This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933, as amended. The date of this
documents is September 26, 2002.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to _____________
Commission file number.
Easy Money Holding Corporation
(Name of registrant as specified in its Charter)
Virginia 54-1875786
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5295 Greenwich Road, Suite 108
Virginia Beach, VA 23462
757-499-1126
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
As of August 15, 2002, there were 10,035,000 shares of common stock, par value
of $.01 per share, issued and outstanding.
Part I-Financial Information
Easy Money Holding Corporation
Balance Sheet and Income Statement
(In thousands except share data)
EASY MONEY HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
June 30, December 31,
Assets 2002 2001
--------- ---------
Current assets
Cash $ 213 $190
Amounts due from customers for advances, net 2,820 2,970
Prepaid expenses and other current assets 700 532
--------- ---------
Total current assets 3,733 3,692
Property and equipment, net 941 988
Deferred tax asset 207
Receivable from related party 122 245
Goodwill, net of accumulated amortization 187 196
--------- ---------
Total assets $5,190 $5,121
========= =========
Liabilities and Stockholders' Deficit
Current liabilities
Line of credit facilities - short term $1,463 $1,613
Current installments of long-term debt 424 438
Current installments of capital lease obligations 170 242
Accounts payable 1,142 769
Accrued salaries and benefits 287 282
Other accrued liabilities 160 92
Payables to related parties 190 105
Payables to officers 1,532 1,655
--------- ---------
Total current liabilities 5,368 5,196
Long term debt 215 263
Capital lease obligations, excluding current installments 181 180
--------- ---------
Total liabilities 5,764 5,639
--------- ---------
Stockholders' deficit
Common stock, $.01 par value. Authorized 50,000,000
shares; issued and outstanding 10,035,000 and 10,000,000
in 2002 and 2001, respectively 100 100
Additional paid-in capital 579 579
Accumulated deficit (1,253) (1,197)
--------- ---------
Total stockholders' deficit (574) (518)
Commitments and contingencies
--------- ---------
Total liabilities and stockholders' deficit $5,190 $5,121
========= =========
See the accompanying notes to the Financial Statements
2
Easy Money Holding Corporation AND Subsidiaries
Consolidated Condensed Statements of Income
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
June June June June
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues
Fees and other income $2,816 $2,766 $5,500 $5,393
Other 17 3 24 90
--------- --------- --------- ---------
2,833 2,769 5,524 5,483
--------- --------- --------- ---------
Expenses
Provision for credit losses 443 511 516 796
Salaries and benefits 1,059 888 2,026 1,903
Other operating expenses 1,335 1,003 2,383 2,126
Legal Expense 356 213 587 374
Interest expense 163 143 324 339
Other 50 12 50 33
Related Party management fees (56) (86) (98) (391)
--------- --------- --------- ---------
3,350 2,684 5,788 5,180
--------- --------- --------- ---------
Net (loss)/income $ (517) $ 85 $ (264) $303
========= ========= ========= =========
Net (loss)/income as reported $ (517) $ 85 $ (264) $303
Income tax benefit 207 - 207 -
--------- --------- --------- ---------
Income/(loss) $ (310) $ 85 $(57) $303
========= ========= ========= =========
Pro forma income tax expense - (34) (101) (121)
--------- --------- --------- ---------
Pro forma (loss)/income $ (310) $ 51 $ (158) $182
========= ========= ========= =========
Pro forma (loss)/income per share-basic $(0.03) $ 0.01 $(0.02) $ 0.02
========= ========= ========= =========
Pro forma (loss)/income per share-diluted $(0.03) $ 0.01 $(0.01) $ 0.02
========= ========= ========= =========
See the accompanying notes to the Financial Statements
3
Consolidated Condensed Statements of Cash Flows
For the six months ending June 30, 2001 and 2002
Six Months Ended
(Unaudited)
June June
2002 2001
------------- --------------
Cash flows from operating activities:
Net (loss)/income ($57) $303
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses 516 796
Gain from store sales - (68)
Depreciation and amortization 158 180
Change in deferred tax asset (207)
Loss on disposal of property and equipment - 12
Changes in assets and liabilities increasing (decreasing) cash flows from
operations:
Amounts due from customers for advances (366) (464)
Prepaid expenses and other current assets (168) 50
Accounts payable and accrued expenses 446 (386)
------------- --------------
Net cash provided by operating activities 322 423
