<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 33-3435 D
FIRST FIDELITY ACCEPTANCE CORP.
(Exact name of registrant as specified in its charter)
NEVADA 87-0432499
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4975 PRESTON PARK BOULEVARD, SUITE 400, PLANO, TEXAS 75093
- ----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 985-2150
-------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No (See Form 15 C211 Filing)
--- ---
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation SK contained in this form, and no
disclosure will be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 24, 1996 was $9,031,000, based upon the median of
the closing bid and asked prices of such stock on May 24, 1996.
<TABLE>
<CAPTION>
Number of Shares
Class Outstanding at May 24, 1996
----- ---------------------------
<S> <C>
Common Stock, $.001 par value 41,283,316
</TABLE>
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PART I
ITEM 1. BUSINESS.
First Fidelity Acceptance Corp. (the "Company"), a Nevada corporation, is a
purchaser of automobile retail installment sale contracts ("Autoloans") through
a nationwide network of factory-authorized automobile dealers. The Company
has entered into agreements with such automobile dealers under which it
purchases Autoloans relating to the sale of automobiles and light trucks to
borrowers of marginal creditworthiness. Through December 31, 1995 the
Autoloans have been insured by The Great American Insurance Company against
loss of principal and interest. The Company expects to stop purchasing
principal and interest insurance in 1996 due to changes in market factors.
Certain Autoloans are insured against vehicle collateral loss or damage by the
aforementioned insurance company, while other Autoloans have similar insurance
provided by a wholly-owned subsidiary of Fireman's Fund. The Company utilizes
a third party as Autoloan servicer and a bank as trustee, to control the
collateral and distribution of funds to investors in the Autoloans.
The Company acquires Autoloans from the dealers, at a discount from face
value. Substantially all of the Autoloans are initially financed and funded by
third-party financial institutions that acquire the Autoloans on an interim
basis as "warehouse" investors. The Company and its subsidiaries subsequently
combine these Autoloans into pools, repurchase them from the warehouse
investors, and simultaneously securitize and sell interests in the pools as
asset backed securities to permanent investors.
The Company relies heavily on regular securitizations of Autoloans in order
to free up capacity with warehouse investors and thereby grow Autoloan volume
and profitability. For the past three years, the ability to securitize
Autoloans has been impaired significantly by the legal proceedings described in
Item 3 below.
Since December 31, 1995, the Company has expanded its warehouse capacity
through the sale of certificates by a wholly-owned subsidiary of the Company.
Further, with the resolution of the Borlaug legal proceedings, a major
financial institution commenced financing and funding Autoloans originated by
the Company's automobile dealers. This should enable the Company to grow in
the second half of 1996 and beyond.
Autoloan application fees and loan discounts charged to automobile dealers
are recognized as income at time of purchase. All related purchase costs,
including Autoloan insurance premiums covering principal, interest and vehicle
collateral, are recognized as expense at the time of Autoloan purchase.
Through December 31, 1995, the Company has purchased approximately 5,000 such
Autoloans with an aggregate original principal balance of approximately $58
million and has completed seven securitizations totaling approximately $34
million. The remaining Autoloans not yet securitized of approximately $16
million were owned by warehouse investors as of December 31, 1995, subject to
the right of repurchase by one of the Company's subsidiaries.
In connection with each securitization, the related special purpose
subsidiary of the Company receives a non-assignable and non-marketable
guarantee fee for providing and maintaining a cash collateral account with the
trustee. Such cash collateral account acts as a liquidity reserve to ensure
that the asset backed security certificate holders are paid on the due date
regardless of whether the underlying Autoloans are paid on the due date by the
borrowers. This is not a loss reserve as Autoloan losses are covered by
insurance.
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The Company's subsidiaries recognize income on the Autoloan sales equal to
the present value of the guarantee fee to be received over the term of the
underlying Autoloans after deducting an estimated amount for possible
prepayments and costs. Changes in such estimates are based on updated
prepayment and default data and result in periodic corresponding adjustments to
revenues and the uncollected guarantee fee. The uncollected portion of the
guarantee fee is reflected in the accompanying balance sheet as "Due from sales
and securitizations of loans," and is net of (a) an imputed interest factor,
(b) accrued estimated costs associated with prepayments, defaults, and
repossessions, and (c) amounts collected to date.
The costs and expenses relating to the Autoloans are deducted from revenue
at the time of financing and funding by the warehouse investors. Such expenses
comprise Autoloan insurance premiums, future servicing costs, securitization
costs, repossession expenses, bank charges and trustee fees.
SECURITIZATION BY SUBSIDIARIES
The Company commenced its securitization activities in September 1992
through wholly-owned subsidiaries. The following table sets forth certain
information regarding each securitization, all of which were private and
non-rated ($000s):
<TABLE>
<CAPTION>
Weighted Gross
Amount Balance at Average Securitization Guarantee
Date Securitized December 31, 1995 APR Rate Fee
---- ----------- ----------------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
August 1992 $2,019 $ 451 20.91% 20.91% --
February 1993 2,414 742 20.71% 12.00% 8.71%
July 1993 2,867 993 20.39% 12.00% 8.39%
October 1994 2,940 1,606 20.64% 12.00% 8.64%
January 1995 6,203 4,932 20.37% 9.50% 10.87%
April 1995 10,450 8,838 20.37% 9.00% 11.37%
September 1995 7,050 6,742 20.23% 8.50% 11.73%
</TABLE>
HISTORY
The Company was founded on August 10, 1988 as First Fidelity Acceptance
Corp., ("FFAC"), a Florida corporation with general corporate powers.
On September 30, 1988, the Florida corporation merged with Metro
Development, Inc., a Utah corporation. Metro Development was founded on April
18, 1985 to engage in the acquisition of properties, assets, and businesses.
In 1987, Metro Development raised $288,000 from approximately 200 investors in
an initial public offering.
In the merger between the Florida and Utah corporations, the Utah
corporation was the survivor, with the shareholders of the Florida corporation
receiving shares of Metro Development, Inc.
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On the same date as the merger, the surviving Utah corporation restructured
as a Nevada corporation with general corporate powers, recapitalized with a
reverse split of 1 for 20 and changed its name to First Fidelity Acceptance
Corp. In the restructuring, 8,469,000 shares of common stock were issued to
the former shareholders of the Florida corporation, and 1,843,425 shares were
issued to the shareholders of the pre-merger Utah corporation.
MARKET SERVED
The Company's Autoloan program enables marginal credit borrowers who are
gainfully employed to obtain reliable automobile transportation. The Autoloans
at time of purchase range from $4,500 to $20,000 net of the borrower's
downpayment of at least 10%. The Company has identified its niche market as
"marginal credit quality" automobile purchasers. In most cases, these
purchasers have an adverse credit rating in their past or no prior credit and
therefore do not qualify under the traditional lender's underwriting
guidelines. While these consumers may have had a financial mishap in the past,
perhaps caused by the temporary loss of employment, illness or divorce, they
are now qualified to finance the purchase of a vehicle. Under the Company's
program, buyers are given the opportunity to reestablish or establish a good
credit rating.
The automobile finance industry is the second-largest consumer finance
industry in the U.S. with over $400 billion in loan and lease originations in
1995. The Company estimates that over 5 million potential purchasers meet its
Autoloan underwriting guidelines each year, but are rejected by non-marginal
program lenders. The Company's market should therefore be considered to be
over 50 billion dollars of Autoloans per annum.
The Company's underwriting criteria identify the applicants who have
attributes and characteristics which are most likely to result in satisfactory
payment performance. They also eliminate persons lacking ability or intent to
repay their Autoloan or need for the car to get to and from work.
COMPETITION
The Company's principal competitors are certain automobile finance companies
that are national in scope, regional finance companies and local banks. No
single competitor or group of competitors is likely to significantly affect the
Company's ability to substantially increase its Autoloan volume at a profit.
However, competitive pressures caused the Company to reduce the Autoloan
discount it charges the auto dealers from 18% to 12% in August 1993, and to
eliminate auto dealer sign-up fees. During October 1995, the Company further
reduced the Autoloan discount to 10%. The competitor with the greatest market
penetration has approximately a 2% market share.
RISK MITIGATION
The Company's risk mitigation strategies are geared to meeting the demanding
requirements of asset backed securities. Investors in such securities are
protected through the combination of: a) the Company's Autoloan underwriting
criteria; b) insurance coverage of the Autoloan principal, interest and
underlying collateral; and c) independent third-party support comprising
Autoloan servicing and trustee services.
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a) Autoloan underwriting criteria
All borrowers comply with each requirement of the following underwriting
components: stability of residence, stability of employment, financial
capability to repay the Autoloan, and current credit ratings showing
satisfactory financial responsibility. The Company requires a satisfactory
explanation of the cause of prior credit problems, and proof of remedy.
The Company's underwriting staff reviews the applications and analyzes
reports of independent credit bureaus relating to the applicant. If the
application passes this initial review, it is then evaluated for compliance
with the Company's underwriting criteria.
If the application meets such underwriting criteria, the data is input to
the Company's default prediction model with the objective of reducing the
risk of delinquency and insurance claims by applying more accurate measures
to the established concepts of:
-- Stability of borrower
-- Ability to pay
-- Willingness to pay
-- Loan to value
If the application passes the default prediction model, it is then reviewed
by two of the Company's underwriters, either of whom have the authority to
reject the application, but both of whom would be required to sign off for
the application to be approved.
After an Autoloan is conditionally approved by the Company, the automobile
dealer from whom the Autoloan is purchased forwards a funding package to
the Company with documentation supporting the applicant's identity,
residence, employment and income, as well as the automobile sales contract,
insurance verification, proof of Department of Motor Vehicles registration,
together with a factory invoice or used vehicle book out sheet to support
the collateral value. The Company then completes the Autoloan principal,
interest and collateral insurance documentation and two of the Company's
loan officers and a corporate officer approve each Autoloan package for
funding after verification of residence, employment, personal references
and the vehicle details.
b) Insurance
Each Autoloan is covered by an Auto Loan Protection Insurance Policy
("ALPI") and a Blanket Collateral Protection Insurance Policy ("BCPI") or
Lenders Comprehensive Simple Interest Insurance Policy ("LCSII"). The
Company expects that it will eliminate use of the ALPI policy during 1996
and proceed on a self-insured basis by establishing additional restricted
cash reserves.
