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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant To Section 13(e) Of The Securities Exchange
Act Of 1934)
AUTOLEND GROUP, INC.
(Name of Issuer)
AUTOLEND GROUP, INC.
(Name of Person(s) Filing Statement)
9.5% Convertible Subordinated Debentures Due September 19, 1997
(Title of Class of Securities)
Not Applicable
-------------------------------------
(CUSIP Number of Class of Securities)
Nunzio P. DeSantis
Chairman of the Board
AutoLend Group, Inc.
Bradbury Court, 3B
215 Central Avenue, N.W.
Albuquerque, N.M. 87102
505-768-1000
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of Person(s) Filing Statement)
Copy to:
Steven N. Haas, Esquire
Cozen and O'Connor
1900 Market Street
Philadelphia, PA 19103
(215) 665-2000
October 22, 1996
(Date Tender Offer First Published, Sent or Given to Security Holders)
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<PAGE>
Calculation of Filing Fee
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Transaction Valuation* Amount of Filing Fee
$22,050,000 $4,410
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* For purpose of calculation of the filing fee only. The amount of the
filing fee equals 1/50 of 1% of the value of the securities to be
exchanged. There is no public market for the securities to be
exchanged. Accordingly, the transaction value is based upon the
aggregate principal amount outstanding of the 9.5% Convertible
Subordinated Debentures Due September 1997 subject to the tender offer.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: N/A Filing party: N/A
Form or registration No.: N/A Date filed: N/A
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<PAGE>
Item 1. Security and Issuer.
(a) The name of the issuer is AutoLend Group, Inc. (formerly CAPX
Corporation), a Delaware corporation (the "Company"), which has its principal
executive offices at Bradbury Court, 3B, 215 Central Avenue, N.W., Albuquerque,
N.M. 87102 (telephone number 505-768-1000).
(b) This Schedule relates to the offer (the "Exchange Offer") by the
Company to the holders of the Company's 9.5% Convertible Subordinated Debentures
Due September 19, 1997 (the "Debentures") to exchange each $1,000 principal
amount of Debentures outstanding for one Unit, each Unit consisting of (i) 100
shares of the Company's Common Stock, par value $.002 per share (the "Common
Stock") and (ii) such number of shares of the Company's 14% Cumulative
Convertible Preferred Stock, par value $.002 per share (the "Preferred Stock"),
as shall have an aggregate value, on the basis of a Stated Amount of $100 per
share of Preferred Stock, equal to the difference between $1,000 and the market
price for the 100 shares of Common Stock comprising a portion of the Unit,
calculated on the expiration date of the Exchange Offer. The Exchange Offer is
subject to the terms and conditions set forth in the Offering Circular dated
October 22, 1996 (the "Offering Circular") and related Letter of Transmittal,
copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
There is outstanding $22,050,000 principal amount of the Debentures, none of
which are held, to the Company's knowledge, by any officer, director or
affiliate of the Company. The information set forth in the Offering Circular
under the captions "The Exchange Offer -- Terms of the Exchange Offer" and
"Interests of Certain Persons in the Transaction; Transactions and Agreements
Concerning the Units" is incorporated herein by reference.
(c) The Debentures are no longer listed on the Luxembourg Stock
Exchange, the only exchange on which the Debentures were ever included for
trading. Consequently, there currently is no established trading market for the
Debentures.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
(a) See Item 1(b) above.
(b) Not applicable.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the Offering Circular under the captions
"Summary of Offering Circular -- Purposes and Effects of the Exchange Offer,"
"Purposes and Effects of the Exchange Offer" and "The Exchange Offer" is
incorporated herein by reference. The Company will retire and does not have any
plans to reissue any Debentures acquired pursuant to the Exchange Offer.
<PAGE>
(a) The information set forth in the Offering Circular under the
captions "Summary of Offering Circular -- Purposes and Effects of the Exchange
Offer," "Purposes and Effects of the Exchange Offer" and "The Exchange Offer" is
incorporated herein by reference.
(b) - (c) Not applicable.
(d) The information set forth in the Offering Circular under the
caption "Summary of Offering Circular -- Recent Developments" and in the Current
Report on Form 8-K dated September 18, 1996, included as Exhibit "C" to the
Offering Circular, is incorporated herein by reference.
(e) The information set forth in the Offering Circular under the
captions "Summary of Offering Circular -- The Securities -- Preferred Stock" and
"Description of Capital Stock -- Preferred Stock -- Dividends" is incorporated
herein by reference.
(f) The information set forth in the Offering Circular under the
captions "Summary of Offering Circular -- Recent Developments," "-- Purposes and
Effects of the Exchange Offer" and "Purposes and Effects of the Exchange Offer"
is incorporated herein by reference.
(g) Not applicable.
(h) Not applicable.
(i) - (j) Not applicable.
Item 4. Interest in Securities of the Issuer.
Neither the Company nor, to the knowledge of the Company, any person
referred to in Instruction C to this Schedule or any subsidiary or associate of
any such person, including any director or executive officer of any such
subsidiary, has effected any transaction in the Debentures during the 40
business days prior to the date hereof.
Item 5. Contracts, Arrangements, Understandings or Relationships With Respect
to the Issuer's Securities.
Not applicable.
Item 6. Persons Retained, Employed or to be Compensated.
No person has been retained to make solicitations or recommendations
with respect to the Exchange Offer. The information set forth in the Offering
Circular under the caption "The Exchange Offer -- Solicitation of Tenders; Fees"
is incorporated herein by reference.
<PAGE>
Item 7. Financial Information.
(a) - (b) The information set forth in the Offering Circular under the
captions "Selected Financial and Pro Forma Information" and "Capitalization,"
and the information set forth in the Company's Annual Report on Form 10-K for
the year ended March 31, 1996, as amended by Form 10-K/A1, Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, as amended by Forms 10-Q/A1 and
10-Q/A2, and Current Report on Form 8-K dated September 18, 1996, which are
attached to the Offering Circular as Exhibits A, B and C, respectively, are
incorporated herein by reference.
Item 8. Additional Information.
(a) - (d) Not applicable.
(e) Additional information is contained in the Offering Circular and
the Exhibits thereto and Letter of Transmittal, which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively, and incorporated herein by reference.
Item 9. Material to be Filed as Exhibits.
(a)(1) Offering Circular dated October 22, 1996.
(a)(2) Form of Letter of Transmittal dated October 22, 1996.
(a)(3) Form of Letter from Company to brokers, dealers, commercial
banks and trust companies who have security position listings
with Cedel Bank, S.A. or Euroclear.
(a)(4) Form of Letter to Clients regarding instructions to brokers,
dealers, commercial banks and trust companies to participate
in the Exchange Offer.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
AUTOLEND GROUP, INC.
Dated: October 22, 1996 By: /s/ Nunzio P. DeSantis
-----------------------------------
Nunzio P. DeSantis,
Chairman of the Board
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
(a)(1) Offering Circular dated October 22, 1996.
(a)(2) Form of Letter of Transmittal dated October 22, 1996.
(a)(3) Form of Letter from Company to brokers, dealers,
commercial banks and trust companies who have
security position listings with Cedel Bank, S.A. or Euroclear.
(a)(4) Form of Letter to Clients regarding instructions to brokers,
dealers, commercial banks and trust companies to participate
in the Exchange Offer.
</TABLE>
OFFERING CIRCULAR
AUTOLEND GROUP, INC.
(FORMERLY CAPX Corporation)
OFFER TO EXCHANGE
SHARES OF COMMON STOCK AND
14% CUMULATIVE CONVERTIBLE PREFERRED STOCK
FOR ALL OUTSTANDING 9.5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE SEPTEMBER 19, 1997
THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 20, 1996
(THE "EXPIRATION DATE"), UNLESS EXTENDED.
AutoLend Group, Inc., formerly CAPX Corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange one Unit for each $1,000 principal amount of the Company's
9.5% Convertible Subordinated Debentures Due September 19, 1997 (the
"Debentures"). Each Unit consists of: (i) 100 shares of the Company's Common
Stock, par value $.002 per share ("Common Stock"), and (ii) such number of
shares of the Company's 14% Cumulative Convertible Preferred Stock, par value
$.002 per share ("Preferred Stock"), as shall have an aggregate value, on the
basis of the Stated Amount of $100 per share of Preferred Stock, equal to the
difference between $1,000 and the market price for the 100 shares of Common
Stock included as part of the Unit, calculated on the Expiration Date. Based
upon the average of the closing bid and asked prices of the Common Stock of
$0.94 per share on October 21, 1996, nine shares of Preferred Stock would be
issued as part of each Unit. No fractional shares of Common Stock or Preferred
Stock will be issued in the Exchange Offer. Fractional shares will be rounded up
to the next whole share of Common Stock or Preferred Stock, at the discretion of
the Company. Interest accrued but not paid on the Debentures through the
Expiration Date will be cancelled by the Company upon acceptance of the
Debentures for exchange.
The Exchange Offer is subject to certain conditions; however, the
Exchange Offer is not conditioned on the valid tender of a minimum percentage of
principal amount of Debentures in the Exchange Offer. See "The Exchange Offer --
Conditions of the Exchange Offer". Holders of Debentures not tendered for
exchange pursuant to the Exchange Offer will continue to have all of the
existing rights granted the Debentures.
On October 19, 1996, an Event of Default occurred in respect of the
Debentures as a result of the Company failing to pay interest on the Debentures
when due. The Company has concluded to pay no further interest on the
Debentures, regardless of whether the interest has accrued or the failure to pay
interest shall continue to constitute an Event of Default. Depending upon the
aggregate principal amount of Debentures which are not tendered for exchange and
which remain outstanding following the Expiration Date, and depending upon
whether the holders thereof exercise their rights to accelerate the payment in
full of the principal amount and accrued interest due on the then outstanding
Debentures, the assets of the Company may be insufficient to satisfy in full the
claims of the holders of Debentures, and the Company may seek protection under
the bankruptcy laws of the United States. See "Risk Factors."
On May 21, 1996, the Company's Common Stock was delisted from the
Nasdaq SmallCap Market and on August 20, 1996, it was delisted from the Boston
Stock Exchange, in each case for failing to meet certain eligibility criteria.
The Company's Common Stock currently is included for trading on the
over-the-counter market via an Electronic Bulletin Board, previously known as
the "pink sheets," established for securities of companies which do not meet the
eligibility criteria for listing on an established exchange. On October 21,
1996, the last full trading
<PAGE>
day prior to public announcement of the Exchange Offer, the last reported bid
and asked prices for the Common Stock were $0.81 and $1.06, respectively. It is
expected, although there can be no assurance, that the tender of the Debentures
in exchange for Units will improve the likelihood that the Common Stock will
again meet the eligibility criteria for listing on the Nasdaq SmallCap Market.
There is no trading market for the Preferred Stock and it is not anticipated
that a trading market will develop. The Debentures were delisted from the
Luxembourg Stock Exchange and there currently is no active trading market for
the Debentures. See "Risk Factors."
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The Common
Stock and Preferred Stock will be subject to substantial restrictions on
transferability upon issuance. However, the Company has agreed to use its best
efforts to register the shares of Common Stock issued in the Exchange Offer for
resale by the holders thereof within six months following the Expiration Date.
There is no intention to register the shares of Preferred Stock to be issued in
the Exchange Offer. See "Risk Factors" and "Transferability of Units."
The Company expressly reserves the right to extend the period of the
Exchange Offer, to terminate the Exchange Offer or to otherwise amend the
Exchange Offer in any respect, subject to the terms set forth in this Offering
Circular. See "The Exchange Offer -- Extension of the Exchange Offer Period;
Termination; Amendments."
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY
RECOMMENDATION TO ANY HOLDER OF DEBENTURES AS TO
WHETHER TO TENDER OR REFRAIN FROM
TENDERING ANY DEBENTURES. EACH
HOLDER OF DEBENTURES MUST MAKE HIS OWN DECISION
AS TO WHETHER TO ACCEPT THE EXCHANGE OFFER,
AND IF SO, THE PRINCIPAL AMOUNT OF DEBENTURES TO TENDER.
For a discussion of certain risks in connection with the Exchange
Offer, see "Risk Factors" commencing on page 10.
THIS TRANSACTION AND THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS OFFERING CIRCULAR. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Offering Circular is October 22, 1996
<PAGE>
This Offering Circular does not constitute an offer or solicitation by
the Company or any other person for the exchange of any securities other than
the securities covered by this Offering Circular. The Exchange Offer is not
being made to, and tenders will not be accepted from or on behalf of, holders of
Debentures in any jurisdiction in which the making of the Exchange Offer or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, in its sole discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction and
to extend the Exchange Offer to holders of Debentures in such jurisdiction.
No person has been authorized to make any recommendation on behalf of
the Company as to whether holders of Debentures should tender their Debentures
pursuant to the Exchange Offer.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
herein or in the letter of transmittal. If given or made, such information or
representation must not be relied upon as having been authorized by the Company.
The delivery of this offering circular at any time does not imply that the
information contained herein is correct as of any time subsequent to the date
hereof.
The Company is making the Exchange Offer in reliance on the exemption
from the registration requirements of the Securities Act afforded by Section
3(a)(9) thereof. The Company, therefore, will not pay any commission or
remuneration to any broker, dealer, salesman or other person for soliciting
tenders of Debentures. Regular employees of the Company may solicit exchanges
from the holders of the Debentures, but such employees will not receive
additional compensation therefor.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996, its Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996 and its Current Report on Form 8-K dated September 18, 1996, as
each is amended to date, all of which have been filed by the Company with the
Securities and Exchange Commission, are attached to this Offering Circular as
Exhibits A, B and C, respectively, and are incorporated herein by reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can 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 its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates. The Company has filed with the
Commission a statement on Schedule 13e-4 that contains additional information
with respect to the Exchange Offer. Such Schedule may be examined and copies may
be obtained at the same places and in the same manner as set forth above (except
that such Schedule may not be available in the regional offices of the
Commission).
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<PAGE>
TABLE OF CONTENTS
PAGE
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 3
AVAILABLE INFORMATION........................................................ 3
SUMMARY OF OFFERING CIRCULAR................................................. 6
RISK FACTORS................................................................. 13
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER................................... 16
SELECTED FINANCIAL AND PRO FORMA INFORMATION................................. 18
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...................... 23
DIVIDEND POLICY.............................................................. 24
THE EXCHANGE OFFER........................................................... 24
TRANSFERABILITY OF UNITS .................................................... 29
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION;
TRANSACTIONS AND AGREEMENTS CONCERNING THE UNITS..................... 29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................... 30
DESCRIPTION OF DEBENTURES.................................................... 30
DESCRIPTION OF CAPITAL STOCK................................................. 33
EXHIBITS
EXHIBIT A - Annual Report on Form 10-K for the year ended March 31, 1996, as
amended.
EXHIBIT B - Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
as amended.
EXHIBIT C - Current Report on Form 8-K dated September 18, 1996.
-4-
<PAGE>
SUMMARY OF OFFERING CIRCULAR
The following summary is qualified in its entirety by reference to the
more detailed information, Exhibits and financial statements, including the
notes thereto, appearing elsewhere herein or incorporated by reference herein.
Please read this Offering Circular in its entirety.
The Company
AutoLend Group, Inc., a Delaware corporation formerly known as CAPX
Corporation (together with its subsidiaries, "AutoLend" or the "Company"), was,
until September 18, 1996, a consumer finance company which, through its
wholly-owned subsidiaries, AutoLend IAP, Inc. ("IAP"), AutoLend Corporation, LB
NM, Inc. ("LB NM") and American Life Resources Group, Inc. ("ALRG"), was engaged
in the business of (i) providing short-term financing to selected car dealers
for purchase of used automobiles at selected regional auctions throughout the
United States; (ii) maintaining a portfolio of retail installment loan contracts
purchased from independent and franchised used automobile dealers ("Installment
Contracts Receivable"); and (iii) maintaining a portfolio of life insurance
policies ("Policies") purchased from individuals facing life-threatening
illnesses, a business generically referred to as viatical settlements. On
September 18, 1996, the Company sold IAP to Auction Finance Group, a corporation
controlled by Steve Simon, the former President and Chairman of the Board of the
Company, pursuant to a Stipulation of Settlement dated May 31, 1996 arising in
connection with stockholder derivative litigation commenced against the Company
by certain shareholders and former directors, one of whom has become Chairman of
the Board and Chief Executive Officer, and another of whom is a director. See
"Recent Developments."
Since the sale of IAP, the Company has been engaged in no active
business other than the collection of amounts due under the outstanding
Installment Contract Receivables and the collection of proceeds from the
Policies. The Company's management currently is engaged in identifying potential
acquisition opportunities which will enable the Company to become strategically
and competitively positioned in a new business or industry. No agreements in
principle have been reached with any third parties, and there can be no
assurance that the Company will be successful in its acquisition efforts. See
"Risk Factors" and "Purposes and Effects of the Exchange Offer."
For a more detailed description of the Company and its business
activities prior to September 18, 1996, reference is made to the Company's
Annual Report on Form 10-K for the year ended March 31, 1996 attached as Exhibit
A hereto.
Effective September 16, 1996, the Company relocated its principal
executive offices from Miami Beach, Florida to The Bradbury Court, 215 Central
Avenue, N.W. 3-B, Albuquerque, New Mexico, 87102, and its telephone number is
505-768-1000.
Recent Developments
On December 26, 1995, Nunzio P. DeSantis, Courtlandt G. Miller and
Vincent Villanueva, stockholders of the Company (collectively, the "Plaintiff
Stockholders"), commenced an action (the "Derivative Suit") in the Delaware
Court of Chancery for New Castle County (the "Court") against certain former
officers and directors of the Company (collectively, the "Defendants"), and the
Company as nominal defendant, seeking, among other things, to temporarily,
preliminarily and, if necessary, permanently enjoin the Company's management and
Board of Directors from taking certain contemplated actions, including selling
one of its subsidiaries to Steve Simon, the former President of the Company
("Simon"), and continuing the repurchase of the Debentures, until a special
meeting of the Company's stockholders could be held. The Plaintiff Stockholders
also sought damages to the extent the Defendants proceeded with any of these
actions before injunctive relief could be obtained and for any breaches of
fiduciary duty, gross mismanagement and/or gross negligence that may have
occurred.
-5-
<PAGE>
The Defendants denied all claims of wrongdoing and soon after the
Plaintiff Stockholders commenced the Derivative Suit, the Plaintiff Stockholders
and the Defendants entered into extensive arms-length negotiations concerning a
change in existing management, the composition of the Board pending the next
annual meeting of stockholders of the Company and the resolution of all claims
between the parties. As a result of these negotiations, the parties entered into
a Stipulation of Settlement on May 3, 1996 (the "Stipulation"). The Stipulation
was approved by the Court on July 16, 1996 after due notice and was sent to all
of the Company's stockholders and notwithstanding the objection of one
stockholder of the Company. The order became final and unappealable on August
16, 1996 and the transactions pursuant to the Stipulation closed on September
18, 1996. Pursuant to the Stipulation, all pending claims, including those
alleged in the Derivative Suit, were dismissed and, among other things: (i) the
former executive management of the Company resigned; (ii) all of the directors
of the Company other than Dr. Philip Vitale resigned from the Board; (iii) Mr.
DeSantis was appointed to the Board and was elected Chairman and Chief Executive
Officer; (iv) IAP was sold to an entity formed by Simon in consideration for the
payment to the Company of approximately $6.0 million in cash in settlement of
all intercompany receivables and for the issuance to the Company of cumulative
preferred stock, with a face amount of $1.0 million, in the newly formed entity
which acquired IAP; and (v) Simon and Helen Porter, the Company's then executive
vice president, were paid amounts due under their employment agreements, entered
into consulting agreements with the Company and were issued stock options in
lieu of other stock options which they had agreed to forfeit.
After the closing of the Stipulation transactions, Anthony Coelho, E.
Gerald Riesenbach, Esquire, Miles M. Stuchin and Vincent Villanueva were
appointed as additional directors of the Company.
Purposes and Effects of the Exchange Offer
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996, the Company reported a net operating loss of
$13,116,802 for the year then ended and an accumulated deficit of $6,273,093. In
its Auditors' Report accompanying the Company's audited consolidated financial
statements in the Form 10-K, the Company's independent auditors, Deloitte &
Touche LLP, included an explanatory paragraph stating that the Company's
recurring losses from operations and stockholders' capital deficiency raise
substantial doubt about its ability to continue as a going concern.
The Company's financial condition also resulted in the delisting of the
Company's Common Stock from both the Boston Stock Exchange and the Nasdaq Stock
Market for failing to meet listing eligibility criteria. The delisting of the
Company's Common Stock has resulted in substantial illiquidity for the Company's
stockholders, a decrease in the stock price and a general deterioration of the
Company as viewed by the investment community.
Prior to the consummation of the transactions contemplated by the
Stipulation, the Company's prior management had concluded that the Company's
viability as a going concern was dependent upon the successful closing of such
transactions, the restructuring of its obligations and asset base and
ultimately, a return to profitability. The Company's current management has
concluded that a return to profitability can only occur if the Company
discontinues its automobile finance business and identifies a more viable
business opportunity to which the Company can contribute its existing cash
resources and management experience. The Company's management has concluded that
only by changing the Company's strategic focus to a new business will the
Company be able to avoid bankruptcy, preserve stockholder investment and,
ultimately, increase stockholder value.
If the Company is unable to successfully, and within a reasonably short
period of time, redirect its resources toward a viable business enterprise, the
Company will likely have no alternative but to seek protection under the United
States bankruptcy laws. In such event, the Company's assets will be insufficient
to satisfy its obligations to the Debenture holders. The Company believes that
this fact is already reflected in the substantial discount from face amount at
which the Debentures currently are valued. Moreover, the Company believes that
so long as the Debentures remain outstanding, the obligation to pay interest
will continue to deplete the limited cash resources which must be preserved for
use in acquiring a business, and the obligation to repay the Debentures at
-6-
<PAGE>
maturity will represent a substantial and, possibly insurmountable, impediment
for the Company to successfully pursue its business objectives and increase
stockholder value.
Finally, so long as the Debentures remain outstanding, the Company's
liabilities will substantially exceed its assets and will prevent the Company
from relisting its Common Stock on an established trading market.
Accordingly, the Company's Board of Directors has concluded that the
Debenture holders and the stockholders will be best served by the Company's
efforts to develop a successful business which the Board believes will not be
possible with the current Debentures outstanding and its impact on the Company's
balance sheet. By substituting Common Stock and Preferred Stock for the
Debentures, the Company will eliminate its debt and substantially improve its
balance sheet. The book value per share of the Common Stock will increase from
the substantial reduction in the Company's liabilities, providing an immediate
benefit to the Company's stockholders, including the Debenture holders who will
receive Common Stock in the Exchange Offer. The reduction in the Company's
liabilities will also substantially improve the likelihood that the Company's
Common Stock will again be listed on the Nasdaq Stock Market, providing
increased liquidity to the Company's stockholders and enabling the Company to
use equity to supplement its limited cash resources to improve its ability to
identify and conclude a significant acquisition. Additionally, by exchanging
debt for equity, the Debenture holders will participate with other equity
holders in the appreciation, if any, in the value of the Company by virtue of
the Company implementing its business strategy. Finally, the Preferred Stock
will provide the Debenture holders with an opportunity to continue to improve
their equity participation in the Company through conversion and through the
dividend which is payable in equity at the option of the Company, without
placing a severe financial burden on the Company or on its balance sheet.
The Company will cancel any Debentures tendered in the Exchange Offer
and has no present intention to reissue such securities.
-7-
<PAGE>
The Exchange Offer
<TABLE>
<S> <C>
Exchange Ratio.......................................One Unit for each $1,000 principal amount of
Debentures.
Composition of Units................................ Each Unit consists of: (i) 100 shares of Common Stock
and (ii) such number of shares of Preferred Stock as
shall have an aggregate value, on the basis of the Stated
Amount of $100 per share of Preferred Stock, equal to
the difference between $1,000 and the market price for
the 100 shares of Common Stock included as part of the
Unit, calculated on the Expiration Date. Based upon the
average of the closing bid and asked prices for the
Common Stock on October 21, 1996, the last trading day prior to
the date of this Offering Circular, of $0.94, nine
shares of Preferred Stock would be issued as part of each
Unit. All fractional shares otherwise issuable will be
rounded down to the next whole share of Common Stock
or Preferred Stock, at the option of the Company, and
no cash will be issued.
Expiration Date......................................5:00 p.m. New York City time on November 20, 1996,
unless extended. See "The Exchange Offer - Extension
of Exchange Offer Period; Termination; Amendments."
Minimum Amount to be Tendered........................The Exchange Offer is not conditioned on the valid
tender of any minimum principal amount of Debentures
prior to the Expiration Date. All Debentures validly
tendered and not withdrawn prior to the Expiration Date
will be exchanged for Units.
Acceptance of All Debentures.........................Subject to the conditions of the Exchange Offer, the
Company intends to accept all Debentures duly tendered
and not withdrawn. If all Debentures are duly tendered
and accepted for exchange, a total of 22,050 Units will
be issued pursuant to the Exchange Offer consisting of
2,205,000 shares of Common Stock and 198,450 shares of
Preferred Stock.
Withdrawal Rights....................................Tenders of Debentures pursuant to the Exchange Offer
may be withdrawn at any time until the Expiration Date
and if not yet accepted for exchange, after the
expiration of forty business days from the commencement
of the Exchange Offer. See "The Exchange Offer--
Withdrawal Rights."
How to Tender........................................A holder of Debentures wishing to accept the Exchange
Offer must complete the accompanying Letter of
Transmittal and forward it to the Company and must
strictly comply with the procedures for exercise provided
in the Notification accompanying the Letter of
-8-
<PAGE>
Transmittal and provided by CEDEL BANK, S.A. or
EUROCLEAR, depending on which facility maintains the
account in which the holder's Debentures are registered.
Failure to comply with the exercise procedures set forth
in the appropriate Notification will constitute a failure
to tender Debentures in the Exchange Offer,
notwithstanding delivery of the Letter of Transmittal to
the Company. Letters of Transmittal should not be sent to
the Company. A tender of Debentures may only be made by
book-entry transfer by the Depository upon instruction
from CEDEL BANK, S.A. or EUROCLEAR. See "The Exchange
Offer -- Procedure for Exchange."
Acceptance of Tenders
and Issuance of Units................................Subject to satisfaction of the terms and conditions of the
Exchange Offer, the Company will deliver the shares of
Common Stock and Preferred Stock comprising the Units in
exchange for Debentures accepted for exchange as soon as
practicable after the Expiration Date. See "The Exchange
Offer -- Acceptance of Debentures for Exchange."
Accrued Interest.....................................All accrued and unpaid interest on the Debentures
accepted for exchange will be cancelled and disregarded
for purposes of the Exchange Offer.
Conditions of the Exchange Offer.....................The Exchange Offer is subject to a number of
conditions. See "The Exchange Offer -- Conditions of
the Exchange Offer."
Certain Income Tax Consequences......................For a discussion of certain federal income tax
consequences, see "Certain Federal Income Tax
Consequences."
Risk Factors.........................................Recipients of the Exchange Offer should consider
carefully the information set forth under the caption
"Risk Factors" and all other information set forth in this
Offering Circular.
Listing and Trading of Securities....................The Common Stock is traded over-the-counter on the
Electronic Bulletin Board under the symbol "AUTL."
There is no public trading market for the Preferred
Stock.
Transferability of Units.............................The Common Stock and Preferred Stock to be issued in
the Exchange Offer are being offered by the Company in
reliance upon an exemption from the registration
requirements of the Securities Act. Consequently, the
transferability of the Common Stock and Preferred Stock
will be substantially restricted. The Company has
-9-
<PAGE>
agreed to use its best efforts to cause the registration
of the Common Stock under the Securities Act no later
than six months following the Expiration Date. If the
Common Stock is so registered, the Common Stock will be
freely transferable. The Company does not intend to
register the Preferred Stock. See "Transferability of
Units."
Debentures Outstanding...............................At October 19, 1996, there was $22,050,000 in principal
amount of Debentures outstanding.
Market Price for Common Stock........................On October 21, 1996, the last reported bid and asked prices
for the Common Stock, as reported on the Electronic
Bulletin Board, were $0.81 and $1.06 per share,
respectively. See "Market Price for Common Stock and
Related Stockholder Matters."
Common Stock and Preferred Stock Outstanding.........At September 30, 1996, there were 4,634,530 shares of
Common Stock outstanding and no shares of Preferred
Stock outstanding.
The Securities
Common Stock.........................................Holders of Common Stock are entitled to receive
dividends, pro rata, out of assets legally available
therefor as, if and when dividends are declared by the
Board of Directors and subject to the prior payment in
full of dividends due and payable on senior classes of
capital stock, including the Preferred Stock. Each holder
of Common Stock is entitled to one vote per share held.
Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to
receive the assets available for distribution, pro rata,
after the prior payment of amounts due creditors and
holders of senior classes of capital stock, including the
Preferred Stock. The holders of Common Stock are not
entitled to preemptive rights and may not cumulate their
shares in the election of directors. See "Description of
Capital Stock -- Common Stock."
Preferred Stock......................................Holders of Preferred Stock are entitled to receive
dividends at an annual rate of 14% of the Stated Amount
($100.00 per share), payable quarterly on March 15, June
15, September 15 and December 15, commencing March 15,
1997. Dividends are payable, at the option of the
Company, in: (i) cash; (ii) Common Stock;
(iii) Non-Voting Common Stock; (iv) Preferred Stock; or
(v) any combination of the foregoing. Dividends declared
-10-
<PAGE>
and not paid will cumulate until paid, and no interest
will accrue on any unpaid dividend amount. Holders of
Preferred Stock are not entitled to vote unless otherwise
required by applicable law. The Preferred Stock is
convertible, only at the option of the Company, in whole
or in part, into shares of Non-Voting Common Stock at a
conversion rate per share of Preferred Stock equal to
(x) the Stated Amount ($100) plus accrued and unpaid
dividends to the date of conversion, divided by (y) the
Market Price of the Non-Voting Common Stock, determined
during a period of 20 consecutive trading days ending
within 15 days from the date notice of conversion is
given. The Preferred Stock is subject to redemption, only
at the option of the Company, in whole or in part, for a
cash amount per share equal to the Stated Amount plus
accrued and unpaid dividends to the date of redemption.
Upon liquidation, dissolution or winding up of the
Company, the holders of Preferred Stock are entitled to
the Stated Amount plus accrued and unpaid dividends
before the payment of any amounts to the holders of
Common Stock. After payment of the liquidation
preference, holders of Preferred Stock are not entitled
to share in any assets or funds remaining for
distribution. Holders of Preferred Stock are not entitled
to preemptive rights. See "Description of Capital Stock --
Preferred Stock."
-11-
</TABLE>
<PAGE>
RISK FACTORS
An investment in the Common Stock and the Preferred Stock involves
certain elements of risk. The Common Stock and the Preferred Stock comprising
the Units in the Exchange Offer involve, in certain instances, risks which are
different than those associated with the Debentures. Holders of Debentures
should carefully consider, among other things, the differences between the
Debentures and the Common Stock and Preferred Stock comprising the Units before
making any decision to tender their Debentures in the Exchange Offer. Holders of
Debentures who tender their Debentures in the Exchange Offer in exchange for
Units will no longer be entitled to any of the rights and privileges of the
Debentures, including, but not limited to: (i) the right to payment of interest
on the Debentures and (ii) the priority of the Debentures over the Common Stock
and Preferred Stock in the liquidation of the Company.
In addition to the risk factors associated with the differences between
the Debentures and the Common Stock and Preferred Stock comprising the Units,
holders of the Debentures also should carefully consider the following risk
factors in evaluating the Company before making any decision to exchange
Debentures for Units in the Exchange Offer.