------------- --------------
Cash flows from investing activities:
Additions to property and equipment (10) (3)
------------- --------------
Net cash used in investing activities (10) (3)
------------- --------------
Cash flows from financing activities:
Net repayments under line of credit facilities (150) (1,104)
Net borrowings from related parties 208 958
Net borrowings from (repayments to) officers (123) (30)
Principal repayments on long-term debt (62) (222)
Repayments of obligations under capital leases (162) (191)
Distributions to stockholders - (7)
------------- --------------
Net cash used in financing activities (289) (596)
------------- --------------
Net increase/(decrease) in cash 23 (176)
Cash at beginning of year $190 $628
------------- --------------
Cash at end of year $213 $452
============= ==============
Supplemental disclosures:
Cash paid during the period for interest $324 $340
============= ==============
Supplemental noncash investing and financing activities:
Assets acquired under capital leases $90 -
============= ==============
See the accompanying notes to the Financial Statements
4
Easy Money Holding Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
including the notes thereto, include the accounts of Easy Money Holding
Corporation (the "Company") and its wholly owned subsidiaries. Such unaudited
consolidated financial statements are condensed and do not include all
disclosures and footnotes required by generally accepted accounting principles
for complete financial statements. Such interim period financial statements
should be read in conjunction with the Company's consolidated financial
statements which are included in the Company's December 31, 2001 Annual Report
on Form 10-KSB. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements as of June
30, 2002 and for the period ended June 30, 2001 are unaudited, but in
management's opinion, include all adjustments (consisting of only normal
recurring adjustments) considered necessary to present fairly the financial
position, results of operations and cash flows for such interim periods.
Operating results for the period ended June 30, 2002 are not necessarily
indicative of the results that may be expected of the full fiscal year.
Note 2 - Debt
The Company currently maintains a credit line facility that permits us to
borrow up to an advance limit, which as of June 30, 2002, was $1,300,000. The
lender may increase or decrease the advance limit in its discretion. Borrowings
under the line of credit bear interest at a base rate (as specified by the
lender), plus 10%, payable monthly. We collateralized these borrowings by a
security interest in funds due from customers for advances and our property and
equipment and general intangibles. The financing agreement, among other things,
requires the consent of the lender for mergers, consolidations and acquisitions,
restricts changes in the nature of our business, restricts stockholder
distributions to amounts related to state and federal income taxes owed by them
and restricts repayment of principal on the loans made to us by our
shareholders. Outstanding borrowings under the line of credit as of June 30,
2002, amounted to $1,463,000. This amount exceeds our advance limit by $163,000
due to (1) increased cash requirements at the end of the Second Quarter of 2002
to meet customers demands for our product, (2) delayed payments made on the
credit line initiated at the end of the Second Quarter of 2002, but recorded at
the beginning of the Third Quarter of 2002.
On March 20, 2002 the Company amended this financing agreement that reduces
the line of credit facility's advance limit by $54,167 each month for a
successive twenty-four(24) month period commencing on July 1, 2002 and
terminating on June 1, 2004.
5
Note 3 - Income Taxes
Prior to April 1, 2002 the company was an S-Corporation. Income tax
expense/benefit associated with the earnings of the company prior to April 1,
2002 were passed through to the shareholders of the company. Subsequent to March
31, 2002 the S-corporation status was terminated and the company became a
C-Corporation. As such, all items of income tax expense/benefit are and will be
recognized by the Company. A deferred tax asset was recognized by the company in
the amount of $207 to reflect the C-corporation tax benefit for the loss
incurred during the three months ended June 30, 2002. The consolidated
statements of income include a pro forma income tax expense/benefit line item
for periods prior to April 1, 2002 to show the income tax effect as if the
Company was a C-corporation for all comparable time periods.
