<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 33-3435 D
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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 Identification No)
incorporation or organization)
4975 PRESTON PARK BOULEVARD, SUITE 400, PLANO, TEXAS 75093
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(Address of principal executive offices)
Registrant's telephone number, including area code (972) 985-2150
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(Former name, former address and former fiscal year,
if changed since last report)
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 .
----- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable dates.
Title of Each Class Outstanding at November 13, 1996
----------------------------- --------------------------------
Common Stock, $.001 par value 42,634,656 shares
<PAGE> 2
PART 1 - FINANCIAL STATEMENTS
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Cash $ 79,000 $ 14,000
Cash Reserve Accounts, Restricted 2,442,000 3,618,000
Due from Sales and Securitizations of Autoloans 7,489,000 6,411,000
Prepaid Royalties 270,000 298,000
Other Prepaid Expenses 867,000 341,000
Office Furniture and Equipment, Net 90,000 88,000
Notes Receivable and Other Assets 322,000 85,000
-------------- ---------------
Total Assets $ 11,559,000 $ 10,855,000
============== ===============
LIABILITIES:
Notes Payable and Long-term Debt $ 5,231,000 $ 5,543,000
Accounts Payable and Accrued Expenses 99,000 253,000
Professional Fees Payable 158,000 225,000
Accrued Litigation Settlement 459,000 585,000
Deferred Compensation Payable 597,000 401,000
Deferred Federal Income Taxes 659,000 280,000
-------------- ---------------
Total Liabilities 7,203,000 7,287,000
-------------- ---------------
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 Par Value; 10,000,000 Shares
Authorized; 536,722 Shares Issued and Outstanding 1,000 1,000
Common Stock, $.001 Par Value; 50,000,000 Shares
Authorized; 41,184,656 and 40,531,316 Shares
Issued and Outstanding 41,000 41,000
Capital in Excess of Par Value 3,365,000 3,305,000
Retained Earnings 949,000 221,000
-------------- ---------------
Total Stockholders' Equity 4,356,000 3,568,000
-------------- ---------------
Total Liabilities and Stockholders' Equity $ 11,559,000 $ 10,855,000
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 3
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Financial Services Revenues $ 1,055,000 $ 2,052,000 $ 3,803,000 $ 8,027,000
----------- ----------- ----------- -----------
Less Costs and Expenses:
Autoloan Costs 199,000 646,000 969,000 2,843,000
Interest Expense 125,000 89,000 359,000 344,000
General and Administrative Expenses 412,000 622,000 1,358,000 2,125,000
----------- ----------- ----------- -----------
Total Costs and Expenses 736,000 1,357,000 2,686,000 5,312,000
----------- ----------- ----------- -----------
Income before Income Taxes 319,000 695,000 1,117,000 2,715,000
Provision for Income Taxes:
Deferred (108,000) (185,000) (379,000) (785,000)
----------- ----------- ----------- -----------
Net Income $ 211,000 $ 510,000 $ 738,000 $ 1,930,000
=========== =========== =========== ===========
Net Income Per Common Share $ .004 $ .010 $ .015 $ .040
=========== =========== =========== ===========
Weighted Average Common Shares
Outstanding on a Fully-diluted Basis 48,123,378 47,999,861 47,852,464 47,723,733
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 4
FIRST FIDELITY ACCEPTANCE CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 738,000 $ 1,930,000
Adjustments to Reconcile Net Income to
Net Cash (Used in) Operating Activities:
Depreciation and Amortization 32,000 9,000
Change in Assets and Liabilities:
(Increase) Decrease in Assets:
Cash Reserves - Restricted 1,176,000 (1,692,000)
Due from Sales and Securitizations of Autoloans (1,078,000) (3,677,000)
Prepaid Royalties and Expenses (498,000) ( 60,000)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses (154,000) 76,000
Professional Fees Payable (67,000) (12,000)
Deferred Compensation 196,000 539,000
Deferred Federal Income Taxes 379,000 785,000
Accrued Litigation Settlement (126,000) -
----------- -----------
Net Cash (Used in) Operating Activities 594,000 (2,102,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (34,000) (28,000)
Notes Receivable and Other Assets (237,000) (24,000)
----------- -----------
