As filed with the Securities and Exchange Commission on October 23, 2000
Registration No. _________________
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AutoFund Servicing, Inc.
(Name of small business issuer in its charter)
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<S> <C> <C>
Nevada 0000 88-0465858
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Organization) Classification Code Number) Identification Number)
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3201 Cherry Dr., Suite 314-San Antonio, TX 78230 (210) 979-0840
(Address of principal executive offices) Telephone Number
Nevada Legal Forms & Books, Inc.
3020 W. Charleston Blvd., Las Vegas, NV 89102
(Name, address and phone number for agent for service)
Copies to:
Orsini & Rose Law Firm, P.A.
3800 Central Avenue
St. Petersburg, FL 33731
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
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CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Registration Fee
securities to be registered offering price aggregate offering
registered per share(1) price(1)
PREFERRED STOCK 1,000,000 shares $1.644 $1,644,000 $434.02
------------------------ ----------------- ------------------ ------------------- ------------------
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Note (1) Estimated solely for calculating the registration fee.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
AutoFund Servicing, Inc. ("Company") may offer from time to time shares in its
common stock, $0.001 par value in amounts, at prices and on terms to be
determined at the time of each offering in one or more supplements to this
prospectus.
AUTOFUND SERVICING, INC.
1,000,000 shares of 10% Convertible Preferred Stock
$ 1.644 per share
<S> <C> <C>
AutoFund Servicing, Inc. We are in the collection service business of
3201 Cherry Ridge Drive acquiring, servicing and collecting
San Antonio, Tx. 78230 sub-prime automobile finance paper
with deficiency balances, charged off
balances, performing and non-performing
The Offering contracts.
Per Share Total Each share is convertible
--------- ----- into three shares
of common and
Public price...... $1.644 $1,644,000 yields a 10% per annum
Selling stock dividend for three years.
Fees...... $0.219 $ 219,000
AutoFund
Servicing, Inc. $1.425 $1,425,000 The offering price may not
reflect the market price of our
shares after the offering.
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This investment involves Risk, and you should read the "Risk Factors" to
consider on page 12.
Neither the Securities and Exchange Commission nor any State Regulatory Body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
September 29, 2000
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September 15,2000
The Registration
This Registration Statement and Prospectus is being filed on Form SB-2
of the 1933 Securities Act. Prior to this filing, none of the securities have
been publicly traded as no public market has existed. On July 11, 2000, The
Company authorized a capitalization of 50,000,000 common shares, par value
$0.001 and 1,000,000 preferred shares, par value $0.001. On July 25,2000, the
Board of Directors of the Corporation passed a resolution to accept an agreement
for the exchange of common stock between AutoFund Servicing, Inc., a Nevada
corporation and AutoFund, Inc. a Texas Corporation. The Board of directors also
authorized the Transfer Agent to issue to share holders of the Texas Corporation
18,000,000 shares of the common stock of AutoFund Servicing, Inc., a Nevada
corporation, $0.001 par value from its treasury so the amount of shares then
issued would be equal to 90% of the combined total of 20,000,000 outstanding
shares, in exchange for 100% of the issued and outstanding shares of AutoFund,
Inc., a Texas corporation, such that AutoFund, Inc.(Texas), shall become a
wholly owned subsidiary of AutoFund Servicing, Inc., a Nevada corporation.
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TABLE OF CONTENTS
Prospectus Summary ...................................................... 4
The Offering ............................................................ 4
Use of Proceeds ......................................................... 4
Determination of Offering Price ......................................... 5
Description of Convertible Preferred Stock .............................. 5
Plan of distribution .................................................... 6
Price Range of Price of Stock ........................................... 7
Dividend Policy ......................................................... 7
Corporate Overview ...................................................... 8
Capitalization .......................................................... 11
Risk Factors ............................................................ 12
Disclosure Regarding Forward Looking Statements ......................... 13
Management .............................................................. 27
Management's discussion and Analysis and Plan of Operations ............. 40
Selected Financial Information .......................................... 48-70
Security Ownership of Beneficial Owners and Management
Legal Matters ........................................................... 71
Experts ................................................................. 71
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PROSPECTUS SUMMARY
Before investing, you should read this prospectus summary together with
the entire prospectus, including the more detailed information in our financial
statements and accompanying notes appearing elsewhere in this prospectus. Unless
otherwise indicated, all information contained in this prospectus relating to
our shares of common and preferred stock is based upon information as of July
25, 2000
This is an offer to sell 1,000,000 shares of the 10% convertible
preferred stock of AutoFund Servicing, Inc. ( A Nevada Corporation). Each share
is convertible into a total of three shares of common. The preferred stock
offering price is $ 1.644 per share and yields a 10% per annum dividend paid in
common stock at the market upon conversion.
THE OFFERING
Preferred stock offered________________________________ 1,000,000 shares
Preferred stock outstanding after the offering_________ 1,000,000 shares
Proposed NASDAQ Symbol____________________________ AFSIpr
Ranking_____________ The preferred stock will rank senior to the common stock
with respect to payments upon the liquidation, dissolution
or winding up of the company.
Use of Proceeds______ The net proceeds to be received by the Company from the
sale of 1,000,000 Preferred shares offered by the
Company is approximately $1,425,000, after deducting
$219,000 in offering expenses payable by the Company.
The company believes the net proceeds of this offering
will be sufficient to fund its plan of operation.
From time to time in the ordinary course of business, the
company evaluates the acquisition of products, businesses,
and technologies that complement the Company's business,
for which a portion of the net proceeds may be used.
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Determination of Offering Price
The Board of Directors determined the public offering price of the
preferred by adding the debt to be retired, plus the offering fees and operating
capital and dividing by the shares offered.
Offering Fees $ 219,000
Operating capital $1 ,425,000
-----------
Total $ 1,644,000
$ 1,644,000
-----------
Shares offered 1,000,000 =$1.644 per share
Description of Convertible Preferred Stock
This is a three year convertible preferred stock offering. One
preferred share is convertible into three shares of the Company's common stock
at any time during the three year period at the option of the shareholder. The
conversion is automatic on the third year record date if not converted earlier
by the shareholder.
The preferred shares yield a 10% per annum dividend, which is paid in
common shares at the market upon conversion.
The 10% annual common stock dividend is determined by multiplying the
preferred share offering price ($1.644) by a factor of ten ($16.44) and dividing
it by the market price per share. This will determine the number of common
shares to the shareholder upon conversion.
The Charter authorizes the issuance of 1,000,000 shares of Preferred
Stock, par value $0.001per share ("Preferred Stock"). No other series of
Preferred Stock has been authorized or issued. The Preferred Stock will rank
senior to the Common stock with respect to the payment of dividends and amounts
upon liquidation, dissolution or winding up of the Company without the consent
of any holder of Preferred Stock.
While any shares of Preferred stock are outstanding, the Company may
not authorize, create or increase the authorized amount of any class or series
of stock that ranks senior to the Preferred Stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up of the Company.
However, the Company may increase the authorized number of shares of Preferred
Stock or issue a series of Preferred Stock ranking junior to or on a parity with
the Preferred stock with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up of the Company without the
consent of any holder of Preferred Stock.
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Plan of Distribution
The company may sell Securities through underwriters or dealers, through
agents or through a combination of any such methods of sale. The Prospectus with
respect to the Securities will set forth the terms of the offering of the
Securities, including the name or names of any underwriters, dealers, or agents,
the initial public offering price, any underwriting discounts and other items
constituting underwriters compensation, any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchanges on which the
Securities may be listed.
Securities may be sold directly by the Company through agents by the
Company from time to time at fixed prices, which may be changed, or at varying
prices determined at the time of sale. Any agent involved in the offer of sale
of the securities will be named, and any commissions payable by the Company to
such agent will be set forth, in the Prospectus relating thereto. Unless
otherwise indicated in the Prospectus, any agent will be acting on a best effort
basis for the period of its appointment.
In connection with the sale of securities, underwriters of agents receive
compensation from the Company or from purchasers of Securities, for whom they
act as agents, in the form of discounts, concessions of commissions.
Underwriters may sell securities to or through dealer and such dealers may
receive compensation in the form of discounts, concessions or commissions they
receive from the Company and any profit on the resale of Securities they realize
may be deemed to be underwriting discounts and commissions under the Securities
Act. Any such underwriter or agent will be identified, and any such compensation
received from the Company will be described in the applicable Prospectus. Unless
otherwise set forth in the Prospectus relating thereto, the obligations of the
underwriters will be obligated to purchase all the Securities if any are
purchased. The initial public offering price and any discounts of concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Unless otherwise specified in the related Prospectus, each series of
Securities will be a new issue with no established trading market, other than
the Preferred stock, which is to be traded on the NASDAQ Bulletin Board. Any
shares of Common Stock sold pursuant to a Prospectus Supplement will be approved
for trading, upon notice of issuance, on the NASDAQ. The Company may elect to
list any series of Debt Securities on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, the Company in the ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption form the registration or
qualification requirement is available and complied with.
6
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Price Range of Class of Stock
Our common or preferred stock is not presently quoted on any NASDAQ market.
Dividend Policy
To date, we have not paid any cash dividends on our common stock. We currently
intend to retain all of our future earnings for use in our business, and
therefore, do not expect to pay dividends in the near future.
7
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Corporate Overview
James. Haggard, President and CEO of AutoFund Servicing, Inc. (AFSI), is also
President of AutoFund, Inc. (Texas). AFI was founded in August 1997, to
originate sub-prime auto paper and broker the new paper into various wholesale
finance companies. Shortly after AFI's start-up the capital markets began to
fracture and an opportunity presented itself to make a bid on the Reliance
Acceptance Corporation (RAC) before it went into bankruptcy. AFI aggressively
put a financing package together and was ultimately not the successful winner.
In mid 1998 Mr. Haggard approached the Managing Director of the post-bankrupt
RAC to acquire various pieces of the RAC portfolio. It was recommended at that
time to form a new corporation to handle and bid on servicing. The end result
was the newly formed corporation of AFSI (Nevada) in July, 2000.
Within the first month of operating AFSI grew from 3 employees to 8 and now over
40 employees are handling the approximate 16,000 accounts transferred from the
RAC portfolio. Now that this portfolio is well under control the team is ready
to begin making other acquisitions and maximize staff performance.
The Subsidiary Texas Corporation (Charter # 01506805-00), was incorporated on
September 28, 1998. Its founder, James D. Haggard, also servers as President and
CEO. He currently is the sole shareholder. The company elected "S Corp." status
in 1998 and anticipates changing that election in the year 2000. Future
discussions involve establishing stock distribution incentives for certain
employees and officers.
AFSI maintains its corporate offices at 3201 Cherry Ridge Dr., Suite 314 San
Antonio, Texas 78230. The corporate office handles capitalization, banking,
corporate accounting, auditing, legal and human resources functions. The fully
functional collection center and headquarters for all repossession and vehicle
disposal activities is adjacent to the corporate offices. The facility contains
additional space, which can accommodate future growth.
The Company operates nationally and is subject to various state and federal
laws, including the Federal Truth-In-Lending Act, the Federal Equal Opportunity
Act, the Federal Fair Debt Collection Practices Act and the Federal Trade
Commission Act. Requirements include licensing and qualification and regulation
of maximum finance charges, extension of credit, collection practices, the
selling of insurance products and rights to repossess and sell cars.