Note 4 - Earnings Per Share
Net income per basic share is computed based on the average common shares
outstanding during the period. Net income per diluted share is computed based on
the average common shares outstanding during the period adjusted for the effect
of potential common stock equivalents. The computation for basic and diluted net
income per share is as follows for the six months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
June June June June
2002 2001 2002 2001
-------------- --------------- -------------- --------------
Pro Forma (loss)/income ($310) $51 ($158) $182
-------------- --------------- -------------- --------------
Average common shares outstanding
Basic 10,035 10,000 10,035 10,000
Dilutive securities- warrants 912 0 912 0
-------------- --------------- -------------- --------------
Diluted 10,947 10,000 10,947 10,000
============== =============== ============== ==============
Pro forma (loss)/ income per share:
Basic ($0.03) $0.01 ($0.02) $0.02
============== =============== ============== ==============
Diluted ($0.03) $0.01 ($0.01) $0.02
============== =============== ============== ==============
The pro forma net (loss)/income per diluted share has changed from the First
Quarter of 2002 to reflect a reduction of 600,000 shares related to the
termination of certain consultant's agreement as discussed in Note 5. .
Note 5 - Initial Registration with the SEC
On April 1, 2002, the Company, through a registration with the SEC under
the Securities Act of 1933 became a public company offering to sell shares to
the public and creating a market for trading those shares. The offering is on
6
a best efforts basis. There is no underwriter. The Company and selling
shareholders are offering to sell shares of common stock at a price of $2.50 per
share. The Company has set a 180-day deadline to sell a minimum of 100,000
shares starting April 2002, the effective date of the registration. Proceeds
will be deposited into an escrow account until the minimum is sold. If the
Company does not sell the minimum number of shares with in 180 days, the
proceeds will be returned without interest.
Note 6 - Contingencies
In certain states, the Company's operations are regulated under state
laws, which establish, among other things, maximum loan, advance and fee amounts
that may be charged. The Company believes that its procedures conform to the
applicable laws and regulations in all states in which it operates.
The Company has been named in four lawsuits that allege that the
Company engaged in deferred presentment transactions, which violate the Federal
Racketeering Influenced and Corrupt Organizations Act and various state statutes
and regulations. Class certification has been obtained in one of these suits.
The range of loss on this suit is zero to the plaintiff's demand of $40 million.
Although there is a possibility of a loss in the remaining suits, management is
unable to estimate the range of loss due to the procedural status of these cases
and given the absence of precedent related to significant rulings on cases of
this nature. The Company intends to vigorously defend these claims. No accrual
of a loss contingency has been recorded by the Company related to these lawsuits
because the Company believes that it is not probable that a loss will be
incurred related to these lawsuits.
On July 23, 2002, the Louisiana Court dismissed the remaining RICO
claims in the class action suit involving Easy Money of Louisiana.
Additionally, the Company is, from time to time, a defendant (actual or
threatened) in certain other lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
In July 1998, in connection with an employee's employment agreement,
the Company agreed that if it were successful in becoming a public company
registered with the Securities and Exchange Commission, it would grant the
employee the option to purchase up to 25,000 shares at $1.00 per share. The
agreement further provided that in the event the value of the shares is less
than $4.00, the employee would be paid the difference. In May 2002, the employee
exercised the option, and loaned $75,000 back to the Company under a demand note
bearing interest at a rate of 18%. Compensation expense of $75,000 was
recognized in May 2002.
In May 2000, the Company entered into consulting agreements with three
unrelated third parties that agreed to provide certain services to the Company
in exchange for 600,000 shares of stock. In July 2002, the agreements were
terminated in accordance with the provisions of the agreements; therefore, no
shares were issued.
