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 December 31, 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 (IRS Employer
of incorporation or organization) Identification No.)
215 Central NW, Suite 3B, Albuquerque, New Mexico 87102
-------------------------------------------------------
(Address of principal executive offices) (ZipCode)
(505) 768-1000
-------------------------------------------------------
(Registrant's telephone number, including area code)
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 17, 1997
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Pages
-----
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996,
September 30, 1996, and March 31, 1996............................3
Consolidated Statements of Operations for the three
and nine months periods ended December 31, 1996 and 1995..........4-5
Supplemental Statements of Operations for the three
month periods ended December 31, 1996,
September 30, 1996 and June 30, 1996...............................6
Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1996 and 1995.....................7
Notes to Consolidated Financial Statements............................8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................13-18
PART II OTHER INFORMATION...............................................19
SIGNATURES...............................................................20
2
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30, March 31,
1996 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 10,628,630 $ 10,430,943 $ 3,168,730
Securities available for sale -- 175,000 175,000
Accounts receivable -- matured insurance policies 50,637 50,637 1,405,947
Installment contracts receivable $ 5,999,197 $ 7,638,095 $ 13,760,394
Collateral owned-gross 360,500 865,270 1,785,743
Allowance for credit losses (2,883,674) (3,788,712) (3,995,296)
------------ ------------ ------------
Installment contracts receivable-net $ 3,476,023 $ 4,714,653 $ 11,550,841
------------ ------------ ------------
Purchased insurance policies at cost; face value of
$2,112,116 at December 31, 1996, $2,112,116 at
September 30, 1996, and $2,171,198 at March 31, 1996 $ 1,051,309 $ 1,050,301 $ 1,445,184
Accrued interest receivable $ 83,752 $ 10,557 --
Debt issuance costs, less accumulated amortization of
$3,458,806 at December 31, 1996, $3,398,113
at September 30, 1996, and $3,276,724 at March 31, 1996 174,599 235,292 356,681
Fixed assets, less accumulated depreciation of $44,359 at
December 31, 1996, $41,051 at September 30, 1996, 71,969 78,545 1,013,173
and $3,276,724 at March 31, 1996
Net assets of discontinued operations -- -- 4,974,047
Securities of IAP 1,000,000 1,000,000 --
Pre-paid consulting agreements -- 3 years 384,999 420,000 --
Other receivables 460,420 3,632 12,518
Other 371,143 342,762 382,968
------------ ------------ ------------
Total assets $ 17,753,481 $ 18,512,322 $ 24,485,089
============ ============ ============
Liabilities:
Accounts payable $ 61,787 $ 222,965 $ 787,036
Accrued liabilities 309,486 288,570 197,062
Accrued acquisition costs 656,542 656,542 656,542
Accrued interest expense 2,098,182 2,158,754 1,111,369
Convertible subordinated debentures 22,050,000 22,050,000 22,050,000
------------ ------------ ------------
Total liabilities $ 25,175,997 $ 25,376,822 $ 24,802,009
------------ ------------ ------------
Stockholders' Equity/(Deficit):
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 December 31,
1996, September 30, 1996, and March 31, 1996 $ 9,269 $ 9,269 $ 9,269
Additional paid-in capital 5,946,904 5,946,904 5,946,904
Accumulated deficit (13,378,689) (12,820,673) (6,273,093)
------------ ------------ ------------
Total stockholders' equity/(deficit) (7,422,516) (6,864,500) $ (316,920)
------------ ------------ ------------
Total liabilities and stockholders' equity $ 17,753,481 $ 18,512,322 $ 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 Nine Month Period Ended
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Finance charges on installment contracts $ 306,817 $ 2,510,437 $ 1,354,192 $ 7,023,415
Revenues from matured insurance policies 350,000 182,263 487,435 1,134,080
------------ ------------ ------------ ------------
Gross revenues 656,817 2,692,700 1,841,627 8,157,495
Cost of matured insurance policies -- 142,330 85,774 739,831
------------ ------------ ------------ ------------
Total net revenues $ 656,817 $ 2,550,370 $ 1,755,853 $ 7,417,664
General and administrative expenses 717,174 2,541,006 3,656,300 7,744,682
Provision for credit losses 63,000 3,659,587 3,019,292 9,362,647
