<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one:)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 1-10569
AutoLend Group, Inc.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3137244
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
600 Central SW, Third Floor, Albuquerque, New Mexico 87102
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(505) 768-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
Applicable only to Registrants involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
--- ---
Applicable only to corporate issuers:
The number of shares outstanding of the Registrant's common stock was zero
at November 12, 1999. In connection with the Registrant's plan of
reorganization as confirmed by the Bankruptcy Court on February 3, 1999, and
which became effective on March 5, 1999, the Registrant's Common Stock was
canceled. The plan includes a proposal under which new Common Stock of the
Registrant may be issued. See Notes 2 and 3 to Consolidated Financial
Statements in Item 1 hereto.
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<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I--FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements..................................................................... 4
Consolidated Balance Sheets as of September 30, 1999, and March 31, 1999........................ 4
Consolidated Statements of Operations for the three-month and six-month periods
ended September 30, 1999, and 1998........................................................... 5
Consolidated Statements of Cash Flows for the six-month periods
ended September 30, 1999, and 1998........................................................... 6
Notes to Consolidated Financial Statements...................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................ 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 17
Item 2. Changes in Securities and Use of Proceeds................................................ 17
Item 3. Defaults Upon Senior Securities.......................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders...................................... 18
Item 5. Other Information........................................................................ 18
Item 6. Exhibits and Reports on Form 8-K......................................................... 18
SIGNATURES....................................................................................... 19
</TABLE>
2
<PAGE>
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not historical
facts; they involve risks and uncertainties that could cause the Company's
results to differ materially from those in the forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of the Company's business include significant risk
factors inherent in the consummation of any plan in a Chapter 11 bankruptcy
case, e.g., the perceived difficulties from the Company's bankruptcy, which
could adversely affect its existing and proposed operations, and other
difficulties relating to its Chapter 11 bankruptcy; and the risks relating to
the operation of a gaming business, which forms a significant part of the
Company's Plan of Reorganization. From time to time, the Company may publish or
otherwise make available forward-looking statements. All subsequent forward-
looking statements, whether written or oral and whether made by or on behalf of
the Company, are also expressly qualified by these cautionary statements.
YEAR 2000 ISSUES
Like any other company, advances and changes in technology can significantly
affect the business and operations of the Company. For example, a challenging
problem is that many computer systems worldwide cannot properly recognize the
year 2000 or years thereafter. No easy, comprehensive, technological "quick
fix" has yet been developed in the United States or elsewhere for this problem.
Not only might the problem affect a company's computers, but the company could
also be impacted by problems at other companies, through supplier relationships,
etc. The Company has been assured by its third-party providers that they are in
compliance with the year 2000 issue.
Fortunately, the Company's present small base of operations is not heavily
dependent upon computers. Certain "Y2K" testing and upgrading has now been
completed. Management feels reasonably confident, in general, about the
Company's level of exposure. However, given the possible rather drastic
scenarios worldwide as discussed in the media, the Company cannot assure that it
will not be detrimentally impacted in some way.
3
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ ------------------
(Unaudited) (audited)
<S> <C> <C>
Assets:
Cash $ 1,069,157 $ 2,146,759
Restricted cash 324,331 2,791,178
------------------ ------------------
Cash and cash equivalents $ 1,393,488 $ 4,937,937
Other receivables 401 44,741
Receivable from officer 500,000 -
Prepaid expenses 38,699 16,669
Installment contracts receivable 29,584 53,795
Purchased insurance policies at estimated market value;
face value of $403,544 at September 30, 1999 and $800,919
at March 31, 1999 55,063 126,650