In August 2000, the Company entered into an agreement with an unrelated
third party which agreed to loan the Company $50,000. The purpose of the
proceeds was to fund the preparation of documents associated with the Company's
offering. In addition, if the Company is successful in becoming a public company
registered with the Securities and Exchange Commission, this party would receive
shares of stock with a value of $50,000. The Company amended the agreement such
that this party received shares of stock with a value of
7
$25,000. In April 2002, the Company issued 10,000 shares and satisfied its
$50,000 debt to the third party.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward looking Information
This report contains "forward-looking statements" as defined in Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended, and is subject to the safe harbor created
by such acts. Any statements contained in this report that are not statements of
historical fact are forward-looking statements. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," "seeks" and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in forward-looking statements
are reasonable; there can be no assurances that such expectations will prove to
be accurate. Generally, these statements relate to business plans, strategies,
anticipated strategies, levels of capital expenditures, liquidity and
anticipated capital funding needed to effect the business plan. All phases of
the Company's operations are subject to a number of uncertainties, risks and
other influences, many of which are outside the control of the Company and
cannot be predicted with any degree of accuracy. Factors such as changes in
regional or national economic conditions, changes in governmental regulations,
unforeseen litigation, changes in interest rates or tax rates, future business
decisions and other uncertainties may cause results to differ materially from
those anticipated by some of the statements made in this report. In light of the
significant uncertainties inherent in the forward-looking statements made, the
inclusion of such statements should not be regarded as a representation of the
Company or any other person that the objectives and plans of the Company will be
achieved. Security holders are cautioned that such forward-looking statements
contained within this report speak only as of the date of the report and the
Company expressly disclaims any obligation or undertaking to release any updates
or revisions to any such statement to reflect any change in the Company's
expectations or any change in events, conditions or circumstance on which any
such statement is based.
General
Easy Money Holding Corporation provides specialty financial services by
advancing cash to customers and obtaining an authorization to draft their
personal checking account and agreeing to delay the draft until they redeem
their contract with us or until a short holding period has expired, which on
average is 18 days. We target customers who are currently employed and have an
active checking account. In exchange for our service, we receive a fee ranging
from approximately 15% to 30% of the amount of cash advanced to the customer. In
addition, through a limited number of our branches we also provide check cashing
services, money orders, Western Union payments and title advances that are
secured by the borrower's car title. We recently introduced an electronic
advance program that enables us to initiate and service a customer's cash
advance so that the customer need not go to a store. As of June 30, 2002 the
Company operated 52 stores in the following states: California (1 store), Kansas
(1 store), Louisiana (34 stores), New Mexico (9 stores), Nevada (5 stores),
Tennessee (1 store) and Utah (1 store).
We have made a significant investment in our electronic systems and
funding methodologies over the past 18 months. These investments have translated
into more sophisticated and efficient management systems. In addition, due to
the historical investment in our Information Systems, we are now in a position
to further leverage these technologies without the need for
8
additional resources. Management believes that substantial economies of scale
can be obtained by directing additional capital in our core business.
Beginning in 2000, we established a centralized processing center that
initiates and services various products without the need for a storefront
location. If a customer meets our flexible underwriting requirements, a contract
is sent electronically and the transaction is complete. The customer has two
options; he or she can opt for an "Easy Money" debit card or we can deposit the
advance directly into their personal checking account. This innovation has
allowed us to enter markets that have not previously been served and therefore,
we have encountered little or no competition. The lack of competition has
allowed us to aggressively price our services and strengthen underwriting
guidelines. This has resulted in an increase in fee revenues, reduced overhead
and profit margins. Reductions in operation capital have limited the Company's
ability to aggressively grow this customer base. Management intends on further
leveraging this business model if appropriate capital can be acquired.
Results of Operations
This table sets forth, for the periods indicated, the components of our
consolidated condensed statements of income expressed as a percentage of
revenues:
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
June June June June
2002 2001 2002 2001
--------------- -------------- -------------- ---------------
Revenues 100% 100% 100% 100%
=============== ============== ============== ===============
Expenses:
Provision for credit losses 15.62% 18.46% 9.33% 14.51%
Salaries and benefits 37.40% 32.08% 36.67% 34.70%
Other operation expenses 47.13% 36.22% 43.15% 38.76%
Legal Expense 12.57% 7.69% 10.62% 6.82%
Interest expense 5.76% 5.15% 5.86% 6.19%
Other 1.77% 0.43% 0.91% 0.61%
Related party management fee (1.96)% (3.10)% (1.77)% (7.13)%
--------------- -------------- -------------- ---------------
118.28% 96.93% 104.78% 94.46%
Net (loss) / income (18.28)% 3.07% (4.78)% 5.54%
Income tax benefit 7.31% 0.00% 3.75% 0.00%
--------------- -------------- -------------- ---------------
Income/(loss) (10.97)% 3.07% (1.03)% 5.54%
Pro Forma Income tax expense 0.00% 1.23% 1.82% 2.21%
Pro forma net income (10.97)% 1.84% (2.85)% 3.33%
=============== ============== ============== ===============
9
Three Months Ended June 30, 2002 Compared to June 30, 2001
Revenues: Revenues increased $50,000 to $2,816,000 for the three months
ended June 30, 2002 as compared to revenues of $2,766,000 for the three months
ended June 30, 2001. Despite a reduction in stores from 58 at June 30, 2001 to
52 at June 30, 2002, we managed to increase our comparative revenues. This was a
result of a company wide focus on maintaining existing store revenues and a
continued growth within the electronic division. The decrease of 6 stores was in
low volume or low profit margin locations and areas where statutory changes
limited our business practices.
