<PAGE>
As filed with the Securities and Exchange Commission on June 8, 1999
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
AUTOLEND GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 523900 22-3137244
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code ) Identification No.)
600 Central SW, Third Floor
Albuquerque, New Mexico 87102
(505) 768-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Nunzio P. DeSantis, Chairman and Chief Executive Officer
600 Central SW, Third Floor
Albuquerque, New Mexico 87102
(505) 768-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
Marshall G. Martin, Esq. Jeffrey W. Hellberg, Esq.
Hinkle, Cox, Eaton, Coffield Hinkle, Cox, Eaton, Coffield
& Hensley, L.L.P. & Hensley, L.L.P.
500 Marquette NW, Suite 800 1700 Bank One Center
Albuquerque, NM 87102 Amarillo, TX 79101
(505) 768-1500 (806) 372-5569
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
<PAGE>
-ii-
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
____________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
=========================================================================================================
Proposed Proposed
Title of each class of securities Amount to be maximum maximum Amount of
to be registered registered offering price aggregate registration fee
per unit /(1)/ offering price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.002 par value 13,296,030/(2)/ $1.00 $13,296,030 $10,728
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.002 par value 6,323,500/(3)/ $4.00 $25,294,000
=========================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 1,436,500 shares to be issued to holders of Registrant's
Debentures in connection with its Plan of Reorganization.
(3) Includes 2,663,500 shares to be issued to holders of Registrant's
Class A and B Warrants and 3,660,000 shares to be issued to
holders of Registrant's Options, in such case upon exercise of
those Warrants and Options at an exercise price of $4.00 per
share.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
AutoLend Group, Inc.
Cross Reference Sheet Showing Location in Prospectus of Information Required by
Items 1 through 12 of Form S-1
REGISTRATION STATEMENT PROSPECTUS CAPTION
ITEM AND HEADING OR LOCATION
---------------- -----------
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside
Pages of Prospectus Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors, Prospectus Summary, Risk
and Ratio of Earnings to Fixed Charges Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Risk Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Prospectus Summary -- The
Offering
9. Description of Securities to Be Description of Common
Registered Stock
10. Interests of Named Experts and Legal Matters, Experts
Counsel
11. Information with Respect to Registrant Business; Selected
Financial Data, Management
Discussion and Analysis of
Financial Condition and
Results of Operations
12. Disclosure of Commission Position on Disclosures of Commission
Indemnification for Securities Act Position on
Liabilities Indemnification for
Securities Act Liabilities
<PAGE>
PROSPECTUS
AutoLend Group, Inc.
600 Central S.W., Third Floor
Albuquerque, NM 87102
(505) 768-1000
19,619,530 Shares of Common Stock
Pursuant to our Plan of Reorganization, we are offering 18,183,030
Shares of Common Stock ($.002 par value)
on a "best efforts" basis. Our offer with respect to holders of our
Common and Preferred Stock which were canceled on March 5,1999,
will expire on _____________, 1999, and with respect
to holders of our Warrants and Options which were canceled on
March 5, 1999, will expire on March 4, 2000. We are also
offering 1,436,500 Shares to holders of our Debentures.
Our Common Stock currently trades under the symbol "AUTL" in the
over-the-counter market on the Electronic Bulletin Board. Our
Common Stock is not actively traded, and the offering price may not
reflect the market price of our shares after the offering.
This Investment Involves a High Degree of Risk. You Should Purchase Shares
Only If You Can Afford a Complete Loss.
See "RISK FACTORS" beginning on Page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
____________________
PRICE $1.00 a SHARE (to holders of our canceled Common and Preferred Stock) and
$4.00 a SHARE (to holders of our canceled Warrants and Options)
____________________
================================================================================
Underwriting Proceeds to
Price to Public Discounts Company (1)
--------------- ------------ -----------
- --------------------------------------------------------------------------------
Per Share $1.00 -0- $1.00
- --------------------------------------------------------------------------------
Per Share $4.00 -0- $4.00
- --------------------------------------------------------------------------------
Total $37,153,530 -0- $37,153,530
================================================================================
____________________
(1) Before deducting our offering expenses, estimated to be $68,000.
This Prospectus is dated ___________ ___, 1999.
1
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the SEC to register the
shares as required by the federal securities laws. This Prospectus omits
certain information concerning us and our Common Stock contained in the
Registration Statement and its exhibits. We also file annual, quarterly, and
special reports, proxy statements, and other information with the SEC. Our SEC
filings are available to the public over the Internet at the SEC's web site at
www.sec.gov. You may also read and copy any document we filed at the SEC's
public reference rooms in Washington, D.C.; New York, New York; and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
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 our 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 our 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 we project; the consummation of certain
pending settlements of litigation affecting our interests; the perceived
difficulties from our bankruptcy which could adversely affect our existing and
proposed operations and other difficulties relating to our Chapter 11
bankruptcy; and the risks relating to the operation of a gaming business which
forms a significant part of our plan of reorganization. From time to time, we
may publish or otherwise make available forward-looking statements. All
subsequent forward-looking statements, whether written or oral and made by us or
on our behalf, are also expressly qualified by these cautionary statements.
PROSPECTUS SUMMARY
You should read this Prospectus carefully before making any investment decision
regarding our Common Stock and pay particular attention to the information under
"Risk Factors" and in the financial statements and related notes elsewhere in
this Prospectus. In addition, you should consult your own advisors to
understand fully the consequences of an investment in our shares.
The following summary does not purport to be complete and is qualified by the
more detailed information elsewhere in this Prospectus.
. The Company
AutoLend Group, Inc., is a holding company headquartered in Albuquerque, New
Mexico. We are currently winding down our existing businesses. We operate
through our subsidiaries, which are:
. AutoLend Corporation, which maintains a portfolio of sub-prime consumer
used-car loan contracts purchased from used-car dealers. We ceased
purchasing these loans in December 1995.
. American Life Resources Group, Inc., and LB NM, Inc., which maintain
portfolios of unmatured life insurance policies purchased from persons with
life-threatening illnesses, a
2
<PAGE>
business generically referred to as viatical settlements. We ceased
purchasing these policies in September 1994.
Since the sale in September 1996 of another subsidiary, which provided short-
term "floor" financing to used-car dealers, our activities have been
concentrated on resolving our bankruptcy; developing or acquiring a new business
activity, primarily in the gaming business (which is now a division of AutoLend
Group, Inc., doing business under the name of Kachina Gaming); resolving certain
obligations and litigation associated with former operations; collecting amounts
due from the outstanding used-car loans; and collecting proceeds from the life
insurance policies. See "BUSINESS."
. Change in Management
In September 1996, new management, led by Nunzio P. DeSantis, our current
Chairman of the Board, President, and Chief Executive Officer, took over our
management and direction. This was the result of a Stipulation of Settlement
approved by a Chancery Court arising from litigation brought by Mr. DeSantis and
other stockholders in Delaware. The losses that forced us into bankruptcy were
caused primarily by the business our former management initiated and operated,
i.e., purchasing and maintaining a portfolio of sub-prime car loan contracts.
New management significantly reduced our overhead expenses, including reducing
our number of employees and moving our headquarters from Miami Beach, Florida,
to Albuquerque, New Mexico. It also took other actions to improve our financial
condition, including an exchange offer of our old Common and Preferred Stock for
our outstanding debentures, purchasing some of those debentures at a discount in
the open market, and resolving the expensive lease of the Miami Beach office
space.
. Voluntary Bankruptcy
On September 23, 1997, we filed for reorganization under Chapter 11 of the Code
in the Bankruptcy Court. Under Chapter 11, certain claims against us in
existence before the petition for relief was filed were stayed while we
continued our business operations as "debtor-in-possession." We filed our
petition under the Code because of our inability to make scheduled principal
payments of and accrued interest on our Debentures.
Our Disclosure Statement was approved by the Bankruptcy Court in September 1998
and, together with our Plan of Reorganization, was mailed to our creditors and
other interest holders in October 1998. They approved the Plan, and a
Confirmation Hearing was held on February 3, 1999. The Bankruptcy Court
confirmed the Plan, and it became effective on March 5, 1999.
. Plan of Reorganization
The material features of our Plan of Reorganization provide for the cancellation
of all of our $7.2 million principal of convertible subordinated debentures and
$2.3 million accrued interest thereon, and all of our equity securities as of
March 5, 1999. The class of unsecured creditors will receive 100 percent of its
allowed claims.
The holders of our debentures will receive approximately 1.4 million shares of
our Common Stock, $2.8 million in cash, and non-interest bearing,
uncollateralized notes aggregating $0.6 million payable in five annual payments.
3
<PAGE>
The holders of our canceled Common and Preferred Stock have the right to
purchase new shares of Common Stock during certain periods beginning on the date
of this Prospectus. The price per share of our new Common Stock is $1.00. If
the holders of all shares of old Common Stock purchase new Common Stock, 6.1
million shares of new Common Stock will be issued (resulting in $6.1 million of
additional equity capital). If the holders of all the shares of Preferred Stock
purchase new Common Stock, 5.8 million new shares of Common Stock will be issued
(resulting in $5.8 million in additional equity capital). See "SUMMARY - The
Offering."
The holders of our Class A and B Warrants and options have a 12-month period
beginning March 5, 1999, to purchase the same number of shares of our Common
Stock as originally provided for under the Warrants or Options, at $4.00 per
share. If all the Warrants and Options are exercised, an additional 6.3 million
shares of new Common Stock will be issued (resulting in $25.3 million in
additional equity capital). See "SUMMARY - The Offering."
We expect that only a portion of the additional shares will be purchased by
existing equity holders, resulting in total Common Stock outstanding of up to 9
million shares; this would result in a total net equity (before the impact of
any interim operating results) of up to $8.6 million.
. Proposed New Business
Our plan of reorganization proposes developing a new business which consists
primarily of providing gaming devices and machines for certain non-profit
organizations in New Mexico where they are legal under state law.
Because we believe we can obtain the proper licensing and the gaming machines,
and because contracts and opportunities for future contracts to provide gaming
machines are available with non-profit organizations, we believe this business
will be viable and will allow us to meet our obligations. We cannot, however,
assure we will be successful in this endeavor. See "BUSINESS - Proposed New
Business."
. Option to Purchase ITB Shares
In connection with the settlement of litigation involving our option to purchase
an approximately 25 percent equity interest in International Thoroughbred
Breeders, Inc., for $2.5 million, and a related loan transaction, we received
$4,446,771 on January 29, 1999, and the option was canceled. Receipt of these
funds represents the return of a $2 million escrow deposit and the partial
payment of a promissory noted owed to us. See "BUSINESS - Option to Purchase
ITB."
. The Offering
Pursuant to our Plan of Reorganization, which is being clarified to conform to
the offering described herein, we are offering shares of our new Common Stock to
holders of our old Common and Preferred Stock and Class A and Class B Warrants,
options, and debentures, all of which were canceled on March 5, 1999, under the
Plan of Reorganization. Specifically, the offering will include 1,436,500
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 Class A and Class B warrants; and up to 3,660,000
shares for holders of options. This is a total of up to 19,619,530 new shares
of Common Stock which may be issued and outstanding. However,
4
<PAGE>
the Company estimates that up to 9 million of these shares will actually be
issued as a result of the offering, depending upon the number of shares
subscribed for. Any shares of new Common Stock not issued in these transactions
will remain authorized and unissued and will be available to be issued in other
transactions in the future as approved by our Board of Directors.
. Holders of Old Common and Preferred Stock
Pursuant to our Plan of Reorganization, during the 60 days following the date of
this Prospectus, holders of old:
Common Stock have the right to purchase up to one share of our new
Common Stock for each share of old Common Stock they own, for $1.00
per new common share; and
Preferred Stock have the right to purchase up to 100 shares of our new
Common Stock for each share of old Preferred Stock they own, for $1.00
per new common share.
For the next 30 days thereafter, each holder of our new Common Stock will have
the right to purchase a pro rata portion of the aggregate number of shares of
our new Common Stock not purchased by the holders of old Common and Preferred
Stock during the initial offering period, for $1.00 per share. In addition,
each holder of new Common Stock has the option during this period to purchase
any amount of any remaining shares of our new Common Stock not otherwise
purchased by our holders of new Common Stock on a pro rata basis at $1.00 per
share. See "PROSPECTUS SUMMARY - The Offering - Terms."
. Holders of Class A and Class B Warrants
For one year after March 5, 1999, holders of our Class A and Class B Warrants
may purchase up to the same number of shares of our new Common Stock that they
could have purchased of our old Common Stock pursuant to the old Warrants for
$4.00 per share of new Common Stock.
. Holders of Options
For one year after March 5, 1999, holders of Options to purchase shares of our
old Common Stock may purchase the same number of shares of our new Common Stock
that they could have purchased of our old Common Stock pursuant to their old
Options for $4.00 per share of new Common Stock.
. Terms
For holders of old Common and Preferred Stock, the cost for shares of new Common
Stock purchased during the initial 60-day offering period is payable in cash or
certified funds, and those holders may pay either entirely up front or over one
year with quarterly payments in increments of 25 percent of the purchase price,
and certificates representing the new Common Stock will be issued as they are
paid for in full. Payment, either in full or the first quarterly payment, is
due with the subscription agreement and must be made by 60 days after the date
of this Prospectus. Holders of new Common Stock who exercise their rights under
our Plan of Reorganization to purchase additional shares of new Common Stock
during the second 30-day offering period must pay in full
5
<PAGE>
upon exercise. Holders of old Warrants and Options will pay us only if they
exercise their Warrants and Options during the next year (ending March 4, 2000);
upon their exercise, payment is due in full. Certificates representing the
number of shares of new Common Stock will be issued upon payment by holders of
old Common and Preferred Stock and Warrants and Options upon our receipt of
payment for shares of new Common Stock.
. Holders of Debentures
For the holders of our outstanding debentures, pursuant to the Plan of
Reorganization, we offered three choices, two of which include the issuance of
new Common Stock. Any debenture holder who failed to make a selection will
receive the default choice of Option C. In total, debenture holders will
receive 1,436,500 shares of new Common Stock, plus aggregate up-front cash
payments of $2,769,000 and notes in the aggregate amount of $624,000. This is
in exchange for a total of $7,225,000 in principal value of debenture debt and
more than $2,250,000 in accrued interest. If the subscription to the new Common
Stock at $1.00 per share (by holders of old Common Stock and Preferred Stock)
and at $4.00 per share (by Warrant and Option holders) brings in less than $1.2
million in new capital, then the former debenture holders will own a majority of
the Company.
Option A
Debenture holders who chose Option A will receive 250 shares of new Common Stock
for each $1,000 principal amount of the debentures they tender, and $550 in cash
for each $1,000 debenture (of which $400 is payable initially and $150 is
payable over five years in equal installments beginning 12 months after the
initial payment). Holders of debentures tendered as of March 25, 1999, who
selected Option A totaled $4,160,000 in principal amount; this will result in
the issuance of 1,040,000 shares of new Common Stock, plus the payment in the
aggregate amount of $1,664,000 and the issuance of five-year notes in the
aggregate amount of $624,000.
Option B
Debenture holders who chose Option B will receive a lump-sum cash payment of
$450 for each $1,000 principal amount of the debentures they tender. Holders of
debentures tendered as of March 25, 1999, who selected Option B totaled
$2,455,000 in aggregate principal amount; this will result in the payment of
$1,105,000.
Option C
Debenture holders receiving treatment under Option C will receive 650 shares of
new Common Stock for each $1,000 principal amount of the debentures they
possessed. As of March 25, 1999, debentures receiving treatment under Option C
totaled $610,000 in aggregate principal amount; this will result in the issuance
of 396,500 shares of new Common Stock.
. Summary Financial Information
Summary financial data for the Company are given below for the nine months ended
December 31, 1998, and 1997, and the three years ended March 31, 1998, 1997, and
1996. The unaudited financial data for the interim periods reflect, in the
opinion of management, all adjustments necessary to present fairly the data for
those periods. The results of operations for the
6
<PAGE>
interim periods do not necessarily indicate operating results for the entire
year. These data should be read with the Company's financial statements and the
related notes elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31 Nine Months Ended
December 31
----------------------------------------------------------- -----------------------------------------
In Thousands (except earnings per share)
-------------- -------------- ------------- Pro Forma ----------- ------------- Pro Forma
1996 1997 1998 1998 (1) 1997 1998 1998 (1)
-------------- -------------- ------------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total net revenues $ 8,350 $ 2,075 $ 597 $ 597 $ 546 391 391
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operation earnings/(loss),
including loan loss
provisions $ (10,404) $ (7,402) $ (1,469) $ (1,469) $ (1,429) (344) (344)
Write-off of assets and
accrual of expenses
related to the
consumer loan and
viatical businesses -- (2,109) (132) (132) -- -- --
Insurance policy
write-down recapture -- -- -- -- __ 496 496
Net interest
income/(expense) (2,687) (1,816) (571) 85 (671) (319) (24)
Miscellaneous other
income/(expense), net (26) (461) (38) (38) 141 47 47
---------- ---------- ---------- ---------- ---------- ---------- ----------
Pretax results of
operations $ (13,117) $ (11,788) $ (2,210) $ (1,554) $ (1,959) $ (120) $ 175
Tax offset to loss/(taxes) 4,936 86 -- -- (40) -- --
Non-cash debenture
conversion charge -- -- (6,261) (6,261) (6,261) -- --
Net gain on early
extinguishment of debt 7,307 -- 3,172 3,172 3,172 -- --
Net gain on result of
reorganization -- -- -- 3,400 -- -- 3,773
Bankruptcy reorganization
expense -- -- (212) -- -- (316)
Discontinued operations (48) 167 -- -- -- -- --
Cumulative effect of
change in accounting
principle 177 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss income/(loss) $ ( 745) $ (11,535) $ (5,511) $ (1,243) $ (5,088) $ (436) $ 3,948
========== ========== ========== ========== ========== ========== ==========
Per Share Data:
- --------------
Pretax results of
operations $ (2.83) $ (2.54) $ (0.37) $ (1.08) $ (0.33) $ (0.02) $ 0.12
Net loss income/(loss) $ (0.16) $ (2.49) $ (0.91) $ (0.87) $ (0.84) $ (0.07) $ 2.75
========== ========== ========== ========== ========== ========== ==========
Weighted average number of
common and common
equivalent shares
outstanding 4,634,530 4,634,530 6,039,391 1,436,500 6,026,011 6,079,530 1,436,500
========== ========== ========== ========== ========== ========== ==========
Balance Sheet Data:
- ------------------
Total Assets $ 24,485 $ 16,276 $ 7,640 $ 3,491 $ 8,735 $ 8,603 4,227
Total Liabilities 24,964 28,291 11,241 2,441 11,323 12,250 2,814
Total Stockholder's Equity (479) (12,015) (3,601) 1,050 (2,588) (3,647) 1,413
</TABLE>
(1) Pro forma columns are based on altering historical actuals to
demonstrate the effect on the period reported as if the Plan of
Reorganization (and its resulting changes) had occurred earlier than
it actually occurred; i.e., to recast the accounts as if the Plan of
Reorganization had occurred at the beginning of the period for Income
Statement reporting, and as of the end of the period in question for
Balance Sheet reporting. (See footnotes to Pro forma Consolidated
Statements of Operations.)
RISK FACTORS
Your purchase of our new Common Stock involves a high degree of risk, including,
but not necessarily limited to, the risks described below. Before subscribing
to the new Common Stock, you should consider carefully the general investment
risks enumerated elsewhere in this Prospectus and the following risk factors, as
well as the other information in this Prospectus.
. Emergence from Bankruptcy
In September 1997, we were forced to seek protection from our creditors under
Chapter 11 of the United States Bankruptcy Code. On February 3, 1999, the
Bankruptcy Court confirmed a plan of reorganization which became effective on
March 5, 1999, pursuant to which our creditors will
7
<PAGE>
receive partial satisfaction of their claims. The losses that forced us into
bankruptcy were caused primarily by a business our former management initiated
and operated, i.e., purchasing and maintaining a portfolio of sub-prime car loan
contracts. This business has been discontinued except for the orderly
liquidation of its assets. Any failure to adequately deal with our financial
difficulties may lead to new problems that could have a material adverse impact
on our condition and prospects. In addition, we cannot guarantee that we will
fully recover from the bankruptcy and regain acceptance as a reputable company.