The ALPI Policy provides that if the obligor on an Autoloan fails to pay
the Autoloan and the related vehicle is repossessed, the Insurer will pay
the difference between (i) the unpaid principal balance of the Autoloan
(the outstanding loan balance) and (ii) the greater of the proceeds from
the sale of the repossessed vehicle or the actual cash value of such
vehicle (determined as provided in the ALPI Policy), less certain amounts
specified in the ALPI Policy. The maximum amount payable by the Insurer
with respect to any one vehicle covered under the ALPI Policy is $15,000.
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The BCPI and LCSII Policies provide coverage for losses incurred which
result from (i) physical loss of or damage to a vehicle which is not
covered by other insurance, (ii) the unintentional failure to file or
improper filing of the instrument creating a security interest in a vehicle
in favor of the trustee (see paragraph c) below), (iii) the conversion or
concealment of the vehicle or the confiscation of the vehicle by a
governmental body, officer or office, and/or (iv) any shortfall between the
unpaid balance of the Autoloan and the amount received from other insurance
upon physical loss of or damage to a vehicle. The maximum amount payable
per vehicle by the Insurer with respect to losses described in (iv) above
is $10,000.
c) Third-Party Assurances
The integrity of the Company's Autoloan program is aided by utilizing the
interlocking services of reputable third-party service providers described
below.
The Company accesses the leading credit bureaus to determine the
applicant's credit history and status. The Company verifies the
applicant's residence, employment and insurance coverage with independent
sources, and verifies the details of the vehicle and the Autoloan with the
applicant.
A major bank is the lienholder of record on the vehicle certificate of
title and acts as trustee to ensure proper documentation, lienholder
recordation and funds disbursement. A subsidiary of a major insurance
company services the Autoloans which entails Autoloan funding, perfecting
the security interest and assignment, collection of payments, insurance
claim filing, monthly reporting and payment to the trustee representing
investors holding an interest in the Autoloans.
FUNDING OF AUTOLOANS
Autoloans are purchased daily from auto dealers through the Company's
warehouse investor facilities. The warehouse investors are repaid through the
proceeds of selling the Autoloans in the form of asset backed securities.
Through December 31, 1995, the Company has sold seven asset backed
securities commencing September 1992.
EMPLOYEES
As of May 24, 1996, the Company had 29 full-time employees. The Company
expects the total number of employees to increase as it continues to expand.
The Company has an excellent relationship with its employees and none of the
employees are represented by a collective bargaining agreement.
GOVERNMENT REGULATIONS
All consumer finance operations are subject to federal and state
regulations. Personal loan lending laws generally require licensing of the
lender; limitations on the amount, duration and charges for various categories
of loans; adequate disclosure of certain contract terms; and limitations on
certain collection policies and creditor remedies. The Company purchases the
Autoloans from
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auto dealers who are licensed as sales finance companies. In general, the
Company is not required to obtain a state lender's license.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in consumer finance. These federal laws and regulations include, among others,
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Indebtedness Collection
Practices Act, the Motor Vehicle Information and Cost Savings Act, the
Magnuson-Moss Warranty Act and the Federal Reserve Board's Regulations B and Z.
The Federal Trade Commission ("FTC") has adopted the so-called
holder-in-due-course rule which has the effect of subjecting persons who
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. The FTC's "Rule on Sale of Used
Vehicles" requires that all sellers of used vehicles prepare, complete and
display a "Buyer's Guide" which explains the warranty coverage (if any) for
such vehicles. The "Credit Practices Rule" of the FTC imposes additional
restrictions on loan provisions and credit practices.
The majority of states in which the Company operates have adopted motor
vehicle retail installment sales acts or variations thereof. These laws
regulate, among other things, the interest rate and terms and conditions of
motor vehicle retail installment loans. These laws also impose restrictions on
consumer transactions and require loan disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply.
CERTAIN DEFINITIONS
The following defined terms are used in this Form 10-K. For further
information with respect to the defined terms, see Notes to Consolidated
Financial Statements.
"Annual percentage rate" or "APR" refers to the annual rate of interest
paid by a borrower on an Autoloan.
"Asset backed securities" are securities backed by, or representing
undivided interests in, financial assets such as Autoloans, credit card
receivables and home equity loans.
"Gain on sale" of Autoloans represents the discounted value of estimated
future cash flows to be received from Autoloans sold.
"Securitization" refers to a transaction in which Autoloans are sold by
special purpose subsidiaries organized for the purpose of issuing asset backed
securities.
"Warehouse" refers to an arrangement whereby Autoloans are purchased by
financial institutions on a short-term basis.
ITEM 2. PROPERTIES
The Company leases office space of 5,702 square feet at its principal
office, 4975 Preston Park Boulevard, Suite 400, Plano, Texas 75093.
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ITEM 3. LEGAL PROCEEDINGS
(a) Settled and Dismissed Legal Proceedings
One of the founders of the Company, James C. Borlaug ("Borlaug"), and
certain other former directors then owning collectively approximately 25% of
the outstanding shares of FFAC's common stock began a series of legal
proceedings against the Company in mid 1993.
On September 22, 1993, a lawsuit was commenced by John P. Monteverde, Jr.
("Monteverde"), a minority shareholder and former director of the Company, in
District Court in Collin County, Texas. The lawsuit was brought by Monteverde,
individually, and in a purported capacity as agent for Borlaug and other
various unidentified shareholders of the Company (the "Monteverde Litigation")
and named the Company, its Chairman and CEO Tucker and then director Metcalf as
defendants. The Complaint in the Monteverde Litigation sought unspecified
damages and certain injunctive relief including, among other things, injunctive
orders appointing Monteverde President of the Company and replacing the
existing Board of Directors of the Company with various individuals acting in
concert with Monteverde. Monteverde's motion for a preliminary injunction was
withdrawn by him prior to a hearing. The Company denied all allegations
against it in the Monteverde Litigation and brought extensive counterclaims and
third-party claims against Monteverde and persons and entities believed to be
acting in concert with him. Management of the Company believes that the
Monteverde Litigation and subsequent proceedings were commenced for the purpose
of either taking control of the Company or disrupting its business for the
benefit of certain of its competitors.
On October 18, 1993, Monteverde, with the proxy of Borlaug and others,
attempted to hold a special meeting of stockholders in lieu of the official
annual meeting of stockholders on the same date. The then incumbent directors
were reelected at the Company's annual meeting of stockholders. On January 13,
1994, the Company and Monteverde filed dismissals of their respective claims
with no award of damages or costs to either party.
On November 9, 1993, an Involuntary Bankruptcy Petition was filed against
the Company under Chapter 11 of the United States Bankruptcy Code in Bankruptcy
Court for the Eastern District of Texas, Sherman Division. The Petition was
filed by ten individuals, including Borlaug, or entities ("Petitioners"), all
of whom were believed by management of the Company to be acting in concert with
Monteverde and in furtherance of similar purposes. The Company disputed the
validity of a substantial majority of the claims filed by the Petitioners.
On January 4, 1994, the Federal Bankruptcy Judge signed an order dismissing
the Involuntary Bankruptcy Petition pursuant to the following agreement between
the Company, Management and the Petitioners:
(i) Then incumbent Management and the Petitioners, who together owned
approximately 50% of the outstanding common stock of the Company,
entered into a voting agreement whereby they agreed to vote their
shares through April 1, 1997 in support of three directors
nominated by then incumbent Management, three directors nominated
by the Petitioners, and a seventh agreed upon by both groups.
Each candidate for the board of directors required approval of the
Company's Autoloan insurers, its warehouse investors, and its
asset backed security purchasers. The voting agreement was
terminated during April 1995.
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(ii) Royalty agreements between the Company and Management, together
with certain Petitioners, were terminated. The Company executed
notes to reflect the negotiated settlement of all Petitioner
claims, including royalty claims. The balance outstanding under
these notes was $-0- at December 31, 1995 and $583,000 at December
31, 1994.
(iii) All outstanding shares of common stock of the Company were
ratified, subject to paragraph (v) below.
(iv) The Company modified Tucker's employment agreement to provide for
a salary of $150,000 per annum, a cash bonus of 15% of the
Company's pre-tax profits in years when pre-tax profits exceed
$1,000,000, and certain fringe benefits.
(v) The Company and Management executed releases with the Petitioners
except as to Borlaug whose disputed claim was subject to the
Company's claims, counterclaims and offsets in a greater amount.
On May 10, 1995, Borlaug commenced a lawsuit against the Company, its
common stock transfer agent, and Tucker in District Court for Collin County,
Texas, where the Company is headquartered, pursuing his disputed claims.
In May, 1996, the Company and Borlaug reached a settlement agreement
calling for dismissal of the legal proceedings and delivery of mutual general
releases. Pursuant to the settlement agreement, 2,000,000 shares of FFAC
common stock owned of record by Borlaug are to be canceled. Borlaug, as to his
remaining 2,008,000 shares, and his attorneys, as to 1,000,000 of the 1,122,470
shares transferred to them at Borlaug's direction pursuant to the settlement,
are each subject to the following restrictions on public sales through May 1,
1998:
o No more than 50,000 shares may be sold per week on a non-cumulative
basis at no less than one cent above the then current bid price
o No more than an aggregate 300,000 shares may be sold at any time or
times in addition to the 50,000 per week, but also at no less than one
cent above the bid price
In the event that Borlaug or his attorneys transfer any shares of FFAC
common stock through private sale, the purchasers will be subject to the same
volume and sale price restriction of no less than one cent above the bid price
until expiration of the restrictions on May 1, 1999. If Borlaug and his
attorneys still own any shares of FFAC stock at January 1, 1998, they may each
require FFAC to purchase up to 100,000 shares per month from them at 40 cents
per share. Such "put" is non assignable and automatically terminates with
respect to any shares upon transfer to any third party. Borlaug and his
attorneys have given their proxies as to their remaining shares to Tucker.
As part of the settlement agreement, FFAC agreed to repay to Borlaug
$550,000 of advances that he previously made during the Company's development
stage by undertaking to pay that amount on his behalf. The majority of this
amount is being paid, at Borlaug's direction, to the Internal Revenue Service
to obtain the release of the Internal Revenue Service liens and levies against
Borlaug's property and income, including all of the aforementioned shares of
FFAC common stock. The settlement amount of $550,000 will be paid (a) $55,000
down, and (b) the balance in monthly installments of $35,000 commencing in
July, 1996. The settlement amount, plus associated expenses, have been accrued
at December 31, 1995, and are reflected in the
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accompanying balance sheet as accrued litigation settlement. The agreed-upon
cancellation of 2,000,000 shares of common stock correspondingly has been
reflected on the accompanying balance sheet as of December 31, 1995. However,
pending full payment of the settlement amount by the Company, the 2,000,000
shares will serve as collateral for the payment obligation. Upon full payment
the shares shall be canceled of record. To the extent that the Company does
not pay the settlement amount, the required portion of the 2,000,000 shares to
be canceled pursuant to the settlement agreement may be resold to pay the
shortfall. The number of shares so sold would, in that event, be reinstated on
the Company's financial statements, and the remaining balance of the settlement
amount would be correspondingly reduced.