Provision for Credit Losses: For the three months ended June 30, 2002
our provision for credit losses was approximately $443,000 (15.72% of revenues)
as compared to $511,000 (18.48% of revenues) for the three months ended June 30,
2001. This decrease of approximately $68,000 was a result of continued efforts
by management, to enforce strict underwriting and collection procedures. Our net
charge-offs as a percentage of gross advances for the three months ended June
30, 2002 as compared to the three months ended June 30, 2001 was 2.88% versus
3.30% respectively.
Salaries and Benefits: Salaries and benefits increased approximately
$171,000 for the three months ended June 30, 2002 ("the Second Quarter of 2002")
as compared to the three months ended June 30, 2001 ("the Second Quarter of
2001"). Salaries and benefits were $1,059,000 (37.62% of revenues) for the
Second Quarter of 2002 as compared to $888,000 (32.12% of revenues) for the
Second Quarter of 2001. This increase was attributable to building a stronger
management team and developing compensation packages including performance
awards and salaries consistent with market demands, along with $75,000 of
compensation expense related to an employment agreement. (See Contingencies)
Related Party Management Fee: Related Party Management fee decreased by
$30,000 to $56,000 during the three months ended June 30, 2002 as compared to
$86,000 for the three months ended June 30, 2001. This reduction is largely due
to the substantial reduction in business conducted by related parties.
Management does not anticipate generating significant fees in future periods as
compared to historical periods.
Net Income and Pro Forma Net Income: We had a net loss of 517,000 for
the three months ended June 30, 2002, compared to net income of $85,000 for the
three months ended June 30,2001. After a pro forma income tax benefit of
$207,000 in 2002 and expense of $34,000 in 2001, respectively, we had pro forma
2002 net loss of $310,000 compared to pro forma 2001 net income of $51,000. The
decrease in income from 2001 to 2002 was primarily due to (1) increased legal
fees associated with the defense of the Company, (2) increased advertising
expense during the Second Quarter of 2002 to maximize the market share in our
existing locations. Management expects a subsequent reduction in advertising
costs for the remainder of the year, and 3) increased compensation costs
associated with salaries and benefits as discussed above. The income tax rate
remained consistent at 40% for the Second Quarter of 2002 and 2001.
Six Months Ended June 30, 2002 Compared to June 30, 2001
Revenues: Revenues increased $107,000 to $5,500,000 in 2002 as compared
to $5,393,000 in 2001. Despite a reduction in stores from 58 at June 30, 2001 to
52 at June 30, 2002, we managed to increase our comparative revenues. This was a
result of a company wide focus on maintaining existing store revenues and a
continued growth within the electronic division. The decrease of 6 stores was in
low volume or low profit margin locations and areas where statutory changes
10
limited our business practices. Average revenues per store, excluding the
electronic division, for the quarter ended June 30, 2002 and June 30, 2001 were
$84,000 and $81,000 respectively. Revenues for our electronic division increased
100 % from $577,000 to $1,158,000 for June 30, 2002 and 2001 respectively.
Provision for Credit Losses: For the six months ended June 30, 2002 our
provision for credit losses was approximately $516,000 (9.4% of revenues)
compared to $796,000 (14.75% of revenues) for the six months ended June 30,
2001. This decrease of approximately $280,000 was a result of continued efforts
involving daily management, underwriting and collection procedures. Our net
charge-offs as a percentage of gross advances for the June 30, 2002 period as
compared to the June 30, 2001 period was 1.76% versus 2.71% respectively. The
percentage of our allowance for credit losses as compared to our total advances
outstanding at June 30, 2002 versus June 30, 2001 was 5.05% and 5.50%
respectively.