Further, our bankruptcy proceedings may hamper our ability to establish new
relationships with commercial lenders and complicate our efforts to obtain
financing. See "BUSINESS - Plan of Reorganization."
. Potential Need for Additional Financing
We may need significant funding following this offering to market our proposed
new gaming business in New Mexico and any other business opportunities which
management may develop. If we do need such funding, we would most likely raise
additional funds through alternative financing methods. We may be unable to
obtain such additional funding if needed, or the funding may have unacceptable
terms.
. Dependence on Key Personnel
Our success depends in part upon the successful performance of our current
management team for our continued marketing and operation. Although we will
probably employ in the future other highly qualified persons, if our current
management team fails to perform its duties for any reason, our ability to
market, operate, and support our new business plan may be adversely affected.
See "MANAGEMENT."
. Competition
Although we believe our proposed gaming business in New Mexico is unique in
several ways, other companies have similar capabilities and may have
substantially greater financial and other resources than we do. We cannot
predict what our competition will do, or what market share we will have
resulting from that competition.
. Dilution; Cheap Stock
Our investors may experience immediate dilution of $ 0.23 per share of Common
Stock, or approximately 23 percent of the $1.00 offering price per share . This
is due to the variables inherent in the bankruptcy reorganization, including the
three choices that were available to debenture holders, and the degree of
participation by holders of old Common and Preferred Stock.
. Voting Control; Potential Anti-Takeover Effect
Because of the uncertainties associated with the degree of participation by
holders of old Common and Preferred Stock, it is unknown what portion will be
owned by present management after the offering. However, control could be
increased. Because of this, potential takeover bids for us may be deterred.
This may have a depressive effect on the price of our Common Stock. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
"MANAGEMENT."
8
<PAGE>
. No Payment of Dividends
We have paid no dividends on our Common Stock. For the foreseeable future, we
anticipate that any earnings generated from our operations will be used to
finance our growth, and cash dividends will not be paid to holders of the
Common Stock. See "DESCRIPTION OF SECURITIES."
. Arbitrary Determination of Offering Price
We have arbitrarily determined the offering price of the Common Stock in
connection with our Plan of Reorganization. It does not necessarily bear any
relationship to our operating or financial results and should not be considered
to indicate a definitive intrinsic value for the Common Stock. However, within
the structure of the bankruptcy reorganization, the $1.00 per share valuation of
the offering should have a substantial effect in determining realized net book
value per share.
. No Assurance of Public Market for the Common Stock
Before we filed for protection under the Bankruptcy Code, our Common Stock was
traded on the Nasdaq Smallcap Market and the Boston Stock Exchange until May 21,
1996, and August 20, 1996, respectively. It was delisted for failure to meet
minimum net equity requirements. Our Common Stock currently trades in the over-
the-counter market on the Electronic Bulletin Board. However, before this
offering, there was no active, liquid public market for the old Common Stock,
and there can be no assurance that any effective markets will develop or, if
developed, will be sustained after this offering, or that our new Common Stock
will be salable at or near its offering price.
. Possible Issuance of Substantial Amounts of Additional Shares Without
Stockholder Approval
After this offering, we will have a maximum of up to 19 million shares of new
Common Stock authorized and outstanding, and we will have up to 21 million
shares of Common Stock authorized and unissued and reserved for issuance for
purposes determined by our Board of Directors. These shares may be issued
without our stockholders' approval.
All old shares of Preferred Stock were canceled under the Plan of
Reorganization. Under our Articles of Incorporation, 5,000,000 shares of
Preferred Stock are authorized to be issued at the discretion of the Company's
Board of Directors. The Company has no understandings or immediate plans to
issue shares of its Preferred Stock.
. Penny Stock Regulation
Broker-dealer practices in "penny stock" transactions are regulated by certain
SEC rules. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system). The penny stock rules require a
broker-dealer, before a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document with information
about penny stocks and their risks. The broker-dealer also must provide the
customer current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction, and, if the broker-
dealer is the sole market-maker, he must disclose this fact and his presumed
control over the market, and monthly account statements showing the market value
of each penny stock in the
9
<PAGE>
customer's account. In addition, brokers-dealers who sell these securities to
persons other than established customers and accredited investors (generally,
persons with assets over $1,000,000 or annual income exceeding $200,000, or
$300,000 with their spouses) must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive his written
agreement to the transaction. Consequently, these requirements may reduce any
trading activity in the secondary market for a security that becomes subject to
the penny stock rules. Then you may find it more difficult to sell your shares
of our Common Stock.
. Pro Forma Financial Statements
The unaudited pro forma condensed consolidated balance sheet and unaudited pro
forma condensed consolidated statement of operations presented on the following
pages are based upon the historical financial position of the Company at
December 31, 1998, and the historical results of operations for the year ended
March 31, 1998, and for the nine months ended December 31, 1998. The pro forma
adjustments made to the historical condensed consolidated balance sheet at
December 31, 1998, give effect to the Plan of Reorganization as if the
transactions had occurred on December 31, 1998. In addition, since the
reorganization has been effectuated pursuant to Chapter 11 of the Bankruptcy
Code, the provisions of Statement of Position (SOP) 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," which require the
application of fresh-start reporting, have been reflected in the condensed
consolidated balance sheet at December 31, 1998, as if the reorganization and
adoption of fresh-start reporting had been completed on that date. The
unaudited pro forma results of operations for the year ended March 31, 1998, and
the nine months ended December 31, 1998, are based on historical results of
operations for those periods and give effect to the Plan of Reorganization and
the adoption of fresh-start reporting as if the transactions occurred at the
beginning of the periods, on April 1, 1997, and 1998.
These pro forma financial statements are provided for informational purposes
only and should not be construed to indicate the financial conditions or results
of operations of the Company had the transactions described therein been
consummated on the respective dates indicated and are not intended to predict
the financial condition or results of operations of the Company at any future
period.
The pro forma adjustments are based on available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The pro forma financial data and accompanying notes should be read in
conjunction with the historical Consolidated Financial Statements of the
Company, including the Notes thereto, and the other information pertaining to
the Company appearing elsewhere in the prospectus which forms a part of the
Registration Statement.
10
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Reorganization Fresh
Historical Adjustments Start Pro Forma
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,292,059 1,671,069 (a)(b) $3,963,128
Installment contracts receivable $ 164,248 $ 164,248
Allowance for credit losses (100,168) (100,168)
------------ ----------
Installment contracts receivable-net $ 64,080 $ 64,080
ITB Option, less allowance 425,000 (425,000) (a) --
Escrow deposit 2,000,000 (2,000,000) (a) --
Interest on escrow deposit 140,069 (140,069) (a) --
Note receivable - NPD, Inc. 3,035,292 (3,035,292) (a) --
Interest receivable on note receivable - NPD, Inc. 446,863 (446,863) (a) --
Purchased insurance policies 133,740 133,740
Fixed assets, less accumulated depreciation 19,811 19,811
Other 46,311 46,311
------------ -------------- ---------- ----------
Total assets $ 8,603,225 (4,376,155) $4,227,070
============ ============== ========== ==========
Liabilities:
Liabilities subject to compromise:
Accounts payable $ 97,079 97,079
Accrued liabilities 162,876 162,876
Accrued interest expensed on debentures (pre-petition) 1,372,819 (1,372,819) (b) --
Convertible subordinated debentures at face value 7,225,000 (7,225,000) (b) --
Allowance for estimated legal fees and settlement costs 1,525,000 1,525,000
------------ -------------- ---------- ----------
Total liabilities subject to compromise 10,382,774 (8,597,819) 1,784,955
------------ -------------- ---------- ----------
Liabilities not subject to compromise:
Accounts payable 59,715 59,715
Contingent liabilities - reorganization 381,116 381,116
Accrued liabilities 64,835 64,835
Accrued liabilities expense on debentures (post-petition) 878,941 (878,941) (b) --
Note to Debenture holders -- 523,300 (b) 523,300
NPD Note 425,000 (425,000) (a) --
Accrued interest - NPD, Inc. 57,542 (57,542) (a) --
------------ -------------- ---------- ----------
Total liabilities not subject to compromise 1,867,149 (838,183) -- 1,028,966
------------ -------------- ---------- ----------
Total liabilities $ 12,249,923 (9,436,002) -- $2,813,921
============ ============== ========== ==========
Stockholders' Deficit:
Preferred stock, $.002 par value. Authorized 5,000,000 shares;
57,800 issued and outstanding at December 31, 1998 $ 116 (116)(c) $ --
Common stock, $.002 par value. Authorized 40,000,000 shares;
issued 6,079,530 shares at December 31, 1998 12,158 (12,158)(c) --
Common stock (pro forma) $.002 par value. Authorized
40,000,000 shares; issued 1,436,500 2,873 (b) 2,873
Additional paid-in capital 20,459,946 1,410,276 (b) (20,459,946)(c) 1,410,276
Unrealized holding loss (200,000) 200,000 (a) --
Accumulated deficit (23,918,918) 3,446,698 (a)(b) 20,472,220 (c) --
------------ -------------- ----------- ----------
Total stockholders' equity/(deficit) $ (3,646,698) 5,059,847 -- $1,413,149
------------ -------------- ----------- ----------
Total liabilities and stockholders' equity/(deficit) $ 8,603,225 (4,376,155) -- $4,227,070
============ ============== =========== ==========
</TABLE>
(a) Gives the effect of the ITB and NPD settlement that became
interrelated during the Bankruptcy proceedings. The settlement
provided for the return of the $2 million cash escrow account with
interest of $0.1 million and $2.3 million in cash for the note
receivable of $3.0 million plus interest of $0.4 million from NPD. In
addition, the ITB stock option at
11
<PAGE>
face value of $0.6 million and corresponding note payable of $0.4
million plus interest to NPD were canceled. The net effect of this
settlement was a loss of $1.3 million at December 31, 1998.
(b) Gives the effect of the Debenture debt forgiveness. Debenture debt of
$7.2 million plus interest of $2.3 million was forgiven in exchange
for $2.8 million in cash, a five-year non-interest bearing note
payable, uncollaterilized for $0.6 million and 1.4 million shares of
new common stock. The note payable is due in five equal annual
payments of $124,800. For financial statement presentation, it has
been discounted based on an imputed interest rate of 6%; therefore,
this resulted in an unamortized discount of $0.1 million at debt's
inception. The note was recorded at its discounted value of $0.5
million. The value of the new common stock was equal to the net equity
of the Company that at December 31, 1998, was approximately $0.98 per
share. The result was a net gain of $4.7 million. This pro forma
assumes that 1.4 million shares of common stock were issued and $2.8
million in cash was paid.
(c) The Company has accounted for the reorganization and the related
transactions using the principles of fresh-start accounting as
required by Statement of Position 90-7 ("SOP 90-7") issued by the
American Institute of Certified Public Accountants (the "AICPA"). In
accordance with SOP 90-7 and the Plan of Reorganization, retained
earnings, capital stock, and additional paid-in capital before the
effective date have been eliminated, and pursuant to the Plan of
Reorganization all outstanding shares of preferred and common stock
have been canceled as of the effective date.
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Pro Forma Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year Ended March 31, 1998 Nine Month Period Ended December 31, 1998
=================================================== ==============================================
Reorganization Reorganization
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
--------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Finance charges on
installment contracts $ 587,616 $ 587,616 $ 94,921 $ 94,921
Revenues from matured
insurance policies 69,109 69,109 988,228 988,228
----------- ----------- ----------- -----------
Gross revenues 656,725 656,725 1,083,149 1,083,149
Cost of matured insurance
policies (60,125) (60,125) (692,400) (692,400)
----------- ----------- ----------- -----------
Total net revenues $ 596,600 $ 596,600 $ 390,749 $ 390,749
General and administrative
expenses (2,106,636) (2,106,636) (1,040,380) (1,040,380)
Provision for credit gain
(losses) 41,000 41,000 306,000 306,000
----------- ----------- ----------- -----------
Operating loss $(1,469,036) $(1,469,036) $ (343,631) $ (343,631)
----------- ----------- ----------- -----------
Other income/(expense):
Interest income:
Interest income on
cash and cash
equivalents 207,116 207,116 74,034 74,034
NPD, Inc., note
receivable 219,215 (219,215)(a) -- 227,648 (227,648)(a) --
Interest expense:
Debentures (881,918) 881,918 (b) -- (514,781) 514,781 (a) --
NPD, Inc., note
payable (25,667) 25,667 (a) -- (31,875) 31,875 (a) --
Accrued interest (32,300)(b) (32,300) -- (24,200)(b) (24,200)
Debenture note
Accrued interest other (27,082) (27,082) -- --
Write-down of purchased
insurance policies (131,772) (131,772) -- --
Insurance policy
write-down recapture -- -- 495,683 495,683
Gain on lease termination 266,378 266,378 -- --
Write-down of AutoLend,
IAP, Inc., securities (160,000) (160,000) -- --
Write-off of fixed assets (3,720) (3,720) (4,570) (4,570)
Other income/(expense) (204,128) (204,128) (22,488) (22,488)
Debenture conversion
charge (6,261,052) (6,261,052) -- --
----------- ----------- ----------- -----------
Total net other
income/(expense) $(7,002,630) $(6,346,560) $ 223,651 $ 518,459
----------- ----------- ----------- -----------
Income/(loss) before
reorganization costs,
income taxes, and
extraordinary item $(8,471,666) $(7,815,596) $ (119,980) $ 174,828
Reorganization costs
incurred after Chapter
11 proceedings (211,667) 211,667 (c) -- (315,875) 315,875 (c) --
----------- -------- ----------- ----------- -------- -----------
Income/(loss) before
benefit from income
taxes and extraordinary
item $(8,683,333) 867,737 $(7,815,596) $ (435,855) 610,683 $ 174,828
=========== ======== =========== =========== ======== ===========
Other data:
Income/(loss) per share
before benefit from
income taxes and
extraordinary item $ (1.44) $ (5.44) $ (0.07) $ 0.12
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
(a) Accrued interest receivable on the note receivable from NPD, Inc., and
accrued interest payable on the note payable to NPD, Inc., have been
eliminated for the fiscal year ended March 31, 1998, and for the nine
months ended December 31, 1998, as a result of the ITB and NPD settlement.
(b) Accrued interest payable on the Debentures for fiscal year ended March 31,
1998, and the nine months ended December 31, 1998, has been eliminated as a
result of the Reorganization. This discount, on the five-year non-interest
bearing note payable for the fiscal year ended March 31, 1998, and for the
nine months ended December 31, 1998, has been amortized at $32,300 and
$24,200 respectively.
(c) Eliminates the non-reoccurring legal and professional fees and other costs
incurred after the Chapter 11 was filed.
SELECTED FINANCIAL DATA
The following selected financial data for the nine months ended December 31,
1998, and 1997 (unaudited), and the fiscal years ended March 31, 1998, 1997,
and 1996 (audited), are from our consolidated financial statements and should be
read with those statements and their notes. We have had no active business other
than to collect the remaining consumer car loans and the viatical policies since
September 1996.
Accordingly, results of operations do not indicate future results (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"). In addition, the results for the nine months ended December 31,
1998, do not necessarily indicate results that may be expected for the entire
fiscal year.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended March 31, December 31,
---------------------------------------------------- --------------------------------------
In Thousands (except earnings per share)
Pro Pro
forma forma
1996 1997 1998 1998 (1) 1997 1998 1998 (1)
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Finance charges on
installment contracts $ 7,808 $ 1,671 $ 588 $ 588 $ 537 $ 95 $ 95
Net revenue from matured
insurance policies 542 404 9 9 9 296 296
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total net revenues $ 8,350 $ 2,075 $ 597 $ 597 $ 546 $ 391 $ 391
========== ========== ========== ========== ========== ========== ==========
Operating earnings/(loss),
including loan
loss provisions $ (10,404) $ (7,402) $ (1,469) $ (1,469) $ (1,429) $ (344) $ (344)
Net interest
income/(expense) (2,687) (1,816) (571) 85 (671) (319) (24)
Write-off of assets and
accrual of expenses
related to the consumer
loan and viatical
businesses -- (2,109) (132) (132) -- -- --
Insurance policy
write-down recapture -- -- -- -- -- 496 496
Realized gains/(losses) on
marketable securities 1 -- -- -- -- -- --
Tax offset to loss 4,936 86 -- -- (40) -- --
Miscellaneous other
income/(expense), net (27) (461) (38) (38) 141 47 47
---------- ---------- ---------- ---------- ---------- ---------- ----------
Results of operations, $ (8,181) $ (11,702) $ (2,210) $ (1,554) $ (1,999) $ (120) $ 175
including interest
expenses before
debenture conversion
charge
Non-cash debenture
conversion charge -- -- (6,261) (6,261) (6,261) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss before bankruptcy
reorganization
expenses, discontinued
operations, extraordinary
items, and change in
accounting principle $ (8,181) $ (11,702) $ (8,471) $ (7,815) $ (8,260) $ (120) $ 175
Bankruptcy reorganization
expenses -- -- (212) -- -- (316) --
Discontinued operations (48) 167 -- -- -- -- --
Extraordinary items:
Net gain on early
extinguishment of debt 7,307 -- 3,172 3,172 3,172 -- --
Net gain as a result
of reorganization -- -- -- 3,400 -- -- 3,773
Cumulative effect of
change in accounting
principle 177 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss income/(loss) $ (745) $ (11,535) $ (5,511) $ (1,243) $ (5,088) $ (436) $ 3,948
========== ========== ========== ========== ========== ========== ==========
Per Share Data
- --------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended March 31, December 31,
---------------------------------------------------- --------------------------------------
In Thousands (except earnings per share)
Pro Pro
forma forma
1996 1997 1998 1998 (1) 1997 1998 1998 (1)
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss per share before
bankruptcy reorganization
expenses,
discontinued operations,
extraordinary items, and
change in accounting
principle $ (1.77) $ (2.53) $ (1.40) $ (5.44) $ (1.37) $ (0.02) $ 0.12
Bankruptcy reorganization
expenses -- -- (0.04) -- -- (0.05) --
Discontinued operation (0.01) 0.04 -- -- -- --
Extraordinary items:
Net gain on early
extinguishment of debt 1.58 -- 0.53 2.21 0.53 -- --
Net gain as result of
reorganization -- -- -- 2.37 -- -- 2.63
Cumulative effect of
change in accounting
principle 0.04 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Loss $ (0.16) $ (2.49) $ (0.91) $ (0.87) $ (0.84) $ (0.07) $ 2.75
========== ========== ========== ========== ========== ========== ==========
Weighted average number
of common and
common equivalent
shares outstanding 4,634,530 4,634,530 6,039,391 1,436,500 6,026,011 6,079,530 1,436,500
========== ========== ========== ========== ========== ========== ==========
Balance Sheet Data:
- -------------------
Total Assets $ 24,485 $ 16,276 $ 7,640 $ 3,491 $ 8,735 $ 8,603 $ 4,227
Total Liabilities 24,964 28,291 11,241 2,441 11,323 12,250 2,814
Total Stockholder's
Equity (479) (12,015) (3,601) 1,050 (2,588) (3,647) 1,413
</TABLE>
(1) Pro forma columns are based on altering historical actuals to
demonstrate the effect on the period reported as if the Plan of
Reorganization (and its resulting changes) had occurred earlier than
it actually occurred; i.e., to recast the accounts as if the Plan of
Reorganization had occurred at the beginning of the period for Income
Statement reporting, and as of the end of the period in question for
Balance Sheet reporting. (See Footnotes to Pro Forma Consolidated
Statements of Operations.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
. General
. Viatical Settlements
Viatical settlements was our first business, which was commenced by our original
management. Although we were organized in May 1989, we did not begin our
viatical settlements business until April 1991 when we acquired certain assets
of Living Benefits, Inc. Then, in April 1993, we acquired certain operating
assets of American Life Resources Corporation, another viatical settlements
business. We generally ceased purchasing viatical policies in September 1994,
and by July 1995 had sold most outstanding policies. Goodwill and intangibles
related to these acquisitions were amortized over the remaining life of the
policies portfolio, extending through the fiscal year ended March 31, 1996, when
they were fully amortized. We still hold a small residual portfolio of policies.
