should not construe the information set forth in this term sheet as providing any tax advice and this term sheet is not intended to be a complete or definitive summary of the tax consequences of an investment in the Notes. Prospective investors are advised to consult with their own tax counsel concerning the tax aspects of the purchase of our Notes.
There are restrictions on the transferability of the Notes offered hereby.
This Placement is being made pursuant to Section 4(2) of the Act and/or the provisions of Rule 506 of Regulation D thereunder and, accordingly, the Notes offered hereby have not been registered under the Act and may not be re-offered, sold, or otherwise. Further, the Notes are being offered only to persons who are accredited investors. Investors must therefore be prepared to bear the economic risk of an investment in the Securities for an indefinite period of time.
This offering has not been reviewed by the Securities and Exchange Commission nor any state securities authority.
This Placement will not be registered with the Securities and Exchange Commission under the Act, or with the securities agency of any state. The Notes are being offered in reliance upon exemptions from the registration provisions of the Act and state securities laws applicable only to offers and sales to investors meeting the suitability requirements set forth herein. As such, investors will not have the benefit of review by the Securities and Exchange Commission nor any state securities authority. The terms and conditions of the Placement may not comply with the guidelines and regulations established for offerings that are required to be registered and qualities with those agencies.
The Notes are offered under a private offering exemption.
The Notes are being offered to prospective investors under the private offering exemptions from registration available under the Act. If we should fail to comply with the requirements of these exemptions, Investors may have the right to rescind their purchases if they so desire. Since compliance with the exemption rules is highly technical, it is possible that, if a shareholder seeks rescission, he may succeed. If a number of noteholders were to successfully seek rescission, we would face severe financial demands that could have a material adverse effect on the Company and the non-rescinding noteholders.
Our management has broad discretion under applicable principles and provisions of corporate law to manage our business, including the allocation and use of the net proceeds of this Placement, and we may not use the proceeds in ways with which our stockholders desire.
Our management will have broad discretion with respect to the expenditure of the net proceeds of the Placement, including discretion to use the proceeds in ways with which stockholders may disagree. Investors will be relying on the judgment of our management regarding the application of the proceeds of the Placement.
It is not possible to foresee all risks that may affect us. Moreover, we cannot predict whether we will successfully effectuate our current business plan. Each prospective investor is encouraged to carefully analyze the risks and merits of an investment in the Securities and should take into consideration when making such analysis, among others, the Risk Factors discussed above.
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Exhibit H
Annual Report on Form 10-K for the Year Ended December 31, 2007
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