The Company's experienced personnel has operated in a multi state environment,
is aware of the regulations and industry practices and has experienced legal
counsel involved in all matters regarding legal compliance.
8
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THE CORPORATION BUSINESS
AFS provides collection services for charged off debt. AFS services charged-off
consumer debt, primarily auto loans. The Company generated 1999 revenue from
servicing auto loans (100% of sales) from Reliance Acceptance Corp/Bank of
America. The contract initially called for AFS to retain 29% of collection after
reimbursement expenses. This contract was renegotiated in February 200 for 29%
retention on secured accounts and bankruptcies and 45% on deficiency accounts.
The Company began servicing approximately $3 million in credit card debt early
this year, which accounted for 9% of sales for the first half of 2000. This
contract calls for a 50% split on collections after reimbursable expenses. In
June 2000, the Company began servicing a contract with All American for
charged-off auto loans on 15,500 accounts totaling approximately $86 million.
The contract calls for a 50% split on collections after reimbursable expenses.
The Executive Management Team has in excess of 116 years of combined experience
in the areas of servicing, origination, acquisition and liquidation of sub-prime
automotive assets.
AFSI's Corporate office is located at 3201 Cherry Ridge Drive, Suite 314, San
Antonio, Texas 78230. The corporate offices are leased from a multi tenant
facility with additional growth opportunities. AFSI Offices are approximately
21,000 square feet of leased space with an additional 5,000 sq. feet under
negotiations. All leases were initiated in 1999 and have a negotiated term of
three (3) years with two renewal options every 3 ears, each with a 3 year term.
As of this date the company is servicing 32,000 contacts under a Servicing
Agreement negotiated with Reliance Acceptance Corporation, on behalf of Bank of
America and All American Acceptance Corp. The firm is in current negotiations to
acquire two additional deficiency portfolios and further portfolios have been
discussed. The company has also purchased a charge off credit card portfolio of
2200 accounts. Under the current RAC Servicing Agreement, AFSI has generated
more than six million dollars of revenue in less than 18 months. [AFSI, in its
first month of operation, reached break even after paying all up-front start-up
costs.] This is a result of a dedicated and seasoned staff guided by strong
leadership with an aptitude for comprehensive operations and fair management
practices.
The charge off credit industry has dramatically changed in the past 12 months.
Previously, lenders would contact a collection agency to service their debt. The
lender would still have the liability and collection agencies are very
aggressive, creating litigation. Now, the lenders are selling their charged off
debt, creating a new industry. There is an estimated 3 Trillion dollars of
deficient consumer debt in the United States.
The company is currently debt free and has been capitalized through cash flow
and direct shareholder equity contributions by James Haggard. The value of the
hard equity invested is in excess of $300,000 plus a remaining value of AFSI's
Servicing Agreement with RAC of an additional $1,000,000 making the total hard
equity invested in this company approximately $1,300,000 plus sweat equity,
which we will not value for these purposes.
Currently AFSI has a value remaining in its RAC Servicing Agreement of
approximately $1,000,000. The facility and staffing at the current level of
servicing will shortly be under utilized. Therefore, it is vital to the growth
of the company to structure a financing facility, which will accommodate
acquisitions of various other portfolios. It is widely known that the sub-prime
automotive industry is in serious financial difficulty. Sub-Prime & Prime Auto
Finance Companies perform at a substandard level in attempting to service their
charged off accounts. Capital markets have continued to erode over the past two
years. It is the vision of AFSI to capitalize on this market downturn and to
9
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continue to utilize these opportunities in the form to achieve superior
servicing recovery results. AFSI would prefer to structure opportunities in the
form of direct acquisitions, although, we recognize that at times a
Sub-servicing agreement is a prudent business.
It is the belief of AFSI and other Industry leaders that the opportunity to
build a strong Servicing company is now. This trend is predicted to continue
over the next 5 years due to lengthy process of the bankruptcy court system. The
future unfortunately holds continued capital erosion for sub-prime automotive
companies generating new paper and issuing securities. Many of the securities
sitting on shelves are underwater financially and the investor marker remains
unwilling to pay up for the investment. Therefore, many firms, some currently
publicly traded are in jeopardy of filing for bankruptcy and bankruptcy
protection. This is where AFSI can bid to acquire the servicing and create
immediate cash flow this financial servicing arrangement allows the company to
immediately reduce their overhead and provides immediate capital to the
Creditors. To date AFSI has had the opportunity to review in excess of
$500million in contract values. However, at this time we feel $10 million will
allow us to purchase $250,000,000 in face value portfolios or approximately
45,000 +/- contracts. We are finding the deficiency balance market to function
in open bidding auctions and settlement prices discounted to, 01 - .03 cents on
the dollar of face value depending on the former quality of servicing or lack
thereof. Our experience has determined that when a company begins to get into
financial problems, general employee moral is the first thing to erode.
Employees begin to seek other employment and leave or their allocated overtime
to collect is cut from the budget. In this process many portfolios are not
worked as prudently as they should be. Thus, AFSI sees this as an opportunity to
acquire, convert the systems and service the paper for optimum results.
AFSI Collectors and Repossession experts are seasoned professionals. A good
number of these of these individuals come to AFSI through the eventual
liquidation of Reliance Acceptance Corporation. AFSI has been able to attract
some of the key personnel who once worked their portfolio. AFSI has been able to
attract some of the key personnel who once worked their portfolio. AFSI has paid
a great deal of attention to providing employees with appropriate incentives
plan to attract and retain these personnel.
The average hourly cost per employee is $12 per hour. Other major cities like
Dallas would cost $18 per hour for the same qualifications. San Antonio has a
wealth of servicing trained employees in this hourly wage category.
Additionally, many of these employees are bilingual and are hard working
individuals. New housing in the are averages about $50 per square foot. This is
almost 50% less than other major cities.
AFSI's profit performance will be enhanced with the lower cost of living in San
Antonio. Additional benefits of San Antonio include the Central Standard Time
Zone for ease of national collection calls. AFSI has already had initial
conversations with the City Economic Development authorities about the growth
potential of the firm. AFSI intends on reopening these conversations with the
City. It is AFSI's intent to become a major employer in the City within the next
three years having as many as 300 employees.
Through internal working knowledge, AFSI obtained the ParaData platform system
for servicing. Financial reports are complete and timely. Bank of America and
RAC have thoroughly reviewed these reports and monitor them frequently for
accuracy. AFSI currently has the capability of collecting payments from
customers not only by normal mail but also by credit card, Western Union Quick
Collect and Western Union Phone Pay.
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AUTOFUND SERVICING, INC.
CAPITALIZATION
JULY 31, 2000
PREFERRED
HISTORICAL STOCK PRO FORMA STOCK PRO FORMA
OFFERING ADJUSTED CONVERSION ADJUSTED
-------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
SHORT TERM DEBT (NONE) 0 0 0
LONG TERM DEBT (NONE) 0 0 0
SHAREHOLDERS' EQUITY
PREFERRED SHARES - 1,000,000
SHARES AUTHORIZED, 0.001 PAR VALUE
NO SHARES ISSUED AND OUTSTANDING 0 0 0
COMMON SHARES - 50,000,000
SHARES AUTHORIZED, 20,000,000
SHARES ISSUED AND OUTSTANDING
32,000,000 SHARES AVAILABLE 10 0.0005 0.0005 0 0.005
ADDITIONAL PAID IN CAPITAL 0
RETAINED EARNINGS 215 0.0108 0.0108 0 0.0108
--- ------ ------ - ------
TOTAL SHAREHOLDERS' EQUITY 225 0.0113 0.0113 0 0.0113
--- ------ ------ - ------
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TOTAL CAPITILIZATION
(1) HISTORICAL FUGIURES REFLECT THE FACT THAT COMPANY HAS NO DEBT
(2) PREFERRED SHARES HAVE NO CONVERSION FEATURE INTO COMMON SHARES
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RISK FACTORS
THE SECURITIES BEING OFFERED HEREIN ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. BEFORE MAKING AN INVESTMENT IN THE COMPANY, PROSPECTIVE
INVESTORS SHOULD GIVE CAREFUL ATTENTION TO THE FOLLOWING RISK FACTORS INHERENT
IN AND AFFECTING THE BUSINESS OF THE COMPANY.
o The Company was formed on March 7, 1997 and acquired AutoFund,
Inc a Texas corporation on July 25, 2000. o Minimal historical
data: With just over a year of operating history and
relatively low earnings, future profitability is uncertain.
o Dramatic earnings projections: The Company's earnings are
projected to Increase 1,123% in the base year 2000 over the
previous year.
o Dependence on select customers: The Company generated 100% of
1999 revenue from the loan portfolio with Reliance Acceptance
Corp/Bank of America.
o One of the factors that may influence the price of the
Company's Common and Preferred Stock in public trading markets
is the annual yield as compared to yields on other financial
instruments. Thus, an increase in market interest rates will
result in higher yields on other financial instruments, which
could adversely affect the market price of the shares of
Common Stock and any Preferred Stock.
o Share holders have no right or power to take part in the
management of the Company except through the exercise of
voting rights on certain specified matters. The Board of
directors is responsible for managing the Company. The
Company's future success, including particularly the
implementation of the Company's growth strategy, is
substantially dependent on the active participation of Mr.
Haggard. The loss of services of this individual could have a
material adverse effect on the Company.
o Government (State and Federal) intervention on regulations and
new law enactments that could interfere with skip tracing
abilities, (i.e. Privacy Protection) intervention on the sale
of collateral (i.e. required court order).
o Product liability exposure and other potential litigation
issues. o Competition and the ease with which new competitors
can enter into the market place.
o As the industry becomes more competitive the availability of
dedicated employees will decrease and compensation will
increase.
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Disclosure Regarding Forward Looking Statements
This Prospectus includes forward looking statements within the meaning of
Section 27A the Securities Act of 1933, as amended, and Section 12E of the
Securities Exchange Act of 1934, as amended. Although the company believes that
the expectations reflected in such forward looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved.
The financial position of AFS was a key consideration in determining value.
Following are financial highlights of AFS.
FINANCIAL ANALYSIS
o Historical sales were $968,000 in the fiscal year just
completed.
o Sales for the base year are estimated to be $2,600,000. This
estimate is supported by 6 months interim sales of $1,267,000
o Sales are projected to grow at an average of 44.0% per year
over the next five years to $16,000,000.
[GRAPH OMITTED]
Base Year Pro Forma Years %Growth
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Profitability Trends
o EBIT for fiscal 1999 was $81,000, which was 8.4% of sales.
o EBFF for the base year 2000 is expected to be $968,000, which
is 37.2% of expected sales.
o Over the next five years EBIT is expected to increase relative
to sales.
[GRAPH OMITTED]
BASE YEAR PRO FORMA YEARS %OF SALES
*Earnings before interest and taxes
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Adjusted Income Statements
AFS' historical income statements have been adjusted to present the business as
if it had been managed to maximize profitability. Since privately owned
companies tend to keep reported profits and resulting taxes as low as possible,
adjusting the financial statements is an important element to understanding the
true earning capacity of the business. This allows for meaningful comparisons
with other investment opportunities.
Schedule 1 shows the adjustments made to AFS' historical income statements.
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AutoFund Servicing, Inc.