Fixed assets, less accumulated depreciation of $11,300 at
September 30, 1999 and $1,603 at March 31, 1999 45,544 17,489
Other assets 95,015 -
------------------ ------------------
Total assets $ 2,157,794 $ 5,197,281
================== ==================
Liabilities:
Accounts payable - Debenture holders $ 319,000 $ 3,043,250
Accounts payable - other 341,198 84,768
Accrued contingent legal fees 6,903 270,713
Accrued contingent payroll - 406,107
Accrued liabilities 42,548 55,814
Contingent indemnification - adversary settlement 350,000 -
Other contingent liabilities - 244,867
Note payable - Debenture holders 523,300 523,300
------------------ ------------------
Total liabilities $ 1,582,949 $ 4,628,819
================== ==================
Stockholders' Equity:
Common stock, $.002 par value. Authorized 40,0000
shares; issuable 1,040,000 shares $ 2,080 $ 2,080
Additional paid-in capital 690,033 690,033
Accumulated deficit (117,268) (123,651)
------------------ ------------------
Total stockholders' equity $ 574,845 568,462
------------------ ------------------
Total liabilities and stockholders' equity $ 2,157,794 $ 5,197,281
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
September 30, September 30,
--------------------------------- ---------------------------------
Registrant | Predecessor Registrant | Predecessor
1999 | 1998 1999 | 1998
--------------- | --------------- --------------- | ---------------
<S> <C> | <C> <C> | <C>
Revenues: | |
Finance charges on installment contracts $ 8,002 | $ 35,006 $ 14,919 | $ 77,311
Revenues from matured insurance policies 92,380 | 983,228 177,801 | 988,228
--------------- | --------------- --------------- | ---------------
Gross revenues 100,382 | 1,018,234 192,720 | 1,065,539
Cost of matured insurance policies (39,608)| (692,400) (71,588)| (692,400)
--------------- | --------------- --------------- | ---------------
Total net revenues $ 60,774 | $ 325,834 $ 121,132 | $ 373,139
| |
General and administrative expenses (374,882)| (380,647) (784,872)| (766,148)
Loan loss recovery, net 75,674 | 117,000 135,765 | 219,000
--------------- | --------------- --------------- | ---------------
Operating income (loss) $ (238,434)| $ 62,187 $ (527,975)| $ (174,009)
--------------- | --------------- --------------- | ---------------
Other income/(expense): | |
Interest income on cash and cash equivalents $ 18,608 | $ 30,359 $ 67,329 | $ 60,571
NPD, Inc., note receivable interest income accrued - | 75,882 - | 151,764
Debentures interest expense accrued - | (171,593) - | (343,187)
NPD, Inc., note payable interest expense accrued - | (10,625) - | (21,250)
Other income (expense) - | 41,518 - | 41,518
Write-off of fixed assets - | - - | (4,570)
Gain on adversary settlement 451,040 | - 451,040 | -
Cancellation of Florida tax claim 162,876 | - 162,876 | -
Insurance policy write down recapture - | 495,683 - | 495,683
Debenture loan discount amortization (8,069)| - (16,138)| -
--------------- | --------------- --------------- | ---------------
Total net other income (expense) $ 624,455 | $ 461,224 $ 665,107 | $ 380,529
--------------- | --------------- --------------- | ---------------
Income (loss) before reorganization costs 386,021 | 523,411 137,132 | 206,520
| |
Reorganization costs incurred during Chapter 11 | |
proceedings (41,742)| (117,210) (130,749)| (244,354)
--------------- | --------------- --------------- | ---------------
Net income (loss) $ 344,279 | $ 406,201 $ 6,383 | $ (37,834)
=============== | =============== =============== | ===============
| |
Per Share: | |
Operating income (loss) $ (0.23)| $ 0.01 $ (0.51)| $ (0.03)
Total net other income (expense) 0.60 | 0.08 0.64 | 0.06
--------------- | --------------- --------------- | ---------------
Income (loss) before reorganization costs $ 0.37 | $ 0.09 $ 0.13 | $ 0.03
Reorganization costs incurred after Chapter 11 | |
proceedings (0.04)| (0.02) (0.13)| (0.04)
--------------- | --------------- --------------- | ---------------
| |
Net income (loss) $ 0.33 | $ 0.07 $ - | $ (0.01)
=============== | =============== =============== | ===============
| |
Weighted average number of common and | |
common equivalent shares outstanding - | 6,079,530 - | 6,079,530
=============== | =============== =============== | ===============
Weighted average number of common and | |
common equivalent shares issuable 1,040,000 | - 1,040,000 | -
=============== | =============== =============== | ===============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
September 30,
--------------------------------
Registrant | Predecessor
1999 | 1998
------------- | -------------
<S> <C> | <C>
Cash flow from operating activities: |
Net income (loss) $ 6,383 | $ (37,834)
Adjustments to reconcile net income (loss) to net cash |
cash flow from operating activities |
Depreciation expense 9,698 | 10,277
Realized loss on sale of IAP securities - | 25,440
Loan loss recovery, net (135,765) | (219,000)
Write-off of fixed assets - | 4,570
Recapture of insurance policy write down - | (495,683)
Gain in adversary settlement (451,040) | -
Changes in assets and liabilities: |
