<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one:)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 1-10569
AutoLend Group, Inc.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3137244
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
600 Central SW, Third Floor, Albuquerque, New Mexico 87102
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(505) 768-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
------ ------
Applicable only to Registrants involved in bankruptcy proceedings during the
preceding five years: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes x No
------ ------
Applicable only to corporate issuers:
The number of shares outstanding of the Registrant's common stock was zero at
February 3, 2000. In connection with the Registrant's plan of reorganization,
which was confirmed by the Bankruptcy Court, and then became effective on March
5, 1999, the Registrant's Common Stock was canceled. The plan includes a
provision under which new Common Stock of the Registrant is to be issued in
conjunction with the Company's recent Registration Statement on Form S-1, which
became effective on January 19, 2000. See Notes 2, 3, and 4 to Consolidated
Financial Statements in Item 1 hereto.
===============================================================================
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I--FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements............................................................................. 4
Consolidated Balance Sheets as of December 31, 1999, and March 31, 1999............................... 4
Consolidated Statements of Operations for the three-month and nine-month periods
ended December 31, 1999, and 1998.................................................................. 5
Consolidated Statements of Cash Flows for the nine-month periods
ended December 31, 1999, and 1998.................................................................. 6
Notes to Consolidated Financial Statements............................................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................... 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk...................................... 18
</TABLE>
PART II--OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings................................................................................ 19
Item 2. Changes in Securities and Use of Proceeds........................................................ 19
Item 3. Defaults Upon Senior Securities.................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 20
Item 5. Other Information................................................................................ 20
Item 6. Exhibits and Reports on Form 8-K................................................................. 20
SIGNATURES............................................................................................... 21
</TABLE>
2
<PAGE>
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not historical
facts; they involve risks and uncertainties that could cause the Company's
results to differ materially from those in the forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of the Company's business include significant risk
factors, including the perceived difficulties from the Company's past
bankruptcy, which could adversely affect its existing and proposed operations;
and, the risks relating to the startup and operation of a gaming business, which
forms a significant part of the Company's Plan of Reorganization. From time to
time, the Company may publish or otherwise make available forward-looking
statements. All subsequent forward-looking statements, whether written or oral
and whether made by or on behalf of the Company, are also expressly qualified by
these cautionary statements.
YEAR 2000 ISSUES
Like any other company, advances and changes in technology can significantly
affect the business and operations of the Company. For example, the "Y2K"
problem is that some computer systems may not properly recognize the year 2000
or years thereafter. Not only might the problem affect a company's computers,
but the company could also be impacted by problems at other companies, through
supplier relationships, etc.
The Company has two outside service-providers upon which we rely, and whose
operational failure could in turn impact our operations. The Company has been
assured by these third-party providers that they are in compliance with the year
2000 issue; however, the assurances may not be legally binding. Thus far, we
have not encountered or been advised of any Y2K problems regarding these
providers.
The Company's present internal base of operations is not heavily dependent upon
computers. Certain "Y2K" testing and upgrading has been completed.
Additionally, data and program files are backed-up on tape regularly and are
stored off-site. Thus far, we have not become aware of any internal Y2K
problems.
3
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part 1 - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
(unaudited) (audited)
<S> <C> <C>
Assets:
Cash $ 748,893 $ 2,146,759
Restricted cash 257,404 2,791,178
----------------- --------------
Cash and cash equivalents $ 1,006,297 $ 4,937,937
Other receivables 401 44,741
Receivable from officer 150,000 -
Prepaid expenses 31,636 16,669
Installment contracts receivable 26,829 53,795
Purchased insurance policies at estimated
market value; face value of $403,544 at
December 31, 1999 and $800,919 at
March 31, 1999 55,063 126,650
Fixed assets, less accumulated depreciation
of $16,669 at December 31, 1999 and $1,603
at March 31, 1999 40,175 17,489
Other assets 119,281 -
----------------- --------------
Total assets $ 1,429,682 $ 5,197,281
================= ==============
Liabilities:
Accounts payable - Debenture holders $ 249,250 $ 3,043,250
Accounts payable - other 293,737 84,768
Accrued contingent legal fees 10,457 270,713
Accrued contingent payroll - 406,107
Accrued liabilities 58,244 55,814
Other contingent liabilities - 244,867
Note payable - Debenture holders 523,300 523,300
----------------- --------------
Total liabilities $ 1,134,988 $ 4,628,819
----------------- --------------
Stockholders' Equity:
Common stock, $.002 par value.