(b) Current Legal Proceedings
The Company is a defendant in a lawsuit filed by William G. Marshall
("Marshall"), a shareholder and former director and officer of the Company, for
alleged breach of a royalty agreement. Marshall seeks damages in excess of
$300,000, plus an ongoing royalty on each Autoloan financed and funded by the
Company. The royalty agreement, which is the basis for Marshall's claim, was
terminated and released by the terms of the Compromise and Settlement Agreement
referred to above. The Company's position is that Marshall agreed to such
termination and release by his entry into the Compromise and Settlement
Agreement, and received consideration. The Company intends to vigorously
defend against Marshall's claim. If Marshall prevails on his claim that his
royalty agreement was not terminated, the Company's liability is not expected
to be material, based upon the provisions of that agreement. No provision has
been made in the accompanying financial statements for any liability resulting
from this matter.
In addition to the litigation described in the preceeding paragraphs, the
Company is subject to other litigation in the normal course of business. The
Company is not engaged in any litigation which it believes would have a
material impact on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During 1995 the following matters were submitted to the shareholders, all
receiving an affirmative majority vote thereon at the annual shareholder's
meeting held on November 8, 1995:
1) Election of the Directors for the ensuing year.
2) Appointment of C. Williams & Associates, P.C. as the Company's
auditors. Such firm's business was subsequently acquired by the firm
of Bateman, Blomstrom & Co., whose appointment as the Company's
auditors was ratified by the Company's board of directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company is traded over-the-counter and is not
listed on any exchange or quoted in any automated quotation system of a
registered securities association. The common stock is quoted on the National
Quotation Bureau Inc.'s NASD electronic bulletin board. The following table
provides quarterly high and low sales prices for the Company's common stock for
the two fiscal years ended December 31, 1995:
<TABLE>
<CAPTION>
Low High Low High
Bid Bid Offer Offer
--- ---- ----- -----
<S> <C> <C> <C> <C> <C>
1994
First Quarter . . . . . . . . . . . . $ .18 $ .46 $ .25 $ .50
Second Quarter . . . . . . . . . . . . . .05 .43 .10 .46
Third Quarter . . . . . . . . . . . . . .10 .40 .12 .43
Fourth Quarter . . . . . . . . . . . . . .13 .32 .16 .35
1995
First Quarter . . . . . . . . . . . . . $ .23 $ .37 $ .25 $ .45
Second Quarter . . . . . . . . . . . . . .28 .62 .31 .68
Third Quarter . . . . . . . . . . . . . .28 .43 .31 .56
Fourth Quarter . . . . . . . . . . . . . .15 .47 .22 .53
</TABLE>
The Company has not paid dividends on its common stock and has no plans to
do so. During the year ended December 31, 1995, the Company paid a 10% per
annum dividend on its shares of preferred stock totaling $15,000 (1994 -
$25,000).
The transfer agent for the Company's shares of common stock is General
Securities Transfer Agency, P.O. Box 3805, Albuquerque, New Mexico 87190, (505)
265-6658.
The number of shares of common stock outstanding as of December 31, 1995
was 40,531,316. As of December 31, 1995, the Company had 297 shareholders of
record.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1991 1992 1993 1994 1995
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Financial Services Revenues $ 20,000 $ 919,000 $ 3,543,000 $ 4,194,000 $ 8,758,000
Loan Costs, Interest Expense
General and Administrative
Expenses 410,000 1,669,000 3,224,000 3,109,000 6,392,000
Other Expense - Legal Proceedings
and Settlement Expense -- -- 791,000 -- 679,000
--------- ---------- ----------- ----------- -----------
Income (Loss) before
Income Taxes (390,000) (750,000) (472,000) 1,085,000 1,687,000
Net Income (Loss) (390,000) (750,000) (472,000) 1,085,000 1,407,000
Summary Balance Sheet Data
- --------------------------
Total Assets 28,000 66,000 2,530,000 5,367,000 10,855,000
Total Liabilities 523,000 1,003,000 2,271,000 3,482,000 7,287,000
Stockholders' Equity (Deficit) (495,000) (937,000) 259,000 1,885,000 3,568,000
Per Share Data
- --------------
Net Income (Loss) (.03) (.03) (.01) .03 .03
Book Value (.04) (.04) .01 .06 .08
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 WITH THE YEAR ENDED DECEMBER 31,
1994
The crippling effect of the legal proceedings continued throughout 1995 and
1994. (See "Item 3. Legal Proceedings.") The increase in capacity with
warehouse investors in October 1994 enabled the Company to increase its
Autoloan originations from $14 million in 1994 to $31 million in 1995.
However, approximately half of the 1995 Autoloan originations remained with
warehouse investors at December 31, 1995 as the legal proceedings had prevented
the Company from increasing the market for its asset backed securities.
The required disclosures as to the existence of the legal proceedings and
their bizarre nature significantly impaired investor interest in the Company's
asset backed securities. While traditional investors in the Company's asset
backed securities remained supportive, the Company was unable to attract an
increase in appetite commensurate with the Company's growth.
Since December 31, 1995, warehouse capacity has expanded through the sale
of certificates by a wholly-owned subsidiary of the Company. Further, the
Company commenced selling Autoloans in May 1996 to a major financial
institution which should enable the Company to grow more rapidly.
The increase in financial services revenues from 1994 to 1995 reflected the
more than doubling of Autoloan originations. Operating income increased by a
similar percentage. However, $679,000 of expense incurred through the
settlement of the Borlaug legal proceedings and the full utilization of the net
operating loss carry forward resulted in similar earnings per share of $.03 in
1995 as in 1994.
Loan costs increased in 1995 proportionately with volume, except for
commission expense which increased from $245,000 in 1994 to $889,000 in 1995 as
the Company increased its reliance on independent representative agencies to
service its dealer base. General and administrative expenses did not increase
proportionately to volume as the incremental cost of underwriting and
administering additional Autoloan volume is relatively low compared with the
established fixed payroll costs. Accordingly, payroll expense increased by
only 51% while revenue increased by 109%.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 WITH THE YEAR ENDED DECEMBER 31,
1993.
During the first half of 1994, the Company was impeded severely by the
legal proceedings which had continued from September 1993. Such legal
proceedings had absorbed the Company's liquidity and suspended its access to
the financial markets. As a direct consequence, Autoloan purchases were
constrained until the Company was able to increase its Autoloan warehouse
investor facilities and close its only 1994 securitization midway through the
fourth quarter.
Significant enhancements were made during 1994 to the Company's
infrastructure in anticipation of the opportunity to grow dramatically in
subsequent years. Such enhancements
-13-
<PAGE> 14
included the implementation of a default prediction model to supplement the
Company's established objective credit underwriting criteria. (See Item 1.
"Business".)
Total revenues increased by 28% from 1993 to 1994 (from $3,543,000 to
$4,523,000). The principal component of revenues, gain on sale of Autoloans,
increased by 34% (from $3,008,000 in 1993 to $4,032,000 in 1994).
During the year ended December 31, 1993, the Company's wholly-owned
subsidiary, First Fidelity Vehicle Receivables Corporation, sold two asset
backed securities issues which were secured by $5 million of Autoloans that
the Company had purchased, and sold an additional $3 million of Autoloans to
the Company's warehouse investors. Of this total of $8 million, approximately
50% of the Autoloans had been purchased from auto dealers in 1991 and 1992 but
the Company was unable to recognize any income on such Autoloans until the
first quarter of 1993, during which time it completed its warehouse and
securitization arrangements. In contrast, substantially all of the income
recognized in the year ended December 31, 1994 was from $14 million of
Autoloans purchased and sold by the Company in such period, of which $3 million
was sold as an asset backed security in November 1994 followed by an additional
$6 million in February 1995.
Competitive pressures caused the Company to reduce the discount at which it
purchases Autoloans from auto dealers from 18% to 12% in August 1993, and to
eliminate auto dealer sign-up fees. Such sign-up fees totaled $266,000 in
1993.
General and administrative expenses decreased by 11% from 1993 to 1994
(from $3,211,000 to $2,900,000). Such expenses primarily comprised Autoloan
underwriting and administration expenses, together with Autoloan insurance and
Autoloan sale costs. Royalty expenses, including amortization of prepaid
royalties, for the year ended December 31, 1994 totaled $214,000 (1993 -
$594,000).
Other expense during 1993 included the costs of legal proceedings and
related settlement (See Item 3.). As part of the settlement, the ongoing
royalty agreements were canceled.
LIQUIDITY AND CAPITAL RESOURCES
The vast majority of the Company's expenses are incurred and paid between
the date of the Autoloan's purchase and the time of securitization. However,
the guarantee fee portion of the Company's revenue is recorded as income in the
period that the Autoloan is purchased and sold, but is received in the form of
cash over the life of the related Autoloan.
If the Company sold its Autoloans for up-front cash with no guarantee fee,
it would greatly impair its profitability. In order to raise capital to fund
growth, the Company borrows from time to time supported by the cash flow from
the amounts due from loan sales and securitizations. In addition, it sells
shares of common and preferred stock through private placements.
During the year ended December 31, 1995, the Company received $291,000
through private placements of shares of common stock (1994 - $388,000, 1993 -
$1,676,000) and $3,106,000 through private placement of secured promissory
notes (1994 - $2,667,000, 1993 - $1,279,000).
-14-
<PAGE> 15
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
be meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
making this disclosure in order to do so. Accordingly, the Company hereby
identifies the following important factors which could cause the Company's
actual financial results to differ materially from any such results which might
be projected, forecast, estimated or budgeted by the Company in forward-looking
statements:
(a) Heightened competition, including specifically the intensification or
price competition; the entry of new competitors; and the introduction
of new finance products by new and existing competitors.
(b) Adverse state and federal legislation and regulation, including
limitations on licensing of sales finance companies.
(c) Termination of dealer contracts or renegotiation on less
cost-effective terms.
(d) Failure to obtain new dealers, retain existing dealers or reductions
in originations by existing dealers.