------------ ------------ ------------ ------------
Operating earnings (loss) $ (123,357) $ (3,650,223) $ (4,919,739) $ (9,689,665)
------------ ------------ ------------ ------------
Other income/(expense):
Interest income on investments $ 156,470 $ 137,689 $ 238,267 $ 531,886
Realized gains/(loss) on sale of securities, net -- -- -- (9,145)
Other income/(expenses) 63,598 (1,039) 187,882 19,563
Interest expense (537,230) (754,918) (1,611,687) (2,709,172)
Write-off of fixed assets -- -- (659,302) --
Write-down of purchased insurance policies -- -- (398,200) --
Lease termination expense -- -- (196,000) --
Net gain (loss) on sale of viatical portfolio -- (33,578) -- (281,679)
------------ ------------ ------------ ------------
Total net other income/(expense) $ (317,162) $ (651,846) $ (2,439,040) $ (2,448,547)
------------ ------------ ------------ ------------
Loss before income taxes, discontinued operations,
extraordinary item and cumulative effect of
change in accounting method $ (440,519) $ (4,302,069) $ (7,358,779) $(12,138,212)
Benefit from income taxes -- 1,627,777 -- 4,810,424
------------ ------------ ------------ ------------
Loss before discontinued operations,
extraordinary item and cumulative effect
of change in accounting method $ (440,519) $ (2,674,292) $ (7,358,779) $ (7,327,788)
Discontinued operations:
Earnings (loss) from operations of
discontinued subsidiary (117,305) (23,674) (231,778) (68,995)
Gain on sale of subsidiary -- -- 484,961 --
------------ ------------ ------------ ------------
Loss before extraordinary item and cumulative effect
of change in accounting method $ (557,824) $ (2,697,966) $ (7,105,596) $ (7,396,783)
Extraordinary item-gain on early extinguishment
of debt -- 3,340,502 -- 7,457,301
------------ ------------ ------------ ------------
Loss before cumulative effect of change in
accounting method $ (557,824) $ 642,536 $ (7,105,596) $ 60,518
Cumulative effect of change in accounting
method -- 11,679 -- 180,372
------------ ------------ ------------ ------------
Net income/(loss) $ (557,824) $ 654,215 $ (7,105,596) $ 240,890
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss per share:
Loss per share before taxes, discontinued operations,
extraordinary item, and cumulative effect of
change in accounting method $ (0.10) $ (0.91) $ (1.58) $ (2.56)
Tax offset to loss -- .34 -- 1.01
---------- ---------- ---------- ----------
Loss per share before discontinued operations,
extraordinary item and cumulative effect of
change in accounting method $ (0.10) $ (0.57) $ (1.58) $ (1.55)
Gain/(loss) on sale of subsidiary, net of subsidiary
operating loss (0.02) -- 0.05 (0.02)
---------- ---------- ---------- ----------
Loss per share before extraordinary item and
cumulative effect of change in accounting method $ (0.12) $ (0.57) $ (1.53) $ (1.57)
Earnings per share on extraordinary item --gain
on early extinguishment of debt -- 0.71 -- 1.58
---------- ---------- ---------- ----------
Gain/(Loss) before cumulative effect of change in accounting
method $ (0.12) $ 0.14 $ (1.53) $ 0.01
Cumulative effect of change in accounting method -- -- -- 0.04
---------- ---------- ---------- ----------
Net Gain/(loss) per common share $ (0.12) $ 0.14 $ (1.53) $ 0.05
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding 4,634,530 4,730,941 4,634,530 4,730,941
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Supplemental Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
------------------------
December 31, September 30, June 30,
1996 1996 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Finance charges on installment contracts $ 306,817 $ 430,736 $ 616,639
Revenues from matured insurance policies 350,000 137,435 --
----------- ----------- -----------
Gross revenues 656,817 568,171 616,639
Cost of matured insurance policies -- 85,774 --
----------- ----------- -----------
Total net revenues $ 656,817 $ 482,397 $ 616,639
General and administrative expenses 717,174 1,312,939 1,625,995
Provision for credit losses 63,000 1,035,000 1,921,292
----------- ----------- -----------
Operating earnings (loss) $ (123,357) $(1,865,542) $(2,930,648)
----------- ----------- -----------
Other income/(expense):
Interest income on investments $ 156,470 $ 59,574 $ 22,223
Realized gains/(loss) on sale of securities, net -- -- --
Other income/(expense) 63,598 (2,140) 126,424
Interest expense (537,230) (537,229) (537,228)
Write-off of fixed assets -- (90,653) (568,649)
Write-down of purchased insurance policies -- (398,200) --
Lease termination expense -- (196,000) --
Net gain (loss) on sale of viatical portfolio -- -- --
----------- ----------- -----------
