<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one:)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] For the quarterly period ended June 30, 1999
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) 768-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
___ ___
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 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
___ ___
Applicable only to corporate issuers:
The number of shares outstanding of the Registrant's common stock was zero at
August 3, 1999. In connection with the Registrant's plan of reorganization as
confirmed by the Bankruptcy Court on February 3, 1999, and which became
effective on March 5, 1999, the Registrant's Common Stock was canceled. The plan
includes a proposal under which new Common Stock of the Registrant may be
issued. See Notes 2 and 3 to Consolidated Financial Statements in Item 1 hereto.
<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, 1999, and March 31, 1999..........4
Consolidated Statements of Operations for the three-month periods
ended June 30, 1999, and 1998..............................................5
Consolidated Statements of Cash Flows for the three-month periods ended
June 30, 1999, and 1998....................................................6
Notes to Consolidated Financial Statements...................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................12
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.....................................................15
Item 2. Changes in Securities and Use of Proceeds.............................15
Item 3. Defaults Upon Senior Securities.......................................15
Item 4. Submission of Matters to a Vote of Security Holders...................15
Item 5. Other Information.....................................................15
Item 6. Exhibits and Reports on Form 8-K......................................16
SIGNATURES....................................................................17
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 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, the Company 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.
YEAR 2000 ISSUES
Like any other company, advances and changes in technology can significantly
affect the business and operations of the Company. For example, a challenging
problem is that many computer systems worldwide cannot properly recognize the
year 2000 or years thereafter. No easy, comprehensive, technological "quick
fix" has yet been developed in the United States or elsewhere for this problem.
Not only might the problem affect a company's computers, but the company could
also be impacted by problems at other companies, through supplier relationships,
etc.
Fortunately, the Company's present small base of operations is not heavily
dependent upon computers. However, steps are being taken to test and, if
necessary, upgrade computers and software within the Company. The ultimate cost
of completing this process is not yet known, but management does not anticipate
an expenditure of more than $10,000. Testing and any upgrades necessary should
be complete by October 1999. Management feels reasonably confident, in general,
about the Company's level of exposure. However, given the possible rather
drastic scenarios worldwide as discussed in the media, the Company cannot assure
that it will not be detrimentally impacted in some way.
3
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part 1 - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 March 31, 1999
---------------------- ----------------------
(Unaudited) (audited)
<S> <C> <C>
Assets:
Cash $ 1,430,454 $ 2,146,759
Restricted cash 1,165,500 2,791,178
---------------------- ----------------------
Cash and cash equivalents $ 2,595,954 $ 4,937,937
Other receivables 4,044 44,741
Prepaid expenses 8,612 16,669
Installment contracts receivable 38,769 53,795
Purchased insurance policies at estimated market value;
face value of $594,544 at June 30, 1999 and $800,919
at March 31, 1999 94,670 126,650
Fixed assets, less accumulated depreciation of $6,281 at
June 30, 1999 and $1,603 at March 31, 1999 12,811 17,489
Other assets 54,437 -
---------------------- ----------------------
Total assets $ 2,809,297 $ 5,197,281
====================== ======================
Liabilities:
Accounts payable - Debenture holders $ 1,165,500 $ 3,043,250
Accounts payable - Trade 120,689 84,768
Accrued contingent legal fees 142,398 270,713
Accrued contingent payroll 406,107 406,107
Accrued liabilities 34,658 55,814
Other contingent liabilities 186,079 244,867
Note payable - Debenture holders 523,300 523,300
