<PAGE>
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UNITED STATES
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, 1998
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 its charter)
Delaware 22-3137244
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
600 Central SW, Third Floor, Albuquerque, New Mexico 87102
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(505) 247-9429
--------------
(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
--- ---
The number of shares outstanding of the Registrant's common stock was 6,079,530
at August 11, 1998.
Applicable only to Registrants involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court. Yes X No
--- ---
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<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements..................................................4
Consolidated Balance Sheets as of June 30, 1998, and March 31, 1998........4
Consolidated Statements of Operations for the three-month periods
ended June 30, 1998, and 1997............................................5
Consolidated Statements of Cash Flows for the three-month periods ended
June 30, 1998, and 1997..................................................6
Notes to Consolidated Financial Statements.................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................20
Item 3. Quantitative and Qualitative Disclosure about Market Risk............22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................23
Item 2. Changes in Securities and Use of Proceeds............................23
Item 3. Defaults Upon Senior Securities......................................24
Item 4. Submission of Matters to a Vote of Security Holders..................24
Item 5. Other Information....................................................24
Item 6. Exhibits and Reports on Form 8-K.....................................24
SIGNATURES...................................................................25
2
<PAGE>
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not historical
facts; they involve risks and uncertainties that could cause the Company's
results to differ materially from those in the forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of the Company's business include significant risk
factors inherent in the consummation of any plan in a Chapter 11 bankruptcy
case, e.g., the risk of liquidating assets at less than their projected value
and claims being allowed in an amount different from the amounts projected by
the Company; the consummation of certain pending settlements of litigation
affecting interests of the Company; the perceived difficulties from the
Company's bankruptcy which could adversely affect its existing and proposed
operations and other difficulties relating to its Chapter 11 bankruptcy; and the
risks relating to the operation of a gaming business, which forms a significant
part of the Company's Plan of Reorganization. From time to time, AutoLend Group,
Inc., may publish or otherwise make available forward-looking statements. All
subsequent forward-looking statements, whether written or oral and whether made
by or on behalf of the Company, are also expressly qualified by these cautionary
statements.
3
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 31, 1998
-------------- --------------
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 859,885 $ 769,736
Prepaid expenses 67,041 167,381
Installment contracts receivable $ 319,296 $ 461,592
Collateral owned-gross 26,236 22,286
Allowance for credit losses (169,389) (187,669)
-------------- --------------
Installment contracts receivable-net $ 176,143 $ 296,209
ITB Option, less allowance of $200,000 at June 30, 1998, and March 31, 1998 425,000 425,000
Escrow deposit 2,000,000 2,000,000
Interest on escrow deposit 87,060 62,060
Note receivable - NPD, Inc. 3,035,292 3,035,292
Interest receivable on note receivable - NPD, Inc. 295,098 219,215
Purchased insurance policies at estimated market value; face value of $1,879,420
at June 30, 1998 and March 31, 1998 329,193 329,193
Securities in IAP, less allowance of $25,000 at June 30, 1998, and
$390,000 at March 31, 1998 615,000 250,000
Fixed assets, less accumulated depreciation of $67,422 at June 30, 1998,
and $68,614 at March 31, 1998 29,718 39,611
Other 46,170 46,011
-------------- --------------
Total assets $ 7,965,600 $ 7,639,708
============== ==============
LIABILITIES:
Liabilities subject to compromise:
Accounts payable $ 91,048 $ 55,276
Accrued interest expense on debentures (pre-petition) 1,372,819 1,372,819
Convertible subordinated debentures at face value 7,225,000 7,225,000
Allowance for estimated legal fees and settlement costs 1,434,944 1,434,944
-------------- --------------
Total liabilities subject to compromise 10,123,811 10,088,039
-------------- --------------
Liabilities not subject to compromise:
Accounts payable 230,247 95,135
Accrued liabilities 131,495 79,674
Accrued interest expense on debentures (post-petition) 535,754 364,160
Note payable - NPD, Inc. 425,000 425,000
Accrued interest - NPD, Inc. 36,292 25,667
-------------- --------------
Total liabilities not subject to compromise 1,358,788 989,636
-------------- --------------
Total liabilities $ 11,482,599 $ 11,077,675
-------------- --------------
STOCKHOLDERS' DEFICIT:
Preferred stock, $.002 par value. Authorized 5,000,000 shares;
57,800 issued and outstanding at June 30, 1998, and March 31, 1998 $ 116 $ 116
Common stock, $.002 par value. Authorized 40,000,000 shares;
issued 6,079,530 shares at June 30, 1998, and March 31, 1998 12,158 12,158
Additional paid-in capital 20,459,946 20,459,946
Unrealized holding loss (225,000) (590,000)
Accumulated deficit (23,764,219) (23,320,187)
-------------- --------------
Total stockholders' deficit $ (3,516,999) $ (3,437,967)
-------------- --------------
Total liabilities and stockholders' deficit $ 7,965,600 $ 7,639,708
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements.
4
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Finance charges on installment contracts $ 42,305 $ 216,613
Revenues from matured insurance policies 5,000 --
----------- -----------
Gross revenues 47,305 216,613
Cost of matured insurance policies -- --
----------- -----------
Total net revenues $ 47,305 $ 216,613
General and administrative expenses (385,501) (548,264)
Provision for credit gains (losses), net of recoveries 102,000 --
----------- -----------
Operating loss $ (236,196) $ (331,651)
----------- -----------
Other income/(expense):
Interest income on cash and cash equivalents $ 30,212 $ 117,133
NPD, Inc., note receivable interest income accrued 75,882 --
Debentures interest expense accrued (171,594) (350,908)
NPD, Inc., note payable interest expense accrued (10,625) --
Other interest expense -- (13,541)
Write-off of fixed assets (4,570) --
Debenture conversion charge -- (6,261,051)
----------- -----------
Total net other income/(expense) $ (80,695) $(6,508,367)
----------- -----------
Loss before reorganization costs and extraordinary item (316,891) (6,840,018)
Reorganization costs incurred after Chapter 11 proceedings (127,144) --
----------- -----------
Loss before extraordinary item $ (444,035) $(6,840,018)
Extraordinary item:
Gain on early extinguishment of debt -- 931,248
----------- -----------
Net loss $ (444,035) $(5,908,770)
=========== ===========
Per Share:
Operating loss $ (0.04) $ (0.06)
Total net other income/(expense) (0.01) (1.10)
----------- -----------
Loss before reorganization costs and extraordinary item $ (0.05) $ (1.16)
Reorganization costs incurred after Chapter 11 proceedings (0.02) --
----------- -----------
Loss before extraordinary item $ (0.07) $ (1.16)
Extraordinary item:
Gain on early extinguishment of debt -- 0.16
----------- -----------
Net loss $ (0.07) $ (1.00)
=========== ===========
Weighted average number of common and common equivalent shares outstanding 6,079,530 5,928,761
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements.