. Consumer Used-Car Loans
High-risk consumer used-car loans was our second business, which was started by
the Company's prior Miami-based management team. The Company commenced
purchasing "sub-prime" consumer used-car loans in May 1994 through a wholly
owned subsidiary and ceased purchasing them in December 1995. Loan loss
provisions for this business from May 1994 through March 1997 totaled $14.0
million, on revenues of $12.2 million for the same period. These losses do not
include overhead and direct costs associated with this business. The results of
this business were the primary reason we could not service the outstanding
debentures; this forced us to file the
14
<PAGE>
bankruptcy petition. The net impact of this business segment for the year ended
March 31, 1998, was marginally positive, as the portfolio "winds down."
. Dealer Inventory Assistance Program
Short-term dealer used-car inventory "floor" financing was another business
started by the Miami management team. We sold our subsidiary conducting this
unprofitable inventory assistance program on September 18, 1996. Accordingly,
for the fiscal years ended March 31, 1997, and 1996, its net assets are included
in our financial statements as "Net assets of discontinued operations," and the
net operating losses are included as "Discontinued operations-loss from
operations of discontinued subsidiary," net of applicable income tax.
. Current Activities
Effective September 1996, the present Albuquerque management team took control
from the former Miami management team. Since the sale of the inventory
assistance program, our business activities have been primarily concentrated on
resolving our bankruptcy, acquiring or developing a new business in the gaming
industry (which is a division of AutoLend Group, Inc., doing business under the
name of Kachina Gaming), resolving certain obligations and litigation associated
with former operations, collecting amounts due from the outstanding consumer
used-car loans, and collecting proceeds from the policies in the viatical
settlements business.
. Results of Operations
Nine months ended December 31, 1998, compared to nine months ended December 31,
1997
. Summary
We recorded a net loss of approximately $0.4 million for the nine-month period
ended December 31, 1998. Contributing to the loss was approximately $0.5
million of non-cash accruals for various interest expenses, which would be
resolved under our Plan of Reorganization. As further explained below, general
and administrative expenses have been substantially reduced. Additionally,
these reported income results do not include the return of principal for the
used-car loan portfolio. The net result of the above is that total cash on hand
increased over the nine-month period by approximately $1.5 million, to about
$2.3 million at December 31, 1998 (which total represents an increase of
approximately $1.7 million, almost four times the amount on hand in late
September 1997 when the Company filed for bankruptcy).
. Used-Car Loan Revenues
Revenues on the used-car loan portfolio were approximately $95,000 during the
nine months ended December 31, 1998, which represented a $0.4 million decrease
compared to the $0.5 million realized during the nine months ended December 31,
1997. This decrease is a result of the reduced size of our portfolio of those
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. Future revenues from this portfolio will, in general,
decline from their present level of $18,000 per quarter.
15
<PAGE>
. Viatical Revenues
Net viatical revenues realized from policies for the nine months ended December
31, 1998, were $0.3 million, compared to de minimis revenues in the nine months
ended December 31, 1997. The increase was due to the maturity of four policies.
Future net revenues from the remaining portfolio of 11 policies will be
irregular, depending primarily upon the timing of mortality of the insured.
. General and Administrative Expenses
General and administrative expenses were $1.0 million for the nine months ended
December 31, 1998, which represented a reduction of $0.9 million, or 48 percent,
compared to the $1.9 million expended during the nine months ended December 31,
1997. This decrease resulted primarily from a $0.6 million reduction in
overhead expense and a $0.3 million decrease in the cost of administering and
collecting the portfolio of used-car loans (included in general and
administrative expenses). These amounts exclude $0.3 million in costs associated
with the post-Chapter 11 reorganization during the nine months ended December
31, 1998.
. Credit Loss/Recovery
Provisions for credit losses in connection with the portfolio of used-car loans
for the nine months ended December 31, 1998, represent a $0.3 million recovery
of bad debt, compared to a provision of $30,000 for the nine months ended
December 31, 1997. This improvement of $0.3 million was primarily the result of
collecting loans which had, in the past, been more than six months in arrears
and had therefore been written off in accordance with our long-standing
procedures.
. Operating Loss
Operating losses for the nine months ended December 31, 1998, were $0.3 million,
compared to $1.4 million for the nine months ended December 31, 1997. In total,
the $1.1 million reduction in operating losses was primarily due to the
reduction in general and administrative expenses (excluding Chapter 11
reorganization costs of $0.3 million) of $0.9 million and the recovery of bad
debt of $0.3 million, which were partly offset by a $0.2 million decrease in net
revenues.
. Non-operating Income
The impact of non-operating items for the nine months ended December 31, 1998,
was a net $0.1 million loss, compared to a non-operating loss of $3.6 million
for the nine months ended December 31, 1997. The $0.1 million loss for the
present period was primarily due to a viatical policy write-down recapture of
$0.5 million, partially offset by $0.5 million in accrued net interest expense.
The $3.5 million improvement of the present period over the prior period is
primarily due to the non-recurring $6.3 million debenture conversion charge in
the prior period (which was partially offset by $3.2 million gain on early
extinguishment of debt) the $0.5 million viatical policy write-down recapture in
the present period, and a $0.2 million reduction in accrued interest expense.
16
<PAGE>
. Reorganization Expense
In addition to the above, for the nine months ended December 31, 1998, we
incurred $0.3 million in reorganization costs related to the bankruptcy
proceedings. There were no reorganization costs in the prior period.
. Net Loss
The net effect of the foregoing was a net loss of $0.4 million, or $0.07 per
share, for the nine months ended December 31, 1998. The net loss for the same
period last year was $5.1 million, or $0.84 per share. The decrease in net loss
of $4.7 million was attributable primarily to a combination of the following
items. During the nine months ended December 31, 1997, we recorded a non-cash
charge for debenture conversion of $6.3 million offset by a $3.2 million gain on
early extinguishment of debt for debentures repurchased. During the nine months
ended December 31, 1998, operating losses were reduced by $1.1 million, interest
expense decreased by $0.2 million, and we realized a recapture on insurance
policy write-downs of $0.5 million compared to the same period last year. These
items were partially offset by the $0.3 million in reorganization costs in the
current period.
Fiscal year ended March 31, 1998, compared to fiscal year ended March 31, 1997
. Summary
Although the net loss for the year ended March 31, 1998, was approximately $5.5
million, this loss included a voluntary, non-cash conversion charge of
approximately $6.3 million for retiring certain outstanding debentures.
Excluding that transaction, our earnings were positive (as shown in the
"Selected Financial Data," a result not attained in the prior four years).
Furthermore, the exchange offer incurring the $6.3 million charge resulted in
the retirement of $8.3 million in debt, with no cash outlay by us, and also
improved our equity by approximately $8 million.
. Used-Car Loan Revenues
Revenues on the used-car loan portfolio were approximately $0.6 million for the
fiscal year ended March 31, 1998, a $1.1 million decrease compared to the $1.7
million realized for the fiscal year ended March 31, 1997. This decrease
resulted from the reduced size of our used-car loan portfolio.
. Viatical Revenues
Net viatical revenues from the policies for the fiscal year ended March 31,
1998, were $9,000, which represents approximately a $0.4 million decrease
compared to the $0.4 million recognized for the fiscal year ended March 31,
1997. Net viatical revenues from the policies are determined by subtracting the
policy cost from the relevant face value after a policy "matures" (becomes
payable by the insurance company). The decrease in viatical revenues resulted
primarily from the reduced size of our policy portfolio.
. General and Administrative Expenses
General and administrative expenses for the fiscal year ended March 31, 1998,
were $2.1 million, compared to $5.9 million spent the prior year. The decrease
of $3.8 million resulted primarily from
17
<PAGE>
fewer professional fees, the smaller used-car loan portfolio, and our downsizing
in September 1996. The cost of collecting the consumer car portfolio is included
in general and administrative expenses; this effort has been subcontracted to a
third party since January 1996.
. Credit Losses
Provisions for credit losses during fiscal year 1998 were de minimis. The
provision for credit losses was $3.6 million for the year ended March 31, 1997.
The decrease in credit loss provisions of approximately $3.6 million was
primarily the result of the smaller portfolio.
. Operating Loss
During the year ended March 31, 1998, our operating loss was $1.5 million,
compared to an operating loss of $7.4 million during the year ended March 31,
1997. The $5.9 million decrease in operating loss was primarily attributable to
the developments described above, including the reduction in general and
administrative expense of $3.8 million and the reduction of $3.6 million in
credit loss provisions, partially offset by a decline in net revenues of $1.5
million, yielding a net improvement of $5.9 million.
. Interest Expense
Interest expense related to the outstanding debentures was $0.9 million for the
1998 fiscal year, as compared to $2.1 million for the prior year, resulting in a
$1.2 million improvement. The result of fewer outstanding debentures, this was
achieved by the debenture exchange offer and the redemption of some debentures
at a discount.
. Extraordinary Gain
In connection with debentures repurchased during the year ended March 31, 1998,
we realized a $3.2 million gain on early extinguishment of debt.
. Exchange Offer
As a result of the exchange offer for our outstanding debentures during the year
ended March 31, 1998, we recorded a non-cash transaction: a conversion charge of
$6.3 million, an increase to additional paid-in capital of $14.5 million, de
minimis increases to Common and Preferred Stock values, the elimination of $8.3
million in debt, and the improvement in net equity of approximately $8 million.
. Net Loss
Net loss for the year ended March 31, 1998, was $5.5 million, or $0.91 per
share, compared to a loss of $11.5 million, or $2.49 per share, for the same
period the previous year. This $6.0 million improvement was due to the factors
discussed above, including a $3.8 million decrease in general and administrative
expenses, a $3.6 million decrease in provision for credit losses, an improvement
of $3.2 million for early extinguishment of debt, a $1.2 million decrease in
interest expense, and a $2.3 million decrease in write-offs in the consumer car
loan and viatical settlements businesses, all of
18
<PAGE>
which were partially offset by a $1.5 million decrease in net revenues and a
$6.3 million non-cash charge for the exchange offer.
Fiscal year ended March 31, 1997, compared to fiscal year ended March 31, 1996
. Summary
The net loss for the year ended March 31, 1997, was $11.5 million. This
reflected a $3.6 million write-off of the car loan portfolio, which business is
largely wound down, having reached a net book value of $2 million at March 31,
1997, with reserves at 28 percent of gross value. Additionally, we incurred a
$2.1 million interest expense on the Debentures, and we wrote down the viatical
portfolio by $0.9 million and the fixed assets by $0.7 million, and recognized a
lease termination expense of $0.5 million on the Miami space vacated by prior
management. General and administrative expenses were reduced by $4.0 million
(or 41 percent). There were no buybacks of Debentures at below book values to
mitigate the loss for the year. Before the mitigating effects of those buybacks
for the prior year (ended March 31, 1996), the year ended March 31, 1997, by
comparison saw a reduction in the total pre-tax loss of $1.3 million.
. Used-Car Loan Revenues
Revenues on the used-car loan portfolio were $1.7 million for the fiscal year
ended March 31, 1997, which represented a $6.1 million decrease compared to the
$7.8 million for the fiscal year ended March 31, 1996. This decrease resulted
from the reduced size of our used-car loan portfolio.
. Viatical Revenues
Net viatical revenues from the policies were $0.4 million for the year ended
March 31, 1997, which represented a $0.1 million decrease compared to the $0.5
million realized for the fiscal year ended March 31, 1996.
. General and Administrative Expenses
General and administrative expenses for the fiscal year ended March 31, 1997,
were $5.9 million, compared to $9.9 million in the prior year. The decrease of
$4.0 million resulted primarily from our downsizing in December 1995 and in
September 1996.
. Credit Losses
Credit losses in connection with the portfolio of used-car loans were $3.6
million for the year ended March 31, 1997, which represents a decrease of $5.2
million compared to the $8.8 million for the year ended March 31, 1996. The
decrease was primarily the result of the smaller total portfolio.
. Operating Loss
During the year ended March 31, 1997, our operating loss was $7.4 million,
compared to an operating loss of $10.4 million during the year ended March 31,
1996. The decrease in operating loss was primarily attributable to the
developments described above, including the combined reduction of
19
<PAGE>
general and administrative expense and credit loss provisions by $9.2 million,
while total net revenues declined by $6.2 million, yielding a net improvement of
$3.0 million.
. Net Loss
The net loss for the year ended March 31, 1997, was $11.5 million, or $2.49 per
share. The net loss for the year ended March 31, 1996, was $0.7 million, or
$0.16 per share. The change in net loss was attributable primarily to the $12.2
million gain on early extinguishment of debt in the year ended March 31, 1996;
these offsets to operating losses were not available in the year ended March 31,
1997.
. Liquidity and Capital Resources
. Cash and Cash Equivalents
On September 22, 1997, we filed for voluntary bankruptcy reorganization. At
December 31, 1998, we had cash and cash equivalents of $2.3 million, and total
liabilities exceeded total assets by 1.4 to 1. Our immediate viability as a
going concern depends upon restructuring our obligations and, ultimately,
establishing our new business and attaining profitability. On February 3, 1999,
the Bankruptcy Court confirmed our Plan of Reorganization, and it became
effective on March 5, 1999; it restructures our assets and liabilities,
resulting in a positive net equity.
. Cash Flow from Operations
Cash flow from operations was a positive $0.9 million for the nine months ended
December 31, 1998. This compares to the negative cash flow from operations of
$0.7 million for the nine months ended December 31, 1997. The improvement of
$1.6 million was primarily due to reduced cash expenditures for legal,
professional, and consulting services of $1.1 million, reduced cash expenditures
for Directors' and Officers' liability insurance of $0.4 million, reduction in
cash payroll of $0.3 million, and the receipt of $1.1 million in viatical policy
payouts, all partially offset by a reduction of $1.0 million in used-car loan
receipts and the expenditure of $0.3 million on the reorganization under our
bankruptcy.
. Portfolio of Used-Car Loans
Our portfolio of used-car loans at December 31, 1998, was $0.2 million
(excluding receivables for which there has been a repossession of underlying
collateral or a charge-off and before the effect of reserves). The portfolio
consisted of 42 active used-car loans, of which approximately 31 percent (on a
dollar-weighted basis) are 30 days or more past due.
. Portfolio of Viatical Policies
Our portfolio of unmatured viatical insurance policies consisted of 11 policies
at December 31, 1998, having a combined face value of approximately $0.9 million
and a net book value of approximately $0.1 million. We recognized $0.3 million
in net revenue and a $0.5 million recapture on insurance policy write-downs from
4 policies during the nine months ended December 31, 1998.
20
<PAGE>
. Cash Flow from Investing and Financing
Cash flow provided by our investing activities was $0.6 million for the nine
months ended December 31, 1998, as a result of the IAP securities redemption.
This compared to cash used by investing activities for the nine months ended
December 31, 1997, of $5.2 million, which was the result of funding the escrow
deposit, the loan to NPD, and the purchase of the ITB option in 1997 (see
"BUSINESS - Option to Purchase ITB Shares").
There were no cash flows from financing activities during the nine months ended
December 31, 1998, as compared to $5.7 million in cash used by financing
activities during the nine months ended December 31, 1997, which was the result
of the redemption of debentures during 1997.
. Summary
In summary, because of the foregoing factors, our cash and cash equivalents
increased by approximately $1.5 million during the nine months ended December
31, 1998, to a total of $2.3 million. This increase was due to the sale of the
IAP securities and the positive cash flow from operations. In comparison,
during the nine months ended December 31, 1997, there was an $11.7 million
decrease in cash and cash equivalents, largely due to the funding of the escrow
deposit, the loan to NPD, the purchase of the ITB Option, the buy-back of
debentures, and an operating deficit.
. Effect of Reorganization on Liquidity and Capital Resources
Our Plan of Reorganization that became effective on March 5, 1999, has had a
substantial impact on our liquidity and capital resources, as illustrated by the
abbreviated (unaudited) balance sheet comparison below:
<TABLE>
<CAPTION>
Before After
In Thousands Reorganization @ 2/28/99 Reorganization
Actual @ 3/05/99
Pro Forma
----------------------
est. Act. After pmts.
------------------------ --------- -----------
<S> <C> <C> <C>
Cash and equivalents $ 6,611 $ 6,661 $ 1,813
Car loans receivable, net 59 59 59
Purchased viatical policies @ est. mkt. val. 134 134 134
Escrow deposit, plus accrued int. rec. 2,140 -- --
Note receivable, plus accr. interest 3,533 -- --
ITB Option investment 425 -- --
Fixed asset, net 19 19 19
Misc. Other assets 44 15 15
-------- --------- ---------
Total Assets $ 12,965 $ 6,888 $ 2,040
-------- --------- ---------
Accounts payable and accrued liabilities $ 79 $ 79 $ 79
Contingent liabilities and pre-pet. A/P 641 848 294
Debentures at face, plus accrued interest 9,591 -- --
Debentures up-front cash payable -- 2,769 --
Five-year note to Debenture holders -- 523 523
NPD note payable, plus accrued interest 490 -- --
Reorganization settlement contin. liabil. 4,447 -- --
Worley settlement 1,525 1,525 --
Misc. other liabilities 178 178 178
-------- --------- ---------
Total Liabilities $ 16,951 $ 5,922 $ 1,074
Stockholders' Equity/(Deficit) $(3,986) $ 966 $ 966
-------- --------- ---------
Total Liabilities & Stockholders
Equity $ 12,965 $ 6,888 $ 2,040
-------- --------- ---------
</TABLE>
21
<PAGE>
As can be seen above, our net equity increased by $5 million, i.e, from a
deficit of $4.0 million, to a positive equity of about $1 million. After
anticipated reorganization payments, at March 5, 1999 (and before the impact of
any interim operating results), an additional $1.8 million remains in cash. This
greatly increases our liquidity.
. Estimated Effect of New Capital Raised by this Offering
We cannot be certain how much capital may be raised by this offering.
Accordingly, two scenarios are shown below to demonstrate a possible range of
effects:
<TABLE>
<CAPTION>
"Before "After
Offering" Offering"
basis: basis:
In Thousands @ 3/5/99, @ 3/5/99,
Pro Forma Pro Forma after
after pmts. pmts. & proceeds
----------- -------------------
low est. high est.
-------- ---------
<S> <C> <C> <C>
Cash and equivalents $ 1,813 $2,191 $9,091
Car loans receivable, net 59 59 59
Purchased viatical policies @ est. mkt. val. 134 134 134
Fixed assets, net 19 19 19
Misc. other assets 15 15 15
------- ------ ------
Total Assets $ 2,040 $2,418 $9,318
------- ------ ------
Accounts payable and accrued liabilities $ 79 $ 79 $ 79
Contingent liabilities and pre-pet. A/P 294 38 38
Five-year note to Debenture holders 523 523 523
Misc. other liabilities 178 178 178
------- ------ ------
Total Liabilities $ 1,074 $ 818 $ 818
Stockholder's Equity/(Deficit) $ 966 $1,600 $8,500
------- ------ ------
Total Liabilities & Stockholders Equity $ 2,040 $2,418 $9,318
------- ------ ------
No. of shares outstanding (-000) N/A 2,070 8,970
</TABLE>
In the "low estimate" shown above, the results of this offering would increase
stockholders' equity by $0.6 million, to a total of approximately $1.6 million
(pro forma at 3/5/99, and before the results of interim operations); likewise,
cash would be increased by about $0.3 million, to a pro forma total of $2.2
million. Alternately, the "high estimate" yields stockholders' equity of over
$8 million and cash at approximately $9 million. These two scenarios correspond
to the projected range of between 2 and 9 million shares outstanding as a result
of this offering.
. Year 2000 Issue
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 U.S.A., or elsewhere, for this problem. Not only
might the problem affect a particular company's computers, but it could also be
impacted by problems at other companies, through supplier relationships, etc.
