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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, 1997
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 specific in the charter)
Delaware 22-3137244
---------------------- ----------------
(State or other jurisdiction (IRS Employer
of incorporation of 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 __.
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 6,079,530 shares
----------------------------- ----------------
Class Outstanding at February 3, 1998
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Pages
-----
<S> <C>
Consolidated Balance Sheets as of December 31, 1997, September 30, 1997
and March 31, 1997.......................................................... 3
Consolidated Statements of Operations for the three and nine month periods
ended December 31, 1997 and 1996................................................ 4
Consolidated Statements of Cash Flows for the nine month periods ended
December 31, 1997 and 1996...................................................... 6
Notes to Consolidated Financial Statements........................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. ................................................................12
PART II OTHER INFORMATION..................................................................17
SIGNATURES ................................................................................19
</TABLE>
2
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30, March 31,
1997 1997 1997
(unaudited) (unaudited) (audited)
-------------- -------------- ----------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 745,727 $ 577,295 $ 12,399,932
Accounts receivable -- matured insurance policies 48,000 48,000 48,000
Installment contracts receivable $ 726,941 $ 1,458,254 $ 2,909,069
Collateral owned-gross 22,286 50,861 206,529
Allowance for credit losses (286,967) (709,349) (1,068,545)
------------ ------------ ------------
Installment contracts receivable-net $ 462,260 $ 799,766 $ 2,047,053
------------ ------------ ------------
Purchased insurance policies with face value of
$1,993,405 at December 31, 1997 and $2,053,530 at
September 30, 1997 and at March 31, 1997 $ 453,265 $ 513,390 $ 513,390
Debt issuance costs, less accumulated amortization
of $3,592,190 at December 31, 1997, September 30,
1997 and $3,519,501 at March 31, 1997 -- -- 113,904
Fixed assets, less accumulated depreciation of
$70,842 at December 31, 1997, $64,475 at
September 30, 1997 and $52,023 at March 31, 1997 48,876 55,243 67,795
Escrow account 2,000,000 2,000,000 --
Securities in IAP 800,000 800,000 800,000
ITB stock options 2,500,000 2,500,000 --
Consulting agreement 34,997 69,998 140,000
Note receivable - NPD, Inc. 3,035,292 3,035,292 --
Interest receivable on note - NPD, Inc. 142,861 67,229 --
Other 339,403 461,335 145,926
------------ ------------ ------------
Total assets $ 10,610,681 $ 10,927,548 $ 16,276,000
============ ============ ============
Liabilities
Accounts payable and accrued liabilities $ 1,211,896 $ 1,191,156 $ 2,215,543
Accrued acquisition costs 656,542 656,542 656,542
Accrued interest expense on note - NPD, Inc. 76,667 19,167 --
Note payable - NPD, Inc. 2,300,000 2,300,000 --
Accrued interest expense on debentures 1,565,385 1,393,785 3,206,120
Convertible subordinated debentures at face value 7,225,000 7,225,000 22,050,000
------------ ------------ ------------
Total liabilities $ 13,035,490 $ 12,785,650 $ 28,128,205
------------ ------------ ------------
Stockholders' Equity (Deficit)
Preferred stock, $.002 par value. Authorized 5,000,000
shares; 58,000 issued and outstanding $ 116 $ 116 $ --
Common stock, $.002 par value. Authorized 40,000,000
shares; issued 6,079,530 shares at December 31,
1997, September 30, 1997 and 4,634,530 at March
31, 1997 12,158 12,158 9,269
Additional paid-in-capital 20,459,946 20,459,946 5,946,904
Accumulated deficit (22,897,029) (22,330,322) (17,808,378)
------------ ------------ ------------
Total stockholders' equity/(deficit) $ (2,424,809) $ (1,858,102) $(11,852,205)
------------ ------------ ------------
Total liabilities and stockholders' equity $ 10,610,681 $ 10,927,548 $ 16,276,000
============ ============ ============
</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,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Finance charges on installment contracts $ 126,128 $ 306,817 $ 536,722 $ 1,354,192
Revenues from matured insurance policies 69,109 350,000 69,109 487,435