5
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (444,035) $ (5,908,770)
Adjustments to reconcile net loss to net cash flow from operating activities
Amortization of intangible assets and debt issuance costs -- 37,357
Depreciation expense 5,323 6,075
Gain on early extinguishment of debt, net of amortization -- (931,248)
Charge for debenture conversion, net of amortization -- 6,261,052
Provision for credit losses, net of recoveries (102,000) --
Write-off of fixed assets 4,570 --
Changes in assets and liabilities:
Prepaid expenses 100,340 --
Installment contracts receivable 222,066 768,106
Interest on escrow deposit (25,000) --
Interest receivable on note receivable - NPD, Inc. (75,882) --
Other assets (157) 65,797
Accounts payable and accrued liabilities 222,705 (1,121,961)
Accrued interest expense 182,219 350,900
------------ ------------
Cash provided (used) by operating activities $ 90,149 $ (472,692)
------------ ------------
Cash flow from investing activities:
Funding of escrow $ -- $ (2,000,000)
------------ ------------
Cash provided (used) by investing activities $ -- $ (2,000,000)
------------ ------------
Cash flow from financing activities:
Early extinguishment of debt $ -- $ (742,079)
------------ ------------
Cash provided (used) in financing activities -- (742,079)
------------ ------------
Net increase (decrease) in cash and cash equivalents $ 90,149 $ (3,214,771)
Cash and cash equivalents at beginning of period 769,736 12,399,932
------------ ------------
Cash and cash equivalents at end of period $ 859,885 $ 9,185,161
============ ============
</TABLE>
See accompanying notes to consolidated financial statements, which are an
integral part of these financial statements.
6
<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 consolidated financial statements of AutoLend
Group, Inc., and its wholly owned subsidiaries (collectively, the "Company" or
"AutoLend") have been prepared in accordance with generally accepted
accounting principles for interim financial information in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the
information included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1998. The 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, 1998. The information furnished, in the
opinion of management, reflects all adjustments (consisting of normal
recurring accruals, except for the adjustment to securities as discussed in
Note 10 below) considered necessary to present fairly the results of
operations of the Company for the three-month period ended June 30, 1998. The
operating results for the three months ended June 30, 1998, are not
necessarily indicative of results which may be expected for the year ending
March 31, 1999.
The financial statements have also been presented in conformity with the
American Institute of Certified Public Accountants' Statement of Position 90-
7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy
Code," issued November 19, 1990 ("SOP 90-7"). The statement requires a
segregation of liabilities subject to compromise by the Bankruptcy Court as of
the bankruptcy filing date (September 22, 1997) and identification of all
transactions and events that are directly associated with the reorganization
of the Company. The Statement does not require that comparative balances be
reclassified to conform to current year balances stated under SOP 90-7. As
such, prior year's balances are not reclassified.
The Company's unaudited consolidated financial statements include the accounts
of AutoLend Group, Inc., and its wholly owned subsidiaries, AutoLend
Corporation, LB NM, Inc., and American Life Resources Group, Inc. No petition
under the United States Bankruptcy Code has been filed for the subsidiaries.
(b) RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which requires that all components of
comprehensive income and total comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income, or a statement of stockholders' equity. Comprehensive
income is comprised of net income and all changes to stockholders'
7
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
equity, except those due to investments by owners (changes in paid in capital)
and distributions to owners (dividends). Comparative information for earlier
years has been restated (see Note 11).
The Company adopted Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosure of the pertinent rights and privileges
of various securities outstanding (stock options, warrants, preferred stock,
debt and participation rights), including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices and
redemption requirements. Adoption of SFAS 129 has no effect on the Company as it
currently discloses the information specified.
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise ("SFAS 131"). SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Adoption of SFAS 129 has no effect on the Company's current
disclosures.
(c) GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business. As
a result of the Company's inability to make repayment on, and resultant default
against, its outstanding 9.5 % Convertible Subordinated Debentures (the
"Debentures") (see Notes 2 and 7 below), the Company filed for reorganization on
September 22, 1997 (the "Voluntary Bankruptcy Proceeding") under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Mexico (the "Bankruptcy Court"). The Company is presently
operating its business as a debtor-in-possession under Chapter 11 and is subject
to the jurisdiction and supervision of the Bankruptcy Court. Under Chapter 11,
certain claims against the Company in existence before the filing of the
petition for relief under the federal bankruptcy laws are stayed while the
Company continues business operations as debtor-in-possession.
8
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company maintains a residual portfolio of sub-prime consumer used-car loans
("Installment Contracts Receivable") through its wholly owned subsidiary,
AutoLend Corporation. The Company commenced purchasing these loans in May 1994,
and while under prior management, ceased purchasing them in December 1995. Loan
loss provisions for this business from its inception through March 1997 totaled
$13.9 million (which amount does not include salaries, rent, and other operating
expenses associated with the car loan business). The results of this business
were the primary reasons the Company developed a negative net equity, which
precluded the Company from being able to generate the necessary cash flow to
service its debt obligations (under the terms of the Debentures), which in turn
forced the Company to file for bankruptcy.
