<PAGE>
As filed with the Securities and Exchange Commission on October 19, 1999
Registration No.333-80201
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
AUTOLEND GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 523900 22-3137244
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code ) Identification No.)
</TABLE>
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.
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.
<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 maximum Proposed maximum
Title of each class of securities Amount to be offering price aggregate Amount of
to be registered registered per unit /(1)/ offering price/(1)/ registration fee
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Common stock, $.002 par value 12,899,530/(2)/ $ 1.00 $ 12,899,530
- ------------------------------------------------------------------------------------------------------------
Common stock, $.002 par value 6,323,500/(3)/ $ 4.00 $ 25,294,000 $ 10,728
==============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 1,040,000 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
<TABLE>
<CAPTION>
REGISTRATION STATEMENT PROSPECTUS CAPTION
ITEM AND HEADING OR LOCATION
---------------- -----------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Outside Front Cover Page
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Pages
Pages of Prospectus of Prospectus
3. Summary Information, Risk Factors,
and Ratio of Earnings to Fixed Charges Prospectus Summary, Risk 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 Stock
Registered
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 Position on
Indemnification for Securities Act Indemnification for Securities Act
Liabilities Liabilities
</TABLE>
<PAGE>
PROSPECTUS
AutoLend Group, Inc.
600 Central S.W., Third Floor
Albuquerque, NM 87102
(505) 768-1000
19,223,030 shares of common stock
We are offering 18,183,030 shares of our common stock as a result of
our plan of reorganization on a "best efforts" basis by us. This
offering is not being underwritten by an investment banker. These
shares are offered to satisfy obligations under our plan of reorganization;
to fund our new ownership after the cancellation of our old equity securities;
to help fund the development of our new gaming business and for other
business development and general operating expenses as required. Our offer
to holders of our common and preferred stock which stock was canceled
on March 5,1999, will expire on _____________, 1999. Our offer to
holders of our warrants and options, which were also canceled on March 5,
1999, will expire on March 4, 2000.
This offer to sell our shares is only open to holders of our
canceled securities. The holders of our canceled stock, warrants,
and options have the right to purchase shares of new common stock
as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Maximum number of Shares Offering Price
Class of Canceled Securities of New Common Stock Issuable Per Unit
----------------------------------------------------------------------------------
<S> <C> <C>
Common stock 6,079,530 $1.00
----------------------------------------------------------------------------------
Preferred stock 5,780,000 $1.00
----------------------------------------------------------------------------------
Warrants 2,663,500 $4.00
----------------------------------------------------------------------------------
Options 3,660,000 $4.00
----------------------------------------------------------------------------------
</TABLE>
We are also hereby providing 1,040,000 shares of our common stock
to certain holders of our debentures, which were canceled on
March 5, 1999.
Our common stock currently trades under the symbol "AUTL" in the
over-the-counter market on the Electronic Bulletin Board. On October
12,1999, last time it was traded, the market price of our common stock was
$0.02. 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).
--------------------
<TABLE>
<CAPTION>
=============================================================================================
Underwriting Proceeds to
Price to Public Discounts Company (1)
--------------- ------------ ------------
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share .............. $1.00 -0- $1.00
- ---------------------------------------------------------------------------------------------
Per share .............. $4.00 -0- $4.00
- ---------------------------------------------------------------------------------------------
Total maximum $37,153,530 -0- $37,153,530
=============================================================================================
</TABLE>
- ----------
(1) Before deducting our offering expenses, estimated to be
$97,000.
This Prospectus is dated ___________ ___, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information............................................................................... 1
Prospectus
Summary 1
The Company.............................................................................................. 1
Proposed New Business.................................................................................... 2
Background; Recent History............................................................................... 4
The Offering............................................................................................. 6
Summary Financial Information............................................................................ 7
Risk Factors...................................................................................................... 8
Our Recent Bankruptcy May Hurt Our Business and Increase Our Cost of Working Capital..................... 8
Our Gaming Business May Be Inadequate For Our Continued Operations....................................... 9
We Have a Potential Need for Additional Financing, Which May Be Difficult to Obtain...................... 9
We Have a Dependence on Key Personnel, Which, If Lost, Could Have an Adverse Effect On Us................ 9
Other Companies May Have Substantially Greater Resources Than Us......................................... 9
By Purchasing Our New Common Stock For $1.00 Per Share,
You May Realize Immediate Dilution of 45 Percent.................................................... 9
Potential Voting Control By Our Management May Result in an Anti-Takeover Effect......................... 10
We Anticipate No Payment of Dividends in the Foreseable Future,
Which Means You May Have No Returns On Your Investment.............................................. 10
We Have in the Past, and May in the Future, Enter Into Transactions With Affiliated Interests............ 10
We Made an Arbitrary Determination of the Offering Price................................................. 10
There Can Be No Assurance of Public Market for the Common Stock,
Which Means You May Not Be Able to Readily Resell Your New Common Stock............................. 11
Our Board May Issue Substantial Amounts of Additional Shares Without Stockholder Approval,
Which May Dilute Your Investment In Our New Common Stock............................................ 11
Our New Common Stock Will Be Subject to the SEC's Penny Stock Regulations,
Which May Make Resales of Your New Common Stock More Difficult...................................... 11
Year 2000 Issues......................................................................................... 12
Forward-Looking Information....................................................................................... 12
Selected Financial Data........................................................................................... 12
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................................ 14
Proposed New Business.................................................................................... 14
Liquidity and Capital Resources.......................................................................... 14
General.................................................................................................. 16
Results of Operations.................................................................................... 17
Year 2000 Issue.......................................................................................... 22
New Accounting Pronouncements............................................................................ 23
Operating Loss Carry-Forward...................................................................................... 24
Dilution.......................................................................................................... 25
Use of Proceeds................................................................................................... 25
Market of Registrant's Common Equity and Related Stockholder Matters.............................................. 25
Capitalization.................................................................................................... 27
Business.......................................................................................................... 27
General.................................................................................................. 27
Proposed New Business.................................................................................... 28
Termination of Option to Purchase ITB Shares............................................................. 30
Employees................................................................................................ 31
Properties............................................................................................... 31
Legal Proceedings........................................................................................ 32
Management........................................................................................................ 33
Officers and Directors................................................................................... 33
Summary Compensation Table............................................................................... 34
Options.................................................................................................. 34
Fiscal Year-End Option Values - 1999..................................................................... 35
Compensation of Directors................................................................................ 35
Security Ownership of Certain Beneficial Owners and Management.................................................... 35
Certain Relationships and Related Transactions.................................................................... 36
Compliance With Section 16(a) of the Securities Exchange Act of 1934.............................................. 36
Disclosure of SEC Position on Indemnification for Securities Act Liabilities...................................... 36
Description of Capital Stock...................................................................................... 37
Common Stock............................................................................................. 37
Preferred Stock.......................................................................................... 37
Transfer Agent........................................................................................... 38
Dividend Policy.......................................................................................... 38
Legal Matters..................................................................................................... 38
Experts........................................................................................................... 38
</TABLE>
<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.
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 Company
AutoLend Group, Inc., is a company headquartered in Albuquerque, New Mexico. We
are currently winding down our existing businesses. We operate through our
subsidiaries, which are:
(DELTA) AutoLend Corporation, which maintains a residual portfolio of
installment contract receivables. At June 30, 1999, this portfolio
consisted of 21 active sub-prime consumer used-car loan contracts
purchased from used-car dealers valued at $39,000. In addition to the
active portion of the portfolio, we also have 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 us an irregular net cash flow of approximately $14,000 per
month. We ceased purchasing car loans in December 1995.
(DELTA) American Life Resources Group, Inc., and LB NM, Inc., which maintain
residual portfolios of unmatured life insurance policies having a
combined face value of $0.6 million and a net book value of $0.1
million, and which consisted of 7 policies as of June 30, 1999. These
policies were purchased from persons with life-threatening illnesses,
a 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 industry (which is now a division of ours 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."
1
<PAGE>
. Proposed New Business
(DELTA) Overview
--------
Our plan of reorganization involves developing a new business that consists
primarily of providing, installing and servicing gaming devices and gaming
machines for certain non-profit organizations in the State of New Mexico, as
made possible by the relatively recent passage of new state laws and
regulations. There are approximately 200 local veteran and fraternal clubs
within the state which are potentially licensable under the new state gaming
laws.1 These clubs, under present law and after becoming licensed, may install
up to 15 slot machines each on their premises.2 Many of these clubs have
indicated a preference that a distributor organization obtain, provide, install,
and service these machines on their behalf (as opposed to purchasing or leasing
such machines directly from a machine manufacturer). We anticipate that while,
on average, these fraternals will not install the maximum number of machines
allowed by law, a total of approximately 1,300 machines will likely be installed
throughout the state under present regulations. Average sustained revenues which
may be generated by these gaming machines are unknown at this time, but we
estimate to eventually range between $40 and $150 per machine per day of
operation.3 This would imply potential total statewide fraternal gaming gross
revenues (i.e., the total market which we plan to obtain a portion thereof) of
between $16 million and $60 million per year. At present, the state takes 25
percent off the top of this "net win."4 The distributor portion of these gross
gaming revenues is presently limited to a maximum of 40 percent of the after-tax
net win, plus possible additional fees for other affiliated services (which can
be up to about 10 percent, but cannot be a strict percentage relationship).4 At
this point and, to the best of our knowledge, most fraternal contracts with
distributors have tended to be at or near this maximum, which yields an
equivalent of about 37 percent of the net win. This implies total net revenues
available to all distributors statewide under the present laws of between $6
million and $22 million per year.
At this relatively early point in the development of legalized fraternal gaming
in New Mexico, only twelve fraternal clubs have become licensed thus far (the
first of which started gaming in July of this year), and as of early October
1999, state-wide only five fraternal clubs have actually started gaming.5 During
the last several months, we have been actively pursuing relationships with many
of these organizations. This effort has resulted in our obtaining a number of
signed agreements to provide services to these organizations contingent upon
their and our ability to obtain licensing from the state, among other things. No
individual potential customer is anticipated to represent more than 10 percent
of our revenue from this activity. It is our belief that if our licensing
process is not significantly further delayed, we will be able to capture a large
share of the total statewide distributor net revenues. For example, if we were
to capture a third of the market, then we could have annual revenues from
fraternal slot machines of between $2 million and $7 million per year.
Furthermore, it is our belief that gaming in New Mexico will be expanded in
future years. Thus, establishing our position early would provide a significant
advantage for us to capitalize on any such expansion, through legislated
increases to the numbers of machines per club, and/or the addition of table
games, and possibly the expansion of the types of organizations eventually
allowed to have such gaming.
1 - Albuquerque Journal Newspaper, August 23, 1998
-----------------------------
2 - State of New Mexico, 43rd Legislature, 1st Session, Chapter 190, Page 111,
Line 18
3 - Bear Stearns Global Gaming Almanac 1999, Page 412, cites $124 per day
---------------------------------------
4 - New Mexico Gaming Control Board Newsletter Insight, February 1999
-------
5 - New Mexico Gaming Control Board web site: www.nmgcb.org
2
<PAGE>
(DELTA) Background
----------
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 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
such a business;
. the requirement that, after launch, the business will not need a
significant capital investment to "ramp-up"; and
. the need for the new business to produce a positive cash flow almost
immediately.
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. We propose 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. We have commenced 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, we have hired a Vice President of Gaming
Development and Marketing.
We believe we can obtain the proper licenses, gaming machines, and contracts
with non-profit organizations to make this business viable and to allow us to
meet our obligations. In this regard, we have made application to the New Mexico
Gaming Control Board for licensure as a distributor. Additionally, we have
signed a number of contingent agreements with fraternal organizations, whereby
we would supply gaming machines to licensed operators. The agreements are
contingent upon certain matters, such as our and our fraternal organizations
ability to obtain the appropriate state licensing as well as the actual approval
of the respective agreements by the Gaming Control Board. We are also holding
discussions with several licensed gaming machine manufacturers with respect to
obtaining such machines. In as much as no distributors have yet developed any
financial history for such licensed operations in New Mexico, and no fraternals
have yet established records of average "net drops" under regulated gaming in
New Mexico, potential operating results are unknown, and thus we cannot be
assured of success in this venture.
Material terms of most of our anticipated contracts would generally include the
following:
. contract would become effective after both parties become licensed and the
contract itself is approved by the New Mexico Gaming Control Board;
. we provide the slot machines, software, and related equipment to the
fraternal organization (however, all this equipment remains our property);
. we provide a range of additional services, which includes on-going service
to the machines on short notice, and can include "house bank" loans,
facility enhancement loans, assistance with the licensing process,
training, assistance with required state reporting, optimizing the mix of
machines, and/or other services which may be needed;
. a four-year term, with automatic one-year renewals if not cancelled in
writing by either party at least sixty days before the end of the term;
. the number of slot machines to be installed (both initially and at any time
during the term) is at our discretion;
. no fixed monthly or per-machine payments required of the fraternal; our
primary payment is a
3
<PAGE>
percentage of the net win (after the state gaming tax of 25 percent);
additionally, we will collect other (lessor) fees for other services
provided;
. we have exclusive rights to gaming equipment on premises during the term;
. the fraternal organization provides acceptable insurance and
indemnification;
. a one-time unilateral cancellation capability for us at the end of the
first six-months of operation;
. assignability to the extent permitted by licensing and gaming
regulations.
We are obligated to pursue the gaming business (as hereinbefore described) under
the plan of reorganization approved by the Bankruptcy Court. If this business
does not meet our expectation and does not significantly add to our operation,
once we are no longer under the constraints of the Bankruptcy Court, we may need
to seek other business opportunities which would be compatible to our
operations.
(DELTA) Present Status
--------------
Costs to commence the gaming business currently consist of salaries, marketing,
and travel. Additional costs, including lease payments, will be incurred upon
servicing our contracts, which will occur after we and the fraternal
organizations have obtained required gaming licenses.
The New Mexico Gaming Control Board is currently processing our application for
licensure as a distributor. In connection with this review, we have received
correspondence from them indicating that the process has been significantly
lengthened due to the yet unconcluded SEC investigation (see "Legal
Proceedings"). We are unable to predict with certainty at this time how much
longer the review may take.
. Background; Recent History
(DELTA) 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.
(DELTA) 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." 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, resulting
4
<PAGE>
in our inability to make scheduled principal payments 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 of
reorganization, and a Confirmation Hearing was held on February 3, 1999. The
Bankruptcy Court confirmed the plan of reorganization, and it became effective
on March 5, 1999.
(DELTA) Plan of Reorganization
----------------------
The material features of our plan of reorganization have provided 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, effective as of March 5, 1999. The class of unsecured creditors has
now received 100 percent of its allowed claims. The holders of our debentures
will receive approximately 1.0 million shares of our common stock, $3.0 million
in cash, and non-interest bearing, uncollateralized notes aggregating $0.6
million payable in five annual payments. As of September 10, 1999, approximately
$2.7 million of the $3.0 million in cash had already been disbursed and we
anticipate that most of the remainder will be disbursed within the next 60 days.
The holders of our canceled securities have the right to purchase new shares of
common stock during certain periods beginning on the date of this Prospectus. If
the holders of canceled securities purchase all available new common stock, the
following shares and potential equity capital will result:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Maximum number of
Class of Shares of Potential Equity
Canceled Securities New Common Stock Offering Price Per Unit Capital
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock 6,079,530 (1) $1.00 $ 6,079,530
-----------------------------------------------------------------------------------------------------
Preferred stock 5,780,000 (1) $1.00 $ 5,780,000
-----------------------------------------------------------------------------------------------------
Warrants 2,663,500 (2) $4.00 $10,654,000
-----------------------------------------------------------------------------------------------------
Options 3,660,000 (2) $4.00 $14,640,000
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Right to purchase will expire on ______, 2000
(2) Right to purchase will expire on March 4, 2000
We expect that only a portion of these shares will be purchased by existing
equity holders, resulting in total common stock outstanding between 1.5 million
and 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. See "SUMMARY - The
Offering."
(DELTA) Termination of Option to Purchase ITB Shares
--------------------------------------------
In January 1999, we settled litigation (which settlement was approved by the
Bankruptcy Court) that involved an option we had purchased pursuant to a related
loan transaction. The option was for the potential acquisition of up to an
approximately 25 percent ownership equity in International Thoroughbred
Breeders, Inc. ("ITB"). In consideration for this option we paid $0.2 million in
cash and issued a contingent promissory note payable. We acquired this option in
1997 from NPD, Inc. ("NPD"), which is majority-owned by Nunzio DeSantis, our
Chairman of the Board (who was also Chairman of NPD). Also covered in the
settlement were transactions related to the option purchase, wherein we had
loaned $3.0 million to NPD, and had deposited $2.0 million in an escrow account.