----------- ----------- ----------- -----------
Gross revenues 195,237 656,817 605,831 1,841,627
Cost of matured insurance policies 60,125 -- 60,125 85,774
----------- ----------- ----------- -----------
Total net revenues $ 135,112 $ 656,817 $ 545,706 $ 1,755,853
General and administrative expenses 519,341 717,174 1,944,258 3,656,300
Provision for credit losses 30,000 63,000 30,000 3,019,292
----------- ----------- ----------- -----------
Operating earnings (loss) $ (414,229) $ (123,357) $(1,428,552) $(4,919,739)
----------- ----------- ----------- -----------
Other income/(expense):
Interest income on cash equivalents $ 993 $ 156,470 $ 140,650 $ 238,267
Accrued interest income on NPD, Inc. note 75,632 -- 142,861 --
Other income/(expense) -- 63,598 -- 187,882
Accrued interest expense on debentures (171,594) (537,230) (710,325) (1,611,687)
Accrued interest expense on NPD, Inc. receivable (57,500) -- (76,667) --
Other interest expense -- -- (27,082) --
Write down of purchased insurance policies -- -- -- (398,200)
Lease termination expense -- -- -- (196,000)
Write off fixed assets -- -- -- (659,302)
Loss on debenture conversion (Note 4) -- -- (6,261,052) --
----------- ----------- ----------- -----------
Total net other income/(expense) $ (152,469) $ (317,162) $(6,791,615) $(2,439,040)
----------- ----------- ----------- -----------
Loss before income taxes, discontinued operations,
and extraordinary item $ (566,698) $ (440,519) $(8,220,167) $(7,358,779)
Provision for income tax - federal -- -- (40,000) --
----------- ----------- ----------- -----------
Loss before discontinued operations and
extraordinary item $ (566,698) $ (440,519) $(8,260,167) $(7,358,779)
Discontinued operations:
Earnings (loss) from operations of discontinued
subsidiary - IAP -- (117,305) -- (231,778)
Gain on sale of subsidiary - IAP -- -- -- 484,961
----------- ----------- ----------- -----------
Loss before extraordinary items $ (566,698) $ (557,824) $(8,260,167) $(7,105,596)
Extraordinary items:
Gain on early extinguishment of debt -- -- 3,171,524 --
----------- ----------- ----------- -----------
Net income/(loss) $ (566,698) $ (557,824) $(5,088,643) $(7,105,596)
=========== =========== =========== ===========
</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,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loss per share:
Loss per share from operating earnings (loss) $ (0.07) $ (0.03) $ (0.24) $ (1.06)
Loss per share from total net other income/(expense) (0.02) (0.07) (1.12) (0.52)
------------- ------------- ------------- -------------
Loss per share before income taxes, discontinued
operations and extraordinary item $ (0.09) $ (0.10) $ (1.36) $ (1.58)
Provision for income tax - federal -- -- (0.01) --
------------- ------------- ------------- -------------
Loss per share before discontinued operations and
extraordinary item $ (0.09) $ (0.10) $ (1.37) $ (1.58)
Gain on sale of subsidiary, net of subsidiary
operating loss -- (0.02) -- 0.05
------------- ------------- ------------- -------------
Loss per share before extaordinary item $ (0.09) $ (0.12) $ (1.37) $ (1.53)
Gain on early extinguishment of debt -- -- 0.53 --
------------- ------------- ------------- -------------
Net gain (loss) per common share $ (0.09) $ (0.12) $ (0.84) $ (1.53)
============= ============= ============= =============
Weighted average number of common and
common equivalent shares outstanding 6,079,530 4,634,530 6,026,011 4,634,530
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine month period ended
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net earnings (loss) $ (5,088,643) $ (7,105,596)
Adjustments to reconcile net earnings (loss) to net cash flows from operating
activities:
Amortization of intangible assets and debt issuance costs 56,443 182,082
Depreciation expense 18,918 98,081
Gain on early extinguishment of debt, net of
amortization (3,171,524) --
Loss on debenture conversion, net of amortization 6,261,052 --
Provision for credit losses 30,000 3,019,292
Writeoff of fixed assets -- 659,302
Write down of purchased insurance policies -- 398,200
Gain on sale of subsidiary, IAP -- (981,455)
Change in net assets of discontinued operations -- (1,008,078)
Changes in assets and liabilities:
Accounts receivable -- matured insurance policies 60,125 1,355,310
Installment contracts receivable 1,554,793 5,055,526
Purchased insurance policies -- (4,325)
Accrued interest receivable -- (83,752)