(e) Adverse publicity and news coverage.
(f) Inability to carry out marketing and sales plans.
(g) Loss of key executives.
(h) Adverse results in litigation.
(i) Higher administrative or general expenses occasioned by the need for
additional advertising, marketing, administrative, or management
information systems expenditures.
(j) Increases in interest rates causing a reduction in revenues from sales
and securitizations of Autoloans.
Many of the above factors have been disclosed in the Company's prior SEC
filings and, had the Act become effective at a different time, would have been
disclosed in an earlier SEC filing. The foregoing review of factors pursuant
to the Private Litigation Securities Reform Act of 1995 should not be construed
as exhaustive or as any admission regarding the adequacy of disclosures made by
the Company prior to the effective date of said Act.
-15-
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements are referred to in Item 14 and listed in the Index to
Financial Statements and Schedules filed as part of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
-16-
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors and Officers of the Company are as follows:
RICHARD J. TUCKER is Chairman and Chief Executive Officer of the Company.
Following four years with Arthur Andersen & Co. in London, Mr. Tucker managed
for ten years the North American and Middle Eastern operations of United
Dominions Trust, Ltd. (now Trustees Savings Bank), a major multi-product,
consumer and commercial finance institution. Subsequently Mr. Tucker was
President of two diverse holding companies - International Asset Management
Group, Inc., and Entrecap International, Inc., prior to joining the Company in
1992.
RALPH C. ATKINSON, JR., Director, is President of Impact Media, Inc., successor
to Skilldex Inc. which he founded in 1978. Impact Media is a Dallas-based
publisher of corporate training programs, including video-based training for
auto dealerships.
SAM FELDMAN, Director, is President of Mason Rich Company, Inc. which he
founded in 1988. Mason Rich is a factoring company which serves a variety of
manufacturers, distributors, construction companies and service companies,
primarily in the Dallas Metroplex.
RICHARD G. FUERMAN, Director. As a petroleum engineer, Mr. Fuerman specializes
in the acquisition of oil and gas properties and the related economic analysis
and reservoir performance evaluations. Prior to his present affiliation with
Paladin Energy Corp., he was employed by Bridge Oil (U.S.A.), Inc., Oryx Energy
and Marathon Oil.
JOHN PAWLOWSKI, Director, is Chairman, President and CEO of Mesa Systems
Corporation which develops computer optical storage systems. A former IBM
executive, he held positions of United States Headquarters Services Director,
Western Region Director, and Director of Finance. Mr. Pawlowski is a member of
the Board of Directors of Micromechanic Corporation, Rockland Inc. and Boulder
Technology Incubator.
JACK PAYNE, Director, is President and CEO of Ferro Magnetic Therapeutics
International, Inc. a Denver-based biotherapeutic corporation. Mr. Payne's
career includes over 19 years with Baxter International in a number of
progressively responsible positions including directing sales and marketing
activities in Canada and as Vice President for Baxter Vicra division in Dallas.
JAMES R. SIMON, Director. After several years with Arthur Andersen & Co. in
San Francisco, Mr. Simon embarked on a career in the pharmaceutical industry
with Squibb Corporation for over 20 years. Subsequently, Mr. Simon developed
retail sporting goods stores, which he owned and operated. For the past seven
years, Mr. Simon has been President of Simon and Associates, a consulting firm
in the environmental industry based in San Francisco.
-17-
<PAGE> 18
PATTI PLUNKETT, Vice President, Controller and Chief Financial Officer. Ms.
Plunkett's twelve years of accounting experience include four years with Arthur
Andersen & Co. in Dallas and Los Angeles. Following a one year tenure as a
corporate resident auditor in the retail environment, Ms. Plunkett spent four
years as a consultant in the financial services industry, until joining the
Company. Ms. Plunkett's responsibilities comprise all aspects of financial
reporting, monitoring of servicer's warehouse investor reporting and review and
authorization of all Autoloan packages prior to funding.
ROGER GIMBEL, Vice President, Management Information Systems. Roger Gimbel has
12 years of experience in the management information systems field. His
responsibilities comprise administration of the Company's management
information systems and management reporting including Autoloan boarding,
Autoloan performance tracking and securitization.
BRENDA REYNOLDS, Vice President, Underwriting. Ms. Reynold's responsibilities
with the Company comprise management of the underwriting and origination
process at the Company's corporate headquarters in Texas. Immediately prior to
joining the Company, she was employed by Norwest Mortgage.
ITEM 11. EXECUTIVE COMPENSATION.
The following comprises the aggregate remuneration during 1995 for the
Chief Executive Officer and the two highest compensated of the other executive
officers:
<TABLE>
<CAPTION>
Salary and
Deferred Bonus
Compensation Accrued Paid Deferred compensation
December 31, 1994 in 1995 in 1995 December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard J. Tucker $130,000 $448,000 $ (177,000) $401,000
Chairman & Chief
Executive Officer
Patti Plunkett -0- 90,000 (90,000) -0-
Vice President &
Chief Financial Officer
Roger Gimbel -0- 86,000 (86,000) -0-
Vice President,
Management Information
Systems
</TABLE>
The Company currently does not have any pension, profit sharing, stock
option or other significant employee benefit plans in effect. Such plans may
be adopted in the future at the discretion of the Board of Directors in order
to attract, retain, and provide incentives to, employees of the Company.
-18-
<PAGE> 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1995, certain information
regarding the holdings of record of the officers, directors and beneficial
owners of 5 percent or more of the Company's common stock, but excludes holders
of options:
<TABLE>
<CAPTION>
==============================================================================================
NAME/ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
==============================================================================================
<S> <C> <C>
Richard J. Tucker, Chairman & CEO 4,733,818 11.68%
4975 Preston Park Blvd., Suite 400
Plano, Texas 75093 (1)
Kennedy Capital Management, Inc. 2,104,744 5.19%
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141
James R. Simon, Director 1,441,400 3.56%
75 Par Lane
Ignacio, California 94949
Directors and Officers as a Group (1) 6,550,218 16.16%
==============================================================================================
</TABLE>
(1) Excludes 4,630,470 shares of common stock for which Tucker has a
proxy, and excludes 681,494 shares of common stock owned by Janet R.
Tucker Family Trust dated January 25, 1994 in which Richard J. Tucker
claims no beneficial interest, and of which he is not a trustee.
-19-
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
Pursuant to the employment agreement referred to in Item 12., from
October 1, 1993, Richard J. Tucker, Chairman and CEO, will receive a salary of
$150,000 per annum, a cash bonus of 15% of the Company's pre-tax profits in
years when pre-tax profits exceed $1,000,000 and certain fringe benefits.
As of December 31, 1995, Company had issued the following options for no
cash payment to purchase shares of the Company's common stock, based upon the
services provided in the capacities indicated. Each option entitles the holder
thereof, upon exercise, to purchase one share of common stock of the Company.
Each share of common stock will be identical to the shares of common stock
currently issued and outstanding.
<TABLE>
<CAPTION>
Number of Exercise Option
Option Holder Common Shares Price Per Share Expiration Date
- ------------- ------------- --------------- ---------------
<S> <C> <C> <C>
The Ziegler Companies, Inc., 2,000,000 (1) $0.10 3/6/2005
Warehouse Investor 250,000 (2) $0.10 12/31/1997
St. Francis Bank, F.S.B., 1,000,000 (3) $0.10 10/25/2004
Warehouse Investor
United Pacific Securities, 200,000 $0.15 8/31/1996
Placement Agent
Allan Family Trust, 400,000 (4) $0.15 5/31/1996
Warehouse Investor 400,000 (4) $0.15 9/30/1996
Robert Weaver, 150,000 $0.25 6/13/1996
Attorney
Norman Caffrey, 90,000 $1.00 7/18/1996
Consultant
John Halliday , 459,355 (5) $0.50 3/30/1997
Broker and Former Director 918,710 (5) $1.00 3/30/1997
Seven (7) Directors of the
Company 2,100,000 (6) $0.18 Upon termination (6)
---------
Total Options 7,968,065
=========
</TABLE>
(1) The option increases so that it continues to be the same percentage
that the number of option shares bears to 47,000,000 shares.
(2) Upon demand at any time prior to December 31, 1997, the Company must
purchase this option back from The Ziegler Companies, Inc. for $25,000
in cash.
(3) In the event of exercise of such option, the interest rate on the
Company's related warehouse line of credit reduces by one per cent
(1%) per annum on the outstanding daily balance, retroactive to
October 25, 1994.
(4) The option increases so that it continues to be the same percentage
that the number of option shares bears to the number of outstanding
shares as of November 12, 1993.
-20-
<PAGE> 21
(5) The option is based on 3.33% of the total shares of common stock
outstanding after exercise of the option.
(6) Each of the Company's seven Directors has been granted an option to
purchase 300,000 shares (2,100,000 shares total) during their tenure
as a Director, limited to the exercise of 100,000 shares (700,000
shares total) during the first year of tenure, increasing 100,000
shares per year thereafter. In addition, the Company issued 75,000
shares to each Director (525,000 shares total) in October, 1995, and
agreed to issue an additional 50,000 shares per Director in October,
1996 and October, 1997, provided the Director is still in tenure.
-21-
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) Financial Statements
The Financial Statements listed in the accompanying Index to Financial
Statements and Schedules are filed as part of this report.
(2) Financial Statement Schedules
The Financial Statements listed in the accompanying Index to Financial
Statements and Schedules are filed as part of this report.
(3) Exhibits
Exhibit 27 - Financial Data Schedule
(4) Reports on Form 8-K
None
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: 6-4-96 By: /s/ RICHARD J. TUCKER
------------------------- ---------------------------------
Richard J. Tucker
Chairman of the Board
Chief Executive Officer
Dated: 6-4-96 By: /s/ PATTI PLUNKETT
------------------------- ---------------------------------
Patti Plunkett
Vice President & Controller
Chief Financial Officer
-23-
<PAGE> 24
FIRST FIDELITY ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REQUIRED BY ITEM 8 AND ITEM 14
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
<S> <C>
Reports of Independent Public Accountants F - 2
Consolidated Balance Sheets as of December 31, 1995 and 1994 F - 4
Consolidated Statements of Operations for each of the Three
Years Ended December 31, 1995, 1994 and 1993 F - 5
Consolidated Statements of Cash Flows for each of the Three
Years Ended December 31, 1995, 1994 and 1993 F - 6
Consolidated Statements of Stockholders' Equity for each
of the Three Years Ended December 31, 1995, 1994 and 1993 F - 7
Notes to Consolidated Financial Statements F - 8
FINANCIAL STATEMENT SCHEDULES (1)
Schedule I - Condensed Financial Information of Registrant F - 19
Schedule A - Computation of Net Income (Loss)
Per Share Amounts F - 23
Schedule B - Listing of Subsidiaries F - 24
</TABLE>
- --------------
(1) All other schedules are omitted because of the absence of the
conditions under which they are required, or because the information required by
such omitted schedule is contained in the consolidated financial statement or
the notes thereto.