Total net other income/(expense) $ (317,162) $(1,164,648) $ (957,230)
----------- ----------- -----------
Loss before income taxes, discontinued operations,
extraordinary item and cumulative effect of
change in accounting method $ (440,519) $(3,030,190) $(3,887,878)
Benefit from income taxes -- -- --
----------- ----------- -----------
Loss before discontinued operations,
extraordinary item and cumulative effect
of change in accounting method $ (440,519) $(3,030,190) $(3,887,878)
Discontinued operations:
Earnings (loss) from operations of
discontinued subsidiary (117,305) (184,198) 69,725
Gain on sale of subsidiary -- 484,961 --
----------- ----------- -----------
Loss before extraordinary item and cumulative effect
of change in accounting method $ (557,824) $(2,729,427) $(3,818,153)
Extraordinary item-gain on early extinguishment
of debt -- -- --
----------- ----------- -----------
Loss before cumulative effect of change in
accounting method $ (557,824) $(2,729,427) $(3,818,153)
Cumulative effect of change in accounting
method -- -- --
----------- ----------- -----------
Net income/(loss) $ (557,824) $(2,729,427) $(3,818,153)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended
December 31,
------------
1996 1995
-------------- -------------
<S> <C> <C>
Cash Flows from operating activities:
Net earnings (loss) $ (7,105,596) $ 240,890
Adjustments to reconcile net earnings (loss) to net cash flows
from operating activities: -- --
Amortization of debt issuance costs 182,082 2,239,163
Depreciation expense 98,081 187,719
Write-off of fixed assets 659,302 --
Write-down of purchased insurance policies 398,200 --
Gain on early extinguishment of debt, net of
amortization -- (12,154,123)
Gain on sale of subsidiary, IAP (981,455) --
Provision for credit losses 3,019,292 9,362,647
Realized gains on securities available for sale -- (1,138)
Change in net assets of discontinued operations (1,008,078) --
Changes in assets and liabilities:
Accounts receivable -- matured insurance policies 1,355,310 3,253,041
Installment contracts receivable 5,055,526 (6,426,644)
Purchased insurance policies (4,325) 18,362,182
Accrued interest receivable (83,752) 79,499
Other receivables-sale of viatical portfolio -- (1,259,972)
Dealer receivables -- (1,244,223)
Other assets (670,360) 622,910
Accounting payable and accrued liabilities (612,825) (144,694)
Accrued interest expense 986,813 (1,954,348)
------------ ------------
Cash provided by operating activities $ 1,288,215 $ 11,162,909
------------ ------------
Cash flows from investing activities:
Purchases of securities available for sale $ -- $ (7,552,131)
Proceeds from sale of securities available for sale 25,000 17,060,237
Proceeds from disposition of IAP 5,963,388 --
Proceeds from sale of fixed assets 185,995 --
Purchase of fixed assets (2,698) (498,213)
------------ ------------
Cash provided by investing activities $ 6,171,685 $ 9,009,893
------------ ------------
Cash flow from financing activities:
Early extinguishment of debt -- (15,848,000)
------------ ------------
Cash used in financing activities $ -- $(15,848,000)
------------ ------------
Net increase in cash and cash equivalents $ 7,459,900 $ 4,324,802
Cash and cash equivalents at beginning of period 3,168,730 1,325,175
------------ ------------
Cash and cash equivalents at end of period $ 10,628,630 $ 5,649,977
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Going Concern
The Company's viability as a going concern is dependent upon the restructuring
of its obligations, and, ultimately, a return to profitability. The Company had
incurred cumulative operating losses of approximately $14 million in two and a
half years, prior to which period the Company was not in the automobile
financing business. The Company ceased purchasing automobile installment
contracts receivable in December 1995, at which time the Company significantly
downsized its operations, terminating approximately three-quarters of its work
force. On September 18, 1996 the Company consummated the settlement of certain
stockholder litigation, and entered into various agreements providing for, among
other things, the disposition of certain operations, and the replacement of
prior management (see Note 2 below). As the financial statements herein
disclose, the new management team assumed responsibility for the Company with a
substantial negative net worth, inasmuch as the stockholders' equity at
September 30, 1996 was a deficit of approximately $6.9 million. Additionally,
the new management was faced with the immediate need to restructure the
Company's liquidity.