The Company's two other wholly owned subsidiaries, LB NM, Inc., and American
Life Resources Group, Inc., maintain a residual portfolio of life insurance
policies purchased from persons with life-threatening illnesses, a business
generically referred to as viatical settlements (the "Policies"). The Company
ceased purchasing Policies in September 1994 and does not intend to recommence
those activities.
AutoLend IAP, Inc., a former wholly owned subsidiary ("IAP"), provided
short-term financing to selected used-car dealers for purchases of used
automobiles at certain regional auctions in the United States. IAP was started
in March 1995 and was unprofitable. On September 18, 1996, the Company sold IAP.
Because the Company's liabilities have exceeded its assets since March 1996, and
the Company has been in the Voluntary Bankruptcy Proceeding since September
1997, there is substantial doubt about the Company's ability to continue as a
going concern. The Company's viability as a going concern depends upon the
restructuring of its obligations and, ultimately, the attainment of
profitability. The Company has filed a Plan of Reorganization (the "Plan of
Reorganization") and a Disclosure Statement (the " Disclosure Statement," and
together with the Plan of Reorganization, the "Plan"), that contain the
Company's proposal for resolving the bankruptcy (see Notes 2 and 3 below). A
hearing on the Disclosure Statement is scheduled for August 17, 1998, and the
Company expects the reorganization process to take at least three months beyond
that date. Although the Company intends to reorganize and emerge from Chapter
11, it cannot assure that it will be able to do so. If the Company is prevented
from emerging from Chapter 11, it would most likely be liquidated, which would
result in the elimination of its common stock, $.002 par value per share (the
"Common Stock") and 14% cumulative convertible preferred stock, $.002 par value
per share (the "Preferred Stock") and its Class A and B Warrants, and payments
to creditors for amounts less than their claims. Management believes that
payments to creditors under such a liquidation scenario would likely be less
than that as proposed under the Plan.
9
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2) VOLUNTARY BANKRUPTCY REORGANIZATION FILING
At the end of March 1994, the Company's net equity was a positive $2.7 million.
Shortly thereafter, the Company's prior management launched the sub-prime
consumer car loan business. By December 1995, net equity was down to $0.7
million, and cumulative losses (since March 1994) before the impact of the
redemption of Debentures totaled $12.l million. In late December 1995, Nunzio
DeSantis, the Company's then-largest stockholder, commenced legal actions
against the then-current management. This resulted in a Stipulation of
Settlement that was approved, after due notice, by the Delaware Chancery Court,
and installed new management for the Company effective mid-September 1996.
However, by about this time, net equity had already deteriorated to a negative
$6.9 million. In the first six months after new management took control,
additional car-loan loss expenses and asset write-downs were made against the
former operations of the Company, further deteriorating net equity, which
reached a low point of a negative $11.9 million in March 1997.
New management took immediate and substantive steps to turn the Company around,
including the Debenture Exchange Offer (see Note 7 below), the repurchase of
some Debentures at a discount, the pursuit of a new business (see Note 4 below),
and the cutting of overhead costs (which were reduced by 43% in new management's
first year, resulting in reductions of approximately $3.3 million in general and
administrative expenses for the twelve months ended September 1997, as compared
to the prior twelve months). These efforts resulted in the reduction of the net
equity deficit to below a negative $3 million (which was an improvement of over
$9 million from the low point), but the improvements were nonetheless not enough
in the twelve months that new management had between taking control in September
1996 and the Debenture repayment due date of September 1997.
On September 19, 1997, the entire principal balance (plus all accrued interest)
of the Debentures became due and payable, requiring a cash disbursement on that
date of approximately $8.6 million, which was far in excess of the Company's
capabilities. Therefore, on September 22, 1997, the Company filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
Bankruptcy Court. Thus, in addition to its normal SEC reporting requirements,
the Company also files required reports and disclosures with the Bankruptcy
Court, including a monthly operating statement. Also see Note 1 above.
(3) REORGANIZATION PLAN REGARDING FUTURE BUSINESS
In conjunction with the Voluntary Bankruptcy Proceeding, the Company filed
effective January 16, 1998, a Plan of Reorganization with the Bankruptcy Court
proposing its plans for resolving the bankruptcy. In conjunction with the Plan
of Reorganization, the Company has also filed a
10
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
detailed Disclosure Statement outlining its plans for new business. The Plan has
been amended and expanded in response to input from external parties in the
bankruptcy process.
The success of the Plan is highly dependent on the Company's acquisition of a
new business (which consists primarily of acquiring and operating gaming devices
and machines for certain non-profit organizations in New Mexico), and the
resolution of the ITB/NPD transactions (see Notes 4, 5, and 6 below). The Plan
will be distributed to the Company's creditors before balloting and a hearing to
confirm the Plan of Reorganization, and will need approval of the Bankruptcy
Court. A hearing on the Disclosure Statement is scheduled for August 17, 1998.
The Company expects that the process will take at least three months thereafter.
(4) THE PURSUIT OF A CONTROLLING INTEREST IN ITB
In connection with the pursuit of a new business, shortly after new management
assumed control (see Note 2 above), the Company entered into negotiations in
October 1996 to directly purchase an approximately 25% equity interest (the "ITB
Shares") in International Thoroughbred Breeders, Inc. ("ITB"), in a private sale
from ITB's former chairman, Robert E. Brennan ("Brennan"). ITB is listed on the
American Stock Exchange. It owns and operates Garden State Park and Freehold
Raceway in New Jersey, and owns the former El Rancho Casino property in Las
Vegas, Nevada (also see Note 5 below). ITB is much larger than the Company, and
has a net equity of approximately $70 million, annual revenues of approximately
$68 million, and approximately 500 employees (according to ITB's most recent
Form 10-Q and Form 10-K).
However, because of the involuntary bankruptcy petition filed against the
Company, which was dismissed effective April 7, 1997 (the "Involuntary
Petition"), the Company was prevented from consummating the purchase. As an
alternative to the direct acquisition of the ITB Shares, Nunzio DeSantis (the
Company's Chairman and Chief Executive Officer) and Anthony Coelho (a Director
of the Company) formed NPD, Inc. ("NPD") to purchase the ITB Shares. In
connection with its purchase, which was effective January 15, 1997, NPD was
granted the right to appoint a majority of the Directors of the Board of ITB.
