<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB/A-1
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
____________________ to ____________________.
Commission File Number: 0-25476
NAL FINANCIAL GROUP INC.
(Exact name of small business issuer as specified in its charter)
Delaware 23-24552194
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 Cypress Creek Road West
Suite 590
Fort Lauderdale, Florida 33309
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: 305-938-8200
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past ninety days.
(1) Yes X No _____
(2) Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's sole class of common
stock, as of August 10, 1995 is 5,771,749 shares.
Transitional Small Business Disclosure Format
Yes _____ No X
<PAGE>
NAL FINANCIAL GROUP INC.
INDEX
Part I Financial Information* Page
- ------ ---------------------- ----
Item 1 Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994 3
Consolidated Condensed Statements of Operations -
for the Six and Three Months Ended June 30, 1995
and 1994. 4
Consolidated Condensed Statements of Cash Flows -
for the Six Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis or Plan of
Operation 9-17
Part II Other Information
- ------- -----------------
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Securities
Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
* The accompanying financial information is not covered by an Independent
Certified Public Accountant's Report.
2
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NAL Financial Group Inc.
Consolidated Balance Sheets
June 30, December 31,
1995 1994
---- ----
Assets
Net loan and lease receivables $75,342,797 $29,984,290
Cash and cash equivalents 334,235 664,848
Restricted cash 875,734 1,061,041
Net investment in operating leases 2,502,788 1,230,647
Returned automobile inventory, net 870,554 150,779
Real estate owned 209,819 44,250
Debt issue costs, net 499,270 214,112
Property and equipment, net 849,093 510,885
Accrued interest receivable 599,307 167,692
Other assets, net 2,174,664 489,809
------------ ------------
Total Assets $84,258,261 $34,518,353
============ ============
Liabilities and Stockholders' Equity
Participations and notes payable 67,475,917 22,502,041
Accounts payable and accrued expenses 576,796 400,057
Security deposits 655,756 344,834
Accrued income taxes 186,342 110,460
Other liabilities 1,346,121 242,660
Due to shareholder 1,127,960 62,494
------------ ------------
Total liabilities 71,368,892 23,662,546
------------ ------------
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,
5,771,749 and 5,592,968 shares
issued and outstanding at
June 30, 1995 and December 31,
1994, respectively 865,762 838,945
Paid in capital 10,029,241 8,483,714
Retained earnings 1,994,366 1,533,148
------------ ------------
Total stockholders' equity 12,889,369 10,855,807
------------ ------------
Total liabilities and stockholders'
equity $84,258,261 $35,210,845
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
3
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NAL Financial Group Inc.
Consolidated Condensed Statements of Operations
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Interest income $5,703,118 $1,436,249 $3,416,473 $810,118
Purchase discount accretion 420,397 1,170,694 174,833 585,763
Gain on sale of loan pools -- 1,439,762 -- 27,519
Other income 364,630 121,531 209,147 56,481
---------- ---------- ---------- ----------
6,488,145 4,168,236 3,800,453 1,479,881
---------- ---------- ---------- ----------
Expenses
Interest expense 2,503,413 873,193 1,564,877 439,019
Operating expenses 2,458,055 2,238,494 1,250,991 1,181,457
Provision for credit loss 702,776 134,522 385,402 64,522
Compensation expense
related to shares to be
released under a Voting
Trust Arrangement (Note 4) 80,000 -- 80,000 --
---------- ---------- ---------- ----------
5,744,244 3,246,209 3,281,270 1,684,998
---------- ---------- ---------- ----------
Income (loss) before
provision for taxes 743,901 922,027 519,183 (205,117)
Provision (credit) for
taxes 282,682 359,591 197,290 (68,343)
---------- ---------- ---------- ----------
Net Income (Loss) $461,219 $562,436 $321,893 ($136,774)
========== ========== ========== ==========
Per Share Data
Earnings per share:
Primary $.09 $.11 $.06 $(.03)
Fully diluted .08 .10 .05 (.03)
Weighted average number
of shares outstanding:
Primary 5,416,166 5,192,968 5,447,300 5,192,968
Fully diluted 5,853,535 5,592,968 5,853,535 5,192,968
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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NAL Financial Group Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1995 and 1994
1995 1994
---- ----
Cash flows from operating activities: $461,219 $562,436
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion of purchase discount (420,397) (1,170,694)
Provision for credit losses 702,776 134,522
Depreciation and amortization 324,747 129,887