On January 29, 1999, in connection with the settlement, we received $4,446,771
in cash from third
5
<PAGE>
parties (including ITB), and the option was cancelled, as were the contingent
note payable to NPD and the loan receivable from NPD. Our receipt of these funds
represents the return of the escrow deposit (plus interest) and repayment to us
of $2.3 million against our $3.0 million (principal) loan to NPD (which loan had
accrued interest outstanding of $0.5 million). The option itself, which we held
for approximately a year, was then expensed for $0.2 million. In total, we
recognized a loss associated with these events of approximately $1.4 million for
the fiscal year ended March 31, 1999. This loss was later partially offset by a
$0.5 million gain from the settlement of a related adversary litigation. See
"Business - Termination of Option to Purchase ITB Shares," and "Legal
Proceedings."
. The Offering
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 includes the following shares:
<TABLE>
<CAPTION>
----------------------------------------------------------------
Total Maximum Available
Shares of
Canceled Securities New Common Stock
----------------------------------------------------------------
<S> <C>
Common stock 6,079,530
----------------------------------------------------------------
Preferred stock 5,780,000
----------------------------------------------------------------
Warrants 2,663,500
----------------------------------------------------------------
Options 3,660,000
----------------------------------------------------------------
Debentures 1,040,000
----------------------------------------------------------------
Total 19,223,030
----------------------------------------------------------------
</TABLE>
However, we estimate that no more than 9 million of these shares will actually
be issued as a result of the offering. 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.
(DELTA) 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 share of common stock; 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 share of common stock.
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 (60-day) 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
6
<PAGE>
holders of new common stock on a pro rata basis at $1.00 per share. See
"PROSPECTUS SUMMARY - The Offering."
(DELTA) 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.
(DELTA) 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.
(DELTA) 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 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.
(DELTA) Holders of Debentures
---------------------
Debenture holders will receive 1,040,000 shares of new common stock, plus cash
payments of $3,043,250 and notes payable in the amount of $624,000
(undiscounted) in exchange for a total of $7,225,000 in principal value of
debenture debt and $2,375,689 in accrued interest. As of September 10, 1999,
approximately $2.7 million in cash has already been disbursed and we anticipate
that most of the remainder will be disbursed within the next 60 days. If
purchases of 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)
bring in less than $1.1 million in new capital, then the former debenture
holders will own a majority of our Company.
. Summary Financial Information
Our summary financial data is given below for the three months ended June 30,
1999 and 1998, and the three years ended March 31, 1999, 1998, and 1997. The
unaudited financial data for the interim periods reflect, in the opinion of our
management, all adjustments necessary to present fairly the data for those
periods. The results of operations for the interim periods do not necessarily
indicate
7
<PAGE>
operating results for the entire year. Fresh-start reporting has been reflected
in the financial statements as of March 31, 1999, thus certain material aspects
of these financial statements are not comparable to such statements of any prior
period, since the statements as of March 31, 1999 are those of a reorganized
entity. A "black line" has been drawn between the Registrant's financial
statements and those of the Predecessor Company. This data should be read with
our financial statements and the related notes elsewhere herein.
<TABLE>
<CAPTION>
Registrant | Predecessor
-------------- | -------------------------------------------------
In Thousands (except Twenty-six | Eleven months and Three months ended June 30:
| ---------------------------
earnings per share) days ended | five days ended Years ended March 31: Registrant |Predecessor
| ------------------------------ |
March 31, 1999 | March 5, 1999 1998 1997 1999 | 1998
-------------- |----------------- ----------- ----------- -------------- |-----------
<S> <C> |<C> <C> <C> <C> |<C>
Total net revenues $ 9 | $ 356 $ 597 $ 2,075 $ 60 |$ 47
-------------- |----------------- ----------- ----------- -------------- |----------
Operation earnings/(loss), including | |
loan loss provisions $ (31)| $ (967) $ (1,469) $ (7,402) $ (290)|$ (236)
Recovery/(write-off) of assets and | |
(accrual of expenses) related to | |
the consumer loan and viatical | |
businesses - | 536 (132) (2,109) - | -
Net interest income/(expense) 21 | (208) (571) (1,816) 49 | (76)
Non-cash debenture conversion charge - | - (6,261) - - | -
Loss on settlement ITB/NPD - | (1,368) - - - | -
Miscellaneous other income/(expense), | |
net 37 | (146) (38) (461) (8)| (5)
-------------- |----------------- ----------- ----------- -------------- |----------
Pretax results of operations $ 27 | $ (2,153) $ (8,471) $ (11,788) $ (249)|$ (317)
Tax offset to loss/(taxes) - | - - 86 - | -
Net gain on early extinguishment of | |
debt - | - 3,172 - - | -
Net gain as result of | |
reorganization-Debentures - | 5,342 - - - | -
Bankruptcy reorganization expense (151)| (341) (212) - (89)| (127)
Discontinued operations - | - - 167 - | -
-------------- |----------------- ----------- ----------- -------------- |----------
| |
Net loss income/(loss) $ (124)| $ 2,848 $ (5,511) $ (11,535) $ (338)|$ (444)
============== |================= =========== =========== ============== |==========
| |
Per Share Data: | |
- --------------- | |
Net loss income/(loss) $ (0.12)| $ 0.47 $ (0.91) $ (2.49) $ (0.32)|$ (0.07)
============== |================= =========== =========== ============== |==========
Weighted average number of common and | |
common equivalent shares | |
outstanding - | 6,079,530 6,039,391 4,634,530 - | 6,079,530
============== |================= =========== =========== ============== |==========
| |
Weighted average number of common and | |
common equivalent shares issuable 1,040,000 | - - - 1,040,000 | -
============== |================= =========== =========== ============== |==========
| |
Balance Sheet Data: | |
- ------------------- | |
Total Assets $ 5,197 | $ 6,888 $ 7,640 $ 16,276 $ 2,809 |$ 7,966
Total Liabilities 4,629 | 6,196 11,078 28,128 2,579 | 11,483
Total Stockholders' Equity 568 | 692 (3,438) (11,852) 230 | (3,517)
</TABLE>
RISK FACTORS
Your purchase of our new common stock involves a high degree of risk, which are
described below. We believe these describe all material risks associated with
your purchase of our new common stock. 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.
. Our Recent Bankruptcy May Hurt Our Business and Increase Our Cost of
Working Capital
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. As a result, our earnings may be
adversely affected as well as the market value of our common stock.
8
<PAGE>
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 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. See
"BUSINESS - Plan of Reorganization."
. Our Gaming Business May Be Inadequate For Our Continued Operations
The total size of the fraternal gaming market in New Mexico, and the size of the
portion thereof which we may be able to capture, and the profitability of our
portion are all unproven at this time. As a result, we may not be able to
support our ongoing operations.
. We Have A Potential Need for Additional Financing, Which May Be
Difficult To Obtain
We may need significant funding following this offering to develop our proposed
new gaming business in New Mexico and/or any other business opportunities that
management may later develop. In addition, if we are unable to raise an adequate
amount of funds from this offering, our available cash may be depleted before
the gaming business has been adequately developed. This development may be
forestalled by operational factors, marketing factors, or the obtaining of
proper licenses (which licensing may be delayed or denied as a result of our
investigation by the SEC; see "BUSINESS - Legal Proceedings"). 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.
. Licensing of Our Gaming Business May Be Delayed
Our licensing by the New Mexico Gaming Control Board could be delayed until the
conclusion of the SEC investigation of us (see "BUSINESS - Legal Proceedings").
We are unable to accurately predict when the SEC investigation will be
concluded, or if our licensing will be further delayed by the investigation.
. We Have a Dependence on Key Personnel, Which, If Lost, Could Have an
Adverse Effect On Us
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."
. Other Companies May Have Substantially Greater Resources Than Us
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.
. By Purchasing Our New Common Stock For $1.00 Per Share, You May Realize
Immediate Dilution of 45 Percent
Our investors may experience immediate dilution of $0.45 per share of common
stock, or approximately 45 percent of the $1.00 offering price per share. This
is due to the variables inherent
9
<PAGE>
in the bankruptcy reorganization, including the three choices that were
available to debenture holders, the passage of time since the plan of
reorganization was proposed, and the degree of participation by holders of old
common and preferred stock in purchasing new common stock.
. Potential Voting Control By Our Management May Result in an
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."
. We Anticipate No Payment of Dividends in the Foreseeable Future, Which
Means You May Have No Return On Your Investment
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 CAPITAL STOCK."
. We Have in the Past, and May in the Future, Enter Into Transactions With
Affiliated Interests
We entered into certain affiliate transactions, including purchasing an option
for up to 25 percent equity interest in ITB for $2.5 million, making a related
loan to NPD, Inc., of $3.0 million, and guaranteeing an NPD obligation of $2.0
million. Both ITB and NPD were affiliates of Nunzio DeSantis, our current
Chairman of the Board, President, and Chief Executive Officer. In connection
with the settlement by us of adversary litigation relating to these matters, we
recognized a loss of approximately $1.4 million for the fiscal year ended March
31, 1999. This loss was later partially offset by a $0.5 million gain from the
settlement of a related adversary litigation. At the time we entered into these
transactions, we believed, through our Board of Directors, that they were in our
best interest and would be to our financial benefit. Subsequent events outside
of our control proved us wrong with the resulting loss. See "BUSINESS
Termination of Option to Purchase ITB Share" and "Legal Proceedings."
In the future, we may enter into transactions with our and/or Mr. DeSantis'
affiliated interests when those transactions are deemed to be beneficial to us
and in our best interests. We will only deal in such transactions on an arms-
length basis and will make a full disclosure thereof if they are material to our
operations. Any such transactions will be subject to approval by our Board of
Directors with any interested Director abstaining. We do not, of course, always
have control over events which occur subsequent to any transaction and, as a
result, we may incur losses in the future related to transactions with
affiliated interests.
. We Made an Arbitrary Determination of the 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,
10
<PAGE>
within the structure of the bankruptcy reorganization, the $1.00 per share price
of the offering should have a substantial effect in determining realized net
book value per share immediately after the offering.
. There Can Be No Assurance of Public Market for the Common Stock, Which
Means You May Not Be Able to Readily Resell Your New Common Stock
There can be no assurance that any effective markets for our new common stock
will develop or, if developed, will be sustained after this offering, or that
our new common stock will be salable, even at a loss, due to a limited
market.
. Our Board May Issue Substantial Amounts of Additional Shares Without
Stockholder Approval, Which May Dilute Your Investment In Our New Common
Stock
We are presently authorized by our Articles of Incorporation for the possible
issuance of up to a total of 40 million shares of common stock. After this
offering, we will have a minimum of 1 million and a maximum of up to 19 million
shares of common stock authorized and outstanding, and we will have the
remaining unissued portion of the 40 million shares reserved for possible future
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.
. Our New Common Stock Will Be Subject to the SEC's Penny Stock
Regulations, Which May Make resales of Your New Common Stock More
Difficult
Initially, our new common stock will be considered "penny stock" in
transactions, which 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 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.
11
<PAGE>
. Year 2000 Issues
Like any other company, advances and changes in technology can significantly
affect our business and operations. 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 our computers, but we could also be impacted by problems at
other companies, through supplier relationships, etc. We have been assured by
our third-party providers that they are in compliance with the year 2000 issue.
Fortunately, our present small base of operations is not heavily dependent upon
computers; therefore, we believe we can operate in a manual environment if
necessary. Certain "Y2K" testing and upgrading has now been completed.
Management feels reasonably confident, in general, about our level of exposure.
However, given the possible rather drastic scenarios worldwide as discussed in
the media, we cannot guarantee that we will not be detrimentally impacted in
some way.
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 consummation
of certain pending settlements 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.
SELECTED FINANCIAL DATA
The following selected financial data for the three months ended June 30, 1999,
and 1998 (unaudited), and the fiscal years ended March 31, 1999, 1998, 1997,
1996 and 1995 (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 on 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 three months ended June 30, 1999,
do not necessarily indicate results that may be expected for the entire fiscal
year. Fresh-start reporting has been reflected in the financial statements as of
March 31, 1999. Thus certain material aspects of these financial statements are
not comparable to such statements of
12
<PAGE>
any prior period, since the statements as of March 31, 1999 are those of a
reorganized entity. A "black line" has been drawn between our financial
statements and those of ours prior to the effective date of our plan of
reorganization.
<TABLE>
<CAPTION>
Registrant Predecessor
--------------- ----------------------------------------------------------------------
In Thousands (except Twenty-six |Eleven months and
earnings per share) days ended |five days ended Years ended March 31:
| ---------------------------------------------------
March 31, 1999 | March 5, 1999 1998 1997 1996 1995
--------------- |----------------- ----------- ----------- ----------- -----------
<S> <C> |<C> <C> <C> <C> <C>
Finance charges on installment contracts $ 9 | $ 108 $ 588 $ 1,671 $ 7,808 $ 2,719
Net revenue from matured insurance |
policies - | 248 9 404 542 6,678
--------------- |----------------- ----------- ----------- ----------- -----------
Total net revenues $ 9 | $ 356 $ 597 $ 2,075 $ 8,350 $ 9,397
=============== |================= =========== =========== =========== ===========
Operating earnings/(loss), including loan |
loss provisions $ (31)| $ (967) $ (1,469) $ (7,402) $ (10,404) $ 1,190
Net interest income/(expense) 21 | (208) (571) (1,816) (2,687) (4,531)
Recovery/(write-off) of assets and (accrual |
of expenses) related to the consumer |
loan and viatical businesses - | 536 (132) (2,109) - -
Realized gains/(losses) on |
marketable securities - | (25) - - 1 (1,649)
Tax offset to loss - | - - 86 4,936 -
Miscellaneous other income/(expense), net 37 | (121) (38) (461) (27) 28
Loss on Settlement ITB/NPD - | (1,368) - - - -
Non-cash Debenture conversion charge - | - (6,261) - - -
--------------- |----------------- ----------- ----------- ----------- -----------
Net loss before bankruptcy reorganization |
expenses, discontinued operations, |
extraordinary items, and change in |
accounting principle $ 27 | $ (2,153) $ (8,471) $ (11,702) $ (8,181) $ (4,962)
Bankruptcy reorganization expenses (151)| (341) (212) - - -
Discontinued operations - | - - 167 (48) (68)
Extraordinary items: |
Net gain on early extinguishment of debt - | - 3,172 - 7,307 2,030
Net gain as a result of reorganization - | 5,342 - - - -
Cumulative effect of change in |
accounting principle - | - - - 177 -
--------------- |----------------- ----------- ----------- ----------- -----------
Net loss income/(loss) $ (124)| $ 2,848 $ (5,511) $ (11,535) $ (745) $ (3,000)
=============== |================= =========== =========== =========== ===========
|
Per Share Data: |
- -------------- |
Net loss per share before discontinued |
operations, extraordinary items, and |
change in accounting principle (0.12)| (0.41) (1.44) (2.53) (1.77) (1.07)
Discontinued operation - | - - 0.04 (0.01) (0.02)
|
Extraordinary items: |
Net gain on early extinguishment of debt - | - 0.53 - 1.58 0.44
Net gain as a result of reorganization - | 0.88 - - - -
Cumulative effect of change in |
accounting principle - | - - - 0.04 -
--------------- |----------------- ----------- ----------- ----------- -----------
Net Loss $ (0.12)| $ 0.47 $ (0.91) $ (2.49) $ (0.16) $ (0.65)
=============== |================= =========== =========== =========== ===========
|
Weighted average number of common and |
common equivalent shares outstanding - | 6,079,530 6,039,391 4,634,530 4,634,530 4,634,530
=============== |================= =========== =========== =========== ===========
Weighted average number of common and |
common equivalent shares issuable 1,040,000 | - - - - -
=============== |================= =========== =========== =========== ===========
|
Balance Sheet Data: |
- ------------------ |
Total Assets 5,197 | 6,888 7,640 16,276 24,485 55,002
Total Liabilities 4,629 | 6,196 11,078 28,128 24,802 54,574
Total Stockholders' Equity 568 | 692 (3,438) (11,852) (317) 428
<CAPTION>
In Thousands (except Three months ended June 30:
earnings per share) ------------------------------
Registrant | Predecessor
1999 | 1998
------------ | -------------
<S> <C> | <C>
Finance charges on installment contracts $ 7 | $ 42
Net revenue from matured insurance policies $ 53 | 5
------------ | -------------
Total net revenues $ 60 | $ 47
============ | =============
Operating earnings/(loss), including loan loss provisions $ (290) | $ (236)
Net interest income/(expense) 49 | (76)
Recovery/(write-off) of assets and (accrual |
of expenses) related to the consumer |
loan and viatical businesses - | -
Realized gains/(losses) on marketable securities - | -
Tax offset to loss - | -
Miscellaneous other income/(expense), net (8) | (5)
Loss on Settlement ITB/NPD - | -
Non-cash Debenture conversion charge - | -
Net loss before bankruptcy reorganization |
expenses, discontinued operations, |
extraordinary items, and change in |
accounting principle $ (249) | $ (317)
Bankruptcy reorganization expenses (89) | (127)
Discontinued operations - | -
Extraordinary items: |
Net gain on early extinguishment of debt - | -
Net gain as a result of reorganization - | -
Cumulative effect of change in |
accounting principle - | -
------------ | -------------
Net loss income/(loss) $ (338) | $ (444)
============ | =============
|
Per Share Data: |
- -------------- |
Net loss per share before discontinued |
operations, extraordinary items, and |
change in accounting principle (0.32) | (0.07)
Discontinued operation - | -
|
Extraordinary items: |
Net gain on early extinguishment of debt - | -
Net gain as a result of reorganization - | -
Cumulative effect of change in |
accounting principle |
------------ | -------------
Net Loss $ (0.32) | $ (0.07)
============ | =============
|
Weighted average number of common and |
common equivalent shares outstanding - | 6,079,530
------------ | -------------
Weighted average number of common and |
common equivalent shares issuable 1,040,000 | -
------------ | -------------
|
Balance Sheet Data: |
- ------------------ |
Total Assets 2,809 | 7,966
Total Liabilities 2,579 | 11,483
Total Stockholders' Equity 230 | (3,517)
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
. Proposed New Business
Our plan of reorganization involves developing a proposed new business that
consists primarily of providing gaming devices and gaming machines for
non-profit organizations in new Mexico. Costs to commence the gaming business
currently consist of salaries, marketing, and travel. Potential operating
results in this new business are currently unknown and thus we cannot be assured
of success in this venture.
