SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] 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 1-10569
AUTOLEND GROUP, INC.
(Exact name of registrant as specified in the charter)
DELAWARE 22-3137244
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
930 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
(305) 673-2700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.002 par value 4,634,530 shares
Class Outstanding at February 16, 1996
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and March 31, 1996 3
Consolidated Statements of Operations for the three
month periods ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the three month
periods ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II OTHER INFORMATION 13
SIGNATURES 15
</TABLE>
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $4,561,399 $3,168,730
Securities available for sale 175,000 175,000
Accounts receivable - matured insurance policies 148,102 1,405,947
Installment contracts receivable 10,062,914 13,760,394
Allowance for credit losses (3,020,776) (3,995,296)
Collateral owned 819,268 1,785,743
-------------- --------------
Installment contracts receivable - net 7,861,406 11,550,841
-------------- --------------
Purchased insurance policies, face value of $2,126,198 at
June 30, 1996, and March 31, 1996 1,462,583 1,445,184
Accrued interest receivable on investments 5,535 --
Debt issuance costs, less accumulated amortization of $3,337,418
at June 30, 1996 and $3,276,724 at March 31, 1996 295,987 356,681
Fixed assets, less accumulated depreciation of $147,770 at
June 30, 1996 and $397,620 at March 31, 1996 323,361 1,013,173
Net assets of discontinued operation 6,087,777 4,974,047
Other 376,224 395,486
-------------- --------------
$ 21,297,374 $ 24,485,089
============== ==============
Liabilities:
Accounts payable and accrued liabilities $ 1,090,848 $ 984,098
Accrued acquisition costs 656,542 656,542
Accrued interest expense 1,635,057 1,111,369
Convertible debentures 22,050,000 22,050,000
-------------- --------------
Total liabilities 25,432,447 24,802,009
-------------- --------------
Stockholders' Equity:
Preferred stock, $.002 par value. Authorized 5,000,000 shares;
none issued or outstanding
Common stock, $.002 par value. Authorized 40,000,000 shares;
issued 4,634,530 shares at June 30, 1996 and March 31, 1996 9,269 9,269
Additional paid-in capital 5,946,904 5,946,904
Accumulated deficit (10,091,246) (6,273,093)
-------------- --------------
Total stockholders' equity (4,135,073) (316,920)
-------------- --------------
$ 21,297,374 $ 24,485,089
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
June 30,
1996 1995
<S> <C> <C>
Revenues:
Finance charges on installment contracts $ 616,639 $ 1,673,135
Revenues from matured insurance policies -- 575,078
------------- -------------
Total revenues 616,639 2,248,213
Cost of matured insurance policies -- 376,865
------------- -------------
Net revenues 616,639 1,871,348
General and administrative expenses 1,625,995 2,737,326
Provision for credit losses 1,921,292 309,060
------------- -------------
Operating earnings (loss) (2,930,648) (1,175,038)
------------- -------------
Other income:
Interest income on investments 22,223 115,497
Other 126,424 42
------------- -------------
Total other income 148,647 115,539
------------- -------------
Other expense:
Interest expense (537,228) (1,071,442)
Loss on sale of viatical portfolio, net of
amortization of $1,844,259 -- (570,377)
Write-off of fixed assets (568,649) --
Realized gains on sales of marketable
securities, net -- 1,138
------------- -------------
Total other expense (1,105,877) (1,640,681)
------------- -------------
Loss before income taxes, discontinued operations and extraordinary item (3,887,878) (2,700,180)
Benefit from income taxes -- 1,232,410
------------- -------------
Loss before discontinued operations and extraordinary item (3,887,878) (1,467,770)
Discontinued operations - earnings (loss) from operations of
discontinued subsidiary, net of applicable income tax
benefit of $14,784 at June 30, 1995 69,725 (23,124)
------------- -------------
Loss before extraordinary item (3,818,153) (1,490,894)
Extraordinary item - gain on early extinguishment of debt,
net of amortization of deferred costs of $604,221 and
income taxes of $2,467,194 -- 3,858,585
------------- -------------
Net earnings (loss) $ (3,818,153) $ 2,367,691
============= =============
Loss per share before discontinued operations and extraordinary
item $ (0.84) $ (0.32)
Earnings (loss) per share on discontinued operations 0.02 (0.00)
------------- -------------
Loss per share before extraordinary item (0.82) (0.32)
Earnings per share on extraordinary item-gain on early
extinguishment of debt -- 0.83
------------- -------------
Net earnings (loss) per common share $ (0.82) $ 0.51
============= =============
Weighted average number of common and common
equivalent shares outstanding 4,634,530 4,634,530