Historical Income Statements with Adjustments Details for the Fiscal Years
ended December 31 ($000) and the Six Months Ended June 30, 2000
Schedule I 1999 June 30, 2000
Note PerBooks Adj. Revised PerBooks Adj. Revised
<S> <C> <C> <C> <C> <C> <C>
Revenue 968 - 968 1,267 - 1,267
Operating Expenses
Collection Expenses 10 - 10 2 - 2
Employee Benefits 36 - 36 (2) - (2)
Postage 11 - 11 8 - 8
Telephone Expense 51 - 51 53 - 53
Computer Expense 13 - 13 12 - 12
Conference & Meetings 5 - 5 2 - 2
Contract Labor 4 - 4 5 - 5
Employee Expenses 2 - 2 2 - 2
Insurance 12 - 12 28 - 28
Leased Equipment 5 - 5 2 - 2
Meals & Entertainment (1) 4 (3) 1 2 - 2
Office Expenses 15 - 15 69 - 69
Professional Fees (2) 26 - 26 19 (19) 0
Rent 56 - 57 41 - 41
Travel 6 - 6 7 - 7
Vehicle Expense (3) 3 (2) 1 2 - 2
Wages & Salaries 575 - 575 445 - 445
Payroll Taxes 45 - 45 21 - 21
Other 15 - 15 39 - 39
Temp Staff 0 - 0 78 - 78
Loan Reports 0 - 0 3 - 3
Reimbursable Expenses (28) - (28) 42 - 42
Depreciation 25 - 25 8 - 8
Total Operating Expense 892 (5) 887 888 (19) 869
Other Expense 0 - 0 0 - 0
EBIT 76 5 81 379 19 398
Interest 0 - 0 0 - 0
Pretax Income 76 5 81 379 19 398
</TABLE>
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Notes and Adjustment Details to Schedule 1
1999 Interim
------------
Operating Expenses
(1) Meals & Entertainment
Recast Owner Discretionary Expense (3) -
(2) Professional Fees
Recast Geneva Fee - (19)
(3) Vehicle Expense
Recast Owner Discretionary Expense (2) -
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Adjusted Income Statement, Common-sized
Once the historical income statements have been adjusted to reflect the true
earnings history of the Company, it is possible to analyze the statements over
time.
The following schedule shows the adjusted income statements (from Schedule 1)
for each historical year.
AutoFund Servicing, Inc.
Adjusted and common-sized Income Statements for the Fiscal Years ended
December 31 ($000) and the Six Months Ended June 30, 2000
Schedule 2
1999 6/30/00
---------------------------------------------
Revised % of Sales Revised % of Sales
Revenue 968 100.0% 1,267 100.0%
Operating Expenses 887 91.6% 869 68.6%
Operating Income (Loss) 82 8.4% 398 31.4%
EBIT 81 8.4% 398 31.4%
Pretax Profits 81 8.4% 398 31.4%
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<PAGE>
Pro Forma Income Statements
Using the adjusted historical statements as the starting point, we developed the
following pro forma income statements to indicate the revenue and profit
potential of AFS. In developing the pro formas, we considered that they must be
credible to potential buyers. Aggressive growth projections, when not well
supported, are perceived to be of high risk and will affect the buyer's opinion
of value. Well-supported projections, on the other hand, are considered lower in
risk and more acceptable to buyers.
In Schedule 3 we further adjusted the statements presented in Schedule 2 to
remove depreciation and amortization from cost of goods sold and operating
expenses. These items were left in Schedule 2, as depreciation and amortization
are required for a meaningful ratio comparison to other industry companies.
However, we find that most buyers prefer seeing depreciation and amortization
removed from cost of goods sold and operating expenses, and shown separately so
the relationship to capital expenditures is obvious. Therefore depreciation and
amortization have been moved in Schedule 3 to separate lines just before the
Operating Income (Loss) subtotal.
19
<PAGE>
<TABLE>
<CAPTION>
AutoFund Servicing, Inc.
Revised and Proforma Income Statements for the Fiscal Years
ended December 31 ($000) and the Six Months Ended June 30, 2000
Schedule 3
Revised Pro Forma
6 Months Est.
---------------------------------------------
1999 6/30/00 2000 2001 2002 2003 2004 2005
---- ------- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Revenue 968 1,267 2,600 4,700 7,100 9,900 12,900 16,100
% Growth 168.6% 80.8% 51.1% 39.4% 30.3% 24.8%
Operating Expenses 862 861 1,560 2,829 4,260 5,920 7,740 9,660
% of Sales 89.0% 68.0% 60.0% 60.0% 60.0% 60.05 60.0% 60.0%
Depreciation 25 8 72 99 124 91 107 109
Operating Income(Loss) 81 398 968 1,781 2,716 3,869 5,305 6,331
% of Sales 8.4% 31.4% 37.2% 37.9% 38.3% 39.1% 39.2% 39.3%
EBIT 81 398 968 1,781 2,716 3,869 5,053 6,331
% of Sales 8.4% 31.4% 37.2% 37.9% 38.35 39.15 39.2% 39.3%
Interest Expense 0 0 0 0 0 0 0 0
Pretax Profits 81 398 968 1,781 2,716 3,869 5,053 6,331
% of Sales 8.4% 31.4% 37.2% 37.9% 38.3% 39.1% 32.2% 39.3%
Taxes 16 329 606 923 1,315 1,718 2,153
Net Income 65 639 1,175 1,793 2,554 3,335 4,178
% of Sales 6.7% 24.6% 25.0% 25.3%% 25.8% 25.9% 26.0%
EBITDA 106 406 1,040 1,880 2,840 3,960 5,160 6,440
% of Sales 11.0% 32.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
</TABLE>
20
<PAGE>
ANALYSIS OF INCOME STATEMENTS
The assumptions that form the basis for the pro forma income statements, and our
analysis of the historical statements which underlies those assumptions follow.
Sales
In the first year of operations, sales totaled $968,000 from the servicing of
the Reliant Acceptance Corp/Bank of America (RAC) portfolio. During the interim
period ending June 30,2000, sales totaled over $1.26 million. During the first
half of 2000 the Company continued to grow its infrastructure and service its
existing portfolio. The Company renegotiated its contract with RAC in 2000 to
increase its collection retention from 29% to an average of 37%. AFS also added
a $3 million portfolio of credit card debt in February 2000. The Company began
servicing an $86 million dollar portfolio in June on which the AFS receives a
50% retention. Based on these factors, sales are expected to grow 168.6% to $2.6
million during the base year 2000. Management expects sales to increase between
24.8% and 51.1% annually during the remainder of the pro forma period based upon
the Company continuing to build infrastructure and obtain new portfolios.
Operating Expenses
Operating expenses were 89% of sales in 1999, based on a 29% retention on
collections for RAC. Since this contract was renegotiated in 2000, to an average
of 37% retention, operating expenses dropped to 68% of sales for the interim
period ending June 30, 2000. Management expects operating expenses to be 60% of
sales in the base year and throughout the pro forma period. This decrease (as a
percentage of sales) in operating expenses is due to higher margins created by
increased retention rates on recent contracts.
Management Compensation
Management estimates that one replacement manager to be paid $200,000 annually
will be adequate to fulfill the duties and functions of the current owner. The
owner is currently receiving this salary for year 2000. In 1999 the owner
received $75,000 in salary. Due to the start-up nature of the Company1 the
difference between this salary and the estimated fair market salary was not
recast.
Special Recasting
Management perquisite recasts totaling $5,000 in 1999 include owner travel and
entertainment and auto expenses.
Non-recurring recasts include $19,000 in 1999 for a consulting fee.
21
<PAGE>
Depreciation and Capital Expenditures
Depreciation on existing fixed assets was calculated using the straight-line
method over the estimated useful lives of the assets. The following shows the
Company's fixed asset base and associated pro forma depreciation expense ($000):
Recast Net Estimated
Book Value Remaining Depreciation
Fixed Assets 12/31/99 Depreciable Life Per Year
------------ -------- ---------------- --------
Operational Equipment 181 3 60
To provide for future growth, we have provided for capital expenditures during
the pro forma period. Depreciation on fixed assets acquired during the pro forma
period is included using the half-year convention. Full-year depreciation for
the additional capital expenditures is calculated on the following table ($000):
Capital Depreciable Annual
Year Description Expenditure Life Depreciation
-------------------------------------------------------------------------------
2000 Operational Equipment 100 4 25
2001 Operational Equipment 103 4 26
2002 Operational Equipment 106 4 27
2003 Operational Equipment 109 4 27
2004 Operational Equipment 113 4 28
2005 Operational Equipment 116 4 29
Taxes
Income taxes were calculated using the current combined federal and state income
tax rates.
22
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
We have adjusted the most recent fiscal year-end balance sheet to
reflect the operating assets and liabilities of the Company that would be
accounted for in a sale. We then developed pro forma balance sheets to determine
the future requirements for working capital.
Auto Fund Servicing Inc.
Balance Sheets for Fiscal Years ended December 31 ($000)
Schedule 4
-------------------------------------------------------------------------------------------------------------------------------
FY Adjust- Revised Est 2000 Pro Forma 2005
1999 ments 1999 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash (and cash equivalents) 17 0 17 31 44 55 66 76 86
Accounts Receivable 1 0 1 299 541 817 1139 1484 1853
Prepaid Expenses 0 0 0 8 14 21 30 39 48
Deposits 3 0 3 8 14 21 30 39 48
- - - - -- -- -- -- --
Total Current Assets 21 0 21 346 613 914 1265 1638 2035
Non-current Assets
Fixed Assets-Net 181 0 181 209 213 195 213 219 226
Total non-current assets 181 0 181 209 213 195 213 219 226
Total Assets 202 0 202 555 826 1109 1478 1857 2261
------------ --- - --- --- --- ---- ---- ---- ----
Liabilities & Equities
Current Liabilities
Accounts Payable 5 0 5 78 141 213 297 387 483
Advances, Accrued Expenses 16 0 16 26 47 71 99 129 161
-- - -- -- -- -- -- --- ---
Total Current Liabilities 21 0 21 104 18 284 396 516 644
Non-current liabilities
Long-term debt 36 (36) 0 0 0 0 0 0 0
Shareholder Loans 59 (59) 0 0 0 0 0 0 0
Deferred Income Taxes 18 (18) 0 0 0 0 0 0 0
-- ---- - - - - - - -
Total Non-current Liabilities 0 0 0 0 0 0 0
- - - - - - -
113 (113)
Total Liabilities 134 (113) 21 104 188 284 396 516 644
--- ----- -- --- --- --- --- --- ---
Stockholders' Equity 68 113 181 451 638 825 1082 1341 1617
-- --- --- --- --- --- ---- ---- ----
Total Liabilities & Equity 202 0 202 555 826 1109 1478 1857 2261
--- - --- --- --- ---- ---- ---- ----
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
--------------------------------------------------------------------------------
Notes and Adjustment Details to Schedule 4
--------------------------------------------------------------------------------
(1) Long term debt
Eliminate debt as this is a predebt analysis (36)
(2) Shareholder Loans
Recast Shareholder Loans (59)
(3) Deferred Income Taxes
Eliminate deferred taxes (and recast to equity) (18)
24
<PAGE>
Analysis of Balance Sheets
Cash
Cash is projected to increase incrementally, relative to sales growth, to
support working capital requirements.
Accounts Receivable
Accounts Receivable were 42 days outstanding during the interim period and are
projected at 42 days throughout the pro forma period.
Prepaid Expenses
Prepaid expenses were 0.3% of sales during the interim period and are
projected at 0.3% of sales throughout the pro forma period.