Accumulated Losses; Going Concern. At March 31, 1996, the Company had
an accumulated deficit of $6,278,093 and, for the twelve months then ended, had
an operating loss of $13,116,333. In its report accompanying the audited
consolidated financial statements of the Company in its Annual Report on Form
10-K, the Company's independent auditors, Deloitte & Touche LLP, included an
explanatory paragraph to the effect that the Company's recurring losses from
operations and stockholders' capital deficiency raise substantial doubts about
the Company's ability to continue as a going concern. Although the cancellation
of any Debentures tendered for exchange in the Exchange Offer will improve the
stockholders' capital deficiency, the extent of any improvement will be
substantially dependent upon the number of Debenture holders who participate in
the Exchange Offer. If an appreciable amount of the principal amount of
Debentures is not tendered in the Exchange Offer and remains outstanding
following the Expiration Date, the Company's financial position likely will not
improve. Moreover, regardless of the success of the Exchange Offer, unless and
until the Company can successfully consummate an acquisition and generate
positive cash flow, as to either of which there is no assurance, the Company's
losses will continue and the Company may have no alternative but to seek
protection under the United States bankruptcy laws.
Event of Default; Acceleration of Debenture Obligations. On October 19,
1996, an Event of Default occurred under the Debentures resulting from the
Company failing to pay interest when due. Pursuant to the terms of the
Debentures, the holders of the Debentures have the right to accelerate in full
the obligation of the Company to pay the entire principal amount outstanding
plus accrued and unpaid interest on the Debentures. The Company currently does
not have sufficient assets with which to meet this payment obligation if all of
the Debentures are accelerated. Moreover, depending upon the principal amount of
Debentures which are not tendered for exchange in the Exchange Offer and which
remain outstanding following the Expiration Date, and depending upon whether the
holders of those outstanding Debentures exercise their rights to accelerate
payment of the Debentures, the Company may still have insufficient assets with
which to meet its obligations. In such event, the Company may seek protection
under the United States bankruptcy laws or may choose to liquidate. In either
event, holders of capital stock of the Company, including those who exchange
Debentures for Common Stock and Preferred Stock in the Exchange Offer, will be
subordinate to the holders of the remaining principal amount of Debentures then
outstanding as to the receipt of any assets available for distribution.
Consequently, the success of the Company will remain substantially dependent
upon all or substantially all Debenture holders tendering their Debentures for
exchange in the Exchange Offer.
Risks Associated with Acquisitions. The Company currently has no
operating business, and its strategy for growth is dependent upon the
acquisition of a business in a competitive and dynamic market to achieve growth.
Certain risks are inherent in an acquisition strategy, such as increasing
leverage and debt service requirements, diversion of management time and
attention and combining disparate company cultures and facilities, all of which
-12-
<PAGE>
could adversely affect the Company's operating results. The success of any
acquisition will depend in part on the Company's ability to integrate
effectively the acquired business into the Company, and the integration process
may involve unforeseen difficulties and may utilize a substantial portion of the
Company's financial and other resources. No assurance can be given that a
suitable acquisition candidate will be identified, financed and purchased on
acceptable terms, or that if completed, will be successful.
Likely Need for Additional Financing. It is anticipated that all or
substantially all of the Company's limited cash resources will be used to fund a
portion of the purchase price in any acquisition transaction. Consequently, the
Company expects that it will require additional financing either to complete the
acquisition or to fund working capital requirements for the new business. One of
the principal reasons for the Exchange Offer is to improve the Company's
financial condition to increase the likelihood for additional equity financing
or debt financing at more favorable rates and on more favorable terms. The
Company currently has no arrangements with respect to any sources for additional
financing, and there can be no assurance that additional financing will be
available to the Company on commercially reasonable terms. Any inability to
obtain additional financing will have a material adverse effect on the Company
and could cause the Company to curtail its acquisition strategy.
Exchange Offer May have Tax Consequences to the Company. The exchange
of Debentures for Common Stock and Preferred Stock in the Exchange Offer will
have certain tax consequences to the holders of Debentures, each of whom is
urged to consult his tax advisor as to the particular tax consequences
associated with such holder. Additionally, if all of the Debentures are tendered
for exchange in the Exchange Offer, the Company will recognize cancellation of
indebtedness income in an amount equal to the difference, if any, between the
face amount of the Debentures exchanged and the fair market value of the Units.
Although the Company believes that the fair market value of the Units will not
be less than the principal amount of the Debentures exchanged therefor, there
can be no assurance that the Internal Revenue Service will not seek to challenge
the Company's determination of the value of the Units in the Exchange Offer,
which challenge, if successful, could cause the cancellation of indebtedness
income to exceed the Company's net operating loss carryforward (the availability
of which also may be limited as a result of the Exchange Offer), resulting in
the recognition of taxable income by the Company from the Exchange Offer.
Maintenance Criteria for Nasdaq Securities; Disclosure Relating to Low
Priced Stock. The National Association for Securities Dealers, Inc. (the
"NASD"), which administers Nasdaq, maintains criteria for continued Nasdaq
eligibility. On May 21, 1996, the Company's Common Stock was delisted from the
Nasdaq SmallCap Market by the NASD because the Company's stockholders' equity
had fallen below $2.0 million and the bid price for the Company's Common Stock
had fallen below the minimum allowable price of $1.00. The Company believes that
the cancellation of the Debentures tendered in the Exchange Offer will improve
stockholders' equity, increase the book value, and, likely the market price, for
the Common Stock, and will allow the Company to regain compliance with the
aforementioned listing requirements. There can be no assurance, however, that
the Company will regain its listing on the Nasdaq SmallCap Market. Until such
time, if ever, that the Common Stock is so listed, the Common Stock will trade
in the over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap Market listing requirements or
in what is commonly referred to as the "pink sheets." As a result, holders of
Common Stock should expect to find it more difficult to dispose of, or to obtain
accurate quotations on the price of Common Stock. In addition, by virtue of the
delisting, additional sales practice requirements are imposed on broker-dealers
who trade in the Common Stock other than established customers and accredited
investors. For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale. Such burdens on
trading in the Common Stock should be expected to discourage active trading
which would reduce the liquidity of the Common Stock and increase the spread
between the bid and ask prices quoted by those broker-dealers, if any, which
quote the Common Stock.
-13-
<PAGE>
No Dividends. The Company does not anticipate paying any cash dividends
in the foreseeable future as earnings, if any, will likely be retained by the
Company to finance the Company's operations and expand its business.
Consequently, holders of Common Stock should not expect to receive dividends and
holders of Preferred Stock should not expect to receive cash in payment of
dividends payable on their shares.
Control by Certain Stockholders. At September 30, 1996, Mr. Nunzio
DeSantis beneficially owned 13.1% of the Common Stock of the Company, including
shares of Common Stock over which he has voting control as voting trustee of
shares owned by Steve Simon and Helen Porter under a Voting Trust Agreement
established as part of the Stipulation. Although the shares owned by Mr.
DeSantis do not constitute "control" of the Company, depending upon the
concentration of ownership of the Common Stock by others, Mr. DeSantis will have
substantial influence in the election of the Company's Board of Directors and
thereby the policies of the Company.
Shares Eligible for Future Sale. At September 30, 1996, the Company had
outstanding a total of 4,634,530 shares of Common Stock excluding shares
issuable upon excerise of outstanding warrants and options. All outstanding
shares are, and all shares issuable upon exercise of the options, and
substantially all shares issuable upon exercise of the warrants will be,
available for resale in the public market without restriction, with the
exception of those outstanding shares and those shares issuable upon exercise of
warrants and options owned by affiliates of the Company. If the outstanding
options and warrants are exercised, the stockholders of the Company, including
those holders of Common Stock who receive their shares in exchange for
Debentures in the Exchange Offer, will experience additional dilution.
Under Rule 144 promulgated under the Securities Act, affiliates of the
Company are permitted to sell, every three months, in ordinary brokerage
transactions or in transactions directly with a market maker, an amount equal to
the greater of one percent of the Company's outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
The sale of a substantial number of these shares could also have an adverse
effect on the market price for the Common Stock.
Restrictions on Transfer of Common Stock Issued in the Exchange Offer.
The Common Stock and Preferred Stock issued in exchange for the Debentures in
the Exchange Offer are being offered in reliance upon an exemption from the
registration requirements of the Securities Act. Consequently, such shares will
not be transferable in the United States absent registration under the
Securities Act or an exemption therefrom, including Rule 144 promulgated under
the Securities Act, which imposes a two year holding period as well as volume
and manner of sale limitations on the sale of "restricted securities." The
Company has agreed to use its best efforts to cause the registration of the
Common Stock issued in the Exchange Offer under the Securities Act within six
months following the Expiration Date for resale by the holders thereof, as well
as the sale of the Non-Voting Common Stock to be issued in the event the
Debentures are converted at the option of the Company. If the registration
statement is declared effective, the shares will become freely transferable,
subject to compliance with applicable state securities laws. Until such time, if
ever, that the registration statement is declared effective, Debenture holders
who receive Common Stock as part of the Units in exchange for their Debentures,
and who receive Non-Voting Common Stock if and when the Preferred Stock is
converted, will experience substantial restrictions on transfer.
No Trading Market for the Preferred Stock. There is no trading market
for the Preferred Stock and it is not expected that a trading market will
develop. The Company does not intend to list or otherwise qualify the Preferred
Stock for inclusion or quotation on any exchange or in the over-the-counter
market. The Company does presently intend, however, to qualify the Non-Voting
Common Stock for inclusion on the NASDAQ Stock Market, subject to notice of
issuance upon conversion, if ever, of the Preferred Stock.
-14-
<PAGE>
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996, the Company reported a net operating loss of
$13,116,802 for the year then ended and an accumulated deficit of $6,273,093. In
its Auditors' Report accompanying the Company's audited consolidated financial
statements in the Form 10-K, the Company's independent auditors, Deloitte &
Touche LLP, included an explanatory paragraph stating that the Company's
recurring losses from operations and stockholders' capital deficiency raise
substantial doubt about its ability to continue as a going concern.
The Company's financial condition also resulted in the delisting of the
Company's Common Stock from both the Boston Stock Exchange and the Nasdaq Stock
Market for failing to meet listing eligibility criteria. The delisting of the
Company's Common Stock has resulted in substantial illiquidity for the Company's
stockholders, a decrease in the stock price and a general deterioration of the
Company as viewed by the investment community.
Prior to the consummation of the transactions contemplated by the
Stipulation, the Company's prior management had concluded that the Company's
viability as a going concern was dependent upon the successful closing of such
transactions, the restructuring of its obligations and asset base and
ultimately, a return to profitability. The Company's current management has
concluded that a return to profitability can only occur if the Company
discontinues its automobile finance business and identifies a more viable
business opportunity to which the Company can contribute its existing cash
resources and management experience. The Company's management has concluded that
only by changing the Company's strategic focus to a new business will the
Company be able to avoid bankruptcy, preserve stockholder investment and,
ultimately, increase stockholder value.
If the Company is unable to successfully, and within a reasonably short
period of time, redirect its resources toward a viable business enterprise, the
Company will likely have no alternative but to seek protection under the United
States bankruptcy laws. In such event, the Company's assets will be insufficient
to satisfy its obligations to the Debenture holders. The Company believes that
this fact is already reflected in the substantial discount from face amount at
which the Debentures currently are valued. Moreover, the Company believes that
so long as the Debentures remain outstanding, the obligation to pay interest
will continue to deplete the limited cash resources which must be preserved for
use in acquiring a business, and the obligation to repay the Debentures at
maturity will represent a substantial and, possibly insurmountable, impediment
for the Company to successfully pursue its business objectives and increase
stockholder value.
Finally, so long as the Debentures remain outstanding, the Company's
liabilities will substantially exceed its assets and will prevent the Company
from relisting its Common Stock on an established trading market.
Accordingly, the Company's Board of Directors has concluded that the
Debenture holders and the stockholders will be best served by the Company's
efforts to develop a successful business which the Board believes will not be
possible with the current Debentures outstanding and its impact on the Company's
balance sheet. By substituting Common Stock and Preferred Stock for the
Debentures, the Company will eliminate its debt and substantially improve its
balance sheet. The book value per share of the Common Stock will increase from
the substantial reduction in the Company's liabilities, providing an immediate
benefit to the Company's stockholders, including the Debenture holders who will
receive Common Stock in the Exchange Offer. The reduction in the Company's
liabilities will also substantially improve the likelihood that the Company's
Common Stock will again be listed on the Nasdaq Stock Market, providing
increased liquidity to the Company's stockholders and enabling
-15-
<PAGE>
the Company to use equity to supplement its limited cash resources to improve
its ability to identify and conclude a significant acquisition. Additionally, by
exchanging debt for equity, the Debenture holders will participate with other
equity holders in the appreciation, if any, in the value of the Company by
virtue of the Company implementing its business strategy. Finally, the Preferred
Stock will provide the Debenture holders with an opportunity to continue to
improve their equity participation in the Company through conversion and through
the dividend which is payable in equity at the option of the Company, without
placing a severe financial burden on the Company or on its balance sheet.
The Company will cancel any Debentures tendered in the Exchange Offer
and has no present intention to reissue such securities.
-16-
<PAGE>
SELECTED FINANCIAL AND PRO FORMA INFORMATION
The following tables show the pro forma effects the Exchange Offer
would have had on the Company for the fiscal year ended March 31, 1996 and at
and for the three months ended June 30, 1996 if the percentage of principal
amount of Debentures outstanding as specified in the tables below had been
exchanged on such date or on the first day of said periods, based upon the
assumptions set forth below. Reference is made to the historical audited
consolidated financial information of the Company set forth in its Annual Report
on Form 10-K for the year ended March 31, 1996, to the historical unaudited
consolidated financial information of the Company set forth in its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, and to the unaudited
pro forma condensed consolidated financial statements of the Company, giving
effect to the sale of IAP pursuant to the Stipulation, set forth in its Current
Report on Form 8-K dated September 18, 1996, which Form 10-K, Form 10-Q and Form
8-K are incorporated by reference herein and included as Exhibits "A," "B" and
"C," respectively. The historical financial information set forth in the tables
below is derived from the Current Report on Form 8-K dated September 18, 1996
and gives effect to the sale of IAP as if it had occurred on or as of the dates
indicated below.
AUTOLEND GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
===================================================================================================================================
50% EXCHANGE 100% EXCHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
PROFORMA RESULTING PROFORMA RESULTING
HISTORICAL ADJUSTMENT PROFORMA ADJUSTMENTS PROFORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 9,726,984 $9,726,984 $ 9,726,984
Securities available for sale 1,175,000 1,175,000 1,175,000
Accounts Receivable - matured insurance policies 148,102 148,102 148,102
- ------------------------------------------------------------------------------------------------------------------------------------
Installment contracts receivable - gross $10,062,914 $10,062,914 $10,062,914
Collateral owned - gross 819,268 819,268 819,268
Allowance for credit losses (3,020,776) (3,020,776) (3,020,776)
----------- ----------- -----------
Installment contracts receivables - Net $7,861,406 $7,861,406 $7,861,406
- ------------------------------------------------------------------------------------------------------------------------------------
Purchased insurance policies, face value of $2,126,198 1,462,583 1,462,583 1,462,583
Accrued interest receivable on investments 5,535 5,535 5,535
Fixed assets, less accumulated depreciation of $147,770 323,361 323,361 323,361
Unamortized debenture issuance costs, net 295,987 (147,994)(a) 147,994 (295,987)(a) 0
Pre-paid consulting fees 420,000 420,000 420,000
Other 376,224 376,224 376,224
------- ------- -------
Total Assets $21,795,182 (147,994) $21,647,189 (295,987) $21,499,195
----------- --------- ----------- --------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Accounts payable & accrued liabilities $1,090,848 50,000(b) $1,140,848 50,000(b) $1,090,848
Accrued acquisition costs 656,542 656,542 656,542
Accrued debenture interest expense 1,635,057 (817,529)(c) 817,529 (1,635,057)(c) 0
Convertible debentures, at face value 22,050,000 (11,025,000)(d) 11,025,000 (22,050,000)(d) 0
---------- ------------ ---------- ------------ ----------
Total Liabilities $25,432,447 ($11,792,529) $13,639,919 ($23,635,057) $1,797,390
----------- ------------- ----------- ------------ ----------
-17-
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock, $0.002 par value $0 $198 (e) $198 $397 (e) $397
Common stock, $0.002 par value 9,269 2,205 (f) 11,474 4,410 (f) 13,679
Additional paid-in capital 5,946,904 21,147,597 (g) 27,094,501 42,295,193 (g) 48,242,097
Accumulated deficit (9,593,438) (9,505,465)(h) (19,098,903) (18,960,930)(h)(28,554,368)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity ($3,637,265) $11,644,535 $8,007,270 $23,339,070 $19,701,805
------------ ----------- ---------- ----------- -----------
Total Liabilities and Stockholders' Equity $21,795,182 ($97,994) $21,697,189 ($245,987) $21,499,195
------------ ----------- ---------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
Stock share data:
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock, weighted average
number of shares outstanding 0 99,225 99,225 198,450 198,450
Common stock, weighted average
number of shares outstanding 4,634,530 1,102,500 5,737,030 2,205,000 6,839,530
Book value per share of common ($0.78) n/a $1.40 n/a $2.89
- ------------------------------------------------------------------------------------------------------------------------------------
Assumptions:
- ------------------------------------------------------------------------------------------------------------------------------------
Assumed proportion of Debentures tendered 50% 100%
Assumed number of shares Common Stock per Unit 100 100
Assumed price per share of Common Stock $1.00 $1.00
Assumed number of shares of Preferred Stock per Unit 9.0 9.0
====================================================================================================================================
</TABLE>
-18-
<PAGE>
AUTOLEND GROUP, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
==============================================================================================================
50% EXCHANGE
- --------------------------------------------------------------------------------------------------------------
PROFORMA RESULTING
HISTORICAL ADJUSTMENT PROFORMA
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts $7,808,369 $7,808,369
Revenues from matured insurance policies 1,326,706 1,326,706
--------- ---------
Gross Revenues $9,135,075 $0 $9,135,075
Cost of matured insurance policies 784,848 784,848
------- -------
Net Revenues $8,350,227 $0 $8,350,227
---------- ----------
- --------------------------------------------------------------------------------------------------------------
Operating Expenses:
General & Administrative expenses $9,768,747 $9,768,747
Provisions for credit losses on installment contracts 8,839,461 $8,839.461
--------- ----------
Total Operating Expenses $18,608,208 $0 $18,608,208
----------- -----------
- --------------------------------------------------------------------------------------------------------------
Net Operating Earnings/(Loss): ($10,257,981) $0 $(10,257,981)
------------- -- -------------
- --------------------------------------------------------------------------------------------------------------
Other Ordinary Income & (Expense):
Interest income on investments $603,356 $603,356
Realized gains on sales of marketable securities 1,137 1,137
Gain on sale of viatical trademarks 300,000 300,000
Amortization of loss on sale of viatical portfolio (392,063) (392,063)
Write-off of fixed assets 0 0
Misc. other income 65,337 65,337
------ ------
Subtotal - Net other ordinary income $577,767 $0 $577,767
Debenture and other interest expense (3,269,878) 1,047,375 (i) (2,242,501)
Preferred stock interest expense 0 (1,389,150)(j) (1,389,150)
Debt conversion expense - estimated transaction costs 0 (50,000)(h) (50,000)
Debt conversion expense - unamortized debenture
issuance costs 0 (147,994)(h) (147,994)
Debt conversion expense - GAAP value of equity
differential 0 (10,125,000)(h) (10,125,000)
----------- ----------- -----------
Total - Net other ordinary expense ($2,712,109) ($10,644,769) ($13,376,878)
----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------------
Income before taxes, extraordinary items and change in
accounting principle $(12,970,090) ($10,644,769) ($23,634,859)
Income tax effect on above 4,935,676 0 4,935,676
----------- ------------ ------------
Income after taxes, but before extraordinary items and
change in accounting principle ($8,034,414) ($10,644,769) ($18,699,183)
----------- ------------ ------------
- --------------------------------------------------------------------------------------------------------------
Impact of Discontinued Operations, Extraordinary
Items, and change in accounting principle:
Operating Loss from discontinued Subsidiary net of tax ($146,243) ($146,243)
Gain on sale of Subsidiary 497,808 497,808
Gain on early repayment of debt, net of tax 7,306,907 7,306,907
Gain on projected exchange of debt for equity 0 0 0
Cum. effect of change in accounting principle, net of tax 176,735 176,735
------- -------
Subtotal - Net extraordinary items $7,835,270 0 $7,835,270
---------- ----------
- --------------------------------------------------------------------------------------------------------------
Net Income/(Loss) ($199,144) ($10,664,769) ($10,863,913)
---------- ----------- ------------
- --------------------------------------------------------------------------------------------------------------
Stock share data:
Preferred stock, weighted average number
of shares outstanding 0 99,225 99,225
Common stock, weighted average number
of shares outstanding 4,634,530 1,102,500 5,737,030
Book value per share of common ($0.78) n/a $1.40
Earnings (Loss)/share before extraordinary items ($1.73) n/a ($3.26)
Earnings/(Loss) per common share ($0.04) n/a ($1.89)
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================
100% EXCHANGE
- ---------------------------------------------------------------------------------------------
PROFORMA RESULTING
ADJUSTMENT PROFORMA
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Finance charges on installment contracts $7,808,369
Revenues from matured insurance policies 1,326,706
---------
Gross Revenues $0 $9,135,075
Cost of matured insurance policies 784,848
-------
Net Revenues $0 $8,350,227
----------
- ---------------------------------------------------------------------------------------------
Operating Expenses:
General & Administrative expenses $9,768.747
Provisions for credit losses on installment contracts 8,839,461
---------
Total Operating Expenses $0 $18,608,208
-----------
- ---------------------------------------------------------------------------------------------
Net Operating Earnings/(Loss): $0 ($10,257,981)
-- -------------
- ---------------------------------------------------------------------------------------------
Other Ordinary Income & (Expense):
Interest income on investments $603,356
Realized gains on sales of marketable securities 1,137
Gain on sale of viatical trademarks 300,000
Amortization of loss on sale of viatical portfolio (392,063)
Write-off of fixed assets 0
Misc. other income 65,337
--- ------
Subtotal - Net other ordinary income $0 $577,767
Debenture and other interest expense 2,094,750 (i) (1,195,128)
Preferred stock interest expense (2,778,300)(j) (2,778,300)
Debt conversion expense - estimated transaction costs (50,000)(h) (50,000)
Debt conversion expense - unamortized debenture
issuance costs (295,987)(h) (295,987)
Debt conversion expense - GAAP value of equity
differential (20,250,000)(h) (20,250,000)
------------ -----------
Total - Net other ordinary expense ($21,279,537) ($23,991,646)
------------ -----------
- ---------------------------------------------------------------------------------------------
Income before taxes, extraordinary items and change in
accounting principle ($21,279,537) ($34,249,627)
Income tax effect on above 0 4,935,676
----------- ---------
Income after taxes, but before extraordinary items and
change in accounting principle ($21,279,537) ($29,313,951)
------------ ------------
- ---------------------------------------------------------------------------------------------
Impact of Discontinued Operations, Extraordinary
Items, and change in accounting principle:
Operating Loss from discontinued Subsidiary net of tax ($146,243)
Gain on sale of Subsidiary 497,808
Gain on early repayment of debt, net of tax 7,306,907
Gain on projected exchange of debt for equity 0 0
Cum. effect of change in accounting principle, net of tax 176,735
-------
Subtotal - Net extraordinary items 0 $7,835,270
----------
- ---------------------------------------------------------------------------------------------
Net Income/(Loss) ($21,279,537) ($21,478,681)
------------ ------------
- ---------------------------------------------------------------------------------------------
Stock share data:
Preferred stock, number of shares outstanding 198,450 198,450
Common stock number of shares outstanding 2,205,000 6,839,530
Book value per share of common n/a $2.89
Earnings (Loss)/share before extraordinary items n/a ($4.29)
Earnings/(Loss) per common share n/a ($3.14)
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
50% EXCHANGE 100% EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
PROFORMA RESULTING PROFORMA RESULTING
HISTORICAL ADJUSTMENT PROFORMA ADJUSTMENT PROFORMA
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assumptions:
Assumed proportion of Debentures tendered 50% 100%
Assumed number of shares of Common Stock per Unit 100 100
Assumed price per share of Common Stock $1.00 $1.00
Assumed number of shares of Preferred Stock per Unit
9.0 9.0
=================================================================================================================================
</TABLE>
-20-
<PAGE>
AUTOLEND GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
===============================================================================================================
50% EXCHANGE
- ---------------------------------------------------------------------------------------------------------------
PROFORMA RESULTING
HISTORICAL ADJUSTMENT PROFORMA
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts $616,639 $616,639
Revenues from matured insurance policies 0 0
------------
Gross Revenues $616,639 $0 $616,639
Cost of matured insurance policies 0 0
------------ --------
Net Revenues $616,639 $0 $616,639
-------- -- --------
- ---------------------------------------------------------------------------------------------------------------
Operating Expenses:
General & Administrative expenses $1,484,777 $1,484,777
Provisions for credit losses on installment contracts 1,921,292 $1,921,292
--------- ----------
Total Operating Expenses $3,406,069 $0 $3,406,069
---------- ----------
- ---------------------------------------------------------------------------------------------------------------
Net Operating Earnings/(Loss): ($2,789,430) $0 ($2,789,430)
----------- -- ------------
- ---------------------------------------------------------------------------------------------------------------
Other Ordinary Income & (Expense):
Interest income on investments $22,223 $22,223
Realized gains on sales of marketable securities 0 0
Gain on sale of viatical trademarks 0 0
Amortization of loss on sale of viatical portfolio 0 0
Write-off of fixed assets (568,649) (568,649)
Misc. other income 126,424 126,424
------- -------
Subtotal - Net other ordinary income ($420,002) $0 ($420,002)
Debenture and other interest expense (537,228) 261,844 (i) (275,384)
Preferred Stock interest expense 0 (347,288)(j) (347,288)
Debt conversion expense - estimated
transaction costs 0 (50,000)(h) (50,000)
Debt conversion expense - unamortized
debenture issuance costs 0 (147,994)(h) (147,994)
Debt conversion expense - GAAP value of
equity differential 0 (10,125,000)(h) (10,125,000)
-------- ----------- -----------
Total - Net other ordinary expense ($957,230) ($10,408,437) ($11,365,667)
-------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------
Income before taxes, extraordinary items and change in
accounting principle ($3,746,660) ($10,408,437) ($14,155,097)
Income tax effect on above 0 0 0
----------- ------------ ------------
Income after taxes, but before extraordinary items and
change in accounting principle ($3,746,660) ($10,408,437) ($14,155,097)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------
Impact of Discontinued Operations, Extraordinary
Items, and change in accounting principle:
Operating Loss from discontinued Subsidiary net of tax ($141,218) ($141,218)
Gain on sale of Subsidiary 497,808 497,808
Gain on early repayment of debt, net of taxes 0 0
Gain on projected exchange of debt for equity 0 0 0
Cum. effect of change in accounting principle, net of tax 0 0
- -
Subtotal - Net extraordinary items $356,590 0 $356,590
-------- --------
- ---------------------------------------------------------------------------------------------------------------
Net Income/(Loss) ($3,390,070) ($10,408,437) ($13,798,507)
----------- ------------ ------------
- ---------------------------------------------------------------------------------------------------------------
Stock share data:
Preferred stock, weighted average number
of shares outstanding 0 99,225 99,225
Common stock, weighted average number
of shares outstanding 4,634,530 1,102,500 5,737,030
Book value per share of common ($0.78) n/a $1.40
Earnings (Loss)/share before extraordinary items ($0.81) n/a ($2.47)
Earnings/(Loss) per common share ($0.73) n/a ($2.41)
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
100% EXCHANGE
- ----------------------------------------------------------------------------------------------
PROFORMA RESULTING
ADJUSTMENT PROFORMA
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Finance charges on installment contracts $616,639
Revenues from matured insurance policies 0
Gross Revenues $0 $616,639
Cost of matured insurance policies 0
Net Revenues $0 $616,639
-- --------
- ----------------------------------------------------------------------------------------------
Operating Expenses:
General & Administrative expenses $1,484,777
Provisions for credit losses on installment contracts 1,921,292
---------
Total Operating Expenses $0 $3,406,069
----------
- ----------------------------------------------------------------------------------------------
Net Operating Earnings/(Loss): $0 ($2,789,430)
-- ------------
- ----------------------------------------------------------------------------------------------
Other Ordinary Income & (Expense):
Interest income on investments $22,228
Realized gains on sales of marketable securities 0
Gain on sale of viatical trademarks 0
Amortization of loss on sale of viatical portfolio 0
Write-off of fixed assets (568,649)
Misc. other income 126,424
-------
Subtotal - Net other ordinary income $0 ($420,002)
Debenture and other interest expense 523,688 (i) (13,541)
Preferred Stock interest expense (694,575)(j) (694,575)
Debt conversion expense - estimated
transaction costs (50,000)(h) (50,000)
Debt conversion expense - unamortized
debenture issuance costs (295,987)(h) (295,987)
Debt conversion expense - GAAP value of
equity differential (20,250,000)(h) (20,250,000)
----------- -----------
Total - Net other ordinary expenses ($20,766,875) ($21,724,105)
------------ ------------
- ----------------------------------------------------------------------------------------------
Income before taxes, extraordinary items and change in
accounting principle ($20,766,875) ($24,513,535)
Income tax effect on above 0 0
------------ ------------
Income after taxes, but before extraordinary items and
change in accounting principle ($20,766,875) ($24,513,535)
------------ ------------
- ----------------------------------------------------------------------------------------------
Impact of Discontinued Operations, Extraordinary
Items, and change in accounting principle:
Operating Loss from discontinued Subsidiary net of tax ($141,218)
Gain on sale of Subsidiary 497,808
Gain on early repayment of debt, net of taxes 0
Gain on projected exchange of debt for equity 0 0
Cum. effect of change in accounting principle, net of tax 0
-
Subtotal - Net extraordinary items $0 $356,590
--------
- ----------------------------------------------------------------------------------------------
Net Income/(Loss) $537,228 ($24,156,945)
-------- ------------
- ----------------------------------------------------------------------------------------------
Stock share data:
Preferred stock, weighted average number
of shares outstanding 198,450 198,450
Common stock, weighted average number
of shares outstanding 2,205,000 6,839,530
Book value per share of common n/a $2.89
Earnings (Loss)/share before extraordinary items n/a ($3.58)
Earnings/(Loss) per common share n/a ($3.53)
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
50% EXCHANGE 100% EXCHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
PROFORMA RESULTING PROFORMA RESULTING
HISTORICAL ADJUSTMENT PROFORMA ADJUSTMENT PROFORMA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assumptions:
Assumed proportion of Debentures tendered 50% 100%
Assumed number of shares of Common Stock per Unit 100 100
Assumed price per share of Common Stock $1.00 $1.00
Assumed number of shares of Preferred Stock per Unit 9.0 9.0
====================================================================================================================================
</TABLE>
Notes to Selected Pro Forma Information
(1) Basis of Presentation
The accompanying pro forma consolidated balance sheet as of June 30, 1996
has been prepared as if the Exchange Offer has been completed on June 30, 1996.
The pro forma consolidated income statement for the three months ended June 30,
1996 has been prepared as if the Exchange Offer had been completed on April 1,
1996. The pro forma consolidated income statement for the year ended March 31,
1996 has been prepared as if the Exchange Offer had been completed on April 1,
1995. The pro forma financial information should be read in conjunction with the
financial statements and related notes set forth in Exhibits A, B and C in this
Offering Circular.
(2) Pro Forma Adjustments
The pro forma adjustments necessary to reflect the pro forma consolidated
balance sheet are discussed below.
(a) To record the write off of the remaining unamortized Debenture issuance
costs related to the Debentures exchanged.
