<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
COMMISSION FILE NUMBER 000-21673
AUTOBOND ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2487218
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 CONGRESS AVENUE, AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip Code)
(512) 435-7000
Registrant's telephone number, including area code
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 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 NOVEMBER 13, 1997, THERE WERE 6,531,311 SHARES OF THE REGISTRANT'S COMMON
STOCK, NO PAR VALUE, OUTSTANDING.
<PAGE>
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION................................................3
ITEM 1. FINANCIAL STATEMENTS.................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................10
PART II. OTHER INFORMATION..................................................25
ITEM 1. LEGAL PROCEEDINGS....................................................25
ITEM 2. CHANGES IN SECURITIES................................................25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................25
ITEM 5. OTHER INFORMATION....................................................26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................26
EXHIBIT 27.1.................................................................28
SIGNATURES...................................................................29
Page 2
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
--------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,121,342 $ 173,582
Restricted funds 2,981,449 6,164,785
Finance contracts held for sale, net 228,429 999,538
Collateral acquired, net 152,580 427,026
Class B certificates 10,465,294 8,467,246
Interest-only strip receivable 4,247,274 9,978,785
Debt issuance cost 997,338 751,280
Trust receivable 2,230,003 4,726,996
Due from affiliate 168,847 132,213
Other assets 683,955 5,564,082
-----------------------------
Total assets $26,276,511 $37,385,533
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facilities $ - $ 4,240,208
Notes payable 10,174,633 10,279,888
Accounts payable and accrued liabilities 1,474,586 3,071,275
Bank overdraft - 445,137
Payable to affiliate 265,998 190,852
Deferred income taxes 2,075,553 3,623,405
-----------------------------
Total liabilities 13,990,770 21,850,765
-----------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued
Common stock, no par value; 25,000,000 shares authorized, 1,000 1,000
6,512,500 shares issued and outstanding
Additional paid-in capital 8,617,466 8,704,466
Deferred compensation (11,422) (1,142)
Loans to shareholders (235,071) (7,006)
Unrealized appreciation on interest-only strip receivable - 1,265,971
Retained earnings 3,913,768 5,571,479
-----------------------------
Total shareholders' equity 12,285,741 15,534,768
-----------------------------
Total liabilities and shareholders' equity $26,276,511 $37,385,533
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 3
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------
1996 1997 1996 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 600,558 $1,313,670 $2,070,909 $3,107,402
Gain on sale of finance contracts 3,679,081 4,840,621 9,423,067 13,532,765
Servicing fee income 197,597 225,389 474,805 659,791
Other income (loss) - (9,461) - (530,249)
-------------------------------------------------------
Total revenues 4,477,236 6,370,219 11,968,781 16,769,709
-------------------------------------------------------
Expenses:
Provision for credit losses 49,750 125,000 113,234 125,000
Interest expense 669,815 1,102,195 1,807,335 2,930,592
Salaries and benefits 1,236,352 2,140,420 3,082,399 5,413,045
General and administrative 433,163 1,722,689 1,317,511 4,481,846
Other operating expenses 190,638 483,141 842,019 1,265,830
-------------------------------------------------------
Total expenses 2,579,718 5,573,445 7,162,498 14,216,313
-------------------------------------------------------
Income before income taxes and extraordinary loss 1,897,518 796,774 4,806,283 2,553,396
Provision for income taxes 614,136 284,960 1,634,136 895,685
-------------------------------------------------------
Income before extraordinary loss 1,283,382 511,814 3,172,147 1,657,711
Extraordinary loss, net of tax benefits of $50,000 - - (100,000) -
=======================================================
Net income $1,283,382 $511,814 $3,072,147 $1,657,711
=======================================================
Income per common share:
Income before extraordinary loss $0.23 $0.08 $0.56 $0.25
Extraordinary loss - - (0.02) -
-------------------------------------------------------
Net income $0.23 $0.08 $0.54 $0.25
=======================================================
Weighted average shares outstanding 5,701,086 6,537,129 5,701,086 6,537,129
=======================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 4
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------------
<S> <C>
Common stock:
Balance, December 31, 1996 $ 1,000
------------------------
Balance, September 30, 1997 1,000
------------------------
Additional paid-in capital:
Balance, December 31, 1996 8,617,466
Issuance of common stock warrants 87,000
------------------------
Balance, September 30, 1997 8,704,466
------------------------
Deferred compensation:
Balance, December 31, 1996 (11,422)
Amortization of deferred compensation 10,280
------------------------
Balance, September 30, 1997 (1,142)
------------------------
Loans to shareholders:
Balance, December 31, 1996 (235,071)
Net payments received 228,065
------------------------
Balance, September 30, 1997 (7,006)
------------------------
Unrealized appreciation on interest-only strip receivable:
Balance, December 31, 1996 -
Increase in unrealized appreciation on interest-only strip receivable 1,265,971
------------------------
Balance, September 30, 1997 1,265,971
------------------------
Retained earnings:
Balance, December 31, 1996 3,913,768
Net income 1,657,711
------------------------
Balance, September 30, 1997 5,571,479
------------------------
Total shareholders' equity $15,534,768
========================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1996 1997
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,072,146 $ 1,657,711
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of finance contract acquisition discount and insurance (1,161,132) (11,472)
Amortization of deferred compensation 38,552 10,280
Amortization of debt issuance costs 242,071 634,033
Depreciation and amortization - 197,203
Provision for credit losses 113,234 125,000
Deferred income taxes 1,584,136 895,685
Accretion of interest-only strip receivable 894,795 (339,266)
Unrealized loss on Class B certificates - 80,325
Changes in operating assets and liabilities:
Restricted funds 127,332 (3,183,336)
Other assets (1,218,255) (5,077,330)
Class B certificates (5,503,658) 1,917,723
Interest-only strip receivable (1,500,502) (3,474,107)
Accounts payable and accrued liabilities (358,159) 1,596,689
Due to/due from affiliate (389,144) (38,512)
Purchases of finance contracts (57,729,995) (99,211,259)
Sales of finance contracts 59,014,035 96,719,843
Repayments of finance contracts 603,595 1,199,737
-----------------------------
Net cash used in operating activities (2,170,949) (6,301,053)
-----------------------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts (2,223,918) (2,496,993)
Loan payments from (to) shareholders (297,004) 228,065
Disposal proceeds from collateral acquired 1,095,470 132,596
-----------------------------
Net cash used in investing activities (1,425,452) (2,136,332)
-----------------------------
Cash flows from financing activities:
Net borrowings (payments) under revolving credit facilities (1,150,421) 4,240,208
Debt issuance costs (675,887) (387,975)
Repayments of borrowings under repurchase agreement (1,061,392) -
Proceeds from notes payable 9,137,333 2,015,150
Payments on notes payable (3,840,234) (1,909,895)
Proceeds from subordinated debt borrowings 300,000 -
Increase in bank overdraft 1,129,949 445,137
Issuance of common stock warrants - 87,000
-----------------------------
Net cash provided by financing activities 3,839,348 4,489,625
-----------------------------
Net increase (decrease) in cash and cash equivalents 242,944 (3,947,760)
Cash and cash equivalents at beginning of period 92,660 4,121,342
-----------------------------
Cash and cash equivalents at end of period $ 335,604 $ 173,582
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of AutoBond Acceptance
Corporation ("the Company") included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to regulations. In the opinion of management, the
financial statements reflect all adjustments (of a normal and recurring nature)
which are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of the results for a full year. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31, 1996 (Number
000-21673).