. Liquidity and Capital Resources
(DELTA) Cash and Cash Equivalent
------------------------
Our 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, we filed for voluntary bankruptcy reorganization. On March
5, 1999, our plan of reorganization became effective. At June 30, 1999, we had
cash and cash equivalents on hand at June 30, 1999, approximately $1.2 million
was escrowed for payment to former debenture holders recognized under the plan.
(DELTA) Cash Flow from Operations
-------------------------
Cash flow from operations was a negative 40.5 million for the three months ended
June 30, 1999, primarily due to the $0.3 million net use of cash for current
operations and $0.2 million in payments on accounts payable and accrued
liabilities.
(DELTA) Portfolios of Used-Car Loans and Viatical Policies
--------------------------------------------------
Our portfolio of used-car loans at June 30, 1999, was $39,000 and consisted of
21 active used-car loans. Our portfolio of unmatured viatical insurance policies
consisted of 7 policies at June 30, 1999, having a combined face value of
approximately $0.6 million and a net book value of approximately $0.1 million.
we recognized net revenues of $53,000 as a result of the disposal of 3 policies
during the three months ended June 30, 1999.
(DELTA) Cash Flow from investing and Financing
--------------------------------------
There was no cash provided by or used in investing activities for the three
months ended June 30, 1999 and 1998.
Cash used in financing activities was $1.8 million during the three months ended
June 30, 1999 due to the first distribution related to the debenture obligation
paid in June 1999. There was no cash provided by or used in financing activities
during the three months ended June 30, 1998.
14
<PAGE>
(DELTA) Summary
-------
In summary, we decreased cash and cash equivalents by $2.3 million during the
three months ended June 30, 1999, to a total of $2.6 million. The decrease was
largely due to the $1.8 million in payments to debenture holders under the plan,
the $0.2 million in payments on accounts payable and accrued liabilities from
prior periods, and the $0.3 million net use of cash for current operations. In
comparison, there was a $0.1 million increase in cash during the three months
ended June 30, 1998, primarily due to net provision of cash by operations.
(DELTA) Effect of Reorganization and Fresh-Start Accounting on Liquidity and
--------------------------------------------------------------------
Capital Resources
- -----------------
Our plan of reorganization, which 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 Reorganization
@ 3/4/99 @ 3/5/99
Actual Actual
-------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 2,214 $ 6,661
Car loans receivable, net 59 59
Purchased viatical policies, net 126 126
Escrow deposit, plus accrued interest receivable 2,147 -
Note receivable, plus accrued interest 3,533 -
ITB option investment 425 -
Fixed asset, net 19 19
Other assets 23 23
-------------- --------------
Total assets $ 8,546 $ 6,888
-------------- --------------
Accounts payable and accrued liabilities $ 160 $ 160
Contingent liabilities and pre-petition accounts
payable 945 945
Debentures at face, plus accrued interest 9,600 -
Debentures up front cash payable - 3,043
Five year note to debenture holders - 523
NPD note payable, plus accrued interest 490 -
Worley settlement 1,525 1,525
-------------- --------------
Total liabilities 12,720 6,196
Stockholders' Equity/(Deficit) $ (4,174) $ 692
-------------- --------------
Total liabilities & Stockholders' Equity $ 8,546 $ 6,888
-------------- --------------
</TABLE>
As can be seen above, our net equity increased by $4.9 million, i.e., from a
deficit of $4.2 million, to a positive equity of about $0.7 million. The
majority of the increase in cash shown above is attributable to our receipt of
$4.4 million on January 29, 1999 in connection with the ITB/NPD settlement;
these funds were held in escrow pending the effective date of the
reorganization.
(DELTA) 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:
15
<PAGE>
<TABLE>
<CAPTION>
"After
"Before Offering"
In Thousands Offering basis:
basis" @ 6/30/99,
@ 6/30/99, Pro Forma
Actual after proceeds
----------- --------------------------
lowest highest
------ -------
<S> <C> <C> <C>
Cash $ 1,431 $ 2,065 $ 8,965
Restricted cash 1,165 1,165 1,165
Car loans receivable, net 39 39 39
Purchased viatical policies, net 95 95 95
Fixed assets, net 13 13 13
Other assets 66 66 66
---------- ------- --------
Total assets $ 2,809 $ 3,443 $ 10,343
---------- ------- --------
Accounts payable and accrued liabilities $ 156 $ 156 $ 156
Debenture up-front cash payable 1,165 1,165 1,165
Contingent liabilities 735 735 735
Five-year not to debenture holders 523 523 523
---------- ------- --------
Total liabilities $ 2,579 $ 2,579 $ 2,579
Stockholders' equity $ 230 $ 864 $ 7,764
---------- ------- --------
Total liabilities & Stockholder's
Equity $ 2,809 $ 3,443 $ 10,343
No. of shares outstanding (-000) N/A 1,674 8,574
</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 $0.9 million;
likewise, cash would be increased by about $0.6 million, to a pro forma total of
$2.1 million. Alternately, the "high estimate" yields stockholders' equity of
$7.8 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.
. GENERAL
(DELTA) 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 of the 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.
(DELTA) 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
16
<PAGE>
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 bankruptcy petition. The net impact of
this business segment for the years ended March 31, 1999 and 1998, was
marginally positive, as the portfolio "winds down."
(DELTA) 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 ours, 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
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 Company's financial statements
(prior to March 6, 1999) are not comparable to the reorganized Company's
financial statements (subsequent to March 5, 1999). However, for purposes of
management's discussion and analysis of results of operations, the three months
ended June 30, 1999, is being compared to 1998, and the year ended March 31,
1999 is being compared to 1998, since the results of operations are comparable.
Three months ended June 30, 1999, compared to three months ended June 30, 1998
(DELTA) Summary
-------
We recorded a net loss of approximately $338,000 for the three-month period
ended June 30, 1999. The loss was primarily due to approximately $290,000 in
operating losses and $89,000 in reorganization costs, partially offset by
$41,000 in non-operating income. Additionally, we paid $1.8 million in cash to
debenture holders during the three month period ended June 30, 1999 as
disbursements under the plan of reorganization. The net result of the above is
that total cash on hand decreased over the three-month period by approximately
$2.3 million, to about $2.6 million at June 30, 1999.
(DELTA) Viatical Revenues
-----------------
Net revenues realized from viatical policies (the "Policies") in the three
months ended June 30, 1999, were approximately $53,000, as compared to de
minimis revenues in the three months ended June 30, 1998. The revenues were the
result of the sale of three Policies for a total of approximately $85,000, with
a total cost of $32,000. We generally ceased purchasing Policies after September
1994, and in May and July 1995 sold the majority of its portfolio. Future net
revenues from the remaining portfolio of 7 Policies will be irregular, depending
primarily upon the timing of mortality of the insured.
17
<PAGE>
(DELTA) Used-Car Loan Revenues
----------------------
Revenues on the used-car loan portfolio were approximately $7,000 during the
three months ended June 30, 1999, which represented a $35,000 decrease compared
to the $42,000 realized during the three months ended June 30, 1998. This
decrease is a result of the reduced size of our portfolio of those loans. We
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.
(DELTA) Credit Loss/Recovery
--------------------
Loan loss recoveries in connection with the portfolio of used car loans for the
three months ended June 30, 1999 represent the recovery of $60,000 related to
previously charged off loans. This is compared to a net recovery of $102,000 for
the three months ended June 30, 1998. The recoveries in both periods were
primarily the result of collections on old loans, which had, in the past, been
more than six months in arrears and had therefore been written off, in
accordance with our long-standing procedures.
(DELTA) General and Administrative Expenses
-----------------------------------
General and administrative expenses were approximately $410,000 during the three
months ended June 30, 1999, compared to the $386,000 expended during the three
months ended June 30, 1998. The increase of approximately $24,000 in general and
administrative expenses was due primarily to additional salary and travel
expense in connection with the gaming business. (These amounts exclude the $0.1
million in post Chapter 11 reorganization costs.)
(DELTA) Operating Loss
--------------
Operating losses for the three months ended June 30, 1999, were approximately
$289,000, compared to losses of approximately $236,000 for the three months
ended June 30, 1998. The $53,000 increase in operating losses was primarily due
to a $42,000 decrease in loan loss recoveries and a $24,000 increase in general
and administration expenses, which were partially offset by a $13,000 increase
in net revenue.
(DELTA) Non-operating Income
--------------------
The impact of non-operating items for the three months ended June 30, 1999 was a
net $41,000 in income, compared to a non-operating loss of $81,000 for the three
months ended June 30, 1998. The $41,000 in income for the present period was
primarily due to the $49,000 in interest income offset by the $8,000 debenture
note discount amortization. The $81,000 non-operating loss for the same period
last year consisted of interest income of $106,000, offset by interest expense
of $182,000 and a write-off of fixed assets of $5,000.
(DELTA) Reorganization Expense
----------------------
In addition to the above, for the three months ended June 30, 1999 and 1998, we
incurred $0.1 million each period ended due to reorganization costs related to
the bankruptcy proceedings.
18
<PAGE>
(DELTA) Net Loss
--------
The net effect of all of the foregoing was a net loss of $0.3 million, or $0.32
per share, for the three months ended June 30, 1999. The net loss for the same
period last year was $0.4 million, or $0.07 per share. The $0.3 million loss in
the current period was due primarily to operations. Losses per share for the
period ended June 30, 1999 were calculated based upon 1.0 million shares of
issuable common stock per the plan of reorganization. The net loss for the same
period last year of $0.4 million was primarily due to an operating loss of $0.2
million, reorganization costs of $0.1 million and non-operating expense of $0.1
million. Losses per share for the period ended June 30, 1998 were calculated
based upon the weighted average number of common and common equivalent shares
outstanding of 6.1 million.
Fiscal year ended March 31, 1999, compared to fiscal year ended March 31, 1998
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 Company's financial statements
(prior to March 6, 1999) are not comparable to the reorganized Company's
financial statements (subsequent to March 5, 1999). However, for purposes of
management's discussion and analysis of results of operations, the three months
ended June 30, 1999, is being compared to 1998, and the year ended March 31,
1999 is being compared to 1998, since the results of operations are comparable.
(DELTA) Summary
-------
We recorded a net income of approximately $2.7 million for the year ended March
31, 1999. This represents an $8.2 million improvement over the results of the
prior year. Contributing to the net income was an approximately $5.3 gain on
debt forgiveness, which was offset by an approximately $1.4 million loss on the
NPD/ITB settlement (see "Business Termination of Option to Purchase ITB Shares"
below), an operating loss of $1.0 million, and other expenses of $0.2 million.
(DELTA) Viatical Revenues
-----------------
Net viatical revenues from the policies for the fiscal year ended March 31,
1999, were $0.2 million as compared to the de minimus revenues recognized for
the fiscal year ended March 31, 1998. 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 this policy
portfolio.
(DELTA) Used-Car Loan Revenues
----------------------
Revenues on the used-car loan portfolio were approximately $0.1 million for the
fiscal year ended March 31, 1999, a $0.5 million decrease compared to the $0.6
million realized for the fiscal year ended March 31, 1998. This decrease
resulted from the reduced size of this portfolio of Installment Contracts
Receivable.
19
<PAGE>
(DELTA) Credit Losses
-------------
Provisions for credit losses in connection with the portfolio of Installment
Contracts Receivable for the year ended March 31, 1999 represent a $0.4 million
net recovery of previously charged-off loans, in excess of current period
provisions. This is compared to a net recovery of $41,000 for the year ended
March 31, 1998. This improvement of $0.4 million was primarily the result of
collections on old loans, which had, in the past, been more than six months in
arrears and had therefore been written off, in accordance with our long-standing
procedures.
(DELTA) General and Administrative Expenses
-----------------------------------
General and administrative expenses were $1.8 million during the year ended
March 31, 1999, which represented a reduction of $0.3 million, compared to the
$2.1 million expended during the year ended March 31, 1998. This decrease
resulted primarily from a $0.3 million decrease in the cost of administering and
collecting the portfolio of Installment Contracts Receivable. (These amounts
exclude the $0.5 million in post-Chapter 11 reorganization costs.)
(DELTA) Operating Loss
--------------
Operating losses for the year ended March 31, 1999, were $1.0 million, compared
to losses of $1.5 million for the year ended March 31, 1998. In total, the $0.5
million reduction in operating losses were primarily due to (as detailed above)
the reduction in general and administrative expenses (exclusive of
reorganization costs) of $0.3 million and the increase in recovery of bad debt
of $0.4 million, which were partially offset by a $0.2 million decrease in total
net revenues.
(DELTA) Non-operating Income
--------------------
The impact of non-operating items for the year ended March 31, 1999, was a net
$4.2 million income, compared to a non-operating loss of $3.8 million for the
year ended March 31, 1998. The $4.2 million non-operating income for the present
period was primarily due to the $5.3 million gain on debt forgiveness, a
viatical policy write-down recapture of $0.5 million, and interest income of
$0.5 million, all of which were partially offset by a $1.4 million loss on the
NPD/ITB settlement, $0.6 million in accrued interest expense, and $0.1 million
in miscellaneous other expenses. The $3.8 million non-operating loss for the
prior year was primarily due to the non-recurring $6.3 million debenture
conversion charge, offset by a $3.2 million gain on early extinguishment of
debt, plus interest income of $0.4 million, partially offset by $0.9 million in
accrued interest expense and $0.2 million in other miscellaneous expense.
In addition to the above, for the year ended March 31, 1999, we incurred $0.5
million in reorganization costs related to the bankruptcy proceedings, compared
to $0.2 million in the prior year.
(DELTA) Net Income (Loss)
-----------------
The net effect of the foregoing was a net income of $2.7 million for the year
ended March 31, 1999. The net loss for the same period last year was $5.5
million. The increase in net income of $8.2 million was attributable primarily
to a combination of the following items. During the year ended March 31, 1999,
we recorded a $5.3 million gain on debt forgiveness partially offset by a $1.4
20
<PAGE>
million loss on the NPD/ITB settlement, plus a $1.0 million operating loss and
$0.2 million in other non-operating expense items, resulting in a total net
income of $2.7 million. During the year ended March 31, 1998, 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, an operating loss of $1.5 million
and $0.9 million in other non-operating expenses, for a total net loss of $5.5
million.
Fiscal year ended March 31, 1998, compared to fiscal year ended March 31, 1997
(DELTA) 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. These results compare to a
$11.5 million net loss for the prior year.
(DELTA) 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.
(DELTA) 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.
(DELTA) 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.
(DELTA) 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 lower professional fees, administration
of a smaller used-car loan portfolio, and our downsizing in September 1996. (The
cost of collecting the consumer car loan portfolio is included in general and
administrative expenses; this effort has been subcontracted to a third party
since January 1996.)
21
<PAGE>
(DELTA) 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.
(DELTA) 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.
(DELTA) 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.
(DELTA) 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.
(DELTA) 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 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.
. YEAR 2000 ISSUE
Like any other company, advances and changes in technology can significantly
affect our business and operations. 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 our particular computers, but it could also be impacted by
problems at other companies, through supplier relationships, etc.
22
<PAGE>
Fortunately, our present small base of operations is not at this point heavily
dependent upon computers; therefore, we believe we can operate in a manual
environment if necessary. Certain "Y2K" testing and upgrading has now been
completed. Management feels reasonably confident, in general, about our level of
exposure. However, given the possible rather drastic scenarios worldwide as
discussed in the media, we cannot guarantee that we will not be in some way
detrimentally impacted.
. NEW ACCOUNTING PRONOUNCEMENTS
We adopted Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"). SFAS 129 establishes standards
for disclosing information about an entity's capital structure. SFAS 129
requires disclosures of the pertinent rights and privileges of various
securities outstanding (stock options, warrants, preferred stock, debt, and
participation rights), including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices, and
redemption requirements. Adoption of SFAS 129 has no effect on us, since we
currently disclose that information.
We adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 requires that total comprehensive
income and all components of comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income, or a statement of stockholders' equity. Comprehensive
income is comprised of net income and all changes to stockholders' equity,
except those due to investments by owners (changes in paid-in capital) and
distributions to owners (dividends).
We adopted Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"). SFAS 131 establishes standards
for the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and services,
geographic areas, and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker in
allocating resources and assessing performance. Adoption of SFAS 131 has no
effect on our current disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. We currently do not utilize any derivative or
hedging instruments and, therefore, believe that there will be no impact from
SFAS 133 on our earnings.
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), is effective for fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs and requires costs of start-up activities and
23
<PAGE>
organization costs to be expensed as incurred. In conjunction with the adoption
of fresh-start accounting, we adopted the provisions of SOP 98-5 early, with no
significant impact on our consolidated financial statements.
OPERATING LOSS CARRY-FORWARD
We had available as of June 30, 1999, unused capital loss carry-forwards and
operating loss carry-forwards that may provide future tax benefits, which expire
as follows:
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
-------------------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000 - 6,116,000
2003 - - 220,000
2004 - - 2,939,235
2005 - - 543,980
2012 - 6,078,000 -
2013 - 220,000 -
2019 - 2,939,235 -
2020 - 543,980 -
-------------------- ---------------------- -----------------------
Total $ 2,382,000 $ 9,781,215 $ 9,819,215
==================== ====================== =======================
</TABLE>
Capital loss carryforwards arise 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 carryforwards are the result of prior (and current) years'
operations, which had recorded a net loss in terms of income tax computations.
Operating loss carryforwards can, under certain conditions, be used to offset
future operating profits, thus negating the necessity to pay corresponding
future income taxes (until the loss carryforwards are used up or expire).
With the plan of reorganization 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 available loss carryforward 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. 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. The requirements to utilize such loss carryforwards are
strict, and the possibilities for usage are limited. If a substantial change in
ownership is involved, tax benefits could be reduced. Other limiting factors may
also apply.
24
<PAGE>
DILUTION
Our investors may experience immediate dilution of $0.15 per share of common
stock, or approximately 15 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 that
effective date, all of our outstanding old common stock, preferred stock, and
Class A and B warrants were canceled. The new common stock offered by this
Prospectus will be issued to debenture holders and offered to holders of old
common and preferred stock, warrants, and options. As full or partial
consideration for the extinguishment of their pre-petition debenture rights,
1,040,000 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:
<TABLE>
<CAPTION>
No. of shares issuable
(In Thousands)
Estimated
Low
Minimum Maximum Range
<S> <C> <C> <C>
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
============ =========== ===========
</TABLE>
NOTES: (1) The above excludes approximately 1.0 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).
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.
25
<PAGE>
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, 1999, 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.
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 (as described herein).
<TABLE>
<CAPTION>
Common Stock Class A Warrants (1)
High Low High Low
<S> <C> <C> <C> <C>
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)
Fiscal year ending March 31, 2000:
Quarter ended June 30, 1999 .12 .02 -- (2) -- (2)
Quarter ended September 30, 1999 .44 .02 -- (2) -- (2)
Period of October 1 to October 13, 1999 .06 .02 -- (2) -- (2)
</TABLE>
(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. We 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 plan of reorganization includes provisions for
treatment of the warrants, as described herein; specifically all
warrants now expire on March 4, 2000 and are exercisable at
$4.00.
(2) There were no reported trades of Class A warrants during these
periods.
As of October 13, 1999, the last reported sale price for the old common stock
was $0.02, based upon an October 11, 1999 trade on the Electronic Bulletin
Board. At March 4, 1999, prior to the cancellation of all shares outstanding,
there had been 6,079,530 shares of old common stock outstanding and 80 holders
of record.
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.
26
<PAGE>
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.
<TABLE>
<CAPTION>
PRO FORMA CAPITALIZATION
(unaudited)
(dollars in thousands except par value)
Actual Pro Forma
---------------------------------------------- --------------------
March 5, 1999
Pre-confirmation as adjusted for the June 30, 1999(1) (2)
at reorganization and as adjusted for
March 4, 1999 Fresh-Start Reporting (1) after offering
<S> <C> <C> <C>
Long-term debt $ - $ 523 $ 431
------------- ------------ -----------
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 - - -
Common stock (pro forma):
$.002 par value, 40,000,000
authorized, 1,040,000 issued and
outstanding at March 5, 1999, and
1,673,000 issued and outstanding at
June 30, 1999 - 2 3
Additional paid-in capital 20,460 690 1,322
Unrealized holding loss (200) - -
Accumulated deficit (24,446) - (462)
------------- ------------ -----------
Total Stockholders' Equity $ (4,174) $ 692 $ 863
------------- ------------ -----------
Total capitalization $ (4,174) $ 1,215 $ 1,294
============= ============ ===========
</TABLE>
(1) Gives effect to the issuance of 1,040,000 shares of common stock
to the debenture holders
(2) Gives effect to the possible issuance of 633,000 shares of common
stock purchased by old common stockholders at $1.00 per share
(based on our low range estimate of shares, which may be issued)
BUSINESS
. GENERAL
AutoLend Group, Inc., is a 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:
(DELTA) 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
27
<PAGE>
December 1995. Our portfolio of loans at June 30, 1999 was $39,000 and
consisted of 21 active accounts. In addition to the active portion of
the portfolio, we also have 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 us an
irregular net cash flow of approximately $14,000 per month.
(DELTA) 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 7 remaining policies had an aggregate face value of $0.6
million and a net book value of $0.1 million on June 30, 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 ours 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
(DELTA) Overview
--------
Our plan of reorganization involves developing a new business that consists
primarily of providing, installing and servicing gaming devices and gaming
machines for certain non-profit organizations in the State of New Mexico, as
made possible by the relatively recent passage of new state laws and
regulations. There are approximately 200 local veteran and fraternal clubs
within the state which are potentially licensable under the new state gaming
laws.1 These clubs, under present law and after becoming licensed, may install
up to 15 slot machines each on their premises.2 Many of these clubs have
indicated a preference that a distributor organization obtain, provide, install,
and service these machines on their behalf (as opposed to purchasing or leasing
such machines directly from a machine manufacturer). We anticipate that while,
on average, these fraternals will not install the maximum number of machines
allowed by law, a total of approximately 1,300 machines will likely be installed
throughout the state under present regulations. Average sustained revenues which
may be generated by these gaming machines are unknown at this time, but we
estimate to eventually range between $40 and $150 per machine per day of
operation.3 This would imply potential total statewide fraternal gaming gross
revenues (i.e., the total market which we plan to obtain a portion thereof) of
between $16 million and $60 million per year. At present, the state takes 25
percent off the top of this "net win."4 The distributor portion of these gross
gaming revenues is presently limited to a maximum of 40 percent of the after-tax
net win, plus possible additional fees for other affiliated services (which can
be up to about 10 percent, but cannot be a strict percentage relationship).4 At
this point and, to the best of our knowledge, most fraternal contracts with
distributors have tended to be at or near this maximum, which yields an
equivalent of about 37 percent of the net win. This implies total net revenues
available to all distributors statewide under the present laws of between $6
million and $22 million per year.
At this relatively early point in the development of legalized fraternal gaming
in New Mexico, only twelve fraternal clubs have become licensed thus far (the
first of which started gaming in July of this
28
<PAGE>
year), and as of early October 1999, state-wide only five fraternal clubs have
actually started gaming./5/ During the last several months, we have been
actively pursuing relationships with many of these organizations. This effort
has resulted in our obtaining a number of signed agreements to provide services
to these organizations contingent upon their and our ability to obtain licensing
from the state, among other things. No individual potential customer is
anticipated to represent more than 10 percent of our revenue from this activity.
It is our belief that if our licensing process is not significantly further
delayed, we will be able to capture a large share of the total statewide
distributor net revenues. For example, if we were to capture a third of the
market, then we could have annual revenues from fraternal slot machines of
between $2 million and $7 million per year. Furthermore, it is our belief that
gaming in New Mexico will be expanded in future years. Thus, establishing our
position early would provide a significant advantage for us to capitalize on any
such expansion, through legislated increases to the numbers of machines per
club, and/or the addition of table games, and possibly the expansion of the
types of organizations eventually allowed to have such gaming.
1 - Albuquerque Journal Newspaper, August 23, 1998
-----------------------------
2 - State of New Mexico, 43rd Legislature, 1st Session, Chapter 190, Page 111,
Line 18
3 - Bear Stearns Global Gaming Almanac 1999, Page 412, cites $124 per day
---------------------------------------
4 - New Mexico Gaming Control Board Newsletter Insight, February 1999
-------
5 - New Mexico Gaming Control Board web site: www.nmgcb.org
(DELTA) Background
----------
We have been considering various prospects to develop a new business suitable
for our situation. In general, any new business development is difficult, and
our particular realities impose significant constraints that make such an
undertaking even more difficult. These constraints include the following: 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; 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.
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. We propose 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. We have commenced 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, we have hired a Vice President of Gaming
Development and Marketing.
We believe we can obtain the proper licenses, gaming machines, and contracts
with non-profit organizations to make this business viable and to allow us to
meet our obligations. In this regard, we have made application to the New Mexico
Gaming Control Board for licensure as a distributor. Additionally, we have
signed a number of contingent agreements with fraternal organizations, whereby
we would supply gaming machines to licensed operators. The agreements are
contingent upon certain matters, such as our and our fraternal organizations
ability to obtain the appropriate state licensing as well as the actual approval
of the respective agreements by the Gaming Control Board. We are also holding
discussions with several licensed gaming machine manufacturers with respect to
obtaining such machines. In as much as no distributors have yet developed any
financial history for such licensed operations in New Mexico, and no fraternals
have yet established records of
29
<PAGE>
average "net drops" under regulated gaming in New Mexico, potential operating
results are unknown, and thus we cannot be assured of success in this venture.
Material terms of most of our anticipated contracts would generally include the
following:
. contract would become effective after both parties become licensed and the
contract itself is approved by the New Mexico Gaming Control Board;
. we provide the slot machines, software, and related equipment to the
fraternal organization (however, all this equipment remains our property);
. we provide a range of additional services, which includes on-going service
to the machines on short notice, and can include "house bank" loans,
facility enhancement loans, assistance with the licensing process,
training, assistance with required state reporting, optimizing the mix of
machines, and/or other services which may be needed;
. a four-year term, with automatic one-year renewals if not cancelled in
writing by either party at least sixty days before the end of the
term;
. the number of slot machines to be installed (both initially and at any time
during the term) is at our discretion;
. no fixed monthly or per-machine payments required of the fraternal; our
primary payment is a percentage of the net win (after the state gaming tax
of 25 percent); additionally, we will collect other (lessor) fees for other
services provided;
. we have exclusive rights to gaming equipment on premises during the term;
. the fraternal organization provides acceptable insurance and
indemnification;
. a one-time unilateral cancellation capability for us at the end of the
first six-months of operation;
. assignability to the extent permitted by licensing and gaming regulations.
We are obligated to pursue the gaming business (as hereinbefore described) under
the plan of reorganization approved by the Bankruptcy Court. If this business
does not meet our expectation and does not significantly add to our operation,
once we are no longer under the constraints of the Bankruptcy Court, we may need
to seek other business opportunities which would be compatible to our
operations.
(DELTA) Present Status
--------------
Costs to commerce the gaming business currently consist of salaries, marketing,
and travel. Additional costs, including lease payments, will be incurred upon
servicing our contracts, which will occur after both parties have obtained
required gaming licenses.
The New Mexico Gaming Control Board is currently processing our application for
licensure as a distributor. In connection with this review, we have received
correspondence from them indicating that the process has been significantly
lengthened due to the yet unconcluded SEC investigation (see "Legal
Proceedings"). We are unable to predict with certainty at this time how much
longer the review may take.
. Termination Of Option To Purchase ITB Shares
(DELTA) 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
30
<PAGE>
NPD, Inc. ("NPD"), an affiliated company, controlled by Mr. DeSantis and Anthony
Coelho, one of our former directors. As consideration for this option, which was
to expire on August 29, 1999, we paid NPD $0.2 million in cash 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.
(DELTA) 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 NPD's purchase price to the seller of the ITB shares, and thus we
deposited $2.0 million into a cash collateral account to secure our guarantee.
(DELTA) 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, which
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. As a result,
however, we recognized a loss associated with this transaction of approximately
$1.4 million during the year ended March 31, 1999. This loss was later partially
offset by a $0.5 million gain from the settlement of a related adversary
proceeding. See "Legal Proceedings." In addition, in connection with the
Delaware settlement, we have assumed ITB's office lease in Albuquerque, 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 June 30, 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
31
<PAGE>
Purchase ITB Shares - Related Litigation," we assumed the ITB lease. The lease
terminates on July 31, 2002, and the lease payments are presently $10,130 per
month. Each August 1st, 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 $28,000 for the
fiscal year ended March 31, 1999, compared to $14,000 for the fiscal year ended
March 31, 1998, and $179,000 for the fiscal year ended March 31, 1997.
. Legal Proceedings
On February 16, 1999, we were notified by our counsel that we are subject to an
investigation by the Securities and Exchange Commission (the "SEC") in
connection with certain activities that took place between September 1996 and
September 1997. We and our officers have cooperated with the SEC in its
investigation and have produced documents requested by the SEC, including
documents pertaining to our repurchase of our debentures due in 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 made to him and for indemnity. On July 12, 1999,
the Bankruptcy Court approved a Motion to Approve Compromise (the "Motion")
filed on June 4, 1999, to resolve the adversary claim. The Motion provides
for cancellation of debts owed by us to Mr. DeSantis of $256,230; the
contribution to us 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 us; the indemnification
of Mr. DeSantis by us from liability up to $350,000 under a Non-Compete
Agreement between Mr. DeSantis and a third party, dated March 1995; and the
release of any rights we have against Mr. DeSantis with respect to our
contingent rights to 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. We have determined that the total net effect of this
adversary settlement results in an approximate $0.5 million increase in 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, we filed an adversary claim against Express Scripts, Inc.,
for declaratory judgment with regard to a non-compete agreement with Mr.
DeSantis dated March 5, 1995. We are presently in negotiation with Express
Scripts regarding a resolution of the issue. A scheduling conference was
held on September 10, 1999; discovery is presently stayed pending settlement
discussions.
On July 2, 1999, we filed a Motion for Final Decree to close the bankruptcy
estate. One objection
32
<PAGE>
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.
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
Philip J. Vitale, M.D. 52 1992 Director
Jeffrey Ovington 47 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 -
Termination of Option to Purchase ITB Shares). He also is President and Chairman
of the Board of NPD, Inc., a private company that owned an approximately 25
percent interest in ITB. 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).
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 $115,000 per year, and provides for severance pay under
certain conditions.
. Summary Compensation Table
The following table states information concerning the compensation paid for
fiscal years ended March 31, 1999, 1998, and 1997, to persons who served as our
Chairman of the Board, President, and Chief
33
<PAGE>
Executive Officer, and as Executive Vice President and Treasurer during fiscal
year 1999. We had no other executive officer serving at the end of fiscal year
1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
All other
Name and Principal Compen
Position Annual Compensation Long Term Compensation sation ($)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Awards Payout
- ----------------------------------------------------------------------------------------------------------------------------
Other
Fiscal Annual Restricted Securities
Year Compen Stock Underlying
Ended -sation Award(s) Options/ LTIP
March Salary ($) Bonus ($) ($) (1) ($) SARs (#) Payout ($)
31
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nunzio P. DeSantis
Chairman of the Board, 1999 $ 18,269(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) Except as indicated, 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 or $50,000.
(2) Of the $237,500 for fiscal year 1999 salary that was originally listed
for Mr. DeSantis, only $18,269 was actually paid to him; the other
$219,231 was accrued as a contingent liability as of March 31, 1999.
However, this unpaid, accrued salary was later canceled as part of the
settlement of the adversary claim against Mr. DeSantis, for which the
Court order became final on July 26, 1999 (see "Legal Proceedings").
(3) Of the fiscal year 1999 compensation listed for Mr. Ovington, only
$134,916 has actually been paid to date; the remainder has been
accrued as a contingent liability.
. Options
The following table states information concerning stock option grants during
fiscal 1998 to the persons named in the Summary Compensation Table above. Also
in accordance with the SEC rules, the hypothetical gains or "option spreads" for
each option grant are shown based on compound annual rates of stock price
appreciation of 5 and 10 percent from the grant date to the expiration date. The
assumed rates of growth are prescribed by the SEC and are for illustration only;
they do not predict future stock prices, which will depend upon market
conditions and our future performance.
34
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
for Option Term
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options/to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/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 $4.00 per share.