Accrued interest receivable - NPD, Inc. (142,861) --
Other assets (88,474) (670,360)
Accounts payable and accrued liabilities (1,003,647) (612,825)
Accrued interest expense 786,992 986,813
------------ ------------
Cash provided (used) by operating activities $ (726,826) $ 1,288,215
------------ ------------
Cash flows from investing activities:
Funding of Escrow $ (2,000,000) $ --
Loan to NPD (3,035,292) --
Purchase ITB stock option (200,000) --
Proceeds from sale of securities available for sale -- 25,000
Proceeds from disposition of IAP -- 5,963,388
Proceeds from sale of fixed assets -- 185,995
Purchase of fixed assets -- (2,698)
------------ ------------
Cash provided (used) by investing activities $ (5,235,292) $ 6,171,685
------------ ------------
Cash flow from financing activities:
Early extinguishment of debt $ (5,692,079) $ --
------------ ------------
Cash provided (used) in financing activities $ (5,692,079) $ --
------------ ------------
Net increase (decrease) in cash and cash equivalents $(11,654,197) $ 7,459,900
Cash and cash equivalents at beginning of period 12,399,932 3,168,730
------------ ------------
Cash and cash equivalents at end of period $ 745,735 $ 10,628,630
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION; GOING CONCERN
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, 1997. The information furnished, in the opinion of
management, reflects all adjustments, which consist of normal recurring
adjustments, necessary to present fairly the results of operations of AutoLend
Group, Inc. and subsidiaries (the "Company") for the three and nine month
periods ended December 31, 1997 and 1996. 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. Inasmuch as the Company's
liabilities exceed its assets, there is substantial doubt about the Company's
ability to continue as a going concern.
(2) VOLUNTARY BANKRUPTCY REORGANIZATION
On September 19, 1997, the entire principal balance became due on the Company's
outstanding Subordinated Debentures. The Company had a negative net equity (with
liabilities exceeding assets) for a year prior to the due date. During that
year, the deficit had been reduced, but not to the point where the remaining
Debentures could be paid. On September 22, 1997, the Company filed a voluntary
petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the District of New Mexico. While the Company
intends to reorganize and emerge from Chapter 11, it cannot assure that it will
be able to do so.
(3) REORGANIZATION PLAN REGARDING FUTURE BUSINESS
In conjunction with the present Chapter 11 proceedings, the Company filed
effective January 16, 1998, a detailed Plan of Reorganization with the
Bankruptcy Court proposing its plans for the resolution of the bankruptcy. In
conjunction with the Plan, the Company has also filed a detailed Disclosure
Statement which outlines the Company's plans for new business. The Plan and
Disclosure Statement will be distributed to the Company's creditors in advance
of a Bankruptcy Court hearing and will have to be approved by the Court. The
Company anticipates that this process will take several months.
7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) INVOLUNTARY BANKRUPTCY PETITION DISMISSED
Approximately six weeks after a court approved Stipulation of Settlement in
which new management assumed control of the Company, on November 1, 1996 four
holders of the Company's Debentures filed an involuntary petition against the
Company in the United States Bankruptcy Court. The petition was dismissed
effective April 7, 1997. During the pendency of this action until its dismissal,
the Company was restricted in its ability to actively pursue any new business
activity.
(5) SUBORDINATED DEBENTURES
On October 22, 1996, the Company initiated its offer to exchange common stock
and preferred stock for its outstanding 9.5% Convertible Subordinated Debentures
(the "Exchange Offer"). On April 8, 1997, the Exchange Offer expired, and the
Company thereby issued an aggregate of 1.4 million shares of its common stock
and 58,000 shares of its newly created 14% cumulative convertible preferred
stock in exchange for $7.2 million in principal amount of Debentures tendered.
As a result of the Exchange Offer, the Company recorded in the quarter ended
June 30, 1997 a charge of $6.3 million, and an equal offsetting increase to
additional paid-in capital. In addition, accrued interest on the Debentures,
totaling $1.1 million, was canceled.