Concurrently with its formation, NPD had agreed to grant the Company the right
to later purchase the ITB Shares from NPD at the same price NPD had agreed to
pay for the ITB Shares. As consideration, the Company agreed to make a loan to
NPD to finance a portion of the cash purchase price to be paid by NPD to
Brennan's bankruptcy estate at closing. The Company further agreed that,
following the dismissal of the Involuntary Petition, it would guarantee up to
$2.0 million of NPD's obligation to pay the remaining portion of the purchase
price due Brennan's bankruptcy estate for the ITB Shares and to effectuate this,
would deposit $2.0 million into a cash collateral escrow account (the "Escrow
Deposit") to secure NPD's obligation. However, the Bankruptcy Court before which
the Involuntary Petition was pending enjoined the
11
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
making of the agreed-upon loan by the Company to NPD and, as a result, the right
was not granted to the Company. Nonetheless, following the dismissal of the
Involuntary Petition, and in accordance with its agreement, the Company executed
and delivered its guarantee as aforesaid, and made the Escrow Deposit. At June
30, 1998, the funds held in the Escrow Deposit by a third party were invested in
U.S. Treasury obligations.
On July 10, 1997, a loan of $3.0 million was made to NPD (the "NPD Loan"). The
NPD Loan accrues interest at 10% per annum, and is payable in full, together
with all accrued interest, on July 9, 1999. The NPD Loan is secured by a pledge
by NPD of the ITB Shares owned by it, subject to a prior lien and pledge by NPD
to Brennan's estate of the ITB Shares as security for NPD's obligation to pay
the balance of the purchase price due for the ITB Shares. NPD used the proceeds
of the NPD Loan to repay an earlier loan made by an unaffiliated third party,
which repayment resulted in the cancellation of an option which NPD had
previously granted to the unaffiliated third party to purchase the ITB Shares.
(5) THE ITB OPTION
As a result of the Involuntary Petition filed against the Company, the Company
was prevented from entering into a negotiated agreement which would have enabled
it to purchase the ITB Shares; consequently, NPD was formed and consummated the
purchase of the ITB Shares (see Note 4 above). After the dismissal of the
Involuntary Petition, in order to reinstate the Company approximately to the
position it would have been in as purchaser of the ITB Shares, in June 1997 the
Company's Board of Directors approved an agreement in principle with NPD to
finally consummate an option purchase.
Thus, in August 1997 the Company purchased from NPD an option to purchase the
ITB Shares held by NPD (the "Option"). The Option granted to the Company is
subject to an option granted by NPD to Mr. DeSantis to purchase 50 percent of
the ITB Shares owned by NPD at the date of exercise. Furthermore, both the
option owned by the Company and the option owned by Mr. DeSantis are subject to
a one- year option previously granted by NPD to an unaffiliated third party in
January 1997. This option gave this person the right to purchase 50 percent of
the ITB Shares owned by NPD at the date of exercise.
The Option held by the Company states that it must purchase all of the ITB
Shares owned by NPD at the date of exercise, which would be from one-fourth of
the ITB Shares originally purchased by NPD at a minimum, to 100 percent of these
shares if no other options are exercised.
12
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company paid $200,000 in cash for the Option at the closing date, and also
executed a note (the "NPD Note Payable") which accrues interest at 10 percent
per annum and is payable in full, including accrued and unpaid interest, on July
9, 1999. The principal amount of the note is $2.3 million, if the Company has
the ability to acquire 100 percent of the ITB Shares, but is reduced
proportionally (including accrued interest from the date of inception) by the
percentage of the ITB Shares unavailable to purchase under the terms of the
Option. Therefore, at June 30, 1998, only one-fourth of the purchase price, and
the corresponding related debt, or $425,000, and one-fourth of the potential
Option right, has been reflected on the Company's balance sheet. However, the
balance of the debt obligation represents a contingent obligation of the Company
if the Company has the ability to acquire all ITB Shares originally held by NPD.
The Option stipulates that it may not be exercised by a company in bankruptcy,
and the Option expires on August 29, 1998. The Option may, however, be extended
at the discretion of NPD. In the event that the Company was able to exercise the
Option, the Company would purchase the ITB Shares from NPD at the same price
paid by NPD, which was $4 per share. However, it is highly unlikely that the
Option would be exercised by the Company unless the "strike price" exceeded $4
per share. ITB common stock has been suspended from trading since October 1997,
and last traded at approximately $3.50 per share. It is unclear if the stock
will resume trading before the expiration of the Option and therefore, establish
a market price.
(6) THE PENDING ITB SETTLEMENT
On June 5, 1998, the Company, as debtor-in-possession, filed an adversary claim
with the Bankruptcy Court against NPD: AutoLend Group Inc. vs. NPD Inc.,
Adversary No. 98-1136M (the "NPD Claim"). The NPD Claim seeks, among other
things, the return to AutoLend of the $2.0 million Escrow Deposit (plus
interest), the immediate repayment to the Company by NPD of the $3.0 million NPD
Loan (plus interest), and the cancellation of the Option and corresponding
cancellation of the Company's obligations under the NPD Note Payable and return
of the $0.2 million cash down payment on the Option.
On July 2, 1998, all the members of ITB's Board of Directors, and various other
parties (including NPD) involved in litigation over ITB, jointly executed and
filed with the Court of Chancery in the State of Delaware (the "Chancery Court")
a Stipulation and Agreement of Compromise, Settlement and Release, C.A. No.