. FISCAL YEAR-END OPTION VALUES - 1999
The following table provides information concerning fiscal year-end values of
unexercised options held by persons named in the Summary Compensation Table
above. Those persons exercised no options during fiscal year 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)
- -------------------------------------------------------------------------------------------------------------------
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 by March 4, 2000.
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
were canceled. 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 his shares available, but we have no information
regarding any other persons' intentions.
Since the total number of shares outstanding post-confirmation could vary from
about 1.5 million to 9 million, predicting the percentage share of a particular
holding or purchase is speculative. The primary variable affecting the number of
shares post-confirmation is the degree of participation and capital contribution
by holders of old common and preferred Stock and warrants and options.
35
<PAGE>
In accordance with the plan of reorganization, the former debenture holders will
be issued, in aggregate, approximately 1.0 million shares of new common stock.
There are approximately a half dozen former debenture holders who chose to
receive stock as part of their payment option. The largest such holder may have
approximately 66 percent of these shares issued to debenture holders, and the
second largest holder may have approximately 25 percent of the 1.0 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 $1.1 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. For additional information, see footnote 5 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 September 9, 1999, all Section 16(a) filing requirements
applicable to our officers, directors, and greater than 10 percent beneficial
owners were complied with.
DISCLOSURE OF SEC 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 any
public company's directors, officers, and controlling persons
36
<PAGE>
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 from 1.5
million to 9 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")
. 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:
(DELTA) subject to redemption at certain times and at certain prices;
(DELTA) entitled to receive dividends (either cumulative or non-cumulative)
and the terms of the dividends;
(DELTA) entitled to certain rights upon our dissolution or distribution of our
assets;
37
<PAGE>
(DELTA) 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.
EXPERTS
Our audited financial statements as of March 31, 1999 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, independent certified
public accountants, appearing elsewhere herein, and upon the authority of this
firm as an expert in accounting and auditing.
Our consolidated statements of operations, stockholders' equity/(deficit) and
cash flows and schedule for the year ended March 31, 1997 have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing. This
report of KPMG LLP contains an explanatory paragraph that states that the
Company's recurring losses from operations and net capital deficiency raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements and schedule do not include any adjustments
that might result from the outcome of that uncertainty.
38
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Annual Financial Statements: Pages
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets.................................. F-5
Consolidated Statements of Operations........................ F-6
Consolidated Statements of Stockholders' Equity/(Deficit).... F-8
Consolidated Statements of Cash Flow......................... F-9
Notes to Consolidated Financial Statements................... F-11
Schedule II - Valuation and Qualifying Accounts.............. S-1
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
AutoLend Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of AutoLend Group,
Inc. and subsidiaries (the Company), as of March 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity/(deficit),
and cash flows for the twenty-six days ended March 31, 1999 and the eleven
months and five days ended March 5, 1999, and for the year ended March 31, 1998.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
March 31, 1999 and 1998, and the results of its operations and its cash flows
for the twenty-six days ended March 31, 1999 and the eleven months and five days
ended March 5, 1999 and for the year ended March 31, 1998 in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The related 1999 and 1998
financial statement schedule on page S.1 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements, and in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
F-2
<PAGE>
Board of Directors and Stockholders
of AutoLend Group, Inc. and Subsidiaries
The accompanying 1999 and 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. The
Company's Plan of Reorganization was confirmed on February 3, 1999 and became
effective March 5, 1999. In addition, the Company has suffered recurring losses
from operations 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 1999 and 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
May 7, 1999
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AutoLend Group, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of AutoLend Group, Inc. and
subsidiaries for the year ended March 31, 1997. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedule for the year ended March 31, 1997 listed in the accompanying
index. These consolidated financial statements and 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 consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of AutoLend Group, Inc. and subsidiaries for the year ended March 31, 1997, 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, presents fairly,
in all material respects, the information set forth therein.
The accompanying 1997 consolidated financial statements and related financial
statement schedule have been prepared assuming that the Company will continue as
a going concern. As discussed in Notes 2 and 3 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 Notes 2 and 3. The
1997 accompanying consolidated financial statements and related financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
Albuquerque, New Mexico
May 16, 1997
F-4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
March 31, (unaudited)
---------------------------- ---------------------------
Registrant | Predecessor Registrant | Predecessor
1999 | 1998 1999 | 1998
----------- | ------------ ------------ | ------------
<S> <C> | <C> <C> | <C>
Assets: | |
Cash $ 2,146,759 | $ 769,736 $ 1,430,454 | $ 859,885
Restricted cash 2,791,178 | - 1,165,500 | -
----------- | ------------ ------------ | ------------
Cash and cash equivalents $ 4,937,937 | $ 769,736 $ 2,595,954 | $ 859,885
Other receivables 44,741 | 46,011 4,044 | 46,170
Prepaid expenses 16,669 | 167,381 8,612 | 67,041
Installment contracts receivable, net 53,795 | 296,209 38,769 | 176,143
Purchased insurance policies, net 126,650 | 329,193 94,670 | 329,193
Fixed assets, net 17,489 | 39,611 12,811 | 29,718
ITB Option, net - | 425,000 - | 425,000
Escrow deposit - | 2,000,000 - | 2,000,000
Interest on escrow deposit - | 62,060 - | 87,060
Note receivable - NPD, Inc. - | 3,035,292 - | 3,035,292
Interest receivable on note receivable - NPD, Inc. - | 219,215 - | 295,098
Securities in IAP, net - | 250,000 - | 615,000
Other assets - | - 54,437 | -
----------- | ------------ ------------ | ------------
Total assets $ 5,197,281 | $ 7,639,708 $ 2,809,297 | $ 7,965,600
=========== | ============ =========== | ============
Liabilities: | |
Liabilities subject to compromise: | |
Accounts payable $ - | $ 55,276 $ - | $ 91,048
Accrued interest expensed 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 - | 1,434,944
----------- | ------------ ------------ | ------------
Total liabilities subject to compromise - | 10,088,039 - | 10,123,811
----------- | ------------ ------------ | ------------
Liabilities not subject to compromise: | |
Accounts payable - debenture holders 3,043,250 | - 1,165,500 | -
Accounts payable 84,768 | 95,135 120,689 | 230,247
Accrued contingent legal fees 270,713 | - 142,398 | -
Accrued contingent payroll 406,107 | - 406,107 | -
Accrued liabilities 55,814 | 79,674 34,658 | 131,495
Other contingent liabilities 244,867 | - 186,079 | -
Note payable - debenture holders 523,300 | - 523,300 | -
Accrued interest expense on debentures - | 364,160 - | 535,754
Note payable - NPD, Inc. - | 425,000 - | 425,000
Accrued interest - NPD, Inc. - | 25,667 - | 36,292
----------- | ------------ ------------ | ------------
Total liabilities not subject to compromise 4,628,819 | 989,636 2,578,731 | 1,358,788
----------- | ------------ ------------ | ------------
Total liabilities $ 4,628,819 | $ 11,077,675 $ 2,578,731 | $ 11,482,599
----------- | ------------ ------------ | ------------
Stockholders' Equity/(Deficit): | |
Preferred stock, $.002 par value. Authorized 5,000,000 | |
shares; 57,800 issued and outstanding at March 31, 1998 | |
and June 30, 1998 $ - | $ 116 $ - | $ 116
Common stock, $.002 par value. Authorized 40,000,000 | |
shares; issued and outstanding 6,079,530 shares at | |
March 31, 1998 and June 30, 1998 - | 12,158 - | 12,158
Common stock, $.002 par value. Authorized 40,000,000 | |
shares; issuable 1,040,000 shares at March 31, 1999 | |
and June 30, 1999 2,080 | - 2,080 | -
Additional paid-in capital 690,033 | 20,459,946 690,033 | 20,459,946
Unrealized holding loss - | (590,000) - | (225,000)
Accumulated deficit (123,651) | (23,320,187) (461,547)| (23,764,219)
----------- | ------------ ------------ | ------------
Total stockholders' equity/(deficit) $ 568,462 | $ (3,437,967) $ 230,566 | $ (3,516,999)
----------- | ------------ ------------ | ------------
Total liabilities and stockholders' equity $ 5,197,281 | $ 7,639,708 $ 2,809,297 | $ 7,965,600
=========== | ============ =========== | ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Registrant Predecessor
---------------- | ----------------------------------------------------
Twenty-six | Eleven months and
days ended | five days ended Years ended March 31:
March 31, 1999 | March 5, 1999 1998 1997
---------------- | ------------------- --------------- ---------------
<S> <C> | <C> <C> <C>
Revenues: |
Finance charges on installment contracts $ 9,322 | $ 108,141 $ 587,616 $ 1,670,663
Revenues from matured insurance policies - | 940,228 69,109 505,292
---------------- | ------------------- --------------- ---------------
|
Gross revenues 9,322 | 1,048,369 656,725 2,175,955
Cost of matured insurance policies - | (692,400) (60,125) (101,285)
---------------- | ------------------- --------------- ---------------
|
Total net revenues $ 9,322 | $ 355,969 $ 596,600 $ 2,074,670
|
General and administrative expenses (64,201)| (1,698,089) (2,106,636) (5,851,888)
Loan loss recovery, net 24,000 | 375,000 41,000 (3,625,078)
---------------- | ------------------- --------------- ---------------
|
Operating loss $ (30,879)| $ (967,120) $ (1,469,036) $ (7,402,296)
---------------- | ------------------- --------------- ---------------
|
Other income/(expense): |
Interest income: |
Interest income on cash and cash equivalents 20,766 | 106,338 207,116 333,251
Interest on escrow - | 84,712 - -
NPD, Inc., note receivable - | 278,235 219,215 -
Other income/(expense) 37,200 | (51,265) (204,128) (212,118)
Realized gain/(loss) on sale of securities, net - | (25,440) - (49,853)
Interest expense: |
Debentures - | (638,710) (881,918) (2,148,914)
NPD, Inc., note payable - | (38,958) (25,667) -
Other - | - (27,082) -
Recovery/(write-down) of purchased insurance policies - | 536,390 (131,772) (925,300)
Gain/(loss) on lease termination - | (64,725) 266,378 (516,000)
Write-down of AutoLend IAP, Inc., securities - | - (160,000) (200,000)
Write-off fixed assets - | (4,570) (3,720) (667,238)
Debenture conversion charge - | - (6,261,052) -
Debenture loan discount amortization - | - - -
|
---------------- | ------------------- -------------- ---------------
Total net other income/(expense) $ 57,966 | $ 182,007 $ (7,002,630) $ (4,386,172)
---------------- | ------------------- -------------- ---------------
|
Income/(loss) before reorganization costs, |
benefit from income taxes, discontinued operations, |
and extraordinary items 27,087 | (785,113) (8,471,666) (11,788,468)
Reorganization costs incurred during Chapter |
11 proceedings (150,738)| (340,829) (211,667) -
Loss on settlement ITB/NPD - | (1,368,117) -
---------------- | ------------------- -------------- ---------------
|
Loss before benefit from income taxes, discontinued |
operations, and extraordinary items (123,651)| (2,494,059) (8,683,333) (11,788,468)
Benefit from income taxes - | - - 86,082
---------------- | ------------------- -------------- ---------------
|
Loss before discontinued operations, and |
extraordinary items (123,651)| (2,494,059) (8,683,333) (11,702,386)
|
Discontinued operations: |
Loss from operations of discontinued |
subsidiary, net of income tax benefit |
of $78,805 - | - - (152,973)
Gain on sale of subsidiary net of income tax expense |
of $164,887 - | - - 320,074
---------------- | ------------------- -------------- ---------------
|
Loss before extraordinary items (123,651)| (2,494,059) (8,683,333) (11,535,285)
|
Extraordinary items: |
Gain as result of reorganization-debentures - | 5,342,026 - -
Gain on early extinguishment of debt, net of |
amortization of deferred costs of $57,000 - | - 3,171,524 -
---------------- | ------------------- -------------- ---------------
Net income/(loss) $ (123,651)| $ 2,847,967 $ (5,511,809) $ (11,535,285)
================ | =================== ============== ===============
<CAPTION>
Unaudited
--------------------------------
Three months ended June 30:
Registrant Predecessor
1999 1998
-------------- | ---------------
<S> <C> | <C>
Revenues: |
Finance charges on installment contracts $ 6,917 | $ 42,305
Revenues from matured insurance policies 85,421 | 5,000
-------------- | ---------------
|
Gross revenues 92,338 | 47,305
Cost of matured insurance policies (31,980)| -
-------------- | ---------------
|
Total net revenues $ 60,358 | $ 47,305
|
General and administrative expenses (409,990)| (385,501)
Loan loss recovery, net 60,091 | 102,000
-------------- | ---------------
|
Operating loss $ (289,541)| $ (236,196)
-------------- | ---------------
|
Other income/(expense): |
Interest income: |
Interest income on cash and cash equivalents 48,721 | 30,212
Interest on escrow - | -
NPD, Inc., note receivable - | 75,882
Other income/(expense) - | -
Realized gain/(loss) on sale of securities, net - | -
Interest expense: |
Debentures - | (171,594)
NPD, Inc., note payable - | (10,625)
Other - | -
Recovery/(write-down) of purchased insurance |
policies - | -
Gain/(loss) on lease termination - | -
Write-down of AutoLend IAP, Inc., securities - | -
Write-off fixed assets - | (4,570)
Debenture conversion charge - | -
Debenture loan discount amortization (8,069)| -
-------------- | ---------------
Total net other income/(expense) $ 40,652 | $ (80,695)
-------------- | ---------------
|
Income/(loss) before reorganization costs, |
benefit from income taxes, discontinued operations |
and extraordinary items (248,889)| (316,891)
Reorganization costs incurred during Chapter |
11 proceedings (89,007)| (127,144)
Loss on settlement ITB/NPD - | -
-------------- | ---------------
|
Loss before benefit from income taxes, discontinued |
operations, and extraordinary items (337,896)| (444,035)
Benefit from income taxes - | -
-------------- | ---------------
|
Loss before discontinued operations, and |
extraordinary items (337,896)| (444,035)
|
Discontinued operations: |
Loss from operations of discontinued |
subsidiary, net of income tax benefit |
of $78,805 - | -
Gain on sale of subsidiary net of income tax expense |
of $164,887 - | -
-------------- | ---------------
|
Loss before extraordinary items (337,896)| (444,035)
|
Extraordinary items: |
Gain as result of reorganization-debentures - | -
Gain on early extinguishment of debt, net of |
amortization of deferred costs of $57,000 - | -
-------------- | ---------------
Net income/(loss) $ (337,896)| $ (444,035)
============== | ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations - continued
<TABLE>
<CAPTION>
Registrant Predecessor
----------------- | --------------------------------
Twenty-six | Eleven months and
days ended | five days ended
March 31, 1999 | March 5, 1999 1998
----------------- | -------------------- -----------
<S> <C> | <C> <C>
Loss per share before discounted operations and |
extraordinary items $ (0.12) | $ (0.41) $ (1.44)
|
Discontinued operations - | - -
------------- | -------------- -----------
|
Loss per share before extraordinary items (0.12) | (0.41) (1.44)
|
Extraordinary items: |
Gain as a result of reorganization-debentures - | 0.88 -
Gain on early extinguishment of debt - | - 0.53
------------- | -------------- -----------
|
Net income/(loss) $ (0.12) | $ 0.47 $ (0.91)
============= | ============== ===========
|
Weighted average number of common and common |
equivalent shares outstanding - | 6,079,530 6,039,391
============= | ============== ===========
|
Weighted average number of common and common |
equivalent shares issuable (Note 14) 1,040,000 | - -
============= | ============== ===========
<CAPTION>
Unaudited
--------------------------------
Three months ended June 30:
Years ended March 31: Registrant Predecessor
1997 1999 1998
-------------------- ------------ | -----------
<S> <C> <C> | <C>
Loss per share before discounted operations and |
extraordinary items $ (2.53) $ (0.32) | $ (0.07)
|
Discontinued operations 0.04 - | -
------------ ------------ | -----------
|
Loss per share before extraordinary items (2.49) (0.32) | (0.07)
|
Extraordinary items: |
Gain as a result of reorganization-debentures - - | -
Gain on early extinguishment of debt - - | -
------------ ------------ | -----------
|
Net income/(loss) $ (2.49) $ (0.32) | $ (0.07)
============ ============ | ===========
|
Weighted average number of common and common |
equivalent shares outstanding 4,634,530 - | 6,079,530
============ ============ | ===========
|
Weighted average number of common and common |
equivalent shares issuable (Note 14) - 1,040,000 | -
============ ============ | ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity/(Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
--------------- ------------
Additional Other
# of $ # of $ Paid-in Comprehensive Accumulated
Shares Amount Shares Amount Capital Income Equity/(Deficit) Total
------ ------ ------ ------ ------- ------ ---------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 - $ - 4,634,530 $ 9,269 $ 5,946,904 $ - $ (6,273,093) $ (316,920)
Net loss - - - - - - (11,535,285) (11,535,285)
--------- -------- ---------- -------- ------------ --------- ------------- ------------
Balance at March 31, 1997 - - 4,634,530 9,269 5,946,904 - (17,808,378) (11,852,205)
Common and preferred shares
issued in 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 (590,000) (23,320,187) (3,437,967)
Comprehensive income:
Net income eleven months and