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(3,818,153) $2,367,691
Adjustments to reconcile net earnings (loss) to net cash
flows from operating activities:
Amortization of intangible assets and debt issuance costs 60,694 2,030,831
Depreciation expense 72,206 50,495
Writeoff of fixed assets 568,649 --
Gain on early extinguishment of debt, net of amortization -- (6,325,779)
Provision for credit losses 1,921,292 309,060
Realized gains on securities available for sale -- (1,138)
Change in net assets of discontinued operations (1,113,730) (255,500)
Changes in assets and liabilities:
Accounts receivable - matured insurance policies 1,257,845 2,276,194
Installment contracts receivable 1,768,143 (2,188,503)
Purchased insurance policies (17,399) 16,829,408
Accrued interest receivable (5,535) 71,499
Other assets 69,996 (3,061,166)
Accounts payable and accrued liabilities 106,750 (34,784)
Accrued income taxes -- 1,220,000
Accrued interest expense 523,688 53,938
------------- -------------
Cash provided by operating activities 1,394,446 13,342,246
------------- -------------
Cash flows from investing activities:
Purchases of securities available for sale -- (7,549,728)
Proceeds from sale of securities available for sale -- 10,440,377
Purchases of fixed assets (1,777) (57,713)
------------- -------------
Cash provided by (used in) investing activities (1,777) 2,832,936
------------- -------------
Cash flows from financing activities:
Early extinguishment of debt -- (8,270,000)
------------- --------------
Cash used in financing activities -- (8,270,000)
------------- -------------
Net increase in cash and cash equivalents 1,392,669 7,905,182
Cash and cash equivalents at beginning of period 3,168,730 1,325,175
------------- -------------
Cash and cash equivalents at end of period $ 4,561,399 $ 9,230,357
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying unaudited financial statements have been
prepared by management in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnotes necessary
for a fair presentation of financial position, results of operations,
and cash flows in conformity with generally accepted accounting
principles. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated
financial statements contained in the Company's Annual Report on Form
10-K for the year ended March 31, 1996. The information furnished, in
the opinion of management, reflects all adjustments, which consist of
normal recurring adjustments, necessary to present fairly the results
of operations of AutoLend Group, Inc. and subsidiaries (the "Company")
for the three month periods ended June 30, 1996 and 1995. The results
of operations of interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the
year as a whole.
(b) Revenue Recognition
Allowance for Credit Losses: An allowance for credit losses is
maintained at a level which, in management's judgment, is adequate to
absorb credit losses inherent in the Installment Contracts Receivable
portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the Installment Contracts
Receivable portfolio, including the nature of the portfolio, credit
concentrations, specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Because
of uncertainties associated with regional economic conditions,
collateral values, and future cash flows on impaired loans, it is
possible that management's estimate of credit losses inherent in the
Installment Contracts Receivable portfolio and the related allowance
may change materially in the near term.
The allowance for credit losses is established through
provisions charged to income and is based on management's evaluation of
potential losses after consideration of such factors as current
delinquency data, changes in the Installment Contracts Receivable
portfolio composition, economic conditions and other pertinent factors.
Charge-offs are recorded against the allowance when management believes
that the collectibility of the principal is unlikely. Recoveries of
amounts previously charged-off are credited to the allowance.
There are inherent uncertainties in determining the allowance
for credit losses in an Installment Contracts Receivable portfolio. The
Company has not been in business long enough for it to gather a
sufficient data base of historical credit loss experience. The
concentration of risk, limited historical contract receivable loss
experience, and other factors described above, compound the uncertainty
in the Company management's estimate of the allowance for credit
losses. As a result, the aggregate losses ultimately incurred by the
Company with respect to the Installment Contracts Receivable portfolio
may significantly differ from the allowance for credit losses in the
accompanying financial statements. Management has used its best
judgment to arrive at its estimate of the allowance for credit losses
and believes that the same is reasonable to cover the losses inherent
in the Installment Contracts Receivable portfolio at June 30, 1996 and
1995.