Accounts Payable
Accounts Payable were 3.0% of sales during the interim period and are
projected at 3.0% of sales throughout the pro forma period.
Fixed Assets
The recast net book value of fixed assets at December 31, 1999 was
$181,000. The net book value of $181,000 approximates the fair market value of
the assets as estimated by management. Management estimated these values
considering the age, usefulness and condition of the assets.
Capital Expenditures
Capital expenditures totaled $206,000 in 1999 for software and purchase
of office and operational equipment. To support growth projections, annual
capital expenditures are estimated at $50,000 in the base year and are expected
to increase 3% annually to account for inflationary factors during the pro forma
period.
The fixed asset balances on the Pro Forma Balance Sheets for each year
are the net of the balance for the prior year plus pro forma capital
expenditures for the current year less pro forma depreciation expense.
Stockholders' Equity
The net difference between the projected growth of the total assets and
total liabilities of the Company during the pro forma period results in the
increase to stockholders' equity. Each year's stockholders' equity is calculated
as follows: the current year's net income (Income Statements - Schedule 3) is
added to the previous year's stockholders' equity. The current year's net cash
flows are then deducted, resulting in the current year's stockholders' equity.
Net cash flows (Pro forma Cash Flow Statements- Schedule 5) are not reflected in
equity, as they are assumed to be paid out to the owners of the Company as
dividends. As a result, stockholders' equity increases only slightly each year,
as net cash flows are not retained in the Company.
25
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
Schedule 5 presents the cash flows resulting from the adjustments and
projections made in the preceding schedules.
Auto Fund Servicing, Inc.
Statement of Cash Flows for Fiscal Years ended December 31 ($000)
Schedule 5
<S> <C> <C> <C> <C> <C> <C>
Change in Other Current Assets -5 -6 -7 -9 -9 -9
Change in Accounts Payable 73 63 72 84 90 96
Change in accrued Expenses 10 21 24 28 30 32
--- ---- ---- ---- ---- ----
Total Cash Flow from Operations 798 1697 2635 3721 4907 6171
Cash Flow from Investing
Capital Expenditures -100 -103 -106 -109 -113 -116
Total cash Flow from Investing -100 -103 -106 -109 -113 -116
---- ---- ---- ---- ---- ----
Pre-tax Cash Flow 698 1594 2529 3612 4794 6055
Less Income Tax 329 606 923 1315 1718 2153
Less Financing Tax Benefit 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Predebt, Aftertax (Free) Cash Flow 369 988 1606 2297 3076 3902
</TABLE>
26
<PAGE>
Management
James D. Haggard President/CEO
John Polgar Executive-Vice President
Chief Operations Manager
Edward Aleman Vice-President
Director of Operations
Kathy Bewley Human Resources Director
Dan Masterson Vice-President
Director of Marketing
Rick Allen Director of Deficiency/Collections
W.B. Blair Director of Corps Assets
Jim Tankersley Information Systems Manager
Bob Bernholtz Collections Manager
Sharon Canfield Collections Manager
27
<PAGE>
James D. Haggard
----------------
Experience 1998- Present AutoFund Servicing, Inc.
President/CEO San Antonio, TX
1997-1998 AutoFund, Inc.
President San Antonio, TX
o Originate indirect automobile sales finance
o Contracting in 6 States (TX, FL, GA, SC, CO, NV)
o Insure timely funding to franchise automobile
dealerships through strict adherence to lenders
stringent policy and procedures.
o Negotiate agreements with outside funding sources to
necessitate a complete product line in the near prime
and sub-prime auto finance industry
1993-1997 Reliance Acceptance Corporation
Senior Vice-President San Antonio, TX
o Division Director - Responsible for the day to day
operations of 8 branches, $125M of receivables to
include 100 branch employees, 8 branch managers and 3
regional directors.
o Director of Marketing - Responsible for departmental
objectives and goals. Increased company receivable
base from $23M to $600M and operations from 9
branches to 54 branches.
o Special Assets Coordinator - Responsible for the
profitable reconditioning and disposal of all the
repossessions.
1992-1993 Mercury Finance Co.
Business Development Manager San Antonio, TX
o Expanded franchise dealer base from 23 to 86 in
Dallas, San Antonio and Austin
o Assumed Branch Manager position in Austin for 60 days
with a 450% increase in business and a 50% reduction
in overall delinquency
1980-1992 Automobile Sales and Finance
Finance Director San Antonio, TX
o Contract consumers on sales finance contracts in the
automotive industry. Sold contracts to private and
captive finance institutions.
28
<PAGE>
John Polgar
-----------
Experience January 1999- Present AutoFund Servicing, Inc.
Executive V-P/Chief Operations Officer San Antonio, TX
o Responsible for all operations including strategy,
goal setting, personnel, compliance, and performance.
Co-organize and participate in on sight due diligence
visits for future portfolio acquisition.
August 1998-December 1998 Reliance Acceptance Corp.
Contract Employer San Antonio, TX
o Worked directly with the President in arranging files
and setting up portfolio sales. Worked directly with
the companies' legal council in financing the
liquidation of the company after bankruptcy
confirmation.
July 1994- July 1998 Reliance Acceptance, Corp.
Director of Operations San Antonio, TX
o Reported directly to the President
o Responsible for all operational issues including
strategy, goal setting, personnel, compliance and
performance.
o Responsible for 7 Regional Collection Centers, 2
district supervisors, one Director of Re-marketing of
Repossessions with a combined employee base of 142
people servicing 20,000 accounts and $225 million in
receivable.
March 1982- July 1992 I.T.T. Financial Services, Inc.
Divisional Director & Credit Manager Columbus, OH
o Positions held included Branch Manager, Regional
Manager, Divisional Director and Area Credit Manager.
o As Area Credit Manager - Responsible for loan
approvals for the states of Ohio and Indiana for all
products.
o As Divisional Director - responsible for 25 branch
offices, five Regional Managers and one central
purchasing office with a combined staff of 225
people.
January 1971-February 1982 Associated Financial Services, Inc.
Branch Manager Cleveland, Ohio
o Started on ground floor as a Collector in Cleveland,
Ohio and advanced to Branch Manager.
o Managed offices in Strongsville, OH, Ashtabula, OH,
Clarksburg, W. Va., Morgantown, W. Va., Cuyahoga
Falls, Oh, and Akron, OH. Branches varied in size but
all dealt in retail sales, consumer small loans and
second mortgages.
o Responsibilities included portfolio control to
company standards, expense control to the yearly
budget and business development in all products
geared to the corporate plan.
29
<PAGE>
Edward R. Aleman, Jr.
---------------------
Qualifications
o Effectively wrote basic budgeting programs using
database
o Sharp, innovative, quick learner with proven ability
to adapt quickly to a challenge
o Team player with strong communications, planning and
presentation skills
o Honest, forthright, respected and trusted by others
o Gained computer knowledge on IBM PC and Microsoft
Word
Education
o Bachelor of Arts-Economics Finance - University of
Texas at San Antonio 1994
o UTSA Economics Finance Club Member
o Attended special seminars
o Organized guest speakers
o Raised funds for special events
o Mary Carrol High School - Corpus Christi, TX 1989
Experience March 2000 - Present AutoFund Servicing, Inc.
Vice-President/Director of Operations
o Responsible for the day to day operations of the
entire organization
January 1999 - March 2000 AutoFund Servicing, Inc.
Collection Manager San Antonio, TX
o Responsibilities include: interviewing and hiring
personnel for the collections department, goal
setting and performance appraisals.
o Manages a staff consisting of - three deficiency
collectors. One CRI Refund employee and two
bankruptcy employees.
September 1995- December 1998 Reliance Acceptance, Corp.
Branch Manager San Antonio, TX
o Responsible for the attainment of a multimillion
dollar portfolio and ensuring collections on
delinquent accounts
o Approved and denied credit applications
o Responsible for hiring and training all employment
o Ensured operations followed in compliance related
requirements with regard to company policy and
Consumer Finance Laws
30
<PAGE>
March 1995- September 1995 Frost Nation Bank
Adjuster II San Antonio, TX
o Responsible for a multimillion dollar portfolio,
Indirect and Direct Loans
o Acquired knowledge in the collection of delinquent
accounts, deferred payments and due date changes
o Effective knowledge of vehicle repossession, Skip
work and ceased vehicles procedures
o Assisted in the liquidation of repossession vehicles
January 1995- March 1995 Texas Employment Commission
Caseworker II San Antonio, TX
o Assisted in seminars pertaining to the Job Training
Program
o Explained and enrolled unemployment benefits
o Expanded on Public Relations skills
July 1989- August 1993 Paragon Cable
Sales/Customer Service San Antonio, TX
o Scheduled hookups and disconnects for cable customers
o Telemarketing for new customers and special events,
building customer relations
o Collections
31
<PAGE>
Dan Masterson
-------------
Experience January 2000- Present AutoFund Servicing, Inc.
Vice-President/Director of Marketing San Antonio, Tx
o Establish and maintain a contact list of prospective
clients through either direct source or brokers that
can provide available portfolios that would conform
to the criteria best suited for our company's
expertise.
o Investigate available portfolios on the market place,
determining their value and constructing a pro forma
spreadsheet for bidding evaluation, subject to due
diligence.
o Perform on-site due diligence investigations on
portfolios, deemed viable, to confirm or dispel pro
forma's predicted value.
o Ensure licensing compliance for all 50 states
including the District of Columbia
o Lead and direct a due diligence team
o Direct IS/IT Department to ensure continuous computer
network and telephone system service.
1998-2000 World Car Nissan
Finance Director San Antonio, TX
o Responsible directly to the General Manager for
performance quotas
o Reconcile contract receivables o Maintain and direct
a finance department.
o Solicit credit applications to a variety of lenders
(Prime, Non-Prime and Sub-Prime) for finance
approval.
o Provide training to finance and Sales personnel,
alike.
ACCOMPLISHMENTS:
o Increase PRU (Per Retail Unit) gross profits by $388
within 45 days.
o Reduced contracts in transit from $1.4M to less than
$300K within 90 days.
o Attained a 94% approval ratio on credit application
submissions
1997-1998 AutoFund, Inc.
Vice President/Director of Marketing & Lending San Antonio, TX
o Reported directly to the President, initiated
operations from start up to current market presence
in 6 states
o Hired and trained Lending personnel
o Developed and implemented funding procedures to
minimize funding time and maximize funding
efficiency.
32
<PAGE>
1994-1997 Reliance Acceptance Corp.
Marketing Director/Regional Operations Manager San Antonio, TX
o Responsible directly to the President, developed and
implemented marketing strategies in a new department.
o Was instrumental in increasing company's operations
from 19 to 54 branches in 17 states, and bringing
their receivables from $110M to $600M+.
o Hired and trained lending personnel for national
utilization.
o Hired and trained lending personnel for branch
operations throughout company
o Hired and trained Branch and Regional Managers
o Initiated, implemented and supervised on-site special
promotions in conjunction with dealership personnel.
o Audited branch operations for compliance to company
policy and procedures.
o Initiated and implemented asset recovery disposition
procedures (Repossessions)
o Introduced Sub-prime lending into dealerships and
trained personnel to facilitate
1992- 1994 Benson Ingram Park Motors
General Sales Manager San Antonio, TX
o Responsible directly to the Vice-President/General
Manager.
o Managed sales and finance operations for 5
manufacturer's franchises. (Chrysler, Plymouth, Jeep
Eagle, Mazda)
o Hired and trained sales and finance & insurance
personnel.
o Worked within a specified advertising budget while
continually maintaining a dominant market share.
o Ordered and maintained inventory of new automobiles
by utilizing standard factory ordering procedures.