Gain on sale of loan pools -- (1,439,762)
Non-cash charge for compensation 80,000 --
Changes in assets and liabilities:
Payments received on loan and lease
receivables 20,530,368 9,712,248
Other, net (284,492) 187,831
------------ -----------
Net cash provided by operating activities 21,394,221 8,116,468
------------ -----------
Cash flows from investing activities:
Proceeds from sale of loan pools -- 16,092,299
Purchase of loan and lease receivables (68,453,657) (14,972,718)
Purchase of property and equipment (380,208) (81,720)
------------ -----------
Net cash provided by (used in) investing
activities (68,833,865) 1,037,861
------------ -----------
Cash flows from financing activities:
Proceeds from participations and notes
payable, net 62,064,660 11,973,734
Borrowings from shareholder 1,065,466 --
Repayments of participations and notes
payable (16,021,095) (20,608,072)
Dividends -- (616,000)
------------ -----------
Net cash provided by (used in)
financing activities 47,109,031 (9,250,338)
------------ -----------
Net decrease in cash and cash equivalents (330,613) (96,009)
Cash and cash equivalents, beginning of
period 664,848 96,009
------------ -----------
Cash and cash equivalents, end of period $334,235 $ --
============ ===========
Supplemental disclosures of cash flow
information
Cash paid during the period for interest $2,190,254 $825,954
============ ===========
Cash paid during the period for taxes $206,802 $275,000
============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
NAL Financial Group Inc.
Notes To Consolidated Financial Statements
June 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 six and three month periods ended June 30, 1995 are
not necessarily indicative of the results which may be expected for the year
ended December 31, 1995.
2. Earnings Per Common Share
Earnings per common share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period.
6
<PAGE>
3. Loan and Lease Receivables
Loan and lease receivables as of June 30, 1995 and December 31, 1994 consists of
the following:
1995 1994
---- ----
Automotive Finance Contracts
- ----------------------------
Automotive finance contracts $75,917,311 $26,795,132
Less:
Unearned income (5,485,636) (2,004,435)
Unearned purchase discount (1,177,403) (815,768)
Deferred loan fees, net (143,040) --
------------ -----------
Automotive contracts net 69,111,232 23,974,929
------------ -----------
Consumer Contracts Receivable
- -----------------------------
Consumer loans receivable 2,929,091 2,333,016
Less:
Unearned income (494,772) --
Unearned purchase discount (392,984) (841,322)
------------ -----------
Consumer loans receivable net 2,041,335 1,491,694
------------ -----------
Mortgage Loans Receivable
- -------------------------
Mortgage loans receivable 5,840,989 6,041,464
Less: Unearned purchase discount (1,149,371) (1,218,797)
------------ -----------
Mortgage loans receivable net 4,691,618 4,822,667
------------ -----------
Less: Allowance for possible losses (501,388) (305,000)
------------ -----------
Total loan and lease receivable net $75,342,797 $29,984,290
============ ===========
7
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4. Voting Trust Arrangement
Of the 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 (the "voting trust") by which shares may
be released on an annual basis pursuant to a formula tied to net income earned
by the Company subsequent to June 30, 1994. Any shares not released from the
voting trust at the end of three years will be canceled.
Originally, the Company intended to account for the release of all the shares
held in the voting trust as compensation expense and, accordingly, compensation
expense of $80,000 had been reflected as a charge to earnings for the quarter
ended June 30, 1995 for shares that may be released based on cumulative net
income through the quarter end. The Company has reassessed the accounting for
these shares and, after further consideration of the relevant facts and
circumstances, has determined that the release of 340,000 of the 400,000 shares
placed into the voting trust will be considered additional consideration in
conjunction with the merger in November 1994 and will not result in compensation
expense. The remaining 60,000 shares will still be considered compensatory in
nature resulting in a charge for the fair market value of the shares as they
become eligible for release. This expense will be a non-cash charge with no
effect on working capital and total stockholders' equity. No adjustment has
been made to the $80,000 in compensation expense for the revised accounting
treatment in the financial statements for the quarter ended June 30, 1995 as the
Company believes that any reduction of this amount would not be significant to
these financial statements.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Overview
NAL Financial Group Inc. (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 and mortgage loans and auto lease receivables.