During the nine months ended December 31, 1997, and excluding the Exchange
Offer, the Company repurchased Debentures representing $8.9 million in combined
principal amount and accrued interest, for $5.7 million in cash, which resulted
in a gain of $3.2 million.
As a result of the Exchange Offer and the subsequent Debenture repurchases, the
balance of Debentures and interest on December 31, 1997 were $7.2 million in
Debenture principal and $1.6 million in interest. All outstanding principal
became due on the remaining Debentures on September 19, 1997; however, this
payment was not made (see Note 2 above).
8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(6) THE ITB OPPORTUNITY
International Thoroughbred Breeders, Inc. ("ITB") is an American Stock Exchange
traded company which owns and operates Garden State Park and Freehold Raceway in
New Jersey and which owns the former El Rancho Casino property in Las Vegas,
Nevada. ITB is a much larger company than the Company, having net equity in
excess of $60 million and annual revenues of approximately $70 million, and as
many as 700 employees (according to ITB's most recent Form 10-Q and Form 10-K).
The Company initially had entered into negotiations in October 1996 to directly
purchase an approximately 25% equity interest in ITB in a private sale from
ITB's former chairman, Robert E. Brennan. However, due to the involuntary
petition in bankruptcy (see Note 4 above), the Company was prevented from
consummating the purchase. In order not to let the opportunity pass, Nunzio
DeSantis and Anthony Coelho, two of the Company's board members, 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 to the Board of ITB.
Concurrently with its formation, NPD had agreed to grant the Company an option
to later purchase the ITB shares from NPD at the same price NPD had agreed to
pay for the ITB shares. In consideration of this original option, 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 at closing. The Company further agreed that, following
the dismissal of the involuntary bankruptcy petition, it would guarantee up to
$2.0 million of NPD's obligation to pay the remaining portion of the purchase
price due Brennan for the ITB shares and to effect this, would deposit $2.0
million into a cash collateral escrow account to secure its guarantee
obligation. The Bankruptcy Court before which the involuntary petition was
pending enjoined the proposed loan by the Company to NPD and, as a result, the
option was not granted to the Company. Nonetheless, following the dismissal of
the involuntary bankruptcy petition, and in accordance with its agreement, the
Company executed and delivered its guarantee as aforesaid and deposited the
required $2.0 million in the cash collateral escrow account.
On July 10, 1997, the Company loaned $3.0 million to NPD. The loan accrues
interest at the rate of 10% per annum, and is payable in full, together with all
accrued interest, on July 9, 1999. The loan is secured by a pledge by NPD of the
shares of common stock of ITB owned by it, subject to a prior lien and pledge of
the ITB shares held by Brennan as security for NPD's obligation to pay the
balance of the purchase price due
9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
for the ITB shares. NPD used the proceeds of the loan to repay an earlier loan
made by an unaffiliated third party, which repayment resulted also in the
cancellation of an option which NPD had previously granted to the unaffiliated
third party to purchase the ITB shares.
(7) THE ITB OPTION
As a result of the earlier involuntary bankruptcy proceeding against the Company
(see Note 4) the Company was prevented from entering into a negotiated agreement
which would have enabled it to purchase an approximately 25% equity interest in
International Thoroughbred Breeders, Inc. ("ITB"). Consequently, NPD, Inc. was
formed and consummated the same ITB purchase (see Note 6 above).
After the dismissal of the involuntary bankruptcy petition, in order to
reinstate the Company to the position it would have been in as the purchaser of
the ITB shares, in June 1997 the Company's Board of Directors approved an
agreement in principal with NPD, and in August 1997 the Company and NPD executed
an agreement pursuant to which the Company purchased from NPD, for a purchase
price of $2.5 million ($200,000 in cash and a note for $2.3 million), an option
to acquire 100% of the ITB shares owned by NPD (the "Option"). Prior to entering
into this agreement, the Company's Board of Directors obtained a third-party
appraisal of the Option, which set the value of the Option at $2.5 million. If
the Option is exercised, the Company will purchase the ITB shares for the same
cash portion of the purchase price NPD paid for the ITB shares and the Company
will assume the $5.8 million promissory note issued by NPD to Brennan at the
closing for the remainder of the purchase price for the ITB shares. A portion of
the Option exercise price would be paid through the Company's cancellation of
the $3.0 million loan to NPD discussed above (see Note 6).