Page F-1
<PAGE> 25
[BATEMAN, BLOMSTROM & CO. LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors
First Fidelity Acceptance Corp.
Plano, Texas
We have audited the accompanying consolidated balance sheets of First Fidelity
Acceptance Corp. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our 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. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the two years then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ BATEMAN, BLOMSTROM & CO.
BATEMAN, BLOMSTROM & CO.
Houston, Texas
May 24, 1996
F-2
<PAGE> 26
O'NEAL AND WHITE, P.C.
Certified Public Accountants
17350 Tomball Parkway, Suite 300
Houston, Texas 77064
(713) 890-2554
INDEPENDENT AUDITOR'S REPORT
<TABLE>
<S> <C>
March 16, 1994
THE FIRM OF O'NEAL AND WHITE, P.C. HAS DISCONTINUED
Board of Directors THE PRACTICE OF PUBLIC ACCOUNTING AND NO LONGER
First Fidelity Acceptance Corp. PROVIDES AUDIT AND ACCOUNTING SERVICES. THIS
(Formerly Metro Development, Inc.) DOCUMENT IS A COPY OF THE LATEST SIGNED AND DATED
Plano, Texas AUDIT REPORT ISSUED BY O'NEAL AND WHITE.
</TABLE>
We have audited the consolidated balance sheets of First Fidelity Acceptance
Corp. and subsidiaries (formerly Metro Development, Inc.) as of December 31,
1993 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 1993 and 1992.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Fidelity
Acceptance Corp. and subsidiaries (formerly Metro Development, Inc.) as of
December 31, 1993, and the results of their operations and their cash flows for
the years ended December 31, 1993 and 1992 in conformity with generally
accepted accounting principles.
Our audits referred to above included the schedules described in the
accompanying index which present fairly, in all material respects, the
information required to be set forth therein.
/s/ O'NEAL AND WHITE, P.C.
O'NEAL AND WHITE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
F-3
<PAGE> 27
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
ASSETS ------------- -----------
<S> <C> <C>
Cash $ 14,000 $ 79,000
Cash reserve accounts, restricted 3,618,000 1,562,000
Due from sales and securitizations of loans 6,411,000 2,879,000
Prepaid royalties 298,000 474,000
Other prepaid expenses 341,000 250,000
Office furniture and equipment, net 88,000 78,000
Notes receivable and other assets 85,000 45,000
------------- -----------
Total assets $ 10,855,000 $ 5,367,000
============= ===========
LIABILITIES
Notes payable and long-term debt $ 5,543,000 $ 3,148,000
Accounts payable and accrued expenses 253,000 114,000
Professional fees payable 225,000 90,000
Accrued litigation settlement 585,000 -
Deferred compensation payable 401,000 130,000
Deferred Federal income taxes 280,000 -
------------- -----------
Total liabilities 7,287,000 3,482,000
------------- -----------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000 shares authorized,
536,722 and 909,107 shares issued and outstanding 1,000 1,000
Common stock, $.001 par value, 50,000,000 shares authorized,
40,531,316 and 39,306,072 shares issued and outstanding 41,000 39,000
Capital in excess of par value 3,305,000 3,016,000
Retained earnings (accumulated deficit) 221,000 (1,171,000)
------------- -----------
Total stockholders' equity 3,568,000 1,885,000
------------- -----------
Total liabilities and stockholders' equity $ 10,855,000 $ 5,367,000
============= ===========
</TABLE>
The accompanying notes are integral part of these financial statements
F-4
<PAGE> 28
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
Revenues: ----------- ----------- -----------
<S> <C> <C> <C>
Financial services revenues $ 8,758,000 $ 4,194,000 $ 3,543,000
----------- ----------- -----------
Less, Costs and expenses:
Loan costs 3,471,000 1,322,000 2,023,000
Interest expense 548,000 260,000 13,000
General and administrative expenses 2,373,000 1,527,000 1,188,000
----------- ----------- -----------
Total costs and expenses 6,392,000 3,109,000 3,224,000
----------- ----------- -----------
Operating income 2,366,000 1,085,000 319,000
Other expense:
Legal proceedings and settlement
expense 679,000 -- 791,000
----------- ----------- -----------
Income (loss) before income taxes 1,687,000 1,085,000 (472,000)
Provision for income taxes:
Deferred 280,000 -- --
Net income (loss) $ 1,407,000 $ 1,085,000 $ (472,000)
=========== =========== ===========
Net income (loss) per common share $ 0.03 $ 0.03 $ (0.01)
=========== =========== ===========
Weighted average common shares outstanding
on a fully-diluted basis 48,220,915 40,793,119 36,770,905
=========== =========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements
F-5
<PAGE> 29
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C>
Cash flows from operating activities:
Net income (loss) $ 1,407,000 $ 1,085,000 $ (472,000)
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization 34,000 24,000 19,000
(Increase) decrease in assets:
Cash reserve account, restricted (2,056,000) (1,016,000) (546,000)
Due from sales and securitizations of loans (3,532,000) (1,744,000) (1,135,000)
Prepaid royalties and expenses 85,000 (124,000) (600,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 139,000 (301,000) 323,000
Professional fees payable 135,000 (200,000) 95,000
Accrued litigation settlement 585,000 - -
Deferred compensation payable 271,000 130,000 -
Deferred Federal income taxes 280,000 - -
----------- ----------- ----------
Net cash (used in) operating activities (2,652,000) (2,146,000) (2,316,000)
----------- ----------- ----------
Cash flows from investing activities:
Purchase of equipment (44,000) (24,000) (71,000)
Notes receivable and other assets (40,000) (38,000) 15,000
----------- ----------- ----------
Net cash (used in) investing activities (84,000) (62,000) (56,000)
----------- ----------- ----------
Cash flows from financing activities:
Stock issued 291,000 565,000 1,915,000
Common stock and cash dividends (15,000) (24,000) (247,000)
Borrowings on notes payable 3,106,000 2,667,000 1,279,000
Repayments on notes payable (711,000) (923,000) (591,000)
----------- ----------- ----------
Net cash provided by financing activities 2,671,000 2,285,000 2,356,000
----------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents (65,000) 77,000 (16,000)
Cash and cash equivalents, beginning of year 79,000 2,000 18,000
----------- ----------- ----------
Cash and cash equivalents, end of year $ 14,000 $ 79,000 $ 2,000
=========== =========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash payments for interest $ 311,000 $ 193,000 -
=========== =========== ==========
Non-cash investing and financing activities:
Common stock issued for debt and dividends $ - $ 177,000 $ 239,000
=========== =========== ==========
</TABLE>
The accompanying notes are integral part of these financial statements
F-6
<PAGE> 30
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
COMMON CAPITAL STOCKHOLDERS'
SHARES COMMON PREFERRED IN EXCESS OF ACCUMULATED EQUITY
OUTSTANDING STOCK STOCK PAR VALUE DEFICIT (DEFICIT)
----------- -------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 25,913,087 $ 26,000 $ 3,000 $ 547,000 $(1,513,000) $ (937,000)
Sale of stock for cash 750,000 1,000 1,000
Stock issued for services 3,770,081 4,000 1,910,000 1,914,000
Conversion of preferred stock 2,521,400 2,000 (2,000) --
Net loss for 1993 (472,000) (472,000)
Preferred stock dividend (247,000) (247,000)
----------- -------- --------- ----------- ----------- ------------
Balances, December 31, 1993 32,954,568 33,000 1,000 2,457,000 (2,232,000) 259,000
Sale of stock for cash 4,335,992 4,000 355,000 359,000
Debt conversion and
Stock issued for services 1,898,012 2,000 204,000 206,000
Conversion of preferred stock 117,500 -- -- --
Net income for 1994 1,085,000 1,085,000
Preferred stock dividend (24,000) (24,000)
----------- -------- --------- ----------- ----------- ------------
Balances, December 31, 1994 39,306,072 39,000 1,000 3,016,000 (1,171,000) 1,885,000
Sale of stock for cash 1,541,494 2,000 93,000 95,000
Stock issued for services 1,958,750 2,000 194,000 196,000
Conversion of preferred stock 25,000 -- -- --
Cancellation of stock (2,300,000) (2,000) 2,000 --
Net income for 1995 1,407,000 1,407,000
Preferred stock dividend (15,000) (15,000)
----------- -------- --------- ----------- ----------- ------------
Balances, December 31, 1995 40,531,316 $ 41,000 $ 1,000 $ 3,305,000 $ 221,000 $ 3,568,000
=========== ======== ========= =========== =========== ============
</TABLE>
The accompanying notes are integral part of these financial statements
F-7
<PAGE> 31
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Following is a summary of the Company's organization and significant accounting
policies:
ORGANIZATION AND NATURE OF BUSINESS - First Fidelity Acceptance Corp. (the
"Company"), a Nevada corporation, is a purchaser of automobile retail
installment sale contracts ("Autoloans") through a nationwide network of
factory- authorized automobile dealers. The Company enters into agreements
with dealers under which it purchases Autoloans to borrowers of marginal
creditworthiness collateralized by automobiles and light trucks. The
Autoloans are insured by various insurance companies against loss of
principal and interest and against vehicle collateral loss or damage. The
Company uses a third party as Autoloan servicer and a bank as trustee to
control the collateral and distribution of funds to investors in the
Autoloans. The financing and funding functions for the vast majority of
the Autoloans purchased are performed by third party financial
institutions, not by the Company or its subsidiaries.
BASIS OF PRESENTATION - The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to general
practices within the finance industry.