15919, which was entered into subject to the Chancery Court's (and certain other
creditors specified therein) approval (hereinafter, the "Delaware ITB
Agreement"). The Delaware ITB Agreement addresses many issues outside the scope
of the Company's concern; its provisions relevant to the Company include the
return of the $2.0 million Escrow Deposit (plus interest) to the Company, the
exchange of mutual releases, and the purchase by ITB from NPD of the ITB Shares
with a combination of cash and ITB's assumption of NPD's note payable to the
Brennan estate. (According to NPD's financial
13
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
statements obtained in the bankruptcy process, NPD at present has little or no
cash, and its primary asset is the presently untradable block of ITB Shares.
Thus, the receipt of cash by NPD from ITB under the Delaware ITB Agreement would
substantially facilitate the resolution of the NPD Claim). The Delaware ITB
Agreement also provides for additional contingent consideration which may be
received by NPD in connection with the possible sale of ITB's Las Vegas, Nevada,
real estate. The Delaware ITB Agreement is contingent upon approval by various
parties (including the Bankruptcy Court, the Chancery Court, and certain
creditors named in the Delaware ITB Agreement), and further requires the Company
to assume ITB's office lease in Albuquerque (where the Company presently
subleases its offices), and cancels all options relating to the ITB Shares,
including the Option purchased by AutoLend. A hearing on the Delaware ITB
Agreement is set for August 25, 1998.
On July 10, 1998, the Company, as a debtor-in-possession, filed with the
Bankruptcy Court the Debtor's Motion to Approve Compromise (ITB Transaction),
No. 11-97-15499-MA (the "ITB Settlement"). The ITB Settlement provides for,
among other things, the Bankruptcy Court's approval of the Delaware ITB
Agreement and, subject to the final approval of the Delaware ITB Agreement by
all necessary parties (including the Chancery Court), the ITB Settlement
provides for the resolution of the NPD Claim. Specifically, the ITB Settlement
would result in the return of the $2.0 million Escrow Deposit (plus interest) to
the Company, the cancellation of the Option and corresponding Company obligation
under the NPD Note Payable, the prepayment to the Company by NPD of $2.3 million
of the $3.0 million NPD Loan, and the contingent payment to the Company by NPD
of a portion of the additional funds which may be received by NPD (or its
affiliates) in connection with the possible sale of ITB's Las Vegas real estate
(which contingent funds could, in combination with the $2.3 million, exceed the
$3.0 million NPD Loan owed to the Company). The deadline for objections to the
ITB Settlement was August 5, 1998. Two objections to the ITB Settlement were
filed; the Company and its counsel are currently exploring the implications
thereof. Theoretically, when an Objection to a Motion in a bankruptcy proceeding
is filed, then there may be a scheduling conference, a period of discovery, and
then a hearing wherein the Judge would decide if the Motion should be approved.
Alternatively, the debtor may discuss potential compromises with the
objector(s), and if such a compromise were agreed upon, then the (revised)
Motion could be approved.
If the ITB Settlement is approved by the Bankruptcy Court and all remaining
approvals for the Delaware ITB Agreement are received (including approval by the
Chancery Court and certain creditors named in the Delaware ITB Agreement), the
Company will receive $4.3 million plus interest (which is presently anticipated
to be received in cash at the end of September 1998, although no assurance can
be given to that date), and will have its obligation under the NPD Note Payable
canceled, and will have the possibility of receipt of certain additional
contingent consideration. There can be no assurances that such approvals from
the Chancery Court, the Bankruptcy Court, and certain creditors named in the
Delaware ITB Agreement can be obtained.
14
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
If the ITB Settlement and the Delaware ITB Agreement are not approved, the
Company's receipt of comparable amounts of cash cannot be assured, and whatever
cash is ultimately received by the Company would almost certainly take
significantly longer to receive.
(7) DEBENTURES AND EXCHANGE OFFER
Following the substantial losses incurred in the consumer used-car finance
business, and the decision by prior management to terminate that business, and
the Company's deterioration to a position of negative net worth and, finally,
the change in management, the Company's viability as a going concern became
dependent upon the restructuring of its obligations and asset base (and
ultimately, reaching a point of profitability). Since the entire utilization of
the Company's assets would have been insufficient to repay the outstanding
Debentures when they became due, an alternative resolution was sought which
would be mutually acceptable to the Company and the Debenture holders.
Consequently, on October 22, 1996, the Company initiated its offer to exchange
Common Stock and Preferred Stock for its outstanding Debentures (the "Exchange
Offer"). After the dismissal of the Involuntary Petition, on April 8, 1997, the
Exchange Offer expired, and the Company issued an aggregate of 1.4 million
shares of its Common Stock and 57,800 shares of its Preferred Stock in exchange
for $7.2 million principal amount of Debentures. In addition, accrued interest
on the Debentures, totaling $1.1 million, was canceled.
All outstanding principal became due on the remaining Debentures on September
19, 1997; however, this payment was not made (see Notes 1 and 2 above). The
principal balance of the Debentures and interest accrued thereon at June 30,
1998, was $7.2 million and $1.9 million, respectively.
(8) PREFERRED STOCK
In connection with the Exchange Offer (see Note 7 above), effective April 8,
1997, the Company issued 57,800 shares of newly created Preferred Stock with a
stated value of $100 per share. Dividends are at an annual rate of 14 percent on
the stated value, payable quarterly, at the option of the Company in either
cash, Common Stock, Preferred Stock, or a combination thereof. Dividends must be
paid on Preferred Stock before any dividends can be paid on Common Stock.
At June 30, 1998, the Company had dividends in arrears on its Preferred Stock.
In the unlikely event the Company were to elect to pay cash dividends, the
amount owed at June 30, 1998, would have been approximately $1.0 million, or $17
per share of Preferred Stock. However, in lieu thereof, the Company may choose
to pay such dividends by issuing additional shares of Preferred Stock and/or
Common Stock.
15
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(9) NET OPERATING LOSS CARRYFORWARDS
The Company has available at June 30, 1998, unused capital loss carryforwards
and operating loss carryforwards that may provide future tax benefits, which
expire as follows:
<TABLE>
<CAPTION>
Year of Unused Capital Loss Unused Net Operating Loss
Expiration Carryforwards Carryforwards
- ----------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
2001 $ 524,000 $ -
2010 - 448,500
2011 - 14,500
2012 - 14,020,000
2013 - 487,000
========================== =========================
Total $ 524,000 $ 14,970,000
========================== =========================
</TABLE>
Capital loss carryforwards arise due to losses incurred on the disposal of
capital assets, and may be used to offset future capital gains associated with
the disposal of capital assets (but may not be used to offset ordinary income).