(b) To record the accrual of the expenses related to the exchange.
(c) To record a reduction in accrued interest related to the Debentures
exchanged.
(d) To record the retirement of the Debentures pursuant to the exchange.
(e) To record the par value of the Preferred Stock issued in the exchange.
(f) To record the par value of the Common Stock issued in the exchange.
(g) To record the following adjustments to additional paid-in-capital:
50% exchange 100% exchange
------------ -------------
To record the premium over par value
of the Preferred Stock issued $9,922,302 $19,844,603
To record the premium over par value
of the Common Stock issued 1,100,295 2,200,590
To record the fair value of the Preferred
Stock and Common Stock issued in the
exchange in excess of the fair value of
the Common Stock issuable pursuant to
the original conversion terms of the
Debentures 10,125,000 20,250,000
----------- -----------
$21,147,597 $42,295,193
=========== ===========
(h) To record the following adjustments to retained earnings (accumulated
deficit):
50% exchange 100% exchange
------------ -------------
To record the fair value of the Preferred
Stock and Common Stock issued in the
exchange in excess of the fair value of
the Common Stock issuable pursuant to
the original conversion terms of the
Debentures. $10,125,000 $20,250,000
To record the benefit of the cancellation
of the accrued interest on the Debentures. (817,529) (1,635,057)
To record the write off of the unamortized
Debenture issuance costs. 147,994 295,987
To record the estimated expenses related
to the exchange. 50,000 50,000
----------- -----------
$ 9,505,465 $18,960,930
----------- -----------
The pro forma adjustments necessary to reflect the pro forma consolidated
income statements for the year ended March 31, 1996 and the three months ended
June 30, 1996 are discussed below.
(i) To record the reduction in interest expense from the retirement of the
Debentures.
(j) To record interest expense at the rate of 14% on the Preferred Stock.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants were quoted on the NASDAQ
Smallcap Market under the symbol CARS and CARSW, respectively, until May 21,
1996. On that date the Common Stock and Warrants were delisted from the Nasdaq
SmallCap Market due to the Company's failure to meet eligibility criteria for
continued listing. Since that date, the Common Stock and the Warrants have
traded on an Electronic Bulletin Board established for securities which do not
meet or are otherwise not included for listing on the Nasdaq Stock Market or
otherwise listed for trading on another established securities exchange. From
July 1, 1990 until its delisting on August 20, 1996, the Common Stock also was
listed on the Boston Stock Exchange under the symbol "OTO."
The following table sets forth for the periods indicated the range of
high and low bid prices for the Common Stock and Warrants as reported by NASDAQ.
The prices reflect interdealer prices without mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
================================================================================================================================
Common Stock Class A Warrants(1)
- --------------------------------------------------------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year Ended March 31, 1995:
Quarter ended June 30, 1994 $ 4 1/8 $ 2 1/4 $ 1 5/8 $ 3/4
Quarter ended September 30, 1994 3 3/4 1 3/4 1 1/8 5/16
Quarter ended December 31, 1994 3 1/4 1 3/4 13/16 5/16
Quarter ended March 31, 1995 3 1/4 1 5/18 9/16 1/8
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended March 31, 1996:
Quarter ended June 30, 1995 $ 2 3/8 $ 1 3/8 $ 3/8 $ 5/32
Quarter ended September 30, 1995 2 5/8 1 9/16 19/32 3/16
Quarter ended December 31, 1995 2 1/16 7/8 19/32 1/8
Quarter ended March 31, 1996 1 3/8 7/8 7/16 3/16
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ending March 31, 1997:
Quarter ended June 30, 1996 $ 1 5/8 $ 5/8 $ 11/32 $ 1/32
Quarter ended September 30, 1996 1 1/4 5/8 .15 .05
Quarter ended December 31, 1996
(through October 18, 1996) 1 /16 5/8 --(2) --(2)
================================================================================================================================
</TABLE>
(1) Each Class A Warrant entitled the registered holder thereof to purchase
one share of Common Stock and one Class B Warrant through July 30, 1997
at an exercise price of $4.00, subject to adjustment. Each Class B
Warrant entitled the registered holder thereof to purchase one share of
Common Stock from the date of issuance through July 30, 1997 at an
exercise price of $7.00, subject to adjustment.
(2) There were no reported trades of the Class A Warrants during these
periods.
As of October 21, 1996 the last reported sale price for the Common
Stock was $1.06 based upon an October 21, 1996 trade on the Electronic Bulletin
Board. At September 30, 1996 there were 4,634,530 shares of Common Stock
outstanding.
-22-
<PAGE>
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
presently intends to retain any earnings to finance growth and, therefore, does
not anticipate paying dividends on the Common Stock in the foreseeable future.
Moreover, the Company presently anticipates that dividends on the Preferred
Stock will be payable other than in cash. See "Description of Capital Stock -
Preferred Stock - Dividends."
THE EXCHANGE OFFER
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Offering Circular and in the accompanying Letter of
Transmittal, to exchange one Unit for each $1,000 principal amount of Debentures
that is validly deposited and tendered and not withdrawn prior to the Expiration
Date. Each Unit consists of: (i) 100 shares of Common Stock and (ii) such number
of shares of Preferred Stock as shall have an aggregate value, on the basis of
the Stated Value of $100 per share of Preferred Stock, equal to the difference
between $1,000 and the aggregate market price for the 100 shares of Common Stock
comprising a portion of the Unit, determined as of the Expiration Date. The
market price per share of the Common Stock on the Expiration Date shall be equal
to the average of the last reported bid and ask prices for the Common Stock on
the Expiration Date as reported on the Electronic Bulletin Board on which the
Common Stock currently trades. Interest accrued on the Debentures through the
Expiration Date will be cancelled and disregarded for purposes of the Exchange
Offer. Debentures which are tendered and accepted for exchange and which are not
withdrawn as permitted will cease to accrue interest on the Expiration Date.
The Exchange Offer is subject to a number of conditions. See "The
Exchange Offer -- Conditions of the Exchange Offer." There is $22,050,000
aggregate principal amount of the Debentures outstanding. The Exchange Offer is
being made for any and all Debentures and is not conditioned upon a minimum
principal amount of the Debentures being tendered and not withdrawn. The Company
reserves the right to terminate or amend the Exchange Offer at any time on or
prior to the Expiration Date upon the occurrence of any of such conditions.
The Exchange Offer expires at 5:00 p.m., New York time on November 20,
1996 unless the Company, in its sole discretion, extends the period of time
which the Exchange Offer is open, in which event the "Expiration Date" shall
mean the latest time and date to which the Exchange Offer is extended. Only
Debentures validly deposited and tendered prior to the Expiration Date will be
eligible for exchange. See "The Exchange Offer -- Extension of Exchange Offer
Period; Termination; Amendments."
Acceptance Not Mandatory
Each holder of Debentures is free to exchange or not exchange such
holder's Debentures pursuant to the Exchange Offer and may tender all or a
portion of the principal amount of Debentures, in multiples of $1,000, so held
by properly completing and delivering a Letter of Transmittal to the Company and
by strictly complying with the exercise procedures set forth in the Notification
accompanying the Letter of Transmittal and provided by CEDEL BANK, S.A. or
EUROCLEAR, depending upon which facility maintains the account in which the
holder's Debentures are registered. Holders of the Debentures not deposited and
tendered for exchange pursuant to the Exchange Offer will continue to have all
of the existing rights and preferences of the Debentures, including (i) the
right to interest payments on the Debentures, (ii) the right to convert the
Debentures into shares of Common Stock at $12.25 per share, subject to future
adjustment upon the occurrence of certain events and (iii) certain anti-dilution
protection provided in the Debentures. However, as previously stated herein, the
Company has determined to make no further interest payments in respect of the
Debentures which remain outstanding following the Expiration Date,
notwithstanding that such failure shall continue to constitute an Event of
Default.
-23-
<PAGE>
Procedure for Exchange
Any holder of Debentures desiring to tender all or any portion of such
holder's Debentures in the Exchange Offer must BOTH (i) complete and execute a
Letter of Transmittal, and deliver the completed Letter of Transmittal to the
Company at the address specified on the Letter of Transmittal and (ii) strictly
comply with the exercise procedures described in the Notification accompanying
the Letter of Transmittal and prepared by CEDEL BANK, S.A. and EUROCLEAR,
depending upon which facility maintains the account in which the holder's
Debentures are registered. Failure to comply with the exercise procedures set
forth in the Notification, notwithstanding delivery of the Letter of Transmittal
to the Company prior to the Expiration Date, will constitute a failure to make a
valid tender. Similarly, failure to timely deliver the completed Letter of
Transmittal to the Depositary prior to the Expiration Date, notwithstanding
timely compliance with the exercise procedures in the Notification, will also
constitute a failure to make a valid tender.
No procedure, including provisions for notice of guaranteed delivery,
is being made available to holders of Debentures who fail to timely deliver the
Letter of Transmittal to the Company and/or fail to timely comply with the
exercise procedures described in the Notification prior to the Expiration Date.
By executing the Letter of Transmittal, a holder of Debentures who is
participating in the Exchange Offer will also be authorizing CEDEL BANK, S.A.
and EUROCLEAR to provide the Company with the name of such holder, the principal
amount of Debentures tendered for exchange by such holder, the registered
address of such holder and such other information as the Company may require to
facilitate the issuance and delivery of the Common Stock and the Preferred Stock
comprising the Units being issued in exchange for tendered Debentures.
Holders of Debentures who are exchanging their Debentures are required
under United States income tax law to provide the correct Taxpayer
Identification Number on the Substitute Form W-9 which is included, together
with instructions, in the Letter of Transmittal, or to certify on the Substitute
Form W-9 that they are not subject to backup withholding. Failure to complete
properly such information may result in the rejection of such holder's tender.
Should such requirement be waived by the Company, failure to complete and return
the Substitute Form W-9 may subject the holder to backup withholding on
dividends on the Common Stock and Preferred Stock that might be payable in the
future. Holders of Debentures who are non-resident alien individuals, foreign
entities or exempt foreign persons must certify their foreign status by
completing the Form W-8 which is included, together with instructions, in the
Letter of Transmittal. Failure to complete and provide the Form W-8 may subject
the holder to backup withholding.
The method of delivery of the Letter of Transmittal and all other
required documents is at the election and risk of the holder but if sent by
mail, registered mail with return receipt requested, or overnight delivery
service, properly insured, is recommended. Procedures to exercise the tender of
Debentures are set forth in the Notification.
The acceptance by a holder of Debentures of the Exchange Offer pursuant
to one of the procedures set forth above will constitute a binding agreement
between the holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the accompanying Letter of Transmittal.
All questions as to the form of all documents and the validity
(including time of receipt) and acceptance of all tenders will be determined by
the Company, in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
not in proper form or the acceptance of which would, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of Debentures. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final. No tender of Debentures will be deemed to
have been properly made until all defects and irregularities have been cured or
waived. Neither the Company nor any other person shall be under any duty to give
notification of any defects or irregularities in tenders, and none of them shall
incur any liability for failure to give such annunciation.
-24-
<PAGE>
Withdrawal Rights
Tenders of Debentures pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date, and unless theretofore accepted for
exchange as provided in the Exchange Offer, may also be withdrawn after 11:59
P.M., New York City time, on December 19, 1996 (such date and time being the
expiration of forty business days from the commencement of the Exchange Offer).
If the Company extends the period of time during which the Exchange Offer is
open, is delayed in accepting for exchange Debentures or is unable to accept for
exchange or exchange Debentures for Units pursuant to the Exchange Offer for any
reason, then, without prejudice to the Company's rights under the Exchange
Offer, the Depositary may, on behalf of the Company, retain all Debentures
tendered, and such Debentures may not be withdrawn except as otherwise provided
hereunder, subject to Rule 13e-4(f)(5) under the Exchange Act, which provides
that the issuer making the tender offer shall either pay the consideration
offered, or return the tendered securities, promptly after the termination or
withdrawal of the tender offer.
To be effective, a written, telegraphic or telex transmission notice of
withdrawal must be received by CEDEL BANK, S.A. or EUROCLEAR, depending upon
which facility maintains the account in which the holder's Debentures were
registered prior to the tender, on a timely basis at its address specified in
the Notification. Any notice of withdrawal must specify the name of the person
having tendered the Debentures to be withdrawn, the name(s) in which the
Debentures are registered at CEDEL BANK, S.A. or EUROCLEAR, the account number
and the principal amount of Debentures to be withdrawn. All questions as to
validity, form and eligibility (including time of receipt) of notices of
withdrawal will be determined by the Company, in its sole discretion, which
determination shall be final and binding. Withdrawals may not be rescinded, and
any Debentures effectively withdrawn will be deemed not to have been duly
deposited and tendered for purposes of the Exchange Offer. However, withdrawn
Debentures may be retendered by following one of the procedures described in
"The Exchange Offer -- Procedure for Exchange" at any time prior to the
Expiration Date.
None of the Company, the Depositary nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give such notification.
Acceptance of Debentures for Exchange
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Debentures validly deposited and tendered and not
withdrawn will be made promptly after the Expiration Date. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Debentures when, as and if the Company has given oral or
written notice thereof to the Depositary. Tendered Debentures not accepted for
exchange by the Company because of an invalid tender, the termination of the
Exchange Offer or for any other reason, will be returned without expense to the
tendering holders as promptly as practicable following the expiration or
termination of the Exchange Offer.
The Common Stock and Preferred Stock comprising the Units to be issued
in exchange for Debentures tendered pursuant to the Exchange Offer will be
issued only in the name of the holder of the Debentures exchanged therefor,
notwithstanding that the holder may have held the Debentures for the account of
another as nominee, broker, financial intermediary or in another capacity, to
insure compliance with the exemption under the United States securities laws
under which the Exchange Offer is being made. Certificates representing the
Common Stock and Preferred Stock will be delivered to the address of the
tendering holders as provided in the Letter of Transmittal, only after receipt
by the Depositary of instructions from CEDEL BANK, S.A. and EUROCLEAR as to the
tender of the Debentures, receipt of properly completed and duly executed
Letters of Transmittal (or facsimile thereof) and any other required documents.
Conditions of the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange or exchange any Debentures
tendered, and may terminate or amend the Exchange Offer or may postpone (subject
to the requirements of the Exchange Act for prompt exchange or return of the
Debentures) the acceptance for exchange of, and exchange of, Debentures
tendered, if at any time on or after November 20, 1996 and before acceptance for
exchange or exchange of any such Debentures
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(whether or not any Debentures have theretofore been accepted for exchange or
exchanged pursuant to the Exchange Offer) any of the following shall have
occurred:
(i) there shall have been threatened, instituted or pending
any action or proceeding by any government or governmental, regulatory or
administrative agency or authority or tribunal or any other person, domestic or
foreign, or before any court, authority, agency or tribunal which (a) challenges
the making of the Exchange Offer, the acquisition of some or all of the
Debentures pursuant to the Exchange Offer or otherwise relates in any manner to
the Exchange Offer; or (b) in the Company's sole judgment, could materially
affect the business, condition (financial or other), income, operations or
prospects of the Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the business of
the Company or any of its subsidiaries or materially impair the Exchange Offer's
contemplated benefits to the Company;
(ii) there shall have been any action threatened, pending or
taken, or approval withheld, or any statute, rule, regulation, judgment, order
or injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Exchange Offer or the
Company or any of its subsidiaries, by any court or any authority, agency or
tribunal which, in the Company's sole judgment, would or might directly or
indirectly (a) make the acceptance for exchange or exchange of some or all of
the Debentures illegal or otherwise restrict or prohibit consummation of the
Exchange Offer; (b) delay or restrict the ability of the Company, or render the
Company unable, to accept for exchange or exchange for some or all of the
Debentures for Units; (c) materially impair the contemplated benefits of the
Exchange Offer to the Company; or (d) materially affect the business, condition
(financial or other), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or any of its
subsidiaries;
(iii) (a) any general suspension of trading in, or limitation
on prices for, securities on any national securities exchange or in the
over-the-counter market, (b) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (c) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (d) any limitation
(whether or not mandatory) by any governmental, regulatory or administrative
agency or authority on, or any event which, in the Company's sole judgment,
might affect, the extension of credit by banks or other lending institutions in
the United States, (e) any significant change in the market price of the Common
Stock, or any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in the sole judgment of
the Company, have a material adverse effect on the Company's business,
operations or prospects or the trading in the Common Stock or the Exchange
Offer's contemplated benefits to the Company or (f) in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offer, a
material acceleration or worsening thereof;
(iv) any tender or exchange offer with respect to some or all
of the Common Stock or the Debentures (other than the Exchange Offer), or a
merger, acquisition or other business combination proposal for the Company,
shall have been proposed, announced or made by any person or entity;
(v) any change shall occur or be threatened in the business,
condition (financial or other), income, operations, Common Stock ownership, or
prospects of the Company and its subsidiaries, taken as a whole, which, in the
sole judgment of the Company, is or may be material to the Company; or
(vi) (a) any person, entity or "group" (as that term is used
in Section 13(d)(3) of the Exchange Act) shall have acquired, or proposed to
acquire, beneficial ownership of shares of Common Stock entitled to more than 5%
of the aggregate votes entitled to be cast by all shares of Common Stock then
outstanding (other than a person, entity or group which had publicly disclosed
such ownership in a Schedule 13D or 13G (or an amendment thereto) on file with
the Commission prior to October 21, 1996) or (ii) any new group shall have been
formed which beneficially owns shares of Common Stock entitled to more than 5%
of the aggregate votes entitled to be cast by all shares of Common Stock then
outstanding;
and, in the sole opinion of the Company, in any such case and regardless of the
circumstances (including any action or omission to act by the Company) giving
rise to such condition, such event makes it inadvisable to proceed with the
Exchange Offer or with such acceptance for exchange or exchange.
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The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances (including any
action or inaction by the Company) giving rise to any such condition, and any
such condition may be waived by the Company, in whole or in part, at any time
and from time to time in its sole discretion. The Company's failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described above will be final and binding on all parties.
Extension of Exchange Offer Period; Termination; Amendments
The Company expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period of time during which the
Exchange Offer is open by giving oral or written notice of such extension to the
Depositary, CEDEL BANK, S.A. and EUROCLEAR. During any such extension, all
Debentures previously tendered and not exchanged or withdrawn will remain
subject to the Exchange Offer, except to the extent that such Debentures may be
withdrawn as set forth in "The Exchange Offer -- Withdrawal Rights." The Company
also expressly reserves the right, in its sole discretion, to terminate the
Exchange Offer and not accept for exchange or exchange any Debentures not
theretofore accepted for exchange or exchanged or, subject to applicable law, to
postpone the exchange of Debentures for Units upon the occurrence of any of the
conditions specified in "The Exchange Offer -- Conditions of the Exchange Offer"
hereof by giving oral or written notice of such termination or postponement to
the Depositary, CEDEL BANK, S.A. and EUROCLEAR and making a public announcement
thereof. The Company's reservation of the right to delay exchange of Debentures
which it has accepted for payment is limited by Rule 13e-4(f)(5) promulgated
under the Exchange Act, which requires that the Company must pay the
consideration offered or return Debentures tendered promptly after termination
or withdrawal of a tender offer. Subject to compliance with applicable law, the
Company further reserves the right, in its sole discretion, to amend the
Exchange Offer in any respect. Amendments to the Exchange Offer may be made at
any time or from time to time effected by public announcement thereof, such
announcement, in the case of any extension, to be issued no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Any public announcement made pursuant to the Exchange
Offer will be disseminated promptly to holders in a manner reasonably designed
to inform holders of such change. Without limiting the manner in which the
Company may choose to make a public announcement, except as required by
applicable law, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by publication in
a newspaper distributed in Luxembourg or, if not practicable, in one other
leading English language daily newspaper with general circulation elsewhere in
Europe.
If the Company materially changes the terms of the Exchange Offer or
the information concerning the Exchange Offer, the Company will extend the
Exchange Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2)
promulgated under the Exchange Act. These rules provide that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in
consideration offered or a change in percentage of securities sought) will
depend on the facts and circumstances, including the relative materiality of
such terms or information. The Securities and Exchange Commission has stated
that as a general rule, it is of the view that an offer should remain open for a
minimum of five business days from the date that notice of such a material
change is first published, sent or given. If (i) the Company increases or
decreases the consideration offered for the Debentures pursuant to the Exchange
Offer and (ii) the Exchange Offer is scheduled to expire at any time earlier
than the expiration of a period ending on the tenth business day from, and
including, the date that notice of such increase or decrease is first published,
sent or given, the Exchange Offer will be extended until the expiration of such
period of ten business days.
Solicitation of Tenders; Fees
The Company is making the Exchange Offer in reliance on the exemption
from the registration requirements of the Securities Act afforded by Section
3(a)(9) thereof. The Company, therefore, has not retained, and will not pay any
commission or other remuneration to, any broker, dealer, salesman or other
person for soliciting tenders of the Debentures. However, regular employees of
the Company (who will not be additionally compensated therefor) may solicit
tenders and will answer inquiries concerning the Exchange Offer.
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TRANSFERABILITY OF UNITS
The issuance of shares of Common Stock and Preferred Stock comprising
the Units upon exchange of the Debentures is exempt from the registration
requirements of the Securities Act by reason of Section 3(a)(9) thereof.
Consequently, such shares will not be transferable in the United States absent
registration under the Securities Act or an exemption therefrom, including Rule
144 promulgated under the Securities Act, which imposes a two year holding
period as well as volume and manner of sale limitations on the sale of
"restricted securities." The Company has agreed to use its best efforts to
register under the Securities Act the Common Stock to be issued in the Exchange
Offer with the Securities and Exchange Commission no later than six months
following the Expiration Date for resale by the holders thereof, as well as the
sale of the Non-Voting Common Stock to be issued in the event the Debentures are
converted at the option of the Company. If the registration statement is
declared effective, the shares will become freely transferable, subject to
compliance with applicable state securities laws. Until such time, if ever, that
the registration statement is declared effective, Debenture holders who receive
Common Stock as part of the Units in exchange for their Debentures, and who
receive Non-Voting Common Stock if and when the Preferred Stock is converted,
will experience substantial restrictions on transfer.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION;
TRANSACTIONS AND AGREEMENTS CONCERNING THE UNITS
None of the officers and none of the directors of the Company
beneficially owns any Debentures or otherwise intends to participate in the
Exchange Offer, nor has any of the foregoing persons entered into any agreement
or engaged in any transaction concerning the Units, the Preferred Stock or the
Common Stock except pursuant to the Stipulation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain Federal income tax aspects of the
exchange of the Debentures for Preferred Stock and Common Stock of the Company
is limited to a discussion of those aspects as they pertain to Debenture holders
who are U.S. persons. The rules governing the tax treatment of an exchange by
U.S. persons of bearer obligations for stock are not entirely clear, and the
Company has not sought and will not seek a ruling from the Internal Revenue
Service regarding this exchange. Accordingly, both U.S. persons and non-U.S.
persons are urged to consult their own tax advisors with regard to the
application of the Federal income tax laws to their own particular situation, as
well as to the applicability and effect of any state, local or foreign tax laws
to which they might be subject.
The Company believes that the Exchange Offer should constitute a
"recapitalization" within the meaning of section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"). Generally, in a recapitalization
involving the exchange of debentures for stock, the following rules apply:
(1) Except as described below, no gain or loss will be recognized by
the Debenture holder.
(2) The recapitalization, however, will not be tax-free to the extent
of any stock received in discharge of interest arrearages, and the receipt of
such stock will give rise to ordinary interest income to the extent the
arrearages have not previously been included in the Debenture holder's income.
(3) The adjusted basis of the Debentures will become the adjusted basis
for the stock received in the exchange (allocated between the Preferred Stock
and the Common Stock in proportion to their fair market values), and the
Debenture holder's holding period for the stock will include his holding period
for the Debentures.
(4) In the case of a Debenture holder who purchased his Debentures at a
market discount and who did not elect to include the market discount in income
currently under Code section 1278(b), the accrued market discount will be
treated as ordinary income on a subsequent disposition of the stock received in
the exchange.
If the Exchange Offer is determined not to constitute a
recapitalization, the rules described above would not apply. Instead, in such
event, a Debenture holder would realize gain or loss equal to the difference
between the value of the stock received and his
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adjusted basis in the Debentures. Any gain recognized on the Exchange Offer by a
U.S. person (other than those financial institutions, broker-dealers and certain
other persons described in Treasury Regulation section 1.165-12(c)), including
accrued market discount, would likely be treated as ordinary income under
section 1287 of the Code, and the deduction for any loss realized on the
Exchange Offer would likely be disallowed under section 165(j) of the Code.
DESCRIPTION OF DEBENTURES
General
The Debentures are designated as 9.5% Convertible Subordinated
Debentures Due 1997. The Debentures are unsecured and subordinated in right of
payment to the Senior Debt (as hereinafter defined) of the Company. The
Debentures are governed by the laws of the Islands of Bermuda.
Principal and Interest
The Debentures bear interest at the rate of 9.5% per annum payable
annually in arrears on September 19. Whenever it is necessary to compute an
amount of interest for a period of less than a full year, such interest shall be
calculated based upon a year of twelve 30 day months. Unless sooner redeemed,
the full principal amount of the Debentures is due September 19, 1997.
Conversion
The holder of any Debenture has the right, at his option, at any time
during the Conversion Period (as defined below) to convert, all but not less
than all of the principal amount of the Debenture into Common Stock at a
conversion price equal to $12.25 principal amount of the Debenture for each
share of Common Stock. The "Conversion Period" commenced upon issuance and will
terminate at 5:00 p.m., Luxembourg time, on the business day preceding either
(i) the Redemption Date (hereinafter defined) or (ii) September 19, 1997, the
maturity date of the Debentures, if no Redemption Date is established. The right
of conversion shall terminate at such time unless a default occurs in the
payment of the Redemption Price.
No fractional share shall be issued upon conversion of Debentures. Cash
will be paid in lieu of fractional shares. The Company shall make no payment or
adjustment on account of any interest accrued on any converted Debenture as of
the Conversion Date.
The conversion price shall be subject to adjustment, from time to time,
in case the Company shall (i) declare a dividend or make a distribution on its
outstanding Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding Common Stock into a smaller number of shares, or in case of any
amalgamation of the Company with another corporation or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety or the reincorporation of the Company in another jurisdiction. The
conversion price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of the
Debenture converted after such date shall be entitled to receive the aggregate
number and kind of securities which, if the Debenture had been converted by such
holder immediately prior to such date, such holder would have owned upon such
exercise and been entitled to receive upon such dividend, distribution,
subdivision, combination or reclassification.
No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 2% in such price;
provided, however, that any adjustments which are not required to be so made
shall be carried forward and taken into account in any subsequent adjustment
required to be made thereunder. All such calculations shall be made to the
nearest cent or to the nearest one-hundredth of a share as the case may be.
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Redemption
The Debentures are subject to redemption at the election of the Company
as a whole at any time or in part from time to time, upon notice given, not less
than 30 days nor more than 60 days prior to the date fixed for redemption (the
"Redemption Date"), at the face amount of the Debentures, together with interest
accrued thereon to the date fixed for redemption if and when the Market Price
(as defined below) per share of the Common Stock, as constituted on the date
hereof, exceeds $15.00 for 20 consecutive trading days ending 15 days or less
prior to the date on which notice of redemption is given. If fewer than all of
the Debentures are to be redeemed, the paying agent shall select, in such manner
as it shall deem appropriate and fair, the Debentures to be redeemed.
"Market Price" of the Common Stock on any day shall mean the average of
the bid and asked prices of a share of Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
(if the Common Shares are traded on NASDAQ and not on the NASDAQ National Market
System ("NASDAQ/NMS") or a national exchange) or its last sale price, regular
way, as reported in a composite published report of transactions which includes
transactions on a national exchange or National Market System on which the
Common Stock is traded (if the Common Stock is traded on NASDAQ/NMS or a
national exchange); provided, however, that if the Common Stock is not publicly
traded or quoted on one or more trading days during the time of any computation
pursuant to this paragraph, "Market Price" for the purposes on such day(s) shall
be the fair market value as determined in good faith by the Board of Directors
of the Company, whose decision shall be final and binding.
Subordination
The payment of all indebtedness evidenced by the Debentures is
expressly subordinated, to the extent and in the manner provided in the
Debentures, to all Senior Debt, which is defined to mean the principal of and
premium, if any, and interest on the following, whether outstanding on the date
of the Debentures or thereafter incurred or created: (i) indebtedness of the
Company for money borrowed by the Company; (ii) indebtedness or obligations of
the Company as lessee under any leases of real or personal property required to
be capitalized under generally accepted accounting principles; (iii)
indebtedness or obligations assumed or incurred by the Company in connection
with the acquisition by the Company or any subsidiary of any property or assets,
including any business; (iv) indebtedness or obligations of the Company
constituting a guarantee of indebtedness or of obligations other than the type
referred to above in the preceding clauses (i), (ii), and (iii); or
(v) renewals, extensions or refundings of any of the foregoing.
Payments
Debentures and coupons are payable in dollars against surrender
thereof, subject to any applicable laws and regulations, at such paying agencies
outside the United States as the Company may appoint from time to time. All
payments in respect of the Debentures will be made only by the Company's paying
agencies and such payments will be made only in person or by payment to an
address outside the United States furnished by the payee or by payment to an
account maintained by the payee with a bank located outside the United States.
The Company agrees that so long as any of the Debentures or coupons are
outstanding, it will maintain a Paying Agent in a Western European City for
payments on Debentures and coupons, which will be Luxembourg so long as the
Debentures are listed on the Luxembourg Stock Exchange and such Exchange so
requires.
Banque Degroof (Luxembourg) S.A. has been and is Paying Agent for the
Debentures in Luxembourg.
Payment of Additional Amounts
All payments of principal and interest by the Company in respect of the
Debentures will be made without withholding or deduction for or on account of
any present or future taxes or duties of whatever nature imposed or levied by
the United States. In that event, the Company will pay such additional amounts
as may be necessary in order to ensure that the net amounts receivable by the
holders of the Debentures and coupons, if any, after such withholding or
deduction shall equal the respective amount of principal
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and interest which would have been receivable in respect of the Debentures and
coupons, if any, in the absence of such withholding or deduction.
Holders of the Debentures will be subject to taxation certification
procedures and may be affected by certain limitations under United States tax
laws. In accordance therewith, any interest payable in respect of each Debenture
will be paid only upon receipt of certification to the effect that, as of the
first interest payment date, all beneficial interest in each such Debenture
either is owned by a person that it not a United States Person or is owned by or
through a financial institution in compliance with applicable United States
Treasury regulations. All payments in respect of the Debentures will be made
only by the Company's Paying Agent and such payment will be made only in person
or by payment to an address outside the United States furnished by the payee or
by payment to an account maintained by the payee with a bank located outside the
United States; no payment will be made at any office or agency of the Company in
the United States through any United States paying agent, nor will any payment
by made by transfer to an account, or be mailed to an address in the United
States.