(Increase) decrease in assets: |
Accounts receivable matured policies - | ( 878,740)
Other receivables 44,340 | -
Prepaid expenses (22,030) | 167,381
Installment contracts receivable 159,976 | 409,573
Purchased insurance policies 71,587 | 692,400
Interest on escrow deposit - | (51,958)
Interest accrued on note receivable - NPD, Inc. - | (151,765)
Other assets (95,015) | -
Increase (decrease) in liabilities: |
Accounts payable-debenture holders (2,724,250) | -
Accounts payable other and accrued liabilities (408,333) | 266,681
Accrued interest expense | 364,437
------------ | -------------
Cash provided (used) by operating activities $ (3,544,449) | $ 105,779
------------ | -------------
Cash flow from investing activities: |
IAP securities - | 614,560
------------ | -------------
Cash provided (used) by investing activities $ - | $ -
------------ | -------------
|
Net increase (decrease) in cash and cash equivalents $ (3,544,449) | $ 720,339
Cash and cash equivalents at beginning of period 4,937,937 | 769,736
------------ | -------------
Cash and cash equivalents at end of period $ 1,393,488 | $ 1,490,075
------------ | -------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(unaudited)
NON-CASH INVESTING AND FINANCING ACTIVITES
Non-cash investing and financing activities for the six months ended September
30, 1999, was the result of the settlement of the adversary claim against Nunzio
P. DeSantis and consisted of the following:
The Company cancelled accrued payroll and expenses owed by the Company to Mr.
DeSantis in the amount of $256,230 and cancelled $7,058 in accrued payroll
taxes. The Company acquired from Mr. DeSantis Furniture and fixtures with a
resale value of $37,752. A receivable in the amount of $500,000, was recorded
to account for the transfer by Mr. DeSantis of equity securities in the same
amount by July 11, 2000. The Company recorded a contingent liability of
$350,000 to account for the indemnification of Mr. DeSantis under a non-compete
agreement between Mr. DeSantis and a third party. This resulted in a gain on
the adversary settlement of $451,040.
7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
(1) Summary of Significant Accounting Policies: Basis of Presentation, Going
Concern
The accompanying consolidated financial statements of AutoLend Group, Inc.
and its wholly owned subsidiaries AutoLend Corporation, LB NM, Inc., and
American Life Resources Group, Inc. (collectively, the "Company") have been
prepared on a going-concern basis, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal
course of business. As a result of the Company's inability to make
repayment on, and resultant default on, its Convertible Subordinated
Debentures due September 19, 1997 (the "Debentures"), the Company filed for
protection under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of New Mexico (the
"Bankruptcy Court") on September 22, 1997. On February 3, 1999, the
Bankruptcy Court confirmed a Plan of Reorganization (the "Plan"), which
became effective on March 5, 1999, at which time the Company attained a
positive net equity, and was no longer classified as a "debtor-in-
possession". On July 2, 1999, the Company filed a Motion requesting the
Bankruptcy Court to enter a Final Decree with respect to the Plan. On
September 28, 1999, a hearing was held on the Motion; the Court has taken
the matter under advisement and there has been no ruling to date.
The Company's audited consolidated financial statements as of March 31,
1999, and the accompanying unaudited consolidated financial statements as
of September 30, 1999 and 1998, have been presented in conformity with the
American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code," issued November 19, 1990 ("SOP 90-7"). While in Chapter
11, the Company operated its business as a debtor-in-possession (the
"Predecessor") subject to the jurisdiction of the Bankruptcy Court. The
Company adopted fresh-start reporting and gave effect to its emergence as
of March 5, 1999. Under fresh-start accounting, all assets and liabilities
are restated to reflect their reorganized value, which approximates fair
value. Since fresh-start reporting has been reflected in the accompanying
consolidated financial statements as of March 31, 1999, and are those of a
reorganized entity certain material aspects of these financial statements
are not comparable to such statements of any prior period. A "black line"
has been drawn between the Registrant's financial statements and those of
the Predecessor.
With respect to the unaudited consolidated financial statements for the
three and six months ended September 30, 1999 and September 30, 1998, it is
the Company's opinion that all necessary adjustments (consisting of normal
and recurring adjustments) have been included to present a fair statement
of results for the interim periods. These statements should be read in
conjunction with the Company's consolidated financial statements in its
Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, pursuant to the general rules
and regulations promulgated by the Securities and Exchange Commission (the
"SEC").