- 6 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2) DISCONTINUED OPERATION
On December 26, 1995, Nunzio P. DeSantis, Courtland G. Miller
and Vincent Villanueva commenced an action in the Delaware Chancery
Court against Steve Simon, Stephen Raphael and Elie Housman and the
Company as nominal defendant, seeking, among other things, various
injunctions against, and unspecified damages for, alleged breaches of
fiduciary duty, gross mismanagement, and/or gross negligence that may
have occurred. Management believed all of these claims to be baseless.
On May 3, 1996, the parties submitted a Stipulation of Settlement to
the Court. The Stipulation of Settlement was distributed to the
Stockholders of the Company on or about May 15, 1996. On June 17, 1996
a single notice of objection to the proposed settlement was filed with
the Court. On June 27, 1996, after a hearing, at which the objector was
represented by counsel and made written and oral submissions to the
Court, Vice Chancellor Steele of the Delaware Chancery Court entered an
order approving the settlement set forth in the Stipulation of
Settlement.
Pursuant to the Stipulation of Settlement, current management
will resign, receive the payment remaining under their respective
employment agreements and enter into consulting agreements with the
Company. The Company's Autolend IAP, Inc. ("IAP") subsidiary will be
sold to an affiliate of departing management for consideration
including settlement of all intercompany indebtedness and preferred
stock of IAP with a face amount of $1 million. Accordingly, the
operations of IAP have been treated as a discontinued operation in the
accompanying financial statements. As of June 30, 1996 and 1995, the
IAP discontinued operations had the following assets and liabilities:
<TABLE>
<CAPTION>
ASSETS: 1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents $1,083,458 $ (20,044)
Dealer receivables 5,067,769 271,875
Other 37,544 5,846
--------------- -------------
Total 6,188,771 257,677
LIABILITIES:
Accounts payable and accrued expenses 100,994 2,177
--------------- -------------
Net assets of discontinued operations $ 6,087,777 $ 255,500
=============== =============
</TABLE>
In connection with the Stipulation of Settlement, the net
proceeds to be received by the Company include $1,000,000 in preferred
stock and, based upon intercompany accounts as of June 30, 1996,
approximately $5.1 million as settlement of all intercompany
indebtedness. Certain amounts remaining under the employment agreements
of departing management will be paid by the Company. Such amounts,
other than the face value of the Preferred Stock are subject to change
based upon the actual date of the closing of the Settlement.
(3) GOING CONCERN
The Company's viability as a going concern is dependent upon
the successful closing of the transactions contemplated by the
Stipulation of Settlement, the restructuring of its obligations and
asset
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
base, and ultimately, a return to profitability. The Company has been
operating at a loss and has incurred operating losses in the last three
years. Management has initiated a plan to terminate certain of its
operations and to improve the profitability of the Company. The Company
has ceased since December 22, 1995 to purchase installment contracts
receivable and since September 29, 1994 to purchase life insurance
policies. During the third quarter of the year ended March 31, 1996 the
Company significantly downsized its operations resulting in significant
reductions in salary expense. In June 1996 the Company entered into a
settlement of certain stockholder derivative litigation (the
"Settlement"). In connection with the closing of the Settlement, the
Company will enter into various agreements providing for, among other
things, the disposition of certain operations, and the replacement of
current management.
In September 1996 the Company is obligated to make an interest
payment on the remaining outstanding debentures of approximately $2.1
million. The outstanding principal amount of the debentures, which is
due in September 1997, will become current debt in September 1996, and
without a capital infusion, refinancing or amendment of the debentures,
such current debt will cause the Company's current liabilities to be
greater than its current assets. See Note 4 for information relating to
the Company's debenture obligations. Although the Company currently has
sufficient liquidity to meet its September 1996 interest obligations
under the debentures, intervening operating losses may prevent the
Company from meeting its obligations to make interest payments, and in
September 1997 to repay the principal under the Debentures as such
payments become due. If the Company is unsuccessful in its efforts, it
may be necessary for it to undertake such other actions as may be
appropriate to preserve its business.