Because of the opportunities presented by the insolvency and reorganization of
many financial institutions at the time, the Company's principal activities,
from inception through the second quarter of 1994, 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
or Federal Deposit Insurance Corporation. In response to the decreasing
availability of these portfolios, since the second quarter of 1994 the Company's
principal focus has shifted to 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's results of operations from inception in 1991 through the second
quarter of 1994 principally reflected the Company's investment earnings on and
gains realized from the sale of seasoned loan and lease portfolios acquired in
bulk-purchase transactions at significant discounts from their principal
balances. The rate of return earned on these portfolios included both interest
earned on the leases and loans, as well as the purchase discount accretion,
which reflects the increase in the value of a portfolio as it approaches
maturity.
As the principal balances of the bulk-purchased portfolios decreases due to
paydowns and maturities, and the portfolio of sub-prime automotive contracts
expands, the Company's earnings will be increasingly dependent on the interest,
rental income and fees charged on the sub-prime portfolio.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994
The Company reported net income of $461,000 for the six months ended June 30,
1995 on revenues of $6,488,000. This compares to net income of $562,000 on
revenues of $4,168,000 for the six months ended June 30, 1994. Net income for
the six months ended June 30, 1995 includes a non-cash charge of $49,600
(after-tax) for common stock earned pursuant to a Voting Trust Agreement (the
"Voting Trust Agreement") established in connection with the Merger (the
"Merger") on November 30, 1994. Excluding this charge, operating income after
taxes was $511,000 for the 1995 period. This charge has no effect on working
capital and did not significantly affect stockholders' equity.
The Company's results of operations for the six months ended June 30, 1995
principally reflect net interest and fees earned on its expanded portfolio of
sub-prime automobile contracts receivable, provision for possible losses, and
overhead incurred for underwriting and servicing these contracts. The results
of operations for the six month period ended June 30, 1994 principally reflect
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 increased by
$61,800,000 when comparing the six months ended June 30, 1995 to the six months
ended June 30, 1994. Contracts acquired in the 1995 period totalled $65,000,000
compared to $3,200,000 for the 1994 period. The significant increase reflects
the change in the Company's principal focus facilitated by the establishment and
expansion of its network of automobile dealerships.
9
<PAGE>
Net Interest Spread
The following table presents net interest spread information for the six months
ended June 30, 1995 and 1994:
Six Months Ended June 30,
-------------------------
1995 1994
---- ----
Net investment in loans and leases - average balance $51,130,153 $16,124,033
Interest income and purchase discount accretion 6,123,515 2,606,943
Annualized effective earnings rate 23.95% 32.34%
Participations and notes payable - average balance $44,731,479 $14,667,970
Interest expense 2,503,413 873,193
Annualized effective cost rate 11.19% 11.91%
Net interest spread rate 12.76% 20.43%
During the six months ended June 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
7.67%, from 20.43% to 12.76%, when compared to the same period of the preceding
year. This decrease was due primarily to a 8.40% decrease in the effective
rate earned on interest earning assets, from 32.34% to 23.95%. The decrease in
the earnings rate was offset to only a minor extent by a decrease in the
Company's effective cost rate from 11.91% to 11.19%, or 0.72%.
During the six months ended June 30, 1994, a greater portion of the Company's
earnings was derived from purchase discount accretion than during the 1995
period. During that period purchase discount accretion was $1,171,000 compared
to $420,000 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 $1,436,000 for the 1994 period to $5,699,000 for
the 1995 period. This increase was due to higher contractual rates earned on
sub-prime contacts and an increase in the average balance of loan and lease
receivables from $16,124,000 in the 1994 period to $51,130,000 in the 1995
period. Substantially all of the increase in the balance of loan and lease
receivables is attributable to acquired automotive contracts.
The slight decrease in the Company's effective cost rate was attributable to an
increase in borrowings to finance the expansion of the automobile 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. These rates are fixed throughout the term of the financing, thereby
enabling the Company to establish a fixed spread between the interest rate
earned on the automotive contract and the rate paid on the financing. At June
30, 1995, the Company had
10
<PAGE>
borrowed approximately $63,700,000 under arrangements in which the interest
rates were fixed at the time of financing, and approximately $3,300,000 under a
line of credit arrangement which bears interest at a variable rate tied to the
prime rate.
