IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS AMENDMENT NO.
2 TO THE REGISTRATION STATEMENT ON FORM SB-2 IS BEING FILED IN
PAPER PURSUANT TO A CONTINUING HARDSHIP EXEMPTION.
As filed with the Securities and Exchange Commission on December 4, 1995
Registration No. 33-97948
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
NAL FINANCIAL GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6141 23-2455294
(State or other jurisdiction of (Primary Standard Classification (I.R.S. Employer Identification
incorporation or organization) Code Number) Number)
</TABLE>
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
- -------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office and
principal place of business)
Mr. Robert R. Bartolini
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, FL 33309
(305) 938-8200
-----------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copy to:
Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square
2005 Market Street, 22nd Floor
Philadelphia, PA 19103
(215) 241-1868
--------------------
Approximate date of proposed sale to the public: As soon as practicable
following the date on which this Registration Statement becomes effective.
--------------------
<PAGE>
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box. [x]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
NAL FINANCIAL GROUP INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Registration Statement Item Number and Caption Location in Prospectus or Page
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..................................Forepart of the Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus...........................................................Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors....................................Prospectus Summary; Summary Financial Information;
Risk Factors
4. Use of Proceeds.........................................................Use of Proceeds
5. Determination of Offering Price.........................................Cover Page of Prospectus; Plan of Distribution
6. Dilution................................................................N/A
7. Selling Security Holders................................................Selling Security Holders
8. Plan of Distribution....................................................Cover Page of Prospectus; Plan of Distribution
9. Legal Proceedings.......................................................Business of the Company - Legal Proceedings
10. Directors, Executive Officers, Promoters and Control P Management; Certain Transactions
11. Security Ownership of Certain Beneficial Owners and Management..........Principal Stockholders
12. Description of Securities...............................................Description of Securities
13. Interest of Named Experts and Counsel...................................N/A
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities..............................................Statement on Indemnification; Part II; Item 24 -
Indemnification of Directors and Officers
15. Organization within Last Five Years.....................................Business of the Company
16. Description of Business.................................................Business of the Company
17. Management's Discussion and Analysis of Plan of Operation...............Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.................................................Business of the Company
19. Certain Relationships and Related Transactions..........................Certain Transactions
20. Market for Common Equity and Related Stockholder Matters................Market for Common Equity and Related Stockholder
Matters
21. Executive Compensation..................................................Management
22. Financial Statements....................................................Summary Financial Information; Capitalization;
Financial Statements
23. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure................................................N/A
</TABLE>
<PAGE>
Subject to Completion December 4, 1995
PRELIMINARY PROSPECTUS
NAL FINANCIAL GROUP INC.
-------------------------
253,009 shares of Common Stock
Offered by Certain Selling Security Holders
------------------------
This Prospectus relates to the sale by certain "Selling Security
Holders" identified in this Prospectus of up to 253,009 shares of common stock,
$.15 par value per share ("Common Stock"), which consist of: (i) 111,231 shares
of Common Stock previously issued by NAL FINANCIAL GROUP INC. (the "Company") in
a private placement transaction; and (ii) 141,778 shares of Common Stock which
may be issued, if at all, upon the conversion of the principal and accrued
interest due under outstanding convertible debentures (the "Debentures")
previously issued by the Company in a private placement transaction, including
90,000 shares which may be offered by an affiliate of a director of the Company.
See "SELLING SECURITY HOLDERS" and "DESCRIPTION OF SECURITIES."
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Security Holders. The Company will, however, bear
all expenses in connection with the preparation and filing of a Registration
Statement of which this Prospectus forms a part. Sales of shares of Common Stock
may be made in negotiated transactions, or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "PLAN OF
DISTRIBUTION."
------------------------
The Common Stock is traded on The NASDAQ National MarketSM under the
symbol "NALF." On November 29, 1995, the last reported sales price of the
Common Stock on The NASDAQ National MarketSM was $13.75.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
Underwriting Discounts Proceeds to the Selling
Class of Security Price to Public and Commissions Security Holders
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of
Common Stock _____ -(1)- $3,478,874(2)
=============================================================================================================================
</TABLE>
(1) This does not take into account the costs of this Offering, including
among others, printing, blue sky and professional fees, estimated at
$100,000, which will be borne entirely by the Company.
(2) Represents the anticipated sale by the Selling Security Holders at
$13.75 per share, the last reported sales price reported on The
NASDAQ National MarketSM on November 29, 1995. There can be no
assurances, however, that the Selling Security Holders will be able to
sell their shares at this price, or that a liquid market will exist for
the Company's Common Stock. The Company will receive no proceeds upon
the sale of shares of Common Stock by the Selling Security Holders.
The date of this Prospectus is December __, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Copies of these reports may be inspected and copied at the
Public Reference Facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549, and at the Commission's regional offices at
7 World Trade Center, Suite 1300, New York, New York 10048, and at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained upon written request addressed to the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, DC
20549, at prescribed rates.
The Company will provide a report to stockholders, at least annually,
which will include audited financial statements of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus.
THE COMPANY
The Company
NAL Financial Group Inc. (hereinafter, the "Company" or "NAL")
commenced operations during June 1991 as a specialized finance company for the
purpose of engaging in consumer finance transactions involving the origination,
purchase, remarketing and servicing of consumer and mortgage loans and auto
lease receivables.
Because of the opportunities presented by the insolvency and
reorganization of many financial institutions at the time, from inception
through the second quarter of 1994, the Company's principal activities involved
the bulk purchase and servicing of seasoned portfolios of consumer and mortgage
loans and auto lease receivables that had been administered by the Resolution
Trust Corporation ("RTC") or Federal Deposit Insurance Corporation ("FDIC").
In response to the decreasing availability of seasoned portfolios,
since the second quarter of 1994 the Company's principal focus has shifted to
other segments of the consumer finance industry, particularly auto finance.
Although opportunistic purchases of seasoned auto related portfolios may still
be considered by management, the principal focus of the Company's business since
June 1994, has been the acquisition and servicing of automotive leases and loans
originated by dealers in connection with sales or leases to persons with
sub-prime credit.
The Company services its own portfolio of receivables so as to maximize
return on investment through interest income, fees and remarketing efforts to
consumers.
The Company operates its business through five wholly-owned
subsidiaries, NAL Acceptance Corporation ("NAC"), NAL Mortgage
Corporation ("NMC"), NAL Insurance Services, Inc. ("NIS"),
Performance Cars of South Florida, Inc. ("PCSF") and AUTORICS, Inc.
("Autorics"). (Unless otherwise specified, references to the
Company shall include NAC, NMC, NIS, Autorics and/or PCSF).
3
<PAGE>
The Company became publicly held by virtue of a merger with and into
Corporate Financial Ventures, Inc. ("COFVI") on November 30, 1994 (the
"Merger"). COFVI was incorporated in Delaware on November 14, 1986 and completed
a small public offering on June 14, 1988. With the exception of a short-term
venture that was discontinued during the fourth quarter of 1993, COFVI had
remained principally an inactive company since inception.
Pursuant to the Merger, NAL was merged with and into COFVI and the
historic stockholders of NAL received 3,160,000 newly issued restricted
securities, which constituted approximately 56% of the issued and outstanding
COFVI stock. Effective upon completion of the Merger, the Company assumed the
historic operations of NAL and changed its name to "NAL Financial Group Inc."
The Company's principal executive office is located at 500
Cypress Creek Road West, Suite 590, Fort Lauderdale, Florida
33309.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Being Offered: This Prospectus relates to the
- -------------------------
sale by certain "Selling
Security Holders" identified in
this Prospectus of up to
253,009 shares of common stock,
$.15 par value per share
("Common Stock"), which consist
of: (i) 111,231 shares of
Common Stock previously issued
by NAL FINANCIAL GROUP INC.
(the "Company") in a private
placement transaction; and (ii)
141,778 shares of Common Stock
which may be issued, if at all,
upon the conversion of the
principal and accrued interest
due under outstanding
convertible debentures (the
"Debentures") previously issued
by the Company in a private
placement transaction,
including 90,000 shares which
may be offered by an affiliate
of a director of the Company.
See "SELLING SECURITY HOLDERS"
and "DESCRIPTION OF
SECURITIES."
4
<PAGE>
The shares of
Common Stock
offered by the
Selling Security
Holders may be
offered for sale
from time to time
by the holders in
regular brokerage
transactions,
either directly or
through brokers or
to dealers, in
private sales or
negotiated
transactions, or
otherwise, at
prices related to
then prevailing
market prices. The
Company will not
receive any
proceeds from the
sale of shares of
Common Stock by
the Selling
Security Holders.
All expenses of
the registration
of such securities
are, however,
being borne by the
Company. The
Selling Security
Holders, and not
the Company, will
pay or assume such
brokerage
commissions as may
be incurred in the
sale of their
securities. See
"SELLING SECURITY
HOLDERS."
The Company's
Common Stock is
listed on The
NASDAQ National
MarketSM under the
symbol "NALF." On
November 29,
1995, the last
reported sales
price of the
Common Stock was
$13.75.
Total number of shares of
Common Stock outstanding.........................................6,550,347(1)
Total number of shares of
Common Stock being offered
by Selling Security Holders ..........................................253,009
- ---------------------------
(1) As of November 29, 1995.
- ---------------------------
5
<PAGE>
Use of Proceeds: The Company will not receive
- ----------------
any proceeds from the sale of
shares of Common Stock by the
Selling Security Holders.
Risk Factors: The securities offered in this
- -------------
Prospectus are speculative in
nature and involve a high
degree of risk. Prior to
making an investment decision,
prospective investors should
carefully review the risk
factors enumerated in this
Prospectus, including, among
others, the dependence of the
Company on sources of
financing, possible volatility
of stock prices, risks
associated with the sub-prime
market, control by certain
stockholders, reliance on key
personnel and additional
possible dilution. See "RISK
FACTORS" and "BUSINESS OF THE
COMPANY - Legal Proceedings."
Trading Symbol: Common Stock "NALF."
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is the historical summary financial information with
respect to the Company for the three years ended December 31, 1994, 1993 and
1992 and the nine months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Information:
Revenue $12,368,194 $6,197,710 $8,133,200 $9,287,091 $13,232,846
Income Before Provision for Taxes, 1,725,473 748,619 657,666 1,320,804 2,428,849
Extraordinary Loss and Minority
Interest(1)
Net Income 1,069,793 454,755 394,323 471,239 1,399,333
Net Income per Share:(2)
Primary:
Income Before Provision for Taxes,
Extraordinary Loss
and Minority Interest 0.29 0.14 0.25 0.47 0.13
Net Income 0.18 0.09 0.08 0.09 0.27
Fully Diluted:
Income Before Provision for Taxes,
Extraordinary Loss
and Minority Interest 0.29 0.13 0.12 0.24 0.43
Net Income 0.18 0.08 0.07 0.08 0.25
Weighted Average Shares
Outstanding
Primary 5,875,228 5,192,968 5,192,968 5,192,968 5,192,968
Fully Diluted 6,013,263 5,592,968 5,592,968 5,592,968 5,592,968
Balance Sheet Information:
(at end of period)
Total assets 112,206,308 21,550,845 34,321,546 27,652,315 38,059,273
7
<PAGE>
Borrowings 86,977,416 18,087,565 22,502,041 22,840,167 28,203,796
Stockholders' Equity 21,028,876 3,463,280 10,855,807 3,808,083 5,582,203
</TABLE>
See Footnotes Next Page
8
<PAGE>
(1) Includes an extraordinary loss on extinguishment of debt
of $326,949 (net of taxes) and a minority interest of
$87,516 for the years ended December 31, 1993 and 1992,
respectively. Also includes a non-cash charge of $80,000
for the nine months ended September 30, 1995 for
common stock earned pursuant to a voting trust agreement
established in connection with the Merger.
(2) Primary and fully diluted net income per share for the years
ended December 31, 1994 and 1993, and for the nine months
ended September 30, 1994 has been calculated assuming
5,192,968 and 5,592,968 shares have been outstanding during
the entire periods, respectively.
9
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk and an investment in the Common Stock should not be made by any
investor who cannot afford the loss of his entire investment. Prior to making an
investment decision with respect to the Common Stock offered by this Prospectus,
prospective investors should carefully consider, along with the other matters
discussed in this Prospectus, the following risk factors:
1. Declining Historic Results of Operation.
The Company experienced a trend toward decreasing results of operations
during fiscal 1993 and 1994, which management believes was attributable to
diminished gains on loan sales and rates of return, and increased competition
incurred in connection with its more recent purchases of seasoned portfolios of
consumer and mortgage loans and auto leases.
Management believes that the yields to be derived from interest, rental
income and fees generated by originated and acquired contracts will provide a
profitable spread over the costs of its borrowings. In view of the early stage
of the Company's auto finance business segment, however, management is uncertain
these yields will compare with yields experienced in the past. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
2. Dependence upon Adequate Sources of Financing.
Historically, a substantial portion of the Company's working capital
has been provided through the sale of debt participation interests and revolving
lines of credit provided by the Company's principal lenders. During the second
and third quarters of fiscal 1995, the Company secured additional funding
through warehouse credit facilities and through the sale of Debentures and
shares of Common Stock in private placement transactions. The Company utilizes
these sources of funding to finance the purchase of its consumer loans and lease
receivables. Accordingly, the Company's ability to maintain and expand its
portfolio of loan and lease receivables, while dependent upon a number of
factors, relies predominantly upon the availability of adequate capital at rates
and upon terms acceptable to the Company. There can be no assurances that such
sources of financing will continue to remain available to the Company, or that
the Company will be able to secure increased sources and levels of financing.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
10
<PAGE>
The Company remains in compliance with the terms of its existing lines
of credit and debt participation interests. A default under any of these
arrangements in the future could have a materially adverse effect on the
Company's finances. The Company's ability to keep these financing sources in
place depends upon its continued compliance with the terms thereof. The
Company's ability to obtain successor facilities or similar financing will
depend on, among other things, the willingness of financial institutions to
participate in funding sub-prime credits and the Company's future financial
condition and results of operations.
3. Growth Dependent upon Expansion of Dealer Base.
To a large extent, the Company's business depends on identifying
dealers who meet certain qualifications, executing master dealer agreements with
such dealers, training such dealers to utilize the Company's services
effectively and monitoring such dealers' compliance with Company guidelines.
There can be no assurance that the Company will be successful in increasing the
number of participating dealers or maintaining its existing dealer base or that
such dealers will continue to generate a volume of contracts comparable to the
volume of contracts historically generated by such dealers. See "BUSINESS OF THE
COMPANY - Dealer Program" and "Competition."
4. Substantial Additional Dilution.
The Company is presently authorized to issue 50,000,000 shares
of Common Stock of which 6,550,347 shares are outstanding as of the date of this
Prospectus. Since the second quarter of 1995, the Company has undertaken the
sale of $15,400,000 principal amount of convertible Debentures in private
placement transactions. The Debentures were sold in Units together with common
stock purchase warrants (the "Warrants"). The Company's outstanding Common Stock
includes 780,879 shares previously issued upon the conversion of $6,900,000
principal amount of the Debentures. The Company may be caused to issue
approximately 954,739 additional shares upon the conversion, if at all, of the
principal and interest due under the remaining Debentures and 1,594,500 shares
upon the exercise, if at all, of the Warrants; thus increasing the number of
shares outstanding from 6,550,347 to 9,099,586. See "DESCRIPTION OF SECURITIES."
Conversion of all of the remaining Debentures, if at all, would,
however, have the effect of releasing the Company from its obligation to repay
$8.5 million principal amount of the Debentures and recharacterizing such
indebtedness to equity on the Company's financial books and records. In
addition, exercise of all of the
11
<PAGE>
Warrants, if at all, would have the effect of securing for the Company
additional working capital of up to $15,585,000.
As its rate of growth continues, the Company must continue to secure
increasing amounts of financing to fund the acquisition of additional automotive
finance contracts. This may entail the sale of additional shares of Common Stock
or Common Stock equivalents which would have the effect of further increasing
the number of shares outstanding.
In connection with other business matters deemed appropriate by the
Company's management, there can be no assurances that the Company will not, in
fact, undertake the issuance of more shares of Common Stock without notice to
then existing stockholders. This may be done in order to, among others,
facilitate a business combination, acquire assets or stock of another business,
compensate employees or consultants or for other valid business reasons in the
discretion of the Company's Board of Directors. The Company has a Stock Option
Plan which is presently authorized to grant options for the sale of up to
600,000 shares of Common Stock. In December 1994 and September 1995, the Company
granted options to purchase an aggregate of 541,000 shares of Common Stock. See
"MANAGEMENT - Executive Compensation."
5. Possible Volatility Associated with Anticipated Offering
by Selling Security Holders.
As of the date of this Prospectus, the Company had outstanding
6,550,347 shares of Common Stock of which approximately 2,200,000 were eligible
for public trading. After giving effect to the resale of the shares covered by
this Prospectus, and by virtue of certain registration rights granted to the
holders of the Debentures and Warrants, an issuance of shares upon the
conversion of the Debentures and/or exercise of the Warrants would have the
effect of substantially increasing the number of shares eligible for public
trading. See "DESCRIPTION OF SECURITIES - Registration Rights." Although it is
impossible to predict market influences and prospective values for securities,
it is possible that, in and of itself, the increase in the number of shares
available for public trading could have a depressive effect upon the trading
value of the Company's Common Stock.
6. Effect of Outstanding Debentures and Warrants.
For the respective terms of the Debentures and Warrants, the holders
thereof are given an opportunity to profit from a rise in the trading price of
the Company's Common Stock, with a resulting dilution in the interest of the
other stockholders. The holders of such Debentures may exercise their rights of
conversion, and the
12
<PAGE>
holders of such Warrants may chose to exercise such Warrants, each at prices
below the current trading price of the Company's Common Stock and at a time when
the Company might be able to obtain additional capital through a new offering of
securities at prevailing market prices. The terms on which the Company may
obtain additional financing during this period may be adversely affected by the
existence of such below market Debentures and Warrants.
7. Sensitivity to Interest Rates and General Economic
Conditions.
The Company's business is affected by a number of factors beyond its
control, including sales activity in the new and used automobile retail market,
which may be affected by the general condition of the economy and interest rate
levels. The Company's profitability is determined largely by the difference, or
"spread", between the rate of interest on the funds borrowed under its existing
credit facilities, and the rate of interest (or effective yield in the case of
bulk purchase portfolios) charged to and collected from its customers on their
contracts. There can be no assurance that the Company's cost of funds will not
rise to a level that adversely affects its ability to maintain profitability
with respect to the contracts it originates and/or holds. In addition, high
interest rate environments also adversely affect the financing capacity of the
Company's sub-prime customers, particularly for new vehicles. Moreover, the
Company has entered into a master repurchase facility with a lending institution
which, under its terms, gives the institution the right to make margin calls in
the event of a decrease in the market value in the contracts held for
repurchase. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
8. Risks Associated with the Sub-Prime Market.
The principal focus of the Company's business is upon automotive leases
or loans that have been secured by persons with sub-prime credit. The sub-prime
market is comprised of customers who are deemed to be relatively high credit
risks due to various factors, including, among other things, the manner in which
they have handled previous credit, the absence or limited extent of their prior
credit history, or their limited financial resources. Consequently, the
contracts acquired or loans originated by the Company may bear a higher rate of
interest but also involve a higher probability of default, may involve higher
delinquency rates and may involve greater servicing costs. The Company's
profitability depends upon its ability to properly evaluate the credit
worthiness of customers and efficiently service its contracts. There can be no
assurance that the credit performance
13
<PAGE>
of its customers will be maintained, that the Company's systems and controls
will continue to be adequate, or that the rate of future defaults and/or losses
will be consistent with prior experience or at levels that will maintain the
Company's profitability.
9. Reliance on Systems and Controls.
The Company's operations rely upon non-proprietary processes and
controls that are available generally, however, have been specifically developed
to meet the needs of the Company. These processes and controls support the
evaluation, acquisition, servicing and administration of the Company's loan and
lease portfolios, as well as its general corporate and management oversight
functions. There can be no assurance that the Company's processes, controls or
automated systems will continue to be adequate, or that they will be sufficient
for the Company's expansion plans. A failure of the Company's automated systems
could have a material adverse effect upon the Company's business and financial
condition.
10. Control by Directors and Officers.
The Company's officers and directors own approximately 42% of the
Common Stock of the Company. See "PRINCIPAL STOCKHOLDERS." By virtue of the
concentration of a substantial block of shares in the hands of the Company's
directors and officers, and in view of the absence of cumulative voting rights,
these stockholders will be in a position to elect all of the Company's directors
and control the outcome of other corporate matters without the approval of the
Company's other stockholders. In addition, applicable statutory provisions and
the ability of the Board of Directors to issue one or more series of Preferred
Stock without stockholder approval could deter or delay unsolicited changes in
control of the Company by discouraging open market purchases of the Company's
stock or a non-negotiated tender or exchange offer for such stock, which may be
disadvantageous to a majority of the Company's stockholders who may otherwise
desire to participate in such a transaction and receive a premium for their
shares. See "DESCRIPTION OF SECURITIES."
11. Reliance on Key Personnel.
The Company is dependent upon the services of its executive officers.
Should one or more of these individuals cease to be affiliated with the Company
before acceptable replacements are found, there could be a material adverse
effect on the Company's business and prospects. Mr. Robert R. Bartolini, the
Company's Chairman and Chief Executive Officer, is the only executive officer
with whom the Company has an employment agreement. Should any of
14
<PAGE>
the Company's executive officers elect to terminate their employment, there can
be no assurance that suitable replacements could be hired without the Company
incurring substantial additional costs. The Company does not presently maintain
key-man insurance on any of its executives, other than a life insurance policy
on Mr. Bartolini in the amount of $2,000,000. This policy is maintained as a
condition of the Company's credit facility with Congress Financial Corporation.
The proceeds from the policy are primarily to be applied to reduce the Company's
debt to Congress Financial Corporation, and upon payment of that debt, the
remaining proceeds shall be payable to the Company. The Company's continued
success is also dependent upon its ability to attract and retain a sufficient
number of qualified employees to support its growth strategy. There can be no
assurance that the Company will be able to recruit and retain such personnel.
See "MANAGEMENT."
12. Competition.
In general, the automotive finance industry is characterized by intense
competition. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these competitors have greater
financial, technical and marketing resources than the Company. There can be no
assurance that the Company will be able to compete successfully with such
competitors in the future.
Many of the larger banks, financial institutions and captive finance
arms of automotive manufactures have not consistently sought to do business in
the sub-prime market. These organizations have traditionally elected to limit
their activities to the higher credit quality customers. As a result, the
sub-prime credit market tends to be primarily serviced by smaller and
independent finance organizations.
The Company's business strategy is designed to capitalize on the
absence of consistent institutional sources of financing in the sub-prime
market. The competition in the sub-prime market would be significantly increased
should the large finance organizations seek to compete consistently in the
sub-prime market.
13. Regulation.
The Company's business is subject to numerous federal and state
consumer protection laws and regulations, which, among other things, require the
Company to: (i) obtain and maintain certain licenses and qualifications; (ii)
limit the interest rates, fees and other charges the Company is allowed to
charge; (iii) limit or
15
<PAGE>
prescribe certain other terms of the Company's contracts; (iv) provide specified
disclosures; and (v) define the Company's rights to repossess and sell
collateral. An adverse change in existing laws or regulations, or in the
interpretation thereof, or the promulgation of any additional laws or
regulations could have an adverse effect on the Company's business. See
"BUSINESS OF THE COMPANY - Government Regulation."
14. General Economic Conditions.
The Company is subject to risks generally inherent in the operation of
a business. These include, for example, inflation and increases or decreases in
interest rates which may have an effect upon the overall volume of auto sales or
leases. The Company believes, however, that because of its customer profile, and
the need of its customers for basic transportation, such factors are not likely
to have a material adverse impact on the Company's business.
15. Collections and Repossessions.
The Company finances automobiles in a relatively high-risk market and
anticipates that a portion of its automobile loans will become seriously
delinquent and that in those circumstances the Company's only practical
alternative will be repossession of the automobile. The Company monitors the
rate of delinquent automobile loans and repossessions and maintains reserves to
absorb anticipated losses from repossessions. The Company will use its best
efforts to minimize its losses in that regard, although it believes its reserves
are adequate to account for any such losses. The Company's loss reserves rely to
a great extent, however, upon historical experience, which has been limited.
Changes from the historical experience caused by changes in economic conditions
or other factors could adversely affect the Company's operations.
16. Priority Liens in Financed Vehicles.
Statutory liens for repairs or unpaid taxes may have priority even over
a perfected security interest in financed automobiles, and certain state and
federal laws permit the confiscation of motor vehicles used in unlawful activity
which may result in the loss of a secured party's perfected security interest in
a confiscated motor vehicle. Liens for repairs or taxes, or the confiscation of
a financed automobile, could arise or occur at any time during the term. No
notice may necessarily be given to the Company in the event such a lien arises
or confiscation occurs.
16
<PAGE>
17. Bankruptcies and Deficiency Judgments.
Certain statutory provisions, including federal and state bankruptcy
and insolvency laws, may limit or delay the ability of the Company to repossess
and resell financed automobiles or enforce a deficiency judgment. In addition,
the Company may determine in its discretion that a deficiency judgment is not an
appropriate or economically viable remedy, or may settle at a significant
discount any deficiency judgment that it does obtain. In the event that
deficiency judgments are not obtained, are not satisfied, are satisfied at a
discount or are discharged, in whole or in part, in bankruptcy proceedings, the
loss will be borne by the Company and may adversely affect the ability of the
Company to repay its outstanding credit facilities.
18. Future Sales of Common Stock.
A substantial influx of shares into the market may have a depressive
effect upon the trading price of the Company's Common Stock. This may occur upon
the public resale of the shares issuable upon the conversion of outstanding
Debentures or upon the exercise of outstanding Warrants pursuant to existing
registration rights granted by the Company (See "RISK FACTOR #5") or upon the
public resale of outstanding shares that formerly constituted "restricted
securities", as that term is defined under Rule 144 of the Securities Act of
1933, as amended (the "Act").
After taking into account resale of the shares covered by this
Prospectus and the anticipated registration of certain additional shares issued
upon conversion of the Debentures, approximately 3,400,000 shares of the
Company's outstanding Common Stock will continue to remain and in the future may
be sold without registration upon compliance with Rule 144. A person (including
a group of persons whose shares are aggregated) who has satisfied a two year
holding period for restricted securities, including an affiliate of the Company,
may sell an amount of restricted securities up to 1% of the Company's
outstanding Common Stock in each three month period thereafter. Persons who are
not affiliated with the Company and who have owned the restricted securities for
at least three years are not subject to the 1% limitation. Of the 3,400,000
shares which constitute restricted securities, approximately 2,535,978 are
presently held by persons who may be deemed "affiliates" of the Company. These
individuals acquired their shares during November 1994. Accordingly, resales may
occur as early as November 1996. Provided these individuals remain "affiliates",
their resales would be limited to 1% of the Company's outstanding Common Stock
in each three month period thereafter. Of the 3,400,000 shares which constitute
restricted securities, 864,022 are presently held by non-affiliates. These
shares were
17
<PAGE>
acquired during November 1994. Accordingly, resales can occur as early as
November 1996 (limited to 1% of the Company's outstanding common stock per
quarter) and unlimited resales can occur as early as November 1997.
Any substantial sale of restricted securities under Rule 144 may in the
future have a depressive effect upon the price of the Company's Common Stock in
any market that may develop therefor.
19. Dividends.
From inception through November 30, 1994, NAL as the predecessor to the
Company paid dividends of $1,069,460. No dividends had been paid by COFVI, nor
have there been any dividends paid by NAL following its Merger with COFVI. The
payment of dividends is not contemplated in the foreseeable future. The payment
of future dividends will be directly dependent upon the earnings of the Company,
its financial needs and other similarly unpredictable factors. Earnings are
expected to be retained to finance and develop the Company's business.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of
shares of Common Stock by the Selling Security Holders. See
"SELLING SECURITY HOLDERS."