(2) Plan of Reorganization
The Plan (which became effective on March 5, 1999) resulted in the
cancellation of $7.2 million principal amount of Debentures and accrued
interest thereon, and all of the Company's equity securities (including all
previously issued shares of Common Stock) as of March 5, 1999. Unsecured
creditors have now received payments for 100 percent of their allowed
claims.
8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
The holders of the Debentures will receive in total approximately 1.0
million shares of the Company's new Common Stock, $3.0 million in cash, and
non-interest bearing, uncollateralized notes totaling $0.6 million, payable
in five annual payments. For financial statement presentation, these notes
have been discounted based on an imputed interest rate of 6% resulting in
an unamortized discount of $0.1 million. These notes have been recorded at
their discounted value of $0.5 million. The Company made the first cash
distributions (approximately $1.8 million) related to the Debentures under
the Plan during June 1999, and as of November 12, 1999, has distributed
$2.8 million of the $3.0 million in cash payments. The Company is
presently verifying the appropriate remaining disbursements, for which the
corresponding cash has been escrowed. This escrow consists of restricted
cash pursuant to the terms of the Plan, and was in the amount of $0.3
million as of September 30, 1999 (and was $2.8 million at March 31, 1999).
The holders of the canceled Common and Preferred Stock have the right to
purchase defined amounts of shares of new Common Stock during certain
periods beginning on the effective date of the Company's Registration
Statement on Form S-1 (see "The Offering" below). The price per share of
the new Common Stock is $1.00. The holders of the Company's Class A and B
Warrants and Options have a 12-month period beginning March 5, 1999, to
purchase the same number of shares of new Common Stock as originally
provided for under the Warrants or Options, at $4.00 per share. The
Company expects that only a portion of the additional shares as described
above will actually be purchased by existing equity holders, resulting in
projected total Common Stock outstanding of from 1.5 million to 9.0 million
shares. This would result in a total new equity (before the impact of any
interim operating results) of from $0.8 million to $7.8 million.
(3) The Offering
A Registration Statement on Form S-1 (the "Registration Statement") was
filed on June 8, 1999, with the SEC to register the shares of our new
Common Stock to be issued in connection with the Plan. A revised amended
Form S-1/A was filed on September 15, 1999, and a further revised amended
Form S-1/A was filed on October 19, 1999. The Registration Statement is
still subject to the normal review process by the staff of SEC, and upon
completion of such review, and as of an effective date yet to be
determined, these shares may be issuable under the terms of the Plan.
Pursuant to the Plan, which has been clarified to conform to the offering
as more fully described in the Company's Registration Statement, the
Company is offering shares of new Common Stock (the "Offering") to holders
of old Common and Preferred Stock and Class A and B Warrants, Options, and
Debentures, all of which were canceled on March 5, 1999, under the Plan.
Specifically, the Offering will include 1,040,000 shares of new Common
Stock for Debenture holders; up to 6,079,530 shares of new Common Stock for
holders of old Common Stock; up to 5,780,000 shares of new Common Stock for
holders of old Preferred Stock; up to 2,663,500 shares of new Common Stock
for holders of old Class A and B Warrants; and, up to 3,660,000 shares for
holders of old Options. A total of up to 19,223,030 shares of new Common
Stock may be issued and outstanding. However, the Company estimates that
only between 1.5 and 9.0 million shares will be issued as a result of the
Offering, depending upon the number of shares
9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
subscribed for. Holders of old Common Stock and/or old Preferred Stock must
pay $1.00 per share for any share of new Common Stock. These holders have
approximately 60 days following the effective date of the Registration
Statement in which to elect their purchase. Holders of old Warrants and/or
Options have until March 4, 2000, to buy new Common Stock at $4.00 per
share. For a more complete description, refer to the Registration
Statement. The 1,040,000 shares of issuable new Common Stock have been
accounted for as outstanding, as no further consideration for this stock
will be received pursuant to the Plan. The professional fees and other
costs associated with the Offering have been deferred until which time the
Offering becomes effective and at that time all costs will be accordingly
charged to equity.
(4) Proposed New Business
The Company has been considering various prospects to develop a new
business suitable for its situation. In general, any new business
development is difficult, and the Company's particular realities impose
significant constraints that make such an undertaking even more difficult.
These constraints include the following: the need to acquire or develop the
business without paying substantial cash or taking on significant debt; the
handicap of not having actively traded stock to use to procure this
business; the requirement that, after launch, the business will not need a
significant capital investment to fund its "ramp-up"; and, the requirement
that the new business immediately produce a positive cash flow.