Fortunately, the Company's present small base of operations is not at this point
heavily dependent upon computers. However, steps are being taken to test and,
if necessary, upgrade computers and
22
<PAGE>
software within the Company. The ultimate cost for completing this process is
not yet known, but management does not anticipate expenditure of more than
$10,000. Testing and any upgrades necessary should be complete by August 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 guarantee that it will not be in some
way detrimentally impacted.
. New Accounting Pronouncements
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits," which standardizes the disclosure
requirements for pensions and other Postretirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. It does not change the
measurement or recognition of those plans. SFAS 132 is effective for years
beginning after December 15, 1997, and requires comparative information for
earlier pensions or postretirement benefit plans in place at this time. This
statement has no impact on our financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 133 will be effective for
the Company in fiscal 2000. Management has not yet evaluated the effects of
this statement on our financial position, results of operations, or cash flow.
OPERATING LOSS CARRY-FORWARD
We had available as of December 31, 1998, unused capital loss carry-forwards and
operating loss carry-forwards that may provide future tax benefits, which expire
as follows:
Unused Net
Unused Capital Loss Operating
Year of Expiration Carry-forwards Loss Carry-forwards
------------------ -------------- -------------------
2001 $1,359,000 $ --
2002 1,023,000 --
2012 -- 11,460,000
2013 -- 220,000
2019 -- 560,000
--------------------------------------------
Total $2,382,000 $12,240,000
============================================
Capital loss carry-forwards arise from 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 carry-forwards 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 carry-forwards can be used to offset future operating
profits, thus negating the necessity to pay corresponding future income taxes
(until the loss carry-forwards are used up or expire). Any future operating
profits (which might realize these tax benefits) could be derived internally, or
from acquiring additional assets, or from purchasing another qualified business
entity by acquiring its stock. If a substantial change in ownership is
involved, then tax benefits could be
23
<PAGE>
reduced. Other limiting factors may also apply. Capital loss carry-forwards and
net operating loss carry-forwards are collectively referred to herein as the
"Loss Carry-forwards."
After consultation with our lawyers and accountants, we believe that, with the
Plan of Reorganization now effective, the Loss Carry-forwards listed above will
be reduced in total by $3.7 million due to debt forgiveness associated with the
stock offer, and the remainder will be intact and usable after bankruptcy. At a
typical corporate statutory tax rate of 34 percent, these remaining losses can,
in a valid situation, result in the cancellation of a requirement to pay
approximately $3.7 million in federal income taxes, either immediately in one
year or spread out over many years. The requirements to utilize such loss
carry-forwards are very strict and limited.
DILUTION
Our investors may experience immediate dilution of $0.23 share of Common Stock,
or approximately 23 percent of the $1.00 offering price per share. This is due
to the variables inherent in the bankruptcy reorganization, including the three
choices that were available to debenture holders, and the degree of
participation by holders of old Common and Preferred Stock.
USE OF PROCEEDS
We will use the cash proceeds from this offering, net of the expenses of this
offering, for general corporate purposes, including the development of our
proposed new gaming business.
MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 5, 1999, our Plan of Reorganization became effective. As of the
effective date, all of our outstanding old Common Stock, Preferred Stock, and
Class A and B Warrants ceased to exist. Afterwards, the new Common Stock offered
by this Prospectus will be issued. As full or partial consideration for the
extinguishment of their pre-petition debenture rights, 1,436,500 shares will be
issued to debenture holders. Additionally, other shares may be issued under the
per-share subscriptions defined in the Plan of Reorganization, as follows:
No. of shares issuable
(In Thousands)
Estimated
Minimum Maximum Low
Range
Holders of Old Common Stock 0 6,080 533
Holders of Preferred Stock 0 5,780 100
- ------ ---
Total at $1.00 per share 0 11,860 633
- ------ ---
Holders of Warrants 0 2,663 0
Holders of Old Options 0 3,660 0
- ------ ---
Total at $4.00 per share 0 6,323 0
- ------ ---
Paid Total 0 18,183 633
= ====== ===
NOTES: (1) The above excludes the 1.4 million shares to be issued to the
debenture holders.
(2) After the subscriptions are completed, unissued shares from this
offering will total between zero and 18 million (and would be
17.6 million shares if the "estimate" above proves to be
correct).
24
<PAGE>
Historically, our Common Stock traded under the symbol "AUTL" in the over-the-
counter market on the Electronic Bulletin Board. Until May 21, 1996, the Common
Stock and Class A Warrants were quoted on the Nasdaq Smallcap Market under the
symbols "CARS" and "CARSW," respectively. On that date, the Common Stock and
the Class A Warrants were delisted from the Nasdaq Smallcap Market because of
our failure to meet minimum net equity eligibility criteria for continued
listing. The Common Stock was also listed on the Boston Stock Exchange under
the symbol "OTO" until August 20, 1996, when it was also delisted for failure to
meet that exchange's net equity requirements.
The following table states for the periods indicated the range of high and low
bid prices for the old Common Stock and the Class A Warrants as reported by
Nasdaq (until May 21, 1996), the Boston Stock Exchange (from May 22 to August
20, 1996), and the Electronic Bulletin Board (thereafter). As noted above, the
old Common Stock was canceled on March 5, 1999, and the following does not
necessarily represent any trading pattern which may develop for the new Common
Stock issued pursuant to this Prospectus. There were no trades of the Preferred
Stock during the fiscal year ended March 31, 1998, and therefore it is not shown
in the schedule below. The prices reflect inter-dealer prices without markup,
markdown, or commissions and may not necessarily represent actual transactions.
Common Stock Class A Warrants (1)
High Low High Low
Fiscal Year Ended March 31, 1997:
Quarter ended June 30, 1996 $1.38 $.50 $-- (2) $-- (2)
Quarter ended September 30, 1996 1.19 .56 -- (2) -- (2)
Quarter ended December 31, 1996 .94 .31 .01 .01
Quarter ended March 31, 1997 .69 .16 .01 .01
Fiscal Year Ended March 31, 1998:
Quarter ended June 30, 1997 .56 .19 .01 .01
Quarter ended September 30, 1997 .22 .05 -- (2) -- (2)
Quarter ended December 31, 1997 .15 .01 -- (2) -- (2)
Quarter ended March 31, 1998 .10 .01 -- (2) -- (2)
Fiscal year ending March 31, 1999:
Quarter ended June 30, 1998 .07 .01 -- (2) -- (2)
Quarter ended September 30, 1998 .06 .01 -- (2) -- (2)
Quarter ended December 31, 1998 .03 .01 -- (2) -- (2)
Quarter ended March 31, 1999 .10 .01 -- (2) -- (2)
Period of April 1 to May 12, 1999 .12 .03 -- (2) -- (2)
(1) Each Class A Warrant entitled its registered holder to purchase one
share of Common Stock and one Class B Warrant through January 31,
1998, at an exercise price of $4.00 subject to adjustment. Each Class
B Warrant entitled its registered holder to purchase one share of
Common Stock from the date of issuance through January 31, 1998, at an
exercise price of $7.00 subject to adjustment. The Class A and Class B
Warrants were due to expire on January 31, 1998, when we were under
the restrictions of the Chapter 11 bankruptcy proceeding and thus
could not extend their expiration date. The Plan of Reorganization
includes provisions for treatment of the Warrants, as described
herein.
(2) There were no reported trades of Class A Warrants during these
periods.
25
<PAGE>
As of May 12, 1999, the last reported sale price for the old Common Stock was
$0.03 based upon an April 29, 1999, trade on the Electronic Bulletin Board. At
March 4, 1999, there were 6,079,530 shares of old Common Stock outstanding and
80 holders of record. As of March 5, 1999, all outstanding shares of old Common
Stock were canceled pursuant to the Plan of Reorganization. However, these old
shares continue to trade, as they now confer (modified) rights as prescribed in
the Plan of Reorganization (and as described herein).
We have paid no dividends on our Common Stock. We presently intend to retain any
earnings to finance the development of our future business as approved in the
Chapter 11 process. In addition, until all dividends on the outstanding shares
of Preferred Stock have been paid, no dividend or other distribution may be paid
on the Common Stock.
CAPITALIZATION
The following table shows our consolidated capitalization before and after March
5, 1999 (the effective date of the court confirmation of our Plan of
Reorganization), as adjusted to reflect our Plan of Reorganization. This table
should be read in conjunction with our Consolidated Financial Statements and
related Notes included elsewhere in this Prospectus.
PRO FORMA CAPITALIZATION
(unaudited)
(dollars in thousands except par value)
<TABLE>
<CAPTION>
Estimated at
Estimated March 5, 1999
at as adjusted for the
March 4, 1999 Reorganization and
Fresh Start Reporting /(1)/
<S> <C> <C>
Long-term debt $ -- $ 523
-------- ------
Stockholder's Equity:
Common stock, $.002 par value, 40,000,000 authorized
6,079,530 issued and outstanding at March 5, 1999, and
0 as adjusted 12
Preferred stock, $.002 par value, 5,000,000 authorized
57,800 issued and outstanding at March 5, 1999, and
0 as adjusted 1
Common stock (pro forma):
$.002 par value, 40,000,000 authorized
2,069,500 issued and outstanding -- 4
Additional paid-in capital 20,460 1,596
Unrealized holding loss (200) --
Retained earnings (23,919) --
-------- ------
Total Stockholders' Equity $ (3,646) $1,600
-------- ------
Total capitalization $ (3,646) $2,123
======== ======
</TABLE>
/(1)/ Gives effect to the issuance of 1,436,500 shares of common stock to
the Debenture Holders and the issuance of 633,000 shares of common
stock purchased by old Common Stockholders at $1.00 per share.
26
<PAGE>
BUSINESS
. General
AutoLend Group, Inc., is a holding company headquartered in Albuquerque, New
Mexico. We are currently winding down two businesses and starting up a third.
We primarily operate through our subsidiaries, which are:
. AutoLend Corporation, which maintains a residual portfolio of sub-prime
consumer used-car loan contracts purchased from used-car dealers. We
ceased purchasing these loans in December 1995. Our portfolio of loans at
March 31, 1999, was $0.1 million before reserves and consisted of 39 active
accounts.
. American Life Resources Group, Inc., and LB NM, Inc., which maintain
portfolios of unmatured life insurance policies purchased from persons with
life-threatening illnesses, a business generically referred to as viatical
settlements. We ceased purchasing these policies in September 1994. The
10 remaining policies had an aggregate face value of $0.9 million and a net
book value of $0.1 million on March 31, 1999.
Since the sale in September 1996 of another subsidiary, which provided short-
term "floor" financing to used-car dealers, our activities have been
concentrated on developing and acquiring a new gaming business (which is now a
division of AutoLend Group, Inc., under the name of Kachina Gaming); resolving
certain obligations and litigation associated with former operations; collecting
amounts due from the outstanding used-car loans; collecting proceeds from the
viatical policies; and resolving our bankruptcy.
. Proposed New Business
We have been considering various prospects to develop a new business suitable
for our situation. The realities of new business development are almost always
difficult. Our particular realities impose significant constraints that make
this undertaking even more difficult. These constraints include:
. the need for a positive cash flow almost immediately;
. the need to acquire 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; and,
. the requirement that, after launch, the business will not need a
significant capital investment.
Our Plan of Reorganization involves developing a new business which consists
primarily of providing gaming devices and gaming machines for certain non-profit
organizations in New Mexico.
In 1997, the New Mexico Legislature passed the "Gaming Control Act." We propose
to provide, supply, and service gaming machines as described in that Act.
"Gaming device" means associated equipment of a gaming machine and includes a
system for processing information that can alter the normal criteria of random
selection that affect a game's operation or determine its outcome. "Gaming
machine" means a mechanical, electromechanical, or electronic contrivance that,
upon insertion of a coin, token, or similar object, or upon payment of any
consideration, is available to play or operate
27
<PAGE>
a game, whether the payoff is made automatically from the machine or in another
manner. This business would be regulated by the New Mexico Gaming Control Board
as described in the Gaming Control Act.
Because we believe we can obtain the proper licensing and the gaming machines,
and because contracts and opportunities for future contracts are available with
non-profit organizations, we believe this business will be viable and will allow
us to meet our obligations. However, we cannot promise success in this venture.
. Option to Purchase ITB Shares
. The Option
In August 1997, we were granted an option to purchase an approximately 25
percent equity interest (the "ITB Shares") in International Thoroughbred
Breeders, Inc. ("ITB"), for $4.00 per share from NPD, Inc. ("NPD"), an
affiliated company, controlled by Mr. DeSantis and Anthony Coelho, one of our
directors. As consideration for this option, which was to expire on August 29,
1999, we paid NPD $0.2 million and issued it a contingent note for $2.3 million.
This note accrued interest at 10 percent per annum and was to be due July 9,
1999. ITB owned and operated Garden State Park and Freehold Raceway in New
Jersey (horse racing tracks) and owns the former El Rancho Casino property in
Las Vegas, Nevada.
. Related Loan Transaction
In a related transaction, we loaned $3.0 million to NPD. This loan accrued
interest at 10 percent per annum and was payable on July 9, 1999. It was
secured by the ITB Shares, subject to a prior lien to the seller of the ITB
Shares as security for NPD to pay the balance of the purchase price for the ITB
Shares. We also guaranteed up to $2.0 million of NPD's obligation to pay the
remaining portion of the purchase price to the seller of the ITB Shares, and we
deposited $2.0 million into a cash collateral account to secure our guarantee.
. Related Litigation
On June 5, 1998, we filed an adversary claim with the New Mexico Bankruptcy
Court against NPD. The NPD claim sought, among other things, the return to us of
the $2.0 million escrow deposit (plus interest), NPD's payment to us of the $3.0
million NPD loan (plus interest), the cancellation of the option, and the
corresponding cancellation of our obligations under the NPD note. We were also
involved in litigation concerning ITB in Delaware Chancery Court. It addressed
many issues outside the scope of our concern but included the foregoing issues
in the New Mexico Bankruptcy Court.
In September 1998, the Bankruptcy Court approved a settlement of the New Mexico
case, and, in October 1998, the Chancery Court approved a settlement in the
Delaware case. In connection with these settlements, our option to purchase the
ITB Shares and the $2.5 million contingent note payable to NPD were canceled;
our $2.0 million escrow deposit (plus interest) was returned to us; and $2.3
million of the $3.0 million loan we made to NPD was paid to us. In addition, in
connection with the Delaware settlement, we would receive a portion of the funds
which NPD may receive from the possible sale of ITB's Las Vegas real estate, and
we have assumed ITB's office lease in Albuquerque,
28
<PAGE>
New Mexico (where we presently sublease our offices). On January 29, 1999, this
settlement was consummated, and we received $4,446,771.
. Employees
As of March 31, 1999, we and our subsidiaries had six full-time employees. We
believe our relations with our employees are good.
. Properties
On August 8, 1997, we relocated our principal executive offices from 215 Central
NW to 600 Central SW, Albuquerque, New Mexico. This space was being subleased
from ITB on a month-to-month basis. However, with the consummation of the
settlements referred to in "BUSINESS - Option to Purchase ITB Shares - Related
Litigation," we assumed the ITB lease. The lease terminates on July 31, 2002,
and the lease payments are $9,935 per month. Beginning August 1, 1999, and each
August 1 thereafter, the lease payments may be adjusted according to any changes
in the Consumer Price Index. We believe these office space arrangements are
adequate to meet our needs.
Rent expense for operating leases has been lowered substantially from when our
headquarters were in Miami Beach, Florida. It was approximately $14,000 for the
fiscal year ended March 31, 1998, compared to $179,000 for the fiscal year ended
March 31, 1997, and $306,000 for the fiscal year ended March 31, 1996.
. Legal Proceedings
On September 12, 1996, a complaint was filed against us in the United States
District Court for the District of New Mexico by Living Benefits, Inc. The
complaint alleged that we were obligated to the plaintiff for more than $1.6
million, with interest at 8.75 percent from June 30, 1992, for "earn-out
payments" under our contract with the plaintiff dated March 14, 1992. The
plaintiff was also seeking punitive damages for bad faith in an undisclosed
amount and attorney's fees. 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, the Bankruptcy Court assumed jurisdiction
of this suit. The trial began on January 20, 1999. On January 21, 1999, the
Company and the plaintiff reached a settlement whereby the Company would pay the
plaintiff $1,525,000. This payment was made on March 9, 1999.
On February 16, 1999, the Company was notified by its counsel that it is subject
to an investigation by the Securities and Exchange Commission in connection with
certain activities which took place between September 1996 and September 1997.
We are also involved in the following routine litigation incidental to our
Chapter 11 bankruptcy case:
On July 14, 1998, we filed an adversary claim against Nunzio P. DeSantis to
recover certain payments we made to him and for indemnity. The complaint seeks
the possible return of up to $597,500.
On July 14, 1998, we filed an adversary claim against Jeffrey Ovington to
recover certain payments we made to him. The complaint seeks the possible
return of up to $100,000. A motion to dismiss this claim was filed, and no
objections were received. The Company anticipates that this claim will be
dismissed in late June, 1999.
29
<PAGE>
On July 14, 1998, we filed an adversary claim against Vincent Villanueva to
recover certain payments we made to him. The complaint seeks the possible return
of up to $39,647. On April 21, 1999, a motion to dismiss this claim was filed.
The deadline for receipt of objections to the motion is has passed, with no
objections filed. The Company anticipates this claim will be dismissed in late
June, 1999.
On August 24, 1998, we filed an adversary claim against Cozen & O'Connor, a
Philadelphia-based law firm, to recover certain payments. This complaint sought
the possible return of up to $564,000. A motion to settle this claim by virtue
of the elimination of accounts payable due by the Company to Cozen & O'Connor of
approximately $38,896 was filed. The deadline for objections has passed, and an
order was entered by the Court approving this settlement on March 21, 1999. This
claim is thus now settled and dismissed.
On August 24, 1998, we filed an adversary claim against Standard Capital Group,
Inc., a California corporation, to recover certain payments we made to it. This
complaint sought the possible return of up to $189,000. This claim was settled,
after due notice, by approval of the court on May 27, 1999; in connection
therewith, the Company has received payment of $37,200.
MANAGEMENT
. Officers and Directors
The following table gives certain information regarding our directors and
executive officers. Directors serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
Officers serve at the pleasure of the Board of Directors.
Year First
Elected
Name Age Director Position
Nunzio P. DeSantis 48 1993 Chairman of the Board,
President, Chief Executive
Officer, and Director
Anthony Coelho 56 1996 Director
Philip J. Vitale, M.D. 52 1992 Director
Jeffrey Ovington 46 N/A Executive Vice President and
Treasurer
Nunzio P. DeSantis has been our Chairman of the Board, President, and Chief
Executive Officer since September 1996. He previously served as Chief Executive
Officer and Chairman of the Board of Directors from our inception in 1989 until
his resignation from those positions in September 1993 and May 1994,
respectively. Mr. DeSantis has also served as Chief Executive Officer and a
director of International Thoroughbred Breeders, Inc. (See "BUSINESS - Purchase
of ITB Shares). He also is President and Chairman of the Board of NPD, Inc., a
private company which has owned an approximately 25 percent interest in
International Thoroughbred Breeders, Inc. Before September 1995 and for more
than five years, Mr. DeSantis was Chairman of the Board and Chief Executive
Officer of Diagnostek, Inc., a New York Stock Exchange traded company (until its
sale in 1995).
Anthony Coelho has been, since November 1998, Chairman of the Board of ICF
Kaiser International, Inc., a Virginia-based engineering, construction,
facilities management, and consulting company with 4,700 employees and sales of
$1.2 billion and which is traded on the New York Stock
30
<PAGE>
Exchange. Mr. Coelho also was Chairman of the Board of International
Thoroughbred Breeders, Inc., from January 1997 until February 1999. From 1995 to
1997, he was Chairman and Chief Executive Officer of ETC w/tci, Inc., a
subsidiary of Tele-Communications, Inc. From 1989 to 1995, Mr. Coelho served as
a Managing Director of the New York investment-banking firm Wertheim Schroeder &
Co., Inc., and from 1990 to 1995 he also served as President and Chief Executive
Officer of Wertheim Schroeder Investment Services, Inc. Mr. Coelho also serves
as a director of Service Corporation International, Tankology Environmental,
Inc., ITB, and Cyberonics, Inc. In addition, he serves on Fleishman-Hillard,
Inc.'s Advisory Board. Mr. Coelho is a former U.S. Representative from
California and Majority Whip of the U.S. House of Representatives.