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Merger on November 30, 1994, virtually no trading of the
Company's Common Stock had occurred since 1990. During December 1994, the
Company's Common Stock began trading on the over-the-counter market through the
OTC Bulletin Board under the symbol "NALF." In May 1995, the Company's Common
Stock commenced trading on the NASDAQ National MarketSM under the same symbol.
The following table sets forth the high and low market prices of the
Common Stock for the period from December 1994 through September 1995.
<TABLE>
<CAPTION>
1994 High Low
<S> <C> <C>
Fourth Quarter $9.75 $7.50
December 1994
18
<PAGE>
1995
First Quarter $12.00 $10.30
Second Quarter $12.49 $10.50
Third Quarter $17.87 $11.97
</TABLE>
The last reported sales price on November 29, 1995 was $13.75.
Records of the Company's stock transfer agent indicate that as of
November 29, 1995, the Company had 161 holders of record of its Common
Stock. Since a number of the shares of the Company are held by financial
institutions in "street name," it is likely that the Company has more
stockholders than indicated above. To date, the Company has been unable to
accurately ascertain this information.
From inception through November 30, 1994, NAL as the predecessor to the
Company paid dividends of $1,069,460. No dividends had been paid by COFVI, nor
have there been any dividends paid by NAL following its Merger with COFVI. The
payment of dividends is not contemplated in the foreseeable future. The payment
of future dividends will be directly dependent upon the earnings of the Company,
its financial needs and other similarly unpredictable factors. Earnings are
expected to be retained to finance and develop the Company's business.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1995.
<TABLE>
<S> <C>
Borrowings $ 86,977,416
Stockholders' Equity:
Preferred Stock, $1,000 par value
10,000,000 shares authorized;
none issued and outstanding - 0 -
Common Stock, $0.15 par value
50,000,000 shares authorized;
6,550,347 issued and outstanding 982,552
Paid in capital 17,443,384
Retained earnings 2,602,940
Total stockholders' equity 21,028,876
Total capitalization $108,006,292
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company included in
this Prospectus.
Background
NAL commenced operations during June 1991 as a specialized finance
company for the purpose of engaging in consumer finance transactions involving
the origination, purchase, remarketing and servicing of consumer and mortgage
loans and auto lease receivables.
Because of the opportunities presented by the insolvency and
reorganization of many financial institutions at the time, from inception
through the second quarter of 1994, the Company's principal activities involved
the bulk purchase and servicing of seasoned auto related portfolios of consumer
and mortgage loans and auto lease receivables that had been administered by the
RTC or FDIC.
20
<PAGE>
In response to the decreasing availability of seasoned portfolios,
since the second quarter of 1994 the Company's principal focus has shifted to
other segments of the consumer finance industry, particularly auto finance.
Although opportunistic purchases of seasoned portfolios may still be considered
by management, the principal focus of the Company's business since June 1994,
has been the acquisition and servicing of automotive leases and loans originated
by dealers in connection with sales or leases to persons with sub-prime credit.
The Company became publicly held by virtue of the Merger with COFVI on
November 30, 1994. COFVI had been an inactive public company at the time of the
Merger. Since, as a result of the Merger, the stockholders of historic NAL
acquired a controlling interest in COFVI, the Merger has been accounted for as a
"reverse acquisition". Accordingly, for financial statement presentation
purposes, NAL is viewed as the continuing entity and the related business
combination is viewed as a recapitalization of NAL, rather than an acquisition
by COFVI.
In conjunction with the Merger, COFVI changed its name to "NAL
Financial Group Inc."
Results of Operations - Historical Overview
The Company's results of operations from inception in 1991 through the
second quarter of 1994 principally reflected the Company's investment earnings
and gains realized from the sale of seasoned portfolios of consumer and mortgage
loans acquired at significant discounts from their principal balances. The rate
of return on these portfolios included both interest earned on loans and leases,
as well as the purchase discount accretion which reflected the increase in the
value of the portfolio as it approached maturity.
Gains on sales of loan pools and loans sold to correspondents have
historically constituted a significant element of the Company's results of
operations. During 1992, 1993 and 1994, the Company realized gains on sales of
loan pools of $1,127,000, $2,131,000 and $2,292,000, respectively. These sales
consisted primarily of loan pools, principally longer-term, fixed rate loans,
which had been purchased at discounts and sold within a short time period after
purchase, or after a period during which the deficiencies of previous servicers
were corrected.
Due to an increase in competition for, and a decrease in availability
of, seasoned portfolios, the Company found it necessary to increase the prices
it paid for newly acquired portfolios over the two and a half year period. The
increase in
21
<PAGE>
prices paid for the portfolios decreased the Company's effective earnings yield,
from 38.29% during the year ended December 31, 1992, to 27.06% during the year
ended December 31, 1993, and further to 22.53% for the year ended December 31,
1994. Although the Company reduced its cost of borrowings during this period
through refinancing and expansion of its borrowing base with less expensive
financing, thereby reducing its cost of borrowings rate from 14.55% during 1992,
to 11.62% during 1993, and further to 9.73% during 1994, the cost of funds
reduction was less than the decrease in the earnings yield. Accordingly, the
Company's net interest spread rate, or the difference between the effective
yield earned on its interest-earning assets and the effective rate paid on its
interest-bearing liabilities, decreased from 23.74% in 1992 to 15.44% in 1993,
and further to 12.80% during 1994.
In view of the shifting of the principal focus of the Company's
business to other segments of the consumer finance industry, particularly, the
acquisition and servicing of automotive leases and loans, management anticipates
that substantially all of its earnings for the year ending December 31, 1995 and
thereafter will be derived from interest, rental income and fees earned on
sub-prime leases and loans. Management believes that the yields to be derived
from interest, discount and fees to be charged on sub- prime credit automobile
leases and loans will provide a profitable spread over the costs of its
borrowings. In view of the early stage of the Company's auto finance business
segment, however, management is uncertain these yields will compare with yields
experienced in the past.
Revenues generated from purchase discount accretion and gains on sales
of loans which had historically constituted the principal component of the
Company's earnings will likely decrease significantly after 1994. Management is,
however, currently evaluating the feasibility of pooling its portfolio of
originated automobile loans and leases for resale through securitization
programs. To the extent that such programs are undertaken in the future, the
composition of the Company's earnings may shift to some extent to include gains
on sale of loan and lease pools.
To a large extent, the Company's ability to generate profitable results
of operations in the future will depend upon, among other things, its ability
to: (i) continue the expansion of its program with dealers and other sources of
auto loans and leases (see "BUSINESS OF THE COMPANY - Dealer Program"); (ii)
maintain operations and extend credit in a manner which minimizes delinquency
experience and credit losses; and (iii) develop adequate sources of capital (on
terms and at rates that provide an acceptable interest spread) from which to
finance the growth of the Company's business. The Company's experience in this
business
22
<PAGE>
segment since June 1994 has not yet presented sufficient historical information
upon which reasonable trends can be identified by management.
Nine Months Ended September 30, 1995 compared to Nine Months
Ended September 30, 1994
The Company reported net income of $1,069,800 for the nine months
ended September 30, 1995 on revenues of $12,368,000. This compares to net
income of $455,000 on revenues of $6,198,000 for the nine months ended
September 30, 1994.
The Company's results of operations for the nine months ended
September 30, 1995 principally reflected net interest and fees earned on its
expanded portfolio of sub-prime automobile contracts receivable. The results of
operations for the nine months ended September 30, 1994 principally
reflected interest and discount earned on bulk purchased portfolios and gains
from the sale of these portfolios.
The Company's level of sub-prime automobile contracts acquired
continues to increase when comparing the current interim period to the
comparable interim period of the preceding year. Contracts acquired in the 1995
period totalled $108,427,000 compared to $10,372,000 for the 1994 period.
The significant increase reflects the Company's success in the establishment
and continual expansion of its network of automobile dealerships participating
in the Company's financing programs.
Net Interest Spread
The following table presents net interest spread information for the
nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Net investment in loans and
leases - average balance $64,589,000 $16,704,000
Interest income and purchase
discount accretion 10,999,000 3,821,000
Annualized effective earnings rate 22.71% 30.50%
Participations and notes payable -
average balance $55,667,000 $14,776,000
Interest expense 4,636,000 1,410,000
Annualized effective cost rate 11.10% 12.72%
Net interest spread rate 11.61% 17.78%
</TABLE>
23
<PAGE>
During the nine months ended September 30, 1995, the Company's net
interest spread rate, or the difference between the effective rate earned on
interest - earning assets and the effective rate paid on interest - bearing
borrowings, decreased 6.17%, from 17.78% to 11.61%, when compared to the
same period of the preceding year. This decrease was due primarily to a 7.79%
decrease in the effective rate earned on interest earning assets, from 30.50%
to 22.71%. The decrease in the earnings rate was offset by a decrease in the
Company's effective cost rate from 12.72% to 11.10%, or 1.62%.
During the nine months ended September 30, 1994, a greater portion
of the Company's earnings was derived from purchase discount accretion than
during the equivalent 1995 period. During the 1994 period, purchase discount
accretion was $1,801,000 compared to $599,000 for the 1995 period. This
resulted in a higher effective earnings rate for the 1994 period. The decrease
in purchase discount accretion reflects the Company's shift in focus from
acquiring bulk loan and lease portfolios at significant discounts to acquiring
and servicing sub-prime automotive loan and lease contracts receivable. Although
the automotive contracts do not provide as much earnings from purchase discount
accretion as the bulk purchase portfolios, the coupon interest rate earned on
the contracts is higher.
Interest income increased from $2,020,000 for the nine months ended
September 30, 1994 to $10,400,000 for the nine months ended September
30, 1995. This increase was due to higher contractual rates earned on sub-prime
contracts and an increase in the average balance of loan and lease receivables
from $16,704,000 in the 1994 period to $64,589,000 in the 1995 period.
Substantially all of the increase in the balance of loan and lease receivables
is attributable to acquired automotive contracts.
The decrease in the Company's effective cost rate was attributable to
an increase in borrowings to finance the expansion of the automotive contracts
portfolio. For the most part, the Company has financed its acquisitions of
automotive contracts with borrowings which have had interest rates which were
established at the time of financing based on the prime rate or LIBOR rate in
effect at the time. These borrowings had rates which were lower than the rates
on borrowings utilized during the 1994 period to finance bulk-purchase
portfolios. At September 30, 1995, the Company had borrowed approximately
$67,195,000 under arrangements in which the interest rates were fixed at the
time of financing, and approximately $11,682,000 under lines of credit and
warehouse arrangements which bear interest at variable rates tied to the
prime rate or LIBOR.
24
<PAGE>
Management believes that the effective cost rate will decrease
in future periods as an increasingly greater number of contracts
are financed using the warehouse line established in September
1995, with a lower cost of funds than financing arrangements
utilized previously.
Gains on Sales of Loans
Gains on sales of loans totalled $2,137,000 during the nine months
ended September 30, 1994 compared to $128,000 for the nine months ended
September 30, 1995. Prior to 1995, gains on sales of loans constituted a
significant element of the Company's results of operations. The sales consisted
primarily of loan pools which had been purchased at discounts and sold within a
short period after purchase. Unless it elects to initiate a broad-based
securitization program presently under consideration, it is the Company's
current intention to hold principally all of its present portfolio until
maturity. Given that intention, the Company may not experience gains on the
sales of loan pools as it has in the past.
Other Income
Other income increased $1,001,000 from $240,000 during the nine
months ended September 30, 1994 to $1,241,000 during the nine months ended
September 30, 1995, due primarily to the commissions earned by the Company's
insurance brokerage services from placing insurance policies and late fees
charged on the automotive portfolio of loans and leases.
Provision for Possible Credit Losses
The provision for possible credit losses totalled $1,412,000 for the
nine months ended September 30, 1995, or $1,056,000 more than the
$356,000 reported for the equivalent 1994 period. This increase related
primarily to provisions recorded for an estimate of possible losses which may be
incurred for new automotive contracts acquired during the 1995 period.
Beginning with the fourth quarter of 1995, management has decided to
cease the amortization to earnings of the non-refundable acquisition discount on
purchased automotive finance contracts and allocate this discount to the reserve
available for credit losses. Management believes that this decision, although
not totally eliminating the need for future provisions, will ultimately result
in lower provisions for credit losses on purchased contracts.
Management periodically reviews the adequacy of the reserve for loan
and lease losses and considers whether the level of
25
<PAGE>
reserve is sufficient to cover any losses of the carrying value of the
collateral pledged for the loans and leases receivable, an analysis of the
equity invested in the collateral by the borrowers, delinquency data and
historical loss experience, and any recourse arrangements the Company has with
dealers or other sellers of contracts and portfolios.
Operating and Other Expenses
Operating and other expenses increased $830,000 from $3,684,000
during the nine months ended September 30, 1994 period to $4,514,000
during the nine months ended September 30, 1995, due primarily to increased
overhead and costs associated with the Company's automotive contract financing
business. This increase was attributable to, among other things, an increase in
compensation and employee benefits paid due to an expansion of the Company's
work force. Additional personnel were hired to assist with underwriting,
collecting and servicing of the Company's expanding portfolio of automotive
contracts.
Management expects that operating expenses will increase as the size of
its automotive contract portfolio increases, but does not expect the growth of
expenses to be disproportionate with the growth of revenues from the portfolio.
Year ended December 31, 1994 compared to year ended December 31, 1993
The Company reported net income of $394,000 for the twelve months ended
December 31, 1994 on revenues of $8,133,000. This compares to net income of
$471,000 on revenues of $9,287,000 for the twelve months ended December 31,
1993.
The results of operations for the twelve months ended December 31, 1994
and December 31, 1993 principally reflect net interest and discount accretion
earned on its loan and lease portfolios purchased from the RTC or FDIC.
Net Interest Spread
<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1993
---- ----
<S> <C> <C>
Net investment in loans and
leases - average balance $23,917,000 $27,093,000
Interest income and purchase
discount accretion 5,387,000 7,331,000
26
<PAGE>
Annualized effective earnings rate 22.53% 27.06%
Participations and notes payable -
average balance $20,109,000 $25,522,000
Interest expense 1,957,000 2,966,000
Annualized effective cost rate 9.73% 11.62%
Net interest spread rate 12.80% 15.44%
</TABLE>
During the twelve months ended December 31, 1994, the Company's net
interest spread rate decreased 2.64%, from 15.44% to 12.80%, when compared to
the same period of the preceding year. This decrease was primarily due to a
4.53% decrease in the effective rate earned on interest earning assets from
27.06% to 22.53%. The decrease in the earnings rate was offset by a decrease in
the Company's effective cost rate from 11.62% to 9.73%, or 1.89%.
The decrease in the effective earnings rate was attributable to a
decrease in interest income and purchase discount accretion.
Interest income from loans and direct finance leases decreased
$1,049,000, or approximately 24%, from $4,371,000 in 1993 to $3,322,000 in 1994.
Although total loans and leases outstanding at December 31, 1994 of
$29,787,000 exceeded that outstanding at December 31, 1993 of $24,038,000, the
average balance outstanding during 1994 was less than that for 1993. During
1994, the average balance of total loans and leases decreased approximately 12%,
from $27,093,000 in 1993 to $23,917,000 in 1994. Although the Company acquired
$41,027,000 of new leases and loans during 1994, these acquisitions occurred
primarily in the last two quarters of the year. During 1994, the Company
received principal payments on its portfolios totalling $23,640,000, and sold
loans with a total book value of $11,963,000.
Also, included in the average balance of loans and leases for 1994 were
two underperforming portfolios purchased during the first half of 1994 at deep
discounts. The purchased principal balance and purchase price of these
portfolios totalled $10,212,000 and $3,423,000, respectively. The Company's
expectations for these portfolios is to realize income from collections in
excess of the total purchase cost of the loans. Although the expectations are
that some individual loans in the portfolios will be deemed fully uncollectible,
and others will be only partially collectible,
27
<PAGE>
estimates are that the total of all collections will exceed the total cost of
the portfolios, thereby yielding an overall gain from the investments. A portion
of these two portfolios is being accounted for using the cost recovery method,
under which earnings are recognized after the Company's investment has been
recovered. Excluding the carrying value of these loans from the average balance
of earning assets, the balance would have been $21,686,000 for 1994, which, when
compared to the average balance for 1993, represented a 20% decrease.
The decrease in purchase discount accretion, from $2,959,000 in 1993 to
$2,065,000 in 1994, reflected the maturing during 1994 of discounted portfolios
previously purchased by the Company, which were replaced in 1994 with
acquisitions of bulk-purchase portfolios and loan and lease originations which
did not have as large an amount of purchase discount as realized in the past,
and with the purchase of the two under-performing portfolios which were
partially accounted for using the cost recovery method.
Interest expense decreased from $2,966,000 in 1993 to $1,957,000 in
1994. This decrease corresponded to a decrease in the average balance of
participations and notes payable, from $25,522,000 in 1993 to $20,109,000 in
1994, consistent with the decrease in the average balance of loans and lease
receivables outstanding during the year. In addition, during 1994, the Company
realized a full year's benefit of the refinancing of its participations in 1993,
together with benefits of obtaining less expensive financing for new loan
purchases and originations.
Gains on Sales of Loans
Gains on sales of loans increased from $1,925,000 in 1993 to $2,292,000
in 1994. During 1994, the Company sold loan portfolios with a book value of
$11,963,000, which compares to sales during 1993 of loans with a book value of
$6,527,000.
Gains on mortgage loan sales to correspondents decreased from $206,000
in 1993 to none in 1994, reflecting the decision by the Company to cease
operations of its mortgage origination business in order to concentrate on the
automobile finance business.
28
<PAGE>
Other Income
Other income increased $410,000, due primarily to an increase in late
fee income of $177,000, due to fees collected primarily from the underperforming
portfolios, and commission income of $47,000 from the Company's insurance
brokerage activities.
Provision for Possible Credit Losses
During 1994, the Company recorded a provision for loan losses of
$573,000. This provision was due primarily to two factors: the settlement during
the year of several delinquent loans previously purchased as part of performing
loan packages, and the determination during the year of the portion of the
purchase price of the two underperforming portfolios acquired during 1994 which
was deemed not collectible.
Management periodically reviews the adequacy of the reserve for loan
losses and considers whether the level of the reserve is sufficient to cover
any losses of the carrying value of its existing portfolios. This review
includes an evaluation of the value of the collateral pledged for the loans and
leases receivable, an analysis of the equity invested in the collateral by
borrowers, delinquency data and historical loss experience, and any recourse
arrangements the Company has with the sellers of portfolios.
Prior to 1994, the Company's portfolio acquisitions consisted primarily
of performing loans and leases which were acquired at discounted prices. The
Company's experience with these portfolios was that, in general, it recovered
its discounted investment in the portfolios through diligent collection efforts.
Accordingly, no additional provision for losses was considered necessary for
1993, based on management's review.
During the last quarter of the year, management was able to fully
evaluate the collectibility of the two underperforming portfolios acquired
during the earlier part of the year. This evaluation determined that the
purchase cost of several of the loans would not be fully collectible, and, under
generally accepted accounting principles, the portion deemed uncollectible was
charged off. However, management expects that the collections from each of the
two portfolios taken as a whole will exceed their respective total purchase
costs.
Operating and Other Expenses
Operating and other expenses decreased $55,000 from $5,000,000 during
the twelve months ended December 31, 1993 to $4,945,000
29
<PAGE>
during the twelve months ended December 31, 1994, due primarily to a decrease in
servicing expense. Servicing expense decreased from $320,000 in 1993 to $80,000
in 1994, resulting from the Company's decision to transfer the data processing
function for servicing its portfolios from an outside service bureau to an
in-house system. This transfer was made to enhance the efficiency of the
Company's operations and to reduce its operating expenses. This transfer did not
have a material effect on the liquidity and capital resources of the Company,
nor did it have a material effect on the results of operations.
Other operating expense categories increased $297,000, due primarily to
increased overhead and sales costs incurred in establishing the Company in its
new business focus.
30
<PAGE>
Delinquency Experience
The following table summarizes the Company's delinquency experience on
accounts over 30 days past due on both a number of contracts and dollar basis.
The table excludes two under-performing portfolios which were purchased during
the year ended December 31, 1994 at substantial discounts. The Company is
accounting for a portion of these portfolios using the cost recovery method.
Under this method, income is recognized only for the excess of collections
received over the purchase price basis of the loans. At December 31, 1994 and
September 30, 1995, the principal balance and book value of these two
portfolios totalled $2,271,000 and $897,000, and $690,000 and $234,000,
respectively, principally all of which was delinquent 30 days or more. It is
management's estimate that the Company will collect at least its net book value
of the portfolios.
<TABLE>
<CAPTION>
===================================================================================================
9/30/95
- ---------------------------------------------------------------------------------------------------
Dollars Contracts
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Principal Outstanding $104,148,000 9,322
Delinquencies:
30-59 Days 6,822,000 654
60-89 Days 2,410,000 251
90 Days or more 2,790,000 230
- ---------------------------------------------------------------------------------------------------
Total Delinquencies over 30
Days as a % of 12,022,000 1,135
Principal/Contracts 11.54% 12.18%
- ---------------------------------------------------------------------------------------------------
Total Delinquencies over 60
Days as a % of 5,200,000 481
Principal/Contracts 4.99% 5.16%
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================================
12/31/94 12/31/93
- ----------------------------------------------------------------------------------------------------------------------------
Dollars #Contracts Dollars #Contracts
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Principal Outstanding $33,165,000 3,560 $29,834,000 1,557
Delinquencies:
30-59 days 2,549,000 311 1,181,000 76
60-89 days 215,000 19 296,000 15
90 days or more 423,000 27 882,000 36
31
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Total Delinquencies over 30 Days 3,187,000 357 2,359,000 127
as a % of Principal/Contracts 10.03% 9.61% 8.16% 7.91%
- ----------------------------------------------------------------------------------------------------------------------------
Total Delinquencies over 60 days 638,000 46 1,178,000 51
as a % of Principal/Contracts 1.92% 1.29% 3.95% 3.28%
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
12/31/92
- ------------------------------------------------------------------------------------------------------
Dollars # Contracts
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Principal Outstanding $38,847,000 4,168
Delinquencies:
30-59 days 1,931,000 160
60-89 days 664,000 58
90 days or more 545,000 43
- ------------------------------------------------------------------------------------------------------
Total Delinquencies over 30 Days 3,140,000 261
as a % of Principal/Contracts 8.08% 6.26%
- ------------------------------------------------------------------------------------------------------
Total Delinquencies over 60 Days 1,209,000 101
as a % of Principal/Contracts 3.11% 2.42%
======================================================================================================
</TABLE>
Total delinquencies over 60 days, expressed as a percentage of total
principal balance, were 3.11%, 3.95%, 1.92% and 4.99% at December 31, 1992,
1993, 1994 and September 30, 1995, respectively. The totals for 1992 and 1993
reflect delinquency experience for bulk-purchased portfolios.
In the past, the Company had purchased portfolios which, prior to their
purchase, had received servicing of differing degrees of quality. Accordingly,
the Company's historic delinquency experience was influenced to some extent by
the portfolios it purchased, and the time required to correct any previous
servicing deficiencies. Similarly, the Company's charge-off experience had been
affected by charge-offs of loans which were included in purchased portfolios at
discounts. The discounted prices paid for some of the portfolios reflected an
evaluation of the potential problem loans.
The historic delinquency experience of the Company identified in the
chart provided above through December 31, 1994 was accumulated during periods in
which the Company's business focused principally upon the bulk purchase and
servicing of portfolios of mortgage, lease and consumer receivables. In view of
its recent shift to the automotive finance business, the Company's past
32
<PAGE>
delinquency experience may not be indicative of future results. At December 31,
1994, the dollar amount of the Company's portfolios consisted of approximately
76% of new contracts originated through its sub-prime credit program and 24% of
previously acquired bulk purchase portfolios. At September 30, 1995, the
Company's portfolios consisted of 93% of new contracts originated and 7% of
previously acquired bulk purchase portfolios. Management expects that future
delinquency rates for sub-prime automobile leases and loans will differ from
that experienced for purchased, bulk portfolios.
The Company has prepared analyses of its automotive finance contracts,
based on its own credit experience and available industry data, to identify the
relationship between loan delinquency and default rates at the various stages of
a contract's repayment term. The results of these analyses, suggest that the
probability of a contract becoming delinquent or going into default is highest
during the "seasoning period" which begins 3-4 months, and ends 12-14 months,
after the origination date. The Company believes that the increase in the over
60 days delinquency percentage of number of contracts from 1.29% at December 31,
1994 to 5.16% at September 30, 1995, is primarily the result of an increase
in the percentage of automotive finance contracts in the "seasoning period,"
rather than any change in the underlying average credit characteristics of the
Company's portfolio.
If the rate of the Company's volume continues to escalate, an
increasingly greater portion of the Company's portfolio is expected to fall into
the "seasoning period" described above, causing a rise in the overall portfolio
delinquency and default rates, without regard to underwriting performance.
Assuming no changes in any other factors that may affect delinquency and default
rates, the Company believes this trend should stabilize or reverse when the
volume of mature contracts (with lower delinquency and default rates) is
sufficient to offset the total portfolio delinquency and default rates.
The Company's collections staff monitors the contracts and typically
takes action within 24 hours of delinquency if the first payment on a contract
is missed, and within 48 hours if the second or subsequent payment is missed,
and generally repossesses the automobile within 20 days of any uncured
delinquency. While average periods of delinquency may decrease, actual results
of operations will only be enhanced provided the Company's net credit loss
experience does not deteriorate. See "Net Credit Loss Experience."
Net Credit Loss Experience
33
<PAGE>
An allowance for uncollectible interest has been provided for loans 90
days or more delinquent. A reserve for credit losses has been maintained at a
level that management considers adequate to provide for potential losses based
upon an evaluation of known and inherent risks in the portfolios. Management's
periodic evaluation is based upon an analysis of the portfolios, historical loss
experience, current economic conditions and other relevant factors. Future
adjustments to the reserve may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluation.
The following table summarizes the Company's net credit loss and losses
from lease termination experience for the nine month period ended September
30, 1995 and for the years ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
NINE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------------
September
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Outstanding $105,498,280 $33,165,177 $29,834,483 $38,846,847
- --------------------------------------------------------------------------------------------------------------------------------
Average Principal O/S 69,331,729 29,069,075 34,340,665 42,335,373
- --------------------------------------------------------------------------------------------------------------------------------
Charge-offs and Lease Termination Losses Net 673,285 648,835 243,327 355,460
of Recoveries
- --------------------------------------------------------------------------------------------------------------------------------
Net Losses % Principal O/S(1) 0.85% 1.96% 0.82% 0.92%
- --------------------------------------------------------------------------------------------------------------------------------
Net Losses % Avg Principal(1) 1.29% 2.23% 0.71% 0.84%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------
(1) The percentage set forth for the nine-months ended September 30,
1995 is annualized in order to present comparable data for a full
twelve-month period.
- -------------------------------
Net credit losses, representing charge-offs of loan and lease credit
losses, either to previously established reserves or directly to loss
expenses, net of recoveries, were 0.71% and 0.84% as a percentage of total
average principal outstanding for the years ended December 31, 1993 and 1992,
respectively. This percentage increased to 2.23% for the year ended December 31,
1994, due primarily to two factors: charge-offs of $456,792 representing the net
purchase price allocated to loans included in the under
34
<PAGE>
performing portfolios which were determined to be non-collectible, and
charge-offs of the portion of the carrying value of loans acquired in other bulk
purchases which were settled during the year. The percentage decreased to
1.29% for the nine months ended September 30, 1995. For 1992, 1993 and
1994, the table reflects activity during a period in which the Company primarily
purchased loan and lease portfolios on a bulk basis. In view of the shifting of
the Company's business principally to the origination of automotive loan and
lease contracts, management expects that the Company's past net credit loss
experience will not be indicative of future results.