The Option granted to the Company is subject to an option which has also been
granted by NPD to Mr. DeSantis to purchase 50% of the ITB shares from NPD which,
if exercised by Mr. DeSantis, would nonetheless permit the Company to acquire
the remaining 50% of the ITB shares. Furthermore, each of the Company's and Mr.
DeSantis' option has been subject to a one year option which was granted by NPD
to Robert Green (at the closing of the ITB share purchase) to purchase 50% of
the ITB shares. In the event either the Green or DeSantis options are exercised,
then the $2.3 million note held by NPD in partial payment of the Option will be
reduced proportionately by the percentage of the ITB shares remaining subject to
the Option.
(8) PREFERRED STOCK
In connection with the Exchange Offer (see Note 5 above), the Company issued
58,000 shares of preferred stock with a face value of $100 per share. Dividends
10
AUTOLEND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
are at an annual rate of 14%, payable quarterly at the option of the Company, in
cash, common stock, preferred stock, or a combination of all three. Dividends
declared and unpaid at December 31, 1997 totaled approximately $600,000.
11
<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, 1997 and 1996
While the Company's net operating results improved substantially during the nine
months ended December 31, 1997 (compared to the nine months ended December 31,
1996), the Company, nevertheless incurred an operating loss of $1.4 million
(compared to an operating loss of $4.9 million during that prior period).
Perhaps of most significance, net equity was increased by $9.4 million during
the nine month period.
Although total net revenues decreased by $1.2 million, the reduction in general
and administrative expenses by $1.7 million, or 47%, and the reduction in the
provisions for losses on the car loan portfolio by $3.0 million when compared to
the prior period resulted in a $3.5 million improvement versus the prior period.
However, net income and net equity were primarily determined not by these
operating results, but, to a greater extent, by the results of the Debenture
Exchange Offer and subsequent Debenture repurchases. The result of these
Debenture transactions (see Note 5) during the nine months was a favorable
impact to net equity of $11.5 million. While the Debenture Exchange Offer was
significantly favorable to net equity, and required no cash expenditures,
present accounting standards require that the Exchange Offer be recorded as a
loss to income of $6.3 million. This recorded loss was partially offset by the
$3.2 million gain recorded for the Debenture buyback. Thus, net income, in
total, was recorded as a loss of $5.1 million for the nine months, compared to a
loss of $7.1 million for the nine months ended December 31, 1996.
Revenues from installment contracts receivable (consumer used-car loans) were
$0.5 million during the nine months ended December 31, 1997, which represented a
$0.8 million decrease compared to the $1.3 million realized during the nine
months ended December 31, 1996. This decrease resulted from 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 are 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
and rapidly decline from their present level of $100,000 per quarter.
The net viatical revenues realized in the nine months ended December 31, 1997,
was $9,000 compared to the $400,000 of such revenues reported in the nine months
ended December 31, 1996. The Company generally ceased purchasing such policies
after September 1994 and, in May and July 1995, sold the majority of the
Company's portfolio. Future net revenues from this remaining portfolio of
approximately nineteen policies will be irregular, depending upon the timing of
mortality of the insured.
12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
General and administrative expenses were $1.9 million during the nine months
ended December 31, 1997, which represented a reduction of $1.7 million or 47%,
compared to the $3.6 million expended during the nine months ended December 31,
1996. This decrease resulted primarily from the effect of the Company's change
in management in September 1996. The employee staff of the Company was
significantly reduced and the Company's offices were moved from Miami Beach,
Florida to Albuquerque, New Mexico. The cost of administering and collecting the
portfolio of consumer car loans is included in general and administrative
expenses.
Provisions for credit losses in connection with the portfolio of installment
contracts receivable for the nine months ended December 31, 1997, were $30,000
as compared to the $3.0 million for the nine months ended December 31, 1996. The
decrease of $2.9 million was primarily the result of the shrinking size of the
total portfolio outstanding.
Operating losses for the nine months ended December 31, 1997 were $1.4 million,
compared to $4.9 million reported for the nine months ended December 31, 1996.