The Plan involves developing a new business that consists primarily of
providing gaming devices and gaming machines for certain non-profit
fraternal organizations in New Mexico. In 1997, the New Mexico Legislature
passed the "Gaming Control Act," and on approximately July 2, 1999, the
first legalized gaming in a non-profit fraternal organization began in New
Mexico. The Company proposes to provide, supply, and service gaming
devices as described in the Gaming Control Act, and the business would be
regulated by the New Mexico Gaming Control Board as described in the Gaming
Control Act. The Company has commenced its efforts in this arena, doing
business as Kachina Gaming, which has been organized as a Division of
AutoLend Group, Inc. In connection with these efforts, the Company has
hired a Vice President of Gaming Development and Marketing.
The Company's management believes it can obtain the proper licenses, gaming
machines, and contracts with non-profit organizations to make this business
viable, and which will allow the Company to meet its obligations. In this
regard, the Company has made application to the New Mexico Gaming Control
Board for licensure as a distributor. Additionally, the Company has signed
a number of contingent contacts with fraternal organizations whereby the
Company would supply gaming machines to licensed operators. The contracts
are contingent upon certain matters such as, the Company and the fraternal
organizations' ability to obtain the appropriate state licensing as well as
the actual approval of the respective contracts by the Gaming Control
Board. The Company is also holding discussions with several licensed gaming
machine manufacturers with respect to obtaining such machines. In as much
as no distributors have yet developed any sustained financial history for
such licensed operations in New Mexico, and no fraternal organizations have
established routine records of average "net drops" under regulated gaming
in New Mexico, potential operating results are unknown, and thus the
Company cannot
10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
be assured of success in this venture. The New Mexico Gaming Control Board
is currently processing the Company's application for licensure as a
distributor. In connection with this review, the Company has received
correspondence from them indicating that the process has been significantly
lengthened due to the still unconcluded SEC investigation.
(5) Income Taxes
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". On an interim basis, the Company provides for income taxes using
the estimated annual effective rate method. The Company did not recognize
a quarterly or annual income tax expense or benefit in 1998 and also does
not expect to recognize a quarterly or annual income tax expense or benefit
in 1999.
As of September 30, 1999, the Company had available unused capital loss
carry-forwards and operating loss carry-forwards that may provide future
tax benefits, which expire as follows:
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
- ------------------ ------------- ------------- -------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000 - 6,116,000
2003 - - 220,000
2004 - - 2,939,000
2005 - - 398,000
2012 - 6,078,000 -
2013 - 220,000 -
2019 - 2,939,000 -
2020 - 398,000 -
------------- ------------ ------------
Total $ 2,382,000 $ 9,635,000 $ 9,673,000
============= ============ ============
</TABLE>
Capital loss carryforwards arise due to losses incurred on the disposal of
capital assets, and may be used to offset future capital gains associated
with the disposal of capital assets (but may not be used to offset ordinary
income). Net operating loss carryforwards are the result of prior (and
current) years' operations, which had recorded a net loss in terms of
income tax computations. In general, operating loss carryforwards can be
used to offset future operating profits, thus negating the necessity to pay
corresponding future income taxes (until the loss carryforwards become used
up or expire). Any such future operating profits (which might realize
these tax benefits) could be derived internally, or could be derived from
acquiring additional assets, or from the purchase of another qualified
business entity through the acquisition of its stock. If there is a
substantial change in ownership involved, tax benefits could be reduced.
Other limiting factors may also apply.
11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
With the Plan now effective, net operating loss carryforwards listed above
are intact and usable. At a combined federal and state corporate statutory
tax rate of 38.6 percent, the present losses can, in a valid situation,
result in the cancellation of a requirement to pay approximately $3.7
million in federal and state income taxes, either immediately in one year
or spread out over many years. The requirements to utilize such loss
carryforwards are strict, and the possibilities for usage are limited.
(6) Comprehensive Income
The Company implemented during the fiscal year ended March 31, 1999,
Statement of Financial Accounting Standards 130, Comprehensive Income
("SFAS 130"), in its consolidated financial statements. A primary intent
of SFAS 130 is to provide a supplemental examination of income, showing Net
Income adjusted by transactions and events which were not reflected in Net
Income that occurred during the period, and that affected the Company's
equity from non-owner sources. Typically, comprehensive income includes
equity adjustments for unrealized gains and losses on available-for-sale
securities, minimum pension liabilities adjustments, and foreign currency
transaction adjustments. On this basis, for the six months ended September
30, 1999 and 1998, the Company's Comprehensive Income is the same as the
net loss reported in the consolidated statements of operations.