---------------------- ----------------------
Total liabilities $ 2,578,731 $ 4,628,819
---------------------- ----------------------
Stockholders' Equity:
Common stock, $.002 par value. Authorized 40,000,000
shares; issuable 1,040,000 shares $ 2,080 $ 2,080
Additional paid-in capital 690,033 690,033
Accumulated deficit (461,547) (123,651)
---------------------- ----------------------
Total stockholders' equity $ 230,566 $ 568,462
---------------------- ----------------------
Total liabilities and stockholders' equity $ 2,809,297 $ 5,197,281
====================== ======================
</TABLE>
See accompany notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Month Period Ended
June 30,
---------------------------------------
Registrant | Predecessor
1999 | 1998
---------------- | ----------------
<S> <C> | <C>
Revenues: |
Finance charges on installment contracts $ 6,917 | $ 42,305
Revenues from matured insurance policies 85,421 | 5,000
---------------- | ----------------
Gross revenues 92,338 | 47,305
Cost of matured insurance policies (31,980) | -
---------------- | ----------------
Total net revenues $ 60,358 | $ 47,305
|
General and administrative expenses (409,990) | (385,501)
Loan loss recovery, net 60,091 | 102,000
---------------- | ----------------
Operating loss $ (289,541) | $ (236,196)
---------------- | ----------------
|
Other income/(expense): |
Interest income on cash and cash equivalents $ 48,721 | $ 30,212
NPD, Inc., note receivable interest income accrued - | 75,882
Debentures interest expense accrued - | (171,594)
NPD, Inc., note payable interest expense accrued - | (10,625)
Write-off of fixed assets - | (4,570)
Debenture loan discount amortization (8,069) | -
---------------- | ----------------
Total net other income (expense) $ 40,652 | $ (80,695)
---------------- | ----------------
Loss before reorganization costs (248,889) | (316,891)
Reorganization costs incurred during Chapter 11 proceedings (89,007) | (127,144)
---------------- | ----------------
Net loss $ (337,896) | $ (444,035)
================ | ================
Per Share: |
Operating loss $ (0.28) | $ (0.04)
Total net other income (expense) 0.04 | (0.01)
---------------- | ----------------
|
|
Loss before reorganization costs $ (0.24) | $ (0.05)
Reorganization costs incurred after Chapter 11 proceedings (0.08) | (0.02)
---------------- | ----------------
Net loss $ (0.32) | $ (0.07)
================ | ================
Weighted average number of common and common |
equivalent shares outstanding - | 6,079,530
================ | ================
Weighted average number of common and common |
equivalent shares issuable 1,040,000 | -
================ | ================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(unaudited)
Three Month Period Ended
June 30,
----------------------------------------
Registrant | Predecessor
1999 | 1998
----------------- | ----------------
<S> <C> | <C>
|
Cash flow from operating activities: |
Net loss $ (337,896) | $ (444,035)
Adjustments to reconcile net loss to net cash flow from |
operating activities |
Depreciation expense 4,678 | 5,323
Loan loss recovery, net (60,091) | (102,000)
Write-off of fixed assets - | 4,570
Changes in assets and liabilities: |
(Increase) decrease in assets: |
Other receivables 40,697 | -
Prepaid expenses 8,057 | 100,340
Installment contracts receivable 75,117 | 222,066
Purchased insurance policies 31,980 | -
Interest on escrow deposit - | (25,000)
Interest accrued on note receivable - NPD, Inc. - | (75,882)
Other assets (54,437) | (157)
Increase (decrease) in liabilities: |
Accounts payable-debenture holders (1,877,750) | -
Accounts payable-trade and accrued liabilities (172,338) | 222,705
Accrued interest expense - | 182,219
----------------- | ----------------
Cash provided (used) by operating activities $ (2,341,983) | $ 90,149
----------------- | ----------------
|
Cash flow from investing activities: |
----------------- | ----------------
Cash provided (used) by investing activities $ - | $ -
----------------- | ----------------
|
Cash flow from financing activities: |
----------------- | ----------------
Cash provided (used) in financing activities $ - | $ -
----------------- | ----------------
|
Net increase(decrease) in cash and cash equivalents $ (2,341,983) | $ 90,149
Cash and cash equivalents at beginning of period 4,937,937 | 769,736
----------------- | ----------------
Cash and cash equivalents at end of period $ 2,595,954 | $ 859,885
----------------- | ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies: Basis of Presentation, Going
Concern
The accompanying consolidated financial statements of AutoLend Group, Inc.