five days ended March 5, 1999 - - - - - - 2,847,967 2,847,967
Other comprehensive income;
Unrealized loss on marketable
securities net of
reclassification adjustment - - - - - 590,000 - 590,000
--------- -------- ---------- -------- ------------ --------- ------------- ------------
Comprehensive income - - - - - 590,000 2,847,967 3,437,967
Retirement of old common and
preferred stock according
to the Plan of Reorganization (57,800) (116) (6,079,530) (12,158) (20,459,946) - - (20,472,220)
Application of fresh-start - - - - - - 20,472,220 20,472,220
Issuable new common stock
according to the Plan of
Reorganization - - 1,040,000 2,080 690,033 - - 692,113
--------- -------- ---------- -------- ------------ --------- ------------- ------------
Balance at March 5, 1999 - - 1,040,000 2,080 690,033 - - 692,113
Comprehensive income:
Net loss for the twenty-six
days ended March 31, 1999 - - - - - - (123,651) (123,651)
--------- -------- ---------- -------- ------------ --------- ------------- ------------
Balance at March 31, 1999 - $ - 1,040,000 $ 2,080 $ 690,033 $ - $ 2,724,316 $ 568,462
========= ======== ========== ======== ============ ========= ============= ============
Net loss, three months ended June
30, 1999 (unaudited) - $ - - $ - $ - $ - $ (337,896) $ (337,896)
--------- -------- ---------- -------- ------------ --------- ------------- ------------
Balance at June 30, 1999
(unaudited) - $ - 1,040,000 $ 2,080 $ 690,033 $ - $ (461,547) $ 230,566
========= ======== ========== ======== ============ ========= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Registrant Predecessor
----------------- -----------------------------------------------------
Twenty-six | Eleven months and
days ended | five days ended Years ended March 31:
March 31, 1999 | March 5, 1999 1998 1997
---------------- |------------------- --------------- --------------
<S> <C> |<C> <C> <C>
Cash flow from operating activities: |
Net income/(loss) $ (123,651)|$ 2,847,967 $ (5,511,809) $ (11,535,285)
Adjustments to reconcile net loss to net cash |
flow from operating activities: |
Amortization of intangible assets and debt |
issuance costs - | - 56,443 242,777
Depreciation expense 1,603 | 18,449 24,464 104,156
Gain on early extinguishment of debt, net of |
amortization - | - (3,171,524) -
Charge for debenture conversion, net of |
amortization - | - 6,261,052 -
Loss on settlements ITB/NPD - | 1,368,117 - -
Gain as a result of reorganization-debentures - | (5,342,026) - -
Loss/(gain) on lease termination - | - (266,378) -
Insurance policy write-down recapture - | (536,390) - -
Loan loss recovery, net (24,000)| (375,000) (41,000) 3,625,078
Write-off of fixed assets - | 4,570 3,720 667,238
Write-down of purchased insurance policies - | - 131,772 925,300
Write-down of IAP, Inc. securities - | - 160,000 200,000
Realized loss on sale of IAP, Inc. securities - | 25,440 - -
Realized gains/(losses) on securities available for |
sale - | - - 49,853
Gain on sale of subsidiary, IAP, Inc. - | - - (986,961)
Gain on sale of assets - | - - -
Provision for estimated legal fees and settlement |
costs - | - 200,000 -
Change in net assets of discontinued operations - | - - (1,008,078)
Changes in assets and liabilities: |
Prepaid expenses - | 150,712 (100,567) -
Accounts receivable-matured insurance policies (203)| 739,136 - 1,357,947
Installment contracts receivable 29,376 | 612,038 1,839,844 5,878,710
Interest on escrow deposit - | - (62,060) -
Interest receivable on note receivable - NPD, Inc. - | (216,175) (219,215) -
Purchased insurance policies - | - 52,425 6,494
Consulting agreement - | - 140,000 -
Other assets (38,430)| 39,700 33,101 107,469
Accounts payable and accrued liabilities (1,567,500)| 964,740 (1,719,080) 1,231,445
Accrued interest expense - | 677,668 907,585 2,094,751
Other liabilities - | - 578,402 -
---------------- |------------------- --------------- --------------
Cash provided/(used) by operating activities $ (1,722,805)|$ 978,946 $ (702,825) $ 2,960,894
---------------- |------------------- --------------- --------------
Cash flow from investing activities: |
IAP, Inc. securities $ - |$ 614,560 $ - $ -
Funding of escrow - | - (2,000,000) -
Proceeds from escrow - | 2,000,000 - -
Proceeds from ITB/NPD settlement - | 2,300,000 - -
Loan to NPD - | - (3,035,292)
Purchase ITB stock option - | - (200,000)
Proceeds from sale of securities available for sale - | - - 125,000
Proceeds from disposition of IAP, Inc. - | - - 5,963,388
Proceeds from sale of fixed assets - | - - 185,995
Purchase of fixed assets - | (2,500) - (4,075)
---------------- |------------------- --------------- --------------
Cash provided/(used) by investing activities $ - |$ 4,912,060 $ (5,235,292) $ 6,270,380
---------------- |------------------- --------------- --------------
Cash flow from financing activities: |
Early extinguishment of debt $ - |$ - $ 5,692,079 $ -
Payments to Debenture holders $ - |$ - $ - $ -
---------------- |------------------ --------------- --------------
Cash provided (used) in financing activities $ - |$ - $ 5,692,079 $ -
---------------- |------------------ --------------- --------------
|
Net increase/(decrease) in cash and cash equivalents $ (1,722,805)|$ 5,891,006 $ (11,630,196) $ 9,231,202
Cash and cash equivalents at beginning of period $ 6,660,742 |$ 769,736 $ 12,399,932 $ 3,168,730
---------------- |---------------- --------------- --------------
Cash and cash equivalents at end of period $ 4,937,937 |$ 6,660,742 $ 769,736 $ 12,399,932
================ |================ =============== ==============
<CAPTION>
Unaudited
---------------------------------------
Three months ended June 30:
Registrant Predecessor
1999 1998
---------------- | ------------------
<S> <C> | <C>
Cash flow from operating activities: |
Net income/(loss) $ (337,896) | $ (444,035)
Adjustments to reconcile net loss to net cash |
flow from operating activities: |
Amortization of intangible assets and debt |
issuance costs - | -
Depreciation expense 4,678 | 5,323
Gain on early extinguishment of debt, net of |
amortization - | -
Charge for debenture conversion, net of |
amortization - | -
Loss on settlements ITB/NPD - | -
Gain as a result of reorganization-debentures - | -
Loss/(gain) on lease termination - | -
Insurance policy write-down recapture - | -
Loan loss recovery, net (60,091) | (102,000)
Write-off of fixed assets - | 4,570
Write-down of purchased insurance policies - | -
Write-down of IAP, Inc. securities - | -
Realized loss on sale of IAP, Inc. securities - | -
Realized gains/(losses) on securities available for |
sale - | -
Gain on sale of subsidiary, IAP, Inc. - | -
Gain on sale of assets - | -
Provision for estimated legal fees and settlement |
costs - | -
Change in net assets of discontinued operations - | -
Changes in assets and liabilities: |
Prepaid expenses 8,057 | 100,340
Accounts receivable-matured insurance policies - | -
Installment contracts receivable 75,117 | 222,066
Interest on escrow deposit - | (25,000)
Interest receivable on note receivable - NPD, Inc. - | (75,882)
Purchased insurance policies 31,980 | -
Consulting agreement - | -
Other assets (13,740) | (157)
Accounts payable and accrued liabilities (172,338) | 222,705
Accrued interest expense - | 182,219
Other liabilities - | -
---------------- | ------------------
Cash provided/(used) by operating activities $ (464,233) | $ 90,149
---------------- | ------------------
Cash flow from investing activities: |
IAP, Inc. securities $ - | $ -
Funding of escrow - | -
Proceeds from escrow - | -
Proceeds from ITB/NPD settlement - | -
Loan to NPD - | -
Purchase ITB stock option - | -
Proceeds from sale of securities available for sale - | -
Proceeds from disposition of IAP, Inc. - | -
Proceeds from sale of fixed assets - | -
Purchase of fixed assets - | -
---------------- | ------------------
Cash provided/(used) by investing activities $ - | $ -
---------------- | ------------------
Cash flow from financing activities: |
Early extinguishment of debt $ - | $ -
Payments to Debenture holders $ (1,877,750) | $ -
---------------- | ------------------
Cash provided (used) in financing activities $ (1,877,750) | $ -
---------------- | ------------------
|
Net increase/(decrease) in cash and cash equivalents $ (2,341,983) | $ 90,149
Cash and cash equivalents at beginning of period $ 4,937,937 | $ 769,736
---------------- | ------------------
Cash and cash equivalents at end of period $ 2,595,954 | $ 859,885
================ | ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the eleven months and five days ended March 5, 1999, the following non-
cash investing and financing activities occurred:
The Company converted Debentures with a face value of $7,225,000 and outstanding
interest of $2,375,689 for $3,043,250 cash; uncollateralized notes payable at a
discounted aggregate value of $523,300; 1,040,000 issuable shares of Common
Stock with an aggregate par value of $2,080; and additional paid-in capital of
$690,033. This resulted in an extraordinary gain as a result of reorganization
of $5,342,026.
The ITB/NPD, Inc. settlement was consummated and the Company received $4,446,771
in cash in exchange for the escrow deposit of $2,000,000 and interest of
$146,771; the note receivable - NPD, Inc. of $3,035,292 and interest of
$497,450; the ITB Option net of $200,000 holding losses, for $425,000; and the
note payable - NPD, Inc. of $425,000 and interest of $64,625. This resulted in a
loss of $1,368,117.
As of March 5, 1999, pursuant to the Plan of Reorganization, all outstanding
Common Stock and Preferred Stock, Class A and B Warrants, and Options were
canceled.
There were no non-cash investing or financing activities during the twenty-six
days ended March 31, 1999 or the three months ended June 30, 1999.
During the year ended March 31, 1998, the following non-cash investing and
financing activities occurred:
The Company purchased an Option to acquire stock in exchange for $200,000 cash
and a note payable with an obligation of $425,000. 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.
There were no non-cash investing or financing activities during the three months
ended June 30, 1998.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During the fiscal year ended March 31, 1998, the Company paid $27,082 in
interest. There were no cash payments of interest made during the year ended
March 31, 1999, the three months ended June 30, 1999, or the three months ended
June 30, 1998.
On March 9, 1999, the Company paid $1,525,000 as a result of a litigation
settlement approved by the Bankruptcy Court. This payment was included in the
change in accounts payable and accrued liabilities for the twenty-six days ended
March 31, 1999.
F-10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999, 1998, and 1997
(Information as of June 30, 1999 and 1998, as well as for the
three months then ended is unaudited)
The accompanying consolidated financial statements include the accounts of
AutoLend Group, Inc. and its wholly owned subsidiaries, Autolend Corporation,
American Life Resources Group, Inc., and LB NM, Inc. (collectively, the
"Company").
AutoLend Group, Inc. maintains a residual portfolio of sub-prime, consumer
used-car loans ("Installment Contract Receivables") through its wholly owned
subsidiary, AutoLend Corporation. AutoLend Group, Inc. ceased purchasing
Installment Contract Receivables in December 1995. LB NM, Inc. and American
Life Resources Group, Inc. maintain a residual portfolio of life insurance
policies purchased from persons with life-threatening illnesses, a business
generically referred to as viatical settlements (the "Policies"). Policies
were no longer purchased after September 1994.
The Company's operations for the year ended March 31, 1999 and three months
ended June 30, 1999, have been primarily concentrated on resolving the
bankruptcy, developing a new business in the gaming industry (which is a
division of AutoLend Group, Inc., doing business under the name of Kachina
Gaming), and collecting amounts due from the residual consumer loan
portfolio, as well as the residual policy portfolio.
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation; Going Concern
The accompanying consolidated financial statements of 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.
The Company's consolidated financial statements include the accounts of
AutoLend Group, Inc., and its wholly owned subsidiaries, AutoLend
Corporation, LB NM, Inc., and American Life Resources Group, Inc. No petition
under the United States Bankruptcy Code has been filed for the subsidiaries.
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") on September 22, 1997. On February 3, 1999, the
Bankruptcy Court confirmed a Plan of Reorganization, which became effective
on March 5, 1999. Since that time, the Company is no longer a "Debtor-in-
Possession," and has been operating freely under its Plan of Reorganization.
The Company's consolidated financial statements as of March 31, 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"). 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.
F-11
<PAGE>
The Company filed its first Disclosure Statement and Plan of Reorganization
(jointly, the "Plan") in January 1998. The Disclosure Statement (as subsequently
amended) was approved in September 1998, and the Plan was mailed to creditors
and interest holders in October. Voting was completed in December 1998, and the
Confirmation Hearing was held on February 3, 1999. The judge confirmed the Plan,
which became effective March 5, 1999.
Pursuant to SOP 90-7, the Company adopted fresh-start reporting as of March 5,
1999, the date which gives effect to its emergence from Chapter 11 and
reorganization in that all material conditions required by the Plan were
satisfied. Under fresh-start accounting, all assets and liabilities are restated
to reflect their reorganized value, which approximates fair value. Accordingly,
all allowances for doubtful accounts, accumulated depreciation and asset
reserves were reduced to zero at March 5, 1999. The Company determined that the
fair value of the assets immediately before March 5, 1999, approximated carrying
value and therefore recognized no reorganization value in excess of amounts
allocable to identifiable assets.
Since fresh-start reporting has been reflected in the accompanying consolidated
balance sheets as of March 31, 1999, certain material aspects of the balance
sheets are not comparable to balance sheets of any prior period, since the
balance sheets as of March 31, 1999 are those of a reorganized entity. A "black
line" has been drawn between the Registrant's balance sheet and the Predecessor
Company's balance sheet.
The following journal entries record the provisions of the Plan and adoption of
fresh-start accounting:
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
a) Entry to record ITB and NPD settlement:
Cash and cash equivalents $ 4,446,771 $ -
Escrow deposit - 2,000,000
Interest on escrow deposit - 146,771
Note receivable-NPD, Inc. - 3,035,292
Interest receivable on note receivable-NPD, Inc. - 497,450
ITB Option - 425,000
NPD note 425,000 -
Accrued interest-NPD, Inc. 64,625 -
Unrealized holding loss - 200,000
Loss on settlement ITB/NPD, Inc. 1,368,117 -
b) Entry to record debt forgiveness:
Convertible subordinated debentures 7,225,000 -
Accrued interest expense on debentures (pre-petition) 1,372,819 -
Accrued interest expense on debentures (post-petition) 1,002,870 -
Accounts payable-debenture holders - 3,043,250
Note to debenture holders - 523,300
Common stock (.002) par 1,040,000 shares issuable - 2,080
Additional paid-in capital - 690,033
Gain as result of reorganization-debentures - 5,342,026
c) Entry to record fresh-start accounting:
Common stock (.002) par, 6,079,500 shares 12,158 -
Preferred stock (.002) par, 57,800 shares 116 -
Additional paid-in capital 20,459,946 -
Accumulated deficit - 20,472,220
d) Reclassification of confirmed liabilities:
Accrued liabilities subject to compromise 162,876 -
Accrued liabilities not subject to compromise - 162,876
</TABLE>
F-12
<PAGE>
The effect of the Plan on the Company's balance sheet as of March 5, 1999 is as
follows:
REORGANIZED AUTOLEND GROUP, INC. AND SUBSIDIARIES
Proforma Consolidated Balance Sheet
March 5, 1999
<TABLE>
<CAPTION>
Precon- Reorganization Fresh Reorganize
firmation Adjustments Start Company
--------- ----------- ----- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,213,971 $ 4,446,771 (a) $ - $ 6,660,742
Prepaid expenses 16,669 - - 16,669
Installment contracts receivable 59,171 - - 59,171
ITB Option, net 425,000 (425,000) (a) - -
Escrow deposit 2,000,000 (2,000,000) (a) - -
Interest on escrow deposit 146,771 (146,771) (a) - -
Note receivable - NPD, Inc. 3,035,292 (3,035,292) (a) - -
Interest receivable on note receivable - NPD, Inc. 497,450 (497,450) (a) - -
Purchased insurance policies, net 126,447 - - 126,447
Fixed assets, net 19,092 - - 19,092
Other receivables 6,311 - - 6,311
--------------- ----------- ------------ -----------
Total assets $ 8,546,174 $(1,657,742) $ - $ 6,888,432
=============== =========== ============ ===========
Liabilities:
Liabilities subject to compromise:
Accounts payable $ 97,079 $ - $ - $ 97,079
Accrued liabilities 162,876 (162,876) (d) - -
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 (8,760,695) - 1,622,079
--------------- ----------- ------------ -----------
Liabilities not subject to compromise:
Accounts payable 159,685 - - 159,685
Accounts payable - debenture holders - 3,043,250 (b) - 3,043,250
Contingent liabilities - reorganization 205,304 - - 205,304
Accrued liabilities 479,825 162,876 (d) - 642,701
Accrued interest expense on debentures
(post-petition) 1,002,870 (1,002,870) (b) - -
Note to debenture holders - 523,300 (b) - 523,300
NPD, Inc. note 425,000 (425,000) (a) - -
Accrued interest - NPD, Inc. 64,625 (64,625) (a) - -
--------------- ----------- ------------- -----------
Total liabilities not subject to compromise 2,337,309 2,236,931 - 4,574,240
--------------- ----------- ------------- -----------
Total liabilities $ 12,720,083 $(6,523,764) $ - $ 6,196,319
=============== =========== ============= ===========
Stockholders' Equity/(Deficit):
Preferred stock, $.002 par value. Authorized 5,000,000
shares; 57,800 issued and outstanding $ 116 $ - $ (116)(c) $ -
Common stock, $.002 par value. Authorized 40,000,000
shares; 6,079,530 issued 12,158 - (12,158)(c) -
Common stock $.002 par value. Authorized 40,000,000
shares; 1,040,000 issuable - 2,080 (b) - 2,080
Additional paid-in capital 20,459,946 690,033 (b) (20,459,946)(c) 690,033
Unrealized holding loss (200,000) 200,000 (a) - -
Accumulated deficit (24,446,129) 3,973,909 (a)(b) 20,472,220 (c) -
--------------- ----------- ------------- -----------
Total stockholders' equity/(deficit) $ (4,173,909) $ 4,866,022 $ - $ 692,113
--------------- ----------- ------------- -----------
Total liabilities and stockholders' equity/(deficit) $ 8,546,174 $(1,657,742) $ - $ 6,888,432
=============== =========== ============= ===========
</TABLE>
F-13
<PAGE>
(b) Interim Financial Information
The financial information as of June 30, 1999 and 1998, and for the three 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) Basis of Accounting
The Company's consolidated financial statements have been prepared on the
accrual basis of accounting.