Philip J. Vitale, M.D., has been a doctor of medicine, specializing in urology,
at the Lovelace Medical Center, Albuquerque, New Mexico, since 1978. Dr. Vitale
served on Lovelace's Board of Directors from 1985 until 1989 (and on other
boards and in other capacities for Lovelace at various times from 1980 to 1989,
while it was owned by several different entities).
Jeffrey Ovington has been our Executive Vice President since September 1996.
From May 1993 to July 1995, he served in various capacities, including Executive
Vice President, with Diagnostek, Inc., a leading pharmacy benefit manager with
annual revenues over $400 million (which was acquired by Value Health, Inc.).
For 14 years prior thereto, he served in various capacities with General
Electric Company, Martin Marietta Corp. (now Lockheed-Martin), and ITT. The
Company has executed an employment letter agreement with Mr. Ovington, which
sets his base salary at $115,000 per year, and provides for severance pay under
certain conditions.
. Summary Compensation Table
The following table states information concerning the compensation paid for
fiscal years ended March 31, 1999, 1998, and 1997, to persons who served as our
Chairman of the Board, President, and Chief Executive Officer, and as Executive
Vice President and Treasurer during fiscal year 1999. We had no other
executive officer serving at the end of fiscal year 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
All other
Compen-
Name and Principal sation ($)/
Position Annual Compensation Long Term Compensation (1)/
- ------------------------------------------------------------------------------------------------------------------------------------
Awards Payout
- ------------------------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted Securities
Compen- Stock Underlying
Bonus sation Award(s) Options/ LTIP
Year Salary ($) ($) ($) (1) ($) SARs (#) Payout ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nunzio P. DeSantis
Chairman of the Board, 1999 $237,500(2)
President, and Chief 1998 281,250 -- -- -- 2,000,000 -- --
Executive Officer 1997 172,000 $250,000 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Ovington 1999 156,478(3) 100,000(3)
Executive Vice President 1998 110,036 -- -- -- -- -- $100,000
and Treasurer 1997 84,790 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The aggregate amount of perquisites and other personal benefits paid to the
named persons did not exceed the lesser of 10 percent of each officer's
total annual salary and bonus for the fiscal years and $50,000.
(2) Of the $237,500 salary listed for Mr. DeSantis, only $18,269 has actually
been paid to him to date; $219,231 has been accrued as a contingent
liability.
(3) Of the 1999 compensation listed for Mr. Ovington, only $95,661 has actually
been paid to date; the remainder has been accrued as a contingent
liability.
31
<PAGE>
. Option Granted in the Last Fiscal Year - 1998
The following table states information concerning stock option grants during
fiscal 1998 to the persons named in the Summary Compensation Table above. Also
in accordance with the SEC rules, the hypothetical gains or "option spreads" for
each option grant are shown based on compound annual rates of stock price
appreciation of 5 and 10 percent from the grant date to the expiration date.
The assumed rates of growth are prescribed by the SEC and are for illustration
only; they do not predict future stock prices, which will depend upon market
conditions and our future performance.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total
Underlying Options/to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) (1) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nunzio P. DeSantis 2,000,000 99% $4.00 March 4, 2000 $0 $0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In connection with our Plan of Reorganization which became effective
on March 5, 1999, options to purchase shares of old Common Stock were
canceled, and Mr. DeSantis has the right to exercise his option to
purchase new Common Stock at an exercise price of $4.00 per share.
. Fiscal Year-End Option Values - 1998
The following table provides information concerning fiscal year-end values of
unexercised options held by persons named in the Summary Compensation Table
above. Those persons exercised no options during fiscal year 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)
- ---------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nunzio P. DeSantis -- -- 2,000,000/0 $0/0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
. Compensation of Directors
Directors who are not our employees received immediately exercisable options to
purchase 125,000 shares of our old Common Stock for market price on the date of
issue upon becoming a director. In connection with the Plan of Reorganization,
options to purchase shares of old Common Stock were canceled, and directors have
the right to exercise their options to purchase new Common Stock at an exercise
price of $4.00 per share.
32
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On March 5, 1999, our plan of reorganization became effective, and all of our
outstanding Common Stock, Preferred Stock, Class A and B Warrants, and Options
ceased to exist. It is impossible to predict the post-confirmation stock
ownership by officers, directors, affiliates, 5 percent or more shareholders,
and other "insiders." We believe that Nunzio P. DeSantis will exercise his right
as a shareholder under the capital call provisions of the Plan of Reorganization
to purchase some or all of the shares available, but we have no information
regarding the other persons' intentions.
Since the total number of shares outstanding post-confirmation could vary from
about two million to nine million, predicting the percentage share of a
particular holding or purchase is speculative. Variables affecting the number of
shares post-confirmation include the degree of participation and capital
contribution by holders of old Common and Preferred stock and warrants and
options.
In accordance with the plan of reorganization, the former debenture holders will
be issued, in aggregate, approximately 1.4 million shares of new Common Stock.
There are approximately two dozen former debenture holders. The largest such
holder may have approximately 39 percent of these shares issued to debenture
holders, and the second largest holder may have approximately 11 percent of the
1.4 million shares. Until the total number of new shares of Common Stock issued
as a result of this offering becomes clear, it cannot be said if either of these
holders will hold 5 percent or more of the total shares. If the sale of the new
Common Stock brings in less than $1.2 million in new capital, then the former
debenture holders, in the aggregate, will own a majority of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Chairman of the Board, President, and Chief Executive Officer (Mr. DeSantis)
has been the second largest holder of our stock (having directly owned
approximately 534,000 shares of old Common Stock, or about 9 percent) and also
owns a controlling interest in NPD, with which we engaged in significant
transactions during the year. At December 31, 1998, we owed NPD $0.5 million
related to the ITB option debt obligation, and were owed $3.4 million by NPD for
a related loan made during the fiscal year ended March 31, 1998, including its
accrued interest. Both obligations accrued interest at 10 percent and were to be
payable in full, including accrued and unpaid interest, on July 9, 1999.
However, these debt obligations are now canceled. For additional information,
see footnotes 4, 5, and 6 to our financial statements and "BUSINESS -Option to
Purchase ITB Shares."
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors, and persons who own more than 10 percent of a registered class of our
equity securities to file reports of ownership and changes in ownership with the
SEC. Officers, directors, and greater than 10-percent shareholders must give us
copies of all Section 16(a) forms they file.
Based solely on reviewing the copies of these forms furnished to us, or written
representation that no Form 5s were required, we believe that from April 1,
1997, through March 31, 1998, all Section
33
<PAGE>
16(a) filing requirements applicable to our officers, directors, and greater
than 10-percent beneficial owners were complied with.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section 145 of the Delaware General Corporation Law authorizes us to indemnify
any director or officer under certain prescribed circumstances and subject to
certain limitations against costs and expenses, including attorneys' fees
actually and reasonably incurred for any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, to which the person is a
party because he is our director or officer if it is determined that he acted in
accordance with the applicable standard of conduct in the statutory provisions.
Article V of our Bylaws covers indemnification of directors and officers.
We may also purchase and maintain insurance for any director or officer to cover
claims for which we could not indemnify him. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers, and controlling persons pursuant to the foregoing
provisions or otherwise, the SEC believes that such indemnification is against
public policy according to the Securities Act of 1933 and is, therefore,
unenforceable.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of Common Stock,
$0.002 par value per share, and 5,000,000 shares of Preferred Stock, $0.002 par
value per share. As of March 5, 1999, the effective date of our Plan of
Reorganization (and resultant financial restructuring), all outstanding old
Common and Preferred Stock was canceled.
After the issuance of shares of new Common Stock as contemplated in this
Prospectus, by approximately March 4, 2000, we estimate we will have up to nine
million shares of new Common Stock outstanding and no shares of Preferred Stock
outstanding.
. Common Stock
Each share of Common Stock entitles its holder to one vote on all matters on
which holders are permitted to vote. No stockholder has any preemptive right or
other similar right to purchase or subscribe for any additional securities we
have issued, and no stockholder has any right to convert Common Stock into other
securities. No shares of Common Stock are subject to redemption or to any
sinking fund provisions. All outstanding shares of Common Stock are, and all
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and nonassessable.
Subject to rights of holders of Preferred Stock, if any, the holders of shares
of Common Stock are entitled to dividends when declared by the Board of
Directors from funds legally available therefor and, upon liquidation, to a pro
rata share in any distribution to stockholders. We do not anticipate declaring
or paying any dividends on the Common Stock in the foreseeable future. See
"Dividend Policy."
34
<PAGE>
. Preferred Stock
Our Certificate of Incorporation provides for the issuance of five million
shares of Preferred Stock. The Preferred Stock may be issued in one or more
classes or series, and the Board of Directors is authorized to fix for each
class or series the voting powers, full or limited, or no voting powers, and any
distinctive designations, preferences, and relative, participating, optional, or
other special rights, and any qualifications, limitations, or restrictions.
These determinations must comply with the Delaware General Corporation Law,
including, without limitation, the authority to make any class or series:
. subject to redemption at certain times and at certain prices;
. entitled to receive dividends (either cumulative or non-cumulative) and
the terms of the dividends;
. entitled to certain rights upon our dissolution or distribution of our
assets;
. convertible into, or exchangeable for, shares of any other class or
classes of our stock, or of any other series of the same or any other class
or classes of our stock, and the prices, rates of exchange, and
adjustments.
Because the Board of Directors can establish the preferences and rights for the
Preferred Stock, it may afford the holders of any Preferred Stock preferences,
powers, and rights (including voting rights) senior to the rights of the holders
of Common Stock. No shares of Preferred Stock are currently outstanding.
Although we have no present intention to issue shares of Preferred Stock, the
issuance of shares of Preferred Stock, or the issuance of rights to purchase
those shares, may delay, defer, or prevent a change in control of the Company.
. Transfer Agent
The transfer agent and registrar for the Common Stock is American Stock Transfer
and Trust.
. Dividend Policy
We have paid no dividends and do not expect to pay dividends on our Common Stock
in the foreseeable future, because we intend to retain earnings to finance the
growth of our operations.
LEGAL MATTERS
The law firm of Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P., Albuquerque, New
Mexico, will pass upon the validity of the issuance of the Common Stock offered
hereby.
35
<PAGE>
EXPERTS
Our audited financial statements as of March 31, 1997, and 1998, and for the
fiscal years then ended are included herein and in the registration statement in
reliance upon the reports of Meyners + Company, LLC, KPMG Peat Marwick LLP, and
Deloitte & Touche, LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of those firms as experts in accounting
and auditing.
36
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements: Pages
Independent Auditors' Report..........................................F-2
Consolidated Balance Sheets.......................................F-8
Consolidated Statements of Operations.............................F-9
Consolidated Statements of Stockholders' Deficit.................F-11
Consolidated Statements of Cash Flow.............................F-12
Notes to Consolidated Financial Statements.......................F-14
Schedule II - Valuation and Qualifying Accounts...................S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
We have audited the accompanying consolidated balance sheets of AutoLend Group,
Inc., a debtor-in-possession (the "Company"), as of March 31, 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we also have audited the financial statement schedule
listed in the accompanying index for the year ended March 31, 1998. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and subsidiaries as of March 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related 1998 financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
F-2
<PAGE>
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
The accompanying 1998 consolidated financial statements and related financial
statement schedule have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the consolidated financial
statements, the Company filed a voluntary petition for bankruptcy for protection
under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the District of New Mexico on September 22, 1997. In addition, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 3.
The 1998 consolidated financial statements and related financial statement
schedule do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Meyners + Company, LLC
Meyners + Company, LLC
Albuquerque, New Mexico
June 19, 1998, except for
Note 18 which is as of
July 10, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
We have audited the consolidated balance sheet of AutoLend Group, Inc. and
subsidiaries as of March 31, 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the year then ended. In
connection with our audit of the consolidated financial statements, we also have
audited the financial statement schedule listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and subsidiaries as of March 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related 1997 financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
F-4
<PAGE>
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
The accompanying 1997 consolidated financial statements and related financial
statements schedule have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 4 to the consolidated financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters and
need to restructure its obligations are also described in Note 4. The 1997
consolidated financial statements and related financial statement schedule do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Albuquerque, New Mexico
May 16, 1997, except for
Note 14 which is as of
July 10, 1997
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
We have audited the accompanying consolidated balance sheet of AutoLend Group,
Inc. (the "Company") as of March 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
8. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
F-6
<PAGE>
To the Board of Directors and
Stockholders of AutoLend Group, Inc.
As discussed in Note 1 to the financial statements, although management of the
Company has used its best judgement to arrive at its estimate of the allowance
for credit losses and believes that the same is reasonable to cover the losses
inherent in the installment contracts receivable portfolio; however, such amount
could differ materially in the near term.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Miami, Florida
July 15, 1996
F-7
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
March 31 (unaudited)
--------------------------------- ---------------------------------
1998 1997
Restated Restated 1998 1997
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 769,736 $ 12,399,932 $ 2,292,059 $ 745,727
Prepaid expenses 167,381 66,814 -- --
Accounts receivable--matured insurance policies -- 48,000 -- 48,000
Installment contracts receivable $ 461,592 $ 2,909,069 $ 164,248 $ 726,941
Collateral owned-gross 22,286 206,529 -- 22,286
Allowance for credit losses (187,669) (1,068,545) (100,168) (286,967)
------------ ------------ ------------ ------------
Installment contracts receivable-net $ 296,209 $ 2,047,053 $ 64,080 $ 462,260
ITB Option (Note 12) 425,000 -- 425,000 625,000
Escrow deposit 2,000,000 -- 2,000,000 2,000,000
Interest on escrow deposit 62,060 -- 140,069 --
Note receivable - NPD, Inc. 3,035,292 -- 3,035,292 3,035,292
Interest receivable on note
receivable - NPD, Inc. 219,215 -- 446,863 142,861
Purchased insurance policies (Note 11) 329,193 513,390 133,740 453,265
Securities in IAP (Note 12) 250,000 800,000 -- 800,000
Fixed assets (Note 13) 39,611 67,795 19,811 48,876
Consulting Agreement -- 140,000 -- 34,997
Debt issuance costs, less
accumulated amortization of
$3,575,944 at March 31, 1998,
December 31, 1998 and 1997, and
$3,519,501 at March 31, 1997 -- 113,904 -- --
Other 46,011 79,112 46,311 339,403
------------ ------------ ------------ ------------
Total assets $ 7,639,708 $ 16,276,000 $ 8,603,225 $ 8,735,681
============ ============ ============ ============
Liabilities:
Liabilities subject to
compromise
Accounts payable $ 55,276 $ -- $ 97,079 $ --
Accrued liabilities 162,876 -- 162,876 --
Accrued interest expenses on debentures 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 -- 1,525,000 --
------------ ------------ ------------ ------------
Total liabilities subject to compromise 10,250,915 -- 10,219,898 --
------------ ------------ ------------ ------------
Liabilities not subject to compromise:
Accounts payable 95,135 945,610 59,715 92,776
Accrued liabilities 79,674 1,432,809 608,827 1,281,996
Accrued interest expense on debentures 364,160 3,206,120 878,941 1,565,385
Note payable - NPD, Inc. 425,000 -- 425,000 425,000
Accrued interest - NPD, Inc. 25,667 -- 57,542 76,667
Accrued acquisition costs -- 656,542 -- 656,542
Convertible subordinated debentures
at face value -- 22,050,000 -- 7,225,000
------------ ------------ ------------ ------------
Total liabilities not subject to compromise 989,636 28,291,081 2,030,025 11,323,366
------------ ------------ ------------ ------------
Total liabilities $ 11,240,551 $ 28,291,081 $ 12,249,923 $ 11,323,366
------------ ------------ ------------ ------------
Stockholders' Deficit
Preferred stock, $.002 par value. Authorized
5,000,000 shares; 57,800 issued and
outstanding at March 31, 1998,
December 31, 1998 and 1997 116 -- 116 116
Common stock, $.002 par value. Authorized
40,000,000 shares; issued 6,079,530 shares
at March 31, 1998, December 31, 1998 and
1997, and 4,634,530 at March 31, 1997 12,158 9,269 12,158 12,158
Additional paid-in capital 20,459,946 5,946,904 20,459,946 20,459,946
Unrealized holding loss (590,000) -- (200,000) --
Accumulated deficit (23,483,063) (17,971,254) (23,918,918) (23,059,900)
------------ ------------ ------------ ------------
Total stockholders' deficit $ (3,600,843) $(12,015,081) $ (3,646,698) $ (2,587,680)
------------ ------------ ------------ ------------
Total liabilities and stockholders' deficit $ 7,639,708 $ 16,276,000 $ 8,603,225 $ 8,735,681
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (unaudited)
--------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
----------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Finance charges on installment
contracts $ 587,616 $ 1,670,663 $ 7,808,369 $ 94,921 $ 536,722
Revenues from matured insurance
policies 69,109 505,292 1,326,706 988,228 69,109
----------- ------------ ------------ ----------- ------------
Gross revenues 656,725 2,175,955 9,135,075 1,083,149 605,831
Cost of matured insurance policies (60,125) (101,285) (784,848) (692,400) (60,125)
----------- ------------ ------------ ----------- ------------
Total net revenues $ 596,600 $ 2,074,670 $ 8,350,227 $ 390,749 $ 545,706
General and administrative expenses (2,106,636) (5,851,888) (9,914,990) (1,040,380) (1,944,258)
Provision for credit gain (losses) 41,000 (3,625,078) (8,839,461) 306,000 (30,000)
----------- ------------ ------------ ----------- ------------
Operating loss $(1,469,036) $ (7,402,296) $(10,404,224) $ (343,631) $ (1,428,552)
----------- ------------ ------------ ----------- ------------
Other income/(expenses):
Interest income:
Interest income on cash and
cash equivalents 207,116 333,251 603,356 74,034 140,650
NPD, Inc., note receivable 219,215 -- -- 227,648 142,861
Realized gain/(loss) on sale
of securities, net -- (49,853) 1,137 -- --
Interest expense:
Debentures (881,918) (2,148,914) (3,289,876) (514,781) (710,325)
NPD, Inc., note payable (25,667) -- -- (31,875) (76,667)
Other (27,082) -- -- -- (27,086)
Write-down of purchased insurance
policies (131,772) (925,300) -- -- --
Insurance policy writedown recapture -- -- -- 495,683 --
Lease termination expense -- (516,000) -- -- --
Gain on lease termination 266,378 -- -- -- --
Write-down of AutoLend IAP. Inc.,
securities (160,000) (200,000) -- -- --
Write-off fixed assets (3,720) (667,238) -- (4,570) --