The Company believes it has sufficient funds to finance its
currently contemplated operations for at least the next 12 months but
will require additional funds, if not generated from operations, to
finance future growth, the entering into new businesses and the payment
of interest on and repayment of the Debentures. Auction fundings until
the closing of the Settlement are expected to be funded through
proceeds from maturities of outstanding Policies and Installment
Contracts Receivable, cash reserves and Securities Available for Sale.
Since the receipt of such funds is not completely predictable, the
Company may need to acquire additional financing to fund its
anticipated operations beyond such period. Furthermore, in the event
that a closing of the Settlement has not taken place by the interest
payment date in September 1996, the Company may require additional
funds to continue funding its IAP operations. The ability of management
to return the Company to profitable operations and a capacity to meet
its obligations on demand is uncertain. There can be no assurance that
management will be able to accomplish its objectives or that it will
enable the Company to become profitable on an ongoing basis and to
continue as a going concern.
(4) CONVERTIBLE SUBORDINATED DEBENTURES
On September 19, 1991, the Company received net proceeds of
$51.4 million from the issuance of $55.0 million of 9.5% Convertible
Subordinated Debentures (the "Debentures"). During the past two fiscal
years the Company has prepaid without penalty $32.9 million principal
at a cost of $17.8 million plus accrued interest, resulting in a gain
on early extinguishment of Debentures of $15.1 million. The outstanding
balance of convertible subordinated Debentures is $22.1 million at June
30, 1996.
The Debentures which mature September 19, 1997, are
convertible by the holders into the Company's common stock at the rate
of one common share per $12.25 principal amount. In addition, the
Company may require conversion beginning September 19, 1993 if the
common stock market price exceeds $15.00 per share for 20 consecutive
days. The Debentures are subordinated to any current or future senior
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
debt and require annual interest payments. At June 30, 1996, accrued
interest on the outstanding Debentures was $1,635,057.
Debt issuance costs arising from the issuance of Debentures in
the original amount of $3.6 million have been amortized since the
issuance of the Debentures and, as prepayments of Debentures have
occurred, applicable amounts of debt issuance costs have been
amortized. A balance of $295,987 in debt issuance costs remained at
June 30, 1996.
(5) ASSETS TO BE SOLD
In connection with the Company's having ceased to purchase
Installment Contracts Receivable or Insurance Policies, the value of
certain fixed assets has been reduced to net realizable value,
resulting in a charge to income of $568,649 for the three month period
ended June 30, 1996. Assets to be sold total $48,274 and are included
in other assets in the financial statements at June 30, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Three month periods ended June 30, 1996 and 1995.
During the three months ended June 30, 1996, revenues from Installment
Contracts Receivable decreased by $1,056,496 to $616,639 from $1,673,135 during
the three months ended June 30, 1995. This decrease resulted from the reduced
size of the Company's portfolio of Installment Contracts Receivable during the
three months ended June 30, 1996 as compared with the three months ended June
30, 1995. The Company has ceased to purchase Installment Contracts Receivable
since December 1995.
During the three months ended June 30, 1996, there were no viatical
revenues as compared to $575,078, reflecting the maturity of 12 Policies during
the three months ended June 30, 1995. The cost of a Policy includes the initial
purchase price, insurance premiums, and other direct expenditures, if any, by
the Company in connection with the purchase and maintenance of a Policy. The
decrease in policy maturities and net viatical revenues resulted from the
Company's decision not to purchase new Policies after September 1994, and the
sale in May and July 1995 of a total of 225 policies for approximately $17.5
million to Viaticus, Inc.
During the three months ended June 30, 1996, revenues from the
Inventory Assistance Program increased by $456,595 to $475,674, reflecting the
financing of 3,359 cars, from $19,079, reflecting the financing of 154 cars
financed, during the three months ended June 30, 1995. During the three months
ended June 30, 1996, income from operations of IAP was $43,488, net of income
tax of $26,237, as compared to operating loss of $23,124, net of income tax
benefit of $14,784 for the three months ended June 30, 1995. These increases
reflect the growth and development of the IAP program since it was initiated in
March 1995.