The outstanding principal amount of $22.1 million of the Company's Convertible
Subordinated Debentures Due September 1997 (the "Debentures") became current
debt on September 20, 1996, and without either a capital infusion, refinancing,
or amendment of the Debentures, the reclassifying to a "current" status of this
debt has caused the Company's current liabilities to exceed its currents assets
(see Note 3 below). Although the Company currently has sufficient liquidity to
meet its interest obligations under the Debentures, and other obligations in
general, the Company does not presently have such liquidity to repay the entire
current principal under the Debentures when it becomes due in September.
On September 19, 1996 the Company was obligated to make an annual interest
payment of approximately $2.1 million on the Debentures. The Company's decision
not to distribute this payment was due to the commencement of an offer to
exchange shares of common stock and 14% cumulative convertible preferred stock
for all outstanding Debentures, including the interest due September 19, 1996
(the "Exchange Offer"). The Exchange Offer is currently scheduled to terminate
on March 3, 1997, subject to further extension at the Company's option. The
acceptance by the Company of the Debentures tendered to date is dependent upon
the outcome of the involuntary bankruptcy proceeding, which management is
attempting to dismiss (see Note 4 below).
The Company believes it has sufficient funds to finance its current operations
for at least the next six months, but would require additional funds to finance
the repayment of the entire current face amount of the Debentures. However, if
the Exchange Offer is successful, then the Company is expected to emerge with a
much improved stockholders' equity, and the Company will have the liquidity
necessary to provide the new management team with an opportunity to pursue its
business strategies.
8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(unaudited)
(2) Change in Management, and Settlement
In December 1995, Nunzio DeSantis, Courtlandt Miller and Vincent Villanueva,
stockholders of the company (collectively, the "Plaintiff Stockholders"),
commenced an action in the Delaware Chancery Court against certain former
officers and directors of the Company (collectively, the "Defendants"), seeking,
among other things, to temporarily, and if necessary, permanently enjoin the
Company's then current management and Board of Directors from taking certain
contemplated actions.
The Plaintiff Stockholders and the Defendants entered into extensive arms-length
negotiations concerning a change in existing management, and the resolution of
all claims between the parties. As a result of these negotiations, the parties
entered into a Stipulation of Settlement. The Settlement was approved by the
Court after due notice and was sent to all of the Company's stockholders. The
Settlement closed on September 18, 1996. Pursuant to the Settlement, all pending
claims 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; and (iii) Mr. DeSantis was
appointed to the Board and was elected Chairman and Chief Executive Officer. As
a result, the entire management and employee staff of the Company was changed
(and reduced by about three-quarters). (Also, see Note 5)
(3) Exchange Offer: Convertible Subordinated Debentures
On September 19, 1991, the Company issued $55.0 million principal amount of
Debentures to European investors. During the past two fiscal years the Company
has prepaid without penalty $32.9 million in principal amount of Debentures, at
a cost of approximately $17.8 million (plus accrued interest), leaving the
outstanding principal balance of Debentures at $22.1 million on December 31,
1996, and resulting in a gain on early extinguishment of debt of $7.4 million.
The Debentures, which mature September 19, 1997, are subordinated to any current
or future senior debt, and require annual interest payments of 9.5%. A balance
of $175,000 in debt issuance costs remained to be amortized as of
December 31, 1996.
On October 22, 1996, the Company initiated an Exchange Offer to exchange shares
of common and preferred stock for any or all outstanding Debentures, where such
Debentures so exchanged would include any and all interest which may be due (see
Note 1 above). The terms of the Exchange Offer include 200 shares of common
stock and 8 shares of preferred stock (with such preferred having a stated value
of $100 per share) for each $1,000 in face value of Debentures validly tendered
for exchange, all in accordance with the terms of and subject to the conditions
of, the Exchange Offer. As stated in the Exchange Offer as supplemented, any
Debentures so tendered to the Company for exchange will not be accepted for
exchange until and unless the involuntary bankruptcy petition filed against the
Company (see Note 4 below) is dismissed.
9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(unaudited)
(4) Involuntary Bankruptcy Petition
The Company is a putative debtor in an Involuntary Chapter 11 case pending
in the United States Bankruptcy Court for the District of New Mexico
(No. 11-96-14835 MA Involuntary) commenced upon the filing of a creditors'
petition by four holders of the Company's Debentures alleging that the
Company is not generally paying its debts as they become due. The Company has
filed an answer to the creditors' petition denying that it is a proper subject
of a bankruptcy proceeding. Trial on the creditors' petition is scheduled for
March 4, 1997.