Due to the limited historical experience reflecting results of the
Company's program of auto loan and lease acquisitions, management is
continuously assessing the level or extent of future credit losses. Credit
losses in the future will be dependent on the Company's credit criteria, advance
rates in relation to the value of the secured automobiles, and the value
received from the disposition of any repossessed automobiles in relation to the
outstanding balance of the lease or loan.
However, management believes that its policy of underwriting contracts
on an individual basis, the effectiveness of its collection efforts, and its
knowledge of collateral values and of the industry will contribute positively to
the Company's charge-off experience. Management also anticipates that the
opening of the Company's sales lot will improve charge-off experience by
reducing the losses realized upon the disposition of repossessed automobiles.
Liquidity and Capital Resources
Current Operations
The Company's business requires substantial cash to support its growth
in the rate of acquisition and origination of automotive finance contracts. The
following chart presents the growth in both the number and dollar amount of
contracts acquired since June 1994.
<TABLE>
<CAPTION>
==================================================================================================================================
Quarter Ended
- -----------------------------------------------------------------------------------------------------------------------------------
June September December March June September
1994 1994 1994 1995 1995 1995
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Contracts Acquired $3.26 $7.12 $14.76 $29.66 $34.79 $43.97
($ in millions)
- -----------------------------------------------------------------------------------------------------------------------------------
Number 423 848 1,490 2,657 2,889 3,524
===================================================================================================================================
</TABLE>
35
<PAGE>
As a general matter, the Company finances the acquisition of its
automotive finance contracts by drawing against its available lines of credit
and warehouse facilities. Under the terms of these facilities, funding is
provided between 80-90% of the acquisition price of the contracts. Accordingly,
the Company must secure the remainder of the acquisition price from equity or
other funding sources.
As the rate of growth of contract acquisition continues to increase,
the Company must secure additional equity or other sources to fund these
requirements. The Company's growth, therefore, is governed by its ability to
gain access to additional financing sources. The Company's growth during the
nine month period ended September 30, 1995 and thereafter, has been
facilitated by its ability to successfully complete private placements of debt
and equity securities and gain access to increasing sources of financing.
During 1995, the Company had secured its principal sources of working
capital through a series of debt participation interests, unsecured advances,
revolving lines of credit and the proceeds from the sale of convertible
subordinated debentures and shares of common stock in private placement
transactions. As of September 30, 1995, the respective balances provided by
these sources of working capital were as follows:
<TABLE>
<S> <C>
Lines of Credit and Warehouse
Facility................................................ $31,732,937
Debt Participation Interests.............................$47,143,939
Private Placement of Convertible
Subordinated Debentures..................................$ 8,065,965
Private Placement of Common Stock.........................$2,100,950
Unsecured Advances...........................................$34,575
Lines of Credit and Warehouse Facilities
</TABLE>
In March 1993, the Company entered into a $20,000,000 three-year
revolving credit facility with Congress Financial Corporation (the "Congress
Credit Facility"). The Congress Credit Facility bears interest at 2% over the
prime rate of CoreStates Bank, N.A. (10.75% at September 30, 1995), payable
monthly, is secured by certain lease contracts receivable and consumer and
mortgage loans receivable. As of September 30, 1995, the Company had drawn
down approximately $1,100,000 and had an available borrowing base of
36
<PAGE>
approximately $18,900,000 under the Congress Credit Facility for the financing
of additional loan and lease portfolio purchases which meet certain credit
guidelines established by Congress, in its sole discretion.
During February 1994, the Company entered into a $5,000,000 one-year
revolving credit facility with GECC (the "GECC Credit Facility"). In September
1994, the GECC Credit Facility was increased to $10,000,000. The GECC Credit
Facility bears interest payable monthly at rates fixed at the time of financing
and is secured by certain lease contracts receivable and consumer and mortgage
loans receivable. In March 1995, the GECC Credit Facility available line was
increased to $25,000,000 and at September 30, 1995, the Company had drawn
down approximately $20,660,000 under the facility. The GECC Credit Facility
is automatically renewed annually unless GECC provides the Company with notice
of termination 90 days prior to such renewal.
The Company has recently entered into a $50 million repurchase facility
(the "Repurchase Facility") with an additional lending institution (the
"Lender"). Under the terms of the Repurchase Facility, the Lender purchases loan
and lease contracts receivable from the Company at approximately ninety percent
of the outstanding principal balance. The Company repurchases the receivables
from the Lender at approximately ninety percent of the outstanding principal
balance at the time of repurchase plus a premium for accrued interest at a rate
of 2.25% over 30 day LIBOR. The Repurchase Facility also provides that if the
market value of contracts sold to the Lender (market value being determined by
an independent third party) is less than the Lender's margin amount (market
value multiplied by the advance rate), the Lender may require the Company to
transfer money or additional contracts to the Lender until the margin amount is
satisfied. Market value may be affected by, among other things, sudden changes
in interest rates, delinquency rates and credit losses. Although management
believes that this is unlikely to occur to any significant degree, a margin call
could require an allocation of certain of the Company's liquidity and capital
resources. The term of the Repurchase Facility is for one year, automatically
renewable for an additional year. The Company intends to use the Repurchase
Facility to fund additional growth in loan and lease receivables with the intent
to eventually pool and securitize these receivables.
The advances pursuant to the Repurchase Facility will be accounted for
as financing transactions characterized as borrowings.
37
<PAGE>
The Repurchase Facility includes certain financial and operational
covenants including, among other things, the required maintenance of a minimum
net worth of $30 million dollars, prohibition upon debt to equity ratio in
excess of 8 to 1 and the maintenance of certain loan portfolio performance
criteria. For the purpose of the Repurchase Facility, net worth has been defined
as total stockholders' equity plus subordinated indebtedness not due within 90
days. Management continues to closely monitor the performance of its loan
portfolios in order to insure compliance with all operational covenants. Based
upon its present and anticipated financial position, management believes it will
be able to maintain compliance with these covenants. At September 30, 1995, the
Company had $10,000,000 outstanding under the Repurchase Facility and was in
compliance with all of the financial and operational covenants.
Debt Participation Interests
Since inception, the Company has secured a significant amount of its
working capital through debt participation interests. As of September 30,
1995, the Company had an existing series of borrowings under participation
arrangements outstanding with Fairfax Savings, a Federal Savings Bank
("Fairfax") in the approximate amount of $46,580,000. The participations bear
interest at prime plus 2.5% fixed at the time of financing, with principal and
interest due monthly. In general, under the terms of the participation
agreements, payments on the agreements are tied to the payments received from
the secured contracts and loans receivable.
The participation with Fairfax specifies the distribution of cash flows
from the loans receivable. The order of distributions of cash flows received is
as follows:
(1) Payment to Fairfax for principal and interest due on the
participations.
(2) Payment of any amounts payable to Fairfax which may have arisen due to
the Company's failure to perform its obligation under the participation
agreement, at which time Fairfax would have assumed and incurred
expenses to perform these responsibilities.
(3) An amount equal to 25% to 50% of the remaining cash balance, if any,
will be deposited into segregated interest bearing accounts at Fairfax
(the reserve accounts) until the balances in the reserve accounts equal
25% to 50% of the principal balances of the participation agreements.
38
<PAGE>
(4) Payment to the Company of the remaining cash in the operating
account, if any, including all payments and reimbursements due
under the servicing agreement.
Under the Company's participation agreements, collections received from
loans securing the participations are deposited into restricted, trust bank
accounts pending distributions to participation holders. Distributions generally
are disbursed to participants once each month for the previous month's
collections.
Distributions under some participation agreements with Fairfax include
deposits of a portion of the collections into segregated, interest-bearing
reserve accounts held for the benefit of the Company at Fairfax. These reserve
accounts are returned to the Company once their balances equal 25% to 50% of the
principal balances of the participation agreements.
The balances of the trust account pending settlement with participants
and the balance of the reserve accounts on deposit with Fairfax are reflected on
the Company's balance sheet as Restricted Cash.
Private Placement of Convertible Subordinated Debentures,
Warrants and Common Stock
The Company has secured a significant component of its working capital
through the private placement of debt and equity securities. During the fourth
quarter of 1994, the Company raised approximately $8,298,000 (net proceeds of
$7,723,000), in a private placement transaction of 1,549,667 shares of its
Common Stock in conjunction with the Merger. Also during the period from April
1995 to September 1995, the Company completed the offering and sale in private
placement transactions of $15,400,000 of 9% Convertible Subordinated Debentures
(the "Debentures") and $1,594,500 Common Stock Purchase Warrants (the
"Warrants"), as well as 176,500 shares of its common stock which yielded net
proceeds of $2,100,950. See "DESCRIPTION OF SECURITIES."
The Debentures are convertible into shares of Common Stock at the
option of the holders thereof. Once the stock achieves certain average trading
prices, the Company has the right to serve notice of the redemption of the
Debentures for the principal amount thereof (together with accrued interest).
See "DESCRIPTION OF SECURITIES." A notice to redeem would likely yield
conversion of the Debentures (since the average trading price of the stock
necessary to redeem would yield a greater profit to the Debenture holders upon a
conversion rather than a redemption).
39
<PAGE>
A conversion of the Debentures would obviate the requirement to pay
further interest and repay the principal amount due thereunder. Any such
conversions would have a positive effect upon the Company's liquidity and
capital resources. Through November 1995, an aggregate of $6,900,000
principal amount of Debentures were converted into 780,879 shares of Common
Stock. Management is optimistic that a substantial number of the remaining
Debentures would be subject to conversion prior to their maturity.
The Warrants entitle the holders thereof for a period of three (3)
years to purchase shares of Common Stock at exercise prices that range from
$9.00 through $15.00. The Warrants also contain features that permit redemption
(at $.001 per Warrant) based upon average trading prices of the Company's Common
Stock between $15.00 and $25.00. Any call for redemption would have the likely
effect of causing the exercise of the Warrants.
There can be no assurances that a material number of the Warrants will
be exercised in the near term, if at all, or that the trading price of the
Company's Common Stock will be sufficient to effectuate a redemption of the
Warrants. A complete exercise of the Warrants, if at all, would provide gross
proceeds of $15,585,000 to the Company.
Other Potential Uses of Working Capital
The Company may potentially be caused to allocate certain capital
resources in the future towards the purchase of the business of Special Finance,
Inc. ("SFI"). SFI is a Florida based auto finance broker that at September 30,
1995 accounted for approximately 35% of the Company's loan and lease
receivables. Pursuant to an option agreement entered into on August 1, 1995 (the
"SFI Purchase Option"), the Company has an option through August 1, 2000 to
purchase the business of SFI for the purchase price of $1,000,000, plus 125,000
shares of the Company's Common Stock and options to purchase 65,000 shares of
Common Stock at $6.00 per share. An option price of $250,000 paid to SFI on
August 1, 1995 is to be credited against the purchase price.
In the event the Company decides to exercise the SFI Purchase Option,
the Company has agreed to register the shares of Common Stock to be distributed
in the transaction, and pending such registration, the Company has agreed to
lend up to $900,000 to the sole stockholder of SFI at then prevailing market
rates of interest, with such loan being secured by a security interest in up to
120,000 shares until such time as the shares are registered.
Management is currently evaluating the economic benefits of
exercising the SFI Purchase Option and to date, has made no
40
<PAGE>
determination on the likelihood of whether or when such a purchase may occur, if
at all. In the interim, the SFI Purchase Option provides the Company with a
right of first refusal to purchase all of the finance contracts acquired or
originated by SFI.
Historic Operations
Prior to 1995, working capital had principally been utilized to finance
the bulk acquisition of portfolios of consumer and mortgage loans and auto lease
receivables, repay borrowings and to make certain distributions to the Company's
former principal stockholder, including the redemption of its stock in the
Company in 1993 and 1994. See "CERTAIN TRANSACTIONS."
From June 1991 through June 1994, the Company acquired for $108.4
million a series of 27 portfolios of consumer and mortgage loans and auto lease
receivables bearing an aggregate principal balance of $145.2 million. From July
1994 through March 1995, the Company acquired for $6.9 million an aggregate of 6
portfolios bearing an aggregate principal balance of $7.9 million.
Payments to FTM Holdings, Inc. ("FTM"), the Company's former principal
stockholder, consumed a significant amount of the Company's working capital from
inception through 1994. By virtue of a combination of Company redemption and
stockholder purchase of FTM's interest in the Company during 1993 and 1994,
payments of this nature are not expected to recur in the future. In 1991, the
Company entered into an agreement with FTM, a principal stockholder at the time,
to provide the Company with consulting and other business related services.
Under the agreement and subsequent extensions of the agreement, the Company
agreed to pay FTM $50,000 per month through March 1995. The payments for
consulting services continued through May 1994, whereupon the Company made a
lump sum settlement with FTM through a final payment of $475,000 under the
agreement. This final payment reflected a $75,000 discount from the cumulative
payments required under the agreement. Payments to FTM under the agreement for
each of the years 1991 through 1994 were as follows:
1991 $ 90,000
1992 600,000
1993 600,000
1994 675,000
During 1994, the Company paid FTM an additional sum of $428,000 as a
commission on the sale of certain loan portfolios.
On April 30, 1993, the Company redeemed 5,928 shares of Common Stock
held by FTM for $2,400,000 which, in management's opinion,
41
<PAGE>
did not exceed the fair value of the shares. A portion of the proceeds of the
redemption were applied to the cancellation of a $841,417 receivable from FTM to
the Company, representing advances by the Company to FTM during 1992. As part of
the redemption, FTM agreed to file a consolidated tax return with the Company
through April 30, 1993. Through utilization of FTM's tax net operating loss
carryforwards, the Company reduced its tax liability accrued through the date of
redemption by $1,900,000. This utilization of FTM's tax net operating loss
carryforwards was reflected as a capital contribution by FTM in 1993.
In October 1993, the Company financed the purchase by Mr. Bartolini of
the remaining shares held by FTM for a purchase price of $2,034,000. This
transaction increased Mr. Bartolini's ownership to 95%. In June 1994, the shares
acquired by Mr. Bartolini from FTM were redeemed by the Company for $2,034,000
and the receivable in the form of a note from Mr. Bartolini was cancelled. See
"CERTAIN TRANSACTIONS."
Given the Company's dependence on its present sources of financing for
current cash flow and continued growth, loss of such sources would have a
material adverse impact on the Company's conduct of business and prospects.
Management is presently evaluating additional sources of financing through a
continuation and expansion of its existing practices; that is, through offering
debt participation interests to institutional investors, traditional lines of
credit, and through additional equity placements. In addition, the Company is
exploring alternative financing sources and structures, including the
possibility of securitizing part of its portfolio of automotive finance
contracts in order to maximize profitability and make available sufficient funds
to continue implementation of the Company's growth strategy over the long term.
There can be no assurances that the Company will secure additional sources of
financing. By virtue of the Company's status as a public company, management
will likely seek to gain access to equity or debt capital through a sale of
securities either through the public market or to institutional investors.
Management is currently engaged in negotiations with certain institutional
brokerage firms for the purpose of obtaining additional working capital through
an underwritten public sale of the Company's securities that is anticipated to
occur during 1996. These negotiations remain preliminary in nature,
accordingly, the precise terms of any such offering have not yet been
established, nor can there be any assurances as to when or if such an offering
will occur.
Any funding provided by the sale of securities, if at all, would be
used directly to acquire additional automobile finance
42
<PAGE>
contracts, or would enhance the Company's borrowing base so as to facilitate
increased lines of credit or participation agreements.
Management believes that the Company's current cash flow from
operations, proceeds from private placement transactions, as well as advances on
its credit facilities and debt participation interests, is adequate to meet the
Company's liquidity requirements for its existing operations. The terms of the
borrowings under the participation agreements and the credit facilities provide
for repayments of principal and interest to the lenders in amounts which, in
general, correspond with and are exceeded by the scheduled repayment of the
secured loans and leases receivable.
Effects of Inflation
Inflationary pressures may have an effect on the Company's internal
operations and on its overall business. The Company's operating costs are
subject to general economic and inflationary pressures. While operating costs
have increased during the past years, the Company does not believe that its
operations have been significantly affected by inflation. The Company's business
is subject to risk of inflation. Significant increases in interest rates that
are normally associated with strong periods of inflation may have an impact upon
the number of individuals that are likely or able to afford the purchase of an
automobile through consumer finance or lease transactions. The Company believes,
however, that because of its customer profile, and the need of its customers for
basic transportation, such factors are not likely to have a material adverse
impact on the Company's business.
BUSINESS OF THE COMPANY
Background
The Company commenced operations during June 1991 as a specialized
finance company for the purpose of engaging in consumer finance transactions
involving the origination, purchase, remarketing and servicing of consumer loan
and mortgage loans and auto lease receivables.
Because of the opportunities presented by the insolvency and
reorganization of many financial institutions at the time, from inception
through the second quarter of 1994, the principal activities of the Company
involved the bulk purchase and servicing of seasoned portfolios of consumer and
mortgage loans and lease receivables acquired principally from the FDIC and the
RTC. Most of these portfolios were purchased at substantial discounts.
43
<PAGE>
In response to the decreasing availability of seasoned portfolios,
since the second quarter of 1994 the Company's principal focus has shifted to
other segments of the consumer finance industry, particularly auto finance.
Although opportunistic purchases of seasoned auto related portfolios may still
be considered by management, the principal focus of the Company's business since
June 1994, has been the acquisition and servicing of automotive leases and loans
originated by dealers in connection with sales or leases to persons with
sub-prime credit.
The Company became publicly held by virtue of the Merger with COFVI on
November 30, 1994. COFVI was incorporated in Delaware on November 14, 1986 and
completed a small public offering on June 14, 1988. With the exception of a
short-term venture that was discontinued during the fourth quarter of 1993,
COFVI had remained principally inactive.
Pursuant to the Merger, NAL was merged with and into COFVI and the
historic stockholders of NAL received 3,160,000 newly issued restricted
securities, which constituted approximately 56% of the issued and outstanding
COFVI stock. Effective upon completion of the Merger, the Company assumed the
historic operations of NAL and changed its name to "NAL Financial Group Inc."
Current Plan of Operations
The Company's auto finance business primarily consists of the
evaluation, acceptance and purchase of finance contracts which are either
originated by participating dealers in connection with the sale or lease of new
and used vehicles to sub-prime consumers or purchased in bulk receivables
portfolios. After a finance contract is evaluated and accepted by the Company,
the purchase contract or lease is executed by the dealer and the customer. The
vehicle is then delivered to the customer and the title to the vehicle is
transferred into the name of the customer and held by the Company with a lien in
its favor (in the case of a purchased vehicle), or to the Company (in the case
of a lease). Under the standard master dealer agreement utilized by the Company,
upon delivery of the title to the Company, the Company receives an assignment of
the contract and pays the dealer a "dealer advance" which is calculated on the
basis of a pre-determined formula and typically does not exceed a percentage of
the wholesale value for a used vehicle or manufacturer's invoice for a new
vehicle.
The Company also occasionally enters into customized dealer agreements,
which differ from the standard master dealer agreement utilized by the Company.
Under these agreements, the Company purchases finance contracts from dealers
from time to time at a stated percentage of the financed amount. Typically a
portion of
44
<PAGE>
the purchase discount is placed in a reserve account which is used to offset any
credit losses experienced by the Company. Periodically, the amounts in the
reserve account in excess of an agreed upon minimum are paid over to the dealer.
Pursuant to these agreements, the dealer typically retains many of the
collection and servicing functions, including monthly billing, repossession
and/or disposal of the vehicle. These agreements are typically with recourse to
the dealer. At September 30, 1995, the Company as a percentage of principal
had in place approximately 15% of these types of agreements.
The Company's shifting focus to the auto finance segment can most
readily be reflected by analysis of the increases in its dealer base and
origination of finance contracts from such dealers since September 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
9/94 10/94 11/94 12/94 1/95 2/95
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
No. of
Participating
Dealers 83 177 192 196 268 284
- ----------------------------------------------------------------------------------------------------------------------------
No. of
Contracts
Originated 114 333 463 694 642 1,089
(By Month)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
3/95 4/95 5/95 6/95 7/95 8/95 9/95
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
No. of
Participating
Dealers 296 351 363 406 423 749 787
- -----------------------------------------------------------------------------------------------------------------------------------
No. of
Contracts
Originated 926 949 1,049 891 644 1,358 1,522
(By Month)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Contract Origination
Dealers
The Company's auto finance segment involves the purchase of auto loan
and lease finance contracts in connection with the purchase or lease of new and
used vehicles. Dealer relationships generally begin with the Company's dealer
development representative contacting a dealer to explain the Company's
financing program. The Company's representative presents the dealer with a sales
package, including promotional material containing current rates being offered
by the Company to dealerships, copies of the Company's master dealer agreement,
examples of monthly reports and samples of the Company's documentation
requirements. A dealer desiring to utilize the Company's financing program must
enter into a non-exclusive master dealer agreement with the Company. As a
condition to entering into such an agreement, a dealer must provide satisfactory
financial and other information. A dealer must also make representations and
warranties to the Company with respect to the contracts to be assigned. Upon
completion of this master agreement, the Company's representative provides the
dealership with necessary documentation for origination of contracts and trains
dealership personnel in the use of such documentation.
The master dealer agreement may be terminated by the Company or the
dealer (so long as there is no event of default) upon 10 days prior written
notice. Events of default include, (i) the dealer's failure to perform or
observe covenants in the master dealer agreement; (ii) the dealer's breach of
representations or warranties in the master dealer agreement; (iii) a
misrepresentation by the dealer relating to an installment contract submitted to
the Company or the related vehicle or purchaser; (iv) an assignment for the
benefit of creditors or the appointment of a receiver for, or filing for,
bankruptcy or insolvency of, the dealer; (v) liquidation or dissolution of a
dealer; (vi) the death of a principal stockholder of a dealer; and (vii) a
decrease in the shares of stock owned by the principal stockholder of a dealer.
Under the master dealer agreement, the dealer is also obligated to repurchase
any contracts identified by the Company in the event that dealer representations
and warranties prove to have been untrue at the time the Company purchased the
contract, or in the event that the purchase of the contract by the Company from
the dealer was on a recourse basis and a lessee or borrower defaults under the
contract. Examples of defaults which require a dealer to repurchase a finance
contract include, (i) dealer promises to install optional equipment (represents
that the price is included in the lease) at a later date, then reneges; (ii)
dealer does not
46
<PAGE>
witness proper identification of a customer, which results in a husband signing
his wife's name; and (iii) dealer misrepresents that adequate insurance is in
force at the time of delivery of the vehicle. The majority of these occurrences
are prevented when the contract is sent to the Company for funding by virtue of
the Company's credit procedures which typically include telephoning each
customer to confirm contract terms at the time of funding. Occasionally,
however, the dealer is required to repurchase the contract upon discovery of the
default by the Company. The dealer also indemnifies the Company for any
liabilities and costs (including attorney's fees) arising from any act or
omission by the dealer required to be performed under the master dealer
agreement or any contract.
Retail car buyers are customarily directed to a dealership's finance
and insurance department to finalize their purchase or lease agreement and to
review potential financing sources and rates available from the dealer. If the
customer elects to pursue financing at the dealership, an application is taken
for submission to the dealer's financing sources. Typically, a dealership will
submit the purchaser's application to more than one financing source for review.
Once the responses are received by the dealership, the dealer will decide which
source will finance the purchase or lease.
When presented with an application, the Company strives to notify the
dealer of its decision within 2-4 hours. The buyer's purchase generally is not
completed until the Company approves the contract. If approved, the buyer enters
into a contract with the dealer on a form prepared and provided to the dealer by
the Company, which is then assigned to the Company.
Dealer Program
One of the critical elements for the growth of the Company's auto
finance segment is to establish, maintain and expand its relationships with new
and used automobile dealers. The Company has developed programs for dealers that
are designed to meet the dealer's needs for customer financing. These programs
offer four major advantages to the dealers:
Flexibility. Unlike most traditional lending institutions and
captive finance companies, the Company employs multi-tiered
credit underwriting criteria offering a financing source not
generally available for sub-prime auto loans and leases
elsewhere to dealerships' sub-prime borrowers. The Company
believes this flexibility facilitates access to prime
borrowers as well and solidifies the dealer relationship.
47
<PAGE>
Responsiveness. The Company is responsive to the needs of auto
dealers by providing rapid and complete service. When
presented with an application, the Company attempts to notify
the dealer within 2-4 hours whether it will approve the
purchase of the contract from the dealer. Staff members are
trained specialists in credit analysis, documentation,
collection and administration.
Service Orientation. In addition to offering a reliable source
of financing for qualified buyers, the Company identifies
particular service needs of dealers. Dealer development
representatives maintain frequent contact to determine whether
needs are being met, and will recommend service enhancements
when appropriate. Examples of such enhancements may include
courier delivery of documents or loan processing on dealer
premises during peak promotions.
Training. The Company provides training to dealers both at the
dealership and on the Company's premises. This training
covers, among other things, the Company's origination program,
underwriting guidelines and the processing of loan and lease
applications. The dealership receives a certificate evidencing
completion of the training program.
The Company's relationship with auto dealers has for the most part been
established on a dealer-by-dealer basis as a result of the efforts of the
Company's marketing personnel. One of the Company's sales and marketing goals is
to develop and/or expand relationships with dealers and finance agencies that
will provide the Company more efficient access to greater numbers of dealer
networks. See "Marketing." Towards that end, during September 1994, the Company
entered into a test marketing arrangement with General Electric Capital Auto
Lease, Inc. ("GECAL"). During the test period, the Company evaluated
applications which did not meet GECAL's prime underwriting criteria for 74 of
GECAL's 400+ dealers located in Florida. The Company, using its own underwriting
model, then approved or declined these submissions resulting in over $7,000,000
of lease volume during the test phase. The results of the program led to a
permanent two year agreement automatically renewable for successive one-year
periods thereafter, which was executed on July 1, 1995. The program has been
rolled-out to the balance of the GECAL's Florida dealers during a recent
campaign completed on September 21, 1995. Early results indicate the volume of
applications has significantly increased since the program has been made
available to all Florida dealers.
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<PAGE>
The Company and GECAL have also agreed to target North & South Carolina
and Tennessee for the next roll-out phase. Planning is scheduled to begin in
October 1995, with the campaign to be completed by the second quarter of 1996.
The long term plan is to roll-out the program in the entire southeast by
December 1996.
While not an exclusive arrangement, the Company believes it continues
to be the only sub-prime company operating this program with GECAL in the
southeast. There is no contractual agreement to this effect, however, and no
assurance may be made that the Company would continue to be the only such
arrangement with GECAL.
Historically, GECC has not been active in the sub-prime market. The
Company's arrangements with GECAL and GECC give GECAL the ability to offer
customers of its dealerships a financing source through the Company which GECC
does not generally offer directly to sub-prime borrowers. In addition, the
arrangements give GECC access to the sub-prime market without GECC incurring the
evaluation, credit and servicing risks generally associated with financing to
sub-prime borrowers. This relationship with GECAL gives the Company access to
GECAL's network of 1,500 dealerships in 11 southeastern states.
As of September 30, 1995, the GECAL dealers with whom the Company has
financed automotive loans and leases constituted approximately 8% of the
Company's overall volume of loan and lease receivables. With the exception of
one dealer and an auto finance broker that account for approximately 5% and 35%,
respectively, of the Company's loan and lease receivables, no single dealer or
brokerage source accounts for more than 3% of the Company's loan and lease
receivables.
SFI, a Florida-based auto finance broker, utilizes the Company to
finance automotive loans secured through its relationship with dealers. At
August 31, 1995, the SFI referred dealers had provided the Company with
approximately 35% of its loan and lease receivables.