12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, the Company was required to adopt fresh-start
accounting as of March 5, 1999. The Predecessor's financial statements
(prior to March 6, 1999) are not comparable to the reorganized Company's
financial statements (subsequent to March 5, 1999). (See Note 1 to the
Company's Consolidated Financial Statements.) However, for purposes of
management's discussion and analysis of results of operations, the six
months ended September 30, 1999, is being compared to 1998 since the
results of operations are comparable.
Results of Operations: Six-month periods ended September 30, 1999 and 1998
The Company recorded a net income of approximately $6,000 for the six-month
period ended September 30, 1999. The income was primarily due to $665,000
in non-operating income, which was partially offset by approximately
$528,000 in operating losses and $131,000 in reorganization costs. This
compares to a $38,000 net loss for the corresponding six months ended
September 30, 1998.
Net revenues realized from viatical policies (the "Policies") in the six
months ended September 30, 1999, were approximately $0.1 million, as
compared to $0.3 million in viatical revenues in the six months ended
September 30, 1998. The current period revenues were the result of the
sale of four Policies for a gross total of $0.2 million, having a cost of
$0.1 million. The Company generally ceased purchasing Policies after
September 1994, and in May and July 1995 sold the majority of its
portfolio. Future net revenues from the remaining portfolio of 6 Policies
will be irregular, depending primarily upon the timing of mortality of the
insured.
Revenues from consumer used-car loans, which are also referred to as
installment contracts receivable (the "Loans"), were approximately $15,000
during the six months ended September 30, 1999, which represented a $62,000
decrease compared to the $77,000 realized during the six months ended
September 30, 1998. This decrease is a result of the reduced size of the
Company's portfolio of the Loans; the Company ceased purchasing new Loans
in December 1995 and as Loans are paid in full or written off, the
portfolio decreases in size. The cost to collect these Loans is not
reflected in net revenue, but as general and administrative expenses.
Loan loss recovery in connection with the portfolio of Loans for the six
months ended September 30, 1999 represented the recovery of $0.1 million
related to previously charged off loans. This is compared to a recovery of
$0.2 million for the six months ended September 30, 1998. The recoveries
in both periods were primarily the result of collections on old Loans,
which had, in the past, been more than six months in arrears and had
therefore been written off, in accordance with the Company's long-standing
procedures.
General and administrative expenses were approximately $785,000 during the
six months ended September 30, 1999, compared to the $766,000 expended
during the six months ended September 30, 1998. The increase of
approximately $19,000 in general and administrative expenses was due to
additional salary and travel expense in connection with the development of
13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
the gaming business. (These amounts exclude the $0.1 million and $0.2
million in Chapter 11 reorganization costs for the six months ended
September 30, 1999 and 1998, respectively.)
Operating losses for the six months ended September 30, 1999, were $0.5
million, compared to operating losses of $0.2 million for the six months
ended September 30, 1998. The $0.3 million increase in operating losses was
primarily due to approximately a $0.2 million decrease in net revenue and a
$0.1 million decrease in loan loss recoveries.
The impact of non-operating items for the six months ended September 30,
1999 was a net $0.7 million in income, compared to a non-operating income
of $0.4 million for the six months ended September 30, 1998. The $0.7
million in non-operating income for the present period was primarily due to
the $0.5 million gain as a result of the settlement with Nunzio DeSantis
and the $0.2 million cancellation of the Florida tax claim.
In addition to the above, for the six months ended September 30, 1999 and
1998, the Company incurred $0.1 million and $0.2 million, respectively, in
each period in reorganization costs related to the bankruptcy proceedings.
The net effect of all of the foregoing was a net income of approximately
$6,000, or $0.006 per share, for the six months ended September 30, 1999.
The net loss for the same period last year was approximately $38,000, or
$0.01 per share. The $6,000 income in the current period was due primarily
to non-operating income of $665,000, offset by an operating loss of
$528,000 and reorganization costs of $131,000. Income per share for the
period ended September 30, 1999 was calculated based upon 1.0 million
shares of issuable common stock per the Plan. The net loss for the same
period last year million was primarily due to non-operating income of
$381,000, partially offset by an operating loss of $174,000 and
reorganization costs of $244,000. Losses per share for the period ended
September 30, 1998 were calculated based upon the weighted average number
of common and common equivalent shares then outstanding of 6.1 million.