On January 31, 1997, the Company and the petitioning creditors entered into an
Agreed Order Limiting Operations which resolved all issues which had been raised
by the petitioning creditors in connection with their having obtained a
temporary restraining order against the Company in connection with a transaction
involving the acquisition of an interest in International Thoroughbred Breeders,
Inc. Additionally, the Company has been advised that the petitioning creditors
have accepted an offer from a third party to purchase the Debentures from the
petitioning creditors, which the Company believes will lead to the dismissal of
the involuntary bankruptcy case.
(5) Discontinued Operation
In connection with the Settlement (see Note 2 above), the Company's former
subsidiary, AutoLend IAP, Inc., was sold, effective September 18, to an
affiliate of departing management. The Company received full, undiscounted
payment in cash for all IAP receivables outstanding, and also received cash
payment for the book value of equipment and fixtures utilized in the business.
In addition, the Company received shares of IAP's preferred stock, with a face
value of $1 million. If this face value is not repaid to the Company in full at
the end of three years, the Company may take control of IAP.
As a result of the sale of IAP, the past results of operations of IAP have been
treated as a discontinued operation in the accompanying financial statements.
Summarized results of IAP included in the accompanying financial statements are
as follows:
Three Month Period Ended Nine Month Period Ended
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Revenue $ -- $ 68,610 $ 825,706 $124,916
Net income (loss) (117,305) (23,674) (231,778) (68,995)
Income (loss) per
common share (0.02) (0.01) (0.05) (0.02)
10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(unaudited)
(6) 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 nine month periods ended
December 31, 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 collectability 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.
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 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 December 31, 1996.
11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
(unaudited)
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.
12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations: Nine month periods ended December 31, 1996 and 1995.
Revenues from installment contracts receivable (consumer used-car loans) were
$1.4 million during the nine months ended December 31, 1996, which represents a
$5.6 million decrease compared to the $7.0 million realized during the nine
months ended December 31, 1995. This decrease resulted from the reduced size of
the Company's portfolio of such loans; the Company ceased purchasing these loans
in December 1995. The principal repayment portion of the collections on this
portfolio is not recorded as revenues. The substantial cost to collect these
loans is not reflected in gross revenue, but as general and administrative
expenses. Future revenues from this portfolio will, in general, decline from
their present level of $300,000 per quarter.
Net viatical revenues were $487,000 during the nine months ended December 31,
1996, which represents a decrease of $647,000 compared to $1,134,000 realized
during the nine months ended December 31, 1995. Net viatical revenues are
determined by subtracting the policy cost from the relevant face value after a
policy "matures" (becomes payable by the insurance company). 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 thus net
viatical revenues) resulted from the reduced size of the Company's portfolio of
such loans. The Company generally ceased purchasing such policies after
September 1994, and, in May and July 1995, sold the majority of the Company's
portfolio for approximately $17.5 million to Viaticus, Inc. (which represented a
total of 225 policies). Future net revenues from this remaining portfolio of
approximately twenty policies will be irregular, depending upon the timing of
mortality of the insured.
General and administrative expenses were $3.7 million during the nine months
ended December 31, 1996, which represents a decrease of $4.0 million compared to
the $7.7 million expended during the nine months ended December 31, 1995. This
decrease resulted primarily from the effect of the Company's downsizing,
commencing December 1995. The substantial cost of administering and collecting
on the portfolio of consumer car loans is included in general and administrative
expenses; such costs were incurred internally in the prior-year period, and then
a large portion of the collection efforts was subcontracted in approximately
January 1996.
Provision for credit losses in connection with the portfolio of installment
contracts receivable were $3.0 million for the nine months ended December 31,
which represents a decrease of $6.4 million compared to the $9.4 million
provided in the nine months ended December 31, 1995. This decrease was primarily
the result of the shrinking size of the total portfolio outstanding.
Certain fixed assets and certain financial assets have been written-down to
estimated net realizable value. The result of this valuation are charges to
income of $659,000 and $398,000, respectively, for the nine months ended
December 31, 1996. The Company has remaining lease obligations on a 17,000
square-foot building in Miami Beach from which it moved in February
13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- (Continued)
1996, and has, accordingly, recorded a lease termination charge of $196,000
during the nine months ended December 31, 1996.