Gains On Sales of Loans
Gains on sales of loans totalled $1,439,000 during the 1994 period compared with
no gains for the 1995 period. 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. It is the Company's current
intention to hold principally all of its present portfolio until maturity.
Because the opportunities for purchase and resale have become, in general, less
attractive to the Company due to increased competition in the industry, it is
unlikely that the Company will experience gains on the sales of loan pools as in
the past.
Other Income
Other income increased $243,000 from $122,000 in the 1994 period to $365,000 in
the 1995 period, due primarily to the commissions earned by the Company's
insurance brokerage services from placing insurance policies for its automotive
loan and lease customers.
Provision For Possible Credit Losses
The provision for possible credit losses totalled $703,000 for the 1995 period,
or $568,000 more than the $135,000 reported for the 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.
Management periodically reviews the adequacy of the allowance for loan and lease
losses and considers whether the level of allowance 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 the
borrowers, delinquency data and historical loss experience, and any recourse
arrangements the Company has with dealers or other sellers of contracts and
portfolios.
11
<PAGE>
Operating and Other Expenses
Operating expenses increased $220,000 from $2,238,000 during the 1994 period to
$2,458,000 during the 1995 period, due primarily to increased overhead and costs
associated with the Company's automotive contract financing business. This
increase was attributable to an increase in compensation and employee benefits
paid due to an expansion of the Company's workforce. Additional personnel were
hired to assist with underwriting, collecting and servicing of the Company's
expanding automobile portfolio. Consequently, compensation expense increased by
$772,000, from $977,000 for the 1994 period to $1,749,000 for the 1995 period.
Included in other expenses is $80,000 which has been recorded during the 1995
period for common stock that is eligible for release pursuant to the Voting
Trust Agreement. The Voting Trust Agreement required that certain shares be
placed in escrow to be released based on the terms of the agreement. In the
event that any of the shares are released from the Voting Trust, such release
may, for financial reporting purposes, result in compensation expense to the
Company. Although final determination is pending, $80,000 in compensation
expense has been recorded during the second quarter for shares that have been
earned, but not yet released. The amount of compensation expense recorded is a
non-cash charge, which has no effect on working capital and does not
significantly affect stockholders' equity.
The Company incurs certain direct loan and lease acquisition costs associated
with the automobile contracts purchased from dealers. These costs are deferred
and amortized over the life of the related receivable.
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.
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30, 1994
The Company reported net income of $321,000 for the three months June 30, 1995
on revenues of $3,800,000 compared to a net loss of $137,000 on revenues of
$1,480,000 for the three months ended June 30, 1994. Net income for the three
months ended June 30, 1995 includes a non-cash charge of $49,600 (after-tax) for
common stock eligible for release pursuant to the Voting Trust Agreement
established in connection with the Merger on November 30, 1994. Excluding this
non-cash charge, operating income after taxes was $371,000 for the 1995 period.
This charge has no effect on working capital and does not significantly affect
stockholders' equity.
The Company's results of operations for the three months ended June 30, 1995
reflect the Company's shift in focus from acquiring seasoned loan and lease
portfolios at significant discounts to the acquisition and servicing of
sub-prime automobile leases and loans. Consequently, the earnings principally
reflect net interest and fees earned on its expanded portfolio of sub-prime
automobile contracts receivable, provision for possible losses, and overhead
incurred for underwriting and servicing these contracts.
The results of operations for the three month's ended June 30, 1994 principally
reflect interest and discount earned on bulk purchased portfolios. Gains on the
sale of loan portfolios were minimal during this period which contributed to an
overall loss for the 1994 quarter.
12
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Net Interest Spread
The following table presents net interest spread information for the three
months ended June 30, 1995 and 1994.
Three Months Ended June 30,
---------------------------
1995 1994
---- ----
Net Investment - loans and leases - average balance $65,153,212 $14,694,905
Interest income and purchase discount accretion 3,591,306 1,395,881
Annualized effective earnings rate 22.04% 38.00%
Participations and notes payable - average balance $56,322,482 $12,439,550
Interest expense 1,564,877 439,019
Annualized effective cost rate 11.11% 14.12%
Net interest spread rate 10.93% 23.88%
During the three months ended June 30, 1995, the Company's net interest spread
rate decreased 12.95%, from 23.88% for the 1994 period to 10.93% for the 1995
period. This decrease was due primarily to a decrease in the effective rate
earned on interest-earning assets from 38.00% to 22.04%, or 15.96% decrease.