Events of Default
Upon the occurrence of any of the following events of default:
(a) Failure to pay any installment of interest on the Debenture
within 30 days after the same becomes due; or failure to pay
the principal of the Debenture when and as the same shall
become due and payable;
(b) The Company shall commence any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or
liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or the Company shall be adjudicated
insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the Company shall petition or apply for,
acquiesce in, or consent to, the appointment of any receiver
or trustee of the Company or for all or a substantial part of
the property of the Company; or the Company shall make an
assignment for the benefit of creditors; or the Company shall
admit its inability to pay its debts as they mature in any
writing;
(c) There shall be commenced against the Company any proceeding
relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, and any such
proceeding shall remain undismissed for a period of 30 days or
the Company by any act indicates its consent to, approval of,
or acquiescence in, any such proceeding; or a receiver or
trustee shall be appointed for the Company or for all or a
substantial part of the property of the Company and any such
receivership or trusteeship shall remain undischarged for a
period of 30 days, or a warrant of attachment, execution, or
similar process shall be issued against any substantial part
of the property of the Company and the same shall not be
dismissed or bonded within 30 days after levy; or
(d) The Company shall breach or fail to perform or observe any of
the covenants and agreements contained in the Debenture, in
any material respect, and such breach or failure shall remain
uncured for 30 days after the Company receives written notice
of same;
then, and in any such event, the holder of the Debenture may by written
notice to the Company declare the entire unpaid principal amount of the
Debenture together with accrued interest thereon due and payable, and
the same shall, unless such default shall be cured within 10 additional
days after such notice, forthwith become due and payable upon the
expiration of such 10-day period, without presentment, demand, protest,
notice of protest, notice of dishonor, or other notice of any kind, all
of which are expressly waived, anything contained herein to the
contrary notwithstanding, in which event, the holder thereof shall be
entitled to receive the principal of the Debenture together with the
interest accrued thereon.
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DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 40,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, each having a par value per share of
$.002, of which 250,000 shares of Preferred Stock have been designated as 14%
Cumulative Convertible Preferred Stock. As of October 21, 1996, there were
4,634,530 shares of Common Stock and no shares of Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to receive dividends out of
assets legally available therefor at such time and in such amounts as the Board
of Directors may from time to time determine, subject to the prior payment in
full of all accrued and unpaid dividends for each class, including the Preferred
Stock, having a preference over the Common Stock. Each holder of Common Stock is
entitled to one vote per share. There is no cumulative voting. Holders of Common
Stock are not entitled to conversion or preemptive rights and the Common Stock
is not subject to redemption. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining for distribution after payment of all liabilities and after provision
has been made for each class of stock, including the Preferred Stock, having
preference over the Common Stock. All shares of Common Stock outstanding are
fully paid and non-assessable. The Board may issue additional Common Stock
without approval of the shareholders.
Preferred Stock
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 5,000,000 shares of "blank check" Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Company's Board of Directors. Accordingly, the Board is empowered, without
further stockholder approvals to issue Preferred Stock with liquidation,
dividend, voting and other rights which could be superior to the rights afforded
the holders of the Common Stock. The Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
Of the 5,000,000 authorized shares of Preferred Stock, and pursuant to
its authority as aforesaid, the Board of Directors has designated 250,000 shares
of 14% Cumulative Convertible Preferred Stock for use in connection with the
Exchange Offer. The Company presently intends to issue the Preferred Stock only
in connection with the issuance of Units in exchange for the Debentures in the
Exchange Offer.
Voting Rights. Holders of Preferred Stock are not entitled to vote
except as expressly required by law and are not entitled to receive notices
otherwise given to holders of Common Stock in connection with meetings of
stockholders and similar actions.
Dividends. Holders of Preferred Stock are entitled to receive, when and
as declared by the Board of Directors, an annual dividend equal to 14% of the
"Stated Amount" of the Preferred Stock (being $100 per share). The annual
dividend is payable quarterly on March 15, June 15, September 15 and December 15
of each year commencing on March 15, 1997 to holders of record of the Preferred
Stock on the close of business on the fifteenth business day preceding the
dividend payment date. Dividends are payable, solely at the option of the
Company, in: (i) cash; (ii) Non-Voting Common Stock (to the extent a class of
Non-Voting Common Stock is authorized) valued at the Market Price on the
dividend payment date; (iii) Common Stock valued at the Market Price on the
dividend payment date; (iv) Preferred Stock; or (v) any combination of the
foregoing. Any dividend which is declared and not paid when due will be
cumulated until paid. No interest will accrue on the unpaid portion of any
dividend. Holders of Common Stock and of any other class of capital stock which
is expressly subordinate in right of payment of dividends to the Preferred Stock
shall not be entitled to receipt of dividends unless and until all accrued and
unpaid dividends have first been paid to the holders of the Preferred Stock. The
term "Market Price" means, as of any day, the average of the high and low sales
prices of the Common Stock on such day on the New York Stock Exchange or the
American Stock Exchange (or if the Common Stock shall not then be listed on
either such exchange, such average on the principal (determined by highest
volume averaged for a period of twenty
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consecutive business days prior to the day as to which "Market Price" is being
determined) national securities exchange (as defined in the Securities Exchange
Act of 1934, as amended) on which the Common Stock may then be listed) or, if
there shall have been no sales on such exchange or exchanges on such day, the
averages of the high and low sales prices of the Common Stock on such day on the
NASDAQ/NMS or, if the Common Stock are not included on the NASDAQ/NMS, the
average of the bid and asked prices at the end of such day or, if the Common
Stock shall not be so listed, the average of the bid and asked prices at the end
of the day in the over-the-counter market as reported by NASDAQ, as reported by
the National Quotation Bureau, Inc. or any successor organization, in each such
case, averaged for a period of 20 consecutive business days prior to the day as
to which "Market Price" is being determined.
Conversion. The Preferred Stock is subject to conversion, in whole or
in part at any time up until the Redemption Date, if any, solely at the option
of the Company, into shares of Non-Voting Common Stock at a conversion rate per
share of Preferred Stock equal to (i) the sum of the Stated Amount ($100) plus
accrued and unpaid dividends to the date of conversion divided by (ii) the
Market Price of the Non-Voting Common Stock determined as aforesaid and ending
within 15 days from the date notice of conversion is given. If less than all of
the Preferred Stock is called for conversion, the Preferred Stock shall be
converted, pro rata, on the basis of the number of shares held by each holder.
If at the time of conversion there is not then an authorized class of Non-Voting
Common Stock into which the Preferred Stock may be converted, the Preferred
Stock will be convertible into Common Stock on the basis of the Market Price for
the Common Stock. From and after the conversion date, dividends on the Preferred
Stock shall cease to accrue and certificates for the shares of Preferred Stock
shall only represent the right to receive the Non-Voting Common Stock (or Common
Stock) into which the Preferred Stock is convertible.
Redemption. The Preferred Stock is subject to redemption, in whole or
in part at any time, solely at the option of the Company, upon not less than 30
nor more than 60 days notice prior to the date fixed for redemption (the
"Redemption Date"), for a cash payment per share equal to the sum of the Stated
Amount ($100) plus all accrued and unpaid dividends until the Redemption Date.
If less than all of the Preferred Stock is called for redemption, the Preferred
Stock shall be redeemed, pro rata, on the basis of the number of shares held by
each holder. From and after the Redemption Date, dividends on the Preferred
Stock shall cease to accrue and certificates for the shares of Preferred Stock
shall only represent the right to receive the redemption price.
Liquidation, Dissolution, Etc. Upon the liquidation, dissolution or
winding up of the Company, whether involuntary or voluntary,the holders of the
Preferred Stock are entitled to receive, after the payment of all sums due
creditors and prior to the payment of any amounts to the holders of Common Stock
or to holders of any other class of capital stock which is expressly subordinate
in liquidation right to the Preferred Stock, an amount per share of Preferred
Stock equal to the Stated Amount ($100) plus all accrued and unpaid dividends to
the date of liquidation or dissolution. If the assets of the Company are
insufficient to pay in full the amount due all holders of Preferred Stock, the
assets will be distributed, pro rata, among the holders of the Preferred Stock.
After the holders of the Preferred Stock have received in full the amount of the
aforementioned liquidation preference, the holders of the Preferred Stock will
not be entitled to share in the distribution of any remaining assets or other
funds available for distribution to the holders of capital stock of the Company.
General. Holders of Preferred Stock are not entitled to preemptive
rights. All shares of Preferred Stock issued in the Exchange Offer will be
validly issued, fully paid and non-assessable.
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<PAGE>
Exhibit A
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996 Commission File No. 1-10569
AutoLend Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3137244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
930 Washington Avenue,
Miami Beach, Florida 33139
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 673-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
-------------- ------------------------------------
Common Stock, $.002 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
-- Units -- Redeemable Class A Warrants
-- Common Stock
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 twelve (12) months (or for such shorter period that
the Registrant was required to file such report(s)), and (2) has been subject to
the filing requirements for the past ninety (90) days.
YES X NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of June 21, 1996 the registrant had 4,634,530 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
non-affiliates as of June 21, 1996 was approximately $3,288,834 million.
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
Background
AutoLend Group, Inc. ("AutoLend" or the "Company") is a consumer finance
company which, through its wholly-owned subsidiaries AutoLend IAP, Inc.,
AutoLend Corporation, LB NM, Inc. ("LB NM") and American Life Resources Group,
Inc. ("ALRG") is engaged in the business of (i) providing short term (2 to 6
weeks) financing to selected used car dealers for purchases of used automobiles
at certain regional auctions throughout the United States (the "Inventory
Assistance Program," or "IAP"), (ii) maintaining a portfolio of retail
installment loan contracts purchased from independent and franchised used
automobile dealers ("Installment Contracts Receivable"), and (iii) maintaining a
portfolio of life insurance policies ("Policies") purchased from individuals
facing life-threatening illnesses, a business generically referred to as
viatical settlements.
Unless the context indicates otherwise, all references to the "Company"
include AutoLend Group, Inc. and its wholly-owned subsidiaries, AutoLend IAP,
Inc. (Inventory Assistance Program), AutoLend Corporation (Installment Contracts
Receivable portfolio management), LB NM (viatical settlements) and American Life
Resources Group, Inc. (viatical settlements).
The Company's viability as a going concern is dependent upon the
successful closing of the Settlement (as hereinafter defined), 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. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Based upon an analysis of market factors and growth potential, as well
as an evaluation of the Company's liquidity and capital resources, since
December 22, 1995 the Company has ceased to purchase Installment Contracts
Receivable and since September 29, 1994 to purchase Policies, and does not at
this time intend to recommence such activities.
Inventory Assistance Program
AutoLend launched a new financing product in March 1995 called the
AutoLend Inventory Assistance Program. The IAP program is similar to the "floor
plan" financing plans offered by automobile manufacturers to their new car
dealers. Dealers registered to purchase cars at participating auctions may
qualify for an IAP credit line to allow them to finance the auction purchase of
automobiles for terms of two, four or six weeks. The amount of the credit line
and the length of term depend upon the applicant's business and credit history.
The IAP program is targeted at the independent dealer who requires
short-term credit for purchases of used autos at selected regional auctions. In
exchange for a servicing fee and interest charges, approved dealers become
eligible for 100% financing of the purchase price of cars they purchase at an
AutoLend-affiliated auction. This financing, which is commonly referred to as
"floor plan" financing, typically extends for periods ranging from 2 to 6 weeks
from the time of purchase.
On June 30, 1995, IAP and the Company entered into an agreement (the
"ServNet Agreement") with ServNet, Inc. ("ServNet"), an association of 17
independent used car auctions, with a term of ten years, subject to renewals.
Pursuant to the ServNet Agreement, ServNet agreed to use its best efforts to
cause its constituent
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<PAGE>
auctions to enter into agreements ("AutoLend Auction Agreements") with IAP to
allow IAP the exclusive opportunity to provide floor plan financing for dealers
purchasing cars at the participating auctions. Pursuant to the ServNet
Agreement, IAP will pay to ServNet a fee calculated based upon volume or net
profits, whichever results in a greater fee.
To date, IAP has entered into AutoLend Auction Agreements with 11
ServNet auctions for ten year terms.
IAP's accounting system is coordinated with the systems of participating
ServNet auctions. On auction day, qualified buyers are given a
computer-generated report that itemizes the status and recent history of their
account and indicates their available IAP credit. At the time of payment, buyers
advise auction cashiers that they wish to access their IAP credit line. The
buyer must then provide a check for the aggregate administration fee and
interest due for all cars purchased, which is made out to IAP and is deposited
immediately; and separate checks for each car representing the principal amount
of each car purchased plus the auction buyer's fee based upon the purchase price
of the financed automobile, which are held in safekeeping. The principal checks
are held by the ServNet auction along with the title for each car purchased. The
titles are released to the dealer upon satisfaction of the buyer's obligation to
IAP, either once the checks have cleared at the end of the finance period or by
prepayment. If the dealer pre-pays, no pre-payment penalty is charged and
unearned interest is rebated to the dealer.
Each dealer applicant is subjected to an investigation that includes a
review of credit bureau reports, bank references, auction references, trade
references, verification that the dealer is bonded, insurance review, lien
searches and verification that the applicant is in good standing with any
relevant state licensing authority. In some instances where a ServNet auction
has specifically requested that certain borderline applicants be approved, the
particular ServNet auction guarantees the loan to IAP.
Under the terms of the proposed settlement of the stockholder derivative
litigation against the Company (the "Settlement"), AutoLend IAP, Inc. will be
sold by the Company. See "Item 3 -- Legal Proceedings."
Installment Contracts Receivable
From May 20, 1994 through December 22, 1995 the Company purchased
Installment Contracts Receivable, which the Company currently plans to hold in
its portfolio until maturity.
Installment Contracts Receivable that met the Company's underwriting
standards were acquired on either an individual basis after the Company had
reviewed and approved the automobile purchaser's credit application (a "point of
sale purchase"), or on a group basis through purchase of a dealer's portfolio of
existing installment contracts (a "bulk purchase").
The maturity of AutoLend's purchased Installment Contracts Receivable
ranged from periods of 3 months to 24 months from their respective dates of
purchase at annual interest rates ranging from 21% to 40%. Generally, all such
Installment Contracts Receivable were repayable in installments but may be
repaid, without penalty, prior to maturity. The average period to maturity of
Installment Contracts Receivable in the Company's portfolio at March 31, 1996
was 17 months.
To achieve an acceptable rate of return and provide for credit risk,
Installment Contracts Receivable were purchased from dealers at a discount to
the remaining principal balance. The amount of the discount reflected, among
other things, a contract's interest rate, remaining term and credit risk.
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<PAGE>
In January 1996, in order to reduce general and administrative expenses,
the Company began to outsource collection functions in connection with its
Installment Contracts Receivable under an agreement with LSI Financial Corp.
("LSI"), a leading third party servicing company specializing in servicing
portfolios of sub-prime automobile receivables. Under the agreement LSI
receives a flat service fee per active loan per month plus certain expenses in
connection with any repossessions.
Viatical Settlements
From 1991 to 1994 the Company purchased Policies insuring individuals
generally having a projected life expectancy at the date of purchase of 24
months or less and generally paid 55 to 80 percent of the death benefits of such
Policies. The actual amount paid was determined by the Company through the use
of a proprietary formula which weighs various factors. The Policyholder assigned
his or her Policy to the Company, which became the holder and beneficiary of the
Policy and receives the payout upon maturity from the insurance company.
On May 8, 1995 and July 18, 1995, the Company entered into agreements
with Viaticus, Inc. ("Viaticus"), an affiliate of the CNA Insurance Companies,
providing for the assignment to Viaticus of the benefits under certain of the
insurance policies held by the Company's wholly-owned subsidiaries ALRG and LB
NM.
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. During the fiscal year ended March 31, 1996,
approximately $17.5 million has been received as payment for policies with
completed assignments to Viaticus and there are no outstanding amounts
receivable under the agreements as of March 31, 1996.
In conjunction with the sales to Viaticus, the remaining goodwill and
other intangibles related to the purchases of the viatical business in 1993 and
1991 have been fully amortized. The Company does not currently anticipate any
new purchases of Policies.
Employees
At March 31, 1996, the Company and its subsidiaries had 20 full-time
employees. The Company believes its relations with its employees are good and
that there will be no substantial problem in recruiting additional qualified
employees to accommodate future growth.
Competition
While management is not aware of any existing competition for the
short-term financing of purchases by used car dealers at ServNet auctions,
competition could develop from several potential sources. Although banks have
traditionally declined to provide "floor plan" financing for independent used
car dealers for high mileage used cars, they could pose significant competition
if they decided to enter this market. Similarly, most finance companies do not
currently engage in "floor plan" lending, but could move into the business of
providing credit to used car dealers. This particular source of competition is
likely to develop from finance companies who are engaged in purchasing
receivables from used car dealers. These companies frequently have a well
developed understanding of, and established relationships with, dealers, as well
as knowledge of their inventory and other potential collateral.
Although the Company's agreement with ServNet requires ServNet to
promote and encourage its independent member auctions to use the Company's
financing program, particular auctions cannot be required
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<PAGE>
to participate and may have existing individual in-house financing programs.
Participating ServNet auctions, however, may not provide short-term financing
unless either IAP declines the particular dealer or an in-house financing
program previously existed.
Another source of competition consists of financing plans offered by
other auction companies. Under the ServNet Agreement, the Company has exclusive
access to the participating ServNet auctions. However, other finance companies
and competitive auctions are currently providing off-premises financing to
ServNet dealers. Some of the Company's competitors have substantially greater
financial resources than the Company and are able to offer rates and fees that
are lower and other terms that are more favorable than those offered by the
Company.
Government Regulation
Inventory Assistance Program
In each state in which the Company conducts its IAP business, the
Company and/or IAP must obtain a license to do business and/or a certificate of
authority. The Company and/or IAP is duly licensed to conduct its business in
each state in which it conducts its business and all such licenses are current
and in good order. The provision of finance to dealers may be subject to the
addition regulations set forth below under the heading "Installment Contracts
Receivable."
Installment Contracts Receivable
Numerous Federal and State consumer protection laws and related
regulations impose substantial requirements upon lenders and services involved
in consumer finance. These laws include, but are not limited to, the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z, state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, state motor vehicle retail
installments sales acts, retail installment sales acts and other similar laws.
Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under Federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Installment Contracts Receivable.
The so-called "Holder in Due Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other state statutes or the common law in
certain states, is intended to defeat the ability of the transferor of a
consumer credit contract (such as the Installment Contracts Receivable), which
transferor is the seller of the goods that gave rise to the transaction, to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of this rule is to subject the assignee of such a contract to all claims
and defenses which the borrower under the contract could assert against the
seller of goods. Most of the Installment Contracts Receivable are subject to the
requirements of the FTC Rule. Accordingly, the Company, as holder of the
Installment Contracts Receivable, may be subject to any claims or defenses that
the purchaser of the auto may assert against the seller of the auto. Such claims
are limited to a maximum liability equal to the amounts paid by the borrower on
the Installment Contracts Receivable. The borrower may also assert the rule to
offset remaining amounts due on the Installment Contracts Receivable as a
defense against any claim brought by the Company against such borrower.
Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles. Furthermore,
federal odometer regulations promulgated under the Motor Vehicle
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<PAGE>
Information and Cost Savings Act require that all sellers of new and used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller was not properly licensed or if an
odometer disclosure statement was not provided to the purchaser of an auto, the
borrower may be able to assert a defense against the seller of the vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving a borrower from some
or all of the legal consequences of a default.
In several cases, borrowers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditors do not involve sufficient state action to afford constitutional
protection to consumers.
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the Federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
Viatical Settlements
The Company generally purchased Policies only from residents of states
where the Company believes there is no statutory and/or judicial authority
prohibiting the enforcement of the assignment of Policies to assignees without
an insurable interest in the insured. Each state, however, has statutes that
regulate "conducting an insurance business" (or terms to the same effect) and,
although the Company believes there is generally no existing judicial authority
on point, there can be no assurance that some or all of these statutes will not
be interpreted in the future to include viatical settlements and to preclude
purchasers of viatical settlements, which are not insurance companies, from
operating in such states. Such an interpretation would only adversely effect the
Company if it were made to apply retroactively since the Company does not
currently contemplate purchasing additional viatical settlements.
Trademarks
On July 29, 1994, the Company sold certain assets of its viatical
settlements business to National Capital Benefits Corporation ("NCBC"), a
subsidiary of National Capital Management Corporation ("NCMC"). Pursuant to the
agreement, NCBC paid the Company $125,000 and issued to the Company 100,000
shares of the common stock of NCMC. The Company has an option to sell these
shares back to NCMC within 24 months of the sale, at a price of $1.75 per share.
In addition, NCBC agreed to pay a royalty to the Company upon the maturity of
all policies purchased by NCBC during the next four years.
Assets acquired by NCBC included the Company's proprietary client
management software system, all "work in process" and the trade names of both LB
NM and ALRG. Along with certain other assets, the Company retained its existing
accounts receivable and its inventory of owned policies. The Company expects to
hold such inventory through the maturity and collection process. As a result of
this sale, the Company began amortizing the remaining goodwill and intangible
assets associated with the acquisitions of its viatical settlements
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<PAGE>
companies in proportion to its recognition of revenue from matured policies,
until all owned policies have matured. The effect of such amortization during
the fiscal year ended March 31, 1995 resulted in an amortization expense of
approximately $870,405. In conjunction with the sale to Viaticus, the remaining
good will and other intangibles related to the purchaser of the viatical
business in 1993 and 1991, have been amortized during the year ending March 31,
1996.
On July 10, 1996 the Company gave notice to NCBC and NCMC of its
election to sell its shares of NCMC common stock back to NCMC.
ITEM 2. PROPERTIES.
The Company leases approximately 3,050 square feet of office space in
Miami Beach, Florida under a lease expiring in May 1997 at an annual base rent
of $35,652, subject to annual increases that have historically been
approximately 5%. Under the terms of the Settlement, at closing, the balance of
the lease will be assumed by IAP.
On May 11, 1994, the Company entered into a new lease to consolidate and
expand existing office space. The initial six year term of the lease provides
for annual base rent in each of the first two years of $207,000 for
approximately 11,400 square feet and $325,000 annually thereafter when the
square footage will increase to approximately 17,000 square feet, subject to
increases reflecting changes in the consumer price index. The lease provides for
one four-year renewal period. The lease commenced on August 1, 1994. In
February, 1996 the Company vacated these premises, and is currently using them
for storage. The Company is currently seeking a party to sublease or assume its
lease obligations with respect to these premises. No assurance can be given that
the Company will be able to find such a party or that if the Company finds such
a party, the Company will be able to enter into an arrangement with such party
on terms favorable to the Company.
ITEM 3. LEGAL AND REGULATORY PROCEEDINGS.
On December 26, 1995, Nunzio P. DeSantis, Courtland G. Miller and
Vincent Villanueva ("Plaintiffs") commenced an action (the "Derivative Suit") in
the Delaware Court of Chancery for New Castle County (the "Court") against Steve
Simon, Stephen Raphael and Elie Housman ("Defendants"), 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. Plaintiffs predicated their
claims on allegations concerning the Company's performance, an alleged proposed
spin-off of a subsidiary of the Company, and the repurchase and alleged
additional plans by the Company to repurchase its outstanding 9.5% convertible
subordinated debentures maturing on September 19, 1997. Management believed that
all of these claims were baseless.
On May 3, 1996, the parties submitted a Stipulation of Settlement (the
"Stipulation") to the Court seeking the Court's approval for the settlement of
the Derivative Suit. Pursuant to the Stipulation, current management will resign
and receive on an accelerated basis payments remaining under their respective
employment agreements, enter into consulting agreements with the Company, and
the Company's AutoLend IAP, Inc. subsidiary will be sold to an affiliate of
departing management for consideration that includes settlement of all
intercompany indebtedness and the issuance by IAP of redeemable preferred stock
with a face amount of $1 million. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition the
Stipulation provided for dismissal of the Derivative Suit with prejudice and the
exchange of releases by all parties. See "Item 13 -- Certain Relationships and
Related Transactions."
The Stipulation 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,
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<PAGE>
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 (the "Settlement").
As of December 31, 1995, the Company's capital and surplus fell below
the $1 million required by the NASDAQ Stock Market for continued listing. On
April 30, 1996, a delisting hearing was held before the Nasdaq Qualifications
Hearing Panel (the "Panel"). At the hearing, the Company requested a temporary
exception to the capital and surplus requirements. The Panel granted the
Company's request for a temporary exception. However, under the exception, the
Company was required to make a public filing evidencing compliance with the
minimum capital and surplus requirements with the Securities and Exchange
Commission and the NASDAQ Stock Market on or before May 20, 1996. The Company
could not make such a filing, and, on or about May 21, 1996, the Company was
delisted from the NASDAQ Stock Market.
In May 1996, the Company was impleaded by an insurer into a suit in the
United States Bankruptcy Court for the Middle District of Florida, in which a
bankrupt seeks from the insurer payment of a $1 million death benefit under a
Policy which it asserts the insurer improperly amended to remove it as the
beneficiary without consent of the Bankruptcy Court. Following such amendment,
the Policy was assigned to the Company, which was without notice of any of these
alleged facts. The insurer seeks to recover the death benefit paid under this
Policy from the Company in the event that it is required to pay such death
benefit to the bankrupt. The Company intends to aggressively defend against such
claims and to aggressively assert its own claims against the insurer.
The Company is involved in the causes of action described below as
plaintiff.
In March 1996, the Company commenced an action against Earl A. Van
Dorien, Jr., a former employee of the Company, in the Circuit Court, Dade
County, Florida seeking damages and the return of stolen property in connection
with the deletion from the Company's computer system of certain menu tools,
programs and access tools.
In May 1996 Aurora National Life Assurance Company filed an interpleader
action in the United States District Court for the Southern District of Florida
seeking determination of the proper recipient of benefits under a Policy. The
Policy in question was sold by the Company to Viaticus in May 1995 for $3
million. Although the insured had died in December 1994, neither the Company nor
Viaticus was aware of the maturation of the Policy at the time of the sale. The
Company intends to vigorously assert its claim to the full death benefits. If it
is awarded those benefits, it will have to return the $3 million sale price
previously paid to it by Viaticus for purchase of the policy, leaving the
Company with a $1.5 million net gain.
Management is currently unable to assess the outcome of such litigation
and whether the results thereof would have a material effect on the condition,
financial and otherwise, of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(None)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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The Company's Common Stock and Class A Warrants were quoted on the
NASDAQ Stock Market ("NASDAQ") under the symbols CARS and CARSW, respectively,
through May 22, 1996. The Common Stock has also been listed on the Boston Stock
Exchange (the "BSE") under the symbol OTO, since July 1, 1990. See "Item 3 --
Legal and Regulatory Proceedings."
The following table sets forth the range of high and low bid prices for
the Common Stock and Class A Warrants for all quarters for the fiscal years
ended March 31, 1995 and 1996, as reported by NASDAQ. The quotes represent
"Interdealer" prices without adjustment or mark-ups, mark-downs or commissions,
and, in the case of bid prices, may not necessarily represent actual
transactions. The trading volume of the Company's securities fluctuates and may
be limited during certain periods. As a result, the liquidity of an investment
in the Company's securities may be adversely affected.
<TABLE>
<CAPTION>
Common Class A
Stock Warrants(1)
----------------------- ------------------------
High Low High Low
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Fiscal Year Ending
March 31, 1995
Quarter ended June 30, 1994.............. $ 4 1/8 $ 2 1/4 $ 1 5/8 $ 3/4
Quarter ended September 30, 1994......... 3 3/4 1 3/4 1 1/8 5/16
Quarter ended December 31, 1994.......... 3 1/4 1 3/4 13/16 5/16
Quarter ended March 31, 1995............. 3 1/4 1 5/18 9/16 1/8
Fiscal Year Ending
March 31, 1996
Quarter ended June 30, 1995.............. $ 2 3/8 $ 1 3/8 $ 3/8 $ 5/32
Quarter ended September 30, 1995....... 2 5/8 1 9/16 19/32 3/16
Quarter ended December 31, 1995....... 2 1/16 7/8 19/32 1/8
Quarter ended March 31, 1996............ 1 3/8 7/8 7/16 3/16
</TABLE>
- -------------------
(1) Each Class A Warrant entitles the registered holder thereof to purchase one
share of Common Stock and one Class B Warrant through July 30, 1996 at an
exercise price of $4.00, subject to adjustment. Each Class B Warrant entitles
the registered holder thereof to purchase one share of Common Stock from the
date of issuance through July 30, 1996 at an exercise price of $7.00, subject to
adjustment. The Class A Warrants and the Class B Warrants are subject to
redemption at $.05 per Warrant on 30 days' prior written notice, provided the
closing bid price of the Common Stock exceeds $5.50 and $9.70 per share,
respectively, for 30 consecutive business days ending within 15 days of the date
of notice of redemption.
As of June 21, 1996 the last reported sale prices for the Common Stock
was $.9375 based upon a May 22, 1996 trade on NASDAQ and the last reported sales
price for the Class A Warrants was $.18 based upon a May 10, 1996 trade on
NASDAQ.
As of June 21, 1996 there were 4,634,530 shares of Common Stock
outstanding.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of the Company for the fiscal
years ended March 31, 1996, 1995, 1994, 1993 and 1992 has been derived from the
audited consolidated financial statements and should be read in conjunction with
such consolidated financial statements and the notes thereto. The Company
commenced its
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<PAGE>
viatical settlements business on April 1, 1991. On April 6, 1993, the Company
acquired certain operating assets of American Life Resources Corporation, a
Florida corporation engaged in the viatical settlements business. The Company
ceased since December 22, 1995 to purchase Installment Contracts Receivable and
since September 29, 1994 to purchase Policies. On May 20, 1994 the Company
commenced its Installment Contracts Receivable business and on March 9, 1995 it
commenced its Inventory Assistance Program Business. Accordingly, results of
operations prior to such dates are not indicative of future operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
<TABLE>
<CAPTION>
Fiscal Year
Ended March 31,
---------------------------------------------------------------------
Statement of Operations Data: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Finance charges on installment contracts.................... $ 7,808,369 $ 2,718,905 $ -- $ -- $ --
Revenue from matured insurance policies..................... 1,326,706 19,937,906 19,835,258 12,022,667 3,071,916
Operating earnings (loss)................................ (1,564,763) 2,750,932 3,504,138 2,069,936 (741,875)
Net interest income (expense)............................ (2,686,520) (4,530,910) (4,316,724) (2,439,994) (1,076,189)
Net realized gains (losses) on securities
available for sale.................................. 1,137 (1,649,252) (33,578) 681,151 14,680
Net unrealized losses on securities available
for sale............................................ -- -- -- (194,814) --
Earnings (loss) before discontinued operations
extraordinary item and cumulative
effect of change in accounting principle............ (8,180,657) (4,962,088) (946,164) 116,279 (1,803,384)
Discontinued operations - loss from operations
of discontinued subsidiary net of income
tax benefit......................................... (47,595) (67,735) -- -- --
Earnings (loss) before extraordinary item and
cumulative effect of change in
accounting principle................................ (8,228,252) (5,029,823) (964,164) 116,279 (1,803,384)
Extraordinary item-net gain on early
extinguishment of debt.............................. 7,306,970 2,030,000 -- -- --
Earnings before cumulative effect of change in
accounting principle................................ (921,282) (2,999,823) (946,164) 116,279 (1,803,384)
Cumulative effect of change in accounting
principle........................................... 176,735 -- -- 194,814 --
Net earnings (loss)...................................... (744,547) (2,999,823) (946,164) 311,093 (1,803,384)
Earnings (loss) per share before discontinued
operations, extraordinary item and
cumulative effect of change in
accounting principle................................ (1.77) (1.07) (0.20) 0.02 (0.34)
Earnings (loss) per share on discontinued
operations.......................................... (0.01) (0.02) -- -- --
Earnings (loss) per share before
extraordinary item and cumulative effect
of change in accounting principle....... (1.78) (1.09) (0.20) 0.02 (0.34)
Earnings per share on extraordinary item-gain
on early extinguishment of debt..................... 1.58 0.44 -- -- --
Earnings (loss) per share before cumulative
effect of change in accounting
principle........................................... (0.20) (0.65) (0.20) 0.02 (0.34)
Earnings (loss) per share on cumulative
effect of change in accounting
principle........................................... 0.04 -- -- 0.04 --
Net earnings (loss) per share............................ (0.16) (0.65) (.20) 0.06 (0.34)
Average number of shares outstanding..................... 4,634,530 4,634,530 4,641,605 5,339,809 5,308,911
</TABLE>
- 9 -
<PAGE>
<TABLE>
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total Assets............................................. $24,485,089 $55,001,797 $61,382,195 $63,439,211 $65,720,288
Total Liabilities........................................ 24,802,009 54,573,500 58,672,134 58,550,483 58,811,996
Total Stockholders' Equity............................... (316,920) 428,297 2,710,061 4,888,728 6,908,292
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
Although the Company was organized in May 1989, it did not commence its
viatical settlements business until April 1991 when it acquired certain assets
of Living Benefits, Inc. ("LBI") and covenants not to compete from the former
owners of LBI. In April 1993, the Company acquired certain operating assets of
American Life Resources Corporation ("ALRC"), which was also engaged in the
viatical settlements business. ALRC retained the Policies it had purchased prior
to January 14, 1993. Goodwill and intangibles related to these acquisitions were
amortized over the remaining life of the viatical portfolio, extending through
the fiscal year ended March 31, 1996.