In connection with the sale of the viatical portfolio to Viaticus, Inc., the
Company recognized a net loss on sale in the prior period of $281,000 (net of a
write-off of intangible assets and goodwill of $1.8 million).
The net effect of all of the above resulted in a net loss before income taxes
and other factors (discontinued operations from the sale of IAP, extraordinary
item relating to the gain on the early extinguishment of Debentures, and the
cumulative effect of a prior change in accounting method) of $7.4 million in the
nine months ended December 31, 1996, which was an improvement of $4.8 million
over the nine month period ended December 31, 1995 (which recorded a net loss of
$12.1 million).
In conjunction with the finalization of the Settlement, the Company recorded a
net gain on the sale of IAP. In conjunction with the sale, the Company received
securities valued at $1,000,000. For financial reporting purposes, the charge
incurred in settling outgoing management's employment contracts has been
combined so as to be netted together with the gain on the sale of IAP. The
Company's obligations under such employment contracts were determined to be
$502,000. The total combined net result of the sale of discontinued operations
is then reported as a net gain of $485,000 during the nine months ended
December 31, 1996.
Net loss before income taxes, discontinued operations, extraordinary item
and cumulative effect of change in accounting method was $12.1 million in the
nine month period ended December 31, 1995, which was offset by $12.3 million
from the combined effects of taxes, discontinued operations, extraordinary item
and change in accounting method, resulting in a net income of $240,000. In
comparison, for the nine month period ending December 31, 1996, the combined
effects of taxes, discontinued operations, extraordinary item, and cumulative
effect of change in accounting method resulted in an offset of only $0.3
million, so the net loss of $7.4 million before these offsets was only reduced
to a final net loss of $7.1 million.
Three month periods ended December 31, 1996 and 1995
Revenues from installment contracts receivable were $307,000 during the three
months ended December 31, 1996, which represents a decrease of $2.2 million
compared to revenues of $2.5 million for the three months ended December 31,
1995. The decrease is due to the reduced size of the installment contract
receivables portfolio.
Net viatical revenues were $350,000 during the three months ended December 31,
1996, which represents a increase of $168,000 compared to the $182,000 at
December 31, 1995.
14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- (Continued)
General and administrative expense were $717,000 during the three months ended
December 31, 1996, which represents a decrease of $1.8 million as compared to
the $2.5 million expended during the three months ended September 30, 1995. The
decrease resulted both from the effect of the Company's change in management
(and move to Albuquerque), and the restructuring during December 1995.
Provisions for credit losses in connection with the portfolio of installment
contracts receivable were $63,000 for the three months ended December 31, 1996,
which represents a decrease of $3.6 million, as compared to $3.7 million
provided in the three months ended December 31, 1995. This decrease was
primarily the result of the shrinking size of the total portfolio.
Other expense (net of other income) decreased by $335,000, from $652,000 during
the three months ended December 31, 1995, to $317,000 during the three months
ended December 31, 1996.
Net loss before tax and other factors (i.e., discontinued operations, gain on
early extinguishment of debt, etc.) for the three months ended December 31, 1996
was $441,000 or $0.10 per share, as compared to a net loss before tax and "other
factors" of $4.3 million or $0.91 per share for the same period of 1995. Net
loss after tax and the other factors described above for the three months ended
December 31, 1996 was $558,000 or $0.12 per share, as compared to net income
after tax and other factors for the three months ended December 31, 1995 of
$654,000, or $0.14 per share.
Three month period ended December 31, 1996, compared to the three month periods
ended September 30, 1996, and June 30, 1996.
The quarter ended December 31, 1996 is the first fiscal quarter under the
control of the new management team, which assumed management of the Company
effective September 18, 1996. Because of this change, a supplemental discussion
of the initial results of new management and a (supplemental) comparative
quarterly income statement as compared to the preceding two fiscal quarters has
also been provided.
Total net revenues for the quarter ended December 31, 1996 were not
dramatically different than for the quarters ended September 30, 1996 and June
30, 1996: $657,000, versus $482,000 for the September 30, 1996 quarter and
$617,000 for the June 30, 1996 quarter. However, this slight increase in
revenues was primarily a result of the impact in the most recent quarter of a
single viatical settlement of $350,000. More significantly, the "core" car-loan
portfolio has shown a fairly consistent quarterly revenue decline, a direct
and continuing result of the "wind-down" of the portfolio, as car-loan revenues
were $785,000 for the March 31, 1996 quarter, $617,000 for the June 30, 1996
quarter, $431,000 for the September 30, 1996, and $307,000 for the December 31,
1996 quarter.