General and administrative expenses decreased by $1,111,331 to $
1,625,995 during the three months ended June 30, 1996, from $ 2,737,326 during
the three months ended June 30, 1995. This decrease resulted from the effect of
the Company's downsizing during the third quarter of the Company's fiscal year
ended March 31, 1996 and was comprised primarily of decreases of approximately
$504,000 in salary expense, $316,000 in direct program costs for Installment
Contracts, $117,000 in travel and entertainment expenses, $126,000 in
amortization expenses and $116,000 in office expenses, offset by an increase of
$288,000 in legal and professional fees.
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<PAGE>
Provision for credit losses in connection with the Company's
Installment Contracts Receivable increased by $1,612,232 to $1,921,292 for the
three months ended June 30, 1996, from $309,060 for the three months ended June
30, 1995. In addition, chargeoffs and adjustments for credit losses in
connection with the Company's Installment Contracts Receivable increased to
$2,895,812 during the three months ended June 30, 1996 from $97,443 during the
three months ended June 30, 1995. These increases reflected increased loan
delinquencies and writeoffs in the Company's portfolio of consumer finance
receivables and were a factor in the Company's decision to discontinue its
purchases of Installment Contracts Receivable.
Certain fixed assets related to the Installment Contracts operation,
primarily computer software and hardware, as well as leasehold improvements on
office space have been recorded at net realizable value at June 30, 1996. The
result of this valuation is a charge to income of $568,649 at June 30, 1996.
During the period ended June 30, 1995 the Company sold certain policies
in the viatical portfolio to Viaticus. As a result, the Company recognized a
loss on sale of $570,377, net of writeoff of intangible assets and goodwill of
$1,844,259.
For the three months ended June 30, 1996, the Company had a net loss of
$2,381, 382 or $0.51 per share as compared with net earnings of $2,367,691 or
$0.51 per share for the three months ended June 30, 1995. The change in net
earnings/loss was attributable primarily to the developments described above,
coupled with a decrease of approximately $3.85 million in gain on early
extinguishment of debt, reflecting the Company's having repurchased at a
substantial discount certain of its outstanding debentures during the three
months ended June 30, 1995, which repurchases were not matched during the three
months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's immediate viability as a going concern is dependent upon
the successful closing of the Settlement, the restructuring of its obligations
and asset base, and ultimately, a return to profitability. The Company has been
operating at a loss and has incurred operating losses in the last three years.
Management has initiated a plan to terminate certain of its operations and to
improve the profitability of the Company. The Company has ceased since December
22, 1995 to purchase Installment Contracts Receivable and since September 29,
1994 to purchase Policies. During the third quarter of the year ended March 31,
1996 the Company significantly downsized its operations resulting in significant
reductions in salary expense. See "--Results of Operations." In June 1996, the
Company entered into a settlement of the Derivative Suit. In connection with the
closing of the Settlement, the Company will enter into various agreements,
providing for, among other things, the disposition of certain operations, and
the replacement of current management. See " Note 2 - Discontinued Operations."
In September 1996 the Company is obligated to make an interest payment
on the remaining outstanding Debentures of approximately $2.1 million. The
outstanding principal amount of the Debentures, which is due in September 1997,
will become a current liability in September 1996, and without a capital
infusion, refinancing or amendment of the Debentures, such current debt will
render the Company insolvent on a balance sheet basis. See Note 4 to the
Consolidated Financial Statements for information relating to the Company's
Debenture obligations. There was positive cash flow from operations of
$1,394,446 for the three months ended June 30, 1996. Although the Company
currently has sufficient liquidity to meet its September 1996 interest
obligations under the Debentures, intervening operating losses may prevent the
Company from meeting its obligations to make interest payments, and in September
1997 to repay the principal under the Debentures as such payments become due. If
the Company is unsuccessful in its efforts to obtain capital or to refinance or
amend the Debentures, it may be necessary for the
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company to seek the protection of the bankruptcy laws or to undertake such other
actions as may be appropriate to preserve its business.
During the three months ended June 30, 1996 the Company funded a total
volume of 3,359 IAP purchases totalling approximately $16.2 million. At June 30,
1996 the Company's IAP receivable portfolio consisted of 1,102 loans totalling
approximately $5.1 million.