Salaries and Benefits: Salaries and benefits increased approximately
$124,000 for the period ended June 30, 2002 as compared to June 30, 2001.
Salaries and benefits were $2,026,000 (36.83% of revenues) for the six months
ended June 30, 2002 as compared to $1,903,000(35.28% of revenues) for the six
months ended June 30, 2001. This increase was attributable to building a
stronger management team and developing compensation packages including
performance awards and salaries consistent with market demands, along with the
compensation expense of $75,000 obligating an employment agreement for the
purpose of going public. (See Contingencies)
Related Party Management Fee: Related Party Management fee decreased by
$293,000 to $98,000 during the six months ended June 30, 2002 as compared to
$391,000 for the six months ended June 30, 2001. This reduction is largely due
to the substantial reduction in business conducted by related parties.
Management does not anticipate generating significant fees in future periods as
compared to historical periods.
Net Income and Pro Forma Net Income: We had a net loss of 264,000 for
the six months ended June 30, 2002, compared to net income of $303,000 for the
six months ended June 30,2001. After a pro forma income tax benefit of $106,000
in 2002 and expense of $121,000 in 2001, respectively, we had pro forma 2002 net
loss of $158,000 compared to pro forma 2001 net income of $182,000. The decrease
in income from 2001 to 2002 was primarily due to (1) increased legal fees
associated with the defense of the Company, (2) increased advertising expense
during the Second Quarter of 2002 to maximize the market share in our existing
locations. Management expects a subsequent reduction in advertising costs for
the remainder of the year, and (3) increased compensation costs associated with
salaries and benefits as discussed above. The pro forma income tax rate remained
consistent at 40% for the six months ended June 30, 2002 and 2001.
Liquidity, Capital Resources and Financial Condition
We use our cash to fund advances to customers, operating costs for
payroll, occupancy, general and administrative expenses, and investments in
capital equipment primarily to upgrade our system capabilities. Our sources of
cash are funds generated by our operations and borrowings from financial
institutions.
11
Cash Flows from Operating Activities: For the six months ended June 30,
2002 we had net cash provided by operating activities of $321,000. During the
six months ended June 30, 2001 net cash provided by operating activities was
$423,000. This decrease in net cash provided by operating activities was the
result of additional advertising, legal and compensation expense.
Cash Flows from Financing Activities: During the six months ended June
30, 2002 we had net cash used in financing activities of $288,000.During the six
months ended June 30, 2001 we had net cash used in financing activities of
$596,000. This reduction in cash used in financing activities is due to less
capital utilized for purposes of reducing our lines of credit in 2002.
The Company currently maintains a credit line facility that permits us
to borrow up to an advance limit, which as of June 30, 2002, was $1,300,000. The
lender may increase or decrease the advance limit in its discretion. Borrowings
under the line of credit bear interest at a base rate (as specified by the
lender), plus 10%, payable monthly. We collateralized these borrowings by a
security interest in funds due from customers for advances and our property and
equipment and general intangibles. The financing agreement, among other things,
requires the consent of the lender for mergers, consolidations and acquisitions,
restricts changes in the nature of our business, restricts stockholder
distributions to amounts related to state and federal income taxes owed by them
and restricts repayment of principal on the loans made to us by our
shareholders. Outstanding borrowings under the line of credit as of June 30,
2002, amounted to $1,463,000. This amount exceeds our advance limit by $163,000
due to (1) increased cash requirements at the end of the Second Quarter of 2002
to meet customers demands for our product, (2) delayed payments made on the
credit line initiated at the end of the Second Quarter of 2002, but recorded at
the beginning of the Third Quarter of 2002.
On March 20, 2002 the Company amended this financing agreement that
reduces the line of credit facility's advance limit by $54,167 each month for a
successive twenty-four-(24) month period commencing on July 1, 2002 and
terminating on June 1, 2004.
We have a deficiency in working capital of $1,635,000. Nonetheless,
we believe that by continuing to limit payments to shareholders for paydown of
shareholder debt (as of June 2002, the amount of shareholder debt was
$1,532,000), and our agreed paydown of our line of credit facilities ($56,167
per month beginning July 2002), along with reinvesting current and future period
earnings, we will have sufficient cash flow to meet our working capital needs.