15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- (Continued)
General and administrative expenses for the December 31, 1996 quarter showed a
marked decrease from prior fiscal quarters: $717,000, compared to $1.3 million
for the September 30, 1996 quarter, and $1.6 million for the June 30, 1996
quarter. This is directly a result of the change in management, and the move of
corporate headquarters to Albuquerque. The $717,000 of general and
administrative expense includes noncash amortization and depreciation of
$102,000, payments to external lawyers and accountants (largely due to the
Involuntary Petition; see Note 4) of $140,000, and direct, external
loan-collection costs of $266,000. Typical in-house overhead expense, such as
salaries, has been significantly reduced.
Provision for credit losses for the December 31, 1996 quarter was $63,000, as
compared to $1.0 million for the September 30, 1996 quarter, and $1.9 million
for the June 30, 1996 quarter. As the car-loan portfolio winds-down, management
anticipates at this time that provisions will not be nearly as significant as
they have been in the past.
As a net result of the all the foregoing items, the Company's operating loss has
been reduced to $123,000 for the quarter, as compared to an operating loss of
$1.9 million for the September 30, 1996 quarter, and a loss of $2.9 million for
the June 30, 1996 quarter.
The quarter's "EBITDA" (Earnings Before Interest expense, Taxes, Depreciation
& Amortization) before discontinued operations is a gain of $198,000, versus an
EBITDA (before discontinued operations) loss of $2.4 million for the
September 30, 1996 quarter, and likewise an EBITDA loss of $3.2 million for the
June 30, 1996 quarter.
Total (nonoperating) other expense (net of other income) was also greatly
reduced for the recent quarter, to $317,000, compared to $1.2 million for the
September 30, 1996 quarter, and $1.0 million for the June 30, 1996 quarter. This
expense category is primarily driven by accrued Debenture interest expense (with
some offset from interest income), and any asset write-offs or write-downs. The
improvement is primarily due to the prior-period write-offs made to reflect the
decreased value of some of the Company's assets. This category was also helped
to some degree by the increased interest income received since the increase in
the Company's cash due to the sale of IAP.
Thus the total loss before discontinued operations was $441,000, compared to a
loss of $3.0 million for the September 30, 1996 quarter, and a loss of $3.9
million for the June 30, 1996 quarter.
The final category in the quarterly comparison is the impact of discontinued
operations. The precise value of all the IAP financial assets was not known by
current management at the close of the September 30th quarter. These items have
now been clarified, resulting in a charge of $117,000 for the quarter ended
December 31, 1996. On a comparative basis, the prior quarter showed a net gain
in this category, as the gain from the sale of the subsidiary was larger than
the operating losses incurred by the subsidiary. Management does not anticipate
any further IAP charges.
16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- (Continued)
The final, total net loss was $558,000, as compared to losses of $2.7 million
for the September 30, 1996 quarter, and $3.8 million for the June 30, 1996
quarter.
Liquidity and Capital Resources
The Company's immediate viability as a going concern is dependent upon the
restructuring of its obligations, and, ultimately, a return to profitability.
See Notes 1, 3 and 4 to Consolidated Financial Statements. At December 31, 1996,
the Company had cash and cash equivalents of approximately $10.6 million, which
represents a significant increase during the nine-month period, and includes an
increase of approximately $200,000 during the quarter ended December 31, 1996.
The Company believes it has sufficient funds to finance currently contemplated
operations for at least the next 6 months, but would require additional funds to
finance the repayment of the Debentures to the extent not exchanged in the
Exchange Offer.
There was positive cash flow from operations of $1.3 million for the nine months
ended December 31, 1996. These cash flows were primarily derived from the
administration and on-going liquidation and payout of the installment contracts
receivable portfolio of consumer car loans. This compares to cash flow from
operations reported for the nine months ended December 31, 1995 of $11.2
million. This prior period reporting included $18.4 million from the sale of the
viatical portfolio during that period; the net operating effect before this
infusion of cash was a deficit of approximately $7.2 million for the nine months
ended December 31, 1995. The relative improvement of the present period against
this deficit is primarily due to the halting of further use of the Company's
funds for investment in both the consumer car loan portfolio and the IAP dealer
loan portfolio.