and its wholly owned subsidiaries AutoLend Corporation, LB NM, Inc., and
American Life Resources Group, Inc. (collectively, the "Company") 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 Convertible Subordinated
Debentures due September 19, 1997 (the "Debentures"), the Company filed for
protection under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Mexico (the
"Bankruptcy Court") on September 22, 1997. On February 3, 1999, the
Bankruptcy Court confirmed a Plan of Reorganization (the "Plan"), which
became effective on March 5, 1999, at which time the Company attained a
positive net equity, and was no longer classified as a "debtor-in-
possession". On July 2, 1999, the Company filed a Motion requesting the
Bankruptcy Court to enter a Final Decree with respect to the Plan.
The Company's audited consolidated financial statements as of March 31,
1999, and the accompanying unaudited consolidated financial statements as
of June 30, 1999 and 1998, have 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"). While in Chapter
11, the Company operated its business as a debtor-in-possession (the
"Predecessor") subject to the jurisdiction of the Bankruptcy Court. The
Company adopted fresh-start reporting and gave effect to its emergence as
of March 5, 1999. Under fresh-start accounting, all assets and liabilities
are restated to reflect their reorganized value, which approximates fair
value. Since fresh-start reporting has been reflected in the accompanying
consolidated financial statements as of March 31, 1999, and are those of a
reorganized entity certain material aspects of these financial statements
are not comparable to such statements of any prior period. A "black line"
has been drawn between the Registrant's financial statements and those of
the Predecessor.
With respect to the unaudited consolidated financial statements for the
three months ended June 30, 1999 and June 30, 1998, it is the Company's
opinion that all necessary adjustments (consisting of normal and recurring
adjustments) have been included to present a fair statement of results for
the interim periods. These statements should be read in conjunction with
the Company's consolidated financial statements in its Annual Report on
Form 10-K for the fiscal year ended March 31, 1999. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to the general rules and regulations
promulgated by the Securities and Exchange Commission ("the SEC").
(2) Plan of Reorganization
The Plan (which became effective on March 5, 1999) resulted in the
cancellation of $7.2 million principal of Debentures and accrued interest
thereon, and all of the Company's equity securities
7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(including all previously issued shares of Common Stock) as of March 5,
1999. Unsecured creditors have now received payments for 100 percent of
their allowed claims.
The holders of the Debentures will receive in total approximately 1.0
million shares of the Company's new Common Stock, $3.0 million in cash, and
non-interest bearing, uncollateralized notes totaling $0.6 million, payable
in five annual payments. For financial statement presentation, these notes
have been discounted based on an interest rate of 6% resulting in an
unamortized discount of $0.1 million. These notes have been recorded at
their discounted value of $0.5 million. The Company made the first cash
distributions (approximately $1.8 million) related to the Debentures under
the Plan during June 1999, and anticipates such distributions being
substantially completed by the end of August 1999. The Company is presently
verifying the appropriate remaining disbursements, for which the
corresponding cash has been escrowed. This escrow consists of restricted
cash pursuant to the terms of the Plan, and was in the amount of $1.2
million as of June 30, 1999 (and was $2.8 million at March 31, 1999).
The holders of the canceled Common and Preferred Stock have the right to
purchase defined amounts of shares of new Common Stock during certain
periods beginning on the effective date of the Company's Registration
Statement on Form S-1 (see "The Offering" below). The price per share of
the new Common Stock is $1.00. The holders of the Company's Class A and B
Warrants and Options have a 12-month period beginning March 5, 1999, to
purchase the same number of shares of new Common Stock as originally
provided for under the Warrants or Options, at $4.00 per share. The
Company expects that only a portion of the additional shares as described
above will actually be purchased by existing equity holders, resulting in
projected total Common Stock outstanding of from 1.5 million to 9.0 million
shares. This would result in a total new equity (before the impact of any
interim operating results) of from $0.8 million to $7.8 million.