Certain data from the prior year has been reclassified to conform to
1997 presentation.
2. EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Fully
diluted earnings per share are not presented because the relevant potentially
dilutive securities are not significant. Effective May 30, 1996, the Board of
Directors of the Company voted to effect a 767.8125-for-1 stock split. All share
information and earnings per share calculations for the periods presented in the
financial statements herein, and the notes hereto, have been retroactively
restated for such stock split.
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 6,537,129
for periods ended September 30, 1997.
3. FINANCE CONTRACTS HELD FOR SALE
The following amounts are included in finance contracts held for sale
as of:
December 31, 1996 September 30, 1997
------------------------------------------
(Unaudited)
Unpaid principal balance $266,450 $1,090,592
Prepaid insurance 18,733 42,437
Contract acquisition discounts (31,554) (88,465)
Allowance for credit losses (25,200) (45,026)
------------------------------------------
$228,429 $999,538
==========================================
4. INTEREST-ONLY STRIP RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No. 125
"Transfer and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement also provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings and requires that
Page 7
<PAGE>
<PAGE>
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value.
As a result of adopting SFAS No. 125, the excess servicing receivable
previously shown on the consolidated balance sheet as of December 31, 1996 has
been reclassified as interest-only strip receivable, and accounted for as an
investment security classified similar to those classified as "available for
sale" under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS No. 115). Accordingly,
any unrealized gain or loss in the fair value is included as a component of
equity, net of the income tax effect. Any impairment deemed permanent is
recorded as a charge against earnings.
The fair value of interest-only strip receivable is calculated based
upon the present value of the estimated future interest income after considering
the effects or estimated prepayments, defaults and delinquencies. The discount
rate utilized is based upon assumptions that market participants would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.
The changes in the interest-only strip receivable follow:
Nine Months Ended
September 30, 1997
----------------------
(Unaudited)
Beginning balance $4,247,274
Unrealized appreciation 1,918,138
Additions 3,942,033
Accretion 339,266
Impairment charge (467,926)
----------------------
Ending balance $9,978,785
======================
The Company periodically reviews the fair value of the interest-only
strip receivable. Changes in the fair value of securities available for sale are
recognized as an adjustment to stockholders' equity. This adjustment amounted to
a net unrealized gain of $1,265,971, net of related tax effect of $652,167, on
the valuation of the interest-only strip receivable for the nine months ended
September 30, 1997. Additionally, the Company recorded a charge against earnings
for permanent impairment of the interest-only strip receivable, determined on a
disaggregated basis, of $467,926 for the nine months ended September 30, 1997.
5. REVOLVING CREDIT FACILITIES
At September 30, 1997, the Company had no outstanding balance on a
$10.0 million revolving credit facility (the "Sentry Facility") with Sentry
Financial Corporation ("Sentry"), which expires on December 31, 2000. The
proceeds from borrowings under the Sentry Facility are used to acquire finance
contracts, to pay applicable credit default insurance premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per month on the average outstanding balance under the Sentry
Facility. The Sentry Facility also requires the Company to pay up to 0.62% per
quarter on the average unused balance. Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (10.25% at September 30, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company incurred interest expense of $358,174 for the nine months ended
September 30, 1997.
Page 8
<PAGE>
<PAGE>
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (6.81% at September 30, 1997) or (y) 11%
per annum. The Company also pays a non-utilization fee of .25% per annum on the
unused amount of the line of credit. Pursuant to the Daiwa Facility, the Company
paid a $243,750 commitment fee. The debt issuance cost is being amortized as
interest expense on a straight line basis through March 1998. The Daiwa Facility
contains certain covenants and representations similar to those in the
agreements governing the Company's existing securitizations including, among
other things, delinquency and repossession triggers. At September 30, 1997,
advances under the Daiwa Facility totaled $4,240,208. The Company incurred
interest expense under the Daiwa Facility of approximately $816,396 during the
nine months ended September 30, 1997.
On June 30, 1997, the Daiwa Facility was amended to allow the Company,
at its election, to transfer finance contracts into a qualified unconsolidated
special purpose subsidiary, AutoBond Master Funding Corporation. In conjunction
with these transfers, this special purpose subsidiary issues variable funding
warehouse notes which are convertible into term notes at the option of the
holder of such notes. Transfers of finance contracts to the special purpose
entity have been recognized as sales under SFAS No. 125.
6. NOTES PAYABLE
The following amounts are included in notes payable as of:
December 31, 1996 September 30, 1997
------------------------------------------
(Unaudited)
Notes payable, collateralized
by Class B certificates $10,050,781 $8,159,296
Convertible notes payable - 2,000,000
Other notes payable 123,852 120,592
-------------------------------------------
$10,174,633 $10,279,888
===========================================
Pursuant to the an agreement (the "Securities Purchase Agreement")
entered into on June 30, 1997, the Company issued by private placement
$2,000,000 in aggregate principal amount of senior secured convertible notes
("Convertible Notes"). Interest is payable quarterly at a rate of 18% per annum
until maturity on June 30, 2000. If the Company pays down the Convertible Notes
in full prior to June 30, 1998, the holders will have no conversion rights. The
Convertible Notes, collateralized by the interest-only strip receivables from
the Company's first four securitizations, are convertible into shares of common
stock of the Company upon the earlier to occur of (i) an event of default on the
Convertible Notes and (ii) June 30, 1998, through the close of business on June
30, 2000, subject to prior redemption. The conversion price is equal to the
outstanding principal amount of the Convertible Note being converted divided by
the lesser of (x) $5.00 (as adjusted by the terms of the Securities Purchase
Agreement) and (y) 85% of the average of the five lowest closing bid prices of
the Company's common stock on the Nasdaq Stock Market, or such other exchange or
market where the common stock is then traded during the 60 trading days
immediately preceding the date the Convertible Note is converted or the
applicable date of repayment (subject to adjustment under certain circumstances
specified in the Securities Purchase Agreement). The Company
Page 9
<PAGE>
<PAGE>
also paid certain debt issuance costs to the purchaser totaling $25,000, which
is being amortized as interest expense on a straight line basis through June 30,
2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998. To date, the holders have
purchased $2,900,000 of subordinated asset-backed securities.
7. COMMITMENTS AND CONTINGENCIES
The Company is required to represent and warrant certain matters with
respect to the finance contracts sold to the Trusts, which generally duplicate
the substance of the representations and warranties made by the dealers in
connection with the Company's purchase of the finance contracts. In the event of
a breach by the Company of any representation or warranty, the Company is
obligated to repurchase the finance contracts from the Trust at a price equal to
the remaining principal plus accrued interest. The Company repurchased finance
contracts totaling $619,520 from a Trust during the three months ended March 31,
1997. Of the total amount of these finance contracts, $190,320 were purchased
from one dealer. Although the Company has requested that this dealer repurchase
such contracts, the dealer has refused. The Company has commenced litigation
against such dealer. See "Legal Proceedings."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the other financial data
included herein. The financial information set forth below has been rounded in
order to simplify its presentation. However, the ratios and percentages set
forth below are calculated using the detailed financial information contained in
the Financial Statements and the Notes thereto, and the financial data included
elsewhere in this Form 10-Q. Results for interim periods are not necessarily
indicative of the results for a full year. For further information, refer to the
audited financial statements and footnotes thereto included in the Company's
Form 10-K for the year ended December 31, 1996 (Number 000-21673).