1990-1992 DMV Enterprises
Principal San Antonio, TX
o Purchased and sold automobiles, wholesale, through a
network of franchise and independent dealers in and
around the south Texas area
o Sold automobiles, both wholesale and retail through a
network of independent dealers.
1977-1990 Various New/Used Automobile Dealerships
Sales/General Manager Throughout TX, OK, and NJ
o New/Used Vehicle Sales
o New/Used Vehicle Sales Management
o Inventory procurement and management
o General Sales Management
o Finance & Insurance Sales and Management
o General Management
1977 Honorably Discharges - U.S. Navy
33
<PAGE>
Kathie M. Bewley
----------------
Qualification
o Knowledgeable in personnel administration with an
emphasis in compensation administration, labor
relations, benefits, human resource strategic
management
o Quick learner and willing to train on the job
o Proficient in Microsoft Office and other productivity
software Experience
July 1999 - Present AutoFund Servicing, Inc.
Human Resources/Accts Payable San Antonio, TX
o Responsible for all aspects of the recruitment,
interviewing, hiring, and termination of employees
o Responsible for the health, dental and life insurance
programs and the wellness program provided for the
employees
o Maintain all paperwork and computer programs
concerning personnel files
o Responsible for timesheets
o Responsible for the creation and distribution of the
employee handbook
o Maintain check register and all accounts payable
records
Education
1995-1998 The University of Texas at San Antonio
B.B.A. - Personnel/Human Resource Management
Honors
o Dean's List and National Dean's List GPA 3.9 of
possible 4.0
o Passed Professional Human Resource (PHR) Examination
- May 1998
o Texas Alpha Pi Chapter of Alpha Chi National Honor
Society
o Golden Key National Honor Society
o Nominated for Who's Who Among Students in American
Universities and Colleges
Volunteer Work 1991- Present Boy Scouts of America
o Scoutmaster- January 1, 1999 to present
o Assistant Scoutmaster - 1993- 1998
o Cub Scout Leader - 1991 - 1993
34
<PAGE>
Richard V. Allen Sr.
--------------------
Summary Twenty years of management and training experience in
the areas of collections, recruitment, training and
customer service. A highly motivated self-starter
with excellent communication and team skills.
Background includes a track record in building a
solid foundation of production with excellent problem
solving abilities.
Experience
1994-2000 Risk Management Alternatives, Inc.
Collection Manager San Antonio, TX
o Responsible for activities of the collection staff to
ensure individual and group collection quotas and
goals are achieved in accordance with company and
client objectives. Audit of personnel to ensure
office and client work standards are met. Ensure
tactics, GC dialer and Telephone System functions are
working properly to ensure efficient workflow for the
collection staff and client work standards. Explore
ways to achieve the highest possible return for San
Antonio office and clients, such as establishing Work
Q's and GC Pools. Assist General Manager in budget
planning, setting of short and long term goals and
quotas. Interact with the FAC System (computer),
personnel, and equipment. Handled Human Resource
Department for last 6 months.
o Train personnel in all phases of collections and
F.D.C.P.A. Laws. Prepared a balanced training program
for new and existing collectors.
o Established a good rapport with existing Clients and
established ties with former Clients.
o Successfully completed training in Management
Orientation Principles, Performance Management,
Strategic Staffing, and Interpersonal management
Skills.
o Coordinate transfer of accounts to attorneys;
supervise legal process.
1993-1994 Sunnyside Careers, Inc.
General Manager Permanent Placement Recruitment Pittsburgh, PA
o Responsible for an office of 15 associates.
o Developed budgeting, goal setting and management of
receivables and liabilities.
o Successfully established exclusives with three major
corporations within first six months with company.
o Generated eight placements for a total of $34,350 in
billings within first six months.
o Planned program to update and maintain current
database of clients and candidates for monitoring
flow of productivity with company.
o Developed and outlined complete program of training
for new recruiters.
35
<PAGE>
1984-1993 Payco General American Credits
Brookfield, WI
Collection manager 1990-1993
Supervisor 1985-1990
Collector 1984-1985
o Promoted to supervisor within eighteen months from
start date. Within six months of promotion, unit's
productivity increased 36%.
o Managed a special billing project for a medical
client, consisting of complete billing and
structuring of business office, which generated net
revenue of $250,000.
o Managed a University accounts receivable project,
which generated $2.5 million in net profits. This
project was utilized as a basis for future projects
and was used to train project managers nationwide.
o Formulated and conducted training seminars for
hospitals and project managers. These programs were
customized to meet the needs of the client and staff
involved.
o As Collections Manager, directed department of 8
supervisors and 80 collectors in all phases of
collections, new account processing, and legal
processing on account base exceeding $40 million.
Achieved 40% improvement in recovery in first year.
1980- 1984 First Buckeye Bank, N.A.
Assistant Manager Mansfield, OH
o Trained all new personnel in areas of collections and
office management.
o Monitored collections, bankruptcies, repossessions
and student loans.
o Delivered steady improvement in performance,
resulting in 62% decrease in recovery percentages and
43% decrease in contractuals.
1973-1979 Capital Financial Services, Inc.
Office Manger Arlington, OH
o Increased volume from $900,000 to 1.5 million within
first year of branch takeover. This was accomplished
by increasing client base and by a reduction of
contractual delinquency.
o Office was established as a Manager Training Office
for future upcoming managers, to instruct then in all
phases of office operations and budgeting.
EDUCATION:
o Bliss Business College
o Ohio Peace Officer Academy
o Payco Productivity Series
o Office Management Production Series
o Management Orientation Principles
o Performance Management
o Interpersonal Management
o Strategic Staffing
o Coaching for Performance Maximization
o Windows 98 and Microsoft Office
36
<PAGE>
Windell B. Blair
----------------
PROFESSIONAL PROFILE
o 10 years experience in consumer and automotive
finance and collections
o 20 years in automotive sales and service with 5 years
in recovery, reconditioning and re-marketing of
repossessed vehicles for lending institutions
o 25 years of experience were as management of
operations and included management of operations,
staff supervision and training of personnel
o Strengths include computer literacy and
organizational skills, oriented toward cost control
and bottom line without compromising quality of
service or product
o Enthusiastic team player who can motivate, lead and
believes effort, integrity, honesty and loyalty
should be rewarded
o Credit success to hiring dedicated and creative
people to stimulate the ideas that make success a
by-product of hard work
BUSINESS EXPERIENCE
1994-1998 Lender Services
Owner/President San Antonio, TX
o Established Lender Services to act on behalf of
lending institutions for the purpose of recovery,
reconditioning and re-marketing of their
repossessions
o Established a retail program to allow the lender to
recover twice as much as in previous programs and to
create a new performing loan to maintain their
portfolio
o Have been able to create and perfect new procedures
in the physical operations as well as new software
ideas
o Improved on the wholesale procedures and established
an aggressive retail program to improve recovery for
the lender along with the best documentation
procedures
o Sold interest to work on new venture with AutoFund
Servicing, Inc.
1989-1994 Automotive Consultants
Owner
o As a "Trouble Shooter" took contracts with various
dealerships
o Reorganized their operations in order to allow sale
of the franchise with a top dollar draw
o Worked with one year contract which would end upon
the buy-sell being completed
o Contractors included: Bob Brown Ford-Mercury, Flowers
Pontiac-GMC, Ertly Auto Mail, Lee Pontiac-GMC and The
Auto Ranch
37
<PAGE>
1981-1988 Duncan Investment Group
Partner-General Manager-Dealer Principal
o Started as the General Manager
o Identified problem areas in management, accounting,
service and sales, and took action to correct
o Responsible for hiring and training new personnel
including experienced management o Responsibility
expanded to include two other dealerships
1985
Principal - Blair-Duncan Ford-Mercury
o Assumed all responsibilities as owner-operator of a
financially bankrupt dealership
o Through honest and ethical business practices brought
the business back to a profitable operation in the
first quarter and maintained until it was sold in
1988
1978-1980 Frizell Pontiac-AMC-Jeep-Renault
General Manager
o Responsible for hiring, training, sales, inventory,
finance and day to day operation of the front end
o Managed a staff of 57 employees including: managers,
sales, finance, secretarial and lot personnel.
1973-1978 Demontrond Buick-Opal-Peugeot-
Department Manager International Harvester
o Managed the Opal-Peugeot_IH portion of the business
o Responsible for taking this section which was at the
bottom of their respective regions in sales and
service and produce improvement
o Responsible for hiring and training of the staff
o Reorganized the service department
o Returned the section to a number one status within 2
years
38
<PAGE>
1970-1973 Acceptance, Inc.
Automotive Finance Manager Houston, TX
o Administered the total operation which included
retail financing, dealer discounting of bulk notes,
floor planning, collections, recovery and
liquidations
Southwest Auto Leasing
Automotive Sales & Leasing Houston, TX
o Owner and operator of an used automotive business o
Business grew to four locations within a two-year
period
o Some new car leasing through a Ford-Franchise o
Maintained a very large in-house finance portfolio
o Supervised collection, recovery and re-marketing of
financed vehicles
1963-1970 General Finance company
Collections Houston, TX
o Started as an outside collector and worked into a
management position as Collection Manager of the
largest branch
Lending
o Transferred to become a buyer
o Promoted to Branch Manager in a new office and within
2 years has taken it to number 2 in the company in
size in the Texas region, maintaining the best
delinquency rating of the region
39
<PAGE>
Management's Discussion and Analysis and Plan of Operations
-----------------------------------------------------------
The business environment in which AFS operates has a considerable
impact on value. Buyers will be influenced by the growth prospects for AFS'
industry, as well as the competitive and operating risks inherent in the
industry. Collection agencies are experiencing multiple conditions that are
fueling their business including, deregulation, an increasing trend towards
outsourcing and improved technology. As these trends continue and more debt is
massed, competitive forces will fuel acquisitions in order for third party
collection agencies to gain scale advantages and additional collection markets.
Industry Structure
With an estimated 6,500 firms, totaling $6.5 billion in annual
revenues, the collection services industry is highly fragmented and ripe for
consolidation. The following facts support the fragmented structure and the
sustainability of the collection industry.
o By year end 1998, the largest collection agency accounted for only 5% of
the total industry's revenues and the top 100 agencies combined for just
32% of all industry revenues.(1) Consumer debt is at an all high and
growing at a rapid rate. In the last five years, consumer debt has
increased from 4.7 trillion to a current level (1999) of $6.0 trillion, a
5% compound annual growth rate (CAGR). (2)
Illustrated in the chart below, over 60% of delinquent collection
revenues are collected by agencies with less than $5 million in annual revenue
while 10% of revenues are collected y firms who have between $5-$20 million in
revenues and the remaining 30% representing agencies grossing over $20 million
annually.
Collection Revenues by Agency Size
----------------------------------
(Graph Omitted)
*Source: Sun Trust Equitable Securities
The debt collection industry can be divided into four main groups:
health care, including hospitals and doctor's offices; retail businesses,
including department stores and credit-card companies; utilities; and businesses
to business debts. Generally hospitals and credit cards generate more than 50%
of the amount of over-due and delinquent debt placements.(3)
------------------------
(1) Kaulkin & Associates
(2) Kaulkin & Associates
(3) "The Kaulkin Report- State of the Industry" Kaulkin & Associates, Inc.,
December 1999
40
<PAGE>
The clear industry leader in all sub-segments of debt collection is NCO Group.