Net operating loss carryforwards are the result of prior (and current) years'
operations, which had recorded a net loss in terms of income tax computations.
In general, operating loss carryforwards can be used to offset future operating
profits, thus negating the necessity to pay corresponding future income taxes
(until the loss carryforwards become used up or expire). Any such future
operating profits (which might realize these tax benefits) could be derived
internally, or could be derived from acquiring additional assets, or from the
purchase of another business entity through the acquisition of its stock. If
there is a substantial change in ownership involved, then tax benefits could be
reduced. Other limiting factors may also apply. Capital loss carryforwards and
net operating loss carryforwards are collectively referred to herein as the
"Loss Carryforwards."
After consultation with its lawyers and accountants, the Company's management
believes that, if the Plan of Reorganization is confirmed and approved in
substantially its present form, the Loss Carryforwards would be reduced by
between $1.4 million and $4.0 million in the bankruptcy process, and the
remainder would be intact and usable after bankruptcy. At a typical corporate
statutory tax rate of 34%, these remaining losses can, in a valid situation,
result in the cancellation of a requirement to pay from $3.7 million to $4.6
million in federal income taxes, either immediately in one year, or spread out
over several years.
Thus, management believes that, in a properly structured corporate transaction,
the Loss Carryforwards represent a potentially realizable benefit to the
Company, with a potential value of approximately the $4 million in tax savings
that they represent. Any such future value would be permanently destroyed if the
Company's Bankruptcy Proceedings were converted to a Chapter 7 liquidation
proceeding.
16
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(10) SECURITIES AND EARLY REDEMPTION OF IAP
Before the commencement of the Voluntary Bankruptcy Proceedings (see Notes 1 and
2 above), the Company's management had commenced negotiations with Auction
Finance Group, Inc. ("AFG") regarding the possible early redemption of the
Company's IAP securities. AFG is operated by former management of the Company,
which purchased the Company's former IAP subsidiary in September 1996. In
addition to receiving cash at closing for the full value of IAP's assets, the
Company also received securities with a face value of $1.0 million. The
securities provide for a single cash payment at the end of three years (i.e., in
September 1999) for the full face value plus accrued interest, or, failing the
making of such payment, the conversion of the securities into common stock of
IAP representing 51% of IAP's total common stock after such issuance.
IAP was started in March 1995, was unprofitable while it was part of the
Company, and according to AFG's representations (including audited financial
statements), IAP remains unprofitable and has a negative net equity. If IAP
cannot make the cash payment in September 1999, it is unlikely that a conversion
of its IAP securities into a 51% ownership interest will yield the Company
substantial value or cash.
In light of the Company's need to maximize and expedite the receipt of cash for
its creditors, the Company has explored the possibility of an early redemption
of its IAP securities by giving some discount as consideration for an immediate
cash payment from AFG. An amount of $600,000 plus some partial interest was
offered by AFG, and on July 17, 1998, the Company, through its bankruptcy
counsel, received a letter indicating that such funds were on deposit and ready,
pending approval of the transaction by the Bankruptcy Court. On the same day,
the Company filed a motion with the Bankruptcy Court [the Debtor's Motion to
Approve Compromise (IAP Note)] to approve the transaction. On July 20, 1998, a
Notice of Filing was filed with the Court, allowing twenty days from the Notice
(i.e., until August 9, 1998) for the receipt of any objections to the Motion. As
of August 13, 1998, only a procedural limited objection was received, and the
Company presently anticipates no substantial difficulty in getting the Motion
approved.
No securities were classified as trading or held-to-maturity at June 30, 1998,
or 1997. Investments held as available-for-sale securities (maturing within one
to five years) are summarized as follows at June 30:
17
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Corporate Corporate
Stock Option Debt Stock Option Debt
(ITB) (IAP Stock) (ITB) (IAP Stock)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fair market value, beginning of period $ 425,000 $ 250,000 $ -- $ 1,000,000
Permanent impairment -- -- -- (200,000)
Adjustment of estimated value -- 365,000 -- --
------------ ------------ ------------ ------------
Fair market value, end of period $ 425,000 $ 615,000 $ -- $ 800,000
============ ============ ============ ============
</TABLE>
There were no realized gains or losses on securities for the three months ended
June 30, 1998.
(11) COMPREHENSIVE INCOME
As referenced in Note 1(b) above, Statement of Financial Accounting Standards
130, Comprehensive Income (or "SFAS 130"), has recently become required to be
set forth in the Company's consolidated financial statements. A primary intent
of SFAS 130 is to provide a supplemental examination of income, showing Net
Income adjusted by those transactions and events which were not reflected in Net
Income that occurred during the period, and that affected equity of the Company
from non-owner sources. Typically, comprehensive income would include equity
adjustments for unrealized gains and losses on available-for-sale securities,
minimum pension liabilities adjustments, and foreign currency transaction
adjustments. On this basis, for the three months ended June 30, 1998, the
Company's Comprehensive Income shows a substantially smaller loss than that
reported for Net Income.