AutoBond Acceptance Corporation (the "Company") is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ("finance contracts") originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ("sub-prime consumers"). Sub-prime consumers generally are borrowers
unable to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit;
employment or residence histories; or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts generally from franchised
automobile dealers, makes credit decisions using its own underwriting guidelines
and credit personnel and performs the collection function for finance contracts
using its own collections department. The Company also acquires finance
contracts from third parties other than dealers, for which the Company
reunderwrites and collects such finance contracts in accordance with the
Company's standard guidelines. The Company securitizes portfolios of these
retail automobile installment contracts to efficiently utilize limited capital
to allow continued growth and to achieve sufficient finance contract volume to
allow profitability. The Company markets a single finance contract acquisition
program to automobile dealers which adheres to consistent
Page 10
<PAGE>
<PAGE>
underwriting guidelines involving the purchase of primarily late-model used
vehicles. The Company has experienced significant growth in its finance contract
portfolio since it commenced operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components:
interest income, gain on sale of finance contracts and servicing fee income.
Interest Income. Interest income consists of the sum of three primary
components: (i) interest income earned on finance contracts held for sale by the
Company; (ii) interest income earned on Class B certificates, and (iii) the
accretion of the interest-only strip receivable. Other factors influencing
interest income during a given fiscal period include (a) the annual percentage
rate of the finance contracts acquired, (b) the aggregate principal balance of
finance contracts acquired and funded through the Company's warehouse and other
credit facilities prior to securitization, and (c) the length of time such
contracts are funded by the warehouse and other credit facilities. Finance
contract acquisition growth has had a significant impact on the amount of
interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization
prior to 1997, the Company recognized a gain on sale of finance contracts equal
to the present value of future excess spread cash flows from the securitization
trust, and the difference between the net proceeds from the securitization and
the net carrying cost (including the cost of insurance premiums, if any) to the
Company of the finance contracts sold. Excess spread cash flows represent the
difference between the weighted average contract rate earned and the rate paid
on multiple class certificates issued to investors in the securitization, taking
into account certain assumptions regarding prepayments, defaults, proceeds from
disposal of repossessed assets, and servicing and other costs, over the life of
the securitization.
The Company implemented Statement of Financial Accounting Standards No.
125 "Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities" (SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. SFAS No. 125 also provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings and requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value. For transfers that result
in the recognition of a sale, SFAS No. 125 requires that the newly created
assets obtained and liabilities incurred by the transferors as a part of a
transfer of financial assets be initially measured at fair value. Interests in
the assets that are retained are measured by allocating the previous carrying
amount of the assets (e.g. finance contracts) between the interests sold (e.g.
investor certificates) and interests retained (e.g. interest-only strip
receivable) based on their relative fair values at the date of the transfer. The
amounts initially assigned to these financial components is a determinant of the
gain or loss from a securitization transaction under SFAS No. 125.
The discounted excess spread cash flows are reported on the
consolidated balance sheet as "Interest-Only Strip Receivable". The fair value
of the interest-only strip receivable is determined by discounting the excess
spread cash flows at a rate based on assumptions that market participants would
use for similar financial instruments subject to prepayment, default, collateral
value and interest rate risks. The subordinated certificates are then formed by
carving out 65% to 80% of the discounted excess spread cash flows. The remaining
20% to 35% of the discounted excess spread cash flows represent the
interest-only strip receivable. All of the excess spread cash flows are paid by
the securitization Trustee to the investor security holders until such time as
all accrued interest together with principal have been paid in full.
Subsequently, all remaining excess spread cash flows are paid to the Company.
An impairment review of the interest-only strip receivable is performed
quarterly by calculating the net present value of the expected future excess
spread cash flows after giving effect to changes in
Page 11
<PAGE>
<PAGE>
assumptions due to market and economic changes and the performance of the loan
pool to date. The discount rate used is the same as that used to record the
initial interest-only strip receivable. Impairment is determined on a
disaggregated basis consistent with the risk characteristics of the underlying
finance contracts, consisting principally of origination date and originating
dealership, as well as the performance of the pool to date. To the extent that
the Company deems the asset to be permanently impaired, the Company records a
charge against earnings and reduces the asset accordingly. The Company recorded
an adjustment to other income (loss) of $467,926 during the nine months ended
September 30, 1997 as a result of the impairment review. Should the Company be
unable to sell finance contracts acquired during a financial reporting period,
the Company would likely incur a significant decline in total revenues and net
income or report a loss for such period.
In the Company's March 1997 securitization transaction, the Company
sold a pool of finance contracts to a special purpose subsidiary, which then
assigned the finance contracts to an indenture trustee. Under the trust
indenture, the special purpose subsidiary issued three classes of fixed income
investor notes: "Class A Notes", "Class B Notes" and "Class C Notes", which were
sold to investors, generally at par, with fixed coupons. A portion of the Class
C Notes represented a senior interest in certain excess spread cash flows from
the finance contracts. In addition, the securitization subsidiary retained
rights to the remaining excess spread cash flows, which may be used to
collateralize borrowings on a non-recourse basis. The Company also funded a cash
reserve account that provides credit support to the Class A Notes, Class B Notes
and a portion of the Class C Notes.
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 103% of the value of the senior investor securities. This
portion of recognized gain on sale varies based on the Company's cost of
insurance covering the finance contracts and the discount obtained upon
acquisition of the finance contracts. Generally, the Company has acquired
finance contracts from dealers at a greater discount than with finance contracts
acquired from third parties. Additionally, costs of sale reduce the total gain
recognized. As the Company's securitization program matures, placement fees and
other costs associated with the sale are expected to shrink as a percentage of
the size of the securitization.
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the senior investor
securities and the age of the finance contracts in the pool, as the excess
spread cash flow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts from dealers at approximately an 8.5% discount.
The gain on sale of finance contracts is affected by the aggregate
principal balance of contracts securitized and the gross interest spread on
those contracts. The following table illustrates the gross interest
Page 12
<PAGE>
<PAGE>
spread for each of the Company's securitizations:
<TABLE>
<CAPTION>
Remaining Weighted
Balance at Average
September 30, Contract Certificate Gross
Securitization Balance(1) 1997 Rate Rate Ratings(2) Spread(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A $26,261,009 $13,577,044 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A 16,563,366 10,438,298 19.7% 7.15% A/A3 12.5%
AutoBond Receivables
Trust 1996-B 17,832,885 12,000,646 19.7% 7.73% A/A3 12.0%
AutoBond Receivables
Trust 1996-C 22,296,719 18,247,866 19.7% 7.45% A/A3 12.3%
AutoBond Receivables
Trust 1996-D 25,000,000 21,861,591 19.5% 7.37% A/A3 12.1%
AutoBond Receivables
Trust 1997-A(4) 27,196,052 23,950,894 20.8% 7.82% A/A2 13.0%
BBB/BB
AutoBond Receivables
Trust 1997-B(6) 34,725,196 33,937,873 19.9% 7.66% A/A3 12.3%
AutoBond Receivables
Trust 1997-C(5)(6) 34,430,079 34,430,078 20.0% 7.56% A/A3 12.5%
-------------------------------
Total $204,305,306 $164,444,290
===============================
</TABLE>
- --------------------------------
1 Refers only to balances on senior investor certificates.
2 Indicates ratings by Fitch Investors Service, L.P. ('Fitch') and Moody's
Investors Service, Inc. ('Moody's'), respectively.
3 Difference between weighted average contract rate and senior certificate rate.
4 Includes Class A and Class B Notes.
5 Transaction closed subsequent to September 30, 1997.
6 See Part II, Item 5 for a discussion of recent actions taken by Fitch and
Moody's.