This decrease was offset partially by a 3.01% decrease in the effective cost
rate.
During the three months ended June 30, 1994, a greater portion of the Company's
earnings was derived from purchase discount accretion. During this period,
purchase discount accretion was $586,000 compared to $175,000 for the 1995
period. This resulted in a higher effective earnings rate for the 1994 period.
The decrease in purchase discount reflects the Company's shift in focus from
acquiring bulk loan and lease portfolios at significant discounts to acquiring
and servicing sub-prime automobile loan and lease contracts receivable.
Although the automobile contracts do not provide as much earning from purchase
discount accretion as the bulk portfolios, the coupon interest rate earned on
the contracts is higher.
Interest income increased from $810,000 during the 1994 period to $3,416,000
during the 1995 period. 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 $14,695,000 in the 1994 period to $65,153,212 in the
1995 period. Substantially all of the increase in the average balance is
attributable to acquired automotive contracts.
The decrease in the effective cost rate of 3.01% was attributable to increased
borrowings under financing arrangements with lower cost of funds used to finance
the expansion of the automotive contracts portfolio. Previously, financing
arrangements with higher cost of funds were used to acquire bulk portfolios.
13
<PAGE>
Gain on Sales of Loans
Gains on the sales of loans totalled $28,000 for the three months ended June 30,
1994 compared with no gains for the 1995 period. It is the Company's current
intention to hold principally all of its present portfolio until maturity.
Because the opportunities for purchase and resale have become, in general, less
attractive for the Company, it is unlikely that the Company will experience
gains on the sale of loan pools as in the past.
Other Income
Other income increased to $209,000 for the 1995 period from $56,000 in the 1994
period. This increase of $153,000 was primarily due to the commissions earned
by the Company's insurance brokerage services from placing insurance policies
for its automotive loan and lease customers.
Provision for Possible Credit Losses
The provision for possible credit losses totalled $385,000 for the 1995 period
compared with $65,000 for the 1994 period, or a $320,000 increase. This
increase related primarily to provisions recorded for an estimate of possible
losses which may be incurred for new automobile contracts acquired during the
1995 period.
Operating and Other Expenses
Operating expenses increased $70,000 from $1,181,000 during the 1994 period to
$1,251,000 during the 1995 period, due primarily to increased overhead and costs
associated with the Company's automotive contract financing business. This
increase was attributable to an increase in compensation and employee benefits
from $471,000 for the 1994 period to $1,043,000 for the 1995 period, a $572,000
increase. During the 1995 period, the Company hired additional personnel to
assist with the underwriting, collecting, and servicing of its expanding
automobile portfolio.
In addition, $80,000 has been recorded as compensation expense during the 1995
period representing an accrual for common stock eligible for release pursuant to
a Voting Trust Agreement.
14
<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 a dollar basis. The
table excludes two underperforming 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. The principal balances and
book values totalled $776,508 and $317,249 at June 30, 1995 and $2,271,000 and
$897,000 at December 31, 1994, respectively.
June 30, 1995 December 31, 1994
------------- -----------------
Dollars # Contracts Dollars # Contracts
------- ----------- ------- -----------
Principal Outstanding $83,910,883 7,014 $33,165,177 3,560
Delinquencies:
30-59 Days 5,606,412 521 2,549,165 311
60-89 Days 1,295,222 109 214,966 19
90 Days or more 1,257,572 69 423,258 27
Total Delinquencies over 30
Days as a % of
Principal/Contracts 8,159,206 699 3,187,389 357
9.72% 9.97% 9.61% 10.03%
Total Delinquencies over 60
Days as a % of
Principal/Contracts 2,552,794 178 638,224 46
3.04% 2.54% 1.92% 1.29%
Net Credit Loss Experience
The following table summarizes the company's net credit loss experience for the
period ended June 30, 1995 and 1994.
Six Months Ended
1995 1994
---- ----
Principal outstanding $83,910,883 $24,878,541
Average principal outstanding $56,630,240 $27,356,512
Charge-offs and lease termination losses $ 469,812 $ 241,838
Net losses as a % principal outstanding 0.56% 0.97%
Net losses as a % average principal 0.83% 0.88%
Due to the limited historical experience reflecting the results of the Company's
program of auto loan and lease acquisitions, management is uncertain about 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.