Comprehensive income and its components consist of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
Net loss $ (444,035) $(6,840,018)
----------- -----------
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during period 365,000 --
Less: reclassification adjustment for gains
included in net income -- --
----------- -----------
Other comprehensive income 365,000 --
----------- -----------
Comprehensive income (loss) $ (79,035) $(6,840,018)
=========== ===========
</TABLE>
18
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) CONTINGENCIES
Living Benefits, Inc. On September 12, 1996, before present management took
control, a complaint was filed against the Company in the United States District
Court for the District of New Mexico by Living Benefits, Inc. (the "Plaintiff")
[Living Benefits, Inc., a New Mexico corporation, v. AutoLend Group, Inc., a
Delaware corporation (formerly known as CAPX Corporation) and LB NM, Inc., a
Delaware corporation: Case No. CIV 96 0993 SC]. The complaint alleges that the
Company is obligated to the Plaintiff for more than $1.6 million, with interest
at 8.75 percent from June 30, 1992, for "earn-out payments" allegedly owed under
a contract between the Plaintiff and the Company dated March 14, 1992. The
Plaintiff is also seeking punitive damages for bad faith in an undisclosed
amount and attorney's fees. On June 11, 1997, an Offer of Judgment was made to
the Plaintiff of $656,600 with costs accrued as of that date; the offer was
rejected by the Plaintiff. On December 30, 1997, the Plaintiff filed a claim for
approximately $1.7 million, plus legal fees and punitive damages, with the
Bankruptcy Court. On April 15, 1998, this suit was turned over to the
jurisdiction of the Bankruptcy Court. A scheduling order has since been entered
by the Bankruptcy Court, establishing July 31, 1998, as the discovery completion
deadline (which deadline has since been extended); August 31, 1998, was
established as the deadline for filing dispositive motions, and a status
conference has been set for September 9, 1998. The trial is expected to begin
about October 24, 1998. The Company disputes this claim and will defend against
any claim by the Plaintiff as part of the Company's Bankruptcy Petition.
ITB Settlement. The Company is presently attempting to have approved, through
the Bankruptcy Court, a resolution of the ITB and NPD transactions, and as such
has filed a Motion. This Motion is also dependent upon external legal
proceedings in Delaware involving ITB and various third parties. If the Motion
is ultimately approved, either in its current form or in a slightly modified
form, then substantial cash will be brought back into the Company. See Note 6
above for elaboration.
Early Redemption of IAP. The Company is presently attempting to convert its IAP
securities to cash; see Note 10 above.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
AUTOLEND GROUP, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three-month periods ended June 30, 1998, and 1997
In summary, the Company recorded a net loss of approximately $444,000 for the
quarter ended June 30, 1998. However, approximately $182,000 of this loss was
generated as a result of non-cash accruals for various interest expenses, which
would be resolved under the Company's proposed Plan of Reorganization. As
further explained below, general and administrative expenses (or overhead costs)
have been reduced. Additionally, these results do not include the return of
principal with respect to the Installment Contracts Receivable portfolio. The
net result of the above is that total cash on hand increased over the quarter by
approximately $90,000, to a total of approximately $860,000 at June 30, 1998
(which total represents an increase of approximately $283,000, or 49%, since
late September 1997, when the Company filed for bankruptcy). Net equity
decreased slightly during the quarter (due to the non-cash accruals), by
approximately $79,000.
Revenues from Installment Contracts Receivable (consumer used-car loans) were
approximately $42,000 during the three months ended June 30, 1998, which
represented a $0.2 million decrease compared to the $0.2 million realized during
the three months ended June 30, 1997. This decrease is a result of the reduced
size of the Company's portfolio of such loans; the Company ceased purchasing new
loans in December 1995, and as loans are paid in full or written off, the
portfolio decreases in size. The principal repayment portion of the collections
on the portfolio is not recorded as revenue. The substantial cost to collect
these loans is not reflected in net revenue, but as general and administrative
expenses. Future revenues from this portfolio will, in general, substantially
decline from their present level of $42,000 per quarter.
The net viatical revenues from Policies realized in the three months ended June
30, 1998, were $5,000, as compared to no such revenues in the three months ended
June 30, 1997. The Company generally ceased purchasing Policies after September
1994, and in May and July 1995, sold the majority of its portfolio. Future net
revenues from the remaining portfolio of fifteen Policies will be irregular,
depending primarily upon the timing of mortality of the insured.
General and administrative expenses were $0.4 million during the three months
ended June 30, 1998, which represented a reduction of $0.2 million, or 29%,
compared to the $0.5 million expended during the three months ended June 30,
1997. This decrease resulted primarily from a $0.2 million decrease in general
overhead expenses, and a $0.1 million decrease in the cost of administering and
collecting the portfolio of Installment Contracts Receivable (which is included
in general and administrative expenses), which was partially offset by $0.1
million increase due to costs associated with post Chapter 11 reorganization
costs.
20
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Provisions for credit losses in connection with the portfolio of Installment
Contracts Receivable for the three months ended June 30, 1998, represents a $0.1
million recovery of bad debt, as compared to no provisions for the three months
ended June 30, 1997. This improvement of $0.1 million was primarily the result
of collections on old loans which had, in the past, been more than six months in
arrears and had therefore been written off, in accordance with the Company's
long-standing procedures.
Operating losses for the three months ended June 30, 1998, were $0.2 million,
compared to $0.3 million reported for the three months ended June 30, 1997. In
total, the $0.1 million reduction in operating losses was primarily due to (as
detailed above) the reduction in general and administrative expenses (exclusive
of reorganization costs).
The net effect of all of the foregoing resulted in a loss of $0.4 million, or
$0.07 per share, for the three months ended June 30, 1998. The net loss for the
same period last year was $5.9 million, or $1.00 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's immediate viability as a going concern depends on the continued
restructuring of its obligations, and, ultimately, the formation of a profitable
line of business. At June 30, 1998, the Company had cash and cash equivalents of
approximately $0.9 million, and total liabilities exceeded total assets 1.4 to
1. On September 22, 1997, the Company filed for voluntary bankruptcy
reorganization (see Notes 1 and 2 to the Company's Consolidated Financial
Statements). The Company anticipates, but cannot assure, that it will emerge
from Chapter 11 as a restructured, viable entity. If the Company is prevented
from emerging, it would most likely be liquidated, which would result in the
elimination of the Common Stock, Preferred Stock, and Class A and B Warrants,
and in payments to debt holders of amounts less than their claims. Management
believes that amounts which might be received by creditors under such a
liquidation scenario would likely be less than as proposed under the Plan.