On June 30, 1997, a new warehouse and securitization structure was
formed whereupon finance contracts were transferred to a special purpose entity.
The special purpose entity issued variable funding warehouse notes which are
convertible into term notes at the option of the holder of such notes. The
transfer of the finance contracts to the special purpose entity was recognized
as a sale under SFAS No. 125.
Servicing Fee Income. The Company earns substantially all of its
servicing fee income on the contracts it services on behalf of securitization
trusts. Servicing fee income consists of: (i) contractual administrative fees
received through securitizations, equal to $7.00 per month per contract included
in each trust (excluding amounts paid to third-party servicers by the trust);
(ii) the accretion of the discount applied to excess spread cash flows in
calculating the carrying value of the interest-only strip receivable; and (iii)
fee income earned as servicer for such items as late charges and documentation
fees, which are earned whether or not a securitization has occurred. The Company
has notified the third-party servicer, Loan Servicing Enterprise, that the
Company intends to assume all loan servicing responsibilities in respect of
the securitization trusts, resulting in an increase in contractual servicing
fees to $15 per month per contract.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition
Page 13
<PAGE>
<PAGE>
activity:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1997
-----------------------------
<S> <C> <C>
Number of finance contracts acquired 4,979 9,091
Principal balance of finance contracts acquired $57,730,000 103,248,512
Number of active dealerships 1 322 839
Number of enrolled dealerships 603 1,804
</TABLE>
- ----------------------------------------------------------------------------
1 Dealers who have sold at least one finance contract to the Company during the
period.
RESULTS OF OPERATIONS
Period-to-period comparisons of operating results may not be
meaningful, and results of operations from prior periods may not be indicative
of future results. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
TOTAL REVENUES
Total revenues increased $1,892,983 to $6,370,219 for the three months
ended September 30, 1997 from $4,477,236 for the three months ended September
30, 1996 due to expansion of the Company's finance contract acquisition and
securitization activities.
Interest Income. Interest income increased $713,112 to $1,313,670 for
the three months ended September 30, 1997 from $600,558 for the three months
ended September 30, 1996 due the growth and timing of finance contract
acquisitions. The Company acquired finance contracts totaling $34.0 million
during the three months ended September 30, 1997 compared to $23.8 million in
the comparable 1996 period. Accretion on the interest-only strip receivables
increased $176,412 from the respective 1996 period to $236,483 during the three
months ended September 30, 1997.
Gain on Sale of Finance Contracts. The Company recognized gain on sale
totaling $4,840,621 on finance contracts carried at $31.0 million (15.5%) during
the three months ended September 30, 1997. Gain on sale amounted to $3,679,081
on finance contracts carried at $23.2 million (15.9%) in the comparable 1996
period. Accordingly, gain on sale of finance contracts rose $1,161,540 during
the three months ended September 30, 1997 over the comparable 1996 period.
Servicing Fee Income. The Company reports servicing fee income only
with respect to finance contracts that are securitized. For the three months
ended September 30, 1997, servicing fee income was $225,389, primarily
collection agent fees. Servicing fee income increased by $27,792 from the three
months ended September 30, 1996 as a result of increased securitization activity
by the Company. The ratio of servicing fee income to the average principal
balance of finance contracts outstanding declined from 1.1% at September 30,
1996 to .5% at September 30, 1997 on an annualized basis as the Company waived
$55,843 in collection agent fees during the current period.
Other Income (Loss). For three months ended September 30, 1997, other
loss amounted to $9,461, compared with $0 for the comparable 1996 period. Other
loss included unrealized loss on the Company's Class B certificates totaling
$27,463 recorded during the three months ended September 30, 1997.
Page 14
<PAGE>
<PAGE>
TOTAL EXPENSES
Total expenses of the Company increased $2,993,727 to $5,573,445 for
the three months ended September 30, 1997 from $2,579,718 for the three months
ended September 30, 1996. The ratio of total expenses to the average principal
balance of finance contracts outstanding declined from 14.9% for the three
months ended September 30, 1996 to 13.5% for the three months ended September
30, 1997 on an annualized basis.
Provision for Credit Losses. Provision for credit losses on finance
contracts rose to $125,000 for the three months ended September 30, 1997
compared to $49,750 for the three months ended September 30, 1996. The Company
charged off loans totaling $105,173 to the allowance for credit losses during
the three months ended September 30, 1997.
Interest Expense. Interest expense rose to $1,102,195 for the three
months ended September 30, 1997 from $669,815 for the three months ended
September 30, 1996. Interest expense increased by $432,380 due to higher net
borrowing costs associated with the revolving credit facilities, along with
increased debt issuance costs amortization of $96,800.
Salaries and Benefits. Salaries and benefits increased $904,068 to
$2,140,420 for the three months ended September 30, 1997 from $1,236,352 for the
three months ended September 30, 1996. This increase was due primarily to an
increase in the number of the Company's employees necessary to handle the
increased contract acquisition volume and the collection activities on a growing
portfolio of finance contracts. The number of employees of the Company increased
by 97 to 198 employees at September 30, 1997, compared to 101 employees at
September 30, 1996.
General and Administrative Expenses. General and administrative
expenses increased $1,289,526 to $1,722,689 for the three months ended September
30, 1997 from $433,163 for the three months ended September 30, 1996. This
increase was due primarily to growth in the Company's operations. General and
administrative expenses consist principally of office, furniture and equipment
leases, professional fees, non-employee marketing commissions, communications
and office supplies, and are expected to increase as the Company continues to
grow and also due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting
principally of servicer fees, credit bureau reports and insurance) increased
$292,503 to $483,141 for the three months ended September 30, 1997 from $190,638
for the three months ended September 30, 1996. This increase was due to
increased finance contract acquisition volume.
NET INCOME
In the three months ended September 30, 1997, net income decreased
$771,568 to $511,814 from $1,283,382 for the three months ended September 30,
1996. The decrease in net income was attributable to the factors discussed
above.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
TOTAL REVENUES
Total revenues increased $4,800,928 to $16,769,709 for the nine months
ended September 30, 1997 from $11,968,781 for the nine months ended September
30, 1996 due to expansion of the Company's finance contract acquisition and
securitization activities.
Page 15
<PAGE>
<PAGE>
Interest Income. Interest income increased $1,036,493 to $3,107,402 for
the nine months ended September 30, 1997 from $2,070,909 for the nine months
ended September 30, 1996 due the growth and timing of finance contract
acquisitions. The Company acquired finance contracts totaling $103.3 million
during the nine months ended September 30, 1997 compared to $57.7 million in the
comparable 1996 period. Accretion on the interest-only strip receivables
increased $225,285 from the respective 1996 period to $339,266 during the nine
months ended September 30, 1997.
Gain on Sale of Finance Contracts. The Company realized gain on sale
totaling $13,532,765 on finance contracts carried at $96.7 million (14.0 %)
during the nine months ended September 30, 1997. Gain on sale amounted to
$9,423,067 on finance contracts carried at $59.0 million (16.0%) in the
comparable 1996 period. Accordingly, gain on sale of finance contracts rose
$4,109,698 during the nine months ended September 30, 1997 over the comparable
1996 period.
Servicing Fee Income. The Company reports servicing fee income only
with respect to finance contracts that are securitized. For the nine months
ended September 30, 1997, servicing fee income was $659,791, primarily
collection agent fees. Servicing fee income increased by $184,986 from the nine
months ended September 30, 1996 as a result of increased securitization activity
by the Company. The ratio of servicing fee income to the average principal
balance of finance contracts outstanding declined from .9% at September 30, 1996
to .5% at September 30, 1997 on an annualized basis.