On August 1, 1995, the Company entered into a five (5) year option to
purchase the business of SFI (the "SFI Purchase Option"), during which term the
Company has secured a right of first refusal to purchase all of the finance
contracts acquired or originated by SFI. The option to purchase remains subject
to management's evaluation of the transaction. Management is currently
evaluating the economic benefits of exercising the SFI Purchase Option and to
date, has made no determination on the likelihood of whether or when such a
purchase may occur, if at all. An election by the Company to purchase the
business of SFI would require the Company to complete payment of the purchase
price provided for in the SFI
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<PAGE>
Purchase Option. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The Company also intends to pursue arrangements with other
organizations such as dealership networks and credit unions as a means of
expanding its dealer and consumer bases. The marketing company has relationships
with several Florida credit unions whereby they provide an automobile buying
service. Through this agreement, the Company will be introduced to the credit
unions for the purpose of providing sub-prime financing and servicing of prime
contracts. The Company will earn interest and fee income as well as servicing
fees.
Bulk Purchase Portfolios
From inception through June 1994, the Company's business focused on the
purchase of seasoned portfolios of mortgage loans and consumer loans and leases,
including auto loans and leases. From June 1991 through June 1994, the Company
acquired for an aggregate price of $108.4 million, a series of 27 portfolios
representing consumer loans and receivables bearing an aggregate principal
amount of $145.2 million. From July 1994 through September 1995, the Company
acquired for an aggregate price of $6.9 million 6 portfolios bearing an
aggregate principal amount of $7.9 million.
While its focus since July 1994 has been the origination of auto loan
and lease receivables, the Company may continue to make opportunistic purchases
of seasoned auto-related portfolios.
The following tables set forth the portfolio acquisitions of the
Company from inception through September 1995, and the loan and lease
receivables attributable to each type of portfolio.
PORTFOLIO ACQUISITIONS
JUNE 1991 THROUGH SEPTEMBER 1995
<TABLE>
<CAPTION>
Principal
Amount
Date Portfolio Type (in Millions)
<S> <C> <C>
JUNE 1991 AUTO LEASES $48.1
JULY 1991 AUTO LEASES 10.5
NOVEMBER 1991 MORTGAGES 4.9
JANUARY 1992 AUTO LEASES 2.1
FEBRUARY 1992 CONSUMER LOANS 4.4
FEBRUARY 1992 CONSUMER LOANS 9.5
FEBRUARY 1992 MORTGAGE LOANS 1.9
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
FEBRUARY 1992 CONSUMER LOANS 8.2
JULY 1992 CONSUMER LOANS 7.4
OCTOBER 1992 CONSUMER/MORTGAGE LOANS 6.1
DECEMBER 1992 MORTGAGE LOANS 8.2
JANUARY 1993 CONSUMER LOANS 2.6
FEBRUARY 1993 CONSUMER LOANS 5.5
MARCH 1993 CONSUMER LOANS 0.2
APRIL 1993 CONSUMER/MORTGAGE LOANS 0.4
APRIL 1993 CONSUMER LOANS 2.1
MAY 1993 MORTGAGE LOANS 2.1
JULY 1993 MORTGAGE LOANS 8.3
SEPTEMBER 1993 CONSUMER LOANS 0.4
SEPTEMBER 1993 MORTGAGE LOANS 1.3
NOVEMBER 1993 MORTGAGE LOANS 1.0
DECEMBER 1993 MORTGAGE LOANS 5.1
DECEMBER 1993 MORTGAGE LOANS 0.8
MARCH 1994(1) CONSUMER LOANS 0.2
JUNE 1994 CONSUMER LOANS 0.5
JUNE 1994 CONSUMER LOANS 2.4
JUNE 1994 CONSUMER LOANS 1.0
JULY 1994 CONSUMER LOANS .5
OCTOBER 1994 AUTO LEASES 1.6
NOVEMBER 1994 AUTO LEASES 2.0
NOVEMBER 1994 CONSUMER LOANS .5
JANUARY 1995 AUTO LOANS 1.8
MARCH 1995 CONSUMER LEASES 1.5
------
$153.1
======
</TABLE>
- --------------------
(1) In March and May 1994, the Company purchased for $3.4 million two
portfolios of underperforming and matured auto, real estate and
equipment loans. The principal balance of the two portfolios was $10.2
million in the aggregate.
Bulk purchase portfolios are subject to the same type of detailed
evaluation process as finance contracts originated by dealers. During the
evaluation of bulk purchase portfolios, the Company develops loss estimates
which are based, in part, on the value of the underlying collateral and a review
of the contract files. The Company's purchase price for the bulk purchase
portfolios includes, among other valuation adjustments for credit and other
risks, an initial loss allowance for the contracts. The bulk purchase
receivables are generally subject to the same asset servicing and collection
activities, policies and procedures as dealer originated finance contract
receivables. See "Asset Servicing and Collections."
The following table sets forth information regarding the Company's loan
and lease receivables segmented by type of contract financed.
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<PAGE>
LOAN, LEASE RECEIVABLES AND VEHICLES
HELD UNDER OPERATING LEASES
<TABLE>
<CAPTION>
9/30/95 12/31/94
-------------- --------------
<S> <C> <C>
Automotive finance contracts
Gross contracts receivable $ 104,556,879 $ 26,795,132
Less: Unearned interest (6,277,920) (2,004,435)
Deferred acquisition fees (105,485) --
Unamortized acquisition discount -- (815,768)
------------- -------------
98,173,474 23,974,929
Net investment in automotive operating 3,318,035 1,230,647
Consumer contracts receivable
Gross contracts receivable 3,087,354 2,333,016
Less: Unearned interest (435,030) --
Unearned acquisition discount (351,349) (841,322)
------------- -------------
2,300,975 1,491,694
Mortgage loans receivable
Gross loans receivable 2,545,423 6,041,464
Less: Unamortized acquisition discount (684,281) (1,218,797)
------------- -------------
1,861,142 4,822,667
------------- -------------
Net loan and lease receivables $ 105,653,626 $ 31,519,937
============= =============
</TABLE>
Lease contracts receivable set forth above represents the total amount
of minimum scheduled payments to be received under the contracts. Included in
the payments receivable balance is the income portion of the payments, which is
recognized into earnings over the life of the contracts using the level yield
method. The Company's net carrying value of its lease portfolio consists of the
balance of lease contracts receivable less unearned income.
Advances to dealers represent amounts funded by the Company to auto
dealerships which are collateralized by loan and lease receivables of the dealer
serviced for a fee by the Company. The Company advances to the dealer
approximately 60% of the outstanding principal balance of the collateralized
receivables.
Several of the Company's loan and lease portfolios were purchased at
prices which represented a discount from the contracts' par principal balance.
The excess of the contracts' principal balance, in the case of loan contracts,
or net investment balance, in the case of lease contracts, over the purchase
price represents additional earnings to the Company. Prior to September 30,
1995, this discount was amortized to earnings using the level yield method
over the estimated life of the contracts. However, beginning with the fourth
quarter 1995, management has
52
<PAGE>
decided to cease the amortization to earnings of the discount on purchased
automotive finance contracts and allocate this discount to the reserve available
for credit losses. Management believes that this decision, although not totally
eliminating the need for future provisions, will ultimately result in lower
provisions for credit losses on purchased contracts.
For a discussion of the Company's delinquency experience and credit
loss experience for the bulk purchase portfolios, See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
Underwriting
The Company purchases each contract in accordance with its underwriting
standards and procedures. These underwriting procedures are intended to assess
the applicant's ability to repay the amounts due and the adequacy of the vehicle
as collateral. Each candidate for credit is required to complete and sign an
application which lists assets, liabilities, income, credit and employment
history, and other pertinent information. The Company has a staff of 12 persons
who provide underwriting services and conduct credit evaluations. Upon receipt
of the credit application, the Company orders a credit bureau report on the
applicant to document his or her credit history. The credit report presents a
history of the applicant's credit performance and, if applicable, contains
information on such matters as past-due credit, previous repossessions, prior
loans charged off by other lenders, real estate liens or wage attachments, and
bankruptcy. The application and credit report are given to one of the Company's
underwriters for evaluation and tier placement.
Conventional credit ratings divide credit risk into four tiers: "A",
"B", "C" and "D". "A" credit represents the highest quality risk and "D", the
lowest. "A" credit risk is associated with certain essential elements: excellent
job and residence stability; an unblemished credit record with equivalent,
seasoned high credit experience; very low debt-to-income ratio (under 30%). "B"
credit risk lacks one or more of these essentials, but still reflects a good
credit history and a debt-to-income ratio under 40%. "C" credit lacks two or
more essentials, however, current credit may indicate non-serious past due
payments and a debt-to-income ratio under 50%. "D" credit lacks two or more
essentials, includes recent slow payments, may contain judgments, collection
agency activity, discharged bankruptcy or previous repossession, and
debt-to-income ratio at or above 50%.
While traditional auto financing sources limit their risk to "A"
borrowers, the Company believes that extending sub-prime credit
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<PAGE>
based upon strict underwriting standards is prudent, with proper precautions and
careful management. To mitigate risk, the Company:
o prices each category progressively higher.
o requires progressively larger down-payments.
o requires considerably more client information for lower
grades, for purposes of skip-tracing, etc.
o initiates collection and repossession activity more
quickly for lower grades.
Upon completion of the credit analysis, the Company will decide whether
to approve the applicant as stated and at which tier, decline the applicant, or
condition approval of the loan. A decision to decline an applicant may be based
upon one or more of the following: failure to meet the Company's underwriting
standards, debt-to-income ratios, payment-to-income ratios, loan-to-value ratios
or the financing specialist's subjective judgment. Conditioning approval of the
applicant involves amending the proposed terms of the contract in order to
qualify the applicant according to the Company's guidelines. Typical areas that
the Company might require to be amended include, but are not limited to, proving
additional income, requiring a co-applicant, amending the length of the proposed
term, requiring additional down-payment, substantiation of credit information
and requiring proof of resolution of certain credit deficiencies as noted on the
customer's credit history. Approved, declined or conditioned applicant decisions
are promptly communicated to the dealership by phone and facsimile.
Additionally, the applicant is informed of any credit denial or other adverse
action by mail, in compliance with statutory requirements.
The Company regularly reviews the quality of loans which it
purchases and conducts internal reviews on a monthly basis in an
effort to ensure compliance with its established policies and
procedures. See "Asset Servicing and Collections."
Asset Servicing and Collections
The Company has a staff of persons engaged in contract servicing and
performing collection services. The Company has expanded its collection and
servicing staff to a level which provides for approximately 1 collector for
every 450 contracts serviced. Management believes that the ratio of its
collectors to contracts serviced compares favorably to industry averages.
54
<PAGE>
The Company's management team has extensive experience in consumer
financing services and utilizes a state-of-the-art PC network-based computer
system. Whether part of the origination process or routine monthly servicing,
data is immediately available for evaluation and processing, providing speedy
turnaround as a valuable tool for marketing to the Company's dealership network
and maximizing the Company's cash flow from collections.
The Company's servicing and collection activities include, (i)
conducting an initial telephone interview with customers; (ii) collection of
payments; (iii) accounting for payments received; (iv) customer relations and
inquiries; (v) perfection and maintenance of security interest in vehicles and
other collateral; (vi) monitoring and investigation of delinquencies; (vii) tax
reporting on accounts serviced; (viii) initiation and monitoring of repossession
of vehicle; and (ix) disposition of vehicles upon lease termination.
The Company's collections staff monitors all contracts and typically
takes action within 24 hours of delinquency if the first payment is missed and
within 48 hours if the payment missed is the second payment or thereafter,
significantly earlier than is customary in the industry. The Company's policy
permits contracts to be extended or revised payment schedules to be made on a
case by case basis as determined by its experienced collections staff. Accounts
that have not complied with the initial or revised collection program are turned
over to outside agencies for repossession, generally after five-ten days of
non-compliance with the revised agreement. Repossessed vehicles may be
re-marketed through the participating dealer who originated the contract, or
sold by the Company through wholesale auctions or re-marketed through the
Company's used vehicle facility. See "Used Vehicle Operation." The Company's
experience indicates that historically many repossessions are redeemed and the
majority of these customers do not become delinquent again.
The Company charges off delinquent accounts between 30 and 90 days of
delinquency, depending on the individual circumstances. Recovery of charge off
balances begins with the Company's collection specialists. If results are not
obtained within a reasonable time frame, the account is either turned over to a
collection agency or an attorney for action, including wage garnishment,
judgement and asset search.
When a vehicle is repossessed and not redeemed by the customer in the
prescribed time, the Company re-markets the vehicle and recognizes the loss, if
any, at that time. Vehicles in inventory are reviewed by management and
periodically written down to their actual value, if necessary. The Company
applies for insurance and
55
<PAGE>
extended warranty rebates, which are applied to the customer balance. A net
loss is the difference between the net customer balance, adjusted for rebates,
etc., and the net proceeds of the sale or re-lease of the vehicle. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Net Credit Loss Experience."
Contracts acquired as a result of a bulk purchase are subject to the
same asset servicing and collection activities, policies and procedures. The
Company's initial tolerance for delinquencies in excess of 60 days is based upon
the condition of the portfolio at the time of purchase and the effectiveness of
the seller's servicing activity. This tolerance level is reduced typically over
a period of between three to twelve months as customers adjust to the Company's
collection policies and procedures. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Delinquency Experience." As bulk
purchased receivables are charged-off, the losses are charged to the related
valuation loss reserve until such reserve is fully depleted. See "Bulk Purchase
Portfolios." These valuation loss reserves have been sufficient to date to cover
all losses incurred on bulk purchase portfolios. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Provision for
Possible Credit Losses."
Used Vehicle Operation
The Company incorporated a wholly-owned subsidiary, PCSF, in January
1995 for the purpose of conducting its used vehicle operation. The Company
signed a lease for a used car lot located in Palm Beach County, Florida with a
capacity for storing approximately 100 vehicles. Effective January 15, 1995, the
Company entered into an agreement with J.D. Byrider Systems, Inc. to license the
J.D. Byrider name, trademarks and business system. The Company intends to
operate the car lot as a franchise of J.D. Byrider. The Company began retail
sale of used cars in August 1995. It is expected that a majority of the
Company's repossessed and returned vehicles will be sold at retail from this
location. Vehicles which are not in retail condition will be sold at auction to
the highest bidder. The Company has been registered with, and has routinely sold
cars through, the major national auction companies since its inception.
Management believes that the used car market is an expanding market and
offers the Company an opportunity to enhance its vehicle financing
opportunities, and to increase its recovery on vehicles.
Insurance Services
56
<PAGE>
The Company's wholly-owned subsidiary, NIS, is a full service insurance
agency selling its products to the public as well as to the Company's customers.
The staff of NIS verifies insurance at the time leases and loans are funded,
assures that the customer maintains adequate insurance during the term of the
contract, solicits the sale of other insurance products, and sells a package of
insurance services to the Company's dealers. The Company has the ability to add
insurance and bill its customer at any time during the contract. Insurance
policies are issued through unaffiliated, major insurers with whom the Company
has established brokerage agreements, with the exception of GAP Protection. See
"GAP Protection Plan." Insurance commissions are earned as received from the
insurer.
GAP Protection Plan
The Company offers the debtor of a finance contract an opportunity to
participate in the Company's guaranteed auto protection ("GAP") plan. In the
event of an insurance loss, GAP Protection pays the Company the difference
between the actual cash value protection afforded by the insurer and the
customer balance due the Company, if any. The Company's risk in these situations
is eliminated through reinsurance. The Company pays a flat premium per contract
to unaffiliated major insurers to reinsure this risk.
Industry Overview - The Sub-Prime Credit Market
The sub-prime credit market, upon which the Company's business
currently focuses, is comprised primarily of individuals who are deemed by
certain industry participants to be relatively high credit risks due to various
factors, including, among other things, the manner in which they have handled
previous credit, the absence or limited extent of their prior credit history, or
their limited financial resources.
The sub-prime credit market is highly fragmented and historically has
been serviced by a variety of financial entities, including captive finance arms
of major automotive manufacturers, banks, savings and loans, independent finance
companies, small loan companies, industrial thrifts and leasing companies. Many
of these financial organizations do not consistently solicit business in, or
have withdrawn from, this credit market. The Company believes that increased
regulatory oversight and capital requirements imposed by market conditions and
governmental agencies have limited the activities of many banks and savings and
loans in this credit market. In many cases those organizations electing to
remain in the auto finance business have migrated toward higher credit quality
customers to allow reductions in their overhead cost structures. The Company
believes that as a result, the sub-prime
57
<PAGE>
credit market is primarily serviced by smaller finance organizations that
solicit business when and as their capital resources permit.
The Company's strategy is designed to capitalize on the market's lack
of a major, consistent financing source. See "Business Strategy." The Company's
business strategy capitalizes upon the overly-broad classification of a great
number of individuals as "sub-prime" borrowers. Many of these individuals, in
the view of management, actually may be "prime" borrowers who by clerical
categorization have been given "sub-prime" designations. The Company's
management has substantial experience in the consumer finance field and by
virtue of that experience, has been successful in selecting and assessing the
true credit categories of potential borrowers.
Business Strategy
The Company's growth relies on the following strategies:
o Product Flexibility. The Company believes that its
ability to offer sub-prime leases as well as sub-
prime loans differentiates it from the competition.
o Multi-tiered Credit. The Company believes its
policy of extending credit to sub-prime borrowers
utilizing strict underwriting guidelines for
protection differentiates the Company from other
competitors in the industry and provides a
significant impetus for growth. It is this
philosophy which resulted in the Company's
arrangements with GECAL and GECC. See "Contract
Origination - Dealer Program" and "Marketing."
o Expansion of Dealership Base in Existing Markets. The
Company is aggressively pursuing additional dealer
relationships within existing markets with dealers
that meet the Company's criteria. Management believes
existing markets can contribute to growth objectives
without compromising credit underwriting standards.
o Geographic Expansion. The Company intends to increase
volume by hiring additional sales representatives in
markets which meet its economic and demographic
criteria, primarily in the southeastern United
States, in the near term, with a view towards a
national market in the long term.
See "Marketing."
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<PAGE>
o Affinity Marketing. The Company plans to expand its
financing activities through development of special
programs aimed at credit unions, trade associations
and affinity groups, such as gasoline credit card
companies and special interest organizations.
o Emphasis on Dealer Service. The Company is
committed to service as the cornerstone of its
growth strategy. Responsiveness to dealer needs is
paramount.
o Operating Efficiency. The Company will continue to
enhance its systems and operations to further
improve operating efficiencies in contract
processing, servicing and dealer communications.
o Continued Acquisition of Seasoned Portfolios. The
Company has experienced success in purchasing
receivable portfolios. While the Company's focus is
presently on the development and expansion of its
auto finance contract segments, the Company will
continue to make opportunistic purchases.
Marketing
Dealers
The Company's marketing efforts focus principally on dealer-related
programs, dealership network arrangements and affinity marketing programs. These
programs are directed at existing dealership networks, independent dealerships,
credit unions and trade associations, among others. See "Contract Origination
- -Dealer Program" and "Business Strategy."
The Company's marketing efforts are undertaken by a staff which
includes sales representatives, a sales manager and a sales coordinator. The
sales representatives operate in particular geographic areas within Florida,
Tennessee, North Carolina and South Carolina for a combination of salary and
commission. In addition, the Company augments its in-house staff through
exclusive agreements with companies operating in Louisiana, Georgia and Texas
which provide the Company with additional sales representatives on an
independent contractor basis. These representatives market the Company's
services primarily through personal contacts, and participating dealer
referrals, which are augmented by the distribution of marketing materials and
advertising in trade journals and industry-related publications. Pursuant to the
Company's dealer arrangements, participating dealers engage in
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<PAGE>
training sessions designed to increase the dealer's familiarity with the
Company's evaluation and servicing procedures. See "Contract Origination -
Dealer Program." The Company continues to increase its marketing efforts in
conjunction with its focus on the indirect auto loan and lease market through
the hiring of additional sales representatives. As part of its expanded
marketing program, the Company has also entered into an arrangement with a
company which originates and brokers finance contracts with markets in Georgia,
whereby the Company has agreed to purchase loan receivables as originated by
such company which meet Company credit and origination guidelines. Through such
arrangements the Company is able to increase its access to such markets without
significantly increasing its staff.
The Company's marketing program with GECAL offers yet another,
indirect, avenue for purchase of auto leases. Sub-prime contracts presented to
GECAL from its 1,500 southeastern dealers may be offered to the Company for
purchase and, if accepted by the Company's underwriting standards, will be
funded by GECC. This arrangement effectively allows GECAL to maintain its
relationship with its dealership network while giving the Company access to
dealers outside the Company's established territory. The Company intends to seek
similar relationships with other dealer networks and affinity groups such as
credit unions as a method of increasing its dealer and consumer bases.
Geographic Expansion of Auto Finance Segment
As of September 30, 1995, the Company had relationships with 787
dealers which have yielded finance contracts in the southeastern United States.
Florida represents the Company's largest market for lease and loan receivables
originated by participating dealers. Management estimates that there are
approximately 1,100 dealers in Florida and approximately 5,600 dealers within
the southeastern United States, which represents the Company's target market in
the near term.
Competition
Competition in the retail automobile financing industry is intense.
Competitors include well-established financial institutions, such as banks,
savings and loans institutions, small loan companies and credit unions,
industrial thrifts, leasing companies as well as the major automobile
manufacturers' captive finance companies such as Ford Motor Credit Corporation,
Chrysler Credit Corporation and General Motors Acceptance Corporation. Many of
these competitors have greater financial, technical and marketing resources than
the Company. Furthermore, many of these competitors offer other forms of
financing to dealers, including,
60
<PAGE>
but not limited to, vehicle floor plan financing and leasing. All of these
competitors offer some degree of service to dealerships.
Many of the larger banks, financial institutions and captive finance
arms of automotive manufactures have not consistently sought to do business in
the sub-prime market. These organizations have traditionally elected to limit
their activities to the higher credit quality customers. As a result, the
sub-prime credit market tends to be primarily serviced by smaller and
independent finance organizations.
The Company's business strategy is designed to capitalize on the
absence of consistent institutional sources of financing in the sub-prime
market. The competition in the sub-prime market would be significantly increased
should the large finance organizations seek to compete consistently in the
sub-prime market.
Based on experience and expertise, the Company's competitive strategy
is six-fold:
o offer product variety in the form of sub-prime leases and
loans;
o offer a multi-tiered underwriting program that recognizes
credit of varying qualified levels;
o provide rapid response to credit application submissions;
o follow through with timely funding;
o establish and maintain strong dealer relationships
through on-site training programs and continued sales
assistance and support;
o offer a total insurance package, including life, accident and
health, GAP, auto, boat, homeowners, etc.
Employees
The Company employs personnel experienced in all areas of loan
origination, documentation, collection and administration. As of November 30,
1995, the Company had approximately 183 full-time employees.
Facilities
As of the date of this Prospectus, the Company's executive offices and
operations occupy approximately 24,061 square feet of leased office space in The
Uptown Office Park at 500 Cypress Creek
61
<PAGE>
Road West, Suite 590, Fort Lauderdale, Florida 33309 for which the Company pays
an aggregate base rent of $29,800 per month pursuant to three leases, with
annual increases of 2% beginning on January 1 of each year. The leases expire in
2002.
The Company subleases approximately 1,500 square feet of its
space to FTM, a former principal stockholder, for rent of $4,500
per month. See "CERTAIN TRANSACTIONS."
The Company's lease agreement offers rights of first refusal on
available space adjacent to the original offices, which the Company has used to
accommodate the staff required for continued growth. There can be no assurance
that any additional space will be available on terms favorable to the Company.
Management believes that the Company's facilities are appropriate for its needs.
The Company through PCSF leases a used car lot in Palm Beach
County at a base rent of $11,500 per month. The term of the lease
is five years. See "Used Vehicle Operation."
Legal Proceedings
NAL Acceptance Corporation v. Thousand Adventures, Inc., et al., Case
No. 94-7858 (4), in the Circuit Court in and for Broward County, Florida. NAC
has sued Thousand Adventures, Inc. ("TAI") for the payment of a $500,000 release
fee due NAL under an agreement wherein NAL had obtained an exclusive option to
purchase certain receivables from TAI. These receivables could be sold by TAI to
third parties during this exclusivity period as long as TAI paid the Company
this release fee. TAI sold the receivables, but did not pay the fee. NAL is also
suing TAI for interference with its contractual rights to purchase certain
receivables from TAI. NAL is seeking in excess of $1,000,000 in damages. TAI
counterclaimed against the Company for fraud, negligent misrepresentation and
fraud in the inducement in connection with the agreement referenced above on
September 21, 1994.
The Company is the plaintiff in numerous collection matters, all of
which are considered to be in the ordinary course of business.
Government Regulation
The Company's operations are subject to federal and state laws and
regulations, including the Federal Consumer Credit Protection Act, Fair Debt
Collection Practices Act, Fair Credit Reporting Act, FTC Preservation of
Consumer Claims and Defenses Rule, Truth in Lending Act, Truth in Leasing Act,
Equal Credit Opportunity Act,
62
<PAGE>
FTC Credit Practices Rule, state insurance laws and state vehicle disposal laws.
Consumer lending laws generally require licensing of the lender and adequate
disclosure of loan terms and impose limitations on the terms of consumer loans
and on collection policies and creditor remedies. Federal consumer credit
statutes primarily require disclosures of credit terms in consumer finance
transactions. In general, the Company's business is conducted under licenses
issued by individual states, and the Company is subject to periodic examination
by the individual states. State licenses are generally revocable for cause. The
Company believes that it is in compliance with all applicable laws and
regulations, and maintains an internal compliance staff to stay abreast of
changes in applicable law and to act as liaison between the Company and the
various attorneys it has retained in each of the states in which it conducts its
business. See "RISK FACTORS."
MANAGEMENT
Directors and Executive Officers
The present members of the Board of Directors and executive officers,
their respective ages and positions with the Company are set forth below:
<TABLE>
<CAPTION>
Positions with
Name Age the Company
- ---- ----- ------------------------
<S> <C> <C>
Robert R. Bartolini 51 Chairman of the Board,
President and Chief
Executive Officer of NAL;
Chairman and Chief
Executive Officer of NAC
John T. Schaeffer 48 Director of NAL;
Director, President and
Chief Operating Officer of NAC
Robert J. Carlson 39 Vice President-Finance
and Principal Accounting
Officer of NAL and NAC
Dennis LaVigne 51 Vice President and
Treasurer of NAL
Andrew P. Panzo 31 Director
Abraham Bernstein 63 Director
</TABLE>
63
<PAGE>
The following is a summary of the business experience of the Company's
directors and executive officers during the past five years and their
directorships, if any, with companies with a class of securities registered with
the Securities and Exchange Commission:
Robert R. Bartolini
Mr. Bartolini has been Chairman and Chief Executive Officer of NAL
since its inception in 1991 and has maintained those positions, with the
addition of the office of the President, following the Merger with COFVI on
November 30, 1994. Prior to founding NAL Financial Group Inc., he was President
and Chief Operating Officer of Financial Federal Savings & Loan Association
("FinFed" - Miami, Florida), a $1.8 billion mutual savings and loan. From 1984
to 1987, Mr. Bartolini was Executive Vice President at CenTrust Savings Bank, an
$11 billion institution based in Miami, Florida, with 60 branches. Prior to
that, Mr. Bartolini was with First Pennsylvania Bank, NA (assets of $6 billion;
75 branches), where he served as Senior Vice President.
John T. Schaeffer
Mr. Schaeffer has been President and Chief Operating Officer of NAC
since its inception and has maintained those positions, with the addition of the
office of director of NAL following the Merger with COFVI. Prior to joining NAL,
Mr. Schaeffer was President and Chief Operating Officer of FinancialFed
Services, Inc. ("FFS"), the automobile lease origination and servicing unit of
FinFed. From 1986 through 1989, Mr. Schaeffer was Executive Vice President and
Chief Operating Officer of CenTrust Leasing Corporation, the leasing unit of
CenTrust Savings Bank, where he was responsible for the overall activities of
the leasing subsidiary.
Robert J. Carlson
Mr. Carlson has been Vice President-Finance and Principal Accounting
Officer of NAL since April 1992. Prior to joining the Company in 1992, Mr.