(3) The Offering
A Registration Statement on Form S-1 (the "Registration Statement") was
filed on June 8, 1999, with SEC to register the shares of our new Common
Stock to be issued in connection with the Plan. The Registration Statement
is still subject to the normal review process by the staff of SEC, and upon
completion of such review, and as of an effective date yet to be
determined, these shares may be issuable under the terms of the Plan.
Pursuant to the Plan, which has been clarified to conform to the offering
as more fully described in the Company's Registration Statement, the
Company is offering shares of new Common Stock (the "Offering") to holders
of old Common and Preferred Stock and Class A and B Warrants, Options, and
Debentures, all of which were canceled on March 5, 1999, under the Plan.
Specifically, the Offering will include 1,040,000 shares of new Common
Stock for Debenture holders; up to 6,079,530 shares of new Common Stock for
holders of old Common Stock; up to 5,780,000 shares of new Common Stock for
holders of old Preferred Stock; up to 2,663,500 shares of new Common Stock
for holders of old Class A and B Warrants; and, up to 3,660,000 shares for
holders of old Options. A total of up to 19,223,030 shares of new Common
Stock may be issued and outstanding. However, the Company estimates that
only between 1.5 and 9.0
8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
million shares will be issued as a result of the Offering, depending upon
the number of shares subscribed for. Holders of old Common Stock and/or old
Preferred Stock must pay $1.00 per share for any new Common Stock. These
holders have approximately 60 days following the effective date of the
Registration Statement in which to elect their purchase. Holders of old
Warrants and/or Options have until March 4, 2000, to buy new Common Stock
at $4.00 per share. For a more complete description, refer to the
Registration Statement. The 1,040,000 shares of issuable new Common Stock
have been accounted for as outstanding, as no further consideration for
this stock will be received pursuant to the Plan. The professional fees and
other costs associated with the Offering have been deferred until which
time the Offering becomes effective and at that time all costs will be
accordingly charged to equity.
(4) Proposed New Business
The Company has been considering various prospects to develop a new
business suitable for its situation. In general, any new business
development is difficult, and the Company's particular realities impose
significant constraints that make such an undertaking even more difficult.
These constraints include the following: the need to acquire or develop the
business without paying substantial cash or taking on significant debt; the
handicap of not having actively traded stock to use to procure this
business; the requirement that, after launch, the business will not need a
significant capital investment to fund its "ramp-up"; and, the requirement
that the new business immediately produce a positive cash flow.
The Plan involves developing a new business that consists primarily of
providing gaming devices and gaming machines for certain non-profit
fraternal organizations in New Mexico. In 1997, the New Mexico Legislature
passed the "Gaming Control Act," and on approximately July 2, 1999, the
first legalized gaming in a non-profit fraternal organization began in New
Mexico. The Company proposes to provide, supply, and service gaming
devices as described in the Gaming Control Act, and the business would be
regulated by the New Mexico Gaming Control Board as described in the Gaming
Control Act. The Company has commenced its efforts in this arena, doing
business as Kachina Gaming, which has been organized as a Division of
AutoLend Group, Inc. In connection with these efforts, the Company has
hired a Vice President of Gaming Development and Marketing.
The Company's management believes it can obtain the proper licenses, gaming
machines, and contracts with non-profit organizations to make this business
viable, and which will allow the Company to meet its obligations. In this
regard, the Company has made application to the New Mexico Gaming Control
Board for licensure as a distributor. Additionally, the Company has signed
a number of contingent contacts with fraternal organizations whereby the
Company would supply gaming machines to licensed operators. The contracts
are contingent upon certain matters such as, the Company and the fraternals
ability to obtain the appropriate state licensing as well as the actual
approval of the respective contracts by the Gaming Control Board. The
Company is also holding discussions with several licensed gaming machine
manufacturers with respect to obtaining such machines. In as much as no
distributors have yet developed any financial history for such licensed
operations in New Mexico, and no fraternals have yet established records of
average "net drops" under regulated gaming in New Mexico, potential
9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
operating results are unknown, and thus the Company cannot be assured of
success in this venture.