The Company commenced its purchases of Installment Contracts Receivable
in May 1994 and ceased purchases of Installment Contracts Receivable on December
22, 1995.
The Company's portfolio of Installment Contracts Receivable at June 30,
1996, excluding Installment Contracts Receivable with respect to which there has
been a repossession of the underlying collateral, a charge-off or the creation
of a reserve, consisted of approximately 2,197 active loans purchased at a cost
of approximately $7.5 million.
During the three months ended June 30, 1996 and June 30, 1995, the
Company's viatical settlement business did not purchase any new Policies. The
Company's portfolio of unmatured Policies at June 30, 1996 totaled 20 Policies
with a face value of approximately $ 2.1 million, which Policies were purchased
at a cost of approximately $1.5 million. Policies are recorded on the Company's
balance sheet at cost, with the difference between the face value and costs
associated with the Policies recognized as net revenues as Policies mature.
On May 8, 1995 and July 18, 1995, ALRG and LB NM, Inc. entered into
Purchase and Sale Agreements (the "Agreements") providing for the assignment of
certain Policies held by the Company to Viaticus, Inc. ("Viaticus"), a
subsidiary of the CNA Companies. Under the Agreements, ALRG and LB NM received
consideration for each of the assigned policies when Viaticus received an
acknowledgement from the insurer of the assignment of the policy. There were no
outstanding amounts receivable under the agreements at March 31, 1996, and
accordingly no activity with respect to this transaction occurred during the
three months ended June 30, 1996.
During the three months ended June 30, 1996, the Company had cash flows
from operations of $ 1,394,446 compared to $13,342,246 during the three months
ended June 30, 1995. Cash flows from operations during the three months ended
June 30, 1996 decreased primarily as a result of decreased maturity of Policies,
reflecting the sale to Viaticus in 1995, which decrease was only partially
offset by decreased cash used to purchase Installment Contracts Receivable. For
the three months ended June 30, 1995, cash flow from operations resulted
primarily from proceeds from the assignment of viatical insurance policies to
Viaticus and from maturities of policies, offset by funds used for the purchase
of Installment Contracts Receivable.
The Company believes it has sufficient funds to finance its current
operations for at least the next 12 months but will require additional funds, if
not generated from operations, to finance future growth, the entering into new
businesses and the payment of interest on and repayment of the Debentures.
Auction fundings until the closing of the Settlement are expected to be through
proceeds from maturities of reserves and Securities Available for Sale. Since
the receipt of such funds is not completely predictable, the Company may need to
acquire additional financing to fund its anticipated operations beyond such
period. Furthermore, in the event that a closing of the Settlement has not taken
place by the interest payment date in September 1996, the Company may require
additional funds to continue funding its IAP operations. The ability of
management to return the Company to profitable operations and a capacity to meet
its obligations on demand is uncertain. There can be no assurance that
management will be able to accomplish its objectives or that it will enable the
Company to become profitable on an ongoing basis and to continue as a going
concern.
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the three months ended June 30, 1996, the Company had a deficit
in cash flows from investing activities of $1,777 as compared with cash flows
from investing activities of $2,832,936 during the three months ended June 30,
1995. During the three months ended June 30, 1996, there was limited investing
activity. Funds not immediately required for operation of the businesses are
invested in securities available for sale. These investments consist of short
term money market instruments and the underlying cash, immediately available to
the Company.
At June 30, 1996 the Company had cash, cash equivalents and securities
available for sale of approximately $4.7 million. A portion of the Company's
available funds may be applied to fund acquisitions of companies or assets of
companies in complementary or related fields or fields in which incoming
management has particular expertise. Although the Company from time to time
engages in discussions and negotiations of potential acquisitions, it currently
has no agreements or understandings with respect to any particular acquisition.
During the three months ended June 30, 1996 the Company had no cash
flows from financing activities as compared with a cash flow deficit from
financing activities of $8.3 million for the three months ended June 30, 1995
resulting from the early extinguishment certain of the Company's Debentures.