The Company commenced purchasing Installment Contracts Receivable in May
1994 and ceased making such purchases in December 1995. The Company commenced
its Inventory Assistance Program in March 1995.
In September 1991, the Company sold $55 million 9 1/2% Convertible
Subordinated Debentures (the "Debentures"). During the fiscal year ended March
31, 1996, the Company prepaid, without penalty, $28.9 million principal amount
of Debentures, leaving $22.1 million outstanding. Annual interest payments of
approximately $2.1 million are required under the Debentures outstanding as of
March 31, 1996. Debt issuance costs of approximately $3.6 million arising from
the sale of Debentures are being amortized over the six year term, with
applicable amounts of costs amortized as prepayments of debt are made. At March
31, 1996, a balance of $356,681 in debt issuance costs remain to be amortized
through September 1997.
Under the terms of the Settlement, IAP will be sold by the Company. See
"Item 3 -- Legal Proceedings." Accordingly, for the fiscal years ended March 31,
1996 and 1995, net assets of IAP are included in the Financial Statements as
"Net assets of discontinued operation" and IAP net operating losses are included
as "Discontinued operations -- loss from operations of discontinued subsidiary."
IAP's revenues consist of a non-refundable administrative fee received on the
date of the loan and interest revenue collected and recognized during the time
the loan is outstanding. For the fiscal years ended March 31, 1996 and 1995,
administrative fees and interest revenues totaled $379,667 and $2,163,
respectively.
Effective August 1995, the Company changed the method by which finance
charges are recorded from a cash basis using simple interest calculation to an
accrual basis using the "Rule of 78" interest calculation method. The cumulative
effect on the prior period ending March 31, 1995 was $176,735 net of income
taxes of $117,239. Revenue is recognized on the difference between the gross
cash flow from the Installment Contracts Receivable and the total amount paid by
the Company to acquire the Installment Contracts Receivable. Recognition of
revenue is suspended for any Installment Contracts Receivable that is in default
and is only reinstated upon the curing of the default.
The Company recognizes revenues in its viatical settlements business
upon the death of the insured. See Note 1 of Notes to Consolidated Financial
Statements. Costs associated with the acquisition of a Policy are charged to
operations as revenues are recognized. The ability of the Company to recognize
revenue from the maturity of a Policy depends upon the Company receiving
notification of the Policy maturity from a
- 10 -
<PAGE>
representative of the insured, which in some instances may not occur until
significantly after the death of the insured. As a result of the Company's
revenue recognition policy, the Company may experience periods without revenues
from the maturity of Policies or significant fluctuations in operating results
from period to period.
Results of Operations
Fiscal Years ended March 31, 1996 and 1995.
During the fiscal year ended March 31, 1996, revenues from Installment
Contracts Receivable increased by $5,089,464, to $7,808,369 from $2,718,905
during the fiscal year ended March 31, 1995. This increase resulted from the
increased size of the Company's portfolio of Installment Contracts Receivable
during the fiscal year ended March 31, 1996 as compared with the fiscal year
ended March 31, 1995. The Company has ceased to purchase Installment Contracts
Receivable since December 1995.
During the fiscal year ended March 31, 1996, viatical revenues decreased
by $18,611,200 to $1,326,706, reflecting the maturity of 12 Policies, from
$19,937,906, reflecting the maturity of 195 Policies, during the fiscal year
ended March 31, 1995. Net viatical revenues for the fiscal year ended March 31,
1996 were $541,858 or 41% of viatical revenues, reflecting costs of $784,848
associated with the Policies that matured during such year. 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. Such costs in excess of the purchase price accounted
for approximately 2% of the face value of Policies that matured during the year
ended March 31, 1996 and March 31, 1995. Net viatical revenues for the year
ended March 31, 1995 were $6,677,650, or 33.5% of viatical revenues, reflecting
costs of $13,260,256. 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 year ended March 31, 1996 loss from operations of IAP
decreased $20,140 to $47,595, net of income tax benefit of $28,716, from
$67,735, net of income tax benefit of $0 for the year ended March 31, 1995.
During the year ended March 31, 1996, revenues from the Inventory Assistance
Program increased by $377,504 to $379,667, reflecting 2,771 cars financed, from
$2,163, reflecting 24 cars financed, during the year ended March 31, 1995. These
increases reflected the operation of IAP during the full year ended March 31,
1996 as opposed to a single month of the year ended March 31, 1995, and the
growth and development of the IAP program during the year ended March 31, 1996.
General and administrative expenses increased by $3,269,367 to
$9,914,990 during the year ended March 31, 1996, from $6,645,623 during the year
ended March 31, 1995. This increase resulted primarily from increases of
approximately $1,873,000 in costs resulting from the expanded activity of the
Company's Installment Contracts Receivable business during the first three
quarters of the year, $444,000 in legal and professional fees, $226,162 in
severance pay resulting from the Company's downsizing during the third quarter
of 1996, and $219,799 and $173,973 in costs incurred in 1993 and 1994 relating
to the Company's offering of securities and its 1995 organization of an
Australian joint venture, respectively. As a result of the Company's downsizing
during the third quarter of 1996, salary expense was approximately $246,000
during the three months ended March 31, 1996 as compared with approximately
$860,000 during the three months ended September 30, 1995.
Provision for credit losses in connection with the Company's Installment
Contracts Receivable increased to $8,839,461 for the year ended March 31, 1996,
from $1,561,062 for the year ended March 31, 1995. In
- 11 -
<PAGE>
addition, chargeoffs and adjustments for credit losses in connection with the
Company's Installment Contracts Receivable increased to $6,388,165 during the
year ended March 31, 1996 from $17,062 during the year ended March 31, 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.
During the year ended March 31, 1996, the Company's operating loss
(excluding provision for credit losses) was $1,564,763, as compared with
operating income of $2,750,932 during the year ended March 31, 1995. The
decrease in operating income was primarily attributable to the developments
described above.
For the year ended March 31, 1996, the Company had a net loss of
$744,547 or $.16 per share. For the year ended March 31, 1995, the Company had a
net loss of $2,999,823 or $0.65 per share. The change in net loss was
attributable primarily to the developments described above, coupled with an
increase of $5.3 million in gain on early extinguishment of debt and an increase
of $4.9 million in benefits from income taxes.
Fiscal Years ended March 31, 1995 and 1994.
During the year ended March 31, 1995, revenues from Installment
Contracts Receivable totalled $2,718,905.
During the year ended March 31, 1995, viatical revenues increased 0.5%
to $19,937,906, reflecting the maturity of 195 Policies, from $19,835,258,
reflecting the maturity of 232 Policies, during the year ended March 31, 1994.
Net viatical revenues for the year ended March 31, 1995 were $6,677,650, or
33.5% of revenues, reflecting costs of $13,260,256 associated with such matured
Policies. 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. Such costs in excess of the
purchase price accounted for approximately 2% of the face value of Policies that
matured during the year ended March 31, 1995 as compared with 1% of the face
value of Policies that matured during the year ended March 31, 1994. Net
viatical revenues for the year ended March 31, 1994 were $6,508,628, or 32.8% of
revenues, reflecting costs of $13,326,630. The overall increase in Policy
maturities and net revenue relates to the relative age of the overall portfolio
of Policies.
During the year ended March 31, 1995, operating earnings (excluding
provision for credit losses) decreased to $2,750,932, as compared with
$3,404,138 during the year ended March 31, 1994. The decrease in operating
earnings resulted from an increase in general and administrative expenses which
was only partially offset by an increase in revenues from automobile financing
and viatical settlements. General and administrative expenses increased to
$6,645,623 during the year ended March 31, 1995, from $3,004,490 during the year
ended March 31, 1994. The increase was primarily attributable to the increased
salary costs of approximately $1.1 million associated with the expansion of
AutoLend, and certain legal costs associated with entry into a new business
which were only partially offset by reduced advertising expenditures resulting
from the Company's decreased marketing efforts for its viatical settlements
business.
For the year ended March 31, 1995, the Company had a net loss of
$2,999,823 or $.65 per share. For the year ended March 31, 1994, the Company had
a net loss of $946,164 or $.20 per share. The increased net loss resulted
primarily from the costs associated with the expansion of AutoLend which were
only partially offset by the increase in revenues.
- 12 -
<PAGE>
Liquidity and Capital Resources
The Company's 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 "Item 13. Certain Relationships and
Related Transactions."
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 render the
Company insolvent on a balance sheet basis See Note 5 to the Consolidated
Financial Statements for information relating to the Company's debenture
obligations. There was positive cash flow from operations of $8,724,470 for the
year ended March 31, 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 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 fiscal year ended March 31, 1996 the Company funded a total
volume of 2,771 IAP purchases totalling approximately $13.2 million. At March
31, 1996 the Company's IAP receivable portfolio consisted of 994 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.
During the fiscal year ended March 31, 1996, the Company purchased a
total of approximately 2,600 Installment Contracts Receivable at a cost of
approximately $12.6 million. The Company's portfolio of Installment Contracts
Receivable at March 31, 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 3,400 active
loans purchased at a cost of approximately $12.0 million.
During the fiscal year ended March 31, 1996, the Company's viatical
settlement business did not purchase any new Policies compared to purchases of
21 Policies with a face value of approximately $1.6 million at a cost of
approximately $1.1 million during the year ended March 31, 1995.
The Company's portfolio of unmatured Policies at March 31, 1996 totaled
19 Policies with a face value of approximately $2.2 million, which Policies were
purchased at a cost of approximately $1.4 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.
- 13 -
<PAGE>
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 Insurance 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. During the
fiscal year ended March 31, 1996, approximately $17.5 million has been received
as payment for policies with completed assignments to Viaticus and there are no
outstanding amounts receivable under the agreements at March 31, 1996.
During the fiscal year ended March 31, 1996, the Company had cash flow
from operations of $8,724,470 compared to a deficit of $5,842,303 during the
fiscal year ended March 31, 1995 and $1,965,672 during the year ended March 31,
1994. The increase in cash flow from operations is due primarily to decreased
use of cash to fund purchases of Installment Contracts Receivable, proceeds from
the assignment of viatical insurance policies to Viaticus and increased proceeds
from maturities of Policies, which were only partially offset by increased
repurchases of Debentures and an increase in the purchase of IAP loans.
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, and proceeds, if any, from the exercise of the Company's outstanding Class
A and Class B Warrants. 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 be left with insufficient liquidity 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.
During the year ended March 31, 1996, the Company had cash flows from
investing activities of $9,015,309 as compared with cash flows from investing
activities of $8,196,584 during the year ended March 31, 1995 and $377,453
during the year ended March 31, 1994. This increase in cash flows resulted
primarily from the liquidation of a significant portion of the Company's
investment portfolio in order to fund automobile loan purchases.
In connection with the acquisition of LBI in April 1991, the Company
agreed to pay consideration of (i) $500,000 cash; (ii) 158,730 shares of Common
Stock valued at $500,000; and (iii) additional consideration equal to 50% of the
Estimated Net Earnings (as that term is defined in the acquisition agreement) of
LB NM in the fiscal years ending March 31, 1992, 1993 and 1994. This acquisition
was accounted for under the purchase method of accounting, resulting in goodwill
of $1,000,000, which was initially being amortized over a period of 10 years. At
March 31, 1993, the Company accrued $549,258 under the acquisition agreement as
additional consideration which was paid in July 1993. The Company and the
principals of LBI are disputing the remaining amounts of consideration due based
on differences in interpretation of certain computational items set forth in the
acquisition agreement. The Company has accrued an amount based on its
interpretation of the agreement and intends to negotiate a settlement of the
dispute. However, the Company is currently unable to predict with certainty the
final resolution of this matter.
In connection with the acquisition of ALRC in April 1993, the Company
paid a purchase price of $250,000 for the assets, $500,000 for certain
employment and non-competition arrangements with the two principals of ALRC and
incurred transaction costs of $250,000. The Company did not assume any
liabilities
- 14 -
<PAGE>
or obligations of ALRC, except for certain nominal office lease obligations. The
employment agreements with the two principals of ALRC provided for employment
terms of five years from the date of the acquisition. One of the two principals
of ALRC was subsequently appointed President, Chief Executive Officer and
Chairman of the Company.
At March 31, 1996, the Company had cash, cash equivalents and securities
available for sale of approximately $3.2 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. 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.
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 are immediately available to the Company.
At March 31, 1993, the Company adopted Financial Accounting Standard
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and, accordingly, began recording its investments in securities
available for sale at fair value. See Notes 1 and 3 of Notes to Consolidated
Financial Statements for additional information about the Company's investment
in securities available for sale.
During the year ended March 31, 1996 the Company had a cash flow deficit
from financing activities of $15,848,000 as compared with a cash flow deficit
from financing activities of $1,970,000 for the year ended March 31, 1995 and a
cash flow deficit of $717,828 for the year ended March 31, 1994. This increase
in the cash flow deficit resulted from an increase in the early extinguishment
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. During the
fiscal year ended March 31, 1996, the Company prepaid, without penalty $28.9
million principal amount of Debentures leaving $22.1 million outstanding. 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 March 31, 1996.
Annual interest payments were made in accordance with the terms of the Indenture
in September 1992, 1993, 1994 and 1995. As of March 31, 1996, the Company had
accrued $1,111,369 as interest payable.
In December 1992, the Company announced a plan to utilize up to
$10,000,000 to repurchase its Common Stock and Class A Warrants. During the year
ended March 31, 1993, the Company repurchased 705,700 shares of its Common Stock
at a total cost of $2,746,140, or an average price of $3.89 per share, and
142,000 of its Class A Warrants at a total cost of approximately $227,000, or an
average price of $1.60 per warrant. During the year ended March 31, 1994, the
Company repurchased an additional 165,500 shares of its Common Stock at a total
cost of approximately $718,000, or an average price of $4.34 per share. No
shares of Common Stock or Class A Warrants have been purchased since April 1994.
All shares repurchased were retired during the year ended March 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The responses to this item are submitted in a separate section of this
Annual Report on Form 10-K. See Index to Consolidated Financial Statements on
page F-1.
- 15 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
Company's directors and executive officers.
Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Year First
Name Age Elected Director Position
---- --- ---------------- --------
Executive Officers and Members of
the Board of Directors
<S> <C> <C> <C>
Steve Simon.............................. 49 1993 Chairman of the Board, President,
Chief Executive Officer and Director
Helen Porter............................. 47 N/A Executive Vice President and Chief
Operating Officer
Philip J. Vitale, M.D.................... 49 1992 Director
Robert Granoff........................... 53 1995 Director
James J. Newman.......................... 44 1995 Director
Drew Sakson.............................. 38 1995 Director
</TABLE>
Steve Simon has been the Chairman of the Board of the Company since June
1994, President and a director since May 1993 and Chief Executive Officer of the
Company since September 1993. Mr. Simon also served as Chief Operating Officer
of the Company from May 1993 to September 1993. Mr. Simon has also served as the
President and Chief Operating Officer of AutoLend Corporation since March 1994
and ALRG since April 1993. He was a co-founder of ALRC and has been its
President since ALRC's organization in June 1989. From January 1988 to January
1989, Mr. Simon was a consultant to the insurance industry in the State of
Florida. Mr. Simon is the husband of Helen Porter.
Helen Porter has been Executive Vice President and Chief Operating
Officer of the Company since July 1994 and had been the Vice President -
Operations of the Company since November 1993 and Executive Vice President of
ALRG since April 6, 1993. She was a co-founder of ALRC and has been its
Treasurer and Secretary since its organization in June 1989. From 1980 to 1992,
Ms. Porter was Vice President of Office Specialists, Inc., a national temporary
employment service. Ms. Porter is the wife of Steve Simon.
- 16 -
<PAGE>
Philip J. Vitale, M.D. has been a director of the Company since February
1992. Dr. Vitale has been a doctor of medicine, specializing in urology, at the
Lovelace Medical Center, Albuquerque, New Mexico ("Lovelace") since 1978. Dr.
Vitale served on the Board of Directors of Lovelace from 1985 until 1989, and
served on other governing boards and in governing capacities for Lovelace at
various times from 1980 until 1989, during which time Lovelace was owned by
several different entities. From 1976 until 1978, Dr. Vitale served as Chief
Urologist at Kirtland Air Force Base in Albuquerque.
Robert Granoff has been a director of the Company since December 1995.
Since 1983, Mr. Granoff has served as Vice President of The Paper Wholesaler, a
company involved in wholesale paper distribution and the retail restaurant and
party supply industries. From 1976 to 1993, Mr. Granoff served as President of
Graco Paper, a wholesale paper distributor.
James Newman has been a director of the Company since December 1995.
Since March 1992, Mr. Newman has served as President of The Firm, an independent
manufacturer's representative selling micro computer products nationally. From
1983 through December, 1992, Mr. Newman served as an owner and Vice President of
Sales for Pacific Micro Marketing, an independent manufacturer's representative
in Northern California selling microcomputer products.
Drew Sakson has been a director of the Company since December 1995.
Since 1987, Mr. Sakson has served as President of Drew Sakson Management, Inc.,
a mortgage investments and real estate company. Mr. Sakson has also served as a
manager of Roar L.L.C and Vice President of Midland Hotel L.L.C.
Directors of the Company hold office until the next annual meeting of
stockholders. Officers of the Company hold office at the pleasure of the board
of directors, subject to the terms of employment agreements between the Company
and each of Steve Simon and Helen Porter.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended March 31, 1996
("fiscal 1996"), March 31, 1995 and March 31, 1994, of those persons who were,
at the end of fiscal 1996 the Chief Executive Officer and the only other
executive officer whose compensation for fiscal 1996 exceeded $100,000
(collectively, the "Two Named Officers").
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------------------------------- -----------------------------------------
Fiscal Other Annual Awards All Other
Name and Principal Position Year Salary ($) Compensation (1) Options(#)(2) Compensation ($)
- --------------------------- ---- ---------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C>
Steve Simon 1996 174,996 -- 300,000 --
Chairman of the Board 1995 174,996 -- 125,000 --
and Chief Executive 1994 185,396 -- 360,000 --
Officer
</TABLE>
- 17 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Helen Porter 1996 150,000 -- -- --
Executive Vice President 1995 131,250 -- 300,000 --
and Chief Operating 1994 86,458 -- -- --
Officer
</TABLE>
- -----------
(1) The aggregate amount of prerequisites and other personal benefits paid to
each of the Two Named Officers for fiscal 1996, 1995 and 1994 did not
exceed the lesser of 10% of such officer's total annual salary and bonus
for such fiscal years and $50,000; such amounts are, therefore, not
reflected in the table.
(2) All options held by the Two Named Officers as of the date of the closing
of the Settlement will be terminated and new options will be granted.
See "Item 13 -- Certain Relationships and Related Transactions."
OPTIONS GRANTED IN THE LAST FISCAL YEAR
The following table sets forth information concerning stock options
grants made during fiscal 1996 to the Two Named Officers. These grants are also
reflected in the Summary Compensation Table. In accordance with SEC rules, a
repricing of outstanding options is treated as a new grant. Also in accordance
with the SEC rules, the hypothetical gains or "option spreads" for each option
grant are shown based on compound annual rates of stock price appreciation of 5%
and 10% from the grant date to the expiration date. The assumed rates of growth
are prescribed by the SEC and are for illustrative purposes only; they are not
intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance. The Company has not granted any
stock appreciation rights.
<TABLE>
<CAPTION>
% of Total
Options Potential Realizable Value
Granted at Assumed Annual Rates
to Employees of Stock Appreciation for
Options in Fiscal Exercise Price Expiration Option Term (3)
Granted (1) Year per Share(2) Date 5% 10%
----------- ------ -------------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Steve Simon 300,000 100% $1.50 June 16, 2005 $283,002 $717,184
Helen Porter -- -- -- -- -- --
</TABLE>
- -----------
(1) All options held by the Two Named Officers as of the date of the
closing of the Settlement will be terminated and new options will be
granted. See "Item 13 -- Certain Relationships and Related Transactions."
(2) Options were granted with an exercise price equal to the market price
of the stock at the date of grant.
(3) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates required by the SEC and therefore are not
intended to forecast possible future appreciation of the stock price.
- 18 -
<PAGE>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES - 1996
The following table provides information concerning all exercises of
stock options during fiscal 1996 by the Two Named Officers and the fiscal
year-end value of unexercised options on an aggregated basis. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Acquired Number of Unexercised In-the-Money Options
on Value Options at Year End at Year End(2)
Exercise(#) Realized($) Exercisable/Unexercisable (1) Exercisable/Unexercisable
------------- ------------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Steve Simon -- -- 376,667/408,333 $0/ $0
Helen Porter -- -- 100,000/200,000 $0/ $0
</TABLE>
- -----------
(1) All options held by the Two Named Officers as of the date of the closing
of the Settlement will be terminated and new options will be granted.
See "Item 13 -- Certain Relationships and Related Transactions."
(2) Options are "in-the-money" if on March 31, 1996, the market price of the
Common Stock ($1.00) exceeded the exercise price of such options. The
value of such options is calculated by determining the difference
between the aggregate market price of the Common Stock covered by the
options on February 3, 1996 and the aggregate exercise price of such
options.
Compensation of Directors
Directors who are not employees of the Company will receive $7,500 per
year in directors fees as well as $750 per board meeting or committee meeting
attended. Directors will also each receive options to purchase 50,000 shares of
the Company each year that they serve on the Board, except that they will each
receive options to purchase 75,000 shares for their service from their initial
election to the Board until the first annual meeting of the Company thereafter.
All current Directors have waived payment of fees and award of options in
respect of their service during the fiscal year ended March 31, 1996.
Employment Contracts
On April 2, 1993, ALRG entered into five-year employment agreements with
Steve Simon and Helen Porter. Mr. Simon was employed as president, chief
operating officer and a director of ALRG, and receives a minimum salary of
$125,000 per year, adjusted annually. In May 1993, Mr. Simon was appointed
President and was elected as a director of the Company and in June 1994 Mr.
Simon was appointed Chief Executive Officer of the Company. Ms. Porter was
employed as Executive Vice President of ALRG and receives a minimum salary of
$75,000 per year, adjusted annually. In July 1994, Ms. Porter was appointed
Chief Operating Officer of the Company. Under terms of the Settlement, Steve
Simon and Helen Porter will resign from the Company and amounts remaining under
their respective employment agreements as of the date of their resignations will
be accelerated. See "Item 3 -- Legal Proceedings".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information concerning stock
ownership of all persons known by the Company to own beneficially 5% or more of
the Company's outstanding shares of Common Stock, each
- 19 -
<PAGE>
director and named executive officer of the Company and all directors and
executive officers of the Company as a group, as of June 21, 1996, on which date
the Company had outstanding 4,634,530 shares of Common Stock, excluding treasury
shares.
Amount and
Name and Address Nature of
of Beneficial Owner Beneficial Percent
or Identity of Group Ownership(1) of Class Owned
- -------------------- ------------ --------------
Steve Simon(2).............................. 644,467(3) 13.9%
Helen Porter(2)............................. 201,600(4) 4.2%
Philip J. Vitale, M.D(2).................... 75,700(5) 1.6%
Robert Granoff(2)........................... 0 *
James Newman(2)............................. 0 *
Drew Sakson(2).............................. 133,340(6) 2.9%
Nunzio P. DeSantis.......................... 608,900(7)(8) 13.1%
4500 Alexander Blvd., N.E.
Albuquerque, New Mexico 87107
Courtlandt G. Miller........................ 382,900(8)(9) 8.3%
405 Park Avenue
Sixteenth Floor
New York, New York 10022
J.E. Sheehan & Company, Inc................. 244,647(10) 5.3%
711 Fifth Avenue
New York, New York 10022
Synalgest, S.A.............................. 254,997(10) 5.5%
20 Rue de la Paix, 75002
Paris, France
Banque Degroof Luxembourg, S.A.............. 269,388(11) 5.8%
One Place D'armes
1136 Luxembourg
Allen & Company Incorporated............... 605,248(10) 11.6%
Allen Holding, Inc.
711 Fifth Avenue
New York, NY 10022
All directors and executive officers
as a group (6 persons)................... 1,055,107(12) 19.3%
- -----------
* Less than 1%.
(1) Unless otherwise indicated, each individual who is listed or is part of
the group has sole voting and investment power for the shares listed
below.
(2) c/o AutoLend Group, Inc., 930 Washington Avenue, Miami Beach, Florida
33139.
- 20 -
<PAGE>
(3) Includes 576,667 shares issuable upon exercise of options exercisable
within 60 days. Does not include an aggregate of 908,000 shares voted by
Steve Simon as CEO of the Company pursuant to a Voting Trust, with
respect to which Steve Simon has disclaimed beneficial ownership.
(4) Includes 200,000 shares issuable upon exercise of options exercisable
within 60 days.
(5) Includes 8,200 shares held by Dr. Vitale jointly with his wife.
Includes 60,000 shares issuable upon exercise of options exercisable
within 60 days.
(6) Includes 2,885 shares held by Mr. Sakson jointly with his wife.
(7) Includes 75,000 shares issuable upon exercise of options exercisable
within 60 days. Does not include 51,600 shares owned by the Diagnostek
Charitable Foundation, for which Mr. DeSantis serves as Voting Trustee,
with respect to which Mr. DeSantis has disclaimed beneficial ownership.
(8) All currently owned and after acquired shares held until 1999, subject
to a voting trust (the "Voting Trust") under an agreement with the
Company, pursuant to which Steve Simon, as Chief Executive Officer of
the Company, votes the shares.
(9) Includes 75,000 shares issuable upon exercise of options exercisable
within 60 days.
(10) Represents shares issuable upon exercise of Unit Purchase Options and of
Class A and Class B Warrants issuable upon exercise of Unit Purchase
Options and the Class A and Class B Warrants included therein.
(11) Represents shares issuable upon exercise of a currently exercisable
Warrant.
(12) Includes 836,667 shares issuable upon exercise of option exercisable
within 60 days. Does not include an aggregate of 908,000 shares voted by
Steve Simon as CEO of the Company pursuant to a Voting Trust, with
respect to which Steve Simon has disclaimed beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective as of April 1, 1991, the Company entered into an Acquisition
Agreement, among the Company, Rob T. Worley, Sr. and Rob T. Worley, Jr.
(collectively, the "Worleys"), and Living Benefits, Inc. ("Old LB") pursuant to
which the Company, through its wholly-owned subsidiary, LB NM, acquired certain
assets from Old LB and covenants not to compete from the Worleys. Under the
Acquisition Agreement, Old LB retained the Policies that it had purchased and
the Company acquired substantially all of the other assets of Old LB and
covenants not to compete. The Company did not assume any liabilities or
obligations of Old LB, except for certain nominal lease obligations.
The consideration paid by the Company for the Old LB acquisition
consisted of $500,000, plus 158,730 shares of Common Stock of the Company having
an aggregate market value at that time of approximately $500,000, plus an
earn-out equal to 50% of Estimated Net Earnings (as that term is defined in the
Acquisition Agreement) of LB NM in the fiscal years ending March 31, 1992, 1993
and 1994. The purchase price was determined as a result of negotiations between
the parties and was not necessarily based on any objective criteria of value,
primarily due to the relatively early stage of development of the industry at
the time of the negotiation and the lack of precedent for independent appraisal
or valuation. At March 31, 1993, the Company accrued and subsequently paid to
the Worleys $549,258 as additional consideration. The principals of Old LB are
disputing the amount of contingent consideration accrued based on differences in
interpretation of certain computational items set forth in the acquisition
agreement. The Company estimates that the effect of these differences, if not
resolved in the Company's favor, could result in additional contingent
consideration of up to approximately $350,000 at March 31, 1993.
- 21 -
<PAGE>
For the year ended March 31, 1994, the Company accrued an additional
$656,542 as contingent consideration, which amount has been calculated by the
Company based upon its understanding of the interpretation of the computational
items adopted by the principals of LBI. The Company disputes this interpretation
and intends to negotiate a settlement of the dispute. However, the Company is
currently unable to predict with certainty the amount of the earn-out for fiscal
1994.
The amount of contingent consideration is recorded as additional
goodwill when determinable and amortized over any remaining period for goodwill
amortization.
On July 18, 1994, the Company entered into agreements (the
"Agreements"), dated as of July 1, 1994, with respect to all capital stock of
the Company owned or thereafter acquired by Messrs. Nunzio P. DeSantis,
Courtlandt G. Miller and Vincent Villanueva (collectively the "Stockholders").
The Stockholders entered into the Agreements in consideration of each (except
for Mr. Villanueva) receiving director's fees of $22,500 for the previous three
years of service as a director of the Company, and each receiving certain
releases from the Company, agreement that certain options under the Stock Option
Agreement between the Stockholders and the Company will vest and will be
exercisable until July 1, 1996 and agreement that the provisions of the
Company's By-Laws or Articles of Incorporation providing for the indemnification
of officers and directors under the laws of the State of Delaware would continue
to apply to the Stockholders in relation to any future claims relating to their
service with the Issuer.
Pursuant to the Agreements, Steve Simon, as Chief Executive Officer of
AutoLend serves as Voting Trustee, with sole voting power with respect to all
shares of the stock held by the Stockholders until the earlier of (x) his
resignation as Voting Trustee, (y) his ceasing to be CEO of the Company and (z)
July 1, 1999. In the event that Mr. Simon resigns as Voting Trustee or ceases to
be CEO of the Company, the Board of Directors of the Company is empowered to
elect a successor Voting Trustee to serve for the remainder of the term of the
Voting Trust. As of June 21, 1995, the Stockholders held an aggregate of 908,000
shares.
Under the Agreements, the Company also received a release from each of
the Stockholders and a right of first refusal (the "Right") with respect to
sales of the Company's shares by the Stockholders to a transferee or group, that
together with all other sales to such transferee or group made by any
Stockholder either made during the previous thirty day period, or proposed to be
made in the future, aggregate to more than five percent of the issued and
outstanding stock of the Company. The right expires on July 1, 1999.
On June 27, 1996, Vice Chancellor Steele of the Delaware Chancery Court
entered an order approving the Stipulation settling the Derivative Suit. See
"Item 3 -- Legal Proceedings." Pursuant to the Stipulation, the action was
dismissed with prejudice. IAP will be sold by the Company to a newly formed
affiliate (the "Affiliate") of Steve Simon and Helen Porter for consideration
including (i) repayment at closing by IAP of all short term intercompany
indebtedness in respect of amounts borrowed by IAP to fund its loans to used car
dealers to buy cars at auction; (ii) the issuance prior to closing to the
Company by IAP of Preferred Stock with a face amount of $1 million and a
cumulative preferred dividend of 11%, with dividend payments beginning 26 months
following issuance, and redemption rights beginning 36 months from issuance at
face amount plus accrued interest; (iii) the deposit at closing by IAP of
$250,000 into escrow in support of the redemption rights; and (iv) the
representation and warranty by IAP that it has no less than $2 million of common
equity, and $5 million in subordinated debt financing as of the closing.
In addition, IAP will purchase from the Company certain fixed assets for
the book value of those assets as currently recorded on the financial statements
of the Company. Some of the licenses, tradenames, trademarks and software of the
Company used by IAP for its business will be assigned to IAP, with IAP granting
the Company a license of limited duration for the continued use of certain of
such licenses, tradenames, trademarks and software necessary to the Company's
business.