USE OF 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, the disclosures regarding contingent assets and liabilities at
the date of the financial statements, and the amounts of revenues and
expenses reported during the period. Actual results could differ from
those estimates. The Company's periodic filings with the Securities and
Exchange Commission include, where applicable, disclosures of estimates,
assumptions, uncertainties and concentrations in products and markets which
could affect the financial statements and future operations of the Company.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of First Fidelity Acceptance Corp. and its wholly-owned
subsidiaries First Fidelity Warehouse Corporation, First Fidelity Vehicle
Receivables Corporation, First Fidelity Installment Receivables
Corporation, and First Fidelity Auto Receivables Corporation. All
intercompany accounts and transactions have been eliminated upon
consolidation. "Cash reserve accounts, restricted" and "Due from sales and
securitizations of loans" are owned by the subsidiaries and are not
available to creditors of the Company until disbursed by the appropriate
trustee to the subsidiary and then distributed as a dividend by such
subsidiary to the Company.
REVENUE AND EXPENSE RECOGNITION - First Fidelity Acceptance Corp. purchases
Autoloans at a discount from face value. The Autoloans are financed and
funded primarily by third party warehouse investors. The Company and its
subsidiaries accumulate these Autoloans into pools, repurchase them from
the warehouse investors, and simultaneously securitize and sell the pools
without recourse as asset backed securities to permanent investors. The
F-8
<PAGE> 32
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
risk of credit loss to investors purchasing the Autoloans and the asset
backed securities is mitigated by insuring each Autoloan with insurance
companies against loss of principal and up to 60 days interest for payment
defaults, as well as collateral loss or damage. At the time of sale, the
Company's subsidiaries receive a non-assignable and non-marketable
"guarantee fee" for providing and maintaining a cash collateral account
with the trustee. The guarantee fee is collected over the term of the
underlying Autoloans.
The Company's subsidiaries recognize income on the Autoloan sales equal to
the present value of the guarantee fee to be received over the term of the
underlying Autoloans after deducting an estimated amount for possible
prepayments and costs. Changes in such estimates are based on updated
prepayment and default data and result in periodic corresponding
adjustments to revenues and the uncollected guarantee fee. The uncollected
portion of the guarantee fee is reflected in the accompanying balance sheet
as "Due from sales and securitizations of loans," and is net of (a) an
imputed interest factor, (b) accrued estimated costs associated with
prepayments, defaults, and repossessions, and (c) amounts collected to
date.
The daily sales of Autoloans to warehouse investors are accounted for in a
manner similar to the asset backed security accounting.
Costs and expenses relating to the sale of Autoloans are accrued at the
time of sale and are deducted from "Financial services income" and from
"Due from sales and securitizations of loans." Such expenses comprise
Autoloan insurance, future servicing costs, securitization costs,
repossession expenses, bank charges and trustee fees.
Autoloan application fees and loan discounts charged to automobile dealers
are recognized as income at time of purchase. All related purchase costs,
including Autoloan insurance premiums covering principal, interest and
vehicle collateral, are recognized as expense at the time of Autoloan
purchase.
OFFICE FURNITURE AND EQUIPMENT - Office furniture and equipment is stated
at cost less accumulated depreciation computed principally on the declining
balance method over the estimated useful lives of the assets. Estimated
useful lives approximate five years. Depreciation is taken on the
declining balance method for tax purposes also, using lives prescribed by
the Internal Revenue Code, which are similar to book basis lives.
Maintenance and repairs of furniture and equipment are charged to
operations and new purchases and major improvements are capitalized. Upon
retirement, sale or other disposition, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is
included in operating income.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers all cash in banks, money market funds, and
certificates of deposit with a maturity of less than one year to be cash
equivalents.
F-9
<PAGE> 33
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, Disclosure About Fair
Value of Financial Instruments, requires the disclosure, to the extent
practicable, of the fair value of financial instruments which are
recognized or unrecognized in the balance sheet. In Management's opinion,
the fair value of "Due from sales and securitizations of loans," which is
considered a financial instrument under SFAS No. 107, is approximately the
same as its carrying value.
FEDERAL INCOME TAXES - The Company adopted SFAS No. 109, Accounting for
Income Taxes, during the year ended December 31, 1993, which requires the
use of the asset/ liability method of accounting for income taxes.
Deferred income taxes and tax benefits are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases, and for tax loss and credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company provides deferred taxes
for the estimated future tax effects attributable to temporary differences
and carryforwards when realization is more likely than not.
ADVERTISING - The Company expenses the production costs of advertising the
first time the advertising takes place and expenses the costs of
direct-response advertising as incurred. Amounts incurred during the three
years ended December 31, 1995 were not significant.
ROUNDING OF AMOUNTS AND RECLASSIFICATIONS - All financial statement amounts
have been rounded to the nearest thousand dollars. Certain amounts for
1994 and 1993 have been reclassified to conform to the 1995 presentation.
NOTE 2 - CASH RESERVE ACCOUNTS, RESTRICTED:
Restricted cash reserve accounts comprise:
o 5% liquidity reserves or cash collateral account to ensure that the
purchasers of its Autoloans and asset backed securities are paid on
the due date regardless of whether the underlying Autoloans are
current or delinquent. These reserves are not loss reserves as
Autoloan losses are paid by the insurers. These reserves are returned
to the Company's subsidiaries monthly over the life of the Autoloans
or related asset backed security.
o 3% insurance reserves established from August 1, 1993, to fund losses
prior to the insurer being called on to pay claims. The remaining
balance of these reserves will be returned on the maturity of the
related Autoloans purchased in a given policy year.
Under some conditions, including increases in delinquencies and other adverse
experiences, the warehouse investors may require increased reserves.
F-10
<PAGE> 34
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 3 - DUE FROM SALES AND SECURITIZATIONS OF LOANS:
Details of the amount due from sales and securitizations of loans are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Total due from sales and securitizations $8,692,000 $3,987,000
Less, Imputed interest at 10% (1,656,000) (609,000)
---------------------------
7,036,000 3,378,000
Less, Reserve for estimated costs associated with pre-
payments, defaults, and repossessions (625,000) (499,000)
---------------------------
Net amount due $6,411,000 $2,879,000
===========================
</TABLE>
The Company and its subsidiaries began purchasing Autoloans in September 1991,
and through December 31, 1995 has purchased approximately $58 million in
original principal balance of Autoloans and has completed seven securitizations
totaling approximately $34 million.
The Company and its subsidiaries sold $31 million, $14 million, and $9 million
of Autoloans during the years ended December 31, 1995, 1994, and 1993,
respectively.
At December 31, 1995, a subsidiary of the Company was utilizing $15.6 million
of its $20 million aggregate warehouse lines.
Financial services revenues consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Revenues from sales and securiti-
zations $7,851,000 $3,833,000 $3,008,000
Fee income 815,000 359,000 532,000
Interest income 92,000 2,000 3,000
-----------------------------------------
Total $8,758,000 $4,194,000 $3,543,000
=========================================
</TABLE>
NOTE 4 - ROYALTIES AND PREPAID ROYALTIES:
Pursuant to the Compromise and Settlement Agreement referred to below under
"Legal proceedings," all of the royalties payable by the Company on Autoloans
financed and funded by the Company were canceled, except for a "royalty"
totaling $212,000, accruing in 1995 and a "royalty" of $50 per future Autoloan
payable to a director, James Simon ("Simon"), until an additional $144,000 has
been paid thereby. Both such remaining "royalties" were related to funds
previously advanced to the Company by the two individuals. In June 1994,
1,200,000 shares of common stock were issued in lieu of Simon's remaining
"royalty" of $139,000. The prepaid "royalty" was amortized at the rate of $50
per Autoloan purchased and was fully amortized during 1995.
Prepaid royalties at December 31, 1995 comprise amounts that were prepaid to
former directors James C. Borlaug and Robert J. Metcalf pursuant to royalty
agreements canceled in connection
F-11
<PAGE> 35
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
with the Compromise and Settlement Agreement (see "Legal proceedings," below).
They are being amortized over ten years.
NOTE 5 - OFFICE FURNITURE AND EQUIPMENT:
Details of office furniture and equipment are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Office furniture and equipment $178,000 $134,000
Less, Accumulated depreciation (90,000) (56,000)
-------------------------
88,000 78,000
=========================
</TABLE>
Depreciation expense was $34,000 (1995), $24,000 (1994), and $19,000 (1993).
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT:
Substantially all notes payable are secured by the proceeds from the "Cash
reserve accounts, restricted" and the receivable, "Due from sales and
securitizations of loans."
The components and interest rates of notes payable and long-term debt are as
follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Secured Promissory Notes (12%) (See Note 10) $ -- $ 583,000
Secured Promissory Notes (12%) 1,780,000 570,000
Secured Promissory Notes (5%) 1,070,000 --
Secured Promissory Notes (Prime + 3%) -- 1,430,000
Secured Promissory Notes (Prime + 2%) 250,000 --
Secured Promissory Notes (18%) 443,000 340,000
Secured Promissory Notes (10%) 1,800,000 --
Miscellaneous Notes 200,000 225,000
--------------------------
$5,543,000 $3,148,000
==========================
</TABLE>
The aggregate future maturities of the notes payable and long-term debt at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 555,000
1997 2,535,000
1998 2,453,000
-----------
$ 5,543,000
===========
</TABLE>
NOTE 7 - FEDERAL INCOME TAXES
The Company adopted SFAS No. 109, Accounting for Income Taxes, during 1993 on a
prospective basis. Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the
F-12
<PAGE> 36
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
amounts used for income tax reporting purposes, and (b) net operating loss
carryforwards. The cumulative tax effect at the expected tax rate of 34% of
significant items comprising the Company's net deferred tax amounts as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Deferred tax liabilities (assets) attributable to:
Due from sales and securitizations of loans $2,180,000 $979,000
Net operating loss carryforward (1,604,000) (1,162,000)
Payables and accruals (296,000) (114,000)
--------------------------
Subtotal 280,000 (297,000)
Less, Valuation allowance -- 297,000
--------------------------
Net deferred tax liability $280,000 $ --
==========================
</TABLE>
Components of the currently payable provision for Federal income tax are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Tax attributable to:
Income before tax $574,000 $369,000 ($160,000)
Timing differences (1,018,000) (717,000) (246,000)
Limitation due to absence of prior years
taxable income 444,000 348,000 406,000
------------------------------------------
Net currently payable provision $ -- $ -- $ --
==========================================
</TABLE>
At December 31, 1995 the Company had the following net operating loss
carryovers, which may provide future tax benefits:
<TABLE>
<S> <C>
EXPIRES IN:
2005 $352,000
2006 233,000
2007 627,000
2008 1,192,000
2009 1,014,000
2010 1,300,000
----------
Total $4,718,000
==========
</TABLE>
NOTE 8 - LEASE OBLIGATIONS:
The Company leases office space under a five year operating lease expiring in
August, 1998 requiring minimum annual rentals of $89,000. In addition, the
Company leases computer and office equipment under various operating leases
expiring from April, 1997 through September, 1998, requiring minimum annual
rentals approximating $12,000. Rent charged to operations (net of income from
subrentals) was as follows:
F-13
<PAGE> 37
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31,
1995 $81,000
1994 79,000
1993 92,000
</TABLE>
Minimum future rentals approximate $106,000 in 1996, $97,000 in 1997, and
$64,000 in 1998.