Other Income (Loss). For nine months ended September 30, 1997, other
loss amounted to $530,249, compared with $0 for the comparable 1996 period. The
Company recorded a charge against earnings for permanent impairment of the
interest-only strip receivable, determined on a disaggregated basis, of $467,926
during nine months ended September 30, 1997. Additionally, unrealized loss on
the Company's Class B certificates totaled $80,325 during the nine months ended
September 30, 1997.
TOTAL EXPENSES
Total expenses of the Company increased $7,053,815 to $14,216,313 for
the nine months ended September 30, 1997 from $7,162,498 for the nine months
ended September 30, 1996. The ratio of total expenses to the average principal
balance of finance contracts outstanding declined from 17.6% for the nine months
ended September 30, 1996 to 13.4% for the nine months ended September 30, 1997
on an annualized basis.
Provision for Credit Losses. Provision for credit losses on finance
contracts increased $11,766 to $125,000 for the nine months ended September 30,
1997 from $113,234 for the nine months ended September 30, 1996.
Interest Expense. Interest expense rose to $2,930,592 for the nine
months ended September 30, 1997 from $1,807,335 for the nine months ended
September 30, 1996. Interest expense increased by $1,123,257 due to higher
borrowing volumes outstanding under the revolving credit facilities, along with
increased debt issuance costs amortization of $391,962.
Salaries and Benefits. Salaries and benefits increased $2,330,646 to
$5,413,045 for the nine months ended September 30, 1997 from $3,082,399 for the
nine months ended September 30, 1996. This increase was due primarily to an
increase in the number of the Company's employees necessary to handle the
increased contract acquisition volume and the collection activities on a growing
portfolio of finance contracts.
General and Administrative Expenses. General and administrative
expenses increased $3,164,335 to $4,481,846 for the nine months ended September
30, 1997 from $1,317,511 for the nine months ended September 30, 1996. This
increase was due primarily to growth in the Company's operations. General and
administrative expenses consist principally of office, furniture and equipment
leases, professional fees,
Page 16
<PAGE>
<PAGE>
non-employee marketing commissions, communications and office supplies, and are
expected to increase as the Company continues to grow and also due to the costs
of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting
principally of servicer fees, credit bureau reports and insurance) increased
$423,811 to $1,265,830 for the nine months ended September 30, 1997 from
$842,019 for the nine months ended September 30, 1996. This increase was due to
increased finance contract acquisition volume.
NET INCOME
In the nine months ended September 30, 1997, net income decreased
$1,414,436 to $1,657,711 from $3,072,147 for the nine months ended September 30,
1996. The decrease in net income was primarily attributable to an increase in
infrastructure costs to support higher finance contract acquisition and
servicing volume. The principal balance of finance contracts acquired increased
$45.5 million to $103.3 million for the nine months ended September 30, 1997
from $57.7 million for the nine months ended September 30, 1996.
FINANCIAL CONDITION
Restricted Cash. Restricted cash increased $3.2 million to $6.2 million
at September 30, 1997 from $3.0 million at December 31, 1996. In accordance with
the Company's revolving credit facilities, proceeds advanced by the lender for
purchase of finance contracts are held by a trustee until the Company delivers
qualifying collateral to release the funds, normally in a matter of days. The
trustee held $6.1 million of funds advanced for the purchase of finance
contracts at September 30, 1997. The Company is also required to maintain a cash
reserve with its lenders of 1% to 6% of the proceeds received from the lender
for the origination of the finance contracts. Access to these funds is
restricted by the lender; however, such funds may be released in part upon the
occurrence of certain events including payoffs of finance contracts.
Finance Contracts Held for Sale, Net. Finance contracts held for sale,
net of allowance for credit losses, increased $771,109 to $1.0 million at
September 30, 1997, from $228,429 at December 31, 1996. The number and principal
balance of contracts held for sale are largely dependent upon the timing and
size of the Company's securitizations. The Company plans to securitize finance
contracts on a regular basis.
Interest-Only Strip Receivable. The following table provides historical
data regarding the interest-only strip receivable:
Nine Months Ended
September 30, 1997
----------------------
(Unaudited)
Beginning balance $4,247,274
Unrealized appreciation 1,918,138
Additions 3,942,033
Accretion 339,266
Impairment charge (467,926)
----------------------
Ending balance $9,978,785
======================
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior investor securities.
Additionally, depending on the structure of the securitization, a portion of the
future excess spread cash flows from the trust is required to be deposited in
the cash reserve account to increase
Page 17
<PAGE>
<PAGE>
the initial deposit to a specified level. Amounts on deposit in cash reserve
accounts are also reflected as advances to the relevant trust under the item
"Cash flows from investing activities" in the Company's consolidated statements
of cash flows. The initial cash reserve deposits for the Company's
securitizations follow:
<TABLE>
<CAPTION>
Senior Investor Initial
Certificate Reserve
Securitization Amount (1) Deposit Percent
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
AutoBond Receivables Trust 1995-A $26,261,009 $525,220 2.0%
AutoBond Receivables Trust 1996-A 16,563,366 331,267 2.0%
AutoBond Receivables Trust 1996-B 17,833,885 356,658 2.0%
AutoBond Receivables Trust 1996-C 22,297,719 445,934 2.0%
AutoBond Receivables Trust 1996-D 25,000,000 500,000 2.0%
AutoBond Receivables Trust 1997-A(2) 28,037,167 560,744 2.0%
AutoBond Receivables Trust 1997-B 34,725,196 868,130 2.5%
AutoBond Receivables Trust 1997-C(3) 34,430,079 860,752 2.5%
</TABLE>
- ---------------------------------------------------------
1 Refers only to balances on senior Investor certificates upon issuance.
2 Includes Class A, Class B and Class C-1 Notes.
3 Transaction closed subsequent to September 30, 1997
A portion of excess spread cash flows will increase such reserves until
they reach 6%.
Prepaid Expenses and Other Assets. Prepaid expenses and other assets
increased $4.9 million to $5.6 million at September 30, 1997 from $683,955 at
December 31, 1996. The Company carried $5.7 million in other assets as of
September 30, 1997 related to the Company's retained interest in amounts
transferred to a special purpose subsidiary which issued variable rate funding
notes. Subsequent to September 30, 1997, Daiwa exercised its option to surrender
its variable rate funding notes for term notes in connection with the AutoBond
Receivables Trust 1997-C securitization.
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the
Company's finance contract portfolio:
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
-------------------------------------------------
<S> <C> <C>
Principal balance of finance contracts outstanding $104,889,000 $176,120,091
Delinquent finance contracts (1):
60-89 days past due 1,826,800 1.74% 5,700,863 3.24%
90 days past due and over 1,328,300 1.27% 2,666,668 1.51%
-------------------------------------------------
Total $ 3,155,100 3.01% $ 8,367,531 4.75%
- ----------------------------------------------------=================================================
1 Percentage based upon outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or there
are insurance claims filed.