Results of Operations: Three-month periods ended September 30, 1999 and
1998
The Company recorded net income of $0.3 million for the three-month period
ended September 30, 1999. The income was primarily due to $0.6 million in
non-operating income, which was partially offset by $0.2 million in
operating losses and $0.05 million in reorganization costs.
Net revenues realized from Policies in the three months ended September 30,
1999, were $52,000, as compared to $0.3 million in viatical revenues in the
three months ended September 30, 1998. The current period revenues were
the result of the sale of one Policy for a gross total of approximately
$92,000, having a cost of $40,000.
Revenues from consumer used-car loans, which are also referred to as the
Loans, were approximately $8,000 during the three months ended September
30, 1999, which represented a $27,000 decrease compared to the $35,000
realized during the three months ended September 30, 1998. This decrease
is a result of the reduced size of the Company's portfolio of the Loans.
14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
Loan loss recovery in connection with the portfolio of Loans for the three
months ended September 30, 1999 represented the recovery of $0.1 million
related to previously charged off loans. This is compared to a similar
recovery of $0.1 million for the three months ended September 30, 1998.
The recoveries in both periods were primarily the result of collections on
old Loans, which had, in the past, been more than six months in arrears and
had therefore been written off, in accordance with the Company's long-
standing procedures.
General and administrative expenses were $0.4 million during the three
months ended September 30, 1999 and 1998.
Operating losses for the three months ended September 30, 1999, were
approximately $238,000, compared to operating income of approximately
$62,000 for the three months ended September 30, 1998. The $300,000
increase in operating losses was primarily due to approximately a $265,000
decrease in net revenue, a decrease of $41,000 in loan recoveries and a
decrease in general and administrative expense of $6,000.
The impact of non-operating items for the three months ended September 30,
1999 was a net $624,000 in income, compared to a non-operating income of
$461,000 for the three months ended September 30, 1998. The $624,000 in
income for the present period was primarily due to the $451,000 gain on the
settlement with Nunzio DeSantis and the $163,000 cancellation of the
Florida tax claim. The $461,000 non-operating income for the same period
last year consisted of interest income of $106,000, insurance policy write
down recapture of $496,000, and other income of $41,000 which was offset
by interest expense of $182,000.
In addition to the above, for the three months ended September 30, 1999 and
1998, the Company incurred $42,000 and $117,000 respectively in the periods
ended in reorganization costs related to the bankruptcy proceedings.
The net effect of all of the foregoing was a net income of $0.3 million, or
$0.33 per share, for the three months ended September 30, 1999. The net
income for the same period last year was $0.4 million, or $0.07 per share.
The $0.3 million income in the current period was due primarily to non-
operating income of $0.6 million, which was off set by $0.3 million in
combined operating losses and reorganization costs . Losses per share for
the period ended September 30, 1999 were calculated based upon 1.0 million
shares of issuable common stock per the Plan. Losses per share for the
period ended September 30, 1998 were calculated based upon the weighted
average number of common and common equivalent shares then outstanding of
6.1 million.
Liquidity and Capital Resources
The Company's immediate viability as a going concern ultimately depends
upon the successful installation of a new line of business, and the
attainment of profitability. On September 22, 1997, the Company filed for
voluntary bankruptcy reorganization. On March 5, 1999, the Company's Plan
became effective. Cash flow from operations was a negative $3.5 million
for the six months ended September 30, 1999, which was primarily due to
$2.7 million in payments
15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
made to Debenture holders under the Plan. At September 30, 1999, the
Company had cash and cash equivalents of $1.4 million, and a positive net
equity of $0.6 million. Of the $1.4 million in cash on hand at September
30, 1999, $0.3 million was escrowed for payment to certain former Debenture
holders recognized under the Plan. As of November 12, 1999, the Company has
distributed $2.8 million related to these Debenture obligations.
The Company's portfolio of used-car consumer installment Loans at September
30, 1999, was approximately $30,000, and consisted of 12 active Loans. The
Company ceased purchasing Loans in December 1995. In addition to the
active portion of the portfolio, the Company also has a substantial
inactive portion, which consists of Loans that have been more than six
months in arrears and have been written off. These inactive Loans
presently provide the Company with an irregular net cash flow of
approximately $20,000 per month. There are 3,900 such inactive Loans,
having a combined face value of approximately $15 million. The Company's
portfolio of unmatured viatical insurance Policies totaled 6 at September
30, 1999, having a combined face value of $0.4 million and a net book value
of $55,000. The Company generally ceased purchasing Policies in September
1994.