(d) Balance Sheet Classification
The accompanying consolidated balance sheets have been presented as
nonclassified. However, assets and liabilities are presented in order of
liquidity.
(e) Consolidation Policy
Intercompany transactions and balances have been eliminated in consolidation.
(f) Cash and Cash Equivalents
Cash and cash equivalents include debt securities, which mature in 90 days or
less from the date of acquisition.
(g) 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.
(h) Recent Accounting Pronouncements and Developments
The Company adopted Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 requires disclosures of the pertinent rights and privileges
of various securities outstanding (stock options, warrants, preferred stock,
debt, and participation rights), including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices, and
redemption requirements. Adoption of SFAS 129 has no effect on the Company,
since it currently discloses that information.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires that all
components of comprehensive income and total comprehensive income be reported on
one of the following: a statement of income and comprehensive income, a
statement of comprehensive income, or a statement of stockholders' equity.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid in capital)
and distributions to owners (dividends).
F-14
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise ("SFAS 131"). SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas, and major customers. SFAS 131 defines
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in allocating resources and assessing performance. The Company
has generally ceased its current business segments and is primarily
concentrating on the acquisition or development of new business directions.
Therefore, SFAS 131 has no effect on the Company's current disclosures.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. The Company currently
does not utilize any derivative or hedging instruments and therefore believes
that there will be no impact from SFAS 133 on the Company's earnings.
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), is effective for fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs and requires costs of start-up activities and organization
costs to be expensed as incurred. In conjunction with the adoption of
fresh-start accounting, the Company adopted the provisions of SOP 98-5 early,
with no significant impact on its consolidated financial statements.
(i) 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
Receivable 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 then
recognized. 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 portfolio, including specific impaired
loans, and evaluation of potential losses, which considers such factors as
current delinquency data, changes in the portfolio, aging, collateral values, or
present value of estimated cash flows. The allowance for credit losses is
established through provisions charged to income, and 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 any Installment Contract Receivables portfolio. As a result, the aggregate
losses ultimately incurred by the Company for the Installment
F-15
<PAGE>
Contract Receivables portfolio may differ from the allowance for credit losses
in the accompanying consolidated 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, as well as at June 30, 1999
and 1998. Due to fresh-start accounting, there was no allowance at March 31,
1999.
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
consolidated 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 consolidated 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.
(j) Debt Issuance Cost Amortization
Debt issuance costs are amortized over the life of the related debt. At March
31, 1999 and 1998, as well as at June 30, 1999 and 1998, all debt issuance costs
had been fully amortized.
(k) 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.
(l) Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
Installment Contract Receivables, purchased Policies, accounts payable, accrued
liabilities, and the notes payable to the Debenture holders. The fair values of
these financial instruments have been determined using available market
information and interest rates as of March 31, 1999. All of the Company's
financial instruments are held for non-trading purposes.
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
F-16
<PAGE>
Company's ability to continue as a going concern. The Company's management was
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 values.
(m) Earnings per Share
Primary earnings per share amounts are computed based on the weighted average
number of shares issuable for the twenty-six days ended March 31, 1999 and the
three months ended June 30, 1999, which was 1,040,000, and on the weighted
average number of shares outstanding for the eleven months and five days ended
March 5, 1999, which was 6,079,530, and on the weighted average number of shares
outstanding for 1998 and 1997, which were 6,039,391 and 4,634,530 shares,
respectively. There were no Options or Warrants outstanding at March 31, 1999
and June 30, 1999. However, the effects of the rights of the holders of old
Options and Warrants pursuant to the Plan of Reorganization were anti-dilutive.
At March 31, 1998 and June 30, 1998, Options and Warrants outstanding totaled
6,323,500. At March 31, 1998 and June 30, 1998, the effects of Options and
Warrants outstanding were anti-dilutive. At March 31, 1997, Options and Warrants
outstanding totaled 3,483,500 and were anti-dilutive. Therefore, fully diluted
earnings per share amounts are not presented because they do not differ
significantly from primary earnings per share.
(n) 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, 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.
(2) Voluntary Bankruptcy and Plan of Reorganization
On September 22, 1997, AutoLend Group, Inc. filed for protection under Chapter
11 of the United States Bankruptcy Court due to its inability to make scheduled
principal and interest payments on its Debentures.
The related Disclosure Statement was approved by the Bankruptcy Court in
September 1998 and, together with its Plan of Reorganization ("the Plan"), was
mailed to its creditors and other interest holders in October 1998. They
approved the Plan and on February 3, 1999, the Bankruptcy Court confirmed the
Plan, which became effective on March 5, 1999. Since then, the Company is no
longer a "Debtor-in-Possession," and has been operating freely under its Plan of
Reorganization. The confirmed Plan provided for the following:
Class of unsecured creditors - These creditors have now received 100 percent
----------------------------
of their allowed claims.
Holders of Debentures - will receive 1,040,000 shares of new Common Stock,
---------------------
plus aggregate up-front cash payments of $3,043,250 and notes payable in the
aggregate amount of $624,000 (undiscounted) in exchange for $7,225,000 in
principal value of Debenture debt and $2,375,689 in accrued interest (see Note
17). As of August 31, 1999, approximately $2.7 million of the $3.0 million in
cash has already been disbursed and the Company anticipates that most of the
remainder will be disbursed by September 30, 1999.
Holders of Old Common Stock - will have the right to purchase up to one share
---------------------------
of new Common Stock for each share of old Common Stock they own, for $1.00 per
new common share. These holders have 60 days following
F-17
<PAGE>
the effective date of the Registration Statement to elect their purchase.
Holders of Old Preferred Stock - will have the right to purchase up to 100
------------------------------
shares of new Common Stock for each share of Preferred Stock they own, for
$1.00 per new common share. These holders have 60 days following the effective
date of the Registration Statement to elect their purchase.
Holders of New Common Stock - will have the right to purchase a pro rata
---------------------------
portion of the aggregate number of shares of 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 to purchase any amount of any remaining shares of new Common Stock,
not otherwise purchased by holders of new Common Stock, on a pro rata basis at
$1.00 per share. These holders can exercise their rights 61 to 90 days
following the effective date of the Registration Statement.
Holders of Class A and Class B Warrants - For one year after March 5, 1999,
---------------------------------------
holders of Class A and Class B Warrants may purchase up to the same number of
shares of new Common Stock that they could have purchased of the old Common
Stock pursuant to the Warrants, for $4.00 per new Common Share.
Holders of Options - For one year after March 5, 1999, holders of Options to
------------------
purchase shares of old Common Stock may purchase the same number of shares of
new Common Stock that they could have purchased of old Common Stock pursuant
to their Options, for $4.00 per new Common Share.
(3) Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company's future viability
is dependent upon its ability to meet its future capital and financing
requirements and the success of future operations. The Company's Plan proposes
developing a new business, which consists primarily of providing gaming devices
and machines to certain non-profit organizations in New Mexico. The Company
cannot, however, assure the future profitability and magnitude of the gaming
business or any other business it may pursue, as they are yet unproven. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
(4) Debentures and Exchange Offer
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"). On April 8, 1997, the Exchange
Offer expired, and the Company issued an aggregate of 1.4 million shares of its
Common Stock and 57,800 shares of its Preferred Stock in exchange for $7.2
million 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, during
the year ended March 31, 1998, the Company recorded 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
F-18
<PAGE>
on March 31, 1998, was $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. Effective March 5, 1999, in
conjunction with the Company's Plan, all remaining Debentures, and any interest
accrued thereon, were canceled.
(5) Termination of Option to Purchase ITB Shares
The Option - In August 1997, the Company was granted an Option to purchase up to
- ----------
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 Nunzio P. DeSantis, a director of the
Company, and Anthony Coelho, a former director of the Company. As consideration
for this Option, which was to expire on August 29, 1999, the Company 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, the Company 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. The Company 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 deposited $2.0 million into a cash
collateral account to secure the guarantee.
Related Litigation - On June 5, 1998, the Company filed an adversary claim with
- ------------------
the New Mexico Bankruptcy Court against NPD. The NPD claim sought, among other
things, the return of the $2.0 million escrow deposit (plus interest), NPD's
payment of the $3.0 million NPD loan (plus interest), the cancellation of the
Option, and the corresponding cancellation of the Company's obligations under
the NPD note. The Company was also involved in litigation concerning ITB in
Delaware Chancery Court which addressed many issues outside the scope of the
Company's 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
NPD adversary case, and, in October 1998, the Chancery Court approved a
settlement in the Delaware ITB case. In connection with these settlements, the
Company's option to purchase the ITB Shares and the $0.4 million ($2.3 million
contingent) note payable to NPD were canceled; the $2.0 million escrow deposit
(plus interest) was returned to the Company; and $2.3 million of the $3.0
million loan made to NPD was paid to the Company. As a result, the Company
recognized a loss associated with this transaction of approximately $1.4 million
during the year ended March 31, 1999. This loss was later partially offset by a
$0.5 million gain from the settlement of a related adversary proceeding. Also
pursuant to the settlement agreement, the Company has assumed ITB's office lease
in Albuquerque, New Mexico.
On January 29, 1999, this settlement was consummated, and $4.4 million in cash
was received. Effective with the consumation of the settlement, the Company has
no further relationships with ITB. Similarly, the Company has no further legal
or financial relationship with NPD, Inc.
(6) Preferred Stock
In connection with the Exchange Offer (see Note 4), effective April 8, 1997, the
Company issued 57,800 shares of newly created Preferred Stock with a stated
value of $100 per share. Dividends are at an annual rate of 14 percent on the
stated value, payable quarterly, at the option of the Company, in cash, Common
Stock, Preferred Stock, or a combination thereof. At March 4, 1999, before the
effective date of the Company's Plan, dividends in arrears on
F-19
<PAGE>
the Preferred Stock were approximately $1.6 million, or $28 per share. Under the
Plan, the Preferred Stock and any associated dividends have been cancelled in
exchange for certain rights to purchase Common Stock in the reorganized Company
(see Note 2).
(7) Discontinued Operations
One of the Company's subsidiaries, AutoLend IAP, Inc. ("IAP"), was sold on
September 18, 1996 to its departing management, forming the company Auction
Finance Group, Inc. ("AFG"). 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 departing 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 were not repaid to the Company
in full at the end of three years, the Company could 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 had been
executed, the fair value of the investment was reduced to $250,000; this amount
represented the escrow deposit available to guarantee the redemption of the
stock.
Because of the Company's need to maximize and expedite the receipt of cash for
its creditors, the Company explored the possibility of an early redemption of
its IAP securities by giving some discount as consideration for an immediate
cash payment from AFG. An amount of $600,000 plus some partial interest was
offered by AFG, and on July 17, 1998, the Company, through its bankruptcy
counsel, received a letter indicating that such funds were on deposit and ready,
pending the Bankruptcy Court's approval of the transaction. On the same day, the
Company filed a motion with the Bankruptcy Court [the Debtor's Motion to Approve
Compromise (IAP Note)] to approve the transaction. On August 21, 1998, the
Bankruptcy Court approved the motion, and on September 30, 1998, the IAP
redemption was consummated, for which $614,560 in cash was received and a loss
of $25,440 was realized by the Company.
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 consolidated financial
statements. No interest expense has been allocated to discontinued operations.
Summarized results of IAP included in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
Three months ended
Fiscal years ended June 30,
March 31: (unaudited)
----------------------------------------- -------------------------
1999 1998 1997 1999 1998
------------ ---------- --------------- ------------ -----------
<S> <C> | <C> <C> <C> | <C>
Revenue $ - | $ - $ 825,706 - | -
Net loss - | - (152,973) - | -
Loss per common share - | - (0.03) - | -
</TABLE>|
(8) Restricted Cash
As of March 31, 1999 and June 30, 1999, $2,791,178 and $1,165,500, respectively,
of the Company's cash balance was restricted pursuant to the terms of the
Company's Plan. This cash is set aside for Plan payments to the Debenture
holders, and as such payments are made the balance declines.
(9) Installment Contract Receivables
F-20
<PAGE>
Installment Contract Receivables consisted of the following:
<TABLE>
<CAPTION>
Three months ended
Fiscal years ended June 30,
March 31: (unaudited)
----------------------------- ----------------------------
1999 (1) 1998 1999 1998
----------- | ------------ ----------- | ------------
<S> <C> | <C> <C> | <C>
Installment contracts receivable $ 55,531 | $ 541,803 $ 39,918 | $ 370,284
Unearned finance charges (1,736) | (80,211) (1,149) | (50,988)
----------- | ------------ ----------- | ------------
Installment contracts receivable| | |
net of unearned finance charges 53,795 | 461,592 38,769 | 319,296
Collateral owned - | 22,286 - | 26,236
Allowance for credit losses - | (187,669) - | (169,389)
----------- | ------------ ----------- | ------------
| |
Installment contracts receivable, net $ 53,795 | $ 296,209 $ 38,769 | $ 176,143
=========== | ============ =========== | ============
</TABLE>
A summary of the allowance for credit losses on the Installment Contracts
Receivable is as follows:
<TABLE>
<CAPTION>
Twenty-six | Eleven months Three months ended
days ended | and five days Fiscal years ended June 30,
March 31, | ended March 31: (unaudited)
| -------------------------- -------------------------
1999 (1) | March 5, 1999 1998 1997 1999 | 1998
--------- | ------------- ----------- ----------- --------------|----------
<S> <C> | <C> <C> <C> <C> |<C>
Balance - beginning of period $ - | $ 187,669 $ 1,068,545 $ 3,995,296 $ - |$ 187,669
Provision for losses, net of recoveries (24,000) | (375,000) (41,000) 3,625,078 (60,091)| (102,000)
Charge offs and adjustments 24,000 | 264,748 (839,876) (6,551,829) 60,091 | 83,720
--------- | ----------- ----------- ----------- ------------- |----------
Balance - end of period $ - | $ 77,417 $ 187,669 $ 1,068,545 $ - |$ 169,389
========= | =========== =========== =========== ============= |==========
</TABLE>
(1) In connection with the adoption of fresh-start accounting, the allowance for
credit losses of $77,417 was reduced to zero at March 5, 1999.
The Company holds vehicle titles as collateral for all contracts receivable
until the contracts are paid in full.