Our working capital and customer growth plans beyond the next 12 months may
require additional debt and/or equity financing. The estimate of the time that
our funding sources will be sufficient to meet our current needs is a
forward-looking statement that is subject to risks and uncertainties. Actual
results and working capital needs may differ materially from our estimates.
Contingencies
In certain states, the Company's operations are regulated under state
laws, which establish, among other things, maximum loan, advance and fee amounts
that may be charged. The Company believes that its procedures conform to the
applicable laws and regulations in all states in which it operates.
The Company has been named in four lawsuits that allege that the
Company engaged in deferred presentment transactions, which violate the Federal
Racketeering Influenced and Corrupt Organizations Act and various state statutes
and regulations. Class certification has been obtained in one of these
12
suits. The range of loss on this suit is zero to the plaintiff's demand of $40
million. Although there is a possibility of a loss in the remaining suits,
management is unable to estimate the range of loss due to the procedural status
of these cases and given the absence of precedent related to significant rulings
on cases of this nature. The Company intends to vigorously defend these claims.
No accrual of a loss contingency has been recorded by the Company related to
these lawsuits because the Company believes that it is not probable that a loss
will be incurred related to these lawsuits.
On July 23, 2002, the Louisiana Court dismissed the remaining RICO
claims in the class action suit involving Easy Money of Louisiana.
Additionally, the Company is, from time to time, a defendant (actual or
threatened) in certain other lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
In July 1998, in connection with an employee's employment agreement,
the Company agreed that if it were successful in becoming a public company
registered with the Securities and Exchange Commission, it would grant the
employee the option to purchase up to 25,000 shares at $1.00 per share. The
agreement further provided that in the event the value of the shares is less
than $4.00, the employee would be paid the difference. In May 2002, the employee
exercised the option, and loaned $75,000 back to the Company under a demand note
bearing interest at a rate of 18%. Compensation expense of $75,000 was
recognized in May 2002.
In May 2000, the Company entered into consulting agreements with three
unrelated third parties that agreed to provide certain services to the Company
in exchange for 600,000 shares of stock. In July 2002, the agreements were
terminated in accordance with the provisions of the agreements; therefore, no
shares were issued.
In August 2000, the Company entered into an agreement with an unrelated
third party which agreed to loan the Company $50,000. The purpose of the
proceeds was to fund the filing of documents associated with the Company's
offering. In addition, if the Company is successful in becoming a public company
registered with the Securities and Exchange Commission, this party would receive
shares of stock with a value of $50,000. The Company amended the agreement such
that this party will receive shares of stock with a value of $25,000. The
Company issued 10,000 shares and satisfied its $50,000 debt to the third party.
PART II-Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 99.1 Statement of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C Section 1350
13
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.
(Registrant)
Easy Money Holding Corporation
By: /s/ David Greenberg 8-15-02
---------------------------------------------
David Greenberg, President
By: /s/ David M. Kilby 8-15-02
--------------------------------------------
David M. Kilby, Chief Financial Officer
(principal financial and accounting officer)
14
Exhibit 99.1
STATEMENT OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Form 10-Q of Easy Money Holding Corporation for
the quarter ended June 30, 2002, we, David Greenberg, Chief Executive Officer of
Easy Money Holding Corporation, and David M. Kilby, Chief Financial Officer of
Easy Money Holding Corporation, hereby certify pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
our knowledge:
(a) such Form 10-Q for the quarter ended June 30, 2002 fully complies
with the requirements of section 13(a) of the Securities Exchange Act of 1934,
as amended; and
(b) the information contained in such Form 10-Q for the quarter ended
June 30, 2002 fairly presents, in all material respects, the financial condition
and results of operations of Easy Money Holding Corporation as of, and for, the
periods presented in such Form 10-Q.
By: /s/ David Greenberg Date: August 14, 2002
------------------------------ ---------------------------
David Greenberg
Chief Executive Officer
By: /s/ David M. Kilby Date: August 14, 2002
------------------------------- --------------------------
David M. Kilby
Chief Financial Officer