There was no cash provided or used by investing activities for the six
months ended September 30, 1999. Cash flows provided by investing
activities was $0.6 million for the six months ended September 30, 1998, as
a result of the IAP securities redemption.
There was no cash provided by or used in financing activities during the
six months ended September 30, 1999 and 1998.
In summary, the Company decreased its cash and cash equivalents by $3.5
million during the six months ended September 30, 1999, to a total of $1.4
million. The decrease was largely due to the $2.7 million in payments to
Debenture holders under the Plan, the $0.3 million in payments on accounts
payable and accrued liabilities from prior periods, and the $0.5 million
net use of cash from operations during the current period. In comparison,
there was a $0.7 million increase in cash during the six months ended
September 30, 1998, primarily due to cash flows provided by investing
activities as a result of the IAP securities redemption.
On March 5, 1999, all outstanding Debentures (and accrued interest
thereon), and all Common and Preferred Stock, Warrants, and Options were
canceled in conjunction with the Plan. The Company is presently in the
process of completing a Registration Statement with the SEC. When and if
this Registration Statement becomes effective, the Company may receive
additional equity capital, which could be as much as $7.8 million.
However, the amount received could be far lower, and the Company cannot
assure the success of sales of its Common Stock. The professional fees and
other costs associated with the Offering have been deferred until which
time the Offering becomes effective and at that time all costs will be
accordingly charged to equity.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part II: Other Information
Item 1. Legal Proceedings.
On July 14, 1998, the Company filed an adversary claim against Nunzio P.
DeSantis to recover certain payments made to him and for indemnity. On July
12, 1999, the Bankruptcy Court approved a Motion to Approve Compromise (the
"Motion") to resolve this adversary claim. The Motion proposed
cancellation of debts owed by the Company to Mr. DeSantis of $256,230; the
contribution to the Company by Mr. DeSantis of substantial furniture,
equipment, and leasehold improvements; the transfer by July 11, 2000 of
equity securities with a value of at least $500,000 by Mr. DeSantis to the
Company; the indemnification of Mr. DeSantis by the Company from liability
up to $350,000 under a non-compete agreement between Mr. DeSantis and a
third party dated March 1995; and the transfer to Mr. DeSantis of the
Company's contingent rights with respect to possible proceeds receivable
under a sale of the former El Rancho Hotel property in Las Vegas, Nevada.
The order became final on July 26, 1999. However, on September 27, 1999, a
motion was filed to set aside this settlement. We have filed a response
and believe that the final order will not be set aside. A hearing is
scheduled for November 19, 1999. The financial effect of this event has
been determined to be a net $0.5 million increase to the Company's net
equity.
On November 24, 1998, the State of Florida Department of Revenue asserted a
tax claim under Chapter 199 of the Florida Statutes for the period June 30,
1994 through June 30, 1998 for intangible tax of $668,531, and a claim
under Chapter 220 for the period March 31, 1993 through March 31, 1997 for
corporate income tax of $42,751. A court order was entered on August 20,
1999, dismissing the claim subject to a seven-day appeal period; the court
order became effective on August 27, 1999.
On June 4, 1999, the Company filed an adversary claim against Express
Scripts, Inc., for declaratory judgement with regard to a non-compete
agreement with Mr. DeSantis dated March 5, 1995. A scheduling conference
was held on September 10, 1999. On October 1, 1999, Express Scripts filed
a motion to dismiss the adversary for alleged lack of jurisdiction, and on
October 22, 1999, the Company filed a response to that motion. A
bankruptcy court hearing has been scheduled for November 22, 1999, and
discovery is presently stayed pending the resolution of the motion to
dismiss. The Company is presently in negotiation with Express Scripts
regarding a resolution of the issue.
On July 2, 1999, the Company filed a Motion for Final Decree to close the
bankruptcy estate. One objection was filed. On September 28, 1999, a court
hearing was held on the motion; the court has taken the matter under
advisement, and there has been no ruling to date.
Item 2. Changes in Securities and Use of Proceeds.
None.
17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
None
18
<PAGE>
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the following duly
authorized persons.
AUTOLEND GROUP, INC.
(Registrant)
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Nunzio P. DeSantis Chairman of the Board, November 13, 1999
---------------------- Chief Executive Officer
Nunzio P. DeSantis
/s/ Jeffrey Ovington Executive Vice President November 13, 1999
---------------------- (principal accounting and
Jeffrey Ovington financial officer)
19
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<PERIOD-END> SEP-30-1999
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