15
<PAGE>
Liquidity and Capital Resources
Since inception, the Company's principal sources of working capital have been
provided through operations, borrowings through participation arrangements,
revolving lines of credit from the Company's principal lenders, and the private
placement of debt and equity securities.
The following chart summarizes the principal manner in which funds have been
received and utilized by the Company for the six month period ended June 30,
1995:
Inflows
- -------
Payments Received From Collections $20,530,368
Net Proceeds From Financing 63,130,126
Cash Provided by Operations 863,853
------------
84,524,347
------------
Outflows
- --------
Acquisitions of Loan and Lease Contracts 68,453,657
Capital Expenditures 380,208
Repayment of Notes and Participations Payable 16,021,095
------------
84,854,960
------------
Net Outflow ($330,613)
============
As of June 30, 1995, the Company's liquidity was being provided by a series of
borrowings under debt participation arrangements, certain unsecured notes, and
lines of credit in the following amounts:
Lines of credit $23,949,793
Debt participation interests and subordinated notes $42,987,633
Unsecured note $67,076
The Company has a $20,000,000 revolving credit facility which matures in 1996.
The facility bears interest at 2.00% over prime rate. At June 30, 1995, the
Company had drawn down approximately $3,308,000 and had an available borrowing
base of approximately $16,692,000 for the financing of additional loan and lease
portfolios which meet certain credit guidelines established by the lender in its
sole discretion.
The Company has a $25,000,000 credit facility for the financing of automobile
loan and lease receivables, with rates established and fixed at time of
financing. At June 30, 1995, the Company had drawn down approximately
$20,642,000 under the facility. The facility is automatically approved
16
<PAGE>
annually in March each year unless the lender provides the Company with notice
of termination 90 days prior to such renewal.
At June 30, 1995, the Company had an existing series of borrowings under
participation agreements in the amount of $38,887,633 secured by certain lease
and loan contracts, and consumer and mortgage loans receivable. 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.
A significant component of the Company's working capital continues to be
realized through the private placement of securities. During the quarter ended
June 30, 1995, the Company completed the sale of $5,650,000 of convertible
subordinated debentures offered in debenture units pursuant to a private
placement transaction. Each debenture unit consists of $500,000 principal
amount 9% convertible subordinated debenture and 50,000 warrants. Each warrant
entitles the holder to purchase one share of the Company's common stock for a
three year period at an exercise price of $9 per share. At June 30, 1995, the
Company had $4,100,000 of these debentures outstanding with the remaining amount
converting to shares of the Company's common stock. This gives effect to the
conversion of $1,550,000 of debentures during the second quarter. The Company's
sales of debenture units continued after June 30, 1995, and as of the date of
this report, the Company has realized approximately $9,900,000 from the sale of
debenture units.
Management believes that the Company's current cash flow from operations and
advances on its credit facilities and debt participation arrangements 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.
Significant additional growth of the Company's portfolios will require the
Company to identify and secure additional sources of funding. Given the
Company's dependence on financing for current cash flow and continued growth,
loss of its financing sources would have a material adverse impact on the
Company's conduct of business and prospects. Management is presently evaluating
additional sources of financing, including the continuation of offering debt
participation interests to institutional investors, expansion of traditional
lines of credit, and through additional equity and debt placements.
During the first quarter of 1995, the Company recently engaged an investment
banking firm to act as lead manager on a best efforts basis of a private
placement of approximately $20,000,000 of convertible preferred stock. Although
the Company has received positive reassurance from the firm, pricing issues and
placement of securities have yet to be finalized, and there can be no assurances
that the offering will be completed. If successful, the Company intends to use
the proceeds from the offering to facilitate the expansion of its existing
credit facilities, thereby enhancing its ability to acquire additional loans and
leases.
17
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this Form 10-QSB/A-1 to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAL FINANCIAL GROUP INC.
BY: /s/ Robert R. Bartolini Dated: December 15, 1995
--------------------------
Robert R. Bartolini
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Robert J. Carlson Dated: December 15, 1995
--------------------------
Robert J. Carlson
Vice President, Finance
(Principal Financial
and Accounting Officer)
19
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,209,969
<SECURITIES> 0
<RECEIVABLES> 75,844,185
<ALLOWANCES> 501,388
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<COMMON> 865,762
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