- 22 -
<PAGE>
Simultaneously with the closing, the current directors will resign and
elect Nunzio DeSantis to the Board of Directors. Management, including Steve
Simon and Helen Porter, will be paid all amounts remaining under their
employment agreements which will equal the product of the number of months
remaining until the scheduled expiration of the employment agreements in April
1998. Mr. Simon and Ms. Porter will agree to indemnify the Company for any tax
liability resulting from the non-withholding of taxes with respect to such
payments and will place in escrow $25,000 of such payments in support of the
indemnity obligation. To facilitate the management transition and to help the
Company liquidate its current portfolio of loans and viatical settlements, Steve
Simon and Helen Porter will each enter into three year consulting agreements
with the Company, under which they will assist the Company (i) with the
collection of its remaining automobile receivables and (ii) with the maintenance
of its remaining viatical settlement policies. In consideration of their
entering into the consulting agreements, each will receive $210,000 at the
closing. Mr. Simon will also resign as Voting Trustee. The Affiliate has
currently reached agreement in principle with certain providers of equity and
debt financing and expects to proceed with such providers to enter into
definitive agreements after which the closing of the Settlement will occur.
Concurrently with the closing, the plaintiffs, defendants, including the
Company, and certain current and former directors of the Company will exchange
releases.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements on page F-1 for list of financial
statements and financial statement schedules.
(a) (3) Exhibits
2.1 Reorganization Agreement between CAP Rx, Ltd. and CAPX
Corporation (2)
3.1 Certificate of Incorporation of CAP Rx, Ltd. (1)
3.2 Memorandum of Association of CAP Rx, Ltd., including
Memorandum of Increase of Share Capital (1)
3.3 Amended By-Laws of CAP Rx, Ltd. (1)
3.4 Certificate of Incorporation of AutoLend Group,
Inc. (12)
3.5 By-laws of AutoLend Group, Inc. (12)
4.1 Form of 9.5% Convertible Subordinated Debenture (2)
4.2 Warrant Agreement (1)
4.3 Unit Purchase Option (1)
4.4 Stock Purchase Warrant granted to Banque Degroof
Luxembourg, S.A. (2)
4.5 Stock Purchase Warrant granted to Till A. Petrocchi (2)
- 23 -
<PAGE>
4.6 Stock Purchase Warrant granted to Steve Simon and Helen
Porter (6)
10.1 Re-insurance Agreement between CAP Rx Insurance, Ltd.
and Planet Insurance Registrant (1)
10.2 Letter Agreement between CAP Rx, Ltd. and Planet
Insurance Registrant (1)
10.3 Administrative Agreement between CAP Rx, Ltd. and
Parker Risk Management (Bermuda) Ltd. (1)
10.4 1989 Incentive and Non-Statutory Stock Option Plan of
the Registrant (1)
10.5 Letter agreement between Westbroke Limited and the
Registrant (2)
10.6 Acquisition Agreement among Rob T. Worley, Sr. and
Rob T. Worley, Jr., Living Benefits, Inc. and CAP Rx,
Ltd. (2)
10.6.1 Addendum to Acquisition Agreement (2)
10.6.2 Second Addendum to Acquisition Agreement (2)
10.7 Employment Agreement between LB NM, Inc. and
Rob T. Worley, Sr. (2)
10.8 Employment Agreement between LB NM, Inc. and
Rob T. Worley, Jr. (2)
10.9 Lease Agreement for space at 6100 Seagull Street, N.E.,
Albuquerque, New Mexico (2)
10.9.1 Addendum to Lease Agreement (2)
10.9.2 Lease Agreement, dated April 15, 1993, for space at
6100 Seagull Street, N.E., Albuquerque, New Mexico (8)
10.9.3 Lease, dated March 17, 1992, between Marbrad, Inc. and
American Life Resources Corporation (8)
10.10 Asset Purchase Agreement between American Life
Resources Group, Inc., American Life Resources
Corporation, Steve Simon and Helen Porter (6)
10.11 Employment Agreement between ALRG and Steve Simon (6)
10.12 Employment Agreement between ALRG and Helen Porter (6)
10.13 Noncompetition Agreement between ALRG and
Steve Simon (6)
10.14 Noncompetition Agreement between ALRG and
Helen Porter (6)
10.15 Guaranty Agreement made by the Registrant for the
benefit of ALRC, Steve Simon and Helen Porter (6)
10.16 Viatical settlement forms (8)
- 24 -
<PAGE>
10.17 Agreement between the Registrant and the McLernon
Group Limited dated December 3, 1993 (9)
10.18 Lease Agreement between Arquitectonica International
Corporation and CAPX Corporation dated
May 11, 1994 (10)
10.19 Agreement between Nunzio P. DeSantis and CAPX
Corporation dated as of July 1, 1994
10.20 Agreement between Courtlandt G. Miller and CAPX
Corporation dated as of July 1, 1994
10.21 Agreement between Vincent Villanueva and CAPX
Corporation dated as of July 1, 1994
10.22 Employment Agreement between AutoLend Group, Inc. and
Charley A. Pond (11)
21 Subsidiaries of the Registrant (10)
28.1 Cooperation and Assistance Agreement between Parker
Risk Management (Colorado) Inc. and Health Care
Services, Inc. (1)
(b) Financial Statement Schedules
Independent Auditors' Report
Schedule VIII -- Valuation and Qualifying Accounts - March
31, 1996, 1995 and 1994
All other schedules have been omitted because they are
inapplicable or the information is provided in the financial
statements including notes thereto included in this Annual
Report.
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 1996.
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form F-1
(Registration No. 33-29251) 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 on December 26, 1991 as an exhibit to the Registrant's
Post-Effective Amendment No. 1 to Registration Statement on Form F-1 on
Form S-1 (Registration No. 33-29251) and incorporated herein by reference.
(4) Filed on February 18, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 3 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(5) Filed on March 27, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 4 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
- 25 -
<PAGE>
(6) 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.
(7) Filed on May 12, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(8) Filed on October 29, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 7 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(9) Filed on March 7, 1994 as an exhibit to the Registrant's Post-Effective
Amendment No. 8 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(10) Filed on June 26, 1994 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1994 and incorporated herein by
reference.
(11) Filed on June 29, 1995 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1995 and incorporated herein by
reference.
(12) Filed herewith.
- 26 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
AUTOLEND GROUP, INC.
Annual Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets - March 31, 1996 and 1995 F-3
Consolidated Statements of Operations - Years Ended
March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity - Years
Ended March 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - Years Ended March 31,
1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts - March 31,
1996, 1995 and 1994 S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AutoLend Group, Inc.
We have audited the accompanying consolidated balance sheets of AutoLend
Group, Inc. (the "Company") as of March 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. Our audit also included the financial statement schedule listed
in the Index at Item 8. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. The financial statements of the Company for the
year ended March 31, 1994 were audited by other auditors whose report, dated
May 27, 1994, expreseed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, an all material
respects, the financial position of the Company at March 31, 1996 and 1995,
and the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, although management of the
Company has used its best judgement 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 however such amount
could differ materially in the near term.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertaintty.
/s/ DELOITTE & TOUCHE LLP
- -------------------------------
DELOITTE & TOUCHE LLP
Miami, Florida
July 15, 1996
F-2
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 3,168,730 $ 1,276,951
Securities available for sale 175,000 9,507,640
Accounts receivable - matured insurance policies 1,405,947 4,984,565
Installment contracts receivable 13,760,394 14,818,445
Allowance for credit losses (3,995,296) (1,544,000)
Collateral owned 1,785,743 432,286
----------- -----------
Installment contracts receivable - net 11,550,841 13,706,731
----------- -----------
Purchased insurance policies, face value of $2,171,198
at March 31, 1996 and $31,910,037 at March 31, 1995 1,445,184 19,248,535
Accrued interest receivable on investments -- 79,499
Goodwill, less accumulated amortization of $2,708,278 at
March 31, 1996 and $1,128,413 at March 31, 1995 -- 1,579,865
Other intangibles, less accumulated amortization of $600,000
at March 31, 1996 and $293,949 at March 31, 1995 -- 306,051
Debt issuance costs, less accumulated amortization of
$3,276,724 at March 31, 1996 and $1,824,690 at
March 31, 1995 356,681 1,808,715
Fixed assets, less accumulated depreciation of $397,620
at March 31, 1996 and $154,650 at March 31, 1995 1,013,173 815,915
Net assets of discontinued operation 4,974,047 115,667
Other 395,486 1,571,663
----------- -----------
$24,485,089 $55,001,797
=========== ===========
Liabilities:
Accounts payable and accrued liabilities $ 984,098 $ 374,916
Accrued acquisition costs 656,542 656,542
Accured interest expense 1,111,369 2,542,042
Convertible debentures 22,050,000 51,000,000
----------- -----------
Total liabilities 24,802,009 54,573,500
----------- -----------
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 March 31, 1996
and March 31, 1995 9,269 9,269
Additional paid-in capital 5,946,904 5,946,904
Accumulated deficit (6,273,093) (5,528,546)
----------- -----------
(316,920) 427,627
Unrealized gains (losses) on securities available for sale -- 670
----------- -----------
Total stockholders' equity (316,920) 428,297
----------- -----------
$24,485,089 $55,001,797
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts $ 7,808,369 $ 2,718,905 $ --
Revenues from matured insurance policies 1,326,706 19,937,906 19,835,258
------------ ------------ ------------
Total revenues 9,135,075 22,656,811 19,835,258
Cost of matured insurance policies 784,848 13,260,256 13,326,630
------------ ------------ ------------
Net revenues 8,350,227 9,396,555 6,508,628
General and administrative expenses 9,914,990 6,645,623 3,004,490
Provision for credit losses 8,839,461 1,561,062 100,000
------------ ------------ ------------
Operating earnings (loss) (10,404,224) 1,189,870 3,404,138
------------ ------------ ------------
Other income:
Interest income on investments 603,356 1,196,095 1,450,128
Gain on sale of viatical trademarks 300,000 -- --
Other 65,337 28,204 --
------------ ------------ ------------
Total other income 968,693 1,224,299 1,450,128
------------ ------------ ------------
Other expense:
Interest expense (3,289,876) (5,727,005) (5,766,852)
Loss on sale of viatical portfolio, net of
amortization of $1,844,259 (392,063) -- --
Realized gains (losses) on sales of marketable
securities, net 1,137 (1,642,252) (33,578)
------------ ------------ ------------
Total other expense (3,680,802) (7,376,257) (5,800,430)
------------ ------------ ------------
Loss before income taxes, extraordinary item and
cumulative effect of change in accounting
principle (13,116,333) (4,962,088) (946,164)
Benefit from income taxes 4,935,676 -- --
------------ ------------ ------------
Loss before discontinued operations, extraordinary
item and cumulative effect of change in
accounting principle (8,180,657) (4,962,088) (946,164)
Discontinued operations - loss from operations of
discontinued subsidiary, net of applicable
income tax benefit $28,716 (47,595) (67,735) --
------------ ------------ ------------
Loss before extraordinary item and cumulative
effect of change in accounting principle (8,228,252) (5,029,823) (946,164)
Extraordinary item - gain on early extinguishment
of debt, net of amortization of deferred costs
of $947,877 and income taxes of $4,847,153 7,306,970 2,030,000 --
------------ ------------ ------------
Loss before cumulative effect of change in
accounting principle (921,282) (2,999,823) (946,164)
Cumulative effect of change in accounting
principle, net of income taxes of $117,239 176,735 -- --
------------ ------------ ------------
Net loss $ (744,547) $ (2,999,823) $ (946,164)
============ ============ ============
Loss per share before discontinued operations,
extraordinary item and cumulative effect of
change in accounting principle $ (1.77) $ (1.07) $ (0.20)
Loss per share on discontinued operations (0.01) (0.02) --
------------ ------------ ------------
Loss per share before extraordinary item and
cumulative effect of change in accounting
principle (1.78) (1.09) (0.20)
Earnings per share on extraordinary item-gain
on early extinguishment of debt 1.58 0.44 0.00
------------ ------------ ------------
Loss per share before cumulative effect of change
in accounting principle (0.20) (0.65) (0.20)
Earnings per share on cumulative effect of change
in accounting principle 0.04 -- --
Net loss per common share $ (0.16) $ (0.65) $ (0.20)
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding $ 4,634,530 $ 4,634,530 $ 4,641,605
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Common Stock Additional on Securities
------------------- Paid-In Accumulated Available Treasury
Shares Amount Capital Deficit for Sale Stock Total
--------- ------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 ............ 5,505,730 $11,011 $ 9,409,130 $(1,582,559) $(202,714) $(2,746,140) $4,888,728
Common stock repurchased
(165,000 shares) (717,828) (717,828)
Retirement of treasury shares ........ (871,200) (1,742) (3,462,226) 3,463,968 --
Unrealized losses on securities
available for sale (514,675) (514,675)
Net loss (946,164) (946,164)
--------- ------- ----------- ----------- --------- ----------- ---------
Balance at March 31, 1994 .......... 4,634,530 9,269 5,946,904 (2,528,723) (717,389) -- 2,710,061
Unrealized gains on securities
available for sale 718,059 718,059
Net loss (2,999,823) (2,999,823)
--------- ------- ----------- ----------- --------- ----------- ----------
Balance at March 31, 1995 .......... 4,634,530 9,269 5,946,904 (5,528,546) 670 -- 428,297
Net loss (744,547) (670) (745,217)
--------- ------- ----------- ----------- --------- ----------- ----------
Balance at March 31, 1996 .......... 4,634,530 $ 9,269 $ 5,946,904 $(6,273,093) $ -- $ -- $ (316,920)
========= ======= =========== =========== ========= =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (744,547) $ (2,999,823) $ (946,164)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Amortization of intangible assets and debt issuance costs ........... 2,390,073 1,474,358 879,341
Depreciation expense ................................................... 259,533 113,499 36,948
Writeoff of fixed asset ................................................ 36,007 -- --
Gain on early extinguishment of debt, net of amortization .............. (12,154,123) (2,030,000) --
Gain on sale of assets ................................................. (300,000) -- --
Provision for credit losses ............................................ 8,839,461 1,561,062 --
Realized losses (gains) on securities available for sale ............... (1,137) 1,649,252 33,578
Change in net assets of discontinued operations ........................ 4,858,380) (115,667) --
Changes in assets and liabilities:
Accounts receivable - matured insurance policies .................... 3,578,618 (1,547,942) (317,306)
Installment contracts receivable .................................... (6,683,571) (15,267,793) --
Purchased insurance policies ........................................ 17,803,351 12,536,593 (2,022,962)
Accrued interest receivable ......................................... 79,499 170,112 364,353
Other assets ........................................................ 1,301,177 (1,287,320) (7,827)
Accounts payable and accrued liabilities ............................ 609,182 150,749 14,367
Accrued interest expense ............................................ (1,430,673) (249,383) --
----------- ----------- ------------
Cash provided by operating activities ............................ 8,724,470 (5,842,303) (1,965,672)
----------- ----------- ------------
Cash flows from investing activities:
Purchases of securities available for sale ............................. (14,414,871) (13,400,903) (29,038,077)
Proceeds from sale of securities available for sale .................... 23,922,979 22,352,612 30,760,861
Purchases of fixed assets .............................................. (492,799) (755,125) (169,009)
Payment of accrued acquisition costs ................................... -- -- (549,258)
Acquisition of American Life Resources Corporation ..................... -- -- (1,097,064)
Repayment of notes to related parties .................................. -- -- 470,000
----------- ----------- ------------
Cash provided by (used in) investing activities .................. 9,015,309 8,196,584 377,453
----------- ----------- ------------
Cash flows from financing activities:
Early extinguishment of debt ........................................... (15,848,000) (1,970,000) --
Repurchase of common stock ............................................. -- -- (717,828)
----------- ----------- -----------
Cash used in financing activities ................................ (15,848,000) (1,970,000) (717,828)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents ...................... 1,891,779 384,281 (2,306,047)
Cash and cash equivalents at beginning of period .......................... 1,276,951 892,670 3,198,717
----------- ----------- ------------
Cash and cash equivalents at end of period ................................ $ 3,168,730 $ 1,276,951 $ 892,670
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
AutoLend Group, Inc. ("AutoLend" or the "Company") is a consumer finance
company which, through its wholly-owned subsidiary AutoLend IAP, Inc., is
engaged in the business of providing short term (2 to 6 weeks) financing to
selected used car dealers for purchases of used automobiles at certain regional
auctions throughout the United States (the Inventory Assistance Program, or
"IAP"). The Company's first IAP financing took place on March 9, 1995.
On June 30, 1995, IAP and the Company entered into an agreement (the
"ServNet Agreement") with ServNet, Inc. ("ServNet"), an association of 17
independent used car auctions, with a term of ten years, subject to renewals.
Pursuant to the ServNet Agreement, ServNet agreed to use its best efforts to
cause its constituent auctions to enter into agreements ("AutoLend Auction
Agreements") with IAP to allow IAP the exclusive opportunity to provide floor
plan financing for dealers purchasing cars at the participating auctions.
Pursuant to the ServNet Agreement, IAP will pay to ServNet a fee calculated
based on volume or net profits, whichever results in a greater fee.
To date, IAP has entered into AutoLend Auction Agreements with 11 ServNet
auctions for ten year terms.
Through its wholly-owned subsidiary AutoLend Corporation, the Company
engaged in the business of purchasing, financing, servicing and collecting
retail installment loan contracts originated by independent and franchised used
automobile dealers ("Installment Contracts Receivable"). The first bulk purchase
of Installment Contracts Receivable was made on May 20, 1994. Based upon an
analysis of market factors and growth potential, as well as an evaluation of the
Company's liquidity and capital resources, since December 22, 1995 the Company
has ceased to purchase Installment Contracts Receivable and since September 29,
1994 to purchase Policies, and does not at this time intend to recommence such
activities.
The Company's other business activity, of which certain assets were sold by
the Company on July 29, 1994 and May 8, 1995 (see note 8), is the purchase and
holding of life insurance policies from individuals facing life-threatening
illnesses, commonly known as the viatical settlement business. The Company
operates this business through its two wholly-owned subsidiaries, LB NM, Inc.
("LB NM"), which acquired the operations of Living Benefits, Inc. ("LBI"), a New
Mexico corporation, on April 1, 1991, and American Life Resources Group, Inc.
("ALRG"), which acquired the operations of American Life Resources Corporation
("ALRC") on April 6, 1993 (see note 7). The Company ceased purchasing new
viatical life insurance policies effective September 29, 1994.
Due to the nature of the Company's business, the accompanying consolidated
balance sheets have been presented as nonclassified. All significant
intercompany transactions and balances have been eliminated in consolidation.
F-7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(b) Discontinued Operation
On December 26, 1995, Nunzio P. DeSantis, Courtland G. Miller and Vincent
Villanueva commenced an action in the State of Delaware 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.
Pursuant to the Stipulation of Settlement, current management will resign,
receive the payment remaining under their respective employment agreement and
enter into consulting agreements with the Company. The Company's Autolend
IAP, Inc. 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 March 31, 1996 and 1995, the IAP
discontinued operations had the following assets and liabilities:
1996 1995
---------- --------
Assets:
Cash and cash equivalents $ 187,839 $ 48,224
Dealer receivable 5,043,787 72,695
Other 33,989 1,933
---------- --------
Total 5,265,615 122,852
Liabilities:
Accounts payable and accrued expenses 291,568 7,185
---------- -------
Net assets of discontinued operations $4,974,047 $115,667
========== ========
In connection with the Settlement, the net proceeds to be received by the
Company include $1,000,000 in preferred stock and, based upon intercompany
accounts as of March 31, 1996, approximately $5.0 million as settlement of all
intercompany indebtedness. Certain amounts remaining under the employment
agreements of departing management totalling, as of March 31, 1996, of
approximately $677,000 as well as consulting fees of $420,000 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 Settlement. Any
resulting net loss from the discontinued operations from March 31, 1996 to the
date of the Settlement is not significant.
F-8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(c) Going Concern
The Company's viability as a going concern is dependent upon the successful
closing of the Settlement (as hereinafter defined), 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 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 5
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 asset values.
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, and proceeds, if any, from the exercise of the Company's outstanding Class
A and Class B Warrants. 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 be left with insufficient liquidity 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.
(d) Change in Accounting Principle
Effective July 1, 1995, the Company changed the method by which finance
charges are recorded from the compound interest method of recognizing revenues
to the "Rule of 78" interest calculation method. The cumulative effect on the
prior period ending March 31, 1995 was $176,735 net of income taxes of
$117,239.
F-9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(e) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(f) Cash and Cash Equivalents
Cash and cash equivalents include debt securities with maturities of 90
days or less at the time of acquisition.
(g) Securities Available for Sale
Securities available for sale are reported at fair value (based on quoted
market prices) with net unrealized gains and losses reported as a separate
component of stockholders' equity. Realized gains and losses on the sale of
securities available for sale are reported in the Consolidated Statements of
Operations. For the purpose of determining the amount of realized gains and
losses, the Company determines the cost of its investment in securities based on
specific identification.
(h) Revenue Recognition
Automobile Financing: Revenues from finance charges on Installment
Contracts Receivable are recognized as earned. Loan discounts are recorded as
unearned income at the time of initial investment in a loan contract, and such
discounts are amortized to income over the remaining life of the loan. Interest
charges are computed using the "Rule of 78" interest calculation method. Accrual
of interest income on receivable balances is suspended when a loan is delinquent
for thirty days or more. Accrual is resumed when the loan becomes contractually
current, and past-due interest income is recognized at that time. The Company
performs substantially all of the functions associated with origination of the
contracts; effective January 1996, the Company has utilized an outside
contractor to service installment loans. Loan costs are amortized against income
as an adjustment of yield.
Auction Financings: Revenues from auction financings (Dealer Receivables),
consisting of nonrefundable administrative fees are recognized at the time of
contract. Interest income on IAP Dealer Receivables is recorded as unearned
income and amortized over the loan period, which does not usually exceed six
weeks. The Company has experienced no losses on the Dealer Receivables.
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
F-10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
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 histori-
cal 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 March 31, 1996 and 1995.
Viatical Settlements: Revenue and cost of revenue is recognized upon the
maturity of a policy (death of the insured). However, the ability to recognize
revenue during the period of policy maturity depends on the Company receiving
notification of policy maturity from a representative of the insured, which, in
some instances, may not occur until significantly after the death of the insured
and after the financial statements have been finalized for the period during
which the policy matured. The Company is unable to estimate the face value and
cost of policies which may have matured but for which no notification has been
received. To the extent policy maturities cannot be recorded in the period the
policy matures due to this delay in notification, the revenue and cost related
to such maturity is recognized in the statements of operations subsequent to the
maturity of the policy.
(i) Goodwill and Debt Issuance Cost Amortization
Intangible assets and goodwill are amortized using the straight-line method
over the expected life. Management periodically reviews the expected life and
any adjustments are made prospectively. Debt issuance costs are amortized over
the life of the related debt.
(j) Income Taxes
The Company calculates income taxes using the asset and liability method
prescribed by Financial Accounting Standards Board Statement No. 109 --
"Accounting for Income Taxes." Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences at-
tributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The Company, based on the weight of the available
evidence, provides a valuation allowance on deferred tax assets to the extent it
determines it is more likely than not that deferred tax assets will not be
realized.
F-11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(k) Fair Value of Financial Instruments
The Company's financial instruments include securities available for a
sale, accounts receivable -- matured insurance policies, installment contracts
receivable, dealer receivables, purchased insurance policies, accounts payable
and accrued liabilities and convertible debentures. The fair value of such
financial instruments have been determined using available market information
and interest rates as of March 31, 1996.
At March 31, 1996, the fair value of the 9.5% Convertible Subordinated
Debentures Due 1997 was approximately $11,025,000 compared to the carrying value
of $22,050,000. The fair value of all other financial instruments was not
materially different than their carrying value.
(l) Earnings per Share
Earnings per common and common equivalent share is computed based on the
weighted average number of common shares and, if dilutive, common equivalent
shares (options and warrants) outstanding during the period.
(m) New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicated that the carrying amounts of an asset may not
be recoverable. SFAS No. 121 will apply to the Company for the year ended March
31, 1997. The Company has not assessed the impact of adopting this
pronouncement.
The FASB has also issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). This statement
defines a fair value based method of accounting for employee stock options. This
statement also permits a company to continue to measure compensation costs for
their stock option plan using the intrinsic value based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS No. 123 requires disclosure of the pro
forma net income and earnings per share that would be recorded if the fair value
method was utilized. The Company plans to continue to utilize the provisions of
APB No. 25 to account for such compensation costs, and will provide the pro
forma disclosures required by SFAS No. 123 in the fiscal year 1997 financial
statements.
(n) Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
F-12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(2) Installment Contracts Receivable
At March 31, 1996 and 1995 Installment Contracts Receivable consisted of
the following:
1996 1995
----------- ------------
Installment contracts receivable $19,247,551 $ 25,200,314
Unearned finance charges (5,487,157) (10,381,869)
Allowance for credit losses (3,995,296) (1,544,000)
Collateral owned 1,785,743 432,286
----------- ------------
Installment contracts receivable, net $11,550,841 $ 13,706,731
=========== ============
A summary of the allowance for credit losses is as follows:
Balance - beginning of period $ 1,544,000 $ --
Provision for losses 8,839,461 1,561,062
Charge offs and adjustments (6,388,165) (17,062)
----------- -----------
Balance - end of period $ 3,995,296 $ 1,544,000
============ ===========
Most of the Company's Installment Contracts Receivable are due from
dealers in the Southeast, West and Northeast regions of the United States.
To some extent, realization of the receivables will be dependent on local
economic conditions. The Company holds vehicle titles as collateral for all
contracts receivable until such contracts are paid in full.
(3) Securities Available for Sale
Securities Available for Sale at March 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- --------------------------
Cost Fair Value Cost Fair Value
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities $175,000 $175,000 $ -- $ --
U.S. Treasury notes -- -- 8,974,781 8,975,451
Mutual funds -- -- 532,189 532,189
-------- -------- ---------- ----------
$175,000 $175,000 $9,506,970 $9,507,640
-------- ----------
Net unrealized losses on
securities available for
sale 0 670
-------- ----------
$175,000 $9,507,640
</TABLE>
F-13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
Realized gains and losses were as follows:
Years Ended March 31,
--------------------------------------
1996 1995 1994
------- ----------- ---------
Realized gains................... $ 1,137 $ 115,621 $ 932,737
Realized losses.................. -- (1,764,873) (966,315)
------- ----------- ---------
$ 1,137 $(1,649,252) $ (33,578)
======= =========== =========
(4) Income Taxes
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
superseded APB Opinion No. 11, and required a change from the deferred method to
the liability method of computing deferred income taxes. Under the liability
method, deferred taxes are adjusted for tax rate changes as they occur. Deferred
income tax assets and liabilities are computed annually for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rules applicable for the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
A reconciliation of the Company's actual income tax expense (benefit) to
that computed using the U.S. Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Years ended March 31,
------------------------------------------
1996 1995 1994
-------- ------------ ----------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............ (253,146) $(1,019,940) $ (321,696)
Increase (decrease) in income taxes resulting from:
Amortization of goodwill......................... (401,590) 246,483 68,785
Net operating loss............................... (255,052) 815,730 249,053
Allowance for doubtful accounts.................. 922,423 524,960 --
Capital losses (gains)........................... (113,318) (564,379) --
Other ........................................... 100,683 (42,273) 3,858
-------- ----------- ----------
Total income tax expense............... $ -- $ -- $ --
======== =========== ==========
</TABLE>
F-14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at March 31, 1996 and 1995 are presented
below:
March 31
-------------------------
1996 1995
----------- ----------
Deferred tax assets:
Bad debt reserve................................ $ 1,503,430 $ 618,637
Capital loss carryover.......................... 482,445 624,635
Net operating loss.............................. -- 216,852
Bond discount amortization...................... -- 28,872
Other........................................... 250,724 1,851
----------- ----------
2,236,599 1,490,847
----------- ----------
Deferred tax liabilities:
Net basis of fixed assets....................... 60,208 33,499
Other........................................... 12,077 12,077
Gross deferred tax liabilities.................. 72,285 45,576
----------- ----------
Net deferred tax asset (liability)................ 2,164,314 1,445,271
Valuation allowance for deferred tax assets....... (2,164,314) (1,445,271)
----------- ----------
Net deferred tax asset (liability)................ $ -- $ --
=========== ===========
There was no change in the total valuation allowance for the years ended March
31, 1996 and 1995.
(5) 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 fiscal year ended March 31, 1996, the Company has
prepaid without penalty $28.9 million principal at a cost of $15.8 million plus
accrued interest, resulting in a gain on early extinguishment of Debentures of
$13.1 million. For fiscal year ended March 31, 1995, the Company prepaid without
penalty $4.0 million principal at a cost of $2.0 million plus accrued interest
and recorded a gain on early extinguishment of Debentures of $2.0 million. The
outstanding balance of Convertible Subordinated Debentures is $22.1 million at
March 31, 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. There were no conversions during the years ended
March 31, 1996 and 1995. The Debentures are subordinated to any current or
future senior debt and require annual interest payments. At March 31, 1996,
accrued interest on the outstanding Debentures was $1,111,369.
Debt issuance costs arising from the issuance of Debentures in the original
amount of $3.6 million have been amortized over the 6 year term and, as
prepayments of Debentures have occurred, applicable amounts of
F-15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
debt issuance costs have been amortized. A balance of $356,681 in debt issuance
costs remain at March 31, 1996.
(6) Stockholders' Equity
On July 31, 1990, the Company made a public offering of 900,000 units at
$10 each, each unit consisting of three common shares and three redeemable Class
A warrants. Total proceeds from the sale of these units was $9,000,000 less
offering costs of $1,815,591. In addition, the underwriters for the public
offering exercised an option to purchase 50,000 units to cover over-allotments.
Total proceeds from the sale of these units was $500,000 less underwriting
discounts and commissions of $57,750. The underwriters also received an option
to purchase 90,000 units at $12 per unit exercisable over a period of two years
commencing July 31, 1993.
Each Class A warrant entitles the registered holder to purchase one common
share and one redeemable Class B warrant at an exercise price of $4.00 through
July 30, 1996. Each Class B warrant entitles the registered holder to purchase
one common share at $7.00 from the date of issuance through July 30, 1996. The
Class A and Class B warrants are subject to redemption at $0.05 per warrant on
30 days prior written notice provided the closing bid price of the common shares
exceeds $5.50 and $9.70 per share, respectively, for 30 consecutive business
days ending within 15 days of the date of notice of redemption. During the year
ended March 31, 1993, 151,500 Class A warrants and 44,500 Class B warrants were
exercised. A total of 1,000 Class A warrants were exercised during the year
ended March 31, 1992. In addition, the Company repurchased 142,000 Class A
warrants at a total cost of $227,355. At March 31, 1996, there were 2,555,500
Class A warrants and 108,000 Class B warrants outstanding.
The Company has a stock option plan under which both incentive and
non-qualified stock options may be granted for the purchase of up to 2,500,000
shares of common stock. For options granted as incentive stock options under the
plan, the exercise price must be at least equal to the fair market value on the
date of the grant. The exercise price for non-qualified options may be less than
fair market value. The options expire at various time ranging from five to ten
years.