This public consolidator controls five percent of the market share and is the
most active acquire in the industry.
o NCO Group has acquired 17 companies between 1994 and 19999 and has grown
its revenues from $30.76 million in 1996 to $492.35 million in 1999.(4)
o The company employs 8,800 people serving 11,500 clients in the U.S.,
Canada, the U.K. and Puerto Rico from 80 call centers.(5)
o In 1998, approximately 32.7% of the company's clients were financial
institutions; 10.8% were retailers or commercial entities; 22.7% were
healthcare organizations; 17.5% were educational organizations; 6.9% were
utilities; 5.0% were government entities; and 4.4% were telecommunications
companies.(6)
o Analysis estimate that NCO group will experience a 3-5 year EPS growth rate
of 25% on its core services due to the favorable industry conditions that
exist.(7)
--------------------------------------------------------------------------------
(4) Bloomberg
(5) "NCO Group, Inc." Salomon Smith Barney, June 1999
(6) Ibid
(7) "NCO Group, Inc." Deutsche Banc Alex Brown, June 1999
41
<PAGE>
Industry Growth
Growing at near double-digit growth for the last two years,
debt collection revenues total $6.5 billion in 1999, up from $5.5 billion in
1997. 8 Consumer debt ultimately drives the debt collection business. Industry
experts predict that fearless consumers and a stable economy will push consumer
debt to $9 trillion by the year 2007, a 5.7% CAGR.
(Graph Omitted)
CAGR 92-07 = 6.37%
The following trends and factors are driving a greater percentage of
collection revenues from the grossly increasing sum of consumer debt within the
United States.
o The average number of credit cards per U.S. household has been increasing
at a 7% CAGR for the last several years, growing from 2.9 cards per
household in 1992 to 5 cards per household in 1999.9 Morgan Stanley Dean
Witter predicts that by the year 2005, 39% of consumer payment transaction
will involve the use of a credit card.(10)
o An increasing trend towards outsourcing dept collection by corporations as
a cost savings and revenue generating initiative that avoids the hassles
and complexities of debt collection. The Nilson Report estimates that 8% of
delinquent accounts were outsourced in 1998, and suggests that this figure
could reach 25% by 2005.(11)
o Advances in technology, such as sophisticated telephones and computer and
software systems, have allowed for collections agencies to develop cost
efficient methods for collecting accounts receivables.(12)
o Regulatory changes have created new outsourcing opportunities in various
markets. For instance, the Debt Collection Improvement Act gives collection
agencies access to an additional $51.3 billion in nontax delinquencies owed
to the federal Government.
------------------------
(8) Kaulkin & Associates, Inc.
(9) "Financial Business Services." Usbancorp Piper Jaffray, October 1999
(10) "Equifax-Value of Information." Morgan Stanley Dean Witter, July 1999
(11) "Equifax-Value of Information." Morgan Stanely Dean Witter, July 1999
(12) "Outsourced Contract services." SunTrust Equitable Securities, January 1999
42
<PAGE>
Auto Debt Industry
According to research compiled by SMR Research Corporation, there is
$465 billion of automobile debt currently outstanding. SMR expects this level of
debt will grow in excess of the rate of inflation for the next 10 years.(14)
Automotive News cited in their 2000 Market Data Book that the average
new-auto loan reached $19,880 and the average used-auto loan was $13,642 in
1999. These figures represent a 10% and 11% increase respectively for new and
used auto loans since 1997.(15)
A robust economy, consumer confidence, relatively low interest rates
and controlled pricing is fueling the automotive industry. Coming off a peak
year in 1999, North American auto sales are forecast to grow steadily for the
next four years, increasing from an estimated 17.8 million units in 2000 to 18.4
million units in 2004.
M&A Activity
Excluding the rapid growth of the largest agencies, the majority of the
debt collection industry is still controlled (approximately 60%) by relatively
small agencies. This fragmentation indicates that the consolidation trend for
this industry is still in its earlier stages.(17) However, large public
consolidators, such as NCO Group, are actively acquiring more market share as
increased outsourcing and better collection technologies emerge. These and other
factors are compounding competitive forces for agencies to gain economies of
scale and broaden collection markets, thus driving a spur of merger and
acquisition activity.
Industry Margins
The Company has an operating profit margin that is comparable to the industry
average for SIC 7322 - Adjustment and Collections Services. A breakdown of how
the Company compares to Robert Morris Associates (RMA) data is listed below:
-------------------------------------------------------------------
AFS FYE 1999 RMA SIC #7322
Recast ($500,000-$2MM
In Revenue)
-------------------------------------------------------------------
Operating Profit 8.4% 8.1%
Sales to Total Assets 4.8% 3.1%
-------------------------------------------------------------------
Source: RMA
------------------------
(14) "American Collectors Association Sees Continued Growth in Collection
Industry Through 2006". American Collectors Association, February 2000
(15) "2000 Market Data Book". Automotive News, May 2000
(17) SunTrust Equitable Securities Research
43
<PAGE>
Market Factors
The strength of the U. S. economy as a whole will effect the Company.
As such, the outlook for the U.S. economy is positive. Market conditions include
a healthy economy, low interest rates and favorable financing conditions. As the
United States continues to experience economic prosperity, the debt collection
industry should continue to grow.
In addition to the factors driving growth and acquisitions, below are
market factors that are shaping and driving this dynamic industry.
o According to the Healthcare Financing Administration, healthcare spending
is projected to increase. Average annual increases are expected to reach
6.4% between 1998 and 2007, compared to average increases of 4.5% between
1992 and 1997.(18)
o Lenders and credit grantors have reduced the time they seek assistance
after a debt becomes delinquent. The odds of collecting this delinquent
debt depreciates approximately 1/2 % each day.(19)
o Debt collection is relatively stable through all economic conditions.
During a strong economy, consumers increase their borrowings and lenders
take on more risk. Even though defaults are less likely in this period,
debts become larger and easier to collect. In an economic downturn, lending
may be tighter, however, defaults become more frequent.(20)
o Business bankruptcy filings are coming off a peak and decreasing quite
substantially. Given bankruptcy protection negatively impacts debt
collection, the reduction in filings is a favorable condition for the
industry.(21)
o Currently there are various legislative initiatives before Congress that
would make consumer bankruptcy filings more difficult.(22)
------------------------
(18) "Healthcare Recoveries, Inc." BT Alex Brown, December 1998
(19) Kaulkin & Associates
(20) "NCO" Group, Inc." Salomon Smith Barney, June 1999
(21) "NCO" Group, Inc." Deutsche Banc Alex, Brown, June 1999
(22) Ibid
44
<PAGE>
Geographic Markets
The Company services portfolios with charges-off accounts located
across the United States. The following graph illustrates the Company's
geographic account mix:
Accounts as a Percent of Sales
------------------------------
(graph omitted)
Northeast 5%
Southwest 15%
Northwest 5%
Midwest 25%
South 50%
Ownership
The Company is owned entirely by its President, James D Haggard, who
manages the daily operations of the business.
Number of Employees
AFS employs a highly trained, non-union staff of 59 full-time
employees. The following table lists the departmental/functional breakdown of
the Company's staff:
----------------------------------------------------
Department/Function Number of Employees
------------------- -------------------
Deficiency Collection 31
Bankruptcies & Cancellations 8
Repossession & Disposal 5
Marketing 2
Administration 13
Total 59
----------------------------------------------------
45
<PAGE>
Facilities
The Company occupies one building, leased through an unrelated party at
a fair market lease rate. The facilities are large enough to support growth
through 2002 of the pro forma period and can be expanded when the need arises.
The following table summarizes AFS' facilities:
-----------------------------------------------------------------------
Location Date Established Use Sq. Footage Employees
-----------------------------------------------------------------------
San Antonio, TX 1999 Offices 8,000 59
-----------------------------------------------------------------------
Value Enhancers
FINANCIAL
o Rising sales: Revenue is expected to increase 168% in the base year 2000.
o Favorably compares to industry ratios: The Company's interim 2000 operating
profit at 31.4% of sales exceeds industry averages, as reported in RMA
data.
o Backlog of signed contracts: AFS has contracts with three companies to
collect on approximately $180 million in charged-off debt.
OPERATIONAL
o Propriety expertise: The Company has developed a superior method of
collecting on charges-off auto debt including obtaining refunds on
insurance and warranties.
o Excellent location: The Company's location in San Antonio, Texas provides
low overhead costs and availability to a bilingual labor pool.
o Business is easily relocatable: Continuing operation of the Company is not
location specific.
o National reach: The Company generated 1999 revenue from charged off
accounts distributed across the United States.
o Documented systems and procedures: AFS has developed and documented its
collection methods.
EXTERNAL
o Favorable market trends: Consumer debt is at an all time high and growing
at a rapid rate. In the last five years, consumer debt has increased from
4.7 trillion to a current level (1999) of $6.0 trillion, a 5% compound
annual growth rate (CAGR).(23)
------------------------
(23) Kaulkin & Associates, Inc.
46
<PAGE>
MARKETING PLAN
--------------
The Industry
Tremendous changes have occurred during the past 12 months in the Bad
Debt industry. Lenders are selling their charged off debt (estimated at 3
trillion dollars in the United States) more rapidly and for more money than at
any time in history. Thee primary focus, currently, is credit card debt. We,
however, prefer auto loan charge offs because of our experience. General
Electric, Capital One and Integrated Services are three of the largest debt
buyers and their focus is on credit card portfolios, not auto portfolios. The
industry is moving toward securitization of assets, according to numerous
published reports.
Status of Discussions
Currently we have an opportunity to purchase Joint Venture or service
several different sub-prime auto charge off portfolios with a book value of
$200+million. We are in the primary negotiation phase to acquire the servicing
rights on approximately $25 million of a performing sub-prime auto portfolio.
Timing and Diligence of Bids URGENT!
Time is of the essence. The faster we can complete our due diligence
and negotiate an offer, the better chance we have at purchasing the portfolio at
a very attractive price. AFSI will enhance its opportunity to acquire portfolios
in a timely and efficient manner. Most portfolios today are placed under a
bidding constraint and due diligence is limited until an intermediate price can
be established. Upon due diligence it may be determined that a portfolio pricing
needs to be renegotiated or restructured to limit or share in the liability.
Approach to Diligence and Valuation
AFSI requests an electronic file that includes loan level detail for
all accounts in the portfolio. There are about 30 fields of information with
totals and averages available. AFSI has a detailed bulk purchase manual to guide
us in the step-by-step approach in purchasing the portfolio.
Based on account file information, AFSI can agree on a preliminary
price and risk limiting structure subject to an onsite due diligence review. We
intend to price the accounts to yield a minimum of 5% after taxes, losses and
all expenses for interest and operations. AFSI believes that funding on a
portfolio of this quality can be obtained with a debt to equity ratio of at
least 4:1. At this ratio a minimum return on equity would be 25%.
Following acceptance of the preliminary price, key individuals of AFSI
would spread the accounts on site and finalize negotiations with the client.
This process could be completed in about two weeks.
After all collateral refunds and cancellations are resolved we will
have a deficiency balance portfolio. Not unlike defaulted credit card accounts
these accounts present another opportunity, which is with professional
persistent collection procedures these accounts can be flipped to create credit
card customers enhancing the performance of the portfolio.