Net Cash (Used in) Investing Activities (271,000) (52,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock Issued 60,000 95,000
Common Stock and Cash Dividends (10,000) (16,000)
Borrowings on Notes Payable 125,000 2,611,000
Repayment of Notes Payable (437,000) (541,000)
----------- -----------
Net Cash (Used in) Financing Activities (262,000) 2,149,000
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 65,000 (5,000)
BEGINNING BALANCE, CASH AND CASH
EQUIVALENTS $ 14,000 79,000
----------- -----------
ENDING BALANCE, CASH AND CASH
EQUIVALENTS $ 79,000 $ 74,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash Payments for Interest $ 109,000 $ 65,000
=========== ===========
Cash Payments for Taxes $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 5
FIRST FIDELITY ACCEPTANCE CORP.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. Except as disclosed herein, there has been no material
change in the information disclosed in the notes to financial
statements included in the company's Annual Report on Form 10-K for
the year ended December 31, 1995. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September
30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First
Fidelity Acceptance Corp. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated upon
consolidation. "Cash reserve accounts, restricted" and "Due from
sales and securitizations of Autoloans" 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.
C. INCOME PER SHARE
Income per share is computed by dividing net income by the weighted
average number of common shares, preferred shares, stock options and
warrants outstanding during the period.
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<PAGE> 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996
WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company's ability to sell and securitize Autoloans was impaired
during 1996 by the Borlaug legal proceedings until their settlement at the end
of May. The resolution enabled FFAC to enter into a relationship with a
financial institution to purchase Autoloans without default insurance coverage.
The cost of the transition from an insured to a non-insured basis has been
capitalized as a prepaid expense and is being amortized over a 5-year period.
Prior to 1996, a subsidiary of the Company sold Autoloans to
third-party warehouse investors pending securitization or sale to permanent
investors. Income was recognized at the time of the sale to the third-party
warehouse investors. During 1996, a different subsidiary of the Company
commenced warehousing the Autoloans through the issuance of trust certificates,
but does not recognize income until it repurchases the Autoloans from such
trusts, and sells them to third-party permanent investors as part of a
portfolio sale or securitization. Consequently, less income has been
recognized in 1996 than would have been recognized pursuant to the prior
third-party warehouse funding mechanisms.
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 gain on Autoloan sale portion of the Company's revenue is recorded as
income in the period that the Autoloan is sold to a third-party, 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, 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 sales and securitizations of Autoloans. In addition, it sells shares
of common and preferred stock through private placements.
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<PAGE> 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST FIDELITY ACCEPTANCE CORP.
BY: /s/ PATTI PLUNKETT Date: 11/13/96
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Patti Plunkett,
Vice President
Chief Financial Officer
Chief Accounting Officer
-7-
<PAGE> 8
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,521,000
<SECURITIES> 0
<RECEIVABLES> 7,489,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 211,000
<DEPRECIATION> (121,000)
<TOTAL-ASSETS> 11,559,000
<CURRENT-LIABILITIES> 0
<BONDS> 5,231,000
0
1,000
<COMMON> 41,000
<OTHER-SE> 4,314,000
<TOTAL-LIABILITY-AND-EQUITY> 11,559,000
<SALES> 0
<TOTAL-REVENUES> 3,803,000
<CGS> 0
<TOTAL-COSTS> 969,000
<OTHER-EXPENSES> 1,358,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359,000
<INCOME-PRETAX> 1,117,000
<INCOME-TAX> 379,000
<INCOME-CONTINUING> 738,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738,000
<EPS-PRIMARY> .018
<EPS-DILUTED> .015
</TABLE>