The options are summarized as follows:
<TABLE>
<CAPTION>
Number Price Range
--------- -------------
<S> <C> <C>
Options outstanding at March 31, 1991 and 1992....... 110,000 $3.00 - $3.30
Granted.......................................... 100,000 $6.00 - $6.60
---------
Options outstanding at March 31, 1993................ 210,000 $3.00 - $6.60
Granted.......................................... 410,000 $4.25 - $5.09
---------
Options outstanding at March 31, 1994............... 620,000 $3.00 - $6.60
Granted.......................................... 750,000 $1.50 - $3.00
---------
Options outstanding at March 31, 1995................ 1,370,000 $1.50 - $6.60
Granted.......................................... 495,000 $1.50 - $1.63
---------
Options outstanding at March 31, 1996................ 1,865,000 $1.50 - $6.60
</TABLE>
In connection with the Company's issuance of Debentures (note 5), the
Company granted to the distribution agent a warrant to purchase 269,388 shares
of common stock exercisable at $12.25 per share through September 18, 1996. The
Company has also granted warrants to individuals to purchase 25,000 common
shares at $3.00 per share through March 11, 2001 and 20,000 common shares at
$12.25 through September 18, 2001.
F-16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
On December 14, 1992, the Company announced a plan to allocate up to
$10,000,000 for the repurchase of its common stock and Class A warrants. At
March 31, 1993 the Company had repurchased 705,700 shares of its common stock at
a total cost of $2,746,140. During the year ended March 31, 1994, the Company
repurchased an additional 165,500 shares of its common stock at a total cost of
$717,828. At the direction of the Board of Directors, all such shares
repurchased under this plan were returned to the status of authorized, but
unissued. The Company has no current plans to acquire additional shares.
(7) Acquisitions
On April 6, 1993, the Company acquired certain operating assets of ALRC.
Under the terms of the agreement, the Company paid a total of $1,000,000 for
certain tangible and intangible assets of ALRC, including employment agreements
and covenants not to compete by the principals of ALRC, and certain transaction
costs. These intangible assets included goodwill of $433,591, amortized over the
remaining life of the viatical portfolio (see note 8).
Effective April 1, 1991, the Company acquired certain equipment, covenants
not to compete and the future operations of LBI. The acquisition agreement
provides for the payment of contingent consideration based on a share of the
profits of LBI's business. No contingent consideration payment was required for
the year ended March 31, 1992. At March 31, 1993, the Company accrued $549,258
as contingent consideration for fiscal year 1993, which was paid on July 19,
1993. The Company and the principals of LBI are disputing the remaining amounts
of consideration due based on differences in interpretation of certain
computational items set forth in the acquisition agreement. The Company has
accrued an amount based on its interpretation of the agreement and intends to
negotiate a settlement of the dispute. However, the Company is currently unable
to predict with certainty the final resolution of this matter.
(8) Sale of Certain Assets
On July 29, 1994, the Company sold certain assets of its viatical
settlements business to National Capital Benefits Corporation ("NCBC"), a
subsidiary of National Capital Management Corporation ("NCMC"). Assets acquired
by NCBC include the Company's proprietary client management software system, all
"work in process" and the trade names of both LBNM and ALRG. The Company
received consideration of $125,000 and 100,000 common shares of NCMC. The sale
agreement provides the Company with an option exercisable within 24 months of
the sale through July 28, 1996, to sell these shares back to NCMC at a price of
$1.75 per share. In addition, the Company is entitled to receive commissions on
certain transactions should they occur within 48 months of the sale agreement.
Commissions received during the year ending March 31, 1996 were not significant.
On May 8, 1995 and July 18, 1995, ALRG and LBNM entered into agreements
with Viaticus, Inc. ("Viaticus"), a subsidiary of the CNA Insurance Companies,
under which ALRG and LBNM agreed to assign to Viaticus certain viatical
insurance policies. Under the terms of the agreements, upon receipt by Viaticus
of satisfactory acknowledgement by the insurer, payment of a predetermined
amount for each policy would be remitted to the Company. During fiscal year
ended March 31, 1996, approximately $17.5 million has been received as payment
for policies with completed assignments to Viaticus, and there are no
outstanding amounts receivable under the agreements at March 31, 1996.
F-17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
In conjunction with the sales to Viaticus, the remaining goodwill and other
intangibles related to the purchases of the viatical business in 1993 and 1991
(see note 7), have been fully amortized during the year ending March 31, 1996.
(9) Commitments and Contingencies
The Company leases its office space and certain equipment under
noncancelable operating leases that expire at various times over the next five
years. The Company leases approximately 3,050 square feet of office space in
Miami Beach, Florida under a lease expiring in May 1997 at a base rent of
$35,652, subject to annual increases that have historically been approximately
5%.
Additional office space in the vicinity was leased effective May 1994 under
a 6-year lease which includes annual rent commencing August 1994 of $207,000 in
each of the first two years and $325,000 annually thereafter, when the square
footage will increase to approximately 17,000 square feet subject to increases
reflecting changes in the consumer price index. The lease provides for one
four-year renewal period. In February 1996, the Company vacated these premises.
The Company is currently seeking a party to sublease or assume its lease
obligations with respect to these premises. No assurance can be given that the
Company will be able to find such a party or that if the Company finds such a
party, the Company will be able to enter into an arrangement with such party on
terms favorable to the Company.
Rental expense for operating leases was $306,335, $224,574 and $67,911 for
the years ended March 31, 1996, 1995 and 1994 respectively.
Future minimum lease payments for noncancelable operating leases with
initial or remaining lease terms in excess of one year as of March 31, 1996 are:
Year ending March 31,
1997 $ 358,095
1998 346,485
1999 325,000
2000 325,000
2001 81,250
-----------
Total minimum lease payments $ 1,435,830
===========
In connection with the acquisition of ALRC in April 1993 (see note 7), the
Company entered into employment agreements with each of the two principals of
ALRC. The five year agreements are with the Chief Executive Officer and Chief
Operating Officer of the Company and provide for minimum annual compensation of
$125,000 and $75,000, with annual cost of living adjustments.
In May 1996, the Company was impleaded by an insurer into a suit in the
United States Bankruptcy Court for the Middle District of Florida, in which a
bankrupt seeks from the insurer payment of a $1 million death benefit under a
Policy which it asserts the insurer improperly amended to remove it as the
beneficiary without consent of the Bankruptcy Court. Following such amendment,
the Policy was assigned to the Company, which was without notice of any of these
alleged facts. The insurer seeks to recover the death benefit paid under this
F-18
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
Policy from the Company in the event that it is required to pay such death
benefit to the bankrupt. The Company intends to aggressively defend against such
claims and to aggressively assert its own claims against the insurer.
As of December 31, 1995, the Company's capital and surplus fell below the
$1 million required by the NASDAQ Stock Market for continued listing. On April
30, 1996, a delisting hearing was held before the NASDAQ Qualifications Hearing
Panel (the "Panel"). At the hearing, the Company requested a temporary exception
to the capital and surplus requirements. The Panel granted the Company's request
for a temporary exception. However, under the exception, the Company was
required to make a public filing evidencing compliance with the minimum capital
and surplus requirements with the Securities and Exchange Commission and the
NASDAQ Stock Market on or before May 20, 1996. The Company could not make such a
filing, and, on or about May 21, 1996, the Company was delisted from the NASDAQ
Stock Market.
The Company is involved in the causes of action described below as
plaintiff.
In March 1996 the Company commenced an action against a former employee of
the Company, in the Circuit Court, Dade County, Florida seeking damages and
the return of stolen property in connection with the deletion from the Company's
computer system of certain menu tools, programs and access tools.
In May 1996 Aurora National Life Company filed an interpleader action in
the United States District Court for the Southern District of Florida seeking
determination of the proper recipient of benefits under a Policy. The Policy
in question was sold by the Company to Viaticus in May 1995 for $3 million.
Although the insured had died in December 1994, neither the Company nor
Viaticus was aware of the maturation of the Policy at the time of the sale. The
Company intends to vigorously assert its claim to the full death benefits. If
it is awarded those benefits, it will have to return the $3 million sale price
previously paid to it by Viaticus for purchase of the policy.
F-19
<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.
Date: July 15, 1996 By: /s/ Steve Simon
-------------------------------------------------
Steve Simon
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steve Simon Chairman of the Board and July 15, 1996
- --------------------------------- Chief Executive Officer
Steve Simon (Principal Executive Officer)
/s/ Helen Porter Executive Vice President and Chief July 15, 1996
- --------------------------------- Operating Officer (principal
Helen Porter accounting officer)
/s/ Philip J. Vitale, M.D. Director July 15, 1996
- ---------------------------------
Philip J. Vitale, M.D.
/s/ Robert Granoff Director July 15, 1996
- ---------------------------------
Robert Granoff
/s/ James Newman Director July 15, 1996
- ---------------------------------
James Newman
/s/ Drew Sakson Director July 15, 1996
- ---------------------------------
Drew Sakson
</TABLE>
<PAGE>
SCHEDULE VIII
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Balance at Charged to Amount on
Beginning Costs and Balance
Description of Period Expenses Sheet
- ----------- ---------- --------- ----------
<S> <C> <C> <C>
Year ended March 31, 1996
Intangible assets -- accumulated amortization $ 293,949 $ 306,051 $ 600,000
Goodwill -- accumulated amortization 1,128,413 1,579,865 2,708,278
Debt issuance costs -- accumulated amortization 1,824,690 1,452,034 3,276,724
Year ended March 31, 1995
Intangible assets -- accumulated amortization $ 120,000 $ 173,949 $ 293,949
Goodwill -- accumulated amortization 431,957 696,456 1,128,413
Debt issuance costs -- accumulated amortization 1,220,737 630,953 1,824,690
Year ended March 31, 1994
Intangible assets -- accumulated amortization $ -- $ 120,000 $ 120,000
Goodwill -- accumulated amortization 213,778 218,179 431,957
Debt issuance costs -- accumulated amortization 679,575 541,162 1,220,737
</TABLE>
S-1
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A1
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996 Commission File No. 1-10569
AutoLend Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3137244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
930 Washington Avenue,
Miami Beach, Florida 33139
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 673-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
-------------- ------------------------------------
Common Stock, $.002 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
-- Units -- Redeemable Class A Warrants
-- Common Stock
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 twelve (12) months (or for such shorter period that
the Registrant was required to file such report(s)), and (2) has been subject to
the filing requirements for the past ninety (90) days.
YES X NO
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of June 21, 1996 the registrant had 4,634,530 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
non-affiliates as of June 21, 1996 was approximately $3,288,834 million.
===============================================================================
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements on page F-1 for list of financial
statements and financial statement schedules.
(a) (3) Exhibits
2.1 Reorganization Agreement between CAP Rx, Ltd. and CAPX
Corporation (2)
3.1 Certificate of Incorporation of CAP Rx, Ltd. (1)
3.2 Memorandum of Association of CAP Rx, Ltd., including
Memorandum of Increase of Share Capital (1)
3.3 Amended By-Laws of CAP Rx, Ltd. (1)
3.4 Certificate of Incorporation of AutoLend Group,
Inc. (12)
3.5 By-laws of AutoLend Group, Inc. (12)
4.1 Form of 9.5% Convertible Subordinated Debenture (2)
4.2 Warrant Agreement (1)
4.3 Unit Purchase Option (1)
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 (6)
10.1 Re-insurance Agreement between CAP Rx Insurance, Ltd.
and Planet Insurance Registrant (1)
10.2 Letter Agreement between CAP Rx, Ltd. and Planet
Insurance Registrant (1)
10.3 Administrative Agreement between CAP Rx, Ltd. and
Parker Risk Management (Bermuda) Ltd. (1)
10.4 1989 Incentive and Non-Statutory Stock Option Plan of
the Registrant (1)
10.5 Letter agreement between Westbroke Limited and the
Registrant (2)
10.6 Acquisition Agreement among Rob T. Worley, Sr. and
Rob T. Worley, Jr., Living Benefits, Inc. and CAP Rx,
Ltd. (2)
-1-
<PAGE>
10.6.1 Addendum to Acquisition Agreement (2)
10.6.2 Second Addendum to Acquisition Agreement (2)
10.7 Employment Agreement between LB NM, Inc. and Rob
T. Worley, Sr. (2)
10.8 Employment Agreement between LB NM, Inc. and Rob T.
Worley, Jr. (2)
10.9 Lease Agreement for space at 6100 Seagull Street, N.E.,
Albuquerque, New Mexico (2)
10.9.1 Addendum to Lease Agreement (2)
10.9.2 Lease Agreement, dated April 15, 1993, for space at
6100 Seagull Street, N.E., Albuquerque, New Mexico (8)
10.9.3 Lease, dated March 17, 1992, between Marbrad, Inc. and
American Life Resources Corporation (8)
10.10 Asset Purchase Agreement between American Life
Resources Group, Inc., American Life Resources
Corporation, Steve Simon and Helen Porter (6)
10.11 Employment Agreement between ALRG and Steve Simon (6)
10.12 Employment Agreement between ALRG and Helen Porter (6)
10.13 Noncompetition Agreement between ALRG and Steve
Simon (6)
10.14 Noncompetition Agreement between ALRG and Helen
Porter (6)
10.15 Guaranty Agreement made by the Registrant for the
benefit of ALRC, Steve Simon and Helen Porter (6)
10.16 Viatical settlement forms (8)
10.17 Agreement between the Registrant and the McLernon
Group Limited dated December 3, 1993 (9)
10.18 Lease Agreement between Arquitectonica International
Corporation and CAPX Corpora-tion dated May 11, 1994
(10)
10.19 Agreement between Nunzio P. DeSantis and CAPX
Corporation dated as of July 1, 1994
10.20 Agreement between Courtlandt G. Miller and CAPX
Corporation dated as of July 1, 1994
10.21 Agreement between Vincent Villanueva and CAPX
Corporation dated as of July 1, 1994
-2-
<PAGE>
10.22 Employment Agreement between AutoLend Group, Inc. and
Charley A. Pond (11)
21 Subsidiaries of the Registrant (10)
27 Financial Data Schedule (12)
28.1 Cooperation and Assistance Agreement between Parker
Risk Management (Colorado) Inc. and Health Care
Services, Inc. (1)
(b) Financial Statement Schedules
Independent Auditors' Report
Schedule VIII -- Valuation and Qualifying Accounts - March
31, 1996, 1995 and 1994
All other schedules have been omitted because they are
inapplicable or the information is provided in the financial
statements including notes thereto included in this Annual
Report.
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 1996.
- -----------------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form F-1
(Registration No. 33-29251) 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 on December 26, 1991 as an exhibit to the Registrant's
Post-Effective Amendment No. 1 to Registration Statement on Form F-1 on
Form S-1 (Registration No. 33-29251) and incorporated herein by reference.
(4) Filed on February 18, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 3 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(5) Filed on March 27, 1992 as an exhibit to the Registrant's Post-Effective
Amendment No. 4 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(6) 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.
(7) Filed on May 12, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(8) Filed on October 29, 1993 as an exhibit to the Registrant's Post-Effective
Amendment No. 7 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
-3-
<PAGE>
(9) Filed on March 7, 1994 as an exhibit to the Registrant's Post-Effective
Amendment No. 8 to Registration Statement on Form F-1 on Form S-1
(Registration No. 33-29251) and incorporated herein by reference.
(10) Filed on June 26, 1994 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1994 and incorporated herein by
reference.
(11) Filed on June 29, 1995 as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1995 and incorporated herein by
reference.
(12) Filed herewith.
-4-
<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.
Date: September _____, 1996 By: /s/ Steve Simon
---------------------------------
Steve Simon
Chairman of the Board,
Chief Executive Officer
<PAGE>
Exhibit B
===============================================================================
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> <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>
- 2 -
<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
- 3 -
<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)
Writeoff 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
- 4 -
<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
- 5 -
<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>
1996 1995
------------- -----------
<S> <C> <C>
Assets:
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
- 7 -
<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
- 8 -
<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.
- 9 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
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
- 10 -
<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.
- 11 -
<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.
- 12 -
<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
4.3 Unit Purchase Option
- 13 -
<PAGE>
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.
- 14 -
<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)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steve Simon Chairman of the Board, August __, 1996
- ------------------------------- Chief Executive Officer
Steve Simon
/s/ Helen Porter Chief Accounting Officer August __, 1996
- -------------------------------
Helen Porter
</TABLE>
- 15 -
<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)
(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 -
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
[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 August 15, 1996
===============================================================================
<PAGE>
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.
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
$3,818,153 or $0.82 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
- 2 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 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
- 3 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
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
- 4 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
- 5 -
<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.
In July 1996, Living Benefits, Inc. ("LBI") commenced an
action in the U.S. District Court for the District of New
Mexico against the Company. In its complaint, LBI claims
breach of contract relating to certain terms under a 1991
contract pursuant to which the Company purchased certain
assets from LBI. The plaintiff seeks actual damages of
$1,660,000, prejudgment interest, attorneys' fees and
unspecified punitive damages. The Company believes that LBI's
calculation significantly overstates the amounts due under the
contract, and is engaging in discussions with LBI in the hopes
of settling the dispute amicably.
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 included
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. On August 20, 1996 the Company received a
notice from the BSE denying the Company's request and
notifying the Company that trading of its securities would be
suspended as of the close of business on August 20, 1996 and
that the BSE would file for delisting with the Securities and
Exchange Commission.
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.
-6-
<PAGE>
4.1 Form of 9.5% Convertible Subordinated Debenture
4.2 Warrant Agreement
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 June
30, 1996.
- 7 -
<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)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ Steve Simon Chairman of the Board, August 21, 1996
- --------------------------- Chief Executive Officer
Steve Simon
/s/ Helen Porter Chief Accounting Officer August 21, 1996
- ---------------------------
Helen Porter
</TABLE>
- 8 -
<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)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30, 1996.
- ---------------------
(1) Filed on July 16, 1996 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.
- 9 -
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q/A2
----------------------------------
[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 August 15, 1996
================================================================================
<PAGE>
Part II OTHER INFORMATION
- ------- -----------------
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
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
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
30, 1996.
- 2 -
<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, September __, 1996
- -------------------------- Chief Executive Officer
Steve Simon
/s/ Helen Porter Chief Accounting Officer September __, 1996
- --------------------------
Helen Porter
- 3 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C> <C>
(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
</TABLE>
(b) Reports on Form 8-K
- -------------
No reports on Form 8-K were filed during the three months ended June 30, 1996.
(1) Filed on July 16, 1996 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.
- 4 -
<PAGE>
Exhibit C
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 18, 1996
------------------
(Date of earliest event reported)
AUTOLEND GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-76200 13-3121813
---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
930 Washington Avenue, Miami Beach, Florida 33139
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(305) 673-2700
----------------------------------------------------
(Registrant's telephone number, including area code)
420 Jefferson Avenue, Miami Beach, Florida 33139
-------------------------------------------------------------
(Former name or former address, if changed since last report)
The Exhibit Index is located on Page 12 of this document
<PAGE>
Item 1. Changes in Control of Registrant
On December 11, 1995, the Registrant filed a declaratory judgment
action in the Circuit Court for Dade County, Florida against Nunzio P. DeSantis
("DeSantis"), Courtlandt G. Miller "Miller") and Vincent Villanueva
("Villanueva") seeking a declaration that certain voting trust agreements
between the Registrant and such defendants were valid and enforceable (the
"Florida Action").
On December 26, 1995, DeSantis, Miller and Villanueva (collectively,
the "Derivative Plaintiffs") commenced an action (the "Derivative Suit") in the
Delaware Court of Chancery for New Castle County (the "Court") against Steve
Simon ("Simon"), Stephen Raphael ("Raphael") and Elie Housman ("Housman"), and
the Registrant as nominal defendant seeking injunctive relief and damages.
On May 3, 1996, the parties to the Derivative Suit submitted a
Stipulation and Agreement of Compromise, Settlement and Release (the
"Stipulation") to the Delaware Court, settling the Derivative Suit. As part of
the settlement, the Registrant also agreed to dismiss the Florida Action with
prejudice, thereby restoring to Derivative Plaintiffs control over 908,000
shares of the Registrant's common stock ("Common Stock") owned by them and held
in the voting trust at issue in the Florida Action.
Pursuant to the Stipulation, on the date hereof (the "Closing Date"),
current management, including Simon and Helen Porter ("Porter"), are resigning
from their current positions as President, Chief Executive Officer, Director and
Chairman of the Board of the Registrant, and Executive Vice-President and Chief
Operating Officer of the Registrant, respectively.
Simultaneous with such resignations, the Registrant is paying Simon and
Porter the remaining sums due to each of them according to the terms of their
respective employment agreements, subject to the terms of certain tax indemnity
and escrow obligations on the part of Simon and Porter. Pursuant to the
Stipulation, upon Closing, such employment agreements will then be deemed
cancelled.
On the Closing Date, Simon and Porter are entering into ongoing
consulting agreements with the Registrant, pursuant to which, for a term of
three years, they will provide certain consulting services to the Registrant to
assist with certain ongoing operations in consideration of payment at Closing of
consulting fees of $210,000 to each of Simon and Porter.
In addition, on the Closing Date, the Registrant's Board of Directors
is electing DeSantis as a director, Chairman of the Board and Chief Executive
Officer of the Registrant. Effective on the Closing Date, each of the remaining
directors is submitting a letter of resignation and the resignations of
directors Robert Granoff, James Newman and Drew Sakson are being accepted.
The Derivative Plaintiffs have informed current management that the new
Board of Directors is to include: E. Gerald Riesenbach, Miles M. Stuchin,
Anthony Coelho, Philip J. Vitale, M.D., and Villanueva as Directors of the
Registrant, thereby filling the vacancies left by the outgoing Directors.
- 2 -
<PAGE>
Also on the Closing Date, pursuant to the Stipulation, the Registrant
is entering into a Stock Purchase Agreement for the sale of its subsidiary
AutoLend IAP, Inc. ("IAP") to Auction Finance Group, Inc., an affiliate of
departing management, an Assignment of intellectual property relating to the
automotive finance business by the Registrant to IAP, a Licensing Agreement
governing the Registrant's limited continued rights to the use of "AutoLend
Group, Inc." and various related names, and is selling certain fixed assets used
in the business of IAP for approximately $175,000.
The consideration for the sale of IAP and related agreements includes
the settlement of intercompany indebtedness as of the Closing Date of
approximately $6.0 million and the issuance by IAP to the Registrant of
preferred stock with a face amount of $1 million, in accordance with the
Certificate of Designation of Rights, Preferences, and Privileges of $.01 Par
Value 11% Cumulative Convertible Preferred Stock.
Also on the Closing Date, Simon and Porter are entering into a new
Voting Trust Agreement with the Registrant and DeSantis (the "Voting Trust
Agreement"). Pursuant to the Voting Trust Agreement, all of the shares of Common
Stock now owned by Simon and Porter and any they may acquire in the future shall
be deposited into the Voting Trust until expiration of the Voting Trust or the
sale of the shares of the Common Stock at any time by Simon and Porter to an
unaffiliated purchaser. The initial Voting Trustee under the Voting Trust is to
be DeSantis.
Prior to the Closing Date, DeSantis beneficially owned 533,900 shares
of Common Stock (not including 51,600 shares owned by the Diagnostek Charitable
Foundation, for which DeSantis serves as Voting Trustee, with respect to which
DeSantis has disclaimed beneficial ownership), which represents 11.5% of the
outstanding Common Stock; Miller beneficially owned 307,900 shares of Common
Stock, which represents 6.6% of the outstanding Common Stock; and Villanueva
beneficially owned 66,200 shares of the Common Stock, which represents 1.4% of
the outstanding Common Stock. As a group such individuals beneficially owned
908,000 shares of Common Stock, which represents 19.6%.
On the Closing Date the principal executive offices of the Registrant
are moving to The Bradbury Court, 215 Central Avenue, N.W., 3-B, Albuquerque,
New Mexico 87102.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
On September 18, 1996, AutoLend Group, Inc. entered into a Stock
Purchase Agreement for the sale of its subsidiary, AutoLend IAP, Inc. ("IAP").
The following unaudited pro forma consolidated balance sheet as of
March 31, 1996, and the unaudited pro forma consolidated statements of earnings
for the three month period ended June 30, 1996 and the fiscal year ended March
31, 1996 have been prepared by adjusting the Company's historical consolidated
balance sheet as of June 30, 1996 and consolidated statements of earnings for
the three month period ended June 30, 1996 and fiscal year ended March 31, 1996.
The historical financial statements have been adjusted to give effect to the
disposition of IAP as if the disposition had occurred as of June 30, 1996 for
the unaudited pro forma consolidated balance sheet and as of April 1, 1996 and
1995 for the unaudited consolidated statements of earnings for the three month
period ended June 30, 1996 and the fiscal year ended March 31, 1996,
respectively. Such pro forma
- 3 -
<PAGE>
adjustments are described in the accompanying notes to the pro forma
consolidated financial statements which should be read in conjunction with the
pro forma consolidated financial statements.
The unaudited pro forma consolidated financial statements do not
purport to be indicative of the actual financial position or results of
operations that would have been achieved had the transactions been consummated
prior to the periods in which they were completed, or that might be attained in
the future.
- 4 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Unaudited Pro forma
June 30, Pro forma June 30,
1996 Adjustments 1996
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents ...................................... $ 4,561,399 $ 5,165,585(A) $ 9,726,984
Securities available for sale .................................. 175,000 1,000,000(B) 1,175,000
Accounts receivable - matured insurance policies ............... 148,102 148,102
Installment contracts receivable ............................... 10,062,914 10,062,914
Allowance for credit losses ................................ (3,020,776) (3,020,776)
Collateral owned ........................................... 819,268 819,268
------------ ------------
Installment contracts receivable --net ..................... 7,861,406 7,861,406
------------ ------------
Purchased insurance policies, face value of $2,126,198 ......... 1,462,583 1,462,583
Accrued interest receivable on investments ..................... 5,535 5,535
Debt issuance costs, less accumulated amortization of $3,337,418 295,987 295,987
Fixed assets, less accumulated depreciation of $147,770 ........ 323,361 323,361
Net assets of discontinued operation ........................... 6,087,777 (6,087,777)(C) --
Other .......................................................... 376,224 420,000 (D) 796,224
------------ ------------ ------------
$ 21,297,374 $ 497,808 $ 21,795,182
============ ============ ============
Liabilities:
Accounts payable and accrued liabilities ....................... $ 1,090,848 $ 1,090,848
Accrued acquisition costs ...................................... 656,542 656,542
Accrued interest expense ....................................... 1,635,057 1,635,057
Convertible debentures ......................................... 22,050,000 22,050,000
------------ ------------
Total liabilities .......................................... 25,432,447 25,432,447
------------ ============
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 .................................... 9,269 9,269
Additional paid-in capital ..................................... 5,946,904 5,946,904
Accumulated deficit ............................................ (10,091,246) 497,808 (E) (9,593,438)
------------ ------------ ------------
Total stockholders' equity ................................. (4,135,073) 497,808 (3,637,265)
------------ ------------ ------------
$ 21,297,374 $ 497,808 $ 21,795,182
============ ============ ============
</TABLE>
See notes to pro forma consolidated balance sheet as of June 30, 1996.
- 5 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
June 30, 1996
(unaudited)
A) To record the net estimated cash proceeds received from the sale transaction.
B) To record the convertible preferred stock acquired as consideration for the
sale of IAP.
C) Elimination of assets of IAP, previously recorded as net assets of
discontinued operations.
D) To record prepaid consulting fees for services to be performed by departing
management over the next three years.
E) Net effect on accumulated earnings resulting from the expected gain on the
sale transaction.
- 6 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
Three months ended June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Unaudited Pro forma
June 30, Pro forma June 30,
1996 Adjustments 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts ............................. $ 616,639 $ $ 616,639
Revenues from matured insurance policies ............................. -- --
----------- -----------
Total revenues .............................................. 616,639 616,639
Cost of matured insurance policies ........................................ -- --
----------- -----------
Net revenues ......................................................... 616,639 616,639
General and administrative expenses ....................................... 1,625,995 (141,218)(A) 1,484,777
Provision for credit losses ............................................... 1,921,292 1,921,292
----------- ----------- -----------
Operating earnings (loss) ............................................ (2,930,648) 141,218 (2,789,430)
----------- ----------- -----------
Other income:
Interest income on investments ....................................... 22,223 22,223
Other ................................................................ 126,424 126,424
----------- -----------
Total other income .......................................... 148,647 148,647
----------- -----------
Other expense:
Interest expense ..................................................... (537,228) (537,228)
Writeoff of fixed assets ............................................. (568,649) (568,649)
----------- -----------
Total other expense ......................................... (1,105,877) (1,105,877)
----------- -----------
Loss before income taxes and discontinued operations ...................... (3,887,878) 141,218 (3,746,660)
Benefit from income taxes ................................................. -- -- --
----------- ----------- -----------
Loss before discontinued operations ....................................... (3,887,878) 141,218 (3,746,660)
Discontinued operations:
Earnings (loss) from operations of discontinued subsidiary ........... 69,725 (210,943)(B) (141,218)
Gain on sale of subsidiary ........................................... -- 497,808 (C) 497,808
----------- ----------- -----------
Earnings (loss) on discontinued operations .................. 69,725 286,865 356,590
----------- ----------- -----------
Net Income (loss) ........................................... $(3,818,153) $ 428,083 $(3,390,070)
=========== =========== ===========
Loss per share before discontinued operations ............................. $ (0.84) $ 0.03 $ (0.81)
Earnings (loss) per share on discontinued operations ...................... 0.02 0.06 0.08
----------- ----------- -----------
Net earnings (loss) per common share ...................................... $ (0.82) $ 0.09 $ (0.73)
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding ........................................ 4,634,530 4,634,530 4,634,530
=========== =========== ===========
</TABLE>
See notes to pro forma consolidated statement of operations
for the three months ended June 30, 1996.
- 7 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
Three months ended June 30, 1996
(unaudited)
A) To record a reduction in certain estimated general and administrative
expenses of $141,218 which have been allocated to IAP based on management's
best estimation the portion of such expenses attributable to IAP.
B) Elimination of earnings (loss) of IAP, previously recorded as earnings
(loss) from operations of discontinued subsidiary, and record the estimated
general and administrative expenses of $141,218 allocated to the operations
of IAP based on management's best estimation of the portion of such
expenses attributable to IAP.
C) To record the gain on the sale of IAP totalling approximately $497,808
consisting of $1,000,000 preferred stock offset by the remaining balance of
employment agreements of departing management totalling $502,192.