Gain on sale of viatical trademarks -- -- 300,000 -- --
Loss on sale of viatical portfolio -- -- (392,063) -- --
Other income/(expense) (204,128) (212,118) 65,337 (22,488) --
Debenture conversion charge (6,261,052) -- -- -- (6,261,052)
----------- ------------ ------------ ----------- ------------
Total net other expense $(7,002,630) $ (4,386,172) $ (2,712,109) $ 223,651 $( 6,791,619)
----------- ------------ ------------ ----------- ------------
Loss before reorganization
costs, benefit from income
taxes, discontinued operations,
extraordinary item, and
cumulative effect of change
in accounting principle (8,471,666) (11,788,468) (13,116,333) (435,855) (8,220,170)
Reorganization costs incurred
after Chapter 11 proceedings (211,667) -- -- (315,875) --
Loss before benefit from income taxes,
discontinued operations,
extraordinary item, and
cumulative effect of change in
accounting principle (8,683,333) (11,788,468) (13,116,333) (435,855) (8,220,170)
Benefit from income taxes -- 86,082 4,935,676 -- (40,000)
----------- ------------ ------------ ----------- ------------
Loss before discontinued operations,
extraordinary item, and
cumulative effect of change in
accounting principle (8,683,333) (11,702,386) (8,180,657) 435,855 (8,220,170)
----------- ------------ ------------ ----------- ------------
Discontinued operations:
Loss from operations of discontinued
subsidiary, net of income tax
benefit of $78,805 and $8,716 in
1997 and 1996, respectively -- (152,973) (47,595) -- --
Gain on sale of subsidiary
net of income tax expense of
$164,887 -- 320,074 -- -- --
Loss before extraordinary items
and cumulative effect of
change in accounting principle (8,683,333) (11,535,285) (8,228,252) (435,855) (8,260,170)
Extraordinary items:
Gain on early extinguishment of
debt, net of amortization of
deferred costs of $57,000 and
$947,877 in 1998 and 1996 and
income tax expense of $4,847,156
in 1996 3,171,524 -- 7,306,970 -- 3,171,524
Loss before cumulative
effect of change in accounting
principle (5,511,809) (11,535,285) (921,282) (435,855) (8,260,170)
Cumulative effect of
change in accounting
principle net of income
tax expense of $117,239 -- -- 176,735 -- --
----------- ------------ ------------ ----------- ------------
Net loss $(5,511,809) $(11,535,285) $ (744,547) $ (435,855) $ (5,088,646)
=========== ============ ============ =========== ============
Loss per share before discontinued
operations, extraordinary item,
and cumulative effect of change
in accounting principle $ (1.44) $ (2.53) $ (1.17) $ (0.07) $ (1.37)
Discontinued operations -- 0.04 (0.01) -- --
----------- ------------ ------------ ----------- ------------
Loss per share before extraordinary
items and cumulative effect of
change in accounting principle (1.44) (2.49) (1.78) (0.07) (1.37)
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (unaudited)
------------------------------------------------------- --------------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Extraordinary items:
Gain on early extinguishment
of debt 0.53 -- 1.58 -- 0.53
----------- ------------ ------------ ----------- -----------
Loss per share before
cumulative effect of change
in accounting principle (0.91) (2.49) (0.20) (0.07) (0.84)
Cumulative effect of change
in accounting principle -- -- 0.04 -- --
----------- ------------ ------------ ----------- -----------
Net loss $ (0.91) $ (2.49) $ (0.16) $ (0.07) $ (0.84)
=========== ============ ============ =========== ===========
Weighted average number of common
and common equivalent shares
outstanding 6,039,391 4,634,530 4,634,530 6,079,530 6,026,011
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------ ------------------ Unrealized Gains
Additional (losses) on
# of $ # of $ Paid-in Accumulated Securities
Shares Amount Shares Amount Capital Deficit for Sale Total
------ ------ ------ ------ ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 -- $ -- 4,634,530 $ 9,269 $ 5,946,904 $ (5,528,546) $ 670 $ 428,297
Prior period adjustment -
error in understatement of
intangible property tax -- -- -- -- -- (162,876) -- (162,876)
------ ---- --------- ------- ---------- ------------ --------- -------------
Balance at March 31, 1995,
as restated -- -- 4,634,530 9,269 5,946,904 (5,691,422) 670 265,421
Net Loss -- -- -- -- -- (744,547) (670) (745,217)
------ ---- --------- ------- ---------- ------------ --------- -------------
Balance at March 31, 1996 -- -- 4,634,530 9,269 5,946,904 (6,435,969) -- (479,796)
Net Loss -- -- -- -- -- (11,535,285) -- (11,535,285)
------ ---- --------- ------- ---------- ------------ --------- -------------
Balance at March 31, 1997 -- -- 4,634,530 9,269 5,946,904 (17,971,254) -- (12,015,081)
Common and Preferred shares
issued in the exchange
offer 57,800 116 1,445,000 2,889 14,513,042 -- -- 14,516,047
Unrealized holding loss -- -- -- -- -- -- (590,000) (590,000)
Net Loss -- -- -- -- -- (5,511,809) -- (5,511,809)
------ ---- --------- ------- ---------- ------------ --------- -------------
Balance at March 31, 1998 57,800 $116 6,079,530 $12,158 $20,459,946 $(23,483,063) $(590,000) (3,600,843)
------ ---- --------- ------- ---------- ------------ --------- -------------
Net loss, nine months ended
December 31, 1998
(unaudited) -- -- -- -- -- (435,855) 390,000 (45,855)
------ ---- --------- ------- ---------- ------------ --------- -------------
Balance at December 31,
1998 57,800 $116 6,079,530 $12,158 $20,459,946 $(23,918,918) $(200,000) $ (3,646,698)
====== ==== ========= ======= =========== ============ ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Nine Months Ended
December 31
Fiscal Years Ended March 31 (unaudited)
---------------------------------------------------------------------------
1998 1997 1996 1998 1997
------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss $ (5,511,809) $(11,535,285) $ (744,547) $ (435,855) $ (5,088,646)
Adjustments to reconcile net loss
to net cash flow from operating
activities:
Amortization of intangible
assets and debt issuance
costs 56,443 242,777 2,390,073 -- 56,443
Depreciation expense 24,464 104,156 259,533 15,230 18,918
Gain on early extinguishment
of debt, net of amortization (3,171,524) -- (12,154,123) -- (3,171,524)
Charge for debenture conversion,
net of amortization 6,261,052 -- -- -- 6,261,051
Gain on lease termination (266,378) -- -- -- --
Provision for credit losses,
net of recoveries (41,000) 3,625,078 8,839,461 (306,000) 30,000
Write-off of fixed assets 3,720 667,238 36,007 4,570 --
Write-down of purchased
insurance policies 131,772 925,300 --
Recapture of insurance
policy write-down -- -- -- (495,683) --
Write-down of AutoLend IAP,
Inc., securities 160,000 200,000 -- -- --
Realized loss on sale of
IAP Securities -- 200,000 -- 25,440 --
Realized gains (losses)
on securities available
for sale -- 49,853 (1,137) -- --
Gain on sale of subsidiary, IAP -- (986,961) -- -- --
Gain on sale of assets -- -- (300,000) -- --
Provision for estimated legal fees
and settlement costs 200,000 -- -- -- --
Change in net assets of
discontinued operations -- (1,008,078) (4,858,380) -- --
Changes in assets and liabilities:
Prepaid expenses (100,567) -- -- 167,381 --
Accounts receivable -
matured insurance polices -- 1,357,947 3,578,618 -- 60,129
Installment contracts receivable 1,839,844 5,878,710 (6,683,571) 538,129 1,554,785
Interest on escrow deposit (62,060) -- -- (78,009) --
Interest receivable on note
receivable - NPD, Inc. (219,215) -- -- (227,648) (142,861)
Purchased insurance policies 52,425 6,494 17,803,351 691,136 --
Consulting agreement 140,000 -- -- -- --
Other assets 33,101 107,469 1,301,177 (300) (88,474)
Accrued interest receivable -- -- 79,499 -- --
Accounts payable and incurred
liabilities (1,719,080) 1,231,445 609,182 462,716 (1,003,647)
Accrued interest expense 907,585 2,094,751 (1,430,673) 546,656 786,992
Other liabilities 578,402 -- -- -- --
------------ ------------ ------------ ---------- -----------
Cash provided (used) by operating
activities $ (702,825) $ 2,960,894 $ 8,724,470 $ 907,763 $ (726,834)
----------- ------------ ------------ ---------- -------------
Cash flow from investing activities:
IAP Securities $ -- $ -- $ -- $ 614,560 $ --
Funding of escrow (2,000,000) -- -- -- (2,000,000)
Loan to NPD (3,035,292) -- -- -- (3,035,292)
Purchase ITB stock option (200,000) -- -- -- (200,000)
Purchase of securities available
for sale -- -- (14,414,871) -- --
Proceeds from sale of securities
available for sale -- 125,000 23,922,979 -- --
Proceeds from disposition of IAP -- 5,963,388 -- -- --
Proceeds from sale of fixed assets -- 185,995 -- -- --
Purchase of fixed assets -- (4,075) (492,799) -- --
------------ ------------ ------------ ---------- ------------
Cash provided (used) by
by investing activities $ (5,235,292) $ 6,270,308 $ 9,015,309 $ 614,560 $ (5,235,292)
------------ ------------ ------------ ---------- ------------
Cash flow from financing activities:
Early extinguishment of debt (5,692,079) -- (15,848,000) -- (5,692,079)
------------ ------------ ------------ ----------- -----------
Cash provided (used) in
financing activities $ (5,692,079) $ -- $ 15,848,000) -- $ (5,692,079)
------------ ------------ ------------ ----------- ------------
Net increase(decrease) in cash and cash
equivalents $(11,630,196) $ 9,231,202 $ 1,891,779 $1,522,323 $(11,654,205)
Cash and cash equivalents at beginning
of period 12,399,932 3,168,730 1,276,951 769,736 12,399,932
------------ ------------ ------------ ----------- ------------
Cash and cash equivalents at end of period $ 769,736 $ 12,399,932 $ 3,168,730 $2,292,059 $ 745,727
============ ============ ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1998, the Company paid approximately $173,000 in professional fees in
connection with the Chapter 11 proceeding. Additionally during 1997, the Company
paid $27,082 in interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1998, the Company purchased an option to acquire stock in exchange for
$200,000 cash and a note payable with present obligation of $425,000 (see Note
7). Additionally, the Company converted debentures with a face value of
$7,225,000 and outstanding accrued interest of $1,065,575 for 57,800 shares of
preferred stock and 1,445,000 shares of common stock, with aggregate par values
of $116 and $2,889, respectively. This resulted in a non-cash conversion charge
of $6,261,052 .
F-13
<PAGE>
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 1, 1998, 1997, and 1996
(Information as of December 31, 1998 and 1997, as well as for the
nine months then ended is unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation; Going Concern
The accompanying consolidated financial statements of AutoLend Group, Inc.,
and its wholly owned subsidiaries (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 outstanding 9.5 percent Convertible Subordinated Debentures
(the "Debentures"), as described more fully in Note 2, 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").
The Company is presently operating its business under 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 have been resolved. (See Note 18)
The Company maintains a portfolio of sub-prime consumer used-car loans
("Installment Contract Receivables") through its subsidiary, AutoLend
Corporation. LB NM, Inc., and American Life Resources Group, Inc., maintain
a 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 Installment Contract
Receivables in December 1995 and Policies in September 1994 and does not at this
time intend to recommence those activities.
AutoLend IAP, Inc., provided short-term financing to selected used-car dealers
for purchases of used automobiles at certain regional auctions in the United
States. On September 18, 1996, the Company entered into a stock purchase
agreement to sell AutoLend IAP, Inc., and it was sold.
Because the Company's liabilities exceeded its assets from March 1996 through
March 1999, and the Company has been in a Chapter 11 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 attainment of profitability. The Company has filed a
Plan of Reorganization and Disclosure Statement (collectively, the "Plan"),
which contain the Company's proposal for resolving the bankruptcy. The
Company's Plan of Reorganization has been confirmed by the Bankruptcy Court and
became effective on March 5, 1999. As a result, the Company's liabilities no
longer exceed its assets.
F-14
<PAGE>
The Company's financial statements as of March 31, 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"). 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.
Prior year's comparative balances have not been reclassified to conform to
current year balances stated under SOP 90-7.
The Company's consolidated financial statements include the accounts of AutoLend
Group, Inc., and its wholly owned subsidiaries, AutoLend Corporation, AutoLend
IAP, Inc. (through September 18, 1996), LB NM, Inc., and American Life Resources
Group, Inc. No petition under the United States Bankruptcy Code has been filed
for the subsidiaries. Below is the condensed (unconsolidated) financial
statements of AutoLend Group, Inc., the only entity that had filed for Chapter
11 protection as of March 31, 1998.
F-15
<PAGE>
AutoLend Group, Inc.
Condensed (Unconsolidated) Balance Sheet
March 31, 1998
Assets:
Cash and cash equivalents (excludes subsidiaries) $ 80,356
Prepaid expenses 167,381
Fixed assets net 39,611
Receivable from subsidiaries 12,793,262
Investment in subsidiaries (11,535,549)
IAP securities 250,000
Escrow deposit excluding interest 2,000,000
Note receivable NPD, Inc. 3,035,292
Interest receivable on note receivable NPD, Inc. 219,215
ITB stock option, net 425,000
Other assets 108,070
Total Assets $ 7,582,638
============
Liabilities:
Liabilities subject to compromise $ 10,088,039
Liabilities not subject to compromise 932,566
------------
Total Liabilities $ 11,020,605
Stockholders' Deficit (3,437,967)
------------
Total Liabilities and Stockholders' Deficit $ 7,582,638
============
See pages F-8 through F-13 for consolidated financial statements.
F-16
<PAGE>
AutoLend Group, Inc.
Condensed (Unconsolidated) Statement of Operations
For the year ended March 31, 1998
<TABLE>
<CAPTION>
Total net revenues (excludes subsidiaries) $
--
<S> <C>
General and administrative expenses (1,547,877)
-----------
Operating earnings (loss) (1,547,877)
-----------
Other income (expense):
Interest income on cash and cash equivalents 190,673
Accrued interest income on NPD, Inc., note 219,215
Other income/(expense) 102,658
Accrued interest expense (907,585)
Debenture conversion charge (6,261,052)
Equity in loss of subsidiaries (267,690)
-----------
Total net other expense (6,923,781)
-----------
Loss before reorganization costs, income taxes, and extraordinary item (8,471,658)
Reorganization costs incurred after Chapter 11 proceedings (211,667)
-----------
Loss before income taxes and extraordinary item (8,683,325)
Benefit from income taxes --
-----------
Loss before discontinued operations, extraordinary item (8,683,325)
Gain on early extinguishment of debt, net of amortization of deferred
costs of $57,000 3,171,524
-----------
Net loss $(5,511,801)
===========
</TABLE>
See pages F-8 through F-13 for consolidated financial statements.
F-17
<PAGE>
AutoLend Group, Inc.
Condensed (Unconsolidated) Statement of Cash Flow
For the year ended March 31, 1998
<TABLE>
<CAPTION>
Cash Flow from operating activities:
<S> <C>
Net loss $ (5,511,801)
Adjustments to reconcile loss to net cash flow from operating activities
Amortization of intangible assets and deb issuance costs 56,443
Depreciation expense 24,364
Gain on early extinguishment of debt, net of amortization (3,171,524)
Debenture conversion charge, net of amortization 6,261,052
Gain on lease termination (266,378)
Equity in net income of subsidiaries 267,690
Write-off of fixed assets 3,720
Write-down of AutoLend IAP, Inc., securities 160,000
Changes in assets and liabilities:
Prepaid expenses (100,567)
Interest on escrow deposit (62,060)
Accrued interest receivable - NPD, Inc. (219,215)
Consulting agreement 140,000
Receivable from subsidiaries 2,411,087
Other assets 12,741
Accounts payable and accrued liabilities (954,039)
Accrued interest expense 907,585
------------
Cash (used) by operating activities (40,902)
------------
Cash flow from investing activities:
Funding of escrow (2,000,000)
Loan to NPD (3,035,292)
Purchase ITB stock option (200,000)
------------
Cash used by investing activities (5,235,292)
------------
Cash flow from financing activities:
Early extinguishment of debt (5,692,079)
------------
Cash used in financing activities (5,692,079)
------------
Net (decrease) in cash and cash equivalents (10,968,273)
Cash and cash equivalents at beginning of period 11,048,629
------------
Cash and cash equivalents at end of period (excludes subsidiaries) $ 80,356
============
</TABLE>
See pages F-8 through F-13 for consolidated financial statements.
Because of the nature of the Company's business, the accompanying consolidated
balance sheets have been presented as nonclassified. Significant intercompany
accounts and transactions are eliminated.
F-18
<PAGE>
(b) Interim Financial Information
The financial information as of December 31, 1998, and 1997, and for the nine
months then ended is unaudited. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such periods. Results for
interim periods are not necessarily indicative of results to be expected for an
entire year.
(c) Cash and Cash Equivalents
Cash and cash equivalents include debt securities, which mature in 90 days or
less from the date of acquisition.
(d) Securities
Securities investments (including options) that the Company has the positive
intent and ability to hold to maturity are classified as held-to-maturity
securities. Securities investments that are bought and held principally to sell
in the near term are classified as trading securities. Securities investments
not classified as either held-to-maturity or trading securities are classified
as available-for-sale securities. Available-for-sale securities are recorded at
fair value and are included in investments and other assets on the balance
sheet, with the change in fair value during the period excluded from earnings as
a separate component of equity. The Company determines the cost of its
investments in securities based on specific identification.
(e) Recent Accounting Pronouncements and Developments
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to existing fully diluted
earnings per share. The Company adopted the provisions for computing earnings
per share set forth in SFAS 128 in fiscal year 1998. The adoption of SFAS 128
does not have a material effect on the Company's previously reported earnings
per share information.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
It established standards for reporting comprehensive income and its components
in annual financial statements. Reclassification of comparative financial
statements or financial information for earlier periods is required upon
adoption of SFAS No. 130.
F-19
<PAGE>
Statement of Financial Accounting Standards No. 131, Disclosure about Segments
of a Business Enterprise ("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.
Both SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
Statement of Financial Accounting Standards No. 129, Disclosure of Information
about Capital Structure ("SFAS 129") effective for periods ending after December
15, 1997, 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 will have no effect on
the Company as it currently discloses the information specified.
(f) Revenue Recognition
Installment Contract Receivables: Revenues from finance charges on Installment
Contract Receivables (used car loans) are recognized when earned and are based
on the difference between gross cash flow from an Installment Contract
Receivables and the total amount paid by the Company to acquire the Contracts.
Loan discounts are recorded as unearned income at the time of initial investment
in a loan contract and are amortized over the life of the loan to revenue. Loan
costs are amortized against revenue as an adjustment of yield.
The accrual of interest revenue on receivable balances (recognition of revenue)
is suspended when a loan is delinquent for 30 days or more. The accrual is
resumed when the loan becomes contractually current, and past-due interest
revenue is recognized then. The Company initially performed, in house, all
functions associated with origination, servicing, and collection of the
contracts; however, since January 1996, the Company has used an outside
contractor to service the Installment Contract Receivables.
Allowance for Credit Losses - Installment Contract Receivables: An allowance
for credit losses is maintained at a level which, in management's judgment, is
adequate to absorb credit losses inherent in the Installment Contract
Receivables portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the Installment Contract Receivables
portfolio, including the nature of the portfolio and specific impaired loans.
Allowances for impaired loans are generally determined based on aging,
collateral values, or present value of estimated cash flows.
F-20
<PAGE>
The allowance for credit losses is established through provisions charged to
income and is based on management's evaluation of potential losses after
considering such factors as current delinquency data, changes in the Installment
Contract Receivables portfolio, and other pertinent factors. Charge-offs are
recorded against the allowance when management believes that the collectibility
of the principal is unlikely.
There are inherent uncertainties in determining the allowance for credit losses
in an Installment Contract Receivables portfolio. As a result, the aggregate
losses ultimately incurred by the Company for the Installment Contract
Receivables portfolio may differ from the allowance for credit losses in the
accompanying financial statements. Management has used its best judgment to
arrive at its estimate of the allowance for credit losses, and believes that it
is reasonable to cover the losses inherent in the Installment Contract
Receivables portfolio at March 31, 1998, and 1997.
Purchased Insurance Policies: Revenue and cost of revenue are recognized upon
the maturity of a Policy (death of the insured). Unmatured Policies are
carried, at estimated market value, as an investment asset. The cost of a
Policy includes the initial purchase price, insurance premiums, and other direct
expenditures paid by the Company for the purchase and maintenance of the Policy.
Revenues are accounted for as "Gross Revenues" (i.e., before deduction of costs)
and as "Net Revenues" (after deduction of costs). Net Revenues are combined
with revenues from other business operations in calculating the Company's Total
(net) Revenues.