Market Place
With our experience and performance on existing portfolios we will have
continuing opportunities for new business. We will remain flexible in our
approach to new business (purchase, joint venture or servicing), allowing our
prospective clients to consider options that our competitors do not offer.
47
<PAGE>
FINANCIAL
STATEMENTS
48
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(Formerly GRUBSTAKE, INC.)
(A Development Stage Company)
FINANCIAL STATEMENTS
July 24, 2000
December 31, 1999
December 31, 1998
49
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE #
INDEPENDENT AUDITORS REPORT 51
----------------------------------------------------------------------
ASSETS 52
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 53
----------------------------------------------------------------------
STATEMENT OF OPERATIONS 54
----------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY 55
----------------------------------------------------------------------
STATEMENT OF CASH FLOWS 56
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 57-61
----------------------------------------------------------------------
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors July 27, 2000
AUTOFUND SERVICING, INC.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of AUTOFUND SERVICING,
INC., (Formerly Sphinx Industries, Inc.), (a Development Stage Company) as of
July 24, 2000, December 31, 1999, and December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
January 1, 2000 to July 24, 2000, and the two years ended December 31, 1999, and
December 31, 1998. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AUTOFUND SERVICING,
INC., (Formerly Sphinx Industries, Inc.), (Formerly GRUBSTAKE, INC.), (a
Development Stage Company), as of July 24, 2000, December 31, 1999, and December
31, 1998, and the related statements of operations, stockholders' equity and
cash flows for the period January 1, 2000 to July 24, 2000, and the two years
ended December 31, 1999, and December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to the
Financial Statements, the Company has had no operations and has no established
source of revenue. This raises substantial doubt about its ability to continue
as a going concern. Management's plan in regard to these matters is described in
Note #5. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Barry L. Friedman
---------------------------
Barry L. Friedman
Certified Public Accountant
1582 Tulita Drive
Las Vegas, NV 89123
(702) 361-8414
51
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
BALANCE SHEET
ASSETS
July December December
24, 2000 31, 1999 31, 1998
-------------- -------------- ----------------
CURRENT ASSETS $ 0 $ 0 $ 0
--------------- --------------- ----------------
TOTAL CURRENT ASSETS $ 0 $ 0 $ 0
--------------- --------------- ----------------
OTHER ASSETS $ 0 $ 0 $ 0
--------------- --------------- ----------------
TOTAL OTHER ASSETS $ 0 $ 0 $ 0
--------------- --------------- ----------------
TOTAL ASSETS $ 0 $ 0 $ 0
--------------- --------------- ----------------
The accompanying notes are an integral part of these financial statements
52
<PAGE>
<TABLE>
<CAPTION>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
July December December
24, 2000 31, 1999 31, 1998
--------------- -------------- ---------------
<S> <C> <C> <C> <
CURRENT LIABILITIES
Officers' Advances (Note #8) $ 450 $ 0 $ 0
---------------- --------------- ----------------
TOTAL CURRENT LIABILITIES $ 450 $ 0 $ 0
---------------- --------------- ----------------
STOCKHOLDERS' EQUITY (Note #4)
Common stock
No par value
Authorized 25,000 shares
Issued and outstanding at
December 31, 1998 -
1,365 shares $ 4,000
December 31, 1999 -
1,365 shares $ 4,000
Common stock
Par value $0.0001
Authorized 50,000,000 shares
Issued and outstanding at
July 24, 2000 -
2,000,000 shares $ 2,000
Additional Paid-In Capital 2,000 0 0
Deficit accumulated during
the development stage -4,450 -4,000 -4,000
---------------- --------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $ -450 $ 0 $ 0
---------------- --------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 0 $ 0 $ 0
---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements
53
<PAGE>
<TABLE>
<CAPTION>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
STATEMENT OF OPERATIONS
Jan. 1, Year Year Mar. 7, 1997
2000 to, Ended Ended (Inception)
Jul. 24, Dec. 31, Dec. 31, to Jul. 24,
2000 1999 1998 2000
--------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
INCOME
Revenue $ 0 $ 0 $ 0 $ 0
--------------- --------------- --------------- ------------------
EXPENSES
General, Selling and
Administrative $ 450 $ 0 $ 0 $ 4,450
--------------- --------------- --------------- ------------------
TOTAL EXPENSES $ 450 $ 0 $ 0 $ 4,450
--------------- --------------- --------------- ------------------
NET PROFIT/LOSS (-) $ -450 $ 0 $ 0 $ -4,450
--------------- --------------- --------------- ------------------
Net Loss per share -
Basic and diluted
(Note #2) $ -.0002 $ NIL $ NIL $ -.0022
--------------- --------------- --------------- ------------------
Weighted average
Number of common
shares outstanding 2,000,000 2,000,000 2,000,000 2,000,000
--------------- --------------- --------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
54
<PAGE>
<TABLE>
<CAPTION>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Accumu-
Common Stock paid-in lated
Shares Amount Capital Deficit
-------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1997 1,365 $ 4,000 0 $ -4,000
Net loss year ended
December 31, 1998 $ 0
-------------- --------------- ---------------- ----------------
Balance,
December 31, 1998 1,365 $ 4,000 $ 0 $ -4,000
Net loss year ended
December 31, 1999 0
-------------- --------------- ---------------- ----------------
Balance,
December 31, 1999 1,365 $ 4,000 $ 0 $ -4,000
July 11, 2000
Changed par value
From no par value
to $0.001 -3,999 +3,999
July 11, 2000
Forward Stock Split
1,465.2 for 1 1,998,635 +1,999 -1,999
Net Loss
January 1, 2000 to
July 24, 2000 -450
-------------- --------------- ---------------- ----------------
Balance,
July 24, 2000 2,000,000 $ 2,000 $ 2,000 $ -4,450
-------------- --------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements
55
<PAGE>
<TABLE>
<CAPTION>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Jan. 1, Year Year Mar. 7, 1997
2000 to, Ended Ended (Inception)
Jul. 24, Dec. 31, Dec. 31, to Jul. 24,
2000 1999 1998 2000
--------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
Cash Flows from
Operating Activities
Net Loss $ -450 $ 0 $ 0 $ -4,450
Adjustment to
Reconcile net loss
to net cash provided
by operating activities
Issue common stock
for services 0 0 0 +4,000
Changes in assets
And liabilities
Officers' Advances +450 0 0 +450
-------------- --------------- ---------------- ----------------
Net cash used in
Operating activities $ 0 $ 0 $ 0 $ 0
Cash Flows from
Investing Activities 0 0 0 0
Cash Flows from
Financing Activities
Issuance of Common
Stock for Cash 0 0 0 0
-------------- --------------- ---------------- ----------------
Net Increase (decrease) $ 0 $ 0 $ 0 $ 0
Cash,
Beginning of period 0 0 0 0
-------------- --------------- ---------------- ----------------
Cash, End of Period $ 0 $ 0 $ 0 $ 0
-------------- --------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements
56
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
July 24, 2000, December 31, 1999, and December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized March 7, 1997, under the laws of the State of
Nevada as SPHINX INDUSTRIES, INC. The Company currently has no
operations and, in accordance with SFAS #7, is considered a development
stage company. On July 11, 2000, the Company changed its name to
AUTOFUND SERVICING, INC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
-----------------
The Company records income and expenses on the accrual method.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and equivalents
--------------------
The Company maintains a cash balance in a non-interest-bearing
bank that currently does not exceed federally insured limits.
For the purpose of the statements of cash flows, all highly
liquid investments with the maturity of three months or less
are considered to be cash equivalents. There are no cash
equivalents as of July 24, 2000.
Income Taxes
------------
Income taxes are provided for using the liability method of
accounting in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS #109) "Accounting for
Income Taxes". A deferred tax asset or liability is recorded
for all temporary difference between financial and tax
reporting. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
57
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
July 24, 2000, December 31, 1999, and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reporting on Costs of Start-Up Activities
-----------------------------------------
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities" which provides guidance on the
financial reporting of start-up costs and organization costs.
It requires most costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. With the
adoption of SOP 98-5, there has been little or no effect on
the company's financial statements.
Loss Per Share
--------------
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS #128) "Earnings
Per Share". Basic loss per share is computed by dividing
losses available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would
have resulted if dilative common stock equivalents had been
converted to common stock. As of July 24, 2000, the Company
had no dilutive common stock equivalents such as stock
options.
Year End
--------
The Company has selected December 31st as its fiscal year-end.
Year 2000 Disclosure
--------------------
The Y2K issue had no effect on this Company.
Policy in Regards to Issuance of Common Stock in a Non-Cash Transaction
-----------------------------------------------------------------------
The Company's accounting policy for issuing shares in a
non-cash transaction is to issue the equivalent amount of
stock equal to the fair market value of the assets or services
received.
58
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
July 24, 2000, December 31, 1999, and December 31, 1998
NOTE #3 - INCOME TAXES
There is no provision for income taxes for the period ended July 24,
2000, due to the net loss and no state income tax in Nevada, the state
of the Company's domicile and operations. The Company's total deferred
tax asset as of December 31, 1999 is as follows:
Net operation loss carry forward $ 4,000
Valuation allowance $ 4,000
Net deferred tax asset $ 0
The federal net operating loss carry forward will expire between 2018
and 2019.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.
NOTE #4 - STOCKHOLDERS' EQUITY
Common Stock
------------
The authorized common stock of the corporation consists of 50,000,000
shares with a par value $0.001 per share.
Preferred Stock
---------------
AutoFund Servicing, Inc. has no preferred stock.
On March 20, 1997, the Company issued 1,365 shares of its no par value
common stock for services valued at $4,000.00.
On July 11, 2000, the State of Nevada approved the Company's restated
Articles of Incorporation, which increased its capitalization from
25,000 common shares to 50,000,000 common shares, and changed the par
value from no par value to $0.001.
On July 11, 2000, the Company approved a forward stock split on the
basis of 1465.20 for 1, thus increasing the common stock from 1,365
shares 2,000,000 shares.
59
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
July 24, 2000, December 31, 1999, and December 31, 1998
NOTE #5 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company does not have
significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern.
NOTE #6 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock.
NOTE #7 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge.
Such costs are immaterial to the financial statements and accordingly,
have not been reflected therein. The officers and directors of the
Company are involved in other business activities and may in the
future, become involved in other business opportunities. If a specific
business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business
interests. The Company has not formulated a policy for the resolution
of such conflicts.
NOTE #8 - OFFICERS ADVANCES
While the Company is seeking additional capital through a merger with
an existing company, an officer of the Company has advanced funds on
behalf of the Company to pay for any costs incurred by it. These funds
are interest free.
60
<PAGE>
AutoFund Servicing, Inc.
(Formerly Sphinx Industries, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
July 24, 2000, December 31, 1999, and December 31, 1998
NOTE #9 - SUBSEQUENT EVENTS (UNAUDITED)
On July 25, 2000, the Company bought 100% of the issued and outstanding
shares of AutoFund Servicing, Inc., a Texas corporation, such that
AutoFund Servicing, Inc., a Texas corporation shall become a
wholly-owned subsidiary of AutoFund Servicing, Inc., a Nevada
corporation, for 18,000,000 common shares of AutoFund Servicing, Inc.,
a Nevada corporation. AutoFund Servicing, Inc., a Texas corporation, is
a contract-servicing business which acquires, services, and collects
sub-prime and prime automobile paper with deficiency balances,
charged-off balances, non-performing and performing contracts. This
transaction is valued at $559,058.92, which represents the total assets
of AutoFund Servicing, Inc., the Texas corporation, as of May 31, 2000,
and does not take into consideration the total liabilities of
$203,401.28.