NOTE 9 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS:
Pursuant to the settlement agreement referred to in "Legal proceedings" below,
from October 1, 1993, Richard J. Tucker, Chairman and CEO, will receive a
salary of $150,000 per annum, a cash bonus of 15% of the Company's pre-tax
profits in years when pre-tax profits exceed $1,000,000 and certain fringe
benefits. Payment of earned bonus of $401,000 for the two years through
December 31, 1995 has been deferred to future periods.
As of December 31, 1995, the Company had issued the following options for no
cash payment to purchase shares of the Company's common stock, based upon the
services provided in the capacities indicated. Each option entitles the holder
thereof, upon exercise, to purchase one share of common stock of the Company.
Each share of common stock will be identical to the shares of common stock
currently issued and outstanding.
<TABLE>
<CAPTION>
Number of Exercise Option
Option Holder Common Shares Price Per Share Expiration Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Ziegler Companies, Inc., 2,000,000 (1) $0.10 3/6/2005
Warehouse Investor 250,000 (2) $0.10 12/31/1997
St. Francis Bank, F.S.B., 1,000,000 (3) $0.10 10/25/2004
Warehouse Investor
United Pacific Securities, 200,000 $0.15 8/31/1996
Placement Agent
Allan Family Trust, 400,000 (4) $0.15 5/31/1996
Warehouse Investor 400,000 (4) $0.15 9/30/1996
Robert Weaver, 150,000 $0.25 6/13/1996
Attorney
Norman Caffrey, 90,000 $1.00 7/18/1996
Consultant
John Halliday , 459,355 (5) $0.50 3/30/1997
Broker and Former Director 918,710 (5) $1.00 3/30/1997
Seven (7) Directors of the Upon termi-
Company 2,100,000 (6) $0.18 nation (6)
---------------
Total Options 7,968,065
===============
- ------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE> 38
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
(1) The option increases so that it continues to be the same percentage
that the number of option shares bears to 47,000,000 shares.
(2) Upon demand at any time prior to December 31, 1997, the Company must
purchase this option back from The Ziegler Companies, Inc. for $25,000
in cash.
(3) In the event of exercise of such option, the interest rate on the
Company's related warehouse line of credit reduces by one per cent
(1%) per annum on the outstanding daily balance, retroactive to
October 25, 1994.
(4) The option increases so that it continues to be the same percentage
that the number of option shares bears to the number of outstanding
shares as of November 12, 1993.
(5) The option is based on 3.33% of the total shares of common stock
outstanding after exercise of the option.
(6) Each of the Company's seven Directors has been granted an option to
purchase 300,000 shares (2,100,000 shares total) during their tenure
as a Director, limited to the exercise of 100,000 shares (700,000
shares total) during the first year of tenure, increasing 100,000
shares per year thereafter. In addition, the Company issued 75,000
shares to each Director (525,000 shares total) in October, 1995, and
agreed to issue an additional 50,000 shares per Director in October,
1996 and October, 1997, provided the Director is still in tenure.
NOTE 10 - SETTLED AND DISMISSED LEGAL PROCEEDINGS:
One of the founders of the Company, James C. Borlaug ("Borlaug"), and certain
other former directors owning collectively approximately 25% of the outstanding
shares of FFAC's common stock began a series of legal proceedings in mid 1993
to take control of FFAC or disrupt its business for the benefit of certain
competitors.
On September 22, 1993, a lawsuit was commenced by John P. Monteverde, Jr.
("Monteverde"), a minority shareholder and former director of the Company, in
District Court in Collin County, Texas. The lawsuit was brought by Monteverde,
individually, and in a purported capacity as agent for Borlaug and other
various unidentified shareholders of the Company (the "Monteverde Litigation")
and named the Company, its Chairman and CEO Tucker and then director Metcalf as
defendants. The Complaint in the Monteverde Litigation sought unspecified
damages and certain injunctive relief including, among other things, injunctive
orders appointing Monteverde President of the Company and replacing the
existing Board of Directors of the Company with various individuals acting in
concert with Monteverde. Monteverde's motion for a preliminary injunction was
withdrawn by him prior to a hearing. The Company denied all allegations
against it in the Monteverde Litigation and brought extensive counterclaims and
third-party claims against Monteverde and persons and entities believed to be
acting in concert with him. Management of the Company believes that the
Monteverde Litigation was commenced for the purpose of either taking
F-15
<PAGE> 39
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
control of the Company or disrupting its business for the benefit of certain of
its competitors.
On October 18, 1993, Monteverde, with the proxy of Borlaug and others,
attempted to hold a special meeting of stockholders in lieu of the official
annual meeting of stockholders on the same date. The then incumbent directors
were reelected at the Company's annual meeting of stockholders. On January 13,
1994, the Company and Monteverde filed dismissals of their respective claims
with no award of damages or costs to either party.
On November 9, 1993, an Involuntary Bankruptcy Petition was filed against the
Company under Chapter 11 of the United States Bankruptcy Code in Bankruptcy
Court for the Eastern District of Texas, Sherman Division. The Petition was
filed by ten individuals, including Borlaug, or entities ("Petitioners"), all
of whom were believed by management of the Company to be acting in concert with
Monteverde and in furtherance of similar purposes. The Company disputed the
validity of a substantial majority of the claims filed by the Petitioners.
On January 4, 1994, the Federal Bankruptcy Judge signed an order dismissing the
Involuntary Bankruptcy Petition pursuant to the following agreement between the
Company, Management and the Petitioners:
o Then incumbent Management and the Petitioners, who together owned
approximately 50% of the outstanding common stock of the Company,
entered into a voting agreement whereby they agreed to vote their
shares through April 1, 1997 in support of three directors nominated
by then incumbent Management, three directors nominated by the
Petitioners, and a seventh agreed upon by both groups. Each candidate
for the board of directors required approval of the Company's Autoloan
insurers, its warehouse investors, and its asset backed security
purchasers. The voting agreement was terminated during April 1995.
o Royalty agreements between the Company and Management, together with
certain Petitioners, were terminated. The Company executed notes to
reflect the negotiated settlement of all Petitioner claims, including
royalty claims. The balance outstanding of such notes was $-0- at
December 31, 1995 and $583,000 at December 31, 1994.
o All outstanding shares of common stock of the Company were ratified,
subject to the next item.
o The Company and Management executed releases with the Petitioners
except as to Borlaug whose disputed claim was subject to the Company's
claims, counterclaims and offsets in a greater amount.
o The Company modified Tucker's employment agreement to provide for a
salary of $150,000 per annum, a cash bonus of 15% of the Company's
pre-tax profits in years when pre-tax profits exceed $1,000,000, and
certain fringe benefits.
F-16
<PAGE> 40
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
On May 10, 1995, Borlaug commenced a lawsuit against the Company, its common
stock transfer agent, and Tucker in District Court for Collin County, Texas,
where the Company is headquartered, seeking to resolve the outstanding
disputes.
In May, 1996, the Company and Borlaug reached a settlement agreement calling
for mutual releases relating to the legal proceedings. Pursuant to the
settlement agreement, 2,000,000 shares of FFAC common stock owned of record by
Borlaug are being canceled. Borlaug, as to his remaining 2,008,000 shares, and
his attorneys, as to 1,000,000 of the 1,122,470 shares transferred to them, are
each subject to the following restrictions on public sales through May 1, 1998:
o No more than 50,000 shares may be sold per week on a non-cumulative
basis at no less than one cent above the bid price
o No more than an aggregate 300,000 shares may be sold at any time or
times in addition to the 50,000 per week, but also at no less than one
cent above the bid price
In the event that Borlaug or his attorneys transfer any shares of FFAC common
stock through private sale, the purchasers will be subject to the same sale
price restriction of no less than one cent above the bid price. If Borlaug and
his attorneys still own any shares of FFAC stock at January 1, 1998, they may
each require FFAC to purchase up to 100,000 shares per month from them at 40
cents per share. Such "put" is non assignable and automatically terminates
with respect to any shares upon transfer to any third party. Borlaug and his
attorneys have given their proxies as to their remaining shares to Tucker.
As part of the settlement agreement, FFAC agreed to repay to Borlaug $550,000
of the advances that he previously made during the Company's development stage.
The majority of this amount is being used to obtain the release of the Internal
Revenue Service lien and levies against Borlaug's property and income,
including all of the aforementioned shares of FFAC common stock. The
settlement amount of $550,000 will be paid (a) $55,000 down, and (b) the
balance in monthly installments of $35,000 commencing in July, 1996; the unpaid
balance will bear interest at the rate specified in the Internal Revenue Code
for interest on tax underpayments, which is adjusted quarterly and approximates
9% in May, 1996. The settlement amount, plus associated expenses, have been
accrued at December 31, 1995, and are reflected in the accompanying balance
sheet as accrued litigation settlement. Also, the agreed-upon cancellation of
2,000,000 shares of common stock has been reflected as of December 31, 1995.
To the extent that the Company does not pay the $550,000, the portion of the
2,000,000 shares required to realize on sale such shortfall would be reinstated
on the Company's financial statements. The proceeds from sale would be applied
against the remaining balance of the $550,000.
NOTE 11 - CURRENT LEGAL PROCEEDINGS:
The Company is a defendant in a lawsuit filed by William G. Marshall
("Marshall"), a shareholder and former director and officer of the Company, for
alleged breach of a former royalty agreement. Marshall seeks damages in excess
of $300,000, plus an ongoing royalty on each Autoloan "financed and funded by
the Company". The royalty agreement, which is the basis for Marshall's
F-17
<PAGE> 41
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
claim, was terminated and released by the terms of the Compromise and
Settlement Agreement referred to above. The Company's position is that
Marshall agreed to such termination and release, and received consideration for
it. The Company intends to vigorously defend against Marshall's claim. If
Marshall prevails, the Company's liability would be nominal, as only a small
percentage of Autoloans are "financed and funded by the Company".
In addition to the litigation described in the preceding paragraphs, the
Company is subject to other litigation in the normal course of business. The
Company is not engaged in any litigation which it believes would have a
material impact on its financial condition.