The ability to recognize matured policy revenue during the period in which a
Policy matures depends on the Company's receiving notification of its maturity
from a representative of the insured. In some instances, notification may not
occur until significantly after the insured's death and after the financial
statements have been finalized for the period in which the Policy matured. To
the extent Policy maturities cannot be recorded in the period the Policy
matures, the revenue and cost related to the maturity are recognized in the
statement of operations after the maturity of the Policy.
Allowance for Credit Losses - Purchased Insurance Policies: The allowance is
established through provisions charged to income and is based on management's
evaluation of potential losses after consideration of present value of the face
value of the Policy less the present value of any future obligations relating to
the Policy. Charge-offs are recorded against the allowance when management
believes that the collectibility of the Policy is unlikely.
Inventory Assistance Program: Revenues from the inventory assistance program
("IAP") financing consisted of non-refundable administrative fees and were
recognized at the time of contract. Interest income on IAP dealer receivables
was recorded as unearned income and amortized over the loan period, which did
not exceed six weeks. IAP revenues were recognized only from March 1995 through
September 1996, when the IAP subsidiary was sold (see Note 9).
(g) Debt Issuance Cost Amortization
Debt issuance costs are amortized over the life of the related debt. At March
31, 1998, debt issuance costs had been fully amortized.
F-21
<PAGE>
(h) Income Taxes
The Company calculates income taxes using the asset and liability method
prescribed by Financial Accounting Standards Board Statement No. 109 -
"Accounting for Income Taxes." Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The Company, based on the weight of the available
evidence, provides an offsetting valuation allowance against deferred tax assets
to the extent it determines it is highly possible that any such deferred tax
assets will not be usable.
(i) Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable on matured
Policies, Installment Contract Receivables, purchased Policies, an escrow
account, securities in IAP, the ITB stock option, the NPD note receivable,
accounts payable, accrued liabilities, the note payable on the stock option, and
the Debentures. The fair values of these financial instruments have been
determined using available market information and interest rates as of March
31, 1998.
At March 31, 1998, the fair value of the Debentures, which were due in September
1997 and not paid, was substantially less than the carrying value of $7.2
million plus accrued interest, based on the uncertainty of the Company's ability
to continue as a going concern. The Company's management is unable to determine
with any precision or certainty what the fair value was at that time; however,
the Company repurchased Debentures at a discount from face value during the year
ended March 31, 1998. The fair values of all other financial instruments were
not materially different from their carrying value.
(j) Earnings Per Share
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding, which were 6,039,391 for 1998 and
4,634,530 for 1997. The convertible provision of the Convertible Subordinated
Debentures is contingent upon the future market price of the Company's stock;
based on the market price on June 18, 1998, it is probable that none of the
Debentures would convert to shares of Common Stock. Furthermore, the effects of
options, which are presently outstanding for 3,660,000 shares of common stock
were anti-dilutive; therefore, fully diluted earnings per share amounts are not
presented because they do not differ significantly from primary earnings per
share.
(k) Use of Estimates
The preparation of the Company's consolidated financial statements conforms with
generally accepted accounting principles, and requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities,
F-22
<PAGE>
the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) Collateral Owned
Collateral owned consists of repossessed automobiles which are recorded at the
lower of the loan amount or the fair value of the vehicle on the date of
foreclosure as determined by industry information. Any excess of the loan
balance over the estimated fair value of the vehicle is charged to the allowance
for credit losses. Any losses on the sale of the vehicles are charged to
operations.
(m) Year 2000 Issue
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 U.S.A., or elsewhere, for this problem. Not only
might the problem affect a particular company's computers, but it could also be
impacted by problems at other companies, through supplier relationships, etc.
Fortunately, the Company's present small base of operations is not at this point
heavily dependent upon computers. However, steps are being taken to test and,
if necessary, upgrade computers and software within the Company. The ultimate
cost for completing this process is not yet known, but management does not
anticipate expenditure of more than $10,000. Testing and any upgrades necessary
should be complete by August 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
guarantee that it will not be in some way detrimentally impacted.
(2) Voluntary Bankruptcy Reorganization
On September 19, 1997, the entire principal balance of the Company's Debentures
became due and payable and the Company's projected cash flow was not adequate to
meet the debt requirements. Therefore, 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. The
Company's Plan of Reorganization has been confirmed by the Bankruptcy Court and
became effective March 5, 1999. (See Note 18)
(3) Reorganization Plan Regarding Future Business
In conjunction with the present Chapter 11 proceedings, 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 detailed Disclosure Statement
which outlines its plans for new business (collectively, the "Plan"). The
success of the Plan is highly dependent on the development by the Company of a
new business, which consists primarily of acquiring and operating gaming devices
and machines for certain
F-23
<PAGE>
non-profit organizations located in New Mexico. The Plan was distributed to the
Company's creditors in advance of balloting and a hearing on the confirmation of
the Plan, and was approved by the Bankruptcy Court. (See Note 18).
(4) Involuntary Bankruptcy Petition Dismissed
Approximately six weeks after a court-approved Stipulation of Settlement in
which the current management assumed control of the Company, on November 1,
1996, four holders of the Companys Debentures filed an involuntary petition
against the Company in the Court (the "Involuntary Petition"). 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) Debentures
On October 22, 1996, the Company initiated its offer to exchange common stock,
$.002 par value per share ("common stock"), and 14 percent cumulative
convertible preferred stock, $.002 par value per share ("preferred stock"), for
its outstanding Debentures ("Exchange Offer"). 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 in principal
amount of Debentures. Pursuant to the Exchange Offer, the Company issued 855,205
shares of common stock valued at $0.5625 per share and 57,800 shares of its
preferred stock valued at $100 per share in excess of the original conversion
privilege offered by these Debentures. As a result, the Company recorded during
the year ended March 31, 1998, a non-cash transaction: a conversion charge of
$6.3 million, an increase to additional paid-in capital of $14.5 million, and an
increase in the common stock of $2,889 and preferred stock of $116. In
addition, accrued interest on the Debentures, totaling $1.1 million, was
canceled.
During the 12 months ended March 31, 1998, 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 March 31, 1998, were $7.2 million in
principal and $1.7 million in interest. All outstanding principal became due on
the remaining Debentures on September 19, 1997; however, this payment was not
made. (See Notes 2 and 18)
(6) The Pursuit of a Controlling Interest in ITB
International Thoroughbred Breeders, Inc. ("ITB") was an American Stock Exchange
listed company which owned and operated Garden State Park and Freehold Raceway
in New Jersey and which owns the former El Rancho Casino property in Las Vegas,
Nevada. ITB is much larger than AutoLend, and had a net equity of approximately
$75 million, annual revenues of approximately $68 million, and approximately 700
employees (according to ITB's then most recent Form 10-Q and Form 10-K).
F-24
<PAGE>
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 ITBs
former chairman, Robert E. Brennan. However, due to the involuntary petition in
bankruptcy (see Note 4 to the financial statements), the Company was prevented
from consummating the purchase. As an alternative to the direct acquisition of
the ITB stock, Nunzio DeSantis (the Companys Chairman and CEO) 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 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's bankruptcy estate for the ITB shares and to
effectuate this, would deposit $2.0 million into a cash collateral escrow
account to secure NPDs obligation. However, the Bankruptcy Court before which
the involuntary petition was pending enjoined the 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 bankruptcy
petition, and in accordance with its agreement, the Company executed and
delivered its guarantee as aforesaid, depositing the required $2.0 million in
the cash collateral escrow account. At March 31, 1998, the funds held in escrow
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 loan accrues
interest at the rate of 10 percent 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 by NPD of the shares held by Brennan 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 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.
(See Note 18)
(7) The ITB Option
As a result of the earlier involuntary bankruptcy proceeding against the Company
(see Note 6 to the financial statements) the Company was prevented from entering
into a negotiated agreement which would have enabled it to purchase an
approximately 25 percent equity interest in ITB. Consequently, NPD 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
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.
F-25
<PAGE>
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 of the
options owned by the Company and by Mr. DeSantis are subject to a one year
option previously granted by NPD to an unaffiliated third party in January 1997.
This option provided this individual 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 shares originally purchased by NPD at a minimum, to 100 percent of these
shares in the event no other options are exercised. Prior to entering into this
agreement, the Company's Board of Directors obtained and reviewed a draft of a
third-party appraisal of the Option, which set the value of the Option at $2.5
million if the Company has the ability to acquire 100 percent of the shares. As
of June 19, 1998, this appraisal had not been finalized.
The Company paid $200,000 in cash for the Option at the closing date, and also
executed a note, 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 shares, but is reduced proportionally (including accrued
interest from the date of inception) to the percentage of the ITB shares
unavailable, as stated above. Therefore, at March 31, 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. However, the balance
of the debt obligation does represent a contingent obligation in the event that
the Company has the ability to acquire all of the shares held by NPD.
The provisions of the Option stipulate that it may not be exercised by a company
in bankruptcy, and the Option was originally to expire on August 29, 1998.
However, the Option was extended to August 29, 1999, at the discretion of NPD.
In the event that the Company were 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 this option would be exercised
by the Company unless the "strike price" exceeded $4 per share. ITB stock has
been suspended from trading since October 1997, and last traded at approximately
$3.50. It is unclear if the stock will resume trading before the expiration of
the Option and therefore, establish a market price. (See Note 18)
(8) Preferred Stock
In connection with the Exchange Offer (see Note 5 above), the Company issued
57,800 shares of preferred stock with a stated value of $100 per share.
Dividends are at an annual rate of 14 percent of the stated value, payable
quarterly, at the option of the Company in either cash, common stock, preferred
stock, or a combination thereof. Dividends unpaid at March 31, 1998, totaled
approximately $600,000. (See Note 18).
F-26
<PAGE>
(9) Discontinued Operations
One of the Company's subsidiaries, AutoLend IAP, Inc. ("IAP"), was sold on
September 18, 1996, to its departing management. The Company received full,
undiscounted payment in cash for all IAP's receivables outstanding, and also
received cash payment for the book value of equipment and fixtures used in the
business. In addition, the Company received shares of IAP's preferred stock.
These shares of preferred stock had a face value of $1.0 million bearing
interest at 11 percent. If the face value and accrued interest is not repaid to
the Company in full at the end of three years, the Company may convert the
preferred stock into common stock equal to 51 percent of IAP at the date of
conversion. At March 31, 1998, management of the Company was negotiating with
the new owners of IAP for the early repayment of the preferred stock. Since no
agreement has been executed, the fair value of the investment was reduced to
$250,000; this amount represents the escrow deposit available to guarantee the
redemption of the stock.
As a result of the sale of IAP the past results of operations of IAP have been
treated as a discontinued operation in the accompanying financial statements.
No interest expense has been allocated to discontinued operations. Summarized
results of IAP included in the accompanying financial statements are as follows:
Nine Months Ended
December 31
Fiscal Year Ended March 31 (unaudited)
----------------------------- -----------
1998 1997 1996 1998 1997
----- ---------- ---------- ---- ----
Revenue -- $ 825,706 $379,667 -- --
Net loss -- (152,973) (47,595) -- --
Loss per common share -- (0.03) (0.01) -- --
(10) Installment Contract Receivables
Installment Contract Receivables consisted of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (unaudited)
------------------------- ------------------------
1998 1997 1998 1997
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Installment contracts receivable $ 541,803 $ 3,828,706 $ 177,944 $ 875,036
Unearned finance charges (80,211) (919,637) (13,696) (148,095)
--------- ----------- ---------- ----------
Installment contracts receivable, net of
unearned finance charges 461,592 2,909,069 164,248 726,941
Collateral owned 22,286 206,529 -- 22,286
Allowance for credit losses (187,669) (1,068,545) (100,168) ( 286,967)
--------- ----------- ---------- ----------
Installment contracts receivable, net $ 296,209 $ 2,047,053 $ 64,080 $ 462,260
========= =========== ========== ==========
</TABLE>
F-27
<PAGE>
A summary of the allowance for credit losses on the Installment Contracts
Receivable is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (Unaudited)
1998 1997 1996 1998 1997
------------ ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance - beginning of period $1,068,545 $ 3,995,296 $ 1,544,000 $ 187,669 $1,068,545
Provision for losses,
net of recoveries (89,000) 3,625,078 8,839,461 (306,000) 30,000
Charge offs and adjustments (791,876) (6,551,829) (6,388,165) 218,499 (811,578)
---------- ----------- ----------- --------- ----------
Balance - end of period $ 187,669 $1 ,068,545 $ 3,995,296 $ 100,168 $ 286,967
========== =========== =========== ========= ==========
</TABLE>
Most of the Company's Installment Contract Receivables are due from consumers in
the Southeast, West, and Northeast regions of the United States. To some
extent, realization of the receivables will depend on local economic conditions.
The Company holds vehicle titles as collateral for all contracts receivable
until the contracts are paid in full.
(11) Purchased Insurance Policies
At March 31, 1998, and 1997, the face values of the policies held was $1,879,420
and $1,948,530, respectively. The face value of policies held at December 31,
1998, and 1997 was $875,920 and $1,993,405, respectively. The historical cost,
including capitalized acquisition costs, of these policies at March 31, 1998,
and 1997 was $1,386,265 and $1,438,690, respectively, and $693,874 and
$1,378,565 at December 31, 1998 and 1997. A summary of the allowance for credit
losses on the Purchased Insurance Policies is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (Unaudited)
---------------------- -------------------------
1998 1997 1998 1997
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance - beginning of period $ 925,300 $145,713 $1,057,072 $ 925,300
Provision for write-down and valuation allowance
net of recapture 131,772 779,587 (496,938) --
---------- -------- ---------- ---------
Balance - end of period $1,057,072 $925,300 560,134 925,300
========== ======== ========== =========
</TABLE>
(12) Securities
At March 31, 1998, certain securities classified as available-for-sale were
written down to their estimated realizable values, because, in the opinion of
management, the decline in market value of those securities is considered to be
other than temporary.
F-28
<PAGE>
No securities were classified as trading or held-to-maturity at March 31 or
December 31, 1998, or 1997. Investments in available-for-sale securities are
summarized as follows at March 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
Stock Option Corporate Debt Stock Option Corporate Debt
(ITB) (IAP Stock) (ITB) (IAP Stock)
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cost $625,000 $800,000 $ -- $1,000,000
Permanent impairment -- 160,000 -- 200,000
Unrealized losses 200,000 390,000 $ -- --
-------- -------- ------------ ----------
Fair market value $425,000 $250,000 $ -- $ 800,000
======== ======== ============ ==========
</TABLE>
There were no realized gains or losses on securities for the year ended March
31, 1998. Realized gains and losses on securities available-for-sale were
$(49,853) and $1,137 for the years ended March 31, 1997, and 1996 respectively.
Investments in available-for-sale securities are summarized as follows at
December 31 (unaudited):
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------
Stock Corporate Debt Stock Corporate Debt
Option (IAP Stock) Option (IAP Stock)
(ITB) (ITB)
<S> <C> <C> <C> <C>
Cost $425,000 $ -- $425,000 $1,000,000
Permanent impairment -- -- -- (200,000)
$425,000 $ -- $425,000 $ 800,000
========= ============= ======== ==========
</TABLE>
A $25,440 loss was realized on the sale of securities during the nine months
ended December 31, 1998.
(13) Fixed Assets
For the fiscal year ended March 31, 1998, furniture and fixtures and computers
and software are stated at cost. Depreciation is computed by using the
straight-line method over five years, the estimated useful life of the asset(s).
A summary of fixed assets and depreciation recorded is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (unaudited)
------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Furniture and Fixtures $ 27,809 $ 32,241 $ 16,723 $ 32,241
Computers and Software 80,416 78,323 80,417 78,223
Leasehold Improvements -- 9,254 -- 9,254
-------- -------- -------- --------
Gross book value 108,225 119,818 97,140 119,718
Less: Accumulated Depreciation (68,614) (52,023) (77,329) (70,842)
-------- -------- -------- --------
Total net book value $ 39,611 $ 67,795 $ 19,811 $ 48,876
======== ======== ======== ========
</TABLE>
F-29
<PAGE>
(14) Income Taxes
A reconciliation of the Company's actual income tax benefit to that computed
using the United States federal statutory rate of 34 percent is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31
March 31 (unaudited)
-------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
---------------------- -------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
benefit $(1,874,012) $(3,921,997) $(253,146) $(148,191) $(1,730,140)
Increase (decrease) in
income taxes resulting
from:
Non-deductible debt to
stock conversion 2,131,472 -- -- -- 2,131,503
Amortization of goodwill -- 223,225 (401,590) -- --
Limitation of net operating
loss carryforwad (257,460) 3,698,772 654,736 148,191 (401,363)
----------- ----------- --------- --------- -----------
Total income tax expense $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities are presented below:
<TABLE>
<CAPTION>
December 31
March 31 (unaudited)
-----------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Deferred Tax assets:
Bad debt reserve $ 91,392 $ 167,395 $ 38,865 $ 111,343
Capital loss carryover 203,227 203,227 924,915 924,915
Net operating loss 5,617,126 5,716,454 4,749,759 4,310,846
Valuation reserve on investment and
insurance policies 487,493 436,391 217,332 359,016
----------- ----------- ----------- -----------
Subtotal: gross deferred tax assets $ 6,399,238 $ 6,523,467 5,930,871 5,706,120
=========== =========== =========== ===========
Deferred tax liabilities:
Other 18,575 18,575 -- 18,575
Subtotal: gross deferred tax liabilities $ 18,575 $ 18,575 $ -- $ 18,575
----------- ----------- ----------- -----------
Net deferred tax asset, before valuation
allowance $ 6,380,663 $ 6,504,892
Valuation allowance for deferred tax assets (6,380,663) (6,504,892) (5,930,871) (5,724,695)
----------- ----------- ----------- -----------
Total net deferred tax asset $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
(15) Stockholders' Equity
On July 31, 1990, the Company made a public offering of 900,000 units at $10
each, with each unit consisting of three common shares and three redeemable
Class A warrants. Total proceeds from the sale of these units were $9,000,000,
less offering costs of $1,815,591. In addition, the underwriters for the public
offering exercised an option to purchase 50,000 units to cover over-allotments.
Total proceeds from the sale of these option units were $500,000, less
underwriting discounts and commissions of $57,750. The underwriters also
received an additional option to purchase 90,000 units at $12 per unit,
exercisable over two years commencing on July 31, 1993; this additional option
expired unexercised.
Each Class A warrant entitled the registered holder to purchase one common share
and one redeemable Class B warrant at an exercise price of $4.00 through its
expiration date. Each Class B Warrant entitled the registered holder to
purchase one common share at $7.00 from the date of issuance through its
expiration date. The Class A and Class
F-30
<PAGE>
B warrants were subject to redemption at $0.05 per warrant on 30 days' prior
written notice if the closing bid price of the common shares exceeds $5.50 and
$9.70 per share, respectively, for 30 consecutive business days ending within 15
days of the date of notice of redemption. During the year ended March 31, 1993,
151,500 Class A warrants and 44,500 Class B warrants were exercised. A total of
1,000 Class A warrants was exercised during the year ended March 31, 1992. In
addition, the Company repurchased 142,000 Class A warrants at a total cost of
$227,355. At March 31, 1998, 2,555,500 Class A warrants and 108,000 Class B
warrants were outstanding. The Warrants were due to expire on January 31, 1998,
when the Company was under the restrictions of the Chapter 11 Bankruptcy
proceeding and was thus unable to address the issue of extending their
expiration date. The Plan and Disclosure Statement include provisions for
treatment of the Warrants; this, however, is subject to confirmation under the
Bankruptcy Proceeding.
In connection with the Company's issuance of Debentures (Note 5), the Company
granted to the distribution agent a warrant to purchase 269,388 shares of common
stock exercisable at $12.25 per share through September 18, 1996, which expired
unexercised. The Company has also granted warrants to individuals to purchase
25,000 common shares at $3.00 per share through March 11, 2001, and 20,000
common shares at $12.25 through September 18, 2001.
The Company has a stock option plan under which both incentive and non-qualified
stock options may be granted to purchase up to 4,500,000 shares of common stock.
For options granted as incentive stock options under the plan, the exercise
price must be at least equal to the fair market value on the date of the grant.