Carlson served 4 years as Senior Vice President-Controller of FinFed. Prior to
that, he served as Senior Vice President and Chief Financial Officer at Miami
Savings Bank, a $175 million asset savings institution in Miami, Florida. Mr.
Carlson also served 3 years at CenTrust, where he held the position of Vice
President-Accounting Operations and Reporting.
64
<PAGE>
Dennis LaVigne
Mr. LaVigne has been Vice President and Treasurer of NAL since
August 1995. Mr. LaVigne has substantial experience in the automotive
finance industry, having served as Senior Vice-President of Union Acceptance
Corporation (an automotive finance company) from December 1993 to September
1994; remaining an independent consultant to the industry from October 1994 to
August 1995; and having previously served as Senior Vice-President
Asset/Liability Manager of Union Federal Savings Bank of Indianapolis from 1989
to December 1993. Prior to joining Union Federal, Mr. LaVigne held positions
with Columbia Savings, a federal savings and loan association, from 1981 to
1989, including Senior Vice President, Chief Investment Officer, Treasurer and
Asset/Liability Committee Chairman. Mr. LaVigne holds a Ph.D. in Economics from
the University of Illinois.
Andrew P. Panzo
Mr. Panzo served as President and Chairman of the Board of
COFVI since December 1993 and resigned from such positions in conjunction
with the Merger in November 1994. He was subsequently reappointed as a director
of the Company in August 1995. Mr. Panzo is the managing director of American
Maple Leaf Financial Corporation ("AMLF") in Bala Cynwyd, Pennsylvania, an
investment banking advisor to the Company which specializes in emerging growth
companies. He is also a director of two public companies: Sector Associates,
Ltd. and The Eastwind Group, Inc. Mr. Panzo was a director of Florida West
Airlines, Inc. from July through December 1993. Mr. Panzo was formerly Executive
Vice President of HMA Investments, Inc., an investment banking firm at which he
managed certain diversified securities investments. He is formerly an associate
with Venture Partners, Ltd. of Middletown, Connecticut, a venture capital firm.
Mr. Panzo is a graduate of the University of Connecticut and has a masters
degree in international business and finance from Temple University.
Abraham Bernstein
Mr. Bernstein has been a director of the Company since August
1995. He has been Managing Director of The Rittenhouse Group, Inc.
a privately held consulting firm since January 1994. Mr.
Bernstein, prior to forming The Rittenhouse Group, Inc., was Vice
Chairman and CEO of Tokai Financial Services, Inc., an asset-based
lender and equipment lessor from 1988 to 1993, and President and
Director of Masterlease Corporation, an equipment lessor from 1982-
1988.
65
<PAGE>
Executive Compensation
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
====================================================================================================================================
Long Term
Annual Compensation(1) Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Securities
Salary Bonus Underlying
Name and Position Year ($) ($) Options/SARs (#)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert R. Bartolini 1994 $281,916 $298,985 75,000(3)
Chairman of the Board, President and Chief 1993 $250,000 $1,248,100 0
Executive Officer of NAL; 1992 $250,000 $129,615 0
Chairman and Chief Executive Officer of NAC
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew Panzo(2) 1994 $0 $0 0
Director of NAL; 1993 N/A N/A N/A
Former President and Chairman of the Board of 1992 N/A N/A N/A
COFVI
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Schaeffer 1994 $160,000 $0 40,000(3)
Director of NAL; 1993 $160,000 $161,302 0
President and Chief Operating Officer of NAC 1992 $160,000 $221,468 0
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Carlson 1994 $74,231 $86,015 15,000(3)
Vice President-Finance and Principal Accounting 1993 $72,500 $18,124 0
Officer of NAL 1992 $53,939 $0 0
====================================================================================================================================
</TABLE>
- ------------------------------
(1) Based upon the fiscal years ended December 31, 1994, 1993 and
1992.
(2) Mr. Panzo resigned as President and Chairman of the Board
effective November 30, 1994 in connection with the
consummation of the Merger with COFVI. Mr. Panzo was
reappointed to the Board of Directors in August 1995.
(3) Stock Options granted December 15, 1994 pursuant to the
Company's Stock Option Plan. Additional Options were granted
during September 1995. See "Executive Compensation."
66
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs EXERCISE EXPIRATION
UNDERLYING GRANTED TO OR DATE
OPTION/SAR EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR(2) ($/Share)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert R. Bartolini 66,666(3)(4)(6) 23.8% $6.60 December 15, 1999
Chairman of the Board, President and Chief 8,334(3)(5)(6) 2.98% $6.00 December 15, 2004
Executive Officer of NAL;
Chairman and Chief Executive Officer of NAC
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew Panzo(1) 0 0 0 ---
Director of NAL;
Former President and Chairman of the Board
of COFVI
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Schaeffer 40,000(3)(5)(6) 14.29% $6.00 December 15, 2004
Director of NAL;
President and Chief Operating Officer of NAC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Carlson 15,000(3)(5)(6) 5.36% $6.00 December 15, 2004
Vice President-Finance and
Principal Accounting Officer of NAL
====================================================================================================================================
</TABLE>
- ---------------------------------------
(1) Mr. Panzo resigned as President and Chairman of the Board
effective November 30, 1994, in connection with the consummation
of the Merger with COFVI. Mr. Panzo was reappointed to the Board
of Directors in August 1995.
(2) Based upon the grant during the last fiscal year of options to
purchase an aggregate of 229,000 shares of Common Stock pursuant
to the Company's Stock Option Plan.
(3) Options granted as of December 15, 1994. Excludes additional
options granted during September 1995. See "PRINCIPAL
STOCKHOLDERS."
(4) Exercise subject to pro-rata vesting over four years commencing
January 1, 1996.
(5) Exercise subject to pro-rata vesting over three years commencing
January 1, 1996.
(6) The options are not presently exercisable and will become
exercisable in accordance with their pro-rata vesting terms.
67
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY- END OPTION/SAR VALUES
====================================================================================================================================
Number of Securities Underlying Value
Unexercised Options/SARs of Unexercised
Shares Acquired at FY-End (#) In-the-Money Options/SARs
Name on Exercise(#) Value Realized Exercisable/Unexercisable(1) at FY-End($)
Exercisable/Unexercisable(1)
====================================================================================================================================
<S> <C> <C> <C> <C>
Robert R. Bartolini, -0- -0- 0(E)/75,000(U) $0(E)/$110,004.40(U)
Chairman of the Board, President
and Chief Executive Officer of
NAL;
Chairman and Chief Executive
Officer of NAC
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew Panzo -0- -0- 0(E)/0(U) $0(E)/$0(U)
Director of NAL;
Former President and
Chairman of the Board of
COFVI(2)
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Schaeffer -0- -0- 0(E)/40,000(U) $0(E)/$80,000(U)
Director of NAL;
President and Chief Operating
Officer of NAC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Carlson -0- -0- 0(E)/15,000(U) $0(E)/$30,000(U)
Vice President-Finance and
Principal Accounting Officer of
NAL
====================================================================================================================================
</TABLE>
- ------------------------------
(1) Based upon the closing price of the Company's Common Stock ($8.00
per share) as of December 30, 1994 as traded on the OTC Bulletin
Board.
(2) Mr. Panzo resigned as President and Chairman of the Board
effective November 30, 1994, in connection with the consummation
of the Merger with COFVI. Mr. Panzo was reappointed to the Board
of Directors in August 1995.
68
<PAGE>
Employment Arrangements
Upon the closing of the Merger, the Company entered into an employment
agreement with Mr. Robert Bartolini. Such agreement, as subsequently amended by
resolution of the Company's Board of Directors, provides for a base salary of
$300,000 per year together with discretionary bonuses, if any, to be declared by
the Board of Directors. The agreement also provides for certain benefits
including vacation, life insurance, certain expenses and stock option plan
participation, as well as a restrictive covenant in favor of the Company. See
"Summary Compensation Table." The agreement is annually renewable for successive
three year periods, however, Mr. Bartolini may terminate the agreement upon
written notice on the earlier of one year from the date of such notice or 90
days after his replacement is hired by the Company. Mr. Bartolini may not cause
the agreement to terminate prior to three years from the date of the agreement.
Directors' Fees
The employee-directors of the Company receive no fees or other
compensation in connection with their service as directors. The independent
directors consisting of Messrs Panzo and Bernstein in conjunction with their
appointment to the Board were each granted Warrants to purchase 20,000 shares of
Common Stock. Mr. Bernstein also receives $1,000 for each meeting of the Board
of Directors and each meeting of the Audit Committee attended in person and $500
for each meeting attended telephonically.
Stock Option Plan
The Company has adopted a stock option plan (the "Plan") covering
600,000 shares of the Company's Common Stock, pursuant to which officers,
directors, key employees and consultants of the Company are eligible to receive
incentive as well as non-qualified stock options and stock appreciation rights
("SARs"). The Plan will be administered by the Board of Directors or a committee
consisting of no less than three members designated by the Board of Directors.
Incentive stock options granted under the Plan are exercisable for a period of
up to 10 years from the date of grant and at an exercise price which is not less
than the fair market value of the Common Stock on the date of the grant, except
that the term of an incentive stock option granted under the Plan to a
stockholder owning more than 10% of the outstanding Common Stock may not exceed
five years and the exercise price of an incentive stock option granted to such
stockholder may not be less than 110% of the fair market value of the Common
Stock on the date of the grant. Non-qualified stock options may be granted on
terms determined by the Board of Directors or a committee designated by
69
<PAGE>
the Board of Directors. SARs which give the holder the privilege of surrendering
such rights for the appreciation in the Company's Common Stock between the time
of grant and the surrender, may be granted on any terms determined by the Board
of Directors or committee designated by the Board of Directors.
Incentive stock options granted under the Plan are non-transferable,
except upon death, by will or by operation of the laws of descent and
distribution, and may be exercised during the employee's lifetime only by the
optionee. There is no limit on the number of shares with respect to which
options may be granted under the Plan to any participating employee. However,
under the terms of the Plan, the aggregate fair market value (determined as of
the date of grant) of the shares of Common Stock with respect to which incentive
stock options are exercisable for the first time by an employee during any
calendar year (under all such plans of the Company and any parent and subsidiary
corporation of the Company) may not exceed $100,000.
Options granted under the Plan may be exercised within 12 months after
the date of an optionee's termination of employment by reason of his death or
disability, or within three months after the date of termination by reason of
retirement or voluntary termination approved by the Board of Directors, but only
to the extent the option was otherwise exercisable at the date of termination.
The Plan will expire on November 1, 2004, unless terminated earlier by
the Board of Directors. The Plan may be amended by the Board of Directors
without stockholder approval, except that no amendment which increases the
maximum aggregate number of shares which may be issued under the Plan or changes
the class of employees who are eligible to participate in the Plan, shall be
made without the approval of a majority of the stockholders of the Company.
Effective as of December 15, 1994, 229,000 options were granted under
the Plan; 99,000 of which were granted to non-management employees and 130,000
of which were granted to management. See "Options/SAR Grants in Last Fiscal Year
Table." Effective September 1, 1995, 312,000 additional options were granted
under the Plan; 202,000 of which were granted to non-management employees and
110,000 of which were granted to management.
70
<PAGE>
CERTAIN TRANSACTIONS
Loan to the Company
Robert R. Bartolini advanced $1,098,165 to the Company on June 30, 1995
in order to provide it with additional working capital. The Company's obligation
to repay this loan was evidenced by a promissory note dated August 31, 1995.
Under the terms of this promissory note, principal and interest are due on March
31, 1996, with interest accruing at 9%. The principal amount of the promissory
note on September 30, 1995 was $860,000. The indebtedness evidenced by the
promissory note is subordinated to the prior payment, when due of the principal
and interest on all senior indebtedness of the Company.
Transactions with Affiliate of Director
Following the Merger, AMLF, an affiliate of Mr. Panzo, rendered certain
investment banking advisory services to the Company for which AMLF received
33,000 common stock purchase warrants. The Warrants permit the purchase of
additional shares at an exercise price of $9.00 per share through May 1996.
During October 1994, the Company sold 333,333 shares of Common Stock to
AMLF in a private placement transaction for consideration of $19,999.
During April 1995, AMLF purchased $1,200,000 Principal Amount
of 9% Convertible Subordinated Debenture Units for an aggregate
purchase price of $1,200,000. See "DESCRIPTION OF SECURITIES."
This Prospectus covers the resale of 90,000 shares of Common Stock
issuable upon the conversion of certain of the Debentures owned by AMLF. The
pro-rata expense associated with the inclusion of such shares within this
Prospectus has been borne entirely by the Company.
Sale of Portfolio to Executive Officer
As of November 30, 1994, the Company sold a portfolio of 14 unsecured
installment loans with a total principal balance of $1,055,000 to Mr. Robert R.
Bartolini, Chairman and Chief Executive Officer of the Company, in consideration
for $590,965. The portfolio of which this portfolio was a part was purchased by
the Company in March 1994 from the FDIC at a purchase price equal to 22.5% of
principal balance. The purchase price paid by Mr. Bartolini was equal to 56% of
principal balance, which in management's opinion, was the approximate fair
market value of the loans determined from a review of the expected
collectibility of
71
<PAGE>
the loans. This price was considered by the Company to be equal to their fair
market value and was based on the estimated cash flows anticipated for the
portfolio. The method used for estimating the cash flows was the same used by
the Company in evaluating the fair value of all of its portfolio acquisitions.
Sale of Boat to Executive Officer
In October 1994, the Company sold a repossessed boat to John T.
Schaeffer, a director of NAL and President and Chief Operating Officer of NAC,
in consideration for a note in the amount of $89,000 which bears interest at 10%
per annum for a period of 1 year, and the offset by the Company of $21,000
payable to Mr. Schaeffer. The note was repaid prior to June 30, 1995. In
management's opinion the sale was at the approximate fair market value of the
boat.
Transactions with Former Principal Stockholder
In 1991, the Company entered into an agreement with FTM, a former
principal stockholder, to provide the Company with consulting and other business
related services. Under the agreement, the Company agreed to pay FTM $50,000 per
month through March 1995. The payments for consulting services continued through
May 1994, whereupon the Company made a lump sum settlement with FTM through a
final payment of $475,000 under this agreement. This reflected a $75,000
discount from the cumulative payments required under the agreement. Including
the lump sum settlement, payments of $675,000 were made to FTM in 1994. Payments
of $600,000 were made to FTM in 1993.
During 1994, the Company paid FTM $428,000 as a commission on the sale
of certain loan portfolios.
On April 30, 1993, the Company redeemed 5,928 shares of Common Stock
held by FTM for $2,400,000. A portion of the proceeds was applied to the
cancellation of the receivable of $841,417 due from FTM to the Company.
In October 1993, Mr. Bartolini purchased the remaining shares of the
Company's stock held by FTM for a purchase price of $2,034,000. This purchase
was financed by the Company as described below. See "Purchase of Shares of
Common Stock." After the purchase, Mr. Bartolini's ownership percentage of
outstanding stock was increased to 95%. The financial statements at December 31,
1993 reflect the receivable from Mr. Bartolini as a reduction of stockholders'
equity.
72
<PAGE>
The Company previously sub-leased a portion of the space occupied by
its headquarters at 500 Cypress Creek Road West, Fort Lauderdale, Florida from
FTM. However, in January 1995, the Company entered into a lease directly with
the landlord for such space. Thereafter, the Company entered into a sublease
with FTM by which FTM subleases from the Company certain space which it
previously leased directly from the landlord.
Purchase of Shares of Common Stock
In April 1993, the Company issued 214 shares to Mr. John Schaeffer,
president of NAC, in exchange for his 10% ownership of the common stock of NAC.
After the issuance, the Company owned 100% of the outstanding shares of NAC, and
Mr. Schaeffer owned 5% of the Company's Common Stock.
In October 1993, Mr. Bartolini, Chairman, Chief Executive Officer and
principal stockholder of the Company, purchased 2,143 shares representing all
outstanding shares not previously owned by Mr. Bartolini or Mr. Schaeffer to
provide him with 95% ownership of the Company as of such date. Mr. Bartolini
financed the entire purchase price of such shares through a loan from the
Company represented by a note in the amount of $2,034,638 which bore interest at
5% per annum and was reflected as a "Note Receivable from a Stockholder" as a
reduction of stockholders' equity on the Company's consolidated balance sheet as
of December 31, 1993. In June 1994, the Company redeemed the 2,143 shares from
Mr. Bartolini in consideration for cancelling the note.
Employment Arrangement
The Company has entered into an employment agreement with
Robert R. Bartolini, its Chairman, Chief Executive Officer and
principal stockholder. See "MANAGEMENT - Employment Arrangements."
Grant of Options and Warrants
In December 1994 and September 1995, the Company granted certain
options to purchase shares of the Company's Common Stock to executive officers
under the Company's Stock Option Plan. See "MANAGEMENT -Summary Compensation
Table" and "Stock Option Plan." In conjunction with their appointment to the
Board of Directors on August 7, 1995, the Company granted each of Messrs.
Bernstein and Panzo 20,000 common stock purchase warrants with an exercise price
of $13.50 per share. See "PRINCIPAL STOCKHOLDERS."
73
<PAGE>
Travel Services
IYS Travel, Inc. ("IYS"), a travel agency of which Mr. Robert Bartolini
is a principal stockholder, provides business and personal travel services to
the Company and its employees at prevailing market prices. IYS receives
customary industry commission for services provided. During the nine months
ended September 30, 1995 and the years ended December 31, 1994 and 1993, the
Company paid IYS approximately $78,000, $84,000 and $84,000, respectively, for
airline tickets booked by IYS for travel by the Company's employees at the
prevailing prices charged by the airlines.
During 1994, the Company advanced to IYS approximately $66,000 for
payroll, which IYS subsequently repaid.
Mr. Bartolini receives only indirect benefits as a principal
stockholder of IYS through profits of IYS, if any.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 29, 1995, information
with respect to the securities holdings of all persons which the Company,
pursuant to filings with the Securities and Exchange Commission, has reason to
believe may be deemed the beneficial owners of more than 5% of the Company's
outstanding Common Stock. Also set forth in the table is the beneficial
ownership of all shares of the Company's outstanding stock, as of such date, of
all officers and directors, individually and as a group.
<TABLE>
<CAPTION>
==========================================================================================================================
Shares Owned
Beneficially and of Percentage of
Name Record(1) Outstanding Shares(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert R. Bartolini 2,216,202(2) 33.83%
500 Cypress Creek Road West
Suite 590
Ft. Lauderdale, FL 33309
- --------------------------------------------------------------------------------------------------------------------------
John T. Schaeffer 289,580(3) 4.42%
500 Cypress Creek Road West
Suite 590
Ft. Lauderdale, FL 33309
- --------------------------------------------------------------------------------------------------------------------------
Robert J. Carlson 60,196(4) *
500 Cypress Creek Road West
Suite 590
Ft. Lauderdale, FL 33309
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Dennis LaVigne ---(5) ---%
500 Cypress Creek Road West
Suite 590
Ft. Lauderdale, FL 33309
- --------------------------------------------------------------------------------------------------------------------------
Andrew P. Panzo 356,337(6)(7) 5.20%
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004
- --------------------------------------------------------------------------------------------------------------------------
Abraham Bernstein ---(7) ---%
1830 Rittenhouse Square
Philadelphia, PA 19103
- --------------------------------------------------------------------------------------------------------------------------
Florence Karp(8) 866,668(9) 11.68%
3418 Sansom Street
Philadelphia, PA 19104
- --------------------------------------------------------------------------------------------------------------------------
All Directors and Officers 2,864,315(10) 41.82%
as a group (6 persons)
==========================================================================================================================
</TABLE>
- --------------------------------------------------
*Represents less than 1%
(1) Except as otherwise indicated, includes total number of shares
outstanding and the number of shares which each person has the
right to acquire, within 60 days through the exercise of
options, warrants or debentures, pursuant to Item 403 of
Regulation S-B and Rule 13d-3(d)(1), promulgated under the
1934 Act. Also reflects 6,550,347 shares of the Company's
Common Stock outstanding as of the date of this Prospectus.
(2) Includes 1,647,004 shares held by Robert R. Bartolini and
Marcia G. Bartolini, Co-Trustees of the Robert R. Bartolini
Revocable Trust dated July 27, 1992, 210,000 shares of which
are subject to options granted by Mr. Bartolini during May
1995. Also includes 305,176 shares presently held by English,
McCaughan & O'Bryan, P.A. pursuant to the terms of the Voting
Trust Agreement. See "Material Voting Arrangements."
Includes 264,022 shares held by Marcia G. Bartolini and Robert
R. Bartolini, Co-Trustees of the Marcia G. Bartolini Revocable
Trust dated July 27, 1992. Does not include 50,000 shares
owned beneficially by Edward M. Bartolini, the adult brother
of Robert R. Bartolini. Also does not include 264,022 shares
held by George Schnabel, Trustee of the Robert R. Bartolini
and Marcia G. Bartolini Irrevocable Trust dated July 27, 1992.
Does not include Incentive Stock Options to purchase 125,000
shares of Common Stock granted December 1994 and September
1995, which have not vested. See "MANAGEMENT - Executive
Compensation."
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<PAGE>
(3) Includes 34,628 shares held by English McCaughan & O'Bryan,
P.A. for the benefit of Mr. Schaeffer pursuant to the terms of
the Voting Trust Agreement. See "Material Voting
Arrangements." Does not include 65,000 Incentive Stock
Options granted to Mr. Schaeffer in December 1994 and
September 1995 which remain subject to vesting. Includes
4,952 shares held by Mr. Schaeffer's spouse. See "MANAGEMENT
- Executive Compensation" and "Stock Option Plans."
(4) Includes 60,196 shares held by English, McCaughan & O'Bryan,
P.A. for the benefit of Mr. Carlson pursuant to the terms of
the Voting Trust Agreement. See "Material Voting
Arrangements." Does not include 30,000 Incentive Stock
Options granted to Mr. Carlson in December 1994 and September
1995 which remain subject to vesting. See "MANAGEMENT -
Executive Compensation" and "Stock Option Plan."
(5) Does not include 20,000 Incentive Stock Options granted to Mr.
LaVigne in September 1995 which remain subject to vesting.
See "MANAGEMENT - Executive Compensation" and "Stock Option
Plan."
(6) Includes 145,004 shares issuable to AMLF upon conversion of
the Debentures, if at all, 153,333 shares issuable upon the
exercise by AMLF of the Warrants, if at all, and Options to
purchase 33,000 shares granted by Robert Bartolini to AMLF.
Also includes Options to purchase 25,000 shares granted by
Mr. Bartolini to APP Investments, Inc., an affiliate of Mr.
Panzo. AMLF intends to offer certain of the shares issuable
upon conversion of the Debentures pursuant to the terms of
this Prospectus. See "SELLING SECURITY HOLDERS" and "PLAN OF
DISTRIBUTION."
(7) Does not include Options to purchase 20,000 shares of Common Stock at
an exercise price of $13.50 per share granted in conjunction with
appointment as a director on August 7, 1995, which have not vested. See
"CERTAIN TRANSACTIONS - Grant of Options and Warrants."
(8) As custodian for Ms. Karp's minor grandchildren.
(9) Includes 450,000 shares of Common Stock issuable upon the exercise, if
at all, of Warrants and 416,666 shares of Common Stock issuable upon
the conversion, if at all, of Debentures.
See "DESCRIPTION OF SECURITIES."
(10) Does not include Options to purchase 33,000 shares granted by
Robert Bartolini to AMLF and Options to purchase 25,000 shares
granted by Mr. Bartolini to APP Investments, Inc., an
affiliate of Mr. Panzo, as such 58,000 shares are included
within the shares held by Mr. Bartolini for the purposes
hereof.
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<PAGE>
Material Voting Arrangements
Concurrent with the completion of the Merger, as of November 30, 1994,
Messrs. Bartolini, Schaeffer and Carlson entered into a Voting Trust Agreement
(the "Voting Trust Agreement") pursuant to which 400,000 shares were placed in a
voting trust. The Voting Trust Agreement provides that, on any matter requiring
stockholder vote, the trustee will vote such shares in the same percentage as
the other then issued and outstanding shares of Common Stock are voted. Such
shares may be released from the Voting Trust Agreement pursuant to an earn-out
formula whereby for the years ended June 30, 1995, 1996 and 1997, 10,000 trust
shares will be released for each $150,000 of cumulative net income after taxes
of the Company up to $3,000,000 and 5,000 shares will be released for each
$150,000 of cumulative net income after taxes in excess of $3,000,000, less the
number of trust shares previously transferred to the shareholders under this
formula. The trust shares will be released pro rata in accordance with the
number of trust shares beneficially owned by each shareholder. If the shares are
not released pursuant to the earn-out formula within three years, such shares
will be cancelled. The trustee under the Voting Trust Agreement is English,
McCaughan & O'Bryan, P.A., counsel to the Company.
Effect of Issuance of Common Stock Upon Conversion of Debentures
and Exercise of Warrants.
The Company may be caused to issue up to an additional 954,739 shares
upon conversion of the outstanding principal and accrued interest due under the
Debentures, and up to an additional 1,594,500 shares upon exercise of the
Warrants. See "DESCRIPTION OF SECURITIES." A number of holders of such
Debentures and Warrants may become principal stockholders of the Company should
they elect to convert their Debentures and/or exercise their Warrants. Stock
ownership, for the purpose of identifying the principal stockholders included
within the foregoing table, has been calculated in accordance with Rule
13d-3(d)(1) promulgated under the Securities Exchange Act of 1934 and Item 403
of Regulation S-B, promulgated under the Securities Act of 1933, as amended.
Accordingly, stock ownership has been calculated to include all shares issuable
upon conversion of the Debentures and exercise of the Warrants where the holder
has the right to acquire such shares within 60 days. Stock ownership has not,
for the
77
<PAGE>
purposes of this table, been attributed to the holders of 1,360,000 Warrants
that may not be exercised by the holders thereof until the earlier of: (i) March
31, 1996; or (ii) consent of the Company. Holders of these Warrants, once and if
exercised, may become principal stockholders of the Company.
Compliance with Section 16(a) of the Exchange Act
To the knowledge of the Company, each of the Company's directors,
executive officers and 10% beneficial owners has complied with the requirements
of Section 16(a) of the Securities Exchange Act of 1934.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.15 par value per share, of which 6,550,347 are outstanding as of the date of
this Prospectus.
Holders of Common Stock have equal rights to receive dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Holders of Common Stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no pre-emptive or similar rights. All
outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock
Within the limits and restrictions contained in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of Preferred Stock (the
"Preferred Stock"), in one or more series, and to fix, as to any such series,
the dividend rate, redemption prices, preferences on liquidation or dissolution,
sinking fund terms, if any, conversion rights, voting rights, and any other
preference or special rights and qualifications. There are presently no shares
of Preferred Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt
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<PAGE>
to gain control of the Company more difficult or time consuming. For example,
shares of Preferred Stock could be issued with certain rights which might have
the effect of diluting the percentage of Common Stock owned by a significant
stockholder or issued to purchasers who might side with management in opposing a
takeover bid which the Board of Directors determines is not in the best interest
of the Company and its stockholders. This provision may be viewed as having
possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. The Board of Directors has not authorized any series of Preferred
Stock.
Debentures
From April 1995 to September 1995, the Company issued and sold in
private placement transactions to accredited investors an aggregate of
$15,400,000 principal amount 9% Convertible Subordinated Debentures (the
"Debentures"). The Debentures were offered and sold in conjunction with warrants
to purchase 1,404,500 shares of the Company's Common Stock as "Debenture Units".
The indebtedness evidenced by the Debentures is subordinated to the
prior payment when due of the principal and interest on all senior indebtedness
of the Company. Therefore, upon any distribution of its assets in a liquidation
or dissolution of the Company, or in bankruptcy, reorganization, insolvency,
receivership or similar proceedings relating to the Company, the holders of the
Debentures will not be entitled to receive payment until the holders of the
Company's senior indebtedness are paid in full. Furthermore, upon the occurrence
of any event of default with respect to any senior indebtedness of the Company,
no payments may be made thereafter to the holders of the Debentures until the
Company has cured such event of default.