The Company's primary sources of capital have been sales of equity and
debt securities, including the Company's initial equity offering in July 1990,
which resulted in net proceeds of approximately $7.6 million, and a September
1991 sale of $55 million 9.5% Convertible Subordinated Debentures maturing on
September 19, 1997, which resulted in net proceeds of $51.4 million. At March
31, 1996, as a result of prepayments during fiscal 1996 without penalty of $28.9
million, the outstanding principal balance of Debentures was $22.1 million. No
additional amounts were prepaid during the three months ended June 30, 1996 and
the outstanding principal balance remains unchanged at June 30, 1996. The
Debentures are convertible into Common Stock at the rate of one share of Common
Stock per $12.25 principal amount. Annual interest payments of approximately
$2.1 million are required under the Debentures outstanding as of June 30, 1996.
Annual interest payments were made in accordance with the terms of the Indenture
in September 1992, 1993, 1994 and 1995. As of June 30, 1996, the Company had
accrued $1,635,057 as interest payable.
At June 30, 1996 the Company had approximately $1,436,771 in net
operating loss carryforwards available to offset future taxable income for
federal and state income tax purposes. The utilization of the net operating
losses to reduce future income taxes will depend on the Company's ability to
generate sufficient taxable income prior to the expiration of the net operating
loss carryforwards. The loss carryforwards expire at various times between the
present and 2011.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following discussion is a supplement to the description of
certain administrative and legal proceedings in which the
Company is involved set forth in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996, and
should be read in conjunction with such description.
As of March 31, 1996, the Company's stockholder's equity was
below the $500,000 required by the Boston Stock Exchange (the
"BSE") for continued listing. On July 18, 1996, the Company
received a request from the BSE for information relating to
the Company's plans to comply with the requirement or
acquiesce to its delisting. On August 15, 1996, the Company
provided the BSE with its plan of compliance, which includes
closing the Settlement and utilizing the liquidity provided by
the Settlement to take advantage of business opportunities in
which incoming management has expertise. In connection with
its plan of compliance, the Company requested to remain listed
without interruption for 45 days, during which it would to
provide the BSE with conclusive evidence that the deficiency
had been rectified. There can be no assurance that the BSE
will grant to the Company the requested period, that Company
will succeed in its plan of compliance, or that the BSE
listing will be maintained.
ITEM 2. CHANGES IN SECURITIES
In July, 1996, the Company extended the expiration of its
outstanding Class A Warrants and Class B Warrants through June
30, 1997.
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
(a) EXHIBIT TABLE.
Exhibit No. Description
3.4 Certificate of Incorporation of AutoLend Group, Inc.
3.5 By-laws of AutoLend Group, Inc.
4.1 Form of 9.5% Convertible Subordinated Debenture
4.2 Warrant Agreement
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<PAGE>
4.3 Unit Purchase Option
4.4 Stock Purchase Warrant granted to Banque Degroof
Luxembourg, S.A.
4.5 Stock Purchase Warrant granted to Till A. Petrocchi
4.6 Stock Purchase Warrant granted to Steve Simon and
Helen Porter
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AUTOLEND GROUP, INC.
(Registrant)
SIGNATURE TITLE DATE
/s/ Steve Simon Chairman of the Board, August 19, 1996
- ----------------------------- Chief Executive Officer
Steve Simon
/s/ Helen Porter Chief Accounting Officer August 19, 1996
- -----------------------------
Helen Porter
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(a) Exhibits
3.4 Certificate of Incorporation of AutoLend Group, Inc.(1)
3.5 By-laws of AutoLend Group, Inc. (1)
4.1 Form of 9.5% Convertible Subordinated Debenture (2)
4.2 Warrant Agreement (3)
4.3 Unit Purchase Option (3)
4.4 Stock Purchase Warrant granted to Banque Degroof
Luxembourg, S.A. (2)
4.5 Stock Purchase Warrant granted to Till A. Petrocchi (2)
4.6 Stock Purchase Warrant granted to Steve Simon and Helen
Porter (4)
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March 31,
1996.
- ----------------
(1) Filed on June __, 1995 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1996 and incorporated herein by
reference.
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1991 and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Registration Statement on Form F-1
(Registration No. 33-29251) and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Current Report on Form 8-K, filed
with the Commission on April 21, 1993 and incorporated herein by reference.
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Unaudited Consolidated Balance Sheets and Unaudited Consolidated
Statements of Operations for the three month period ended June 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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