In total, the $3.5 million reduction in operating losses was primarily due to
(as detailed above) the stabilization of the consumer loan portfolio and the
reduction in general and administrative expenses.
As a result of the Exchange Offer, the Company recorded a non-cash charge for
Debenture conversion of $6.3 million, and recorded an equal offsetting increase
to additional paid-in capital. The conversion of the Debentures to common and
preferred stock had, in total, a positive effect on net equity for the nine
months ended December 31, 1997 of $8.3 million.
In addition, the Company realized a $3.2 million gain on early extinguishment of
debt in connection with Debentures repurchased during the nine months ended
December 31, 1997.
The net effect of all of the foregoing resulted in a loss of $5.1 million or
$0.84 per share for the nine months ended December 31, 1997; however, net equity
increased by $9.5 million during the period due to Debenture repurchases and the
Exchange Offer. The net loss for the same period last year was $7.1 million, or
$1.53 per share.
Results of Operations: Three month periods ended December 31, 1997 and 1996
Revenues from installment contracts receivable (consumer used-car loans) were
$0.1 million during the three months ended December 31, 1997, which represented
a $0.2 million decrease compared to the $0.3 million realized during the three
months ended December 31, 1996. This decrease resulted from the reduced size of
the Company's
13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
portfolio of such loans; the Company ceased purchasing new loans in December
1995, and as loans are paid in full or are 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 and rapidly decline
from their present level of $100,000 per quarter.
The net viatical revenues realized in the three months ended December 31, 1997,
were $9,000 compared to the $350,000 of such revenues reported in the three
months ended December 31, 1996. The Company generally ceased purchasing such
policies after September 1994 and, in May and July 1995, sold the majority of
the Company's portfolio. 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 $0.5 million during the three months
ended December 31, 1997, which represented a reduction of $0.2 million compared
to the $0.7 million expended during the three months ended December 31, 1996.
This decrease resulted to a substantial degree from the continuing efforts of
the Company's new management to reduce expenses and the reduced cost of
administering and collecting the consumer car loan portfolio, which is included
in general and administrative expenses.
Provisions for credit losses in connection with the portfolio of installment
contracts receivable for the three months ended December 31, 1997 were $30,000.
This represented a decrease of $33,000 compared to the three months ended
December 31, 1996, and was primarily the result of the shrinking size of the
total portfolio outstanding.
Operating losses for the three months ended December 31, 1997 were $0.4 million,
compared to $0.1 million reported for the three months ended December 31, 1996.
In total, the $0.3 million increase in operating losses was primarily due to the
$0.5 million decrease in revenue, partially offset by the $0.2 million reduction
in general and administrative expenses, as detailed above.
The net effect of all of the foregoing resulted in net loss of $0.6 million or
$0.09 per share for the three months ended December 31, 1997, compared to a net
loss of $0.6 million, or $0.12 per share, for the prior year period. The number
of shares outstanding were higher in the present period due to the shares issued
as a result the Debenture Exchange Offer (see Note 5).
14
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's immediate viability as a going concern is dependent upon the
continued restructuring of its obligations, and, ultimately, the installation of
a new line of business and a return to profitability. At December 31, 1997, the
Company had cash and cash equivalents of approximately $0.7 million, and total
liabilities exceeded total assets. On September 22, 1997, the Company filed for
voluntary bankruptcy reorganization (see Note 2 to the Financial Statements).
The Company anticipates, but cannot assure, that it will emerge from Chapter 11
as a restructured, viable entity.
Cash flows from operations was a negative $0.7 million for the nine months ended
December 31, 1997. This compares to the positive cash flow from operations of
$1.3 million for the nine months ended December 31, 1996. The decrease of $2.0
million is primarily due to a reduction of receipts by $4.8 million, which was
partially offset by expenditure reductions of $2.8 million. The $4.8 million
reduction of receipts resulted from the combination of a $3.5 million decrease
in car loan receipts (due to the shrinking size of the portfolio), and $1.3
million in prior period nonrecurring net viatical collections. The $2.8 million
in expenditure reductions resulted from a $1.7 million reduction in general and
administrative expenses, a $0.8 million reduction in interest expense and a net
reduction of $0.3 million in other miscellaneous items.