Page 18
<PAGE>
<PAGE>
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for contracts held for
sale. The Company reports a provision for credit losses on finance contracts
held for sale. Management evaluates the reasonableness of the assumptions
employed by reviewing credit loss experience, delinquencies, repossession
trends, the size of the finance contract portfolio and general economic
conditions and trends. If necessary, assumptions will be changed in the future
to reflect historical experience to the extent it deviates materially from that
which was assumed. Since inception, the Company's assumptions have been
consistent and are adequate based upon actual experience.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency, the Company's Collections Department will initiate the repossession
of the financed vehicle. Bonded, insured outside repossession agencies are used
to secure involuntary repossessions. In most jurisdictions, notice to the
borrower of the Company's intention to sell the repossessed vehicle is required,
whereupon the borrower may exercise certain rights to cure his or her default
and redeem the automobile. Following the expiration of the legally required
notice period, the repossessed vehicle is sold at a wholesale auto auction (or
in limited circumstances, through dealers), usually within 60 days of the
repossession. The Company closely monitors the condition of vehicles set for
auction, and procures an appraisal under the relevant VSI policy prior to sale.
Liquidation proceeds are applied to the borrower's outstanding obligation under
the finance contract and insurance claims under the VSI policy and, if
applicable, the deficiency balance policy are then filed.
Because of the Company's limited operating history, its finance
contract portfolio is somewhat unseasoned. This effect on the delinquency
statistics can be observed in the comparison of quarter ended September 30, 1997
versus 1996 delinquency percentages. The portfolio is tangibly more seasoned as
of September 30, 1997 versus September 30, 1996. Accordingly, delinquency and
charge-off rates in the portfolio may not fully reflect the rates that may apply
when the average holding period for finance contracts in the portfolio is
longer. Increases in the delinquency and/or charge-off rates in the portfolio
would adversely affect the Company's ability to obtain credit or securitize its
receivables.
REPOSSESSION EXPERIENCE - STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage losses on the basis of a percentage of the
Company's finance contract portfolio, because percentages can be favorably
affected by large balances of recently acquired finance contracts. Management
monitors actual dollar levels of delinquencies and charge-offs and analyzes the
data on a "static pool" basis.
The following table provides static pool repossession frequency
analysis in dollars of the Company's portfolio performance from inception
through September 30, 1997. In this table, all finance contracts have been
segregated by quarter of acquisition. All repossessions have been segregated by
the quarter in which the repossessed contract was originally acquired by the
Company. Cumulative repossessions equals the ratio of repossessions as a
percentage of finance contracts acquired for each segregated quarter. Annualized
repossessions equals an annual equivalent of the cumulative repossession ratio
for each segregated quarter. This table provides information regarding the
Company's repossession experience over time. For example, recently acquired
finance contracts demonstrate very few repossessions because properly
underwritten finance contracts to subprime consumers generally do not default
during the initial term of the contract. Between approximately one year and 18
months of seasoning, frequency of repossessions on an annualized basis appear to
reach a plateau. Based on industry statistics and the performance experience of
the Company's finance contract portfolio, the Company believes that finance
contracts seasoned in excess of approximately 18 months will start to
demonstrate declining repossession frequency. The Company believes this may be
due to the fact that the borrower perceives that he or she has equity in the
vehicle. The Company also believes that since the loans generally amortize more
quickly than
Page 19
<PAGE>
<PAGE>
the collateral depreciates, losses and/or repossessions will decline over time.
</TABLE>
<TABLE>
<CAPTION>
Repossession Frequency
-------------------------------------------------------
Principal Balance of Principal Balance
Year and Quarter of Repossessions by of Contracts
Acquisition Quarter Acquired Cumulative(1) Annualized(2) Acquired
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Q3 $21,930 23.54% 7.24% $ 93,170
Q4 557,839 23.52% 7.84% 2,371,600
1995
Q1 1,412,092 22.38% 6.89% 6,310,420
Q2 1,357,521 22.05% 8.82% 6,157,440
Q3 1,454,691 20.19% 8.97% 7,205,900
Q4 2,658,117 21.81% 10.90% 12,188,860
1996
Q1 2,990,647 19.34% 7.74% 15,459,930
Q2 3,420,207 18.53% 12.35% 18,458,820
Q3 3,143,095 13.24% 10.59% 23,735,100
Q4 2,496,556 9.68% 9.68% 25,802,890
1997
Q1 2,239,219 6.58% 4.39% 34,014,880
Q2 313,943 0.89% 1.78% 35,273,260
Q3 34,939 0.10% .41% 33,960,049
</TABLE>
- ---------------------------
1 For each quarter, cumulative repossession frequency equals the number of
repossessions divided by the number of contracts acquired
2 Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, principal balance of $557,839 in
repossessions divided by principal balance of $2,371,600 in contracts acquired,
divided by 12 quarters outstanding times four equals an annual repossession
frequency of 7.84%).
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent
to complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. As less of
the Company's finance contracts are acquired with credit deficiency insurance,
the Company expects its net loss per repossession to increase. The following
Page 20
<PAGE>
<PAGE>
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
From August 1,
1994 (Inception) to
September 30, 1997
----------------------
<S> <C>
Number of finance contracts acquired 19,153
Number of vehicles repossessed 1,949
Repossessed units disposed of 797
Repossessed units awaiting disposition(2) 1,152
Cumulative gross charge-offs(1) $8,672,289
Costs of repossession(1) 228,820
Proceeds from auction, physical damage insurance and refunds(1) (5,246,388)
----------------------
Net loss 3,654,720
Deficiency insurance settlement received(1) (2,082,812)
----------------------
Net charge-offs(1) $1,571,909
======================
Net charge-offs per unit disposed 1,972
Recoveries as a percentage of cumulative gross charge-offs(3) 84.51%
</TABLE>
- --------------------------------------------------------------------------------
1 Amounts are based on actual liquidation and repossession proceeds (including
insurance proceeds) received on units for which the repossession process had
been completed as of September 30, 1997.
2 The vehicles may have been sold at auction; however AutoBond might not have
received all insurance proceeds as of September 30, 1997.
3 Not including the costs of repossession which are reimbursed by the
securitization trusts.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily funded its operations and
the growth of its finance contract portfolio through seven principal sources of
capital: (i) cash flows from operating activities; (ii) funds provided from
borrowers' payments received under finance contracts held for sale; (iii)
borrowings under various warehouse and working capital facilities; (iv) proceeds
from securitization transactions; (v) cash flows from servicing fees; (vi)
proceeds from the issuances of subordinated debt and capital contributions of
principal shareholders and (vii) an initial public offering of common stock.
Cash Flows. Significant cash flows related to the Company's operating
activities include the use of cash for purchases of finance contracts, and, cash
provided by payments on finance contracts and sales of finance contracts. Net
cash used in operating activities totaled $6.2 million during the nine months
ended September 30, 1997. The Company used $5.1 million to fund an increase in
other assets during the period, including $5.7 million received upon closing of
the AutoBond Receivables Trust 1997-C securitization subsequent to September 30,
1997. The Company used $99.2 million to purchase finance contracts and $96.7
million was received from sales of finance contracts, primarily through
securitizations during the nine months ended September 30, 1997.
Significant activities comprising cash flows from investing activities
include net advances to AutoBond Receivables Trusts of $2.5 million for the nine
months ended September 30, 1997. Cash flows from financing activities include
net borrowings under revolving credit facilities of $4.2 million for the nine
months ended September 30, 1997.
Revolving Credit Facilities. The Company obtains a substantial portion
of its working capital for the acquisition of finance contracts through
revolving credit facilities. Under a warehouse facility, the lender generally
advances amounts requested by the borrower on a periodic basis, up to an
aggregate maximum credit limit for the facility, for the acquisition and
servicing of finance contracts or other similar assets. Until proceeds from a
securitization transaction are used to pay down outstanding advances, as
Page 21
<PAGE>
<PAGE>
principal payments are received on the finance contracts, the principal amount
of the advances may be paid down incrementally or reinvested in additional
finance contracts on a revolving basis.