Of the Debentures, $3,000,000 principal amount bear a maturity date
three (3) years from the date of funding (July 1998). The remainder of the
Debentures with aggregate principal balances of $12,400,000 bear maturity dates
one (1) year from the date of funding (from April 1996 to September 1996). With
the exception of $3,000,000 principal amount, which requires quarterly payments,
interest on the Debentures is due on a semi-annual basis.
Conversion Feature
At the option of the holders, the principal and accrued interest due
under the Debentures is convertible into shares of Common Stock. Prior to such
conversion, the holders thereof are not entitled to voting rights or other
rights provided by law to security holders.
79
<PAGE>
Of the Debentures, $11,850,000 principal amount sold during April
through July 1995, are convertible into shares of the Company's Common Stock at
a conversion price equal to the lower of: (i) 75% of the average closing bid
price of the Company's Common Stock as reported by The NASDAQ Stock MarketSM for
the ten (10) consecutive trading days immediately preceding the date of
conversion; or (ii) $9.00. $6,900,000 principal amount of these Debentures have
been converted into 780,879 shares of the Company's Common Stock.
Of the remaining Debentures, $250,000 principal amount sold during
August 1995 are convertible into shares of the Company's Common Stock at a
conversion price of $10.50 per share, and $3,300,000 principal amount sold
during September 1995 are convertible into shares of the Company's Common Stock
at a conversion price of $12.50 per share.
Based upon present trading prices, 954,739 additional shares of Common
Stock may be issuable upon conversion of the remaining principal and accrued
interest due under $8,500,000 principal amount of Debentures.
Redemption Feature
The Debentures are subject to redemption by the Company at the
principal amount thereof, together with any accrued interest, on thirty (30)
days written notice upon the following conditions: (i) if a registration
statement covering the resale of the shares issuable upon conversion of the
Debentures is effective as of that date; and (ii) if the average of the closing
bid prices of the Company's Common Stock as reported by The NASDAQ Stock
MarketSM exceeds a designated redemption price (the "Debenture Redemption
Price") for ten (10) consecutive trading days ending within fifteen (15) days of
the notice of redemption.
Of the outstanding Debentures, $1,950,000 principal amount bear a
Debenture Redemption Price of $15.00. The remaining $6,550,000 principal amount
bear a Debenture Redemption Price of $18.00.
$3,000,000 principal amount of the Debentures provide the holder with
the option to elect not to have the Debentures subject to redemption, however,
from the point of such election and thereafter, the Debentures become
non-interest bearing.
Warrants.
From April through September 30, 1995, the Company has granted
1,594,500 common stock purchase warrants (the "Warrants").
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<PAGE>
1,404,500 of the Warrants were granted as part of the Debenture Units.
190,000 Warrants were issued by the Company to Board members and certain
consultants and advisers in consideration for financial advisory services. See
"CERTAIN TRANSACTIONS."
Exercise
Each of the Warrants permits the holder to purchase a share of the
Company's Common Stock at a designated exercise price for a period of three (3)
years from the date of grant.
The respective exercise prices of the Warrants is identified in the
following table.
Number of Warrants Exercise Price
------------------ --------------
1,360,000 $ 9.00
12,500 $12.00
50,000 $12.30
172,000 $15.00
---------
1,594,500
The 1,360,000 Warrants that contain a $9.00 exercise price may not be
exercised by the holders thereof until the earlier of: (i) March 31, 1996; or
(ii) consent of the Company. The remainder of the Warrants may be exercised at
the option of their holders commencing no later than November 1, 1995.
Prior to exercise, holders of the Warrants are not entitled to voting
rights or other rights provided by law to securityholders of the Company.
A complete exercise of the Warrants, if at all, would yield to the
Company proceeds of $15,585,000. There can be no assurances that all or a
substantial percentage of the Warrants will be exercised.
Redemption
The Warrants are subject to redemption by the Company at a price of
$.001 per Warrant on thirty (30) days written notice upon the following
conditions: (i) if a registration statement covering the resale of the shares
issuable upon exercise of the Warrants is effective as of that date; and (ii) if
the average of the closing bid prices of the Company's Common Stock as reported
by The NASDAQ Stock MarketSM exceeds a designated price (the "Warrant Redemption
Price") for ten (10) consecutive trading days ending with fifteen (15) days of
the notice of redemption.
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<PAGE>
Number of Warrants Warrant Redemption Price
------------------ ------------------------
1,462,500 $15.00
12,000 $18.00
120,000 $25.00
The present trading price of the Company's Common Stock (see "MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS") would not be sufficient to
effectuate a redemption of any of the Warrants. There can be no assurances that
the trading price of the Company's Common Stock will attain a level sufficiently
high to effectuate a redemption. There also can be no assurances that even with
a sufficiently high trading price the Company will elect to cause a redemption
of the Warrants. Any call for redemption would have the likely effect of causing
the exercise of these Warrants.
Registration Rights
The Company has granted certain registration rights to the holders of
the Debentures and the Warrants pursuant to which the Company has agreed to
register for resale the shares of Common Stock issued or issuable upon the
conversion of the Debentures and the exercise of the Warrants.
Certain of these shares have been included in the Registration
Statement of which this Prospectus is a part. See "SELLING
SECURITY HOLDERS."
Inclusive of the shares whose resale is offered by this Prospectus, the
Company has granted incidental ("piggy back") registration rights in connection
with the resale of up to 2,948,341 shares issuable or issued upon conversion of
the Debentures and upon exercise of the Warrants. Pursuant to such rights, the
Company has agreed to include the resale of such shares in any subsequent
registration statement relating to a public offering of the Company's securities
to the extent that such inclusion is not deemed by the Company or an
underwriter, if any, to adversely effect such offering or the market for the
Company's securities. In the event that such shares are not otherwise included
within a registration statement, the Company has agreed to use its best efforts
to file with the Commission a registration statement covering such shares on or
before May 15, 1996.
The remaining 381,777 shares of Common Stock issuable upon conversion
of Debentures and the exercise of the remaining Warrants have been granted
registration rights whereby the Company has agreed to include the resale of such
shares in a registration statement to be filed with the Commission on or before
December 14, 1995.
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<PAGE>
In connection with such registration(s), generally the Company has no
obligation: (i) to assist or cooperate in the offering or disposition of such
shares of Common Stock; (ii) to indemnify or hold harmless any underwriter;
(iii) to obtain a commitment from an underwriter relative to the sale of such
shares; or (iv) to include such shares of Common Stock within an underwritten
offering of the Company. Accordingly, the Company's only obligation is to
include any such shares in such registration statements as described above. The
Company will assume no obligation or responsibility whatsoever to determine a
method of disposition for such shares or to otherwise include such shares within
the confines of such registered offering(s).
Options Granted by Stockholder
During May 1995, Robert R. Bartolini, the Company's Chairman and Chief
Executive Officer, granted options to purchase, in the aggregate, 210,000 shares
of Common Stock held by him at exercise prices of $6.00 and $9.00 per share (the
"Options"). The Options granted at $6.00 shall terminate on the later of: (i)
December 31, 1995; or (ii) 60 days after the Company causes the registration of
the shares issuable upon the exercise of such Options. The Options granted at
$9.00 have a term of one (1) year. The Options may not be exercised until the
earlier of: (i) November 4, 1995; or (ii) upon consent of the Company.
Reservation of Shares.
The Company has reserved a sufficient number of shares of Common Stock
for issuance upon conversion of the Debentures and exercise of the Warrants and
such shares when issued will be fully paid and non-assessable.
Transfer Agent
The transfer agent for the Company's securities is StockTrans, Inc., 7
East Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
Shares Eligible For Future Sale
Taking into account resale of the shares covered by this Prospectus and
the anticipated registration of certain additional shares issued upon conversion
of the Debentures, approximately 3,400,000 shares of the Company's outstanding
Common Stock are "restricted securities," as that term is defined under Rule 144
under the Act and in the future may be sold without registration upon compliance
with Rule 144. A person (including a group of persons whose shares are
aggregated) who has satisfied a two year
83
<PAGE>
holding period for restricted securities, including an affiliate of the Company,
may sell an amount of restricted securities up to 1% of the Company's
outstanding Common Stock in each three month period thereafter. Persons who are
not affiliated with the Company and who have owned the restricted securities for
at least three years are not subject to the 1% limitation. Of the 3,400,000
shares which constitute restricted securities, approximately 2,535,978 are
presently held by persons who may be deemed "affiliates" of the Company. These
individuals acquired their shares during November 1994. Accordingly, resales may
occur as early as November 1996. Provided these individuals remain "affiliates",
their resales would be limited to 1% of the Company's outstanding Common Stock
in each three month period thereafter. Of the 3,400,000 Shares which constitute
restricted securities approximately 864,022 are presently held by
non-affiliates. These shares were acquired during November 1994. Accordingly,
resales can occur as early as November 1996 (limited to 1% of the Company's
outstanding common stock per quarter) and unlimited resales can occur as early
as October 1997.
Any substantial sale of restricted securities under Rule 144 may in the
future have a depressive effect upon the price of the Company's Common Stock in
any market that may develop therefor.
Delaware Anti-Takeover Law
The Company will be governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware (the "GCL"), an anti-takeover
law. In general, the law prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with its affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
The provisions regarding certain business combinations under the GCL
could have the effect of delaying, deferring or preventing a change in control
of the Company or the removal of existing management. A takeover transaction
frequently affords stockholders the opportunity to sell their shares at a
premium over current market prices.
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<PAGE>
SELLING SECURITY HOLDERS
All of the shares of Common Stock of the Company offered by this
Prospectus are being sold for the account of the selling security holders
identified in the following table (the "Selling Security Holders").
The Selling Security Holders are offering for sale an aggregate of
253,009 shares of Common Stock which consist of: (i) 111,231 shares of Common
Stock previously issued by the Company; and (ii) 141,778 shares of Common Stock
issuable upon the conversion of the principal and accrued interest due under
approximately $1,360,000 Principal Amount 9% Subordinated Convertible Debentures
("Debentures"), all of which shares of Common Stock and Debentures were
previously issued by the Company in private placement transactions. See
"DESCRIPTION OF SECURITIES." 90,000 shares issuable, if at all, upon conversion
of the principal and interest due under the Debentures is being offered by AMLF,
an affiliate of Andrew Panzo, a director of the Company.
The following table sets forth the number of Shares being held of
record or beneficially (to the extent known by the Company) by such Selling
Security Holders and provides (by footnote reference) any material relationship
between the Company and such Selling Security Holder, all of which is based upon
information currently available to the Company.
The shares of Common Stock offered by the Selling Security Holders may
be offered for sale from time to time at market prices prevailing at the time of
sale or at negotiated prices, and without payment of any underwriting discounts
or commissions except for usual and customary selling commissions paid to
brokers or dealers.
<TABLE>
<CAPTION>
Number of
Number of Shares of Number of
Shares of Common Shares of
Common Stock to be Common Percentage Percentage
Stock Before Sold in Stock After Before After
Name Offering(2) Offering Offering Offering(1) Offering(1)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
American Maple Leaf(3) 331,004 90,000(4) 241,004 4.84% 3.57%
Financial Corporation
Jeffrey I. and Rosalie Binder(5) 280,000(6) 20,000 260,000 3.82% 3.51%
Centaur Financial Corp.(8) 112,242 11,242 101,000 1.7 % 1.53%
Diversified Securities Fund I, L.P.(7) 14,636 9,636 5,000 (*) (*)
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
Number of
Number of Shares of Number of
Shares of Common Shares of
Common Stock to be Common Percentage Percentage
Stock Before Sold in Stock After Before After
Name Offering(2) Offering Offering Offering(1) Offering(1)
- ---- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Garnick, Michael 38,166 24,000(4) 14,166 (*) (*)
Ginsburg, Bruce 55,210 27,778(4) 27,432 (*) (*)
Rosner, Steven B 80,127 53,160 26,967 (*) (*)
Rosner, Steven B. Money 32,193 17,193 15,000 (*) (*)
Purchase Pension Plan -------
Total 253,009
=======
</TABLE>
- ----------------------
(*) Less than 1%
(1) Based upon 6,550,347 shares of Common Stock outstanding as of the date
of this Prospectus.
(2) The number of shares calculated below includes all shares presently
owned, as well as all shares which may be acquired, if at all, upon the
conversion of outstanding principal and interest due under the
Debentures and/or exercise of outstanding Warrants, even though at
least 1,360,000 Warrants prohibit exercise until the earlier of: (i)
March 31, 1996; or (ii) consent of the Company, See "DESCRIPTION OF
SECURITIES." Accordingly, the number of shares reflected below may not
correspond with the information contained within "PRINCIPAL
STOCKHOLDERS" which has been determined in accordance with Rule
13d-3(d)(1) promulgated under the Securities Exchange Act of 1934 and
Item 403 of Regulation S-B promulgated under the Securities Act of
1933, as amended.
(3) Mr. Panzo is a director, officer and principal stockholder of AMLF and
a director of the Company.
(4) Reflects shares issuable, if at all, upon conversion of the Debentures.
(5) Mr. Binder is a former director of the Company.
(6) Includes 30,000 shares by Audley International Investments Limited, a
corporation whose shares may be deemed beneficially owned by
Mr. Binder.
(6) An affiliate of Steven Rosner.
(7) Includes 11,242 shares issued upon the conversion of the principal and
interest due under the Debentures, 33,000 Warrants and 58,000 Options
granted by Robert R. Bartolini.
(8) A limited partnership controlled by Mr. Steven Rosner, general partner.
PLAN OF DISTRIBUTION
The Selling Security Holders are offering for sale, exchange or
transfer shares of Common Stock that have previously been issued to such holders
in private placement transactions, and shares of Common Stock issuable, if at
all, upon the conversion of the Debentures. Such shares
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<PAGE>
are being offered for their own account, and not for the account of the Company.
The Company will not receive any proceeds from the sale of the shares of Common
Stock by the Selling Security Holders.
Each Selling Security Holder will, prior to any sales, agree (a) not to
effect any offers or sales of the Common Stock in any manner other than as
specified in this Prospectus, (b) to inform the Company of any sale of Common
Stock at least one business day prior to such sale and (c) not to purchase or
induce others to purchase Common Stock in violation of Rule 10b-6 under the
Exchange Act.
The shares of Common Stock may be sold from time to time to purchasers
directly by any of the Selling Security Holders acting as principals for their
own accounts in one or more transactions in the over-the-counter market or in
negotiated transactions at market prices prevailing at the time of sale or at
prices otherwise negotiated. Alternatively, the shares of Common Stock may be
offered from time to time through agents, brokers, dealers or underwriters
designated from time to time, and such agents, brokers, dealers or underwriters
may receive compensation in the form of commissions or concessions from the
Selling Security Holders or the purchasers of the Common Stock.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the Common Stock of the Company during the applicable "cooling
off" periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Security Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of Common Stock by the
Selling Security Holder.
The Company will use its best efforts to file, during any period in
which offers or sales are being made, one or more post-effective amendments to
the Registration Statement of which this Prospectus is a part to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon
for the Company by Clark, Ladner, Fortenbaugh & Young, One Commerce Square, 2005
Market Street, 22nd Floor, Philadelphia, Pennsylvania, 19103.
STATEMENT OF INDEMNIFICATION
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The Company has adopted the provisions of Section 102(b)(7) of the GCL
which eliminate or limit the personal liability of a director to the Company or
its stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. Furthermore, under Section 145 of the GCL, the Company may
indemnify each of its directors and officers against his expenses (including
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer or
director to the extent he acted in good faith and in a manner reasonably
believed to be in, or not opposed to the best interest of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The determination of whether indemnification is proper
under the circumstances, unless made by a court, shall be determined by the
Board of Directors.
Insofar as indemnification for liabilities under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in a successful
defense of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issuer.
EXPERTS
The financial statements as of December 31, 1994 and for each of the
two years in the period ended December 31, 1994 included in this Prospectus have
been so included in reliance on the report of Price Waterhouse LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form SB-2 with respect to the Common Stock being
registered hereby. This Prospectus does not contain all the information
contained in such Registration Statement, as permitted by the Rules and
Regulations of the Securities and Exchange Commission. The Registration
Statement, including exhibits thereto, may be inspected without charge, and
88
<PAGE>
copies of all or any part thereof may be obtained from the Commission's
principal office in Washington, D.C. at Room 1024, 450 Fifth Street N.W.,
Washington, DC. 20549, and at the Commission's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, DC 20549, at
prescribed rates. For further information with respect to the Company, the
Common Stock being registered hereby and the contents of any contract or
document referred to herein, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Reference
<S> <C>
Report of Independent Certified Public Accountants...............................................................................F-1
Consolidated Balance Sheet
as of December 31, 1994..........................................................................................................F-2
Consolidated Statements of Operations
for the Years Ended December 31, 1994 and 1993...................................................................................F-3
Consolidated Statement of Changes in
Stockholders' Equity for the Years Ended
December 31, 1994 and 1993.......................................................................................................F-4
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1994 and 1993...................................................................................F-5
Notes to Consolidated Financial Statements
for the Year Ended December 31, 1994.............................................................................................F-7
Consolidated Balance Sheet (Unaudited)
as of September 30, 1995 and December 31, 1994..................................................................................F-24
Consolidated Condensed Statements of Operations
(Unaudited) for the Three and Nine Months Ended
September 30, 1995 and 1994.....................................................................................................F-25
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1995 and 1994...........................................................................F-26
Notes to Consolidated Financial Statements
for the (Unaudited) Interim Nine Month Period
Ended September 30, 1995 .......................................................................................................F-27
</TABLE>
90
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
of NAL Financial Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
NAL Financial Group Inc. and its subsidiaries at December 31, 1994, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. 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 audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
March 29, 1995
<PAGE>
NAL Financial Group Inc.
Consolidated Balance Sheet
December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Loan and lease receivables:
Automotive finance contracts, net $23,974,929
Consumer loans receivable, net 1,491,694
Mortgage loans receivable, net 4,822,667
Less: Allowance for possible losses (305,000)
-----------
Net loan and lease receivables 29,984,290
Cash and cash equivalents 664,848
Restricted cash 1,061,041
Net investment in operating leases 1,230,647
Returned vehicle inventory, net 150,779
Real estate owned 44,250
Debt issue costs, net 214,112
Property and equipment, net 510,885
Accrued interest receivable 167,692
Other assets, net 489,809
-----------
Total assets $34,518,353
===========
Liabilities and Stockholders' Equity
Pa$ticipations and notes payable $22,502,041
Accounts payable and accrued expenses 400,057
Security deposits 344,834
Other liabilities 242,660
Deferred income taxes 110,460
Due to stockholder 62,494
-----------
Total liabilities 23,662,546
-----------
Commitments and contingencies (Notes 8 and 14) --
-----------
Stockholders' equity:
Preferred stock, $1,000 par value, 10,000,000 shares authorized, no
shares issued --
Common stock, $.15 par value, 50,000,000 shares authorized,
5,592,968 shares issued and outstanding 838,945
Paid in capital 8,483,714
Retained earnings 1,533,148
-----------
Total stockholders' equity 10,855,807
-----------
$34,518,353
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
NAL Financial Group Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Revenue:
Interest income $ 3,322,577 $ 4,371,156
Purchase discount accretion 2,064,714 2,959,355
Gain on sale of loan pools 2,292,249 1,925,230
Gain on loan sales to correspondents -- 206,255
Rental 79,390 --
Other income 478,153 68,422
Lease termination losses, net (103,883) (243,327)
----------- -----------
8,133,200 9,287,091
----------- -----------
Expenses:
Interest 1,957,420 2,965,941
Salaries, wages, and employee benefits 2,337,557 2,270,771
Commissions 69,482 48,468
Professional services 364,927 532,287
Consulting fees 537,793 600,000
Provision for credit losses 572,636 --
Servicing fees 79,503 320,242
Depreciation and amortization 320,294 289,835
Other operating expenses 1,235,922 938,743
----------- -----------
7,475,534 7,966,287
----------- -----------
Income before provision for income taxes and
extraordinary losses 657,666 1,320,804
Provision for income taxes 263,343 522,616
----------- -----------
394,323 798,188
Extraordinary loss on early extinguishment of debt
(net of taxes of $188,745) -- 326,949
----------- -----------
Net income $ 394,323 $ 471,239
=========== ===========
Per share data:
Primary:
Income before extraordinary item $ 0.08 $ 0.15
Extraordinary item -- (0.16)
----------- -----------
Net income $ 0.08 $ 0.09
=========== ===========
Fully diluted:
Income before extraordinary item $ 0.07 $ 0.14
Extraordinary item -- (0.06)
----------- -----------
Net income $ 0.07 $ 0.08
=========== ===========
</TABLE>
F-3
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NAL Financial Group Inc.
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Less: Total
Par Par Paid in Note Retained Stockholders'
Shares Value Shares Value Capital Receivable Earnings Equity
------ ----- ------ ----- ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 -- $ -- 10,000 $ 10,000 $ 2,471,169 $ -- $ 3,101,034 $ 5,582,203
Redemption of stock -- -- (5,928) (5,928) (1,464,909) -- (929,163) (2,400,000)
Capital contribution -- -- -- -- 1,900,000 -- -- 1,900,000
Issuance of stock -- -- 214 214 289,065 -- -- 289,279
Note receivable from stockholder -- -- -- -- -- (2,034,638) -- (2,034,638)
Net income -- -- -- -- -- -- 471,239 471,239
------ ------ --------- -------- ---------- ---------- ---------- -----------
Balance, December 31, 1993 -- -- 4,286 4,286 3,195,325 (2,034,638) 2,643,110 3,808,083
Dividends -- -- -- -- -- -- (1,069,460) (1,069,460)
Redemption of stock -- -- (2,143) (2,143) (1,597,670) 2,034,638 (434,825) --
Redemption of predecessor stock
in connection with the merger -- -- (2,143) (2,143) (1,597,655) -- -- (1,599,798)
Issuance of stock in connection
with the merger -- -- 5,592,968 838,945 8,483,714 -- -- 9,322,659
Net income -- -- -- -- -- -- 394,323 394,323
------ ------ --------- -------- ---------- ---------- ---------- -----------
Balance, December 31, 1994 -- $ -- 5,592,968 $838,945 $8,483,714 $ -- $1,533,148 $10,855,807
====== ====== ========= ======== ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
NAL Financial Group Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income 394,323 $ 471,239
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of purchase discount (2,064,714) (2,959,356)
Provision for credit losses 572,636 --
Depreciation and amortization 320,294 289,835
Gain on sales of loan pools (2,292,249) (1,925,230)
Gain on loan sales to correspondents -- (206,255)
Non-cash portion of extraordinary loss -- 278,841
Changes in assets and liabilities:
Payments received on automotive finance contracts, net 7,417,861 11,226,692
Payments received on consumer loans receivable, net 8,421,534 6,483,220
Payments received on mortgage loans receivable, net 5,083,106 13,055,970
Decrease in due from regulatory agencies -- 326,652
Decrease in restricted cash 921,492 3,188,547
Increase in real estate owned (44,250) --
Decrease (increase) in returned lease inventory 94,427 (44,839)
(Increase) decrease in other assets and accrued interest
receivable (125,605) 274,526
Decrease (increase) in due from affiliates 43,667 (998,817)
Increase (decrease) in security deposits 101,759 (463,189)
Increase (decrease) in other liabilities 88,271 (668,026)
(Decrease) increase in accrued income taxes (33,590) 51,285
------------ ------------
Net cash provided by operating activities 18,898,962 28,381,095
------------ ------------
Cash flows from investing activities:
Proceeds from sale of loan pools 14,614,031 8,658,496
Purchase of automotive finance contracts (22,681,679) (1,045,276)
Purchase of vehicles under operating leases (1,283,300) --
Purchase of consumer loans receivable (14,795,381) (7,848,436)
Purchase and origination of mortgage loans receivable (221,713) (19,884,294)
Purchase of property and equipment (253,004) (36,237)
------------ ------------
Net cash used in investing activities (24,621,046) (20,155,747)
------------ ------------
</TABLE>
(Continued)
F-5
<PAGE>
NAL Financial Group Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1994 and 1993
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 7,722,861 $ --
Stock redemption -- (1,558,583)
Loan to stockholder -- (703,588)
Proceeds to participations and notes payable 33,911,781 54,955,306
Repayment of participations and notes payable (34,249,908) (60,694,835)
Payment of debt issue costs (24,352) (497,454)
Dividends (1,069,459) --
------------ ------------
Net cash provided by (used in) financing
activities 6,290,923 (8,499,154)
------------ ------------
Net increase (decrease) in cash and cash equivalents 568,839 (273,806)
Cash and cash equivalents, beginning of year 96,009 369,815
------------ ------------
Cash and cash equivalents, end of year $ 664,848 $ 96,009
============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for interest $ 1,859,353 $ 3,635,737
============ ============
Cash paid during the year for taxes $ 320,501 244,031
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
1. Organization and Nature of Operations
NAL Financial Group Inc. (the "Company") commenced operations in June 1991 as a
specialized finance company for the purpose of engaging in
consumer finance transactions involving the origination,
purchase, remarketing and servicing of consumer loan and lease
receivables. Since June 1994, the Company's principal business
has been the acquisition and servicing of automotive loans and
leases originated by dealers in connection with sales or leases
to individuals with sub-prime credit.
On November 30, 1994, the Company merged with Corporate Financial
Ventures, Inc. ("CFVI"), a public company (the "Merger"). Under the
terms of the Merger, the Company's stockholders received 3,160,000
shares of CFVI in exchange for all outstanding shares of stock of the
Company. Stockholders of the Company received approximately 56% of the
outstanding common stock of CFVI. Additionally, the Company raised net
proceeds of approximately $7,700,000 in a private placement of
1,549,667 shares of its common stock in connection with the merger.
The Merger has been accounted for as a reverse acquisition by the
Company. Upon completion of the Merger, CFVI assumed the historic
operations of the Company and changed its name to NAL Financial Group
Inc. As the Merger is not considered a business combination as defined
in Accounting Principles Board Opinion No. 16, "Business
Combinations", pro forma information is not presented. The operations
of CFVI prior to the Merger were not significant.
The Company operates its business through four wholly-owned
subsidiaries. The principal operations of the Company are conducted
through NAL Acceptance Corporation ("NAC"). NAL Insurance Services,
Inc. ("NIS") provides automobile and other forms of insurance
services. NAL Mortgage Corporation ("NMC") presently is inactive.
Performance Cars of South Florida, Inc. ("PCSF") was incorporated in
January 1995 to conduct the Company's used vehicle operations. Unless
otherwise specified, references to the Company includes NAC, NIS, NMC,
and PCSF.
2. Accounting Policies
A summary of the significant accounting policies followed in the
preparation of the accompanying financial statements is presented
below:
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
F-7
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
Revenue Recognition
Interest income is recognized using the interest method over the
contractual term of the loans and leases and is recognized in full
upon early termination of individual lease contracts. Certain loan and
lease origination costs are deferred and amortized to interest income
over the life of the related loans and leases using the interest
method. Purchase discount is recognized using the interest method after
considering actual and estimated prepayment rates. Revenue from
operating leases is recognized as rental revenue on a straight-line
basis over the lease term.
Interest on acquired non-performing loans is fully reserved and is
recognized as income when collected.
Lease termination gains (losses) are recorded when earned and represent
the difference between the sales price of the returned vehicle and the
net book value. Customer termination penalties are recognized when
earned and are included in lease termination gains.
Late charges and other miscellaneous fees are credited to income as
earned.
Loans and Leases
Mortgage loans, consumer loans, and automotive finance
contracts purchased or originated for investment are stated at cost,
net of purchase discount and unearned interest income, since the
Company has the ability and presently intends to hold the portfolios
to maturity. An allowance for uncollectible interest is provided for
loans 90 days or more delinquent. Purchase discounts are deferred and
recognized over the lives of the related loans and leases using the
interest method. Unamortized purchase discount is included in interest
income upon full repayment.