(5) Income Taxes
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". On an interim basis, the Company provides for income taxes using
the estimated annual effective rate method. The Company did not recognize
a quarterly or annual income tax expense or benefit in 1998 and also does
not expect to recognize a quarterly or annual income tax expense or benefit
in 1999.
As of June 30, 1999, the Company had available unused capital loss carry-
forwards and operating loss carry-forwards that may provide future tax
benefits, which expire as follows:
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
- ---------------- ------------------- ------------------------------ ------------------------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000 - 6,116,000
2003 - - 220,000
2004 - - 2,939,235
2005 - - 543,980
2012 - 6,078,000 -
2013 - 220,000 -
2019 - 2,939,235 -
2020 - 543,980 -
------------------- ------------------------------ ------------------------------
Total $ 2,382,000 $ 9,781,215 $ 9,819,215
=================== ============================== ==============================
</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 qualified
business entity through the acquisition of its stock. If there is a
substantial change in ownership involved, tax benefits could be reduced.
Other limiting factors may also apply.
10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
With the Plan now effective, net operating loss carryforwards listed above
are intact and usable. At a combined federal and state corporate statutory
tax rate of 38.6 percent, the present losses can, in a valid situation,
result in the cancellation of a requirement to pay approximately $3.7
million in federal and state income taxes, either immediately in one year
or spread out over many years. The requirements to utilize such loss
carryforwards are strict, and the possibilities for usage are limited.
(6) Comprehensive Income
The Company implemented during the fiscal year ended March 31, 1999,
Statement of Financial Accounting Standards 130, Comprehensive Income
("SFAS 130"), in its consolidated financial statements. A primary intent
of SFAS 130 is to provide a supplemental examination of income, showing Net
Income adjusted by transactions and events which were not reflected in Net
Income that occurred during the period, and that affected the Company's
equity from non-owner sources. Typically, comprehensive income includes
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, 1999, the Company's Comprehensive Income is the same as the net loss
reported in the consolidated statements of operations. For the three
months ended June 30, 1998, Comprehensive Income/(Loss) of ($79,035)
represented a smaller loss than Net Income/(Loss) of ($444,035), with the
difference due to a $365,000 unrealized holding gain during that period.
(7) Subsequent Events
On July 12, 1999, the Bankruptcy Court approved a Motion to Approve
Compromise (the "Motion") filed by the on June 4, 1999, to resolve the
adversary claim against Nunzio P. DeSantis to recover certain payments made
to him and for indemnity. The Motion proposes cancellation of debts owed
by the Company to Mr. DeSantis of $256,230; the contribution to the Company
by Mr. DeSantis of furniture, equipment, and leasehold improvements valued
on a cost basis at approximately $278,000; the transfer of equity
securities with a value of at least $500,000 by Mr. DeSantis to the
Company; the indemnification of Mr. DeSantis by the Company from liability
under a Non-Compete Agreement between Mr. DeSantis and a third party, dated
March 1995; and the transfer to Mr. DeSantis of the Company's contingent
rights with respect to possible proceeds receivable under a sale of the
former El Rancho Hotel property in Las Vegas, Nevada. The order became
final on July 26, 1999. The financial effect of this event has not yet been
evaluated but will be evaluated and recognized in the second quarter ending
September 30, 1999.
11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, the Company was required to adopt fresh-start
accounting as of March 5, 1999. The Predecessor's financial statements
(prior to March 6, 1999) are not comparable to the reorganized Company's
financial statements (subsequent to March 5, 1999). (See Note 1 to the
Company's Consolidated Financial Statements.) However, for purposes of
management's discussion and analysis of results of operations, the three
months ended June 30, 1999, is being compared to 1998 since the results of
operations are comparable.