At September 30, 1997, the Company had no outstanding balance on a
$10.0 million revolving credit facility (the "Sentry Facility") with Sentry
Financial Corporation ("Sentry"), which expires on December 31, 2000. The
proceeds from borrowings under the Sentry Facility are used to acquire finance
contracts, to pay applicable credit default insurance premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per month on the average outstanding balance under the Sentry
Facility. The Sentry Facility also requires the Company to pay up to 0.62% per
quarter on the average unused balance. Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (10.25% at September 30, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. In April 1996, the Company paid a
one-time commitment fee of $700,000 to Sentry. Under the Sentry Facility, the
Company incurred interest expense of $358,174 for the nine months ended
September 30, 1997.
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (6.81% at September 30, 1997), or (y) 11%
per annum. The Company also pays a non-utilization fee of .25% per annum on the
unused amount of the line of credit. Pursuant to the Daiwa Facility, the Company
paid a $243,750 commitment fee. The debt issuance cost is being amortized as
interest expense on a straight line basis through March 1998. The Daiwa Facility
contains certain covenants and representations similar to those in the
agreements governing the Company's existing securitizations including, among
other things, delinquency and repossession triggers. At September 30, 1997,
advances under the Daiwa Facility totaled $4,240,208. The Company incurred
interest expense under the Daiwa Facility of approximately $816,396 during the
nine months ended September 30, 997.
On June 30, 1997, the Daiwa Facility was amended to allow the Company,
at its election, to transfer finance contracts into a qualified unconsolidated
special purpose subsidiary, AutoBond Master Funding Corporation. In conjunction
with these transfers, this special purpose subsidiary issues variable funding
warehouse notes which are convertible into term notes at the option of the
holder of such notes. Transfers of finance contracts to the special purpose
entity have been recognized as sales under SFAS No. 125.
Notes Payable. Pursuant to the Agreement (the "Securities Purchase
Agreement") entered into on June 30, 1997, the Company issued by private
placement $2,000,000 in aggregate principal amount of senior secured convertible
notes ("Convertible Notes"). Interest is payable quarterly at a rate of 18% per
annum until maturity on June 30, 2000. If the Company pays down the Convertible
Notes in full prior to June 30, 1998, the holders will have no conversion
rights. The Convertible Notes, collateralized by the interest-only strip
receivables from the Company's first four securitizations, are convertible into
shares of common stock of the Company upon the earlier to occur of (i) an event
of default on the Convertible Notes and (ii) June 30, 1998, through the close of
business on June 30, 2000, subject to prior redemption. The conversion price is
equal to the outstanding principal amount of the Convertible Note being
converted divided by the lesser of (x) $5.00 (as adjusted by the terms of the
Securities Purchase Agreement) and (y) 85% of the average of the five lowest
closing bid prices of the Company's common stock on the Nasdaq Stock Market, or
such other exchange or market where the common stock is then traded during the
60
Page 22
<PAGE>
<PAGE>
trading days immediately preceding the date the Convertible Note is converted
or the applicable date of repayment (subject to adjustment under certain
circumstances specified in the Securities Purchase Agreement). The Company also
paid certain debt issuance costs to the purchaser totaling $25,000, which is
being amortized as interest expense on a straight line basis through June 30,
2000.
Also pursuant to the Securities Purchase Agreement, the Company issued
warrants which upon exercise allow the holders to purchase up to 200,000 shares
of common stock at $4.225 per share. The warrants are exercisable to the extent
the holders thereof purchase up to $10,000,000 of the Company's subordinated
asset-backed securities before June 30, 1998. To date, the holders have
purchased $2,900,000 of subordinated asset-backed securities.
Securitization Program. In its securitization transactions through the
end of 1996, the Company sold pools of finance contracts to a special purpose
subsidiary, which then assigned the finance contracts to a trust in exchange for
cash and certain retained beneficial interests in future excess spread cash
flows. The trust issued two classes of fixed income investor certificates:
"Class A Certificates" which were sold to investors, generally at par with a
fixed coupon, and subordinated excess spread certificates ("Class B
Certificates"), representing a senior interest in excess spread cash flows from
the finance contracts, which were typically retained by the Company's
securitization subsidiary and which collateralize borrowings on a non-recourse
basis. The Company also funded a cash reserve account that provides credit
support to the Class A Certificates. The Company's securitization subsidiaries
also retained a "Transferor's Interest" in the contracts that is subordinate to
the interest of the investor certificate holders.
In the Company's March 1997, August 1997 and October 1997
securitization transactions, the Company sold a pool of finance contracts to a
special purpose subsidiary, which then assigned the finance contracts to an
indenture trustee. Under the trust indenture, the special purpose subsidiary
issued three classes of fixed income investor notes, which were sold to
investors, generally at par, with fixed coupons. The subordinated notes
represent a senior interest in certain excess spread cash flows from the finance
contracts. In addition, the securitization subsidiary retained rights to the
remaining excess spread cash flows. The Company also funded cash reserve
accounts that provide credit support to the senior class or classes.
The retained interests entitle the Company to receive the future cash
flows from the trust after payment to investors, absorption of losses, if any,
that arise from defaults on the transferred finance contracts and payment of the
other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in
two ways. First, the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. During the nine months ended September 30, 1997,
the Company securitized approximately $94.9 million in nominal principal amount
of finance contracts and used the net proceeds to pay down borrowings under its
warehouse credit facilities.
Second, additional working capital is obtained through the Company's
practice of borrowing funds, on a non-recourse basis, collateralized by its
interest in future excess spread cash flows from its securitization trusts. At
September 30, 1997, the Company held interest-only strip receivables and Class B
Certificates totaling $18.4 million, substantially all of which had been pledged
to collateralize notes payable of $10.3 million.
Initial Public Offering. On November 14, 1996, the Company completed
the initial public offering of its Common Stock. The closing comprised 825,000
shares sold by the Company (including 75,000 shares issued pursuant to the
exercise of the underwriters over allotment option) and 250,000 shares sold by
the Selling Shareholders. With a price to public of $10 per share and an
underwriting discount at $.70 per share, the Company received gross proceeds of
$7,725,000 from the offering, from which it paid
Page 23
<PAGE>
<PAGE>
offering expenses of approximately $1.7 million. The net proceeds were utilized
for working capital, repayment of subordinated debt of $300,000 and investment
in finance contracts.
Although management believes the proceeds of the initial public
offering of the Company's common stock, proceeds from finance contracts,
securitization proceeds, issuance of convertible notes and borrowings under its
warehouse facilities should be sufficient to fund expansion of the Company's
business through the end of 1997, management also believes that additional
capital through equity or subordinated debt issuances would allow the Company to
take better advantage of growth opportunities. There can be no assurance,
however, that the Company will be able to obtain such additional funding.
The statements contained in this document that are not historical facts
are forward looking statements. Actual results may differ from those projected
in the forward looking statements. These forward looking statements involve
risks and uncertainties, including but not limited to the following risks and
uncertainties: changes in the performance of the financial markets, in the
demand for and market acceptance of the Company's loan products, and in general
economic conditions, including interest rates, presence of competitors with
greater financial resources and the impact of competitive products and pricing;
the effect of the Company's policies; and the continued availability to the
Company of adequate funding sources. Investors are also directed to other risks
discussed in document filed by the Company with the Securities and Exchange
Commission.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. The Company
believes the implementation of SFAS No. 128 will not have a significant effect
on the earnings per share calculation.