The Company's portfolio of unmatured viatical insurance policies totaled twenty
policies at December 31, 1996, having a combined face value of approximately
$2.1 million, which policies had a net book value at December 31st of
approximately $1.0 million. The Company generally ceased purchasing new policies
beginning in September 1994.
The portfolio of installment contracts receivable of $6.0 million at December
31, 1996 (excluding such contracts with respect to which there has been a
repossession of the underlying collateral, or a charge-off, or the creation of a
reserve) consisted of approximately 1,212 active used-car loans, of which
approximately two-thirds (on a dollar-weighted basis) are thirty days or more
past due. The Company commenced its purchases of these contracts in May 1994,
and ceased purchases on December 22, 1995.
The Company had positive cash flows from "investing activities" of $6.1 million
during the nine month ended December 31, 1996, due to the finalization of the
Settlement, including the disposition of IAP. This resulted in the conversion of
the IAP loan receivables portfolio of approximately $5.9 million into cash.
The nine month period ended December 31, 1995 had "positive cash
17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations -- (Continued)
flows from investing activities" as securities held for resale (i.e., cash
invested for higher yields) of $9.0 million were converted into immediately
available cash.
There were no cash flows from financing activities during the nine months ended
December 31, 1996, as compared with a cash flow deficit from financing
activities of $15.8 million for the nine months ended December 31, 1995, which
resulted from the use of the Company's cash (and invested equivalents) for the
early extinguishment of certain of the Company's Debentures.
In summary, the Company increased its cash and cash equivalents by $7.5 million
during the nine months ended December 31, 1996, to a total of $10.6 million.
This increase was largely due to the sale of IAP (and the resulting full
conversion of the IAP receivables to cash), and was also influenced by the
collections on the consumer car loan portfolio (which collections were offset to
a degree by operating expenses). In comparison, for the nine months ending
December 31, 1995 there was a $4.3 million increase in cash and equivalents, to
a total of $5.6 million. However, this increase was primarily generated by the
sale of the viatical portfolio for $18.4 million, which was substantially offset
by the usage of $15.8 million in the Debenture buy-back.
The Company's primary source of capital has 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 Debentures which resulted in net proceeds of $51.4 million. As a result
of prior year prepayments without penalty, the outstanding principal balance of
Debentures was $22.1 million at December 31, 1996. No additional amounts were
prepaid during the nine months ended December 31, 1996. Annual interest payments
were made in accordance with the terms of the Indenture in September 1992, 1993,
1994 and 1995, but the September 1996 payments were not paid due to the Exchange
Offer.
18
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a putative debtor in an Involuntary Chapter 11 case pending in
the United States Bankruptcy Court for the District of New Mexico
(No. 11-96-14835 MA Involuntary) commenced upon the filing of a creditor's
petition by four holders of the Company's Debentures alleging that the
Company is not generally paying its debts as they become due. The Company has
filed an answer to the creditors' petition denying that it is a proper subject
of a bankruptcy proceeding. Trial on the creditors' petition is scheduled for
March 4, 1997.
On January 31, 1997, the Company and the petitioning creditors entered into an
Agreed Order Limiting Operations which resolved all issues which had been raised
by the petitioning creditors in connection with their having obtained a
temporary restraining order against the Company in connection with a transaction
involving the acquisition of an interest in International Thoroughbred Breeders,
Inc. Additionally, the Company has been advised that the petitioning creditors
have accepted an offer from a third party to purchase the Debentures from the
petitioning creditors which the Company believes will lead to the dismissal of
the involuntary bankruptcy case.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
On September 19, 1996 the Company was obligated to make an interest payment of
approximately $2.1 million on the remaining $22.1 million principal amount
outstanding of Debentures. Although the Company currently has sufficient
liquidity to meet its September 1996 interest obligations under the Debentures,
and other obligations in general, the Company does not presently have such
liquidity to repay the $22 million principal outstanding under the Debentures as
such becomes due in September 1997. On October 22, 1996, the Company initiated
an Exchange Offer to exchange shares on common and preferred stock for any or
all outstanding Debentures, including the interest due September 19, 1996.
Consequently, the Company did not make its standard September 19, 1996 $2.1
million interest payment.
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) Exhibits.
None.
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.
(Registrant)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Nunzio P. DeSantis Chairman of the Board, February 19, 1997
- ---------------------- Chief Executive Officer
Nunzio P. DeSantis
/s/ Jeffrey Ovington Chief Accounting Officer February 19, 1997
- -----------------------
Jeffrey Ovington
20
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