NOTE 12 - CONCENTRATIONS OF CREDIT RISK:
In the normal course of its business, the Company is required to fund various
cash reserve accounts related to Autoloans sold to investors. The balance in
certain accounts maintained at commercial banking institutions normally exceeds
the amount protected by FDIC insurance. In addition, a substantial portion of
these balances are maintained at insurance companies and other financial
institutions that do not have depositor protection similar to the FDIC
insurance. The Company believes that its risk of loss with respect to these
uninsured cash balances is minimal due to the strength and stability of the
financial institutions and due to such cash balances being held in trust
accounts.
The recoverability of the Company's "Due from sale and securitizations of
loans" is at risk based on the future collectibility of the related Autoloans
sold to investors. As disclosed elsewhere, the Company prepays (at the time of
sale of the Autoloans) for various insurance coverages that protect the
investors from virtually any significant future loss in connection with the
maintenance and collection of the Autoloans.
NOTE 13 - PREFERRED STOCK:
The Company has two series of preferred stock outstanding, as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Shares issued at $0.75 per share, dividend accruing at
10% per annum 258,242 258,242
Shares issued with no dividend accruing 278,480 650,865
-----------------------
Total shares outstanding 536,722 909,107
=======================
</TABLE>
NOTE 14 - NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board recently issued Proposed Statement of
Accounting Standards Number 154E, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. If the proposed statement
becomes effective in 1996, the Company believes that it will have a minimal
effect on 1996 net income, as income recognition pursuant to the Autoloan sale
procedures that it expects to be utilizing at December 31, 1996 would not be
affected significantly by the Proposed Statement.
F-18
<PAGE> 42
FIRST FIDELITY ACCEPTANCE CORP. (PARENT COMPANY)
SCHEDULE I -CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
ASSETS -------------- -------------
<S> <C> <C>
Cash $ 14,000 $ 79,000
Cash reserve accounts, restricted 1,251,000 498,000
Investment in subsidiaries 8,778,000 3,943,000
Prepaid royalties 298,000 474,000
Other prepaid expenses 341,000 250,000
Office furniture and equipment, net 88,000 78,000
Notes receivable and other assets 85,000 45,000
-------------- -------------
Total assets $ 10,855,000 $ 5,367,000
============== =============
LIABILITIES
Notes payable and long-term debt $ 5,543,000 $ 3,148,000
Accounts payable and accrued expenses 253,000 114,000
Professional fees payable 225,000 90,000
Accrued litigation settlement 585,000 --
Deferred compensation payable 401,000 130,000
Deferred Federal income taxes 280,000 --
-------------- -------------
Total liabilities 7,287,000 3,482,000
-------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000 shares authorized,
536,722 and 909,107 shares issued and outstanding 1,000 1,000
Common stock, $.001 par value, 50,000,000 shares authorized,
40,531,316 and 39,306,072 shares issued and outstanding 41,000 39,000
Capital in excess of par value 3,305,000 3,016,000
Retained earnings (accumulated deficit) 221,000 (1,171,000)
-------------- -------------
Total stockholders' equity 3,568,000 1,885,000
-------------- -------------
Total liabilities and stockholders' equity $ 10,855,000 $ 5,367,000
============== =============
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" OF FIRST FIDELITY ACCEPTANCE
CORP. AND SUBSIDIARIES ARE AN INTEGRAL PART OF THESE STATEMENTS. SEE ALSO THE
ACCOMPANYING "NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT."
F-19
<PAGE> 43
FIRST FIDELITY ACCEPTANCE CORP. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
Revenues: --------------- --------------- ---------------
<S> <C> <C> <C>
Financial services revenues $ 4,279,000 $ 1,935,000 $ 1,450,000
--------------- --------------- ---------------
Less, Costs and expenses:
Loan costs 3,471,000 1,322,000 2,023,000
Interest expense 548,000 260,000 13,000
General and administrative expenses 2,373,000 1,527,000 1,188,000
--------------- --------------- ---------------
Total costs and expenses 6,392,000 3,109,000 3,224,000
--------------- --------------- ---------------
Operating loss (2,113,000) (1,174,000) (1,774,000)
Other expense:
Legal proceedings and settlement
expense 679,000 -- 791,000
--------------- --------------- ---------------
Loss before equity in net income of
subsidiaries and income taxes (2,792,000) (1,174,000) (2,565,000)
Equity in net income of subsidiaries 4,479,000 2,259,000 2,093,000
--------------- --------------- ---------------
Income (loss) before income taxes 1,687,000 1,085,000 (472,000)
Provision for income taxes:
Deferred 280,000 -- --
--------------- --------------- ---------------
Net income (loss) $ 1,407,000 $ 1,085,000 $ (472,000)
=============== =============== ===============
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" OF FIRST FIDELITY ACCEPTANCE
CORP. AND SUBSIDIARIES ARE AN INTEGRAL PART OF THESE STATEMENTS. SEE ALSO THE
ACCOMPANYING "NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT."
F-20
<PAGE> 44
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,407,000 $ 1,085,000 $ (472,000)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization 34,000 24,000 19,000
(Increase) decrease in assets:
Cash reserve account, restricted (753,000) (428,000) (70,000)
Prepaid royalties and expenses 85,000 (124,000) (600,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 139,000 (301,000) 323,000
Professional fees payable 135,000 (200,000) 95,000
Accrued litigation settlement 585,000 -- --
Deferred compensation payable 271,000 130,000 --
Deferred Federal income taxes 280,000 -- --
----------- ----------- -----------
Net cash (used in) operating activities 2,183,000 186,000 (705,000)
----------- ----------- -----------
Cash flows from investing activities:
Additional investments in subsidiaries (4,835,000) (2,332,000) (1,611,000)
Purchase of equipment (44,000) (24,000) (71,000)
Notes receivable and other assets (40,000) (38,000) 15,000
----------- ----------- -----------
Net cash (used in) investing activities (4,919,000) (2,394,000) (1,667,000)
----------- ----------- -----------
Cash flows from financing activities:
Stock issued 291,000 565,000 1,915,000
Common stock and cash dividends (15,000) (24,000) (247,000)
Borrowings on notes payable 3,106,000 2,667,000 1,279,000
Repayments on notes payable (711,000) (923,000) (591,000)
----------- ----------- -----------
Net cash provided by financing activities 2,671,000 2,285,000 2,356,000
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (65,000) 77,000 (16,000)
Cash and cash equivalents, beginning of year 79,000 2,000 18,000
----------- ----------- -----------
Cash and cash equivalents, end of year $ 14,000 $ 79,000 $ 2,000
=========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash payments for interest $ 311,000 $ 193,000 $ --
=========== =========== ===========
Non-cash investing and financing activities:
Common stock issued for debt and dividends $ -- $ 177,000 $ 239,000
=========== =========== ===========
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" OF FIRST FIDELITY ACCEPTANCE
CORP. AND SUBSIDIARIES ARE AN INTEGRAL PART OF THESE STATEMENTS. SEE ALSO THE
ACCOMPANYING "NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT."
F-21
<PAGE> 45
FIRST FIDELITY ACCEPTANCE CORP. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION:
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is,
therefore, suggested that these Condensed Financial Statements be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Registrant's Annual Report as referenced in Form 10-K, Park II,
Item 8.
NOTE 2 - CASH DIVIDENDS FROM SUBSIDIARIES:
Dividends of $1,700,000 in 1995, $572,000 in 1994, and $320,000 in 1993 were
paid to the Registrant by its subsidiaries
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT:
Substantially all notes payable are secured by the proceeds from the "Cash
reserve accounts, restricted" and the receivable, "Due from sales and
securitizations of loans."
The components and interest rates of notes payable and long-term debt are as
follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Secured Promissory Notes (12%) (See Note 10) $ -- $ 583,000
Secured Promissory Notes (12%) 1,780,000 570,000
Secured Promissory Notes (5%) 1,070,000 --
Secured Promissory Notes (Prime + 3%) -- 1,430,000
Secured Promissory Notes (Prime + 2%) 250,000 --
Secured Promissory Notes (18%) 443,000 340,000
Secured Promissory Notes (10%) 1,800,000 --
Miscellaneous Notes 200,000 225,000
-----------------------------
$5,543,000 $3,148,000
=============================
</TABLE>
The aggregate future maturities of the notes payable and long-term debt at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 555,000
1997 2,535,000
1998 2,453,000
-----------
$ 5,543,000
===========
</TABLE>
F-22
<PAGE> 46
FIRST FIDELITY ACCEPTANCE CORP.
SCHEDULE A - COMPUTATION OF NET INCOME (LOSS) PER SHARE AMOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ 1,407,000 $ 1,085,000 $ (472,000)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Weighted average common shares and
equivalent shares outstanding:
Weighted average common shares outstanding 39,716,128 36,384,198 29,128,954
Dilutive effect of stock options 7,968,065 3,847,199 6,732,844
Dilutive effect of preferred stock 536,722 561,722 909,107
----------- ----------- -----------
48,220,915 40,793,119 36,770,905
=========== =========== ===========
Net income (loss) per share $ 0.03 $ 0.03 $ (0.01)
=========== =========== ===========
</TABLE>
F-23
<PAGE> 47
FIRST FIDELITY ACCEPTANCE CORP.
SCHEDULE B - LISTING OF SUBSIDIARIES
AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE OF PERCENT
NAME INCORPORATION OWNERSHIP
<S> <C> <C>
First Fidelity Vehicle Receivables Corporation Delaware 100%
First Fidelity Warehouse Corporation Delaware 100%
First Fidelity Auto Receivables Corporation Delaware 100%
First Fidelity Installment Receivables Delaware 100%
Corporation
</TABLE>
F-24
<PAGE> 48
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,632,000
<SECURITIES> 0
<RECEIVABLES> 6,411,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 178,000
<DEPRECIATION> (90,000)
<TOTAL-ASSETS> 10,855,000
<CURRENT-LIABILITIES> 0
<BONDS> 5,543,000
<COMMON> 41,000
0
1,000
<OTHER-SE> 3,526,000
<TOTAL-LIABILITY-AND-EQUITY> 10,855,000
<SALES> 0
<TOTAL-REVENUES> 8,758,000
<CGS> 0
<TOTAL-COSTS> 3,471,000
<OTHER-EXPENSES> 3,052,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548,000
<INCOME-PRETAX> 1,687,000
<INCOME-TAX> 280,000
<INCOME-CONTINUING> 1,407,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,407,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