An allowance for credit losses is maintained at a level that
management considers adequate to provide for potential losses based
upon an evaluation of known and inherent risks in the portfolios.
Management's periodic evaluation is based upon an analysis of the
portfolios, historical loss experience, current economic conditions,
collateral value and other relevant factors. Future adjustments to the
allowance may be necessary if economic conditions differ substantially
from the assumptions used in making the evaluation.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114") in May 1993 which was amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures"
F-8
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
("SFAS 118") in October 1994. SFAS 114 requires a creditor to evaluate the
collectibility of both contractual interest and principal of certain impaired
receivables when assessing the need for a loss accrual and to measure loans that
are restructured in a troubled debt restructuring to reflect the time value of
money. SFAS 114 is not applicable to leases and large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment. SFAS 118
amends SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan. SFAS 118 also amends the disclosure
requirements in SFAS 114 to require information about the recorded investment in
certain impaired loans and about how a creditor recognizes interest income
related to those impaired loans. SFAS 114, as amended by SFAS 118, applies to
financial statements for fiscal years beginning after December 15, 1994. The
Company plans to adopt SFAS 114, as amended by SFAS 118, in the first interim
period of fiscal year 1995. The impact of adoption on the financial position or
results of operations is not expected to be material.
At December 31, 1994, the Company had approximately $236,000 in non-accrual
loans. Had these loans been on full-accrual, interest income of $26,000 would
have been recognized for the year then ended.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company has defined
cash and cash equivalents as those highly liquid investments purchased with an
original maturity of three months or less.
Restricted Cash
Restricted cash represents deposit accounts established pursuant to
servicing agreements between the Company and various participants which
represents collections from customers, and cash reserve accounts established
under certain participation agreements. The collection accounts are settled
monthly by the Company with the participants.
Net Investment in Operating Leases
Operating automotive leases to third parties are originated by dealers and
acquired by the Company, which assumes ownership of the vehicle. Vehicles held
under operating lease agreements are recorded at cost and depreciated on a
straight-line basis over the lease term to the estimated residual value.
Returned Vehicle Inventory
Vehicles acquired through repossession or termination of a lease or loan
are valued at the lower of the unpaid principal balance or market value at the
date of repossession.
Real Estate Owned
Real estate acquired in settlement of loans is carried at the lower of cost
or fair value of the asset minus estimated costs to sell.
F-9
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
Debt Issue Costs
Debt issue costs are capitalized and amortized to operations over the life
of the related debt, which currently approximates three years.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives of the related assets.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
This method requires an asset and liability approach to accounting for income
taxes on a current and deferred basis using current income tax rates. Deferred
income tax assets are recognized for temporary differences that will result in
deductible amounts in future years. Deferred income tax liabilities are
recognized for temporary differences that will result in taxable amounts in
future years.
Concentration of Credit Risk
The Company considers its primary market area for loan and lease
origination activities to be the state of Florida. However, the properties
collateralizing the purchased loan receivable portfolios are located primarily
throughout the eastern United States, Texas and California. Although the Company
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their obligations to the Company is dependant upon the economic
stability of these areas.
Interest Rate Risk
Loan portfolio purchases are funded by participations which bear interest
at fixed rates, or at variable rates subject to certain minimum percentages. The
durations of the participations are determined by the durations of the related
loan portfolios since the proceeds of obligor payments are applied to repayment
of participations. This also minimizes fluctuations in the difference between
the interest rate earned on loans and the interest rate incurred on
participations.
Earnings Per Share
Earnings per common share are computed based on the weighted average number
of common and common equivalent shares outstanding during the period. The
weighted average number of shares of common and common equivalent shares
outstanding used to compute primary and fully diluted earnings per share was
5,192,968 and 5,592,968, respectively.
F-10
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
Reclassification
Certain 1993 amounts have been reclassified to conform with current year
presentation.
3. Automotive Finance Contracts
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Direct finance leases:
Minimum lease payments $ 4,936,889
Estimated residual values (at maturity) 2,985,254
-----------
Total direct finance leases 7,922,143
Loan contracts 8,175,202
Advances to dealers 10,697,787
-----------
26,795,132
Less: Unearned income (2,004,435)
Purchase discount (815,768)
-----------
Automotive finance contracts, net $23,974,929
===========
</TABLE>
Automotive finance contracts are collateralized primarily by the related
automobiles and the related security deposits on leases. These contracts are
pledged as security for the participations and notes payable.
Advances to dealers represent amounts funded by the Company to automobile
dealerships which are collateralized by loan and lease receivables of the dealer
serviced for a fee by the Company. At December 31, 1994, approximately
$15,463,000 in loan and lease receivables are being serviced by the Company
relating to these advances. These advances bear interest at fixed rates, or at
variable rates subject to certain minimum percentages. The duration of these
advances are determined by the duration of the related collateralized loan and
lease receivables.
At December 31, 1994, contractual maturities of automotive finance
contracts are as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Direct finance
leases $ 2,387,916 $ 1,650,962 $ 1,570,283 $ 1,648,085 $ 633,899 $ 30,998 $ 7,922,143
Loan contracts 2,589,119 1,871,737 1,717,011 1,234,329 528,315 234,691 8,175,202
Advances to
dealers 3,875,233 3,462,894 2,278,480 751,143 330,037 -- 10,697,787
----------- ----------- ----------- ----------- ----------- ---------- -------------
$ 8,852,268 $ 6,985,593 $ 5,565,774 $ 3,633,557 $ 1,492,251 $ 265,689 $ 26,795,132
=========== =========== =========== =========== =========== ========== =============
</TABLE>
F-11
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
It is the Company's experience that generally a portion of the portfolios
are repaid before the contractual maturity dates. Accordingly, the above
tabulation is not to be regarded as a forecast of the timing of future cash
collections. Additionally, this tabulation assumes liquidation of the residual
values upon expiration of the leases.
4. Consumer Loans Receivable
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Loans receivable secured by:
Boats $ 442,856
Mobile homes 524,274
Other 1,365,886
----------
2,333,016
Less: Unearned purchase discount (841,322)
----------
Consumer loans receivable, net $1,491,694
==========
</TABLE>
The consumer loans receivable portfolio is diversified with a customer base
located primarily throughout the eastern United States. The portfolio is pledged
as security for the participations.
At December 31, 1994, contractual maturities of consumer loans receivable
are as follows:
<TABLE>
<S> <C>
Fully matured $ 800,067
1995 647,253
1996 263,736
1997 137,113
1998 93,741
1999 88,312
Thereafter 302,794
----------
$2,333,016
==========
</TABLE>
The fully matured loans totaling $800,067 were purchased by the Company at
a substantial discount and are considered non-performing at December 31, 1994.
The Company has a net investment of approximately $174,000 in these loans at
December 31, 1994.
It is the Company's experience that a portion of the portfolio is repaid
before the contractual maturity date. Accordingly, the above tabulation is not
to be regarded as a forecast of the timing of future cash collections.
F-12
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
5. Mortgage Loans Receivable
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Residential first mortgages $3,486,751
Residential second mortgages 2,554,713
----------
6,041,464
Less: Unearned purchase discount (1,218,797)
----------
Mortgage loans receivable, net $4,822,667
==========
</TABLE>
At December 31, 1994, contractual maturities of mortgage loans receivable
are as follows:
<TABLE>
<S> <C>
Fully matured $ 394,063
1995 651,789
1996 199,662
1997 266,894
1998 757,749
1999 148,542
Thereafter 3,622,765
----------
$6,041,464
==========
</TABLE>
The fully matured loans totaling $394,063 were purchased by the Company at
a substantial discount and are considered non-performing at December 31, 1994.
The Company has a net investment of approximately $93,000 in
these loans at December 31, 1994.
It is the Company's experience that generally a portion of the portfolio is
repaid before the contractual maturity dates. Accordingly, the above tabulation
is not to be regarded as a forecast of the timing of future cash collections.
At December 31, 1994, the loans had stated rates ranging from 6% to 18%,
and consisted of 58% and 42% of fixed-rate and adjustable-rate instruments,
respectively. The adjustable rate loans have interest rate adjustment
limitations and are generally indexed to average one-year U.S. Treasury Bill
rates. These loans are pledged as security for the participations.
F-13
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
6. Allowance for Possible Losses
Changes in allowance for loan losses for the years ended December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Balance at beginning of period $ 277,316 $ 277,316
Provision charged to operations 572,636 --
Loans charged off, net of recoveries (544,952) --
--------- ---------
Balance at end of period $ 305,000 $ 277,316
========= =========
</TABLE>
During March and May 1994, the Company purchased two loan portfolios for
approximately $3,400,000 at significant discounts. A substantial portion of
these portfolios was comprised of non-performing loans. An analysis performed
subsequent to these acquisitions regarding future collections on loans within
these portfolios which had fully-matured resulted in the net charge-off of a
portion of the purchase price ($457,000 in 1994). At December 31, 1994, the
Company has a net investment remaining of approximately $897,000 in these
portfolios.
7. Net Investment in Operating Leases
<TABLE>
<CAPTION>
December 31,
1994
-------------
<S> <C>
Vehicles held under operating
leases, at cost $1,283,300
Less: Accumulated depreciation (52,653)
------------
$1,230,647
============
</TABLE>
At December 31, 1994, future minimum rental revenue on operating leases
are as follows:
<TABLE>
<S> <C>
1995 $322,897
1996 307,326
1997 216,253
---------
$846,476
=========
</TABLE>
F-14
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
8. Property and Equipment
Property and equipment at December 31, 1994 consists of the following:
<TABLE>
<CAPTION>
Estimated
useful
Amount life
-------- ------------
<S> <C> <C>
Furniture, fixtures, and office equipment $ 646,899 5-7 years
Less: Accumulated depreciation (136,014)
------------
$ 510,885
============
</TABLE>
The Company leases office space under agreements which expire December
31, 2001.
The future minimum non-cancelable lease payments are as follows:
<TABLE>
<S> <C>
1995 $ 243,591
1996 253,300
1997 267,000
1998 280,876
1999 295,178
Thereafter 659,377
-----------
$ 1,999,322
===========
</TABLE>
F-15
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
9. Participations and Notes Payable
Participations and notes payable at December 31, 1994 consists of the
following:
<TABLE>
<S> <C>
Note payable under a $10 million (increased to $25 million in January 1995)
automobile loan and lease financing facility, interest due monthly at 5.5% over
LIBOR established and fixed at time of funding, (weighted average rate of 9.3%
at December 31, 1994) with General Electric Capital Corporation, secured by
certain automotive finance contracts. $ 11,019,914
Borrowing under participation arrangements with Fairfax Savings, a
Federal Savings Bank ("Fairfax"), interest at fixed rates ranging
from 10% to 12% (weighted average rate of 11.74% at December 31,
1994), principal and interest due monthly, secured by undivided
interests in automotive finance contracts, consumer loans receivable,
and mortgage loans receivable ranging from 80% to 95%. 9,321,395
Note payable under a $20 million restricted financing facility with
Congress Financial Corporation, interest due monthly at 2% over prime
rate (10.5% at December 31, 1994), secured by automotive finance
contracts, consumer loans receivable, and mortgage loans receivable. 977,123
Borrowing under participation arrangements with investors, secured by
undivided interests in automotive finance contracts, consumer loans receivable,
and mortgage loans receivable; interest at fixed rates ranging from 9% to 18%
(weighted average rate of 16% at December 31, 1994). 911,311
Unsecured note, interest at 25%, principal and interest payable monthly
through December 1995. 126,347
Unsecured note, non-interest bearing, payable in monthly installments of
$6,529 through February 1995, $100,000 balloon payment due March 1995. 105,012
Borrowing under participation arrangement with a stockholder, secured by
undivided interests in certain mortgage loans receivable, interest at a fixed
rate of 18%. 40,939
------------
$ 22,502,041
============
</TABLE>
F-16
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
The participation arrangements with Fairfax are accounted for as
collateralized borrowings. The agreements under the participation arrangements
specify the distribution of cash collections from the lease and loan
receivables. The order of distributions of cash flows received is as follows:
(1) Payment to Fairfax for principal and interest due on the
participations.
(2) Payment of any amounts payable to Fairfax which may have
arisen due to the Company's failure to perform its obligation under the
participation agreement, at which time Fairfax would have assumed and incurred
expenses to perform these responsibilities.
(3) An amount equal to 25% to 50% of the remaining cash balance, if any,
will be deposited into segregated interest bearing accounts at Fairfax (the
reserve accounts) until the balances in the reserve accounts equal 25% to 50% of
the principal balances of the participation agreements. The reserve accounts at
December 31, 1994 are included in the consolidated balance sheet as restricted
cash.
(4) Payment to the Company of the remaining cash in the operating account,
if any, including all payments and reimbursements due under the servicing
agreement.
The reserve accounts are pledged as additional collateral under the
agreements. Should the cash collections from the loan and lease receivables be
insufficient to pay Fairfax principal and interest due on the participation
arrangements, or to pay Fairfax for the cost of servicing obligations it may
assume under the agreements, any shortfall may be withdrawn from the reserve
accounts. Accordingly, any loss of Fairfax's participation principal and
interest is paid from the reserve account and is not absorbed by Fairfax.
Restricted cash pledged as additional collateral to Fairfax at December 31, 1994
amounted to $886,000.
The Company services the loan and lease receivables collateralizing the
participation arrangements, including payment collection and posting, contact
with customers, and repossession and disposal of collateral on defaulted
contracts.
The December 31, 1994 principal balance of automotive finance contracts,
mortgage loans receivable and consumer loans receivable subject to the
participation arrangements with Fairfax are as follows:
<TABLE>
<S> <C>
Automotive finance contracts $ 9,491,924
Mortgage loans receivable 3,971,526
Consumer loans receivable 760,624
-------------
$ 14,224,074
=============
</TABLE>
The weighted average coupon rate of the above was 15.23% at December 31,
1994.
F-17
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
Scheduled maturities of participations and notes payable at December 31,
1994 are as follows:
<TABLE>
<S> <C>
1995 $ 5,509,824
1996 4,379,141
1997 3,796,593
1998 3,495,428
1999 2,437,409
Thereafter 2,883,646
-------------
$ 22,502,041
=============
</TABLE>
Since the repayment of the above debt is directly related to the timing of
the future cash collections of the loan and lease receivables, the above
schedule of maturities may not be representative of the actual repayments. The
above schedule of maturities excludes the balances held in the reserve accounts.
The Company must maintain certain net worth ratios based on covenants
within one of its debt agreements.
10. Stockholders' Equity
On April 30, 1993, the Company redeemed 5,928 shares of common stock held
by First Trustmark ("FTM") for $2,400,000 which, in management's opinion, did
not exceed the fair value of the shares. A portion of the proceeds was applied
to the cancellation of the receivable due from FTM to the Company. In addition,
FTM agreed that the Company will file a consolidated tax return with FTM through
April 30, 1993. Due to FTM's tax net operating loss carryforwards, $1,900,000 of
the accrued income taxes recorded by the Company through date of redemption was
treated as a capital contribution in 1993.
On April 30, 1993, the Company exchanged 214 shares of its stock for 10%
minority interest in NAC.
In October 1993, the president and chief executive officer of the Company,
who is also a stockholder, purchased all outstanding shares not previously owned
by him to give him 95% ownership in the Company. The president of NAC owned the
remaining 5%. In connection with this transaction, the stockholder executed a
note in favor of the Company; the note bore interest at 5% and was due September
30, 1995. In June 1994, the Company redeemed 2,143 shares of its common stock
from this stockholder by cancelling the note.
Merger
In accordance with the terms of the Merger, of the 3,160,000 shares of
common stock issued to the Company's stockholders, 400,000 shares issued to
certain directors and officers were
F-18
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
placed in a Voting Trust under the terms of a Voting Trust Agreement. The
Voting Trust provides that, on any matter requiring stockholder vote, the
trustee will vote the shares in the same percentage as the other then issued and
outstanding shares of common stock are voted. Such shares may be released from
the Voting Trust pursuant to the following earn-out formula. Based upon the
Company's audited financial statements for the years ending December 31, 1995,
1996, and 1997, 10,000 shares will be released for each $150,000 of cumulative
net income after taxes the Company earns up to $3,000,000, and 5,000 shares will
be released for each $150,000 of cumulative net income after taxes in excess of
$3,000,000, less the number of shares previously released under this formula.
Any shares not released within three years will be cancelled. As the earnings
objectives of the Voting Trust are attained, compensation expense will be
recognized for the market value of the related shares to be released, pursuant
to the earn-out provisions contained in the Voting Trust. The shares held in the
Voting Trust have been excluded from the computation of primary earnings per
share, but have been included in the calculation of fully diluted earnings per
share.
Concurrent with the completion of the Merger, certain stockholders entered
into a Shareholders' Agreement whereby the stockholders agreed, among other
provisions, for the election of eight directors, two of which will be
independent directors. The Shareholders' Agreement also provides certain
limitations on transactions involving the stockholders' shares.
Stock Option Plan
The Company has adopted a stock option plan (the "Plan") which covers
600,000 shares of the Company's common stock. Under the terms of the Plan,
officers, directors, key employees and consultants of the Company are eligible
to receive incentive as well as non-qualified stock options and stock
appreciation rights. Incentive stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Company's common
stock on the date of the grant. For any stockholder owning more than 10% of the
outstanding common stock, incentive stock options are exercisable for a period
of up to five years from the date of grant at an exercise price which is not
less than 110% of the fair market value of the Company's common stock on the
date of the grant. Non-qualified stock options and stock appreciation rights may
be granted on terms determined by the Company's Board of Directors. Stock
appreciation rights give the holder the privilege of surrendering such rights
for the appreciation in the Company's common stock between the time of grant and
surrender.
Effective December 15, 1994, the Company granted 280,000 options under the
Plan, 150,000 to non-management employees and 130,000 to members of management
of the Company. The options granted to non-management employees carry an
exercise price of
F-19
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
$6.00 with an expiration date of December 15, 2004. These options vest
after three years. The options granted to management carry exercise prices
ranging from $6.00 to $6.60 with expiration dates of December 15, 1999 -
December 15, 2004. These options vest on a pro-rata basis over periods of three
to four years, and may be exercised only if the employee is employed by the
Company at the time of exercise, and the Company has achieved specific earnings
goals for the applicable year.
11. Income Taxes
The components of the provision for income taxes for the years ended
December 31, 1994 and 1993, consist of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Current tax expense:
Federal $ 231,591 $ 649,115
State 43,981 103,287
--------- ---------
275,572 752,402
--------- ---------
Deferred tax benefit:
Federal (10,390) (375,605)
State (1,839) (42,926)
--------- ---------
(12,229) (418,531)
--------- ---------
Total provision for income taxes
including extraordinary item 263,343 333,871
Benefit from extraordinary item -- 188,745
--------- ---------
Total provision for income taxes
excluding extraordinary item $ 263,343 $ 522,616
========= =========
</TABLE>
The income tax provision differs from the amount determined by multiplying
pre-tax income by the statutory federal income tax rate. The reconciliation
between the expected tax provision and the actual tax provision is as follows:
<TABLE>
<S> <C> <C>
Income taxes at statutory rate 223,606 $462,281
State taxes 27,814 47,219
Other 11,923 13,116
-------- --------
Provsion for income taxes $263,343 $522,616
======== ========
</TABLE>
F-20
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
The net deferred income tax liability as of December 31, 1994, is comprised
of the following temporary differences:
<TABLE>
<S> <C>
Deductible Temporary Differences
Deferred gain on sale of loan portfolio $ 89,392
Depreciation 2,400,978
Bad debt reserves 114,772
Other 7,189
----------
Deferred income tax asset 2,612,331
----------
Taxable Temporary Differences
Direct financing leases (2,709,132)
Capitalized loan costs (13,659)
----------
Deferred income tax liability (2,722,791)
----------
Net Deferred income tax liability $ (110,460)
==========
</TABLE>
12. Related Party Transactions
An affiliate provided executive and financial services to the Company
during 1994 and 1993. The Company reimbursed the affiliate $675,000 and $600,000
for the years ended December 31, 1994 and 1993, respectively, for these services
under a consulting agreement. The consulting agreement includes providing advice
on the purchase and sale of consumer loan and lease portfolios and financing
arrangements. Under the terms of the agreement, the Company pays the affiliate a
fee of $50,000 per month through March 1995. During 1994, the Company prepaid
the remaining amounts due under the contract at a $75,000 discount. The
unamortized portion of the payment in the amount of $131,000 is included in
prepaid expenses at December 31, 1994.
In October 1994, the Company sold a repossessed boat to an officer of the
Company in consideration for a note in the amount of $89,000 and the offset by
the Company of a $21,000 payable to the officer. The note bears interest at an
annual rate of 10% and is payable in October 1995.
On November 30, 1994, the Company sold a portfolio of 14 loans with a total
principal balance of $1.1 million to the president and chief executive officer
of the Company for a price of $591,000. These loans were included in a portfolio
purchased during 1994 at a significant discount. The portion of the purchase
price allocated to the loans sold approximated the sales price to the officer;
therefore, no gain or loss was recognized on the sale. The Company sold these
loans at a purchase price based on the estimated discounted cash flows
F-21
<PAGE>
NAL Financial Group Inc.
Notes to Consolidated Financial Statements
December 31, 1994
- --------------------------------------------------------------------------------
anticipated on the specific loans purchased. This is the same method the Company
uses to value all its bulk portfolio acquisitions. The sales price of the loans
of $591,000 offset $591,000 of a previously established liability owed by the
Company to the officer for bonuses and dividends. The Company continues to
service the loans for the officer.
Upon completion of the Merger, the Company entered into an employment
agreement (the "Agreement") with the president and chief executive officer of
the Company. The Agreement provides for a base salary of $275,000 per year plus
discretionary bonuses, as approved by the Board of Directors, in addition to
certain benefits. The Agreement is renewable annually for successive three year
periods; however, the president may terminate the Agreement upon written notice
the earlier of one year from the date of such notice or 90 days after his
replacement has been hired by the Company. The president may not terminate the
Agreement prior to three years from the date of the Agreement.
The Company provided payroll services to an affiliated company during 1994
under an agreement by which the affiliate reimburses the Company for payroll
advances. During 1994 the Company advanced the affiliate approximately $66,000
for payroll. At December 31, 1994, the Company had a receivable of $24,000 due
from this affiliate for advances.
The consolidated balance sheet at December 31, 1994 includes $715,965 of
related party receivables less $778,459 of related party payables.
13. Employee Benefits
The Company sponsors a 401(k) savings plan covering most employees.
Contributions made by the Company to the 401(k) plan are based on a specified
percentage of employee contributions. Total Company contributions were $22,787
and $38,117 for the years ended December 31, 1994 and 1993, respectively.
14. Litigation
The Company is involved in various litigation matters arising in the normal
course of business. Legal counsel's and management's assessment are that none of
these matters are anticipated to have a material adverse impact on the financial
position or results of operations of the Company.
15. Subsequent Events
In January 1995, the Company purchased a $1,800,000 automobile loan
portfolio at a purchase price of approximately $1,500,000, funded partially by
the facility with Congress Financial Corporation.
In March 1995, the Company commenced the private placement of $3,000,000 of
convertible subordinated debentures offered in debenture units. Each debenture
unit consists of $500,000 principal amount 9% convertible subordinated debenture
and 50,000
F-22
<PAGE>
warrants. The debentures mature the earlier of one year or the completion
of a "financing transaction", as that term is defined in the Confidential
Private Offering Memorandum. Each warrant entitles the warrant holder to
purchase one share of the Company's common stock for a three-year period
at an exercise price of $9.00 per share. Through March 29, 1995, the
Company has received $1,485,000 in connection with the offering.
F-23
<PAGE>
NAL FINANCIAL GROUP INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Net loan and lease receivables $102,335,591 $30,289,290
Reserve for credit losses (3,057,193) (501,806)
------------ ------------
Net receivables 99,278,398 29,787,484
Cash and cash equivalents 473,348 664,848
Restricted cash 862,406 1,061,041
Net investment in operating leases 3,318,035 1,230,647
Returned automobile inventory, net 2,483,616 150,779
Debt issue costs, net 887,682 214,112
Property and equipment, net 1,096,538 510,885
Accrued interest receivable 1,370,390 167,692
Other assets, net 2,435,895 534,058
------------- ------------
Total assets $112,206,308 $34,321,546
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings:
Lines of credit and
warehouse facilities $31,732,937 $11,997,037
Debt participation interests 47,143,939 10,273,644
Convertible subordinated
debentures 8,065,965 ---
Other 34,575 231,359
------------- ------------
Total borrowings 86,977,416 22,502,040
Accounts payable and accrued
expenses 251,513 400,057
Security deposits 698,814 344,834
Accrued income taxes 432,950 110,460
Other liabilities 1,963,225 45,854
Due to shareholder 853,514 62,494
----------- ------------
Total liabilities 91,177,432 23,465,739
----------- ------------
Stockholders' equity
Preferred stock, S1,000 par value,
10,000,000 shares authorized,
no shares issued --- ---
Common stock, $.15 par value,
50,000,000 shares authorized,
6,550,347 and 5,592,968 shares
issued and outstanding at
September 30, 1995 and December
31, 1994, respectively 982,552 838,945
Paid in capital 17,443,384 8,483,714
Retained earnings 2,602,940 1,533,148
----------- -----------
Total stockholders' equity 21,028,876 10,855,807
----------- -----------
Total liabilities and
stockholders' equity $112,206,308 $34,321,546
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
NAL FINANCIAL GROUP,INC.
Consolidated Condensed Statements of Operations
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 10,400,092 $ 2,020,177 $ 4,696,974 $ 583,928
Purchase discount
accretion 599,289 1,800,676 178,892 629,982
Gain on sale of
loan pools 127,673 2,137,024 127,673 697,262
Other income 1,241,140 239,833 876,510 118,302
------------ ------------ ------------ ------------
12,368,194 6,197,710 5,880,049 2,029,474
============ ============ ============ ============
EXPENSES
Interest expense 4,636,356 1,409,926 2,132,943 536,733
Operating expenses 4,514,227 3,683,617 2,056,174 1,445,123
Provision for
credit loss 1,412,138 355,548 709,362 221,026
Compensation expense
related to a Voting
Trust Arrangement
(Note 4) 80,000 -- -- --
------------ ------------ ------------ ------------
10,642,721 5,449,091 4,898,479 2,202,882
------------ ------------ ------------ ------------
Income (loss)
before provision
for taxes 1,725,473 748,619 981,570 (173,408)
Provision (credit)
for taxes 655,680 293,864 372,998 (65,727)
------------ ------------ ------------ ------------
Net Income (Loss) $ 1,069,793 $ 454,755 $ 608,572 ($ 107,681)
============ ============ ============ ============
PER SHARE DATA
Earnings per share:
Primary $ .18 $ .09 $ .10 S(.02)
Fully diluted .18 .08 .10 (.02)
Weighted average number
of shares outstanding:
Primary 5,875,228 5,192,968 6,144,997 5,192,968
Fully diluted 6,013,263 5,592,968 6,340,921 5,592,968
</TABLE>
F-25
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NAL FINANCIAL GROUP INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,069,793 $ 4S4,755
Adjustments to reconcile net income to
cash provided by operating activities:
Accretion of purchase discount (599,289) (1,800,676)
Provision for credit losses 1,412,138 355,548
Depreciation and amortization 690,901 223,607
Gain on sale of loan pools (127,673) (2,137,024)
Non-cash charge related to Voting
Trust Arrangement 80,OOO --
Changes in assets and liabilities:
Payments received on receivables 31,788,300 15,412,737
Other, net 112,469 824,256
----------- -----------
Net cash provided by operating
activities 34,426,639 13,333,203
----------- -----------
Cash flows from investing activities:
Proceeds from sale of loan pools 1,622,723 15,173,690
Purchase of receivables (108,875,869) (21,732,535)
Purchase of property and equipment (688,907) (162,054)
----------- -----------
Net cash used in investing activities (107,942,053) (6,720,899)
----------- -----------
Cash flows from financing activities:
Net proceeds from financings 111,093,651 19,969,537
Repayments of financings (40,661,708) (25,768,637)
Issuance of common stock 2,100,950 --
Note payable from shareholder 791,021 --
Payment of dividends -- (618,000)
----------- -----------
Net cash provided by (used in)
financing activities 73,323,914 (6,417,100)
----------- ------------
Net (decrease) increase in cash
and cash equivalents (191,500) 195,204
Cash and cash equivalents,
beginning of year 664,848 96,009
----------- -----------
Cash and cash equivalents,end of year $ 473,348 $ 291,213
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period for interest $3,964,533 $1,204,499
========== ==========
Cash paid during period for taxes $ 345,648 $ 302,660
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-26
<PAGE>
NAL Financial Group Inc.