(10) Purchased Insurance Policies
At March 31, 1999 and 1998, the face values of the policies held were $800,919
and $1,879,420, respectively. The face values of policies held at June 30, 1999
and 1998 were $594,544 and $1,879,420, respectively. The historical cost,
including capitalized acquisition costs, of these policies at March 31, 1999 and
1998 was $639,211 and $1,386,265, respectively, and $475,934 and $1,386,265 at
June 30, 1999 and 1998, respectively. A summary of the allowance for credit
losses on the purchased insurance policies is as follows:
F-21
<PAGE>
<TABLE>
<CAPTION>
Twenty-six | Eleven months Three months ended
days ended | and five days Fiscal years ended June 30,
March 31, | ended March 31: (unaudited)
| ------------------------ --------------------------
1999 (1) | March 5, 1999 1998 1997 1999 | 1998
---------- | ------------- ---------- ---------- --------- | ------------
<S> <C> | <C> <C> <C> <C> | <C>
Balance - beginning of period $ - | $ 1,057,072 $ 925,300 $ - $ - | $ 1,057,072
Provision for recoveries, write-downs | |
and valuation allowance - | (544,511) 131,772 925,300 - | -
---------- | ------------- ----------- ---------- --------- | ------------
Balance - end of period $ - | $ 512,561 $ 1,057,072 $ 925,300 $ - | $ 1,057,072
========== | ============= =========== ========== ========= | ============
</TABLE>
(1) In connection with the adoption of fresh-start accounting, the allowance for
credit losses of $512,561 was reduced, against the carrying cost of the
purchased insurance policies, to zero at March 5, 1999.
(11) 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. No securities were classified as trading or
held-to-maturity at June 30 or March 31, 1999 or 1998. Investments in
available-for-sale securities are summarized as follows at March 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -------------------------------
Corporate Corporate
Stock Option Debt Stock Option Debt
(ITB) (IAP Stock) (ITB) (IAP Stock)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Fair market value, beginning of period $ 625,000 $ 800,000 $ - $ 1,000,000
Permanent impairment - (160,000) - (200,000)
Unrealized losses (200,000) (390,000) - -
------------ ------------ ------------ --------------
Fair market value, end of period $ 425,000 $ 250,000 $ - $ 800,000
============ ============ ============ ==============
</TABLE>
The stock option was cancelled on March 5, 1999 (see Note 5), resulting in a
realized loss of $200,000. On September 30, 1998, the IAP stock was redeemed for
$614,560, resulting in a realized loss of $25,440 (see Note 7). There were no
realized gains or losses on securities for the year ended March 31, 1998.
Investments in available-for-sale securities are summarized as follows at June
30 (unaudited):
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
Corporate Corporate
Stock Option Debt Stock Option Debt
(ITB) (IAP Stock) (ITB) (IAP Stock)
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Fair market value, beginning of period $ - $ - $ 425,000 $ 250,000
Unrealized gains - - - 365,000
------------- ------------- -------------- ------------
Fair market value, end of period $ - $ - $ 425,000 $ 615,000
============= ============= ============== ============
</TABLE>
There were no realized gains or losses on securities for the three months ended
June 30, 1999 and 1998.
(12) Comprehensive Income
Other comprehensive income is comprised of the following:
F-22
<PAGE>
<TABLE>
<CAPTION>
Twenty-six | Eleven months and Fiscal years ended Three months ended
days ended | five days ended March 31: June 30:
| ------------------------------ -------------------------
March 31, 1999 | March 5, 1999 1998 1997 1999 | 1998
-------------- |----------------- ------------ --------- --------- | ----------
<S> <C> |<C> <C> <C> <C> | <C>
Unrealized loss on securities | |
Gain (loss) arising during | |
year $ - | $ - $ (590,000) $ - $ - | $ 365,000
Less reclassification adjustment | |
for losses included in net | |
income - | 590,000 - - - | -
-------------- |---------------- ------------ --------- --------- | ----------
Net gain (loss) recognized | |
in other comprehensive income - | 590,000 (590,000) - - | 365,000
-------------- |---------------- ------------ --------- --------- | ----------
Other comprehensive income $ - | $ 590,000 $ (590,000) $ - $ - | $ 365,000
============== |================ ============ ========= ========= | ==========
</TABLE>
Comprehensive income is the total of net income plus all other changes in net
assets arising from non-owner sources, which are referred to as other
comprehensive income. An analysis of changes in components of accumulated other
comprehensive income is presented in the consolidated statement of stockholders'
equity/(deficit).
(13) Fixed Assets
For the fiscal year ended March 31, 1999, furniture and fixtures as well as
computers and software are stated at their estimated fair value as a result of
the adoption of fresh-start accounting. 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 accumulated depreciation is as follows:
<TABLE>
<CAPTION>
Fiscal years ended Three months ended
March 31: June 30,
--------------------------------
| (unaudited)
| --------------------------------
1999 | 1998 1999 | 1998
--------- | --------- --------- | ---------
<S> <C> | <C> <C> | <C>
Furniture and fixtures $ 2,601 | $ 27,809 $ 2,601 | $ 16,723
Computers and software 16,491 | 80,416 16,491 | 80,417
--------- | --------- --------- | ---------
Gross book value 19,092 | 108,225 19,092 | 97,140
| |
Less: accumulated depreciation (1,603) | (68,614) (6,281) | (67,422)
--------- | --------- --------- | ---------
Total net book value $ 17,489 | $ 39,611 $ 12,811 | $ 29,718
========= | ========= ========= | =========
</TABLE>
In connection with the adoption of fresh-start accounting, the accumulated
depreciation was reduced to zero at March 5, 1999. The assets then started a new
accumulation of depreciation.
(14) 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.
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.
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 were exercised
during the year ended March 31, 1992. In addition, the Company
F-23
<PAGE>
repurchased 142,000 Class A Warrants at a total cost of $227,355. 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. At March 31, 1998, 2,555,500 Class A Warrants and
108,000 Class B Warrants were outstanding. A majority of 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. These Warrants were canceled pursuant to the
confirmed Plan of Reorganization; however, the holders of the Company's Warrants
and Options have a 12-month period, beginning March 5, 1999, to purchase the
same number of shares of Common Stock as originally provided for under the
Warrants or Options at $4.00 per share.
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.
All presently outstanding Options are now exercisable at $4.00 and expire as of
March 4, 2000.
The options are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- | ---------------------------- ----------------------------
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 3,660,000 $ 0.74 | 1,100,000 $ 2.47 1,865,000 $ 2.77
Granted - - | 2,720,000 0.19 525,000 2.65
Plan of reorganization (1) (3,660,000) (0.74)| - - - -
Forfeited - - | (160,000) 3.25 (1,290,000) 2.98
---------- -------------- | --------- -------------- ---------- --------------
Outstanding at end of year - - | 3,660,000 0.74 1,100,000 2.47
|
Options exercisable at year end - - | 3,660,000 - 820,000 -
</TABLE>
(1) Under the Plan of Reorganization, Options outstanding as of the effective
date, March 5, 1999, have been cancelled. However, Option holders have the right
to purchase the same number of shares of new Common Stock at a price of $4.00
per share. The right to purchase new shares ends March 4, 2000.
In conjunction with the Plan of Reorganization, the offering includes 1,040,000
shares of new Common Stock for Debenture holders. These 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 of Reorganization.
Additionally, in conjunction with this Prospectus, we are offering 18,183,030
shares of new Common Stock to holders of our old Common and Preferred Stock and
Class A and B Warrants and Options, all of which were canceled on March 5, 1999
under the Plan of Reorganization. We expect that only a portion of these shares
will be purchased by existing equity holders, resulting in total Common Stock
outstanding between 1.5 and 9 million shares; this would result in total net
equity (before the impact of any interim operating results) of up to $8.6
million.
(15) Income Taxes
The Company provides for income taxes under the provisions of SFAS 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.
A reconciliation of the Company's actual income tax/(benefit) expense to that
computed using the United States federal statutory rate of 34 percent is as
follows:
F-24
<PAGE>
<TABLE>
<CAPTION>
Unaudited
-----------------------
Twenty-six |Eleven months and Years ended Three months ended
days ended | five days ended March 31: June 30:
| -------------------------- -----------------------
March 31, 1999 | March 5, 1999 1998 1997 1999 | 1998
--------------- |---------------- ------------ ------------ ---------- | ---------
<S> <C> |<C> <C> <C> <C> | <C>
Computed "expected" tax/(benefit) expense $ (42,042)| $ 1,023,687 $ (1,874,012) $ (3,921,997) $ (114,885) | $(150,970)
Increase/(decrease) in income taxes resulting | |
from: | |
Non-deductible (includable) debt to stock | |
conversion - | (1,816,289) 2,131,472 - - | -
Amortization of goodwill - | - - 223,225 - | -
Change in valuation allowances (15,500)| (207,119) - - (70,962) | (14,700)
Other 4,035 | 53,615 - - - | -
Limitation of net operating loss | |
carryforward 53,507 | 946,106 (257,460) 3,698,772 185,847 | 165,670
------------- | -------------- ------------ ------------ ---------- | ---------
Total income tax expense $ - | $ - $ - $ - $ - | $ -
============= | ============== ============ ============ ========== | =========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities at March 31, and June 30, 1999 and 1998, are presented as follows:
<TABLE>
<CAPTION>
June 30,
March 31: (unaudited)
--------------------------------- ---------------------------------
1999 | 1998 1999 | 1998
------------ | ----------- ------------ | ------------
<S> <C> | <C> <C> | <C>
Deferred tax assets: | |
Bad debt reserve $ - | $ 91,392 $ - | $ 84,303
Capital loss carry-over 920,148 | 203,227 920,148 | 203,227
Net operating loss 3,565,402 | 5,617,126 3,774,673 | 5,806,107
Deferred compensation 62,075 | - 62,075 | -
Valuation reserve on investment | |
and insurance policies - | 487,493 - | 551,480
------------ | ----------- ------------ | ------------
Subtotal: gross deferred tax assets $ 4,547,625 | $ 6,399,238 $ 4,756,896 | $ 6,645,117
------------ | ----------- ------------ | ------------
Deferred tax liabilities: | |
Other 1,700 | 18,575 683 | 18,575
------------ | ----------- ------------ | ------------
Subtotal: gross deferred tax liabilities $ 1,700 | $ 18,575 $ 683 | $ 18,575
------------ | ----------- ------------ | ------------
Net deferred tax asset, before valuation | |
allowance $ 4,545,925 | $ 6,380,663 $ 4,756,213 | $ 6,626,542
Valuation allowance for deferred tax assets (4,545,925) | (6,380,663) (4,756,213) | (6,626,542)
------------ | ----------- ------------ | ------------
Total net deferred tax asset $ - | $ - $ - | $ -
============ | ============ ============ | ============
</TABLE>
(16) Net Operating Loss Carryforwards
As of June 30, 1999, the Company had available unused capital loss
carry-forwards and operating loss carry-forwards that may provide future tax
benefits, which expire as follows:
F-25
<PAGE>
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
- ---------------------- -------------- ------------------ ----------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000
- 6,116,000
2003
- - 220,000
2004
- - 2,939,235
2005
- - 543,980
2012
- 6,078,000 -
2013
- 220,000 -
2019
- 2,939,235 -
2020
- 543,980 -
-------------- ------------------ ----------------
Total $ 2,382,000 $ 9,781,215 $ 9,819,215
============== ================== ================
</TABLE>
Capital loss carryforwards arise due to losses incurred on the disposal of
capital assets and may be used to offset future capital gains associated with
the disposal of capital assets (but may not be used to offset ordinary income).
Net operating loss carryforwards are the result of prior (and current) years'
operations, which had recorded a net loss in terms of income tax computations.
Operating loss carryforwards can, under certain conditions, be used to offset
future operating profits, thus negating the necessity to pay corresponding
future income taxes (until the loss carryforwards are used up or expire).
With the Plan of Reorganization 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. 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 purchasing another qualified business
entity by acquiring its stock. If there is a substantial change in ownership
involved, tax benefits could be reduced. Other limiting factors may also apply.
The requirements to utilize such loss carryforwards are strict, and the
possibilities for usage are limited.
(17) Commitments and Contingencies
Note Payable Debenture Holders. As a result of the Debenture debt forgiveness,
uncollateralized non-interest bearing notes aggregating $624,000 (undiscounted)
were received by the Debenture holders. These notes are payable in five equal
annual payments of $124,800. For financial statement presentation, these notes
have been discounted based on an imputed interest rate of 6 percent, resulting
in an unamortized discount of $100,700. These notes have been recorded at their
discounted value of $523,300.
Securities and Exchange Commission. On February 16, 1999, the Company was
notified by its counsel that it is subject to an investigation by the Securities
and Exchange Commission (the "SEC") in connection with certain activities that
took place between September 1996 and September 1997. The Company and its
officers have cooperated with the SEC in its investigation and have produced
documents requested by the SEC including documents pertaining to the repurchase
by the Company of its 9.5 percent Convertible Subordinated Debentures due in
1997.
Albuquerque Office Lease. On August 8, 1997, the Company relocated its principal
executive offices from 215
F-26
<PAGE>
Central NW to 600 Central SW, Albuquerque, New Mexico. This space was being
leased from ITB on a month-to-month basis. In February 1999, the Company assumed
the ITB lease, which resulted in scheduled lease payments of $119,220 per year
for the fiscal years ending 2000 and 2001, and $39,740 for the fiscal year
ending 2002. The lease terminates on July 31, 2002, and the lease payments are
presently $10,130 per month. Each August 1st, the lease payments may be adjusted
according to any changes in the Consumer Price Index. The Company believes the
office space is adequate to meet its needs.
Rent expense for operating leases was approximately $28,000 for the fiscal year
ended March 31, 1999, compared to $14,000 for the fiscal year ended March 31,
1998, and $179,000 for the fiscal year ended March 31, 1997.
Installment Receivables. 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 borrowers
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 consolidated financial statements do
not reflect the potential financial impact related to these activities.
AutoLend Group, Inc. v. Nunzio P. DeSantis. On July 14, 1998, the Company filed
an adversary claim against Nunzio P. DeSantis to recover certain payments made
to him and for indemnity. On July 12, 1999, the Bankruptcy Court approved a
Motion to Approve Compromise (the "Motion") filed on June 4, 1999, to resolve
this adversary claim. The Motion provides for 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 release of any rights we
have against Mr. DeSantis with respect to our contingent rights to 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. The Company has determined
that the total net effect of this adversary settlement results in an approximate
$0.5 million increase in net equity.
Florida Tax Claim. 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 this claim subject to a seven-day appeal period. The court order
became effective on August 27, 1999.
AutoLend Group, Inc. v. Express Scripts, Inc. On June 4, 1999, the Company filed
an adversary claim against Express Scripts, Inc., for declaratory judgment with
regard to a Non-Compete Agreement with Mr. DeSantis dated March 5, 1995. The
Company is presently in negotiation with Express Scripts regarding a resolution
of the issue. A scheduling conference was held on September 10, 1999; discovery
is presently stayed pending settlement discussions.
Motion For Final Decree. 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 on the Motion; the Court has taken the matter under
advisement, and there has been no ruling to date.
F-27
<PAGE>
Schedule II
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Balance at Charged to Amount on
Beginning Costs and Fresh-Start Balance
of Period Expenses Adjustment Sheet
---------------------------------------------------------
Description:
- -----------
<S> <C> <C> <C> <C>
Three months ended June 30, 1999:
Intangible assets - accumulated amortization $ - $ - $ - $ -
Goodwill - accumulated amortization - - - -
Debt issuance costs - accumulated amortization - - - -
Year ended March 31, 1999:
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
</TABLE>
S-1
<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.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission fee................... $ 10,728
Accountants' fees........................................ 33,272
Legal fees and expenses.................................. 41,000
Company's administrative expenses........................ 10,000
Printing and engraving.. 1,000
Miscellaneous............................................ 1,000
--------
TOTAL FEES AND EXPENSES.............................. $ 97,000
========
</TABLE>
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
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 and 57,800 shares of its Preferred Stock 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.
II-1
<PAGE>
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 KPMG LLP***
* Filed as a corresponding exhibit to Registrant's Annual Report on Form 10-K
for the year ended March 31, 1999
** Filed with Amendment No. 1 to Form S-1
***Filed herewith
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 (the "SEC") 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 is required by the SEC, unless
in its counsel's opinion the matter has been settled by controlling precedent,
to submit to a court of appropriate jurisdiction the question whether its
indemnification is against public policy as expressed in the Act, and the
Registrant 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 "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.
(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-3
<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 October 15, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Nunzio P. DeSantis Chairman of the Board, October 15, 1999
- ----------------------------------
Nunzio P. DeSantis Chief Executive Officer and Director
(Principal executive officer)
/s/ Jeffrey Ovington Executive Vice President October 15, 1999
- ----------------------------------
Jeffrey Ovington (Principal accounting and
financial officer)
/s/ Phillip J. Vitale, M.D. Director October 15, 1999
- ----------------------------------
Philip J. Vitale, M.D.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
No. Description Numbered Page
- --------------------------------------------------------------------------------
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, LLC**
23.3 Consent of KPMG LLP***
* Filed as a corresponding exhibit to Registrant's Annual Report on Form 10-K
for the year ended March 31, 1999
** Filed with Amendment No. 1 to Form S-1
***Filed herewith
<PAGE>
Exhibit 23.3
Independent Accountants' Consent
--------------------------------
The Board of Directors
AutoLend Group, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated May 16, 1997, contains an explanatory paragraph that states
that 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 conern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of that uncertainty.
(signed) KPMG LLP
Albuquerque, New Mexico
October 18, 1999