Results of Operations: Three-month periods ended June 30, 1999, and 1998
The Company recorded a net loss of approximately $338,000 for the three-
month period ended June 30, 1999. The loss was primarily due to
approximately $290,000 in operating losses, $89,000 in reorganization
costs and $41,000 in non-operating income.
Revenues from Installment Contracts Receivable, consumer used-car loans
(the "Loans"), were approximately $7,000 during the three months ended June
30, 1999, which represented a $35,000 decrease compared to the $42,000
realized during the three months ended June 30, 1998. This decrease is a
result of the reduced size of the Company's portfolio of the 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 cost to
collect these Loans is not reflected in net revenue, but as general and
administrative expenses.
Net revenues realized from viatical policies (the "Policies") in the three
months ended June 30, 1999, were approximately $53,000, as compared to de
minimis revenues in the three months ended June 30, 1998. The revenues
were the result of the sale of three Policies for a total of approximately
$85,000 with a total cost of $32,000. 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 7 Policies will be irregular, depending primarily upon the
timing of mortality of the insured.
General and administrative expenses were approximately $410,000 during the
three months ended June 30, 1999, compared to the $386,000 expended during
the three months ended June 30, 1998. The increase of approximately $24,000
in general and administrative expenses was due to additional salary and
travel expense in connection with the gaming business. (These amounts
exclude the $0.1 million in post- Chapter 11 reorganization costs.)
Loan loss recovery in connection with the portfolio of Loans for the three
months ended June 30, 1999 represented the recovery of $60,000 related to
previously charged off loans . This is compared to a recovery of $102,000
for the three months ended June 30, 1998. The recoveries in both periods
were 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.
12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Operating losses for the three months ended June 30, 1999, were
approximately $290,000, compared to losses of approximately $236,000 for
the three months ended June 30, 1998. The $54,000 increase in operating
losses was primarily due to approximately a $13,000 increase in net revenue
offset by a $24,000 increase in general and administrative expenses and a
$42,000 decrease in loan loss recoveries.
The impact of non-operating items for the three months ended June 30, 1999
was a net $41,000 in income, compared to a non-operating loss of $81,000
for the three months ended June 30, 1998. The $41,000 in income for the
present period was primarily due to the $49,000 in interest income offset
by the $8,000 Debenture loan discount amortization. The $81,000 non-
operating loss for the same period last year consisted of interest income
of $106,000 offset by interest expense of $182,000 and write off of fixed
assets of $5,000.
In addition to the above, for the three months ended June 30, 1999 and
1998, the Company incurred $0.1 million in each period ended in
reorganization costs related to the bankruptcy proceedings.
The net effect of all of the foregoing was a net loss of $0.3 million, or
$0.32 per share, for the three months ended June 30, 1999. The net loss
for the same period last year was $0.4 million, or $0.07 per share. The
$0.3 million loss in the current period was due primarily to an operating
loss of $0.3 million. Losses per share for the period ended June 30, 1999
were calculated based upon 1.0 million shares of issuable common stock per
the Plan. The net loss for the same period last year of $0.4 million was
primarily due to an operating loss of $0.2 million, reorganization costs of
$0.1 million and non-operating expense of $0.1 million. Losses per share
for the period ended June 30, 1998 were calculated based upon the weighted
average number of common and common equivalent shares outstanding of 6.1
million.
Liquidity and Capital Resources
The Company's immediate viability as a going concern ultimately depends
upon the successful installation of a new line of business, and the
attainment of profitability. On September 22, 1997, the Company filed for
voluntary bankruptcy reorganization. On March 5, 1999, the Company's Plan
became effective. Cash flow from operations was a negative $2.3 million
for the three months ended June 30, 1999, which was primarily due to
payments made to Debenture holders. At June 30, 1999, the Company had cash
and cash equivalents of $2.6 million, and a positive net equity of $0.2
million. Of the $2.6 million in cash and cash equivalents on hand at June
30, 1999, approximately $1.2 million was escrowed for payment to former
Debenture holders recognized under the Plan. The Company made the first
distributions related to the Debenture obligation of $1.8 million during
June 1999, and anticipates distributions being substantially completed by
the end of August 1999.