Notes To Consolidated Financial Statements
September 30, 1995
1. BASIS OF PRESENTATION
The interim financial information of NAL Financial Group Inc. (the
"Company"), which is included herein, is unaudited and has been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. In the opinion of
management, these interim financial statements include all the adjustments
necessary to fairly present the results of the interim periods and all such
adjustments are of a normal recurring nature. The interim financial statements
presented herein include the accounts of the Company and its wholly-owned
subsidiaries and should be read in conjunction with the audited financial
statements, and the footnotes thereto, for the year ended December 31, 1994.
Certain 1994 amounts have been reclassified to conform with the current year
presentation.
Operating results for the nine and three month periods ended September 30,
1995 are not necessarily indicative of the results which may be expected for the
year ended December 31, 1995.
2. ORGANIZATION AND NATURE OF OPERATIONS
The Company commenced operations in June 1991 as a specialized finance
company for the purpose of engaging in consumer finance transactions involving
the origination, purchase, remarketing and servicing of consumer loan and lease
receivables. Since June 1994, the Company's principal business has been the
acquisition and servicing of automotive loans and leases originated by dealers
in connection with sales or leases to individuals with sub-prime credit.
On November 30, 1994, the Company merged with Corporate Financial Ventures,
Inc. ("CFVI"), a public company (the "Merger"). Under the terms of the Merger,
the Company's stockholders received 3,160,000 shares of CFVI in exchange for all
outstanding shares of stock of the Company. Stockholders of the Company received
approximately 56% of the outstanding common stock of CFVI. The Merger has been
accounted for as a reverse acquisition of the Company. Upon completion of the
Merger, CFVI assumed the historic operations of the Company and changed its name
to NAL Financial Group Inc. The operations of CFVI prior to the Merger were not
significant.
F-27
<PAGE>
3. LOAN AND LEASE RECEIVABLES
Loan and lease receivables as of September 30, 1995 and December 31, 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Automotive finance contracts
Gross contracts receivable $ 104,556,879 $ 26,795,132
Less: Unearned interest (6,277,920) (2,004,435)
Deferred acquisition fees (105,485) --
Unamortized acquisition discount -- (815,768)
------------- -------------
98,173,474 23,974,929
Consumer contracts receivable
Gross contracts receivable 3,087,354 2,333,016
Less: Unearned interest (435,030) --
Unamortized acquisition discount (351,349) (841,322)
------------- -------------
2,300,975 1,491,694
Mortgage loans receivable
Gross loans receivable 2,545,423 6,041,464
Less: Unamortized acquisition discount (684,281) (1,218,797)
------------- -------------
1,861,142 4,822,667
------------- -------------
Net loan and lease receivables $102,335,591 $30,289,290
============= =============
</TABLE>
The reserve available for credit losses consists of an allowance for losses
established through a provision from earnings, non-refundable contract
acquisition discounts on automotive finance contracts purchased from dealers,
and refundable reserves such as dealer holdback. Prior to the end of the third
quarter of 1995, the Company amortized the non-refundable acquisition discount
to income over the life of the related receivables as an enhancement of yield.
However, beginning with the fourth quarter of 1995, management has decided to
cease amortization and allocate the entire non-refundable acquisition discount
to the reserve available for credit losses.
The following table sets forth the components of the total reserve
available for credit losses as of September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Non-refundable acquisition discount, net $1,890,234 ---
Allowance for credit losses 572,955 $ 305,000
Dealer holdback 594,004 196,806
---------- ----------
Total reserve available for credit losses $3,057,193 $ 501,806
========== ==========
</TABLE>
F-28
<PAGE>
4. VOTING TRUST ARRANGEMENT
Of the 3,160,000 shares of the Company's common stock received by certain
stockholders in conjunction with the merger of the Company in November 1994,
400,000 shares were placed into a voting trust arrangement by which shares may
be released on an annual basis pursuant to a formula tied to net income earned
by the Company. Any shares not released from the arrangement at the end of three
years will be canceled.
Management has evaluated the accounting treatment relating to the potential
release of the shares under the arrangement using recent accounting guidance and
the relevant facts and circumstances, and has determined that the potential
release of approximatly 340,000 shares of the total amount of shares held
under the arrangement is not compensatory. The potential release of the
remaining 60,000 shares is considered compensatory based on the relevant facts
and circumstances, and accordingly, an expense will be reflected for financial
reporting purposes as these shares become eligible for release. This expense
will be a non-cash charge and will not affect working capital or total
stockholders' equity.
Accordingly, compensation expense of $80,000 has been recorded for the nine
months ended September 30, 1995 for the portion of the 60,000 shares that have
become eligible for release under the agreement.
F-29
<PAGE>
<PAGE>
No dealer, salesperson or other person has been authorized in connection with
this offering to give any information or to make any representations other than
those contained in this Prospectus. This Prospectus does not constitute an offer
or a solicitation in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the circumstances of the Company or the facts
herein set forth since the date hereof.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................................................................................................................3
The Company........................................................................................................................3
The Offering.......................................................................................................................4
Summary Financial
Information......................................................................................................................7
Risk Factors.......................................................................................................................9
Use of Proceeds...................................................................................................................17
Market for Common Equity
and Related Stockholder
Matters.........................................................................................................................18
Capitalization....................................................................................................................19
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations......................................................................................................................19
Business of the Company...........................................................................................................43
Management........................................................................................................................63
Certain Transactions..............................................................................................................71
Principal Stockholders............................................................................................................75
Description of Securities.........................................................................................................78
Selling Security Holders..........................................................................................................85
Plan of Distribution..............................................................................................................87
Legal Matters.....................................................................................................................88
Statement of Indemnification......................................................................................................88
Experts...........................................................................................................................89
Additional Information............................................................................................................89
Financial Statements.............................................................................................................F-1
</TABLE>
253,009 Shares of Common Stock
offered by certain
Selling Security Holders
NAL FINANCIAL GROUP INC.
-------------------
P R O S P E C T U S
-------------------
-----------------
December __, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company has adopted the provisions of Section 102(b)(7) of the
Delaware General Corporation Law (the "Delaware Act") which eliminate or limit
the personal liability of a director to the Company or its stockholders for
monetary damages for breach of fiduciary duty under certain circumstances.
Furthermore, under Section 145 of the Delaware Act, the Company may indemnify
each of its directors and officers against his expenses (including reasonable
costs, disbursements and counsel fees) in connection with any proceeding
involving such person by reason of his having been an officer or director to the
extent he acted in good faith and in a manner reasonably believed to be in, or
not opposed to the best interest of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The determination of whether indemnification is proper under the
circumstances, unless made by a court, shall be determined by the Board of
Directors.
Reference is made to Item 28 for the undertakings of the Registrant
with respect to indemnification of liabilities arising under the Securities Act
of 1933, as amended (the "Act").
Item 25. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
<TABLE>
<S> <C>
S.E.C. Registration Fee................................................................................. $ 22,583
Printing and Engraving.................................................................................. 15,000
Accountants' Fees and Expenses.......................................................................... 15,000
Blue Sky Filing Fees and Expenses....................................................................... N/A
Legal Fees and Expenses................................................................................. 47,417
========
TOTAL:......................................................................................... $100,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities
1. In December 1993, the Company sold 143,333 post-split shares of
Common Stock, to Discretionary Investment Trust dated July 7, 1993 in
consideration for the purchase price of $100,000 plus certain valuable services
rendered. This sale was undertaken as a private placement transaction exempt
under Section 4(2) of the Act, as a transaction by an
issuer not involving a public offering.
2. During October 1994, the Company sold 714,999 shares of Common
Stock, $.15 par value, in private placement transactions exempt under Section
II-1
<PAGE>
4(2) of the Act, as a transaction by an issuer not involving a public
offering, as set forth below.
<TABLE>
<CAPTION>
Number of Shares
Name of Common Stock Consideration
- ---- --------------- -------------
<S> <C> <C>
Audley International
Investments Limited 300,000 $48,600
American Maple Leaf
Financial
Corporation 333,333 $19,999
Ernest and Kathy
Bartlett 19,166 $ 3,105
Kenneth A. Rosen 43,334 $ 7,020
SPH Investments
P/S Plan f/b/o
Stephen P.
Harrington 19,166 $ 3,105
</TABLE>
3. During November and December 1994, the Company sold 1,549,667 shares
of Common Stock, $.15 par value, to accredited and sophisticated investors in a
private placement transaction exempt from registration pursuant to Rule 506 of
Regulation D. In connection with this transaction, brokerage commissions of
$539,370 (6.5%) were paid. The following individuals purchased shares at $6.00:
<TABLE>
<CAPTION>
Number of Shares
Name of Common Stock
- ---- -----------------
<S> <C>
Allen, Alvin 10,000
Alperin, David 3,375
Alperin, Judith 2,500
Alu, James M. 9,000
Angiuli, Nick 154,696
Apothaker, Jonathan 875
Beckerman, Sam 3,500
Bellino, Michael/Supnick, Richard 2,500
Steven R. Blecker TTEE for Athanacia Bell Trust 4,000
Steven R. Blecker TTEE for Elizabeth Bell Trust 4,000
Block, Charles 2,500
Borenstein, Howard 2,500
Brennan, Quinn 3,375
The Bridge Fund 8,500
Brown Valet, Inc. 5,250
Button, Richard 7,000
Buck, Paul 5,000
Cantor, Michael 30,000
Chaiken, Carl 875
Cohen, Bernard 6,000
Cohen, Susan 2,500
II-2
<PAGE>
Colon, Jose F. 13,000
Costa, Neil and Ahrens, Lynne JTWROS 14,500
Cox, J. Douglas 3,500
Cox, Kathryn Retirement Trust 3,500
Diamond Import Group 3,500
Diversified Securities Fund I, L.P. 3,500
Eugene M. Eisner MD PA Pension Trust 5,000
Fabrikant, Martin 2,500
Feldman, Joel & Shirley, JTWROS 1,750
Flam, Robert M. 5,000
Foreman, Michael 3,000
Frankel, Richard 10,000
Garnick, Michael 100,000
Garnick, Richard 1,250
Gates, Andrew and Gloria 1,750
Genack, Menachem 875
GiroCredit Bank (Switzerland) A.G. 17,500
Goldberg, Paul 3,500
Goldberg, Robert Theodore 3,500
Goldberg, Sheldon E. & Toni A. 2,500
GOP Partners 17,000
Henderson, Marilyn 7,000
Hess, Julie 5,000
Hollander, Bernard 3,500
Interbanc Mortgage Services, Inc. 33,000
Jackenthal, Herb 875
Jeddi Limited 25,000
Joseph, Gerson 5,000
Josephart, Herbert Employee Defined
Benefit Pension Plan dtd 1/1/91
Herbert and Marcia Josephart TTEES 5,000
JRJ, Inc. 13,000
Kaplan, Charles 875
Kaplan, Susan 2,500
Karp, Florence c/f Penelope Karp and Athena Karp 12,500
Kaufman, Richard and Adrienne JTWROS 1,500
Lambert, Terrence 2,500
Lilly, Richard M. 2,000
Linsker, Rita 3,500
Love, Douglas 5,000
Lucas, Russell 2,500
Luongo, Michael 875
Manheimer, Marvin 2,500
Marks, Mitchell 12,500
Masucci, Robert N., II 875
McCabe, William Dennis III 2,500
Miller, Alan I. 50,000
Miller, Marc 5,000
Moorman, Jeffrey 3,500
Moriuchi, Takashi B. 875
Morgenstern, Richard 4,000
Mousaieff, Yoram 7,000
MRS Investments 37,500
II-3
<PAGE>
Najmy, Joseph 3,500
Nedwick, Robert & Barbara JTWROS 6,000
Pacht, Harvey & Joan 3,500
Prevor Marketing International Inc. 4,000
Rabin, Jeffrey 50,000
Rachenbach, Jack L. 3,500
Rauseo, Mark 2,500
Rehcam Investments, LP 4,500
Rehcam Investments, NV 4,500
Reiff, Geraldine ttee, Carol Reiff Gottlieb
Co-ttee f/b/o Geraldine Reiff UAD 1/2/91 5,000
Rice, Howard T. Revocable Trust 3/10/76
Howard T. Rice TTEE 3,500
Rice, Irving & Elaine, JTWROS 3,500
Rogoff, Ellen 1,750
Rogoff, Les 7,000
Rosen, Joseph 3,334
Rosen, Kenneth A. 16,666
Rosen, Kenneth A. Pension Plan 20,000
Rosner, Anita 2,500
Sato, Ken 4,500
Schoenbaum, Jeff 10,000
Schnell, David 5,000
Schraub, Howard 10,658
Scinicariello, M. 3,500
Serota, Marvin & Marsha 3,500
SGA Trading Corp. 4,000
Shapiro, Allan 10,000
Shotz, Steven & Barbara 3,500
Shrem, Bella 7,000
Sibco Partners 3,500
Silverman, Eugene 7,000
Slovin, Gilbert 438
Slovin, Joel 875
Smolen, Eric 6,000
Sorrentino, Andrew 5,250
Staller, Jerome 15,000
Stanley, Michael 5,000
Strassberg, David 5,000
Tupper, Ronald W. 25,000
Van Brunt, Dwight S. 5,000
Ward, Dean 4,250
Wray, Paul & Herron, Diane JTWROS 16,000
Yanni, Louis 2,500
</TABLE>
II-4
<PAGE>
The following individuals purchased shares at $4.00:
<TABLE>
<S> <C>
Jeffrey I. Binder
& Rosalie Binder 250,000
George A. Levin
& Gayla Sue Levin 250,000
</TABLE>
4. As of November 30, 1994, the Company issued a total of 3,160,000
shares of Common Stock, $.15 par value, to the stockholders set forth in the
table below in consideration for the exchange of 100% of the stock of NAL
Financial Group Inc., a Florida corporation.
<TABLE>
<CAPTION>
Shares of
Name Common Stock
- ---- ------------
<S> <C>
Edward M. Bartolini 50,000
Marcia G. Bartolini and Robert R.
Bartolini as co-trustees of the Marcia
G. Bartolini Revocable Trust dated July
27, 1992 264,022
Robert R. Bartolini and Marcia G.
Bartolini as co-trustees of the Robert
R. Bartolini Revocable Trust dated July
27, 1992 2,212,180
Robert J. Carlson 60,196
George Schnabel as trustee of the Robert
R. Bartolini and Marcia G. Bartolini
Irrevocable Trust dated July 27, 1992 264,022
John T. Schaeffer 309,580
</TABLE>
The issuance of such shares was exempt from registration pursuant to
Section 4(2) of the Act, as a transaction by an issuer not involving a public
offering.
5. During the period from April 1995 to September 1995, the Company
sold $15,400,000 of 9% Convertible Subordinated Debenture Units in a private
placement transaction exempt under Section 506 of Regulation D and Section 4(2)
of the Act, as a transaction by an issuer not involving a public offering, as
set forth below. Each Unit consists of a 9% Convertible Subordinated Debenture
and common stock purchase warrants as set forth below. In connection with this
transaction, brokerage commissions of $829,000 were paid.
II-5
<PAGE>
<TABLE>
<CAPTION>
Amount of Number of
Name Debenture Warrants
- ---- --------- --------
<S> <C> <C>
American Maple Leaf $1,200,000 120,000
Financial
Corporation
Gerald Appel $25,000 1,250
Capital Growth $50,000 5,000
Investment
Trust
Centaur Financial $100,000 10,000
Corp.
Discretionary $900,000 90,000
Investment
Trust dated July
7, 1993
Diversified $100,000 5,000
Securities Fund I,
L.P.
Equity Associates $50,000 5,000
Corp.
FAC Enterprises $750,000 75,000
Bruce Ginsburg $250,000 25,000
GRA Investments, $1,550,000 155,000
Corp.
Florence Karp as c/f $750,000 75,000
Penelope Karp,
Athena Karp,
Justine Karp, and
Ulysses Karp
Florence Karp $3,000,000 375,000
as c/f Penelope
and Athena Karp
Michael Garnick $300,000 12,000
HMA Investments, Inc. $600,000 60,000
Profit Sharing
f/b/o
Howard Appel
Provence Holdings $625,000 56,250
Steven B. Rosner $250,000 25,000
II-6
<PAGE>
Steven B. Rosner $150,000 15,000
Money Purchase
Pension Plan
Rozel International $1,750,000 175,000
Holdings Limited
Martin Solomon $2,000,000 80,000
TGP Associates
Limited Partnership $1,000,000 40,000
</TABLE>
6. During May 1995 and September 1995, the Company issued 190,000
Common Stock purchase Warrants in connection with certain financial advisory
services provided, as follows:
<TABLE>
<CAPTION>
Name Number of Warrants Date of Grant
- ---- ------------------ -------------
<S> <C> <C>
American Maple Leaf 33,000 May 4, 1995
Financial Corporation
Ernest & Kathy 15,000 May 4, 1995
Bartlett
Centaur Financial 33,000 May 4, 1995
Corporation
FAC Enterprises, Inc. 50,000 August 28, 1995
25,000 September 14, 1995
34,000 May 4, 1995
</TABLE>
7. During August 1995, the Company sold 176,500 shares of Common Stock
in an offshore offering at a purchase price of $12.30 per share, for an
aggregate purchase price of $2,160,000 as set forth below. In connection with
this transaction, brokerage commissions of $70,000 were paid.
<TABLE>
<CAPTION>
Shares of
Name Common Stock
- ---- ------------
<S> <C>
Everest Capital Investment, Ltd. 79,295
Everest Capital International, Ltd. 98,205
</TABLE>
The issuance of such shares was exempt from registration pursuant to Regulation
S promulgated under the Act.
II-7
<PAGE>
Item 27. Exhibits
The following Exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Method of
Exhibit No. Description Filing
- ----------- ----------- ---------
<S> <C> <C>
2.1 Merger Agreement Incorporated by
between the reference to
shareholders of NAL Exhibit 2.1 to
Financial Group Inc., the Registrant's
NAL Financial Group Form 8-K filed under
Inc., and the the Securities
Registrant dated Exchange Act of
October 4, 1994 and 1934 on December
as amended, 8, 1994
November 30, 1994 (the "Form 8- K")
3.1 Certificate of Incorporated by reference
Incorporation of to Exhibit 3.1
Registrant, as to the Registrant's
amended December 1, Registration Statement
1994 on Form SB-2 filed
under the Securities
Act of 1933 on
January 31, 1995,
Registration
No. 33-88966
(the "Registration
Statement")
3.2 By-laws of the Incorporated by
Registrant as amended reference to
as of November 30, Exhibit 3.2 to
1994 the
Registration
Statement
II-8
<PAGE>
4.1 Copy of Specimen Incorporated by
Common Stock reference to
Certificate Exhibit 4.1 to
the
Registration
Statement
4.2 Form of 9% Incorporated
Subordinated by reference to
Convertible Debenture Exhibit 4.2 to
Amendment No. 1
to the
Registration
Statement on
Form SB-2,
Registration
No. 33-97948,
filed on
October 25,
1995
("Amendment No.
1 to the
October 1995
Registration
Statement")
4.3 Form of Common Stock Incorporated
Purchase Warrant by reference to
Exhibit 4.3 to
Amendment No. 1
to the October
1995
Registration
Statement.
4.4 Form of Registration Incorporated
Rights Agreement by reference to
Exhibit 4.4 of
Amendment No. 1
to the October
1995
Registration
Statement.
5.1 Opinion of Clark, Filed
Ladner, Fortenbaugh & herewith
Young
9.1 Voting Trust Incorporated by
Agreement by and reference to
among English, Exhibit 2.2 to
McCaughan & O'Bryan, the Form 8-K
P.A., John T.
Schaeffer, Robert J.
Carlson and The
Robert R. Bartolini
Trust, dated November
30, 1994
II-9
<PAGE>
10.1 Shareholders' Incorporated by
Agreement by and reference to
among Robert J. Exhibit 2.3 to
Carlson, John T. the Form 8-K
Schaeffer, The Robert
R. Bartolini Trust,
The Marcia G. Barto-
lini Trust, The
Schnabel Trust,
Jeffrey Binder and
George Levin
10.2 Loan and Security Incorporated by
Agreement between reference to
Congress Financial Exhibit 10.2
Corporation and the to the
Registrant dated Registration
March 16, 1993 Statement
10.3 Program Agreement Incorporated by
between NAL reference to
Acceptance Exhibit 10.3 to
Corporation and the Registrant's
General Electric Registration
Capital Auto Lease, Statement on
Inc. dated July 1, Form SB-2 filed
1995 under the
Securities Act
of 1933 on
October 10,
1995,
Registration
No. 33-97948
(the "October
1995
Registration
Statement")
II-10
<PAGE>
10.4 Amended and Restated Incorporated by
Loan and Security reference to
Agreement between Exhibit 10.4 to
General Electric the
Capital Corporation Registration
and NAL Acceptance Statement
Corporation dated
September 28, 1994
10.5 Loan Purchase Incorporated by
Agreement between reference to
Fairfax Savings Bank Exhibit 10.5
and the Registrant to the
dated October 6, 1994 Registration
Statement
10.6 Participation Incorporated by
Agreement between reference to
Fairfax Savings, Exhibit 10.6 to
FSB and NAL Acceptance the
Corporation dated Registration
December 14, 1993 Statement
II-11
<PAGE>
10.7 Employment Agreement Incorporated by
by and between the reference to
Registrant and Exhibit 10.7
Robert R. Bartolini to Amendment
dated November 30, 1994 No. 1 to the
Registration
Statement
filed April 12,
1995 ("Amendment
No. 1")
10.8 Lease Agreement by Incorporated by
and between NAL reference to
Acceptance Corporation Exhibit 10.8 to
and The Northwestern Amendment No. 1
Mutual Life Insurance
Company dated October
2, 1991, as modified by
Lease Modification
Agreement #1 dated
February 18, 1994 and
Lease Modification
Agreement #2 dated
January 20, 1995
10.9 Lease Agreement by Incorporated by
and between NAL reference to
Acceptance Corporation Exhibit 10.9 to
and The Northwestern Amendment No. 1
Mutual Life Insurance
Company dated June 7,
1994 as modified by Lease
Modification Agreement #1
dated June 28, 1994,
Lease Modification
Agreement #2
dated December 1, 1994
and Lease Modification
Agreement #3 dated
January 20, 1995
II-12
<PAGE>
10.10 Modification Incorporated by
Agreement # 4 reference to
dated July 1, 1995 Exhibit 10.10
to Lease Agreement to the October
by and between 1995
NAL Acceptance Registration
Corporation and the Statement
Northwestern Mutual
Life Insurance Company
dated June 7, 1994.
10.11 Sublease Agreement by Incorporated by
and between NAL reference to
Acceptance Exhibit 10.10
Corporation and FTM to Amendment
Holdings, Inc. dated No. 1
March 30, 1994
10.12 Sublease Agreement by Incorporated by
and between the reference to
Registrant and FTM Exhibit 10.11
Holdings, Inc. dated to Amendment
February 1, 1995 No. 1
10.13 Master Repurchase Incorporated by
Agreement between reference to
Greenwich Capital Exhibit 10.13
Financial Products, to the October
Inc. and Autorics, 1995
Inc. dated September Registration
5, 1995 Statement
10.14 Option to Purchase Incorporated by
Assets of Special reference to
Finance, Inc. dated Exhibit 10.14
August 1, 1995 to the October
1995
Registration
Statement
21 Subsidiaries of the Incorporated by
Registrant reference to
Exhibit 21 to
the October
1995
Registration
Statement
23.1 Consent of Clark, To be Filed
Ladner, Fortenbaugh & under Exhibit
Young 5.1
II-13
<PAGE>
23.2 Consent of Price Filed herewith
Waterhouse LLP
</TABLE>
Item 28. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended; (ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement; and (iii) include any additional
or changed material information on the plan of distribution.
2. For the purpose of determining liability under the Securities Act of
1933, as amended, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To file a post-effective amendment to remove from registration any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Fort Lauderdale, State of Florida on December 4, 1995.
NAL FINANCIAL GROUP INC.
BY: /S/__Robert R. Bartolini_____
Robert R. Bartolini
Chairman of the Board,
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/S/_Robert R. Bartolini____ Chairman, President December 4, 1995
Robert R. Bartolini and Chief Executive
Officer
(*) Director ________, 1995
John T. Schaeffer
(*) Vice-President- ________, 1995
Robert J. Carlson Finance, Principal
Accounting Officer
(*) Director ________, 1995
Andrew P. Panzo
(*) Director ________, 1995
Abraham Bernstein
</TABLE>
(*)_/S/ Robert R. Bartolini______________
Robert R. Bartolini, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
5.1 Opinion of Clark,
Ladner, Fortenbaugh
& Young
23.2 Consent of Price
Waterhouse LLP
</TABLE>
<PAGE>
December 4, l99S
NAL Financial Group Inc.
500 Cypress Creek Road W. #590
Fort Lauderdale, FL 33309
Re: NAL Financial Group Inc.
Registration Statement on Form SB-2
File No.: 33-97948
Gentlemen:
We have acted as special securities counsel to NAL Financial Group Inc., a
Delaware corporation (the "Company"), in connection with the registration of
certain securities of the Company under the Securities Act of 1933, as amended
(the "Act"). In that regard, we have reviewed the Company's Amendment No. 2 to
the Registration Statement on Form SB-2 as filed under the Act by the Company
with the Securities and Exchange Commission (the "Commission") on December 4,
1995 (the "Registration Statement"). The Registration Statement has been filed
for the purposes of registering 253,009 shares of Common Stock offered by
certain Selling Security Holders.
In rendering this opinion, we have examined originals or copies certified or
otherwise identified to our satisfaction as being true copies of the Amendment
No. 2 to the Registration Statement, the Certificate of Incorporation, as
amended, of the Company, the By-Laws of the Company, minutes of meetings of the
Board of Directors of the Company, and such other documents as we have deemed
relevant and necessary as a basis for this opinion. In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us, the conformity
<PAGE>
NAL Financial Group Inc.
December 4, 1995
Page 2
to original documents of all documents submitted to us as certified or
photostatic copies, and the authenticity of the originals of such latter
documents. As to our opinion expressed in paragraph 1 below, we have relied upon
a Certificate from the Secretary of State of Delaware as to the good standing of
the Company. Capitalized terms used in the context of the following opinion
shall have the same meaning ascribed thereto within the Registration Statement.
We are admitted to the Bar of the Commonwealth of Pennsylvania and express no
opinion as to the laws of any other jurisdiction, except Delaware corporate law.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware, with corporate power to
conduct the business which it conducts as described in the Registration
Statement.
2. The Company has an authorized capitalization of 50,000,000 shares of Common
Stock, $.15 par value, and 10,000,000 shares of Preferred Stock, S.01 par value
(the terms of which Preferred Stock may be established by the Company's Board of
Directors) (collectively, the "Shares").
3. The Shares to be sold by the Selling Security Holders have been duly
authorized by the Company and are validly issued, fully paid and non-assessable.
This firm consents to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
CLARK, LADNER, FORTENBAUGH & YOUNG
CLARK, LADNER, FORTENBAUGH & YOUNG
<PAGE>
Consent of Independent Certified Public Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Ststement on Form SB-2 of our report dated March 29, 1995 relating
to the financial statements of NAL Financial Group Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
November 29, 1995