- 8 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
Year ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
1996 Adjustments 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts .......................... $ 7,808,369 $ $ 7,808,369
Revenues from matured insurance policies .......................... 1,326,706 1,326,706
------------ ------------
Total revenues ........................................... 9,135,075 9,135,075
Cost of matured insurance policies ..................................... 784,848 784,848
------------ ------------
Net revenues ...................................................... 8,350,227 8,350,227
General and administrative expenses .................................... 9,914,990 (146,243)(A) 9,768,747
Provision for credit losses ............................................ 8,839,461 8,839,461
------------ ------------ ------------
Operating earnings (loss) ......................................... (10,404,224) 146,243 (10,257,981)
------------ ------------ ------------
Other income:
Interest income on investments .................................... 603,356 603,356
Gain on sale of viatical trademarks ............................... 300,000 300,000
Other ............................................................. 65,337 65,337
------------ ------------
Total other income ...................................... 968,693 968,693
------------ ------------
Other expense:
Interest expense .................................................. (3,289,876) (3,289,876)
Loss on sale of viatical portfolio, net of
amortization of $1,844,259 .................................... (392,063) (392,063)
Realized gains (losses) on sales of marketable
securities, net ............................................... 1,137 1,137
------------ ------------
Total other expense ...................................... (3,680,802) (3,680,802)
------------ ------------
Income (loss) before income taxes, extraordinary item and cumulative
effect of change in accounting principle .......................... (13,116,333) 146,243 (12,970,090)
Benefit from income taxes .............................................. 4,935,676 -- 4,935,676
------------ ------------ ------------
Income (loss) before discontinued operations, extraordinary item
and cumulative effect of change in accounting principle ........... (8,180,657) 146,243 (8,034,414)
Discontinued operations -
Earnings (loss) from operations of discontinued subsidiary,
net of applicable income tax benefit .............................. (47,595) (98,648)(B) (146,243)
Gain on sale of subsidiary ........................................ -- 497,808(C) 497,808
------------ ------------ ------------
Earnings (loss) on discontinued operations .............. (47,595) 399,160 351,565
------------ ------------ ------------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle ................................. (8,228,252) 545,403 (7,682,849)
Extraordinary item - gain on early extinguishment of debt,
net of amortization of deferred costs of $947,877 and
income taxes of $4,847,153 ........................................ 7,306,970 -- 7,306,970
------------ ------------ ------------
Income (loss) before cumulative effect of change in accounting
principle ......................................................... (921,282) 545,403 (375,879)
Cumulative effect of change in accounting principle, net
of income taxes of $117,239 ....................................... 176,735 -- 176,735
------------ ------------ ------------
Net Income (loss) ........................................ $ ( 744,547) $ 545,403 $ (199,144)
============ ============ ============
Loss per share before discontinued operations, extraordinary item
and cumulative effect of change in accounting principle ........... $ (1.77) $ 0.03 $ (1.73)
Loss per share on discontinued operations .............................. (0.01) 0.09 0.07
------------ ------------ ------------
Loss per share before extraordinary item and cumulative
effect of change in accounting principle .......................... (1.78) 0.12 (1.66)
Earnings per share on extraordinary item-gain on early
extinguishment of debt ............................................ 1.58 -- 1.58
------------ ------------ ------------
Loss per share before cumulative effect of change
in accounting principle ........................................... (0.20) 0.12 (0.08)
Earnings per share on cumulative effect of change in
accounting principle .............................................. 0.04 -- 0.04
------------ ------------ ------------
Net loss per common share .............................................. $ (0.16) $ 0.12 $ (0.04)
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding ..................................... 4,634,530 4,634,530 4,634,530
============ ============ ============
</TABLE>
See notes to pro forma consolidated statement of operations
for the year ended March 31, 1996
- 9 -
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
Year ended March 31, 1996
(unaudited)
A) To record a reduction in certain estimated general and administrative
expenses of $146,243 which have been allocated to IAP based on management's
best estimation of the portion of such expenses attributable to IAP.
B) Elimination of earnings (loss) of IAP, previously recorded as earnings
(loss) from operations of discontinued subsidiary, and record the estimated
general and administrative expenses of $146,243 allocated to the operations
of IAP based on management's best estimation of the portion of such
expenses attributable to IAP.
C) To record the gain on the sale of IAP totalling approximately $497,808,
consisting of $1,000,000 preferred stock offset by the remaining balance of
employment agreements of departing management totalling $502,192.
- 10 -
<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 thereunto duly authorized.
AUTOLEND GROUP, INC.
By: /s/ Steve Simon
--------------------
Name: Steve Simon
Title: President
Date: September 18, 1996
- 11 -
<PAGE>
EXHIBIT INDEX
-------------
2.1 Stipulation and Agreement of Compromise, Settlement and Release between
Nunzio P. DeSantis, Courtlandt G. Miller and Vincent Villanueva as
Plaintiffs, Steve Simon, Stephen Rafael and Elie Housman as Defendants, and
AutoLend Group, Inc., a Delaware corporation, as Nominal Defendant, dated
May 3, 1996, including exhibits thereto.
4.1 See Exhibit 2.1 above.
24 Power of Attorney (see signature page).
27 Financial Data Schedule.
- 12 -
LETTER OF TRANSMITTAL
To Exchange the 9.5% Convertible Subordinated
Debentures Due September 19, 1997 of
AUTOLEND GROUP, INC. (formerly CAPX Corporation)
For
Shares of Common Stock and Shares of
14% Cumulative Convertible Preferred Stock of AutoLend Group, Inc.
The Exchange Offer will expire at 5:00 p.m., New York City
Time, on November 20, 1996, unless the Exchange Offer is extended.
--------
THE INSTRUCTIONS IN THIS LETTER OF TRANSMITTAL SHOULD BE
CAREFULLY READ BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
--------
This Letter of Transmittal should be sent to the Company at
the following address:
AUTOLEND GROUP, INC.
By Mail, Overnight Courier or Hand Delivery to:
The Bradbury Court
215 Central Avenue, NW 3-B
Albuquerque, New Mexico 87102
By Facsimile Transmission 505-768-1111
To Confirm Facsimile Transmission Call 505-768-1000
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION NUMBER
OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. COMPLIANCE
WITH THE EXERCISE PROCEDURES PROVIDED BY CEDEL BANK, S.A. AND EUROCLEAR IN ITS
NOTICE ACCOMPANYING THIS LETTER OF TRANSMITTAL IS REQUIRED TO MAKE A VALID
TENDER IN THE EXCHANGE OFFER.
--------
IF YOU REQUIRE ADDITIONAL COPIES OF THIS LETTER OF TRANSMITTAL
OR THE ACCOMPANYING OFFERING CIRCULAR OR ADDITIONAL INFORMATION REGARDING THE
PROCEDURES FOR EXCHANGE, PLEASE CONTACT, BY TELEPHONE, TELEX OR FACSIMILE,
EITHER EUROCLEAR OR CEDEL BANK, S.A., DEPENDING ON WHICH FACILITY MAINTAINS THE
ACCOUNT IN WHICH YOUR DEBENTURES ARE REGISTERED, AT THE FOLLOWING ADDRESS:
If to EUROCLEAR: If to CEDEL BANK, S.A.:
Euroclear Operations Center Cedel Bank, Head Office
Boulevard Emile Jacqmain 151 67 Bd Grande-Duchesse Charlotte
B-1210 Brussels, Belgium L-1331 Luxembourg
Attn: Serge Mampaey Attn: Claire Davey
Custody/Corporate Events OCE/Custody Events
Telephone No.: 322-224-1184 Telephone No.: 352-44-99-2253
Fax No. : 322-224-1459 Fax No. : 352-44-99-28248
Telex : 61025 Telex : 2791
<PAGE>
<TABLE>
<S> <C> <C>
==================================================================================================================================
BOX 1 DESCRIPTION OF DEBENTURES SURRENDERED
==================================================================================================================================
(All holders must furnish the
information requested below) Name and Address
of Holder(s) as it Appears on Security Position Listing
at CEDEL BANK, S.A. or EUROCLEAR, as the case may be
(Kindly indicate address corrections, if any, in
Box 2 below titled "Special Mailing Instructions")
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate Principal Principal Amount
Amount Tendered
Held (1) For Exchange (2)
---------------------------------------------------
$ $
---------------------------------------------------
---------------------------------------------------
===================================================================================================================================
(1) Unless otherwise indicated in the column "Principal Amount Tendered For
Exchange," any tendering holder of Debentures will be deemed to have tendered
the entire aggregate principal amount represented by the column labelled
"Aggregate Principal Amount Held."
(2) The minimum permitted tender is $1,000 in principal amount of Debentures
and all tenders must be in integral multiples of $1,000 principal amount of
Debentures.
======================================================================================================================
BOX 2 SPECIAL MAILING INSTRUCTIONS
======================================================================================================================
TO BE COMPLETED ONLY if the certificates for the AutoLend Stock are to be mailed
to a person or an address different from that which appears in Box 1. See
Instruction 5.
Mail to:
Name:
(Please print or type)
Address:
(Include Zip Code)
Address Correction or New Record Address?
/ / Check this box if the above address is intended to be either an address
correction or new record address for the holder(s) named in Box 1 and is to be
used for all future shareholder correspondence.
======================================================================================================================
</TABLE>
- 2 -
<PAGE>
Ladies and Gentlemen:
Pursuant to an Offering Circular dated October 22, 1996 (the "Offering
Circular"), AutoLend Group, Inc. (formerly known as CAPX Corporation), a
Delaware corporation (the "Company"), has offered to each holder of the
Company's outstanding 9.5% Convertible Subordinated Debentures Due September 19,
1997 (the "Debentures") the right to exchange each $1,000 principal amount of
the Debentures outstanding which are tendered for exchange and not withdrawn for
one Unit, each Unit consisting of (i) 100 shares of the Company's Common Stock,
par value $.002 per share (the "Common Stock"), and (ii) such number of shares
of the Company's 14% Cumulative Convertible Preferred Stock, par value $.002 per
share (the "Preferred Stock"), as shall have an aggregate value, on the basis of
a Stated Amount of $100 per share of Preferred Stock, equal to the difference
between $1,000 and the market price for the 100 shares Common Stock comprising
such Unit, calculated on the Expiration Date. The Preferred Stock and the Common
Stock comprising the Unit are together sometimes herein called the "AutoLend
Stock".
The undersigned, as the registered record holder of the Debentures,
upon the terms and subject to the conditions set forth in the Offering Circular,
the receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, together with any amendments or supplements thereto or hereto,
collectively constitute the "Exchange Offer"), hereby agrees to tender to the
Company the principal amount of Debentures indicated in Box 1 above in exchange
for the AutoLend Stock. The undersigned understands that delivery of this Letter
of Transmittal to the Company does not, in and of itself, constitute a valid and
binding tender of the Debentures for exchange. A valid tender can only be made
through strict compliance by the undersigned with the exercise procedures set
forth in the Notification accompanying this Letter of Transmittal and prepared
by EUROCLEAR or CEDEL BANK, S.A., depending upon which facility maintains the
account in which the holder's Debentures are registered (the "Notification").
By executing and delivering this Letter of Transmittal and complying
with the Notification, and subject to and effective upon acceptance for exchange
of the tendered Debentures, the undersigned will have irrevocably sold,
assigned, transferred and exchanged to the Company all of the right, title and
interest in, to and under all of the Debentures tendered for exchange hereby,
and hereby will have appointed with respect to the Debentures Euroclear or Cedel
Bank, S.A., as the case may be, as the true and lawful agent and
attorney-in-fact of such holder of the Debentures, with full power of
substitution, to instruct Kredietbank Luxembourg, S.A., as Depositary for the
Debentures (the "Depositary"), to reflect the exchange of Debentures for
AutoLend Stock on the account books maintained by the Depositary. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and coupled
with an interest.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender the Debentures in connection
with the Exchange Offer and that when such Debentures are accepted for exchange
by the Company, the Company will acquire good and marketable title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claims. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of the Debentures tendered for
exchange hereby. In addition, the undersigned, by executing this Letter of
Transmittal, is authorizing CEDEL BANK, S.A. and EUROCLEAR to provide the
Company with the name of the registered holder, the principal amount of
Debentures tendered for exchange by such registered holder, the registered
address of such registered holder and such other information as the Company may
request to facilitate the issuance and delivery of the AutoLend Stock being
issued in exchange for tendered Debentures.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted validly tendered Debentures for exchange, and will be deemed to have
exchanged the AutoLend Stock therefor, if, as and when the Company gives oral or
written notice thereof to the Depository. Tenders of Debentures for exchange may
be withdrawn at any time prior to 5:00 p.m., New York City time, on Wednesday,
November, 20, 1996, the expiration date of the Exchange Offer (the "Expiration
Date"), unless extended, or as otherwise provided by law. See "The Exchange
Offer - Withdrawal Rights" in the Offering Circular.
Unless otherwise provided under "Special Mailing Instructions" (Box 2),
you are hereby instructed to mail the certificate(s) representing the shares of
AutoLend Stock to the address as set forth in Box 1. The undersigned
acknowledges that the certificate(s) representing the AutoLend Stock will be
issued only in the name of the registered holder of the Debentures so
surrendered as set forth in Box 1 in order for the Exchange Offer to comply with
certain exemptions from the registration
- 3 -
<PAGE>
requirements under the United States securities laws. The undersigned further
acknowledges that the AutoLend Stock has not been registered under the United
States Securities Act of 1933, as amended (the "Act"), and, therefore, the
undersigned may not sell or otherwise transfer any shares of the AutoLend Stock
or any interest in the AutoLend Stock unless such stock is registered under the
Act and any applicable state securities or blue sky laws, or exemptions from
registration under the Act and such laws are available. See "Transferability of
Units" in the Offering Circular.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of each of the undersigned, and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of such undersigned.
===============================================================================
BOX 3 ALL DEBENTUREHOLDERS MUST SIGN HERE
===============================================================================
This Letter of Transmittal must be signed on the spaces immediately
below and the information below completed by the holder of the Debentures
exactly as the holder's name appears on Box 1. If signing is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation, agent or other person acting in a fiduciary or representative
capacity, please set forth full title and submit evidence (which must be
satisfactory to the Company) of the authority to so act. See Instructions
2 and 4.
Signature____________________________________________________________________
Name(s)______________________________________________________________________
- -----------------------------------------------------------------------------
(Please type or print)
Capacity (full title)_________________________________________________________
Address:______________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Principal Place of Business (if different from address listed above):
==============================================================================
Confirm Security Listing Position (check one):
___ CEDEL BANK, S.A.
___ EUROCLEAR
Account No.: __________________________ Date , 1996
-------------------
===============================================================================
- 4 -
<PAGE>
IMPORTANT TAX INFORMATION
FORM W-9
UNLESS YOU ARE AN EXEMPT HOLDER (SEE INSTRUCTION 7), PLEASE
PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER ON THE FORM
W-9 BELOW AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING.
FAILURE TO DO SO MAY SUBJECT YOU TO BACK UP WITHHOLDING ON DIVIDENDS ON THE
AUTOLEND STOCK THAT MIGHT BE PAYABLE IN THE FUTURE. SEE INSTRUCTION 7.
<TABLE>
===================================================================================================================================
PAYER'S NAME: AUTOLEND GROUP, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Part 1--PLEASE PROVIDE YOUR TIN IN
SUBSTITUTE THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW Social Security Number
Form W-9
OR
Department of the Treasury
Internal Revenue Service
Employer Identification Number
Payer's Request for Taxpayer ----------------------------------------------------------------------------------------
Identification Number (TIN) Part 2--Certification Under Penalties of Part 3--
Perjury, I certify that: Awaiting TIN / /
(1) The number shown on this form is
my current taxpayer identification
number (or I am waiting for a number
to be issued to me) and
(2) I am not subject to backup
withholding either because I have not
been notified by the Internal Revenue
Service (the "IRS") that I am subject
to backup withholdings as a result of
a failure to report all interest or
dividends, or the IRS has notified me
that I am no longer subject to backup
withholding.
------------------------------------------------------------------------------------------
Certificate instructions-You must
cross out item (2) in Part 2 above if
you have been notified by the IRS
that you are subject to backup
withholding because of under
reporting interest or dividends on
your tax return. However, if after
being notified by the IRS that you
are subject to backup withholding you
receive another notification from the
IRS stating that you are no longer
subject to backup withholding, do not
cross out item (2).
SIGNATURE _______________________________________________ DATE __________________
NAME ____________________________________________________________________________
ADDRESS _________________________________________________________________________
CITY _____________________________________ STATE ________ ZIP CODE ______________
===================================================================================================================================
</TABLE>
- 5 -
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTION FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver such an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide such
a number.
_______________________________________________________ ____________________
Signature Date
================================================================================
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTION FORM W-9 FOR ADDITIONAL DETAILS. PLEASE REVIEW THE ENCLOSED
INSTRUCTIONS FOR FORM W-9 FOR FURTHER GUIDANCE ON PROPERLY COMPLETING THE FORM.
- 6 -
<PAGE>
IMPORTANT TAX INFORMATION (CONTINUED)
FORM W-8
IF YOU ARE A NON-RESIDENT ALIEN INDIVIDUAL, FOREIGN ENTITY OR EXEMPT
FOREIGN PERSON NOT SUBJECT TO CERTAIN U.S. INFORMATION RETURN REPORTING OR
BACK-UP WITHHOLDING RULES, PLEASE COMPLETE THE CERTIFICATE OF FOREIGN STATUS ON
FORM W-8 BELOW. YOU SHOULD CONSULT YOUR TAX ADVISOR, TOGETHER WITH THE ENCLOSED
GUIDELINES FOR CERTIFICATION OF FOREIGN STATUS, TO DETERMINE WHETHER YOU MEET
THE REQUIREMENTS FOR USE OF THE FORM W-8.
Form W-8
(Rev. November 1992) Certificate of Foreign Status
Department of the Treasury
Internal Revenue Service
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name of owner (if joint account, also give joint owner's name.) (See Specific Instructions.) U.S. taxpayer
identification
number (if any)
------------------------------------------------------------------------------------------------------------------------
Permanent Address (See Specific Instructions.) (Include apt. or suite no.)
Please
Print ------------------------------------------------------------------------------------------------------------------------
or City, province or state, postal code, and country
Type
-----------------------------------------------------------------------------------------------------------------------
Current mailing address, if different from permanent address (include apt. or suite no., or P.O. box if mail is not
delivered to street adress.)
-----------------------------------------------------------------------------------------------------------------------
City, town or post office, state, and ZIP code (if foreign address, enter city, province or state, postal code, and
country.)
-----------------------------------------------------------------------------------------------------------------------
List account information Account number Account type Account number Account type
here (Optional, see
Specific instruction.)
- ------------------------------------------------------------------------------------------------------------------------------------
Notice of Change in Status. - To notify the payer, mortage interest recipient, broker or barter exchange that you no longer
qualify for exemption, check here. | |
If you check this box, reporting will begin on the account(s) listed.
- ------------------------------------------------------------------------------------------------------------------------------------
Certification. - (Check applicable box(es)). Under penalties of perjury, I certify that:
| | For INTEREST PAYMENTS, I am not a U.S. citizen or resident (or I am filing for a foreign corporation,
partnership, estate or trust).
Please
Sign | | For DIVIDENDS, I am not a U.S. citizen or resident (or I am filing for a foreign corporation, partnership,
Here estate or trust).
| | For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt foreign person as defined in the instructions
below.
---------------------------------------------------------------------------------------------------------------
Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
Form W-8 (Rev. 11-92)
</TABLE>
- 7 -
<PAGE>
INSTRUCTIONS
1. Execution and Delivery of Letter of Transmittal
This Letter of Transmittal should be properly completed, dated, signed
and mailed or hand delivered to the Company, at the address specified on the
cover page of this Letter of Transmittal. Proper delivery of this Letter of
Transmittal will not in and of itself constitute a valid tender of Debentures. A
valid tender of Debentures shall occur only upon BOTH (i) timely delivery to the
Company of a properly completed Letter of Transmittal and (ii) strict compliance
with the exercise procedures established by CEDEL BANK, S.A. and EUROCLEAR as
set forth in the Notification accompanying this Letter of Transmittal, to effect
a change in the security listing position in respect of the tendered Debentures.
THE METHOD OF TRANSMITTING OR DELIVERING THIS LETTER OF TRANSMITTAL IS
AT YOUR OPTION, RISK AND ELECTION, BUT IF YOU SEND THIS LETTER OF TRANSMITTAL BY
MAIL, IT IS RECOMMENDED THAT IT BE SENT BY CERTIFIED OR REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED OR BY OVERNIGHT DELIVERY SERVICE. DELIVERY WILL BE
DEEMED EFFECTIVE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY.
No alternative, conditional or contingent tenders will be accepted and
only $1,000 principal amount of Debentures or integral multiples thereof will be
accepted for exchange.
2. Signatures; Name Change
The Letter of Transmittal must be signed in Box 3 by or on behalf of
the holder of the Debentures transmitted as such name appears on the books of
account maintained by CEDEL BANK, S.A. or EUROCLEAR, as the case may be,
depending upon which facility maintains the account in which the Debentures are
registered. If the security listing position or account in which the Debentures
are registered is registered in two or more names, all such persons, as record
holders of the Debentures, must sign. The signature(s) on the Letter of
Transmittal should correspond exactly to the name(s) written on Box 1. If the
Debentures to be surrendered are held in different names or different forms of
the same name, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different holders.
For a correction of name or for a change in name which does not involve
a change in ownership, proceed as follows: For a change in name by marriage,
etc., the Letter of Transmittal should be signed, e.g., "Mary Doe, now by
marriage Mary Jones." For a correction in name, the Letter of Transmittal should
be signed, e.g., "James E. Brown, incorrectly inscribed as J. E. Brown."
3. Issuance of Certificates for AutoLend Stock in Same Name
All certificates representing the AutoLend Stock to be issued in
exchange for tendered Debentures will be registered only in the name of the
record holder of the Debentures as set forth in Box 1 and only to the extent
such name corresponds to the name(s) of the person(s) in whose names(s) the
account in which the Debentures are credited is registered at either CEDEL BANK,
S.A. or EUROCLEAR. No certificates for AutoLend Stock will be registered in the
name of any beneficial holder of Debentures if such beneficial holder is other
than the record holder of the tendered Debentures.
4. Supporting Evidence
In case this Letter of Transmittal is executed by an agent, attorney,
administrator, executor, guardian, trustee or any person in any other fiduciary
or representative capacity, or by an officer of a corporation on behalf of the
corporation, there must be submitted (with the Letter of Transmittal)
documentary evidence of appointment and authority to act in such capacity
(including court orders and corporate resolutions where necessary). Such
documentary evidence of authority must be in form satisfactory to the Company.
- 8 -
<PAGE>
5. Special Instructions for Delivery of AutoLend Stock
The certificates representing the AutoLend Stock will be mailed to the
address of the holder(s) as indicated in Box 1 unless instructions to the
contrary are given in Box 2 titled "Special Mailing Instructions."
6. Improper Tender
Shares of AutoLend Stock will be distributed only if, as set forth in
Instruction 1 above, this Letter of Transmittal, properly completed and signed,
is received by the Company prior to the Expiration Date and the exercise
procedures established by CEDEL BANK, S.A. or EUROCLEAR, as the case may be, and
as set forth in the Notification, are strictly complied with. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
those contained in this Letter of Transmittal) will be final and binding on all
of the parties.
The Company reserves the absolute right to reject any or all surrenders
that are defective or irregular and may request such additional documents as the
Company deems appropriate to correct such defects or irregularities. However,
the Company reserves the right at its discretion to waive any defect or
irregularity in any tender as provided for herein, and upon such waiver the
Company may treat and receive any such defective or irregular surrender as if no
such defect or irregularity had been present. Surrenders will not be deemed to
have been made until all defects or irregularities, which have not been waived,
have been cured.
7. Federal Tax Information
The Form W-9 or, in the case of certain non-U.S. persons, the Form W-8,
included in this Letter of Transmittal must be properly completed. Under United
States income tax law, in order to avoid backup withholding on dividends on the
AutoLend Stock that might be payable in the future, the U.S. Treasury Department
requires that a taxpayer identification number be provided on the Form W-9 and
that you certify that the taxpayer identification number provided on the Form
W-9 is correct (or that you are awaiting a taxpayer identification number) and
that (a) you have not been notified by the Internal Revenue Service that you are
subject to backup withholding as a result of failure to report all interest or
dividends or (b) the Internal Revenue Service has notified you that you are no
longer subject to backup withholding. For individuals having a social security
number, the taxpayer identification number is the same as your social security
number. For others, a number will be furnished by the Treasury Department upon
request, if you do not already have a taxpayer identification number.
Failure to complete Form W-9 properly or, in the case of certain
non-U.S. persons as described below, Form W-8, may subject you to a penalty and
a federal backup withholding tax. If the backup withholding tax requirements
apply to you, the Company may be required to withhold 31% of any dividend
payments that might be made to you in the future.
If you are an exempt holder (including, among others, all corporations
and certain foreign individuals), you are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, that person must submit a statement, signed
under penalties of perjury, attesting to that individual's foreign status. This
certification should be made on Form W-8 included in this Letter of Transmittal.
A holder should consult such holder's tax advisor as to the qualification for an
exemption for backup withholding and the procedure for obtaining such exemption.
See the enclosed instructions for Form W-9 and Form W-8 for additional
guidelines.
8. Inquiries
If you have any questions or need assistance relating to the Letter of
Transmittal or the Notification, or require additional copies of the Letter of
Transmittal or the Offering Circular, please contact by telephone, telex or
facsimile either CEDEL BANK, S.A. or EUROCLEAR, as the case may be, at the
addresses set forth on the cover page of this Letter of Transmittal.
- 9 -
<PAGE>
EXHIBIT (a)(3)
Offer to Exchange All Outstanding
9.5% Convertible Subordinated Debentures Due September 19, 1997
of
AUTOLEND GROUP, INC.
(formerly CAPX Corporation)
for
Common Stock
and
14% Cumulative Convertible Preferred Stock
October 22, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees:
We are enclosing the material listed below relating to the Offer by
AutoLend Group, Inc., a Delaware Corporation formerly known as CAPX Corporation
(the "Company"), to exchange all outstanding 9.5% Convertible Subordinated
Debentures Due September 19, 1997 (the "Debentures") for Units, with one Unit
being issued for each $1,000 principal amount outstanding of Debentures tendered
in the Exchange Offer (as defined below). Each Unit consists of: (i) 100 shares
of the Company's Common Stock, par value $.002 per share ("Common Stock"), and
(ii) such number of shares of the Company's 14% Cumulative Convertible Preferred
Stock, par value $.002 per share ("Preferred Stock"), as shall have an aggregate
value, on the basis of a Stated Amount of $100 per share of Preferred Stock,
equal to the difference between $1,000 and the market price for the 100 shares
of Common Stock included as part of the Unit, calculated on the Expiration Date
of the Exchange Offer. The Exchange Offer is being made upon the terms and
subject to the conditions set forth in the Offering Circular dated October 22,
1996 and in the related Letter of Transmittal (which together constitute the
"Exchange Offer"). Please furnish copies of the enclosed materials to those of
your clients for whom Debentures are registered in your name on the security
listing position maintained by one of CEDEL Bank, S.A. or EUROCLEAR.
Enclosed herewith are copies of the following documents:
1. The Offering Circular dated October 22, 1996;
2. The Letter of Transmittal to be used by holders of Debentures in
accepting the Exchange Offer. Facsimile copies of the Letter of
Transmittal may be used to tender Debentures;
3. A form of letter to your Clients for whose account you hold
Debentures in your name, with space provided for obtaining such
Client's instructions as to the tender of Debentures in the
Exchange Offer;
<PAGE>
4. A Notice from CEDEL Bank, S.A. and EUROCLEAR describing the
procedures necessary to effect a change in your security listing
position to complete a tender of Debentures in the Exchange Offer;
and
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
The Exchange Offer is subject to certain conditions; however, the
Exchange Offer is not conditioned on the valid transfer of a minimum percentage
of principal amount of Debentures in the Exchange Offer. Reference is made to
the Offering Circular for a description of the other conditions to which the
Exchange Offer is subject.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire at 5:00 P.M., New York City time on Wednesday,
November 20, 1996, unless extended (the "Expiration Date").
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms or
conditions of any such extension or amendment), the Company will accept for
exchange all Debentures validly tendered and not properly withdrawn on or prior
to the Expiration Date, as soon as practicable after the Expiration Date.
In all cases, Units consisting of Common Stock and Preferred Stock in
exchange for Debentures accepted for exchange pursuant to the Exchange Offer
will be made only after BOTH: (i) timely receipt by the Company of the Letter of
Transmittal (or a facsimile copy thereof) properly completed and duly executed,
together with any other documents required by such Letter of Transmittal and
(ii) confirmation by either CEDEL Bank, S.A. or EUROCLEAR that there has been a
book entry transfer in the security listing position maintained in respect of
the Debentures in accordance with the procedures set forth in the Notice.
Additional copies of the enclosed material may be obtained from the
Company or from CEDEL Bank, S.A. or EUROCLEAR.
Very truly yours,
AutoLend Group, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON THE AGENT OF AUTOLEND GROUP, INC., OR AUTHORIZE YOU TO USE ANY
DOCUMENT OR MAKE ANY STATEMENT ON ITS BEHALF IN CONNECTION WITH THE EXCHANGE
OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED
THEREIN.
EXHIBIT (a)(4)
AUTOLEND GROUP, INC.
(Formerly CAPX Corporation)
Offer to Exchange Shares of Common Stock
and 14% Cumulative Convertible Preferred Stock
For All Outstanding 9.5% Convertible Subordinated
Debentures Due September 19, 1997
THE EXPIRATION DATE
(UNLESS EXTENDED) IS 5:00 P.M., NEW YORK CITY
TIME, ON WEDNESDAY, NOVEMBER 20, 1996
To Our Clients:
Enclosed for your consideration is the Offering Circular dated October
22, 1996 by AutoLend Group, Inc., formerly CAPX Corporation (the "Company"), and
a related Letter of Transmittal (which together constitute the "Exchange
Offer"), pursuant to which the Company intends to exchange, upon the terms and
subject to the conditions set forth in the Exchange Offer, one Unit for each
$1,000 principal amount outstanding of the Company's 9.5% Convertible
Subordinated Debentures Due September 19, 1997 (the "Debentures"). Each Unit
consists of: i) 100 shares of the Company's Common Stock, par value $.002 per
share ("Common Stock"), and ii) such number of shares of the Company's 14%
Cumulative Convertible Preferred Stock, par value $.002 per share ("Preferred
Stock"), as shall have an aggregate value, on the basis of a Stated Amount of
$100 per share of Preferred Stock, equal to the difference between $1,000 and
the market price for the 100 shares of Common Stock included as part of the
Unit, calculated on the Expiration Date. The Offering Circular and Letter of
Transmittal are being forwarded to you as the beneficial owner of Debentures
registered in our name on the security listing position maintained at one of
CEDEL Bank, S.A. or EUROCLEAR. A tender of such Debentures can
be made only by us as the holder of record and only pursuant to your
instructions.
The Exchange Offer is subject to certain other conditions; however, the
Exchange Offer is not conditioned on the valid tender of a minimum percentage of
principal amount of Debentures in the Exchange Offer. Holders of Debentures not
tendered for exchange pursuant to the Exchange Offer will continue to have all
of the existing rights granted the Debentures.
Your attention is called to the following:
(1) Debenture holders may tender Debentures for any principal amount in
multiples of $1,000 in principal amount, as indicated in the instruction form
set forth on the reverse side hereof.
(2) The Exchange Offer is not conditioned upon any minimum number of
Debentures being tendered.
(3) The Expiration Date (unless extended) of the Exchange Offer is 5:00
P.M., New York time, on November 20, 1996. Your instructions to us should be
forwarded in ample time to permit us to submit a tender on your behalf.
If you desire to have us tender any or all of your Debentures, will
you kindly so instruct us by completing, executing and returning to us the
instruction form set forth on the reverse side hereof. An envelope to return
your instructions to us is enclosed. If you authorize the tender of your
Debentures, all such Debentures will be tendered unless otherwise specified. The
enclosed Letter of Transmittal is furnished to you for information only and may
not be used to tender Debentures.
<PAGE>
The Exchange Offer is not being made, nor will the Company accept
tenders from, holders of Debentures in any jurisdiction in which the making or
the acceptance of the Exchange Offer would not be in compliance with the laws of
such jurisdiction or if the making or acceptance of the Exchange Offer would
violate or contravene any agreement to which the Company is a party. In any
jurisdiction the securities or blue sky laws of which required the Exchange
Offer to be made by a licensed broker or dealer, the Exchange Offer is being
made on behalf of the Company by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter enclosing the
Offering Circular, dated October 22, 1996 and the related Letter of Transmittal
(which together constitute the "Exchange Offer"), relating to the offer by
AutoLend Group, Inc. (the "Company") to purchase all outstanding 9.5%
Convertible Subordinated Debentures Due September 19, 1997.
This will instruct you to tender to the Company the principal amount of
Debentures indicated (or, if no principal amount is indicated below, the
aggregate principal amount of all Debentures) which are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
Aggregate principal amount of Debentures SIGN HERE
to be tendered by us (in multiples of $1,000):*
------------------------------
Signature(s)
$
------------------------
------------------------------
------------------------------
------------------------------
(Please print name(s)
and address here)
-----------------------------
(Telephone Number)
- ----------------
* Unless otherwise indicated above, it will be assumed that all of your
Debentures held by us are to be tendered.