Cash flows from operations was a positive $0.1 million for the three months
ended June 30, 1998. This compares to a negative cash flow from operations of
$0.4 million for the three months ended June 30, 1997. The improvement of $0.5
million is primarily due to cash operating expenditure reductions of $1.0
million, which were partially offset by a reduction of cash receipts by $0.5
million (due to a decrease in Installment Contracts Receivable receipts caused
by the shrinking size of the car loan portfolio). The $1.0 million in cash
operating expenditure reductions resulted from a $0.9 million reduction in
general and administrative cash expenses (primarily due to lower legal and
professional fees), and a net reduction of $0.1 million in other miscellaneous
cash operating items.
21
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The portfolio of Installment Contracts Receivable at June 30, 1998 was $0.3
million (excluding receivables for which there was repossession of the
underlying collateral or a charge-off, and before the effect of reserves). The
portfolio consisted of 119 active used-car loans, of which approximately 50% (on
a dollar-weighted basis) are thirty days or more past due. The Company commenced
purchasing these Installment Contracts Receivable in May 1994, and ceased
purchases on December 22, 1995. Future revenues from this portfolio will, in
general, decline from their present level as the loans mature and the portfolio
thus diminishes.
The Company's portfolio of unmatured viatical insurance Policies consisted of
fifteen policies at June 30, 1998, having a combined face value of approximately
$1.9 million and a net book value of approximately $0.3 million. The Company
generally ceased purchasing new Policies as of September 1994. Receipt of
revenues from these Policies will be irregular, depending upon the timing of the
mortality of the insured.
There were no cash flows from investing activities for the three months ended
June 30, 1998, as compared to cash used by investing activities for the three
months ended June 30, 1997 of $2.0 million, which was the result of funding the
Escrow Deposit in 1997.
There were no cash flows from financing activities during the three months ended
June 30, 1998, as compared to $0.7 million in cash used by financing activities
during the three months ended June 30, 1997, which was the result of the
redemption of Debentures during 1997.
In summary, due to the foregoing factors, the Company's cash and cash
equivalents increased by approximately $0.1 million during the three months
ended June 30, 1997, to a total of $0.9 million. This increase was largely due
to the reduction in cash general and administrative expenses. In comparison, for
the three months ended June 30, 1997, there was a $3.2 million decrease in cash
equivalents, largely due to the funding of the Escrow Deposit, the buyback of
Debentures, and an operating deficit, for a total of $9.2 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
22
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Rodman & Renshaw, Inc. On September 24, 1997, Rodman & Renshaw, Inc., an
investment banking firm ("Rodman"), filed a complaint against several
defendants, including the Company (collectively, the "Defendants") in the
Supreme Court of the State of New York, County of New York. The action against
the Company was stayed by the filing of the Company's bankruptcy petition before
the Company's due date for filing an answer. The Company believes that it may be
improperly included as one of the Defendants. Counsel for one of the Defendants
has informed the Company that a settlement has been executed and filed, which is
pending Bankruptcy Court approval in the Southern District of New York, and will
require no payment from, or other consequences against, the Company. The Company
will defend this action, to the extent it might become necessary, in a claims
objection proceeding in its bankruptcy proceedings or as otherwise appropriate.
AutoLend Group, Inc. v. Nunzio P. DeSantis. On June 5, 1998, as required by the
Bankruptcy Code, the Company filed Adversary No.98-1135M, a complaint to recover
certain payments made by the Company to Mr. DeSantis and for indemnity in
connection with the Company's lawsuit against NPD. For procedural reasons, this
action was dismissed by the Company and it refiled Adversary No.98-1164M on July
14, 1998. This is a similar complaint for the possible return of up to $597,500
in payments made by the Company - to Mr. DeSantis, and to seek indemnification
by Mr. DeSantis for any amounts which NPD fails to pay the Company if the
Company is granted a judgment against NPD.
AutoLend Group, Inc. v. Jeffrey Ovington. On June 5, 1998, as required by the
Bankruptcy Code, the Company field Adversary No.98-1134M, a complaint to recover
certain compensation paid by the Company to Mr. Ovington. For procedural
reasons, this action was dismissed by the Company and it refiled Adversary No.
98-1165M on July 14, 1998. This is a similar complaint for the possible return
of up to $100,000 in compensation paid by the Company to Mr. Ovington during the
fiscal year ended March 31, 1998.
AutoLend Group, Inc. v. Vincent Villanueva. On June 18, 1998, pursuant to the
Bankruptcy Code, the Company filed Adversary No. 98-1145M, a complaint to
recover certain payments made to Mr. Villanueva. For procedural reasons, this
action was dismissed by the Company and it refiled Adversary No. 98-1163M on
July 14, 1998. This is a similar complaint for the possible return of up to
$39,647 in payments for consulting services made by the Company to Mr.
Villanueva.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
23
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
PART II: OTHER INFORMATION - (CONTINUED)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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.
27 - Financial Data Schedule
(b) A current report on Form 8-K and 8-K/A filed on April 27, 1998, and May 4,
1998, respectively, with the Securities and Exchange Commission concerning a
change in auditors, documented the termination of KPMG Peat Marwick, LLP and the
engagement of Meyners + Company, LLP as the Registrant's independent auditors.
24
<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
following duly authorized persons.
AUTOLEND GROUP, INC.
(Registrant)
SIGNATURE TITLE DATE
- ---------------------- ----- ----
/s/ Nunzio P. DeSantis Chairman of the Board, August 14, 1998
- ---------------------- Chief Executive Officer
Nunzio P. DeSantis
/s/ Jeffrey Ovington Executive Vice President August 14, 1998
- ---------------------- (principal accounting and
Jeffrey Ovington financial officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 859,885
<SECURITIES> 615,000
<RECEIVABLES> 319,296
<ALLOWANCES> 169,389
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 97,140
<DEPRECIATION> 67,422
<TOTAL-ASSETS> 7,965,600
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
116
<COMMON> 12,158
<OTHER-SE> (3,529,273)
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<INTEREST-EXPENSE> 182,219
<INCOME-PRETAX> (444,035)
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</TABLE>