Page 24
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company is from time to time
made a party to litigation involving consumer-law claims. These claims typically
allege improprieties on the part of the originating Dealer and name AutoBond
and/or its assignees as subsequent holders of the finance contracts. To date
none of these actions have resulted in the payment of damages, or any judgments
therefor, by the Company or its assignees, nor have any actions been certified
as eligible for class-action status.
The Company's carrier for the credit deficiency insurance obtained
through 1996, Interstate Fire & Casualty Co. ("Interstate") determined in late
1996 to no longer offer such coverage to the auto finance industry, including
the Company. In connection with Interstate's attempt to no longer offer credit
deficiency coverage for contracts originated after December 1996, the Company
commenced an action in the United States District Court for the Western District
of Texas, Austin Division, seeking a declaratory judgment that (a) AutoBond was
entitled to 180 days' prior notice of cancellation and (b) Interstate was not
entitled to raise premiums on finance contracts for which coverage was obtained
prior to the effectiveness of such cancellation, as well as seeking damages for
the Company's alleged deficiencies in paying claims. Prior to receiving
AutoBond's complaint in the Texas action, Interstate commenced a similar action
for declaratory relief in the United States Court for the Northern District of
Illinois. While settlement discussions are ongoing, Interstate and the Company
have to date acted on the basis of a cancellation date of May 12, 1997 (i.e., no
finance contracts presented after that date will be eligible for credit
deficiency coverage by Interstate, although all existing contracts for which
coverage was obtained will continue to have the benefits of such coverage), no
additional premiums having been demanded or paid, and the claims-paying process
having been streamlined.
In February 1997 the Company discovered certain breaches of
representations and warranties with respect to finance contracts sold into a
securitization. The Company honored its obligations to the securitization trust
and repurchased finance contracts totaling $619,520 from a Trust during the
three months ended March 31, 1997. Of the total amount of these finance
contracts, $190,320 were purchased from one dealer. Although the Company has
requested that this dealer repurchase such contracts, the dealer has refused.
After such Dealer's refusal to repurchase, the Company commenced an action in
the 157th Judicial District Court for Harris County, Texas against Charlie
Thomas Ford, Inc. to compel such repurchase. Discovery is proceeding but no
trial date has been set.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 25
<PAGE>
<PAGE>
ITEM 5. OTHER INFORMATION
In November 1997, the Company was informed by Moody's, and then by Fitch,
that the rated notes issued in the 1997B and 1997C securitization transactions
had been placed under review for possible downgrade, due to certain recent
statements made by representatives of Progressive Northern Insurance Company
('Progressive') about the coverage afforded under the VSI and Deficiency Balance
insurance policies issued in connection with such transactions. Specifically
Moody's and Fitch, after discussions with representatives of Progressive, cited
concerns with Progressive's interpretation of its right to cancel the policies,
as well as its aggregate limit of liability on claims paid under the Deficiency
Balance policy. The Company disagrees with the actions taken by Moody's and
Fitch and reaffirms its understanding that (a) coverages under the Progressive
policies are not cancelable with respect to Auto Loans for which premiums have
been paid in full, and (b) Progressive's aggregate limitation of liability per
month is 88% of premiums paid to date. Nevertheless, in order to resolve the
situation, the Company is in active discussions with the rating agencies and
other parties and is optimistic that a satisfactory resolution will be achieved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- -----------------------
<C> <S>
3.1* Restated Articles of Incorporation of the Company
3.2* Amended and restated Bylaws of the Company
4.1* Specimen Common Stock Certificate
10.1* Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of
December 15, 1995 by and between the Company and AutoBond Funding Corporation I
10.2* Security Agreement dated as of May 21, 1996 among AutoBond
Funding Corporation II, the Company and Norwest Bank Minnesota,
National Association
10.3* Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond
Funding Corporation II, the Company and Peoples Life Insurance Company
10.4* Servicing Agreement dated as of May 21, 1996 among AutoBond Funding Corporation
II, CSC Logic/MSA L.L.P., doing business as "Loan Servicing Enterprise", the Company
and Norwest Bank Minnesota, National Association
10.5* Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and
between the Company and AutoBond Funding Corporation II
10.6* Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31,
1995 between Sentry Financial Corporation and the Company
10.7* Management Administration and Services Agreement dated as of January 1, 1996 between
the Company and AutoBond, Inc.
10.8* Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9* Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the
Company
10.10* Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by
Interstate Fire & Casualty Company
10.11* Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.12* Employee Stock Option Plan
10.13* Dealer Agreement dated November 9, 1994, between the Company and Charlie Thomas
Ford, Inc.
10.14* Automobile Loan Sale Agreement, dated as of September 30, 1996,
among the Company, First Fidelity Acceptance Corp., and
Greenwich Capital Financial Products, Inc.
10.15`D' Servicing Agreement, dated as of January 29, 1997, between CSC LOGIC/MSA L.P.P.,
doing business as "Loan Servicing Enterprise" and the Company
10.16`D' Credit Agreement, dated as of February 1, 1997, among AutoBond Funding Corporation
II, the Company and Daiwa Finance Corporation
10.17`D' Security Agreement, dated as of February 1, 1997, by and among
AutoBond Funding Corporation II, the Company and Norwest Bank
Minnesota, National Association
10.18`D' Automobile Loan Sale Agreement, dated as of March 19, 1997, by and between Credit
Suisse First Boston Mortgage Capital L.L.C., a Delaware limited liability company, and
the Company
10.19x Automobile Loan Sale Agreement, dated as of March 26, 1997, by
and between Credit Suisse First Boston Mortgage Capital L.L.C.,
a Delaware limited liability company, and the Company
10.20** Credit Agreement, dated as of June 30, 1997, by and among AutoBond Master Funding
Corporation, the Company and Daiwa Finance Corporation
</TABLE>
Page 26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- -----------------------
<C> <S>
10.21** Amended and Restated Trust Indenture, dated as of June 30, 1997, among AutoBond
Master Funding Corporation, AutoBond Acceptance Corporation and Norwest Bank
Minnesota, National Association.
10.22** Securities Purchase Agreement, dated as of June 30, 1997, by and among the Company,
Lion Capital Partners, L.P. and Infinity Emerging Opportunities Limited.
21.1** Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's Registration Statement on Form
S-1(Registration No. 333-05359).
`D' Incorporated by reference to the Company's 1996 annual report on Form 10-K
for the year ended December 31, 1996.
x Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997.
** Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1997.
(b) Reports of Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.
Page 27
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as......................... `D'
<PAGE>
<PAGE>
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 on November 14, 1997.
AUTOBOND ACCEPTANCE CORPORATION
BY: /S/ WILLIAM O. WINSAUER
---------------------------------
WILLIAM O. WINSAUER, CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
BY: /S/ R. T. PIGOTT, JR.
---------------------------------
R. T. PIGOTT, JR., VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Page 28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<CASH> 6,338,367
<SECURITIES> 18,446,031
<RECEIVABLES> 1,002,127
<ALLOWANCES> 45,027
<INVENTORY> 427,026
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,385,533
<CURRENT-LIABILITIES> 0
<BONDS> 10,279,888
<COMMON> 1,000
0
0
<OTHER-SE> 15,533,768
<TOTAL-LIABILITY-AND-EQUITY> 37,385,533
<SALES> 0
<TOTAL-REVENUES> 16,769,709
<CGS> 0
<TOTAL-COSTS> 11,285,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,930,592
<INCOME-PRETAX> 2,553,396
<INCOME-TAX> 895,685
<INCOME-CONTINUING> 1,657,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,657,711
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