The exercise price for non-qualified options may be less than fair market value.
The options expire at various times ranging from five to ten years. (See Note
18)
<TABLE>
<CAPTION>
The options are summarized as follows:
1998 1997 1996
-----------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
# of Average # of Average # of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,100,000 $2.47 1,865,000 $2.77 1,370,000 $3.22
Granted /(1)/ 2,720,000 0.19 525,000 2.65 495,000 1.54
Forfeited (160,000) 3.25 (1,290,000) 2.98 -- 2.98
--------- ----- ---------- ----- ---------- -----
Outstanding at end of year 3,660,000 0.74 1,100,000 2.47 1,865,000 2.77
Options exercisable at fiscal year end 3,660,000 820,000 911,667
</TABLE>
/(1)/ Management has determined that the fair value of the option is nominal.
The following table summarizes information about the options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-Average Weighted- Number Weighted
Outstanding Remaining Average Exercisable Average
Exercise Price at March 31, 1998 Contractual Life Exercise Price at March 31, 1998 Exercise Price
- -------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.1875 2,720,000 8 1/2 years $0.19 2,720,000 $0.19
1.50 - 2.25 395,000 7 1/2 years 1.81 395,000 1.81
2.65 525,000 /(1)/ 2.65 525,000 2.65
3.00 - 4.625 20,000 4 1/2 years 3.81 20,000 3.81
------------ ----- --------- -----
$ 0.1875 - 4.625 3,660,000 7 1/2 years $0.74 3,660,000 $0.74
</TABLE>
/(1)/ These options expire on the thirty-first day following the tenth
consecutive trading day that the Market Price (as defined in the option
agreement) of the Company's Common Stock equals or exceeds $6.00 per share,
subject to an extension of the option term if the Common Stock is then not
registered under the Securities Act of 1933, as amended.
F-31
<PAGE>
(16) Sale of Certain Assets
On May 8, 1995, and July 18, 1995, American Life Resources Group ("ALRG") and LB
NM, Inc. ("LBNM"), entered into agreements with Viaticus, Inc. ("Viaticus"), a
subsidiary of the CNA Insurance Companies, under which ALRG and LBNM agreed to
assign to Viaticus certain viatical insurance policies. Under the agreements,
upon receipt by Viaticus of satisfactory acknowledgment by the insurer, payment
of a predetermined amount for each policy would be remitted to the Company.
During the fiscal year ended March 31, 1996, approximately $17.5 million was
received as payment for policies with completed assignments to Viaticus. There
are no outstanding amounts receivable under the agreements at March 31, 1998.
(17) Commitments and Contingencies
Effective August 8, 1997, the Company relocated its principal executive offices
from 215 Central NW, Albuquerque, New Mexico, to 600 Central SW, Albuquerque,
New Mexico. The Company leases this space on a month-to-month basis.
Miami office lease. The Company had previously leased approximately 17,000
square feet of office space in Miami Beach, Florida, under a six-year non-
cancelable lease, effective May 1994. In February 1996, the Company moved out
of these premises. At September 30, 1997, approximately 35 months of the lease
remained at a cost of $341,250 per year. On January 28, 1998, the Bankruptcy
Court approved a settlement with the landlord, dated October 31, 1997, which
released the Company from its obligations under the lease. The Company paid the
landlord $105,850 (including funds already on deposit) in complete satisfaction
of all claims. The Company had provided a lease loss accrual of $516,000 during
fiscal year 1997 for the rent payments and other lease-related expenses called
for under the lease. Because of the Court-approved settlement with the
landlord, a gain on settlement of the Miami lease of $266,378 was recorded for
the fiscal year ended March 31, 1998.
The Company is currently considering a sale of a portfolio of installment
receivables, which are non-performing and which have been fully reserved, to an
independent third party. There is also a sales and use tax refund opportunity
applicable to those receivables because the borrower defaulted. The Company is
currently pursuing a potential refund of some of these taxes. The amounts
relating to these events are not readily determinable, and recovery is not
certain. Therefore, these financial statements do not reflect the potential
financial impact related to these activities.
Living Benefits, Inc. Litigation. On September 12, 1996, a complaint was filed
against us in the United States District Court for the District of New Mexico
by Living Benefits, Inc. The complaint alleged that we were obligated to the
plaintiff for more than $1.6 million, with interest at 8.75 percent from June
30, 1992, for "earn-out payments" under our contract with the plaintiff dated
March 14, 1992. The plaintiff was also seeking punitive damages for bad faith in
an undisclosed amount and attorney's fees. 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, the Bankruptcy Court
assumed jurisdiction of this suit. The trial began on January 20, 1999. On
January 21, 1999, the Company and the plaintiff reached a settlement whereby the
Company would pay the plaintiff $1,525,000. This payment was made on March 9,
1999.
F-32
<PAGE>
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, "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 Bankruptcy Petition before the Company's
due date for filing an answer. Rodman alleges damages of $250,000 and requests
costs, interest, and punitive damages of $1,000,000 from all the Defendants. The
complaint alleges that the Defendants are liable to Rodman for damages by
depriving Rodman of its fee for its efforts to procure financing for the buyers
in connection with the deposition of IAP. The Company believes that it was
improperly included as one of the Defendants. On September 17, 1998, Rodman
executed a release, which included the Company, effectively dismissing the
preceeding against the Company.
AutoLend Group, Inc. v. NPD, Inc. On June 5, 1998, the Company filed Adversary
No. 98-1136M, a complaint to recover certain transfers pursuant to 11 U.S.C.
(S)548. In the complaint, the Company has requested relief as follows: avoidance
of certain transfers from the Company to NPD, Inc., pursuant to 11 U.S.C.
(S)548(a); the return to the Company of the $2.0 million deposited plus accrued
interest in the cash collateral escrow account in connection with the Brennan
bankruptcy to secure the Company's guarantee obligation, and a requirement that
NPD release the Company from the note payable to NPD; the return of the $200,000
cash paid to NPD for the ITB option; repayment of the $3.0 million which the
Company lent to NPD; and pre- and post-judgment interest, costs, and attorney's
fees. (See Note 20)
AutoLend Group, Inc. v. Nunzio P. DeSantis. On June 5, 1998, the Company filed
Adversary No. 98-1135M, a complaint to recover certain transfers pursuant to 11
U.S.C. (S)(S)547 and 548, and for indemnity. The Company has requested relief
in the form of the return of $597,500 in payments, plus indemnity for any
amounts which NPD fails to pay in the event the Company is granted judgment
against NPD for interest, costs, and attorney's fees.
AutoLend Group, Inc. v. Jeffrey Ovington. On June 5, 1998, the Company filed
Adversary No. 98-1134M, a complaint to recover certain transfers pursuant to 11
U.S.C. (S)(S)547 and 548. The Company has requested relief in the form of the
return of $100,000 in compensation payments, plus pre- and post-judgment
interest, costs, and attorney's fees.
AutoLend Group, Inc. v. Vincent Villanueva. On June 18, 1998, the Company filed
Adversary No. 98-1145M, a complaint to recover certain transfers pursuant to 11
U.S.C. (S)(S)547 and 548. The Company has requested relief in the form of the
return of $39,647.47 in payments, plus pre- and post-judgment interest, costs,
and attorney's fees.
The Company is also a party to legal proceedings and claims that arise during
the ordinary course of business.
F-33
<PAGE>
Contingency related to the ITB Option and NPD: On September 22, 1997, the
Company filed a voluntary petition for protection under Chapter 11 of the Code
("Bankruptcy Petition") in the Bankruptcy Court. In conjunction with the Chapter
11 proceedings, the Company filed, effective January 16, 1998, a detailed Plan
of Reorganization ("Plan") and Disclosure Statement (the "Disclosure
Statement"), which outline the Company's plans for new business. A hearing on
the Disclosure Statement is scheduled for July 30, 1998. Because of the
environment, which led to the Bankruptcy Petition, there is substantial doubt
about the Company's ability to continue as a going concern.
In analyzing the Plan, the potential benefits of the ITB Option, the Company's
cash flow requirements, and various other factors, the Company has determined
that it may be advantageous to negotiate with NPD and Nunzio P. DeSantis for an
agreement to "unwind" the ITB Option and associated transactions (see Notes 6
and 7). This may result in the following:
Return to the Company of the $2.0 million deposited in the cash collateral
escrow account in connection with the Brennan bankruptcy to secure the
Debtor's guarantee obligation, and a release of the Debtor from the
Brennan/NPD guarantee;
Termination of the $2.3 million note payable by the Company to NPD for the
option to acquire 100 percent of the ITB shares owned by NPD, and a
negotiated return (complete or partial) of the $200,000 cash paid to NPD
for the ITB option; and repayment by NPD of the $3.0 million which the
Company lent to NPD, plus some negotiated amount of interest. The Company
anticipates that NPD will request a discount for payment of the note prior
to its maturity.
In addition, the Company would release any and all security interests,
collateral, pledges and other rights in and to the ITB Stock, or to any
property or rights of NPD, and the Company would no longer have any rights
with regard to the ITB shares.
Such an "unwinding" is contingent upon negotiations and agreements with NPD
and with Nunzio P. DeSantis individually. The Company anticipates that
negotiations would include requests for releases by NPD and Nunzio P.
DeSantis, in addition to negotiations concerning the present value of the
notes, possible discounts for the notes, the declining value of the option,
and other factors (see Note 18 below regarding a subsequent event).
(18) Subsequent Events
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 (hereinafter, the "NPD Claim"). The NPD Claim seeks
among other things, the return to the Company 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. (see
Notes 6 and 7).
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
F-34
<PAGE>
"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 ITBs assumption of NPD's note
payable to the Brennan estate. The Delaware ITB Agreement is contingent upon
approval by various parties including the Bankruptcy Court and the Chancery
Court, and further requires the Company to assume ITB's office lease in
Albuquerque, New Mexico. This lease requires an annual obligation of
approximately $108,000 and expires in 2002. It is this space, which is where the
Company presently subleases its offices. This agreement cancels all options
relating to the ITB Shares, including the ITB Option (see Note 7). 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 (hereinafter, the "ITB Settlement"). This 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 described above.
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 ITB
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 receipt of objections to the ITB Settlement was July
30, 1998.
On June 5, 1998, the Company filed an adversary claim with the Bankruptcy Court
against NPD ("NPD Adversary Proceeding"). This claim sought, among other
things, the return to the Company of the Escrow (plus interest), NPD's immediate
prepayment to the Company of the Note Receivable (plus interest), the
cancellation of the Option and the corresponding cancellation of the Company's
obligations under the NPD Note Payable, and the return of the $0.2 million down
payment for the Option. The Company was also involved in litigation concerning
ITB in the Delaware Chancery Court. That litigation addressed many issues
outside the scope of the Company's concern but included the foregoing issues in
the Bankruptcy Court.
In September 1998, the Bankruptcy Court approved a settlement of the matters
relating to ITB, including the NPD Adversary Proceeding, and, in October 1998,
the Chancery Court approved a settlement in the Delaware ITB case. In connection
with these settlements, the Option and the NPD Note were canceled; the Escrow
(plus interest) was returned to the Company; and a substantial amount of the
Note Receivable (plus interest) was repaid. In addition, in connection with the
Delaware settlement, the Company could receive a portion of the funds from NPD
which NPD may receive from the possible sale of ITB's Las Vegas real estate, and
the Company must assume ITB's office lease in Albuquerque, New Mexico (where it
presently subleases its offices). On January 29, 1999, the Company received
$4,446,771, and the New Mexico and Delaware settlements have been consummated.
(19) Bankruptcy Proceeding
On March 5, 1999, the order confirming the Company's Plan of Reorganization (the
"Plan") entered by the Bankruptcy Court became effective (the "Effective Date").
The material features of the Plan provide for the cancellation of all of the
Company's $7.2 million principal of convertible subordinated debentures (the
"Debentures") and $2.3 million accrued interest thereon, and all of the
Company's equity securities as of the Effective Date. The class of unsecured
creditors will receive 100 percent of their allowed claims.
F-35
<PAGE>
The holders of the Debentures will receive approximately 1.4 million shares of
the Company's Common Stock, $2.8 million in cash, and non-interest bearing,
collateralized notes aggregating $0.6 million payable in five annual payments.
The holders of the Company's canceled Common and Preferred Stock have the right
to purchase new shares of Common Stock for 30 days following the effectiveness
of the Company's registration statement to be filed with the Securities and
Exchange Commission. The price per share of the Company's 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 on March 5, 1999, to purchase the same number of shares of the
Company's Common Stock as originally provided for under the Warrants or options
at $4.00 per share.
On the Effective Date, no securities of the Company were issued and outstanding.
Pursuant to the Plan, all previously issued and outstanding securities were
canceled. There are 18.2 million shares of the Company's Common Stock reserved
for future issuance for claims and interests filed and allowed under the Plan.
F-36
<PAGE>
(20) SEC Investigation
On February 16, 1999, the Company was notified by its counsel that it is subject
to an investigation by the Securities and Exchange Commission in connection with
certain activities which took place between September 1996 and September 1997.
(21) Prior Period Restatement Disclosure
Accumulated deficit, at March 31, 1995, has been adjusted to correct errors made
in prior years. The errors relate to the incorrect calculation of intangible
property tax. Had the errors not been made, net loss in the prior years would
have been increased by approximately $0.2 million. The effect of the errors on
prior years' accumulated deficit is detailed below:
Balance at beginning of period as previously reported $(23,320,187)
Prior year adjustment for taxes - error in calculation of
intangible property tax (162,876)
-------------
Balance at end of period $(23,483,063)
=============
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following are the estimated expenses for the offering described in the
Registration Statement, all of which will be borne by the Registrant.
Securities and Exchange Commission fee $10,728
Accountants' fees *
Legal fees and expenses *
Blue Sky qualification, fees and expenses *
Company's administrative expenses *
Printing and engraving *
Miscellaneous *
-
TOTAL FEES AND EXPENSES $
============
*To be filed by amendment hereto.
Item 14. Indemnification of Directors and Officers
Generally, Section 145 of the General Corporation Law of Delaware (the
"GCL") permits a corporation to indemnify certain persons made a party to an
action, because the person is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation or enterprise. In
the case of an action by or in the right of the corporation, no indemnification
may be made for any matter as to which the person was adjudged liable for
negligence or misconduct in the performance of his duty to the corporation
unless the Chancery Court or the court in which the action was brought
determines that, despite the adjudication of liability, the person is fairly and
reasonably entitled to indemnification for proper expenses. If the person has
been successful in the defense of any matter, he shall be indemnified against
his expenses actually and reasonably incurred.
Section 102(b)(7) of the GCL enables a Delaware corporation to include a
provision in its certificate of incorporation limiting a director's liability to
the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director. The Registrant's Certificate of Incorporation, as
amended, and Bylaws provide for indemnification of its officers and directors to
the full extent permitted under Delaware law.
Item 15. Recent Sales of Unregistered Securities
On October 22, 1996, the Registrant initiated its offer to exchange common
stock, $.002 par value per share ("common stock"), and 14 percent cumulative
convertible preferred stock, $.002 par value per share ("preferred
II-1
<PAGE>
stock"), for its outstanding Debentures ("Exchange Offer"). The Exchange Offer
expired, and on April 8, 1997, the Registrant 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 in principal amount of Debentures and accrued interest thereon.
Pursuant to the Exchange Offer, the Registrant issued 855,205 shares of common
stock valued at $0.5625 per share and 57,800 shares of its preferred stock
valued at $100 per share in excess of the original conversion privilege offered
by these Debentures. As a result, the Registrant recorded during the year ended
March 31, 1998, a non-cash transaction: a conversion charge of $6.3 million, an
increase to additional paid-in capital of $14.5 million, and an increase in the
common stock of $2,889 and preferred stock of $116. In addition, accrued
interest on the Debentures, totaling $1.1 million, was canceled.
No underwriters were used in connection with these transactions. The
issuance of these securities was exempt from registration under the Securities
Act of 1933 pursuant to Section 4(2) thereof because the transactions did not
involve a public offering.
Item 16. Exhibits and Financial Statement Schedules
3.1 Certificate of Incorporation of CAPX Corporation (prior name of
AutoLend Group, Inc.)*
3.2 Certificate of Amendment to the Certificate of Incorporation of
CAPX Corporation changing name to AutoLend Group, Inc.*
3.3 Bylaws of CAPX Corporation (prior name of AutoLend Group, Inc.)*
5 Form of opinion of Hinkle, Cox, Eaton, Coffield & Hensley,
L.L.P., as to the legality of the securities being registered.*
10 Lease Agreement for space at 600 Central S.W., Third Floor,
Albuquerque, New Mexico*
21 Subsidiaries of the Registrant*
23.1 Consent of Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P.
(included in Exhibit 5)*
23.2 Consent of Meyners + Company, L.L.C.*
23.3 Consent of Peat Marwick, LLP*
23.4 Consent of Deloitte & Touche, LLP*
* To be filed by amendment hereto.
II-2
<PAGE>
Item 17. Undertakings
The Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
If a claim for indemnification against such liabilities (other than the
Registrant's payment of expenses incurred or paid by its director, officer, or
controlling person in the successful defense of any action, suit, or
proceeding) is asserted by the director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
its counsel's opinion the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether its
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of that issue.
For determining any liability under the Act, the Registrant will treat the
information omitted from the prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus filed
by the Registrant under Rule 424(b)(1) or (4), or 497(h) under the Act as part
of this registration statement as of the time the Commission declares it
effective.
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with the Commission
pursuant to Rule 425(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price in the
II-3
<PAGE>
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to the information in the
registration statement.
But paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, to determine any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering
of the securities at that time shall be deemed therein an initial bona
fide offering.
(3) To remove from registration by means of a post-effective amendment any
securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933, the registrant has duly caused this
registration statement report to be signed on its behalf by the undersigned
thereto duly authorized, in Albuquerque, New Mexico, on May 21, 1999.
AUTOLEND GROUP, INC.
By: /s/ Nunzio P. DeSantis
------------------------------------------------------
Nunzio P. DeSantis
Chairman of the Board and
Chief Executive Officer
Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Nunzio P. DeSantis Chairman of the Board, May 21, 1999
- --------------------------- Chief Executive Officer and Director
Nunzio P. DeSantis (Principal executive officer)
/s/ Jeffrey Ovington Executive Vice President May 21, 1999
- --------------------------- (Principal accounting and
Jeffrey Ovington financial officer)
/s/ Phillip J. Vitale, M.D. Director May 21, 1999
- ---------------------------
Philip J. Vitale, M.D.
/s/ Anthony Coelho Director May 21, 1999
- ---------------------------
Anthony Coelho
II-5
<PAGE>
Schedule II
AUTOLEND GROUP, INC., AND SUBSIDIARIES
Valuation and Qualifying Accounts
March 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Balance at Charged to Amount on
Beginning Costs and Balance
Description of Period Expenses Sheet
- ----------- --------- -------- -----
<S> <C> <C> <C>
Nine Months ended December 31, 1998
Intangible assets - accumulated amortization $ 600,000 $ -- $ 600,000
Goodwill-accumulated amortization 2,708,278 -- 2,708,278
Debt issuance costs - accumulated amortization 3,575,944 -- 3,575,944
Year ended March 31, 1998:
Intangible assets - accumulated amortization $ 600,000 $ -- $ 600,000
Goodwill-accumulated amortization 2,708,278 -- 2,708,278
Debt issuance costs - accumulated amortization 3,519,501 56,443 3,575,944
Year ended March 31, 1997:
Intangible assets - accumulated amortization $ 600,000 $ -- $ 600,000
Goodwill-accumulated amortization 2,708,278 -- 2,708,278
Debt issuance costs - accumulated amortization 3,276,724 242,777 3,519,501
Year ended March 31, 1996:
Intangible assets - accumulated amortization $ 293,949 $ 306,051 $ 600,000
Goodwill-accumulated amortization 1,128,413 1,579,865 2,708,278
Debt issuance costs - accumulated amortization 1,824,690 1,452,034 3,276,724
</TABLE>
S-1