The Company's portfolio of Loans at June 30, 1999, was $39,000, and
consisted of 21 active Loans. The Company ceased purchasing Loans in
December 1995. The Company's portfolio of unmatured viatical insurance
Policies totaled 7 at June 30, 1999, having a combined face value
13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
of $0.6 million and a net book value of $0.1 million. The Company generally
ceased purchasing new Policies in September 1994.
There was no cash provided or used by investing activities for the three
months ended June 30, 1999 and 1998.
There was no cash provided by or used in financing activities during the
three months ended June 30, 1999 and 1998.
In summary, the Company decreased its cash and cash equivalents by $2.3
million during the three months ended June 30, 1999, to a total of $2.6
million. The decrease was largely due to the $1.8 million in payments to
Debenture holders under the Plan, the $0.2 million in payments on accounts
payable and accrued liabilities from prior periods, and the $0.3 million
net use of cash from operations during the current period. In comparison,
there was a $0.1 million increase in cash during the three months ended
June 30, 1998, primarily due to net provision of cash by operations.
On March 5, 1999, all outstanding Debentures (and accrued interest) were
canceled in conjunction with the Plan. The Company is presently in the
process of completing a Registration Statement with the SEC. When and if
this Registration Statement becomes effective, the Company may receive
additional equity capital, which could be as much as $7.8 million.
However, the amount received could be far lower, and the Company cannot
assure the success of sales of its Common Stock. The professional fees and
other costs associated with the Offering have been deferred until which
time the Offering becomes effective and at that time all costs will be
accordingly charged to equity.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part II: Other Information
Item 1. Legal Proceedings.
On July 14, 1998, the Company filed an adversary claim against Nunzio P.
DeSantis to recover certain payments made to him and for indemnity. On July
12, 1999, the Bankruptcy Court approved a Motion to Approve Compromise (the
"Motion") filed by the on June 4, 1999, to resolve the adversary claim
against Nunzio P. DeSantis to recover certain payments made to him and for
indemnity. The Motion proposes cancellation of debts owed by the Company
to Mr. DeSantis of $256,230; the contribution to the Company by Mr.
DeSantis of furniture, equipment, and leasehold improvements valued on a
cost basis at approximately $278,000; the transfer of equity securities
with a value of at least $500,000 by Mr. DeSantis to the Company; the
indemnification of Mr. DeSantis by the Company from liability under a Non-
Compete Agreement between Mr. DeSantis and a third party, dated March 1995;
and the transfer to Mr. DeSantis of the Company's contingent rights with
respect to possible proceeds receivable under a sale of the former El
Rancho Hotel property in Las Vegas, Nevada. The order became final on July
26, 1999. The financial effect of this event has not yet been evaluated but
will be evaluated and recognized in the second quarter ending September 30,
1999.
On June 4, 1999, the Company filed an adversary claim against Express
Scripts, Inc., for declaratory judgement with regard to a Non-Compete
Agreement dated March 5, 1995. The Company is presently in negotiation
with Express Scripts regarding a resolution of the issue. A Scheduling
Conference is set before the Court for August 27, 1999.
On July 2, 1999, the Company filed a Motion for Final Decree to Close the
Bankruptcy Estate. One objection was filed. A court hearing on the
objection has at present not been scheduled.
On July 14, 1998, the Company filed an adversary claim against Vincent
Villanueva (a former board member of the Company) to recover certain
payments made to him. The complaint sought the possible return of up to
$39,647. On April 21, 1999, a motion to dismiss this claim was filed. An
Order Approving Dismissal was entered by the Court on July 6, 1999.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
None
16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the registrant has
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 3, 1999
----------------------
Nunzio P. DeSantis Chief Executive Officer
/s/ Jeffrey Ovington Executive Vice President August 3, 1999
--------------------
Jeffrey Ovington (principal accounting and
financial officer)
17
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