At a Board of Directors' meeting on July 7, 2000, the Company's
intention was to amend the Company's Articles of Incorporation. Among
the things the Company wanted to do was to add 1,000,000 preferred
stock with a par value of $0.001. In the Certificate of Amendment
submitted to the State of Nevada, the provision for the preferred
shares was unintentionally omitted. It is the Company's intention to
resubmit an additional amendment to its Articles of Incorporation
creating the above-referenced preferred stock.
61
<PAGE>
To Whom It May Concern: July 27, 2000
The firm of Barry L. Friedman, P.C., Certified Public Accountant consents to the
inclusion of their report of July 27, 2000, on the Financial Statements of
AutoFund Servicing, Inc., (Formerly Sphinx Industries, Inc.), (a Development
Stage Company), as of July 24, 2000, in any filings that are necessary now or in
the near future with the U.S. Securities and Exchange Commission.
Very truly yours,
/s/ Barry L. Friedman
---------------------------
Barry L. Friedman
Certified Public Accountant
62
<PAGE>
AUTOFUND SERVICING, INC.
Financial Statements
July 31, 2000
Table of Contents
Financial Statements Page
-----
Independent Auditor's Report .......................................... 64
Balance Sheet ......................................................... 65
Statement of Income and Retained Earnings ............................. 66
Statement of Cash Flows ............................................... 67
Notes to Financial Statements ......................................... 68-70
63
<PAGE>
WESLEY F. CROWLEY
CERTIFIED PUBLIC ACCOUNTANT
11202 DISCO DRIVE, SUITE 118*SAM AMTPMOP. TEXAS 78216
(210) 495-9777 FAX (210) 499-4217
Independent Auditor's Report
----------------------------
To the Board of Directors
Autofund Servicing, Inc.
3201 Cherry Ridge, Suite 314
San Antonio, Texas 78230
I have audited the accompanying balance sheet of Autofund Servicing, Inc. (a
Texas Corporation) as of July 31, 2000 and the related statement of income and
retained earnings and statement of cash flows for the seven month period then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Autofund Servicing, Inc. as of July
31, 2000, and the results of its operations and its cash flows for the seven
month period then ended, in conformity with generally accepted accounting
principles.
/s/ Wesley F. Crowley
--------------------------
Wesley F. Crowley, CPA
September 16, 2000
64
<PAGE>
<TABLE>
<CAPTION>
AUTOFUND SERVICING, INC.
Balance Sheet
July 31, 2000
Assets
<S> <C> <C>
Current Assets
Cash $ 37,057
Accounts receivable 250,554
----------
Total Current Assets $ 287,611
Property and Equipment
Building Improvements 23,897
Furniture & fixtures 171,902
Equipment 49,618
Software 23,404
Less: Accumulated Depreciation (46,250)
-----------
Net Property and Equipment 222,571
-----------
Total Assets $ 510,182
-----------
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 115,458
Accrued liabilities 73,798
Income taxes payable 33,250
----------
Total Current Liabilities $ 222,506
Long Term Liabilities
Accounts payable-shareholder 24,832
----------
Total Long Term Liabilities 24,832
Deferred Credit
Deferred Federal income taxes 38,001
----------
Total Deferred Credit 38,001
Stockholder's Equity
Common stock-1, 000,000 authorized,
750,000 shares issued and
outstanding; on par value 10,000
Retained earnings 214,843
----------
Total Stockholder's Equity 224,843
-----------
Total Liabilities and
Stockholder's Equity $ 510,182
-----------
65
<PAGE>
AUTOFUND SERVICING, INC.
Statement of Income and Retained Earnings
Seven Month Period Ended July 31, 2000
Income
<
Servicing income $ 1,405,800
Direct Costs
Salaries & wages $ 567,369
Temporary staff 114,428
Payroll taxes 31,116
Telephone 55,231 768,144
----------- -----------
Gross Profit 637,656
Operating Expenses
Officer & office salaries 119,458
Rent 57,166
Insurance 34,504
Professional fees 78,170
Depreciation 20,413
Computer expenses 13,976
Office 12,081
Repairs 3,471
Travel 13,163
State franchise taxes 3,471
Payroll taxes 8,225
Equipment lease 3,234
Dues & subscriptions 2,728
Contract labor 7,106
Fees & permits 8,389
Employee training 744
Conferences 2,329
Advertising 2,483
Auto expense 2,096
Licenses and taxes 14,983
Entertainment 3,636 412,013
----------- -----------
Operating Income 225,643
Income Tax Expense
Current 33,250
Deferred 38,001 71,251
----------- -----------
Net Income 154,392
Retained Earnings - December 31, 1999 60,451
-----------
Retained Earnings - July 31, 2000 $ 214,843
-----------
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
AUTOFUND SERVICING, INC.
Statement of Cash Flows
For the Seven Month Period Ended July 31, 2000
<S> <C>
Cash Flows from operating Activities:
Net Income $ 154,392
Adjustments to reconcile net income to net
Cash provided (used) by operating activities
Deferred income taxes 38,001
Depreciation 20,413
Change in operating assets and liabilities:
Accounts receivable (249,308)
Accounts payable 74,052
Federal income taxes payable 33,250
Accrued liabilities 42,912
----------------
Net Cash Provided (Used) by
Operating Activities 113,712
Cash Flows from Financing Activities:
Equipment purchases (63,197)
----------------
Net Cash Provided (Used) by
Investing Activities (63,197)
Cash Flows from Financing Activities:
Payment on long term payable (34,000)
----------------
Net Cash Provide (Used) for
Financing Activities (34,000)
----------------
Net Increase in Cash 16,515
Cash - December 31, 1999 20,542
----------------
Cash - July 31, 2000 $ 37,057
----------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ -0-
----------------
Federal income taxes paid $ 15,000
----------------
</TABLE>
67
<PAGE>
AUTOFUND SERVICING, INC.
Notes to Financial Statements
July 31, 2000
NOTE A- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------
Nature of Business: The company services deficient portfolios for leaders
nationwide. These portfolios are a combination of written off accounts,
bankruptcy accounts and other accounts placed for collection. The company
currently provides these services on a fee basis. Future plans include a direct
acquisition of these portfolios purchased at a discount.
Management Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable: The balance in accounts receivable is considered by
management to be collectible in full. Uncollectible accounts are charged to
operations when management deems them to be bad debts.
Property and Equipment: Property and equipment is started at cost. Depreciation
is expensed using straight-line and accelerated methods over the estimated
useful lives of the assets. The estimated useful lives are building-30 to 40
years; equipment and tools-5 to 7 years; software-5 years; furniture and
fixtures-5 to 7 years.
Federal Income Taxes: These statements have been prepared on the accrual, basis.
For Federal income tax purposes, the Company reports income on the cash method.
Deferred income taxes are provided for differences in timing in reporting
certain income and expenses for financial statement and tax purposes.
NOTE B - FEDERAL INCOME TAX
The company complies with Statement of Financial Accounting Standards No. 109
(FAS 109) Accounting for Income Taxes. A FA 109 recognizes deferred taxes on the
liability method using currently enacted tax rates scheduled to be in effect
when the temporary differences reverse. No charge or credit to income was
recognized by the Company as a result of its compliance with FAS 109.
Depreciation expense for financial statements is $20,413. For Federal income tax
purposes depreciation expense is $32,998.
68
<PAGE>
AUTOFUND SERVICING, INC.
Notes to Financial Statements
July 31, 2000
For the period ended July 31, 2000, entertainment expenses in the amount of
$3,363 was not deductible for Federal tax purposes. This is a permanent timing
difference and does not require an adjustment for deferred income tax.
NOTE C - CONCENTRATION OF CREDIT RISK
The company complies with statement of Financial Accounting Standards #105. This
statement requires disclosure of information regarding financial instruments
with off balance sheet risk and financial statements with concentration of
credit risk. Autofund Servicing, Inc. trade territory covers substantially the
entire Untied States. The corporation grants credit to customers whose
businesses are located in that area.
NOTE D - FAIR VALUE OF FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash - The carrying account reported in the balance sheet approximates
its fair value.
Accounts Receivable and Accounts Payable - The carrying account
reported in the balance sheet approximates its fair value.
NOTE E - COMMITMENTS
The Company has a lease agreement in place covering office facilities. This
agreement expires September 30, 2005. However, the agreement contains two
renewal options every three years, each with a term of three years. The
following is a schedule of future rent commitments for the next five years:
Year Ended July 31,
2001 $ 226,376
2002 240,597
2003 240,597
2004 240,597
2005 240,597
-----------
$ 1,188,764
69
<PAGE>
AUTOFUND SERVICING, INC.
Notes to Financial Statements
July 31, 2000
NOTE F - RISKS AND UNCERTAINTIES
The company's future operating results may be affected by a number of factors.
Currently, the company is servicing a portfolio for a major banking customer
under an agreement, which is modified from time to time. The most recent
amendment increased the company's fee structure from 29% f collections to 45% of
collections. The customer also reimburses the company for out of pocket
expenses. Company management is continually seeking additional business either
in the form of a fee based collection service or in a circumstance whereby the
company will purchase a portfolio at a substantially discount and will then own
any proceeds collected on those accounts. At the balance sheet date, management
was in negotiation with several potential customers to provide service or
structure a direct purchase of accounts.
NOTE G - RLATED PARTY TRANSACTIONS
The sole shareholder has advanced funds to the company. Payments are made
periodically when cash flow allows. Because actual repayments are uncertain,
management has categorized this balance as a long-term liability.
On July 25, 2000 the sole shareholder of the company entered into an agreement
with Autofund Servicing, Inc., a Nevada Corporation, to exchange 100% of the
issued and outstanding shares of Autofund Servicing, Inc., a Texas Corporation,
for 18 million shares (90% of the outstanding shares) of the Nevada Corporation.
Accordingly, Autofund Servicing, Inc., a Texas Corporation, will become a wholly
owned subsidiary of Autofund Servicing, Inc., a Nevada Corporation.
NOTE H - SUBSEQUENT EVENTS
As part of the company's continuing efforts to expand business operations,
management has entered into discussions with several investors and lending
institutions to provide capital or lines of credit to purchase portfolios and
cover operating expenses during the transition period from the time portfolios
are acquired for servicing until such time as operations have sufficient cash
flow. This cycle normally requires approximately 90 days to mature.
As of the date of this report, management has signed a servicing agreement with
a new lender. The new portfolio has 15,500 customers with a total value of
$86,000,000. The service rate if 50% of collections. According to the terms of
the contract the company will absorb all collection expenses. The company will
have the option to purchase this portfolio in 90 days for $1,395,000 or $.016 on
the dollar, which ever is less.
70
<PAGE>
Legal Matters
The validity of the securities will be passed upon for the Corporation by this
Orsini & Rose Law Firm, P.A. St. Petersburg, Florida. The Orsini & Rose Law Firm
will rely upon other counsel in all matters involving Texas law.
Experts
All financial statements included in this prospectus have been audited by Barry
L. Friedman, CPA and Wesley F. Crowley, CPA. The Corporation has relied on the
reports and audits of both of these independent accountants, given on their
authority as experts in accounting and auditing, and being in accordance with
generally accepted accounting principles.
71