The Company's portfolio of unmatured viatical insurance policies consisted of 19
policies at December 31, 1997, having a combined face value of approximately
$2.1 million and a net book value of approximately $0.5 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.
The portfolio of installment contracts receivable at December 31, 1997 was $0.7
million (excluding such contracts with respect to which there has been a
repossession of the underlying collateral or a charge-off, and before the effect
of reserves). The portfolio consisted of approximately 308 active used car
loans, of which approximately 57% (on a dollar-weighted basis) are thirty days
or more past due. The Company commenced purchasing these contracts 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.
Cash flows from investing activities for the nine months ended December 31, 1997
was a deficit of $5.2 million, which was primarily the result of funding the
$2.0 million collateral escrow account in connection with the NPD transaction
for the ITB shares, and the loan to NPD for $3.0 million (see Note 6). Cash
flows from investing activities for the nine months ended December 31, 1996 was
a positive $6.2 million, which was primarily due to the sale of IAP.
15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Cash flows from financing activities was a deficit of $5.7 million during the
nine months ended December 31, 1997, which was the result of the repurchase of
Debentures. There were no cash flows from financing activities during the nine
months ended December 31, 1996.
In summary, due to the foregoing factors, the Company's cash and cash
equivalents decreased by $11.7 million during the nine months ended December 31,
1997, to a total of $0.7 million. This decrease was largely due to the
repurchase of Debentures, the loan to NPD, and to the funding of the escrow
account. In comparison, for the nine months ended December 31, 1996, there was a
$7.5 million increase in cash equivalents, largely due to the sale of IAP, to a
total of $10.6 million. During the nine months ending December 31, 1997, the
Company's net equity improved substantially, from a deficit of $11.9 million,
to a lower deficit of $2.4 million, an improvement of $9.5 million.
Historically, 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 the
September 1991 sale of Debentures which resulted in net proceeds of $51.4
million. As a result of prepayments without penalty and the Exchange Offer, the
outstanding principal balance of Debentures was $7.2 million at December 31,
1997.
16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 22, 1997, the Company voluntarily filed for protection and
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Mexico (Case No.
11-97-15499 MA).
On September 12, 1996, a complaint was filed against the Company in the United
States District Court for the District of New Mexico by Living Benefits (Living
Benefits, 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 an amount in excess of $1.6 million, together
with interest at the rate of 8.75% 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 in the amount of $656,600 together with costs
accrued as of that date. The company disputes this claim, and will vigorously
defend against any claim by Living Benefits as part of the voluntary bankruptcy
matter.
On March 25, 1997, the United States Bankruptcy Court for the District of New
Mexico entered a final order dismissing the Involuntary Chapter 11 case (No.
11-96-14835 MA Involuntary), effective April 7, 1997.
ITEM 2. CHANGES IN SECURITIES
In connection with the Debenture Exchange Offer, which expired by its terms on
April 8, 1997, the Company issued approximately 1.4 million shares of its common
stock and 58,000 shares of preferred stock in exchange for validly tendered
Debentures. The issuance of the common stock and preferred stock was made
pursuant to an exemption under the federal securities laws pursuant to Section
3 (a) (9) under the Securities Act of 1933, as amended.
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 its convertible subordinated Debentures. In
October 1996, the Company initiated an Exchange Offer to exchange shares of
common and preferred stock for any or all outstanding Debentures, including this
interest which had
17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION -- (CONTINUED)
just come due. The Exchange Offer expired on April 8, 1997, and the Company
accepted all Debentures tendered, which amounted to $7.2 million face value,
which was approximately one-third of the total of $22.1 million then
outstanding.
On September 19, 1997, the Company was obligated to repay the entire principal
balance then outstanding on the Debentures. The Company did not have the
liquidity to repay the principal and interest and consequently, failed to make
the payment when due. On September 22, 1997, the Company filed for protection
and reorganization under Chapter 11 of the U.S. Bankruptcy code. A total of $7.2
million in principal and $1.6 million of unpaid interest remained under the
Debentures at December 31, 1997.
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.
18
<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 13, 1998
- ---------------------- Chief Executive Officer
Nunzio P. DeSantis
/s/ Jeffrey Ovington Executive Vice President February 13, 1998
- ---------------------- (chief accounting officer)
Jeffrey Ovington
<PAGE>
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