Authorized 40,000,000 shares;
issuable 1,040,000 shares $ 2,080 $ 2,080
Additional paid-in capital 690,033 690,033
Accumulated deficit (397,419) (123,651)
----------------- --------------
Total stockholders' equity $ 294,694 $ 568,462
----------------- --------------
Total liabilities and stockholders' equity $ 1,429,682 $ 5,197,281
================= ==============
</TABLE>
See accompany notes to consolidated financial statements.
4
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
December 31, December 31,
--------------------------- --------------------------
Registrant | Predecessor Registrant | Predecessor
1999 | 1998 1999 | 1998
----------- | ----------- ------------ | ------------
<S> <C> | <C> <C> | <C>
Revenues: | |
Finance charges on installment contracts $ 9,949 | $ 17,610 $ 24,868 | $ 94,921
Revenues from matured insurance policies - | - 177,801 | 988,228
----------- | ----------- ------------ | ------------
Gross revenues 9,949 | 17,610 202,669 | 1,083,149
Cost of matured insurance policies - | - (71,588) | (692,400)
----------- | ----------- ------------ | ------------
Total net revenues $ 9,949 | $ 17,610 $ 131,081 | $ 390,749
| |
General and administrative expenses (330,850) | (274,232) (1,115,722) | (1,040,380)
Loan loss recovery, net 53,911 | 87,000 189,676 | 306,000
----------- | ----------- ------------ | ------------
Operating loss $ (266,990) | $ (169,622) $ (794,965) | $ (343,631)
----------- | ----------- ------------ | ------------
| |
Other income/(expense): | |
Interest income on cash and cash equivalents $ 12,058 | $ 13,462 $ 79,387 | $ 74,034
Interest on escrow - | 26,051 - | 78,009
NPD, Inc., note receivable interest income accrued - | 75,884 - | 227,648
Debentures interest expense accrued - | (171,594) - | (514,781)
NPD, Inc., note payable interest expense accrued - | (10,625) - | (31,875)
Other income (expense) 28,849 | (90,056) 28,849 | (75,057)
Realized loss on sale of securities net - | - | (25,440)
Write-off of fixed assets - | - - | (4,570)
Gain on adversary settlement - | - 451,040 | -
Cancellation of Florida tax claim - | - 162,876 | -
Insurance policy write down recapture - | - - | 495,683
Debenture loan discount amortization (8,070) | - (24,208) | -
----------- | ----------- ------------ | ------------
Total net other income (expense) $ 32,837 | $ (156,878) $ 697,944 | $ 223,651
----------- | ----------- ------------ | ------------
Loss before reorganization costs (234,153) | (326,500) (97,021) | (119,980)
Reorganization costs incurred during Chapter 11 proceedings (45,999) | (71,521) (176,748) | (315,875)
----------- | ----------- ------------ | ------------
Net Loss $ (280,152) | $ (398,021) $ (273,769) | $ (435,855)
=========== | =========== ============ | ============
| |
Per Share: | |
Operating loss $ (0.26) | $ (0.03) $ (0.76) | $ (0.06)
Total net other income (expense) 0.03 | (0.03) 0.67 | 0.04
----------- | ----------- ------------ | ------------
| |
Loss before reorganization costs $ (0.23) | $ (0.06) $ (0.09) | $ (0.02)
Reorganization costs incurred during Chapter 11 proceedings (0.04) | (0.01) (0.17) | (0.05)
----------- | ----------- ------------ | ------------
Net loss $ (0.27) | $ (0.07) $ (0.26) | $ (0.07)
=========== | =========== ============ | ============
| |
Weighted average number of common and common | |
equivalent shares outstanding - | 6,079,530 - | 6,079,530
=========== | =========== ============ | ============
| |
Weighted average number of common and common | |
equivalent shares issuable 1,040,000 | - 1,040,000 | -
=========== | =========== ============ | ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended
December 31
-------------------------------------
Registrant | Predecessor
1999 | 1998
------------- | ------------
<S> <C> | <C>
Cash flow from operating activities: |
Net loss $ (273,769) | $ (435,855)
Adjustments to reconcile net loss to net cash |
cash flow from operating activities |
Depreciation expense 15,066 | 15,230
Realized loss on sale of IAP securities - | 25,440
Loan loss recovery, net (189,676) | (306,000)
Write-off of fixed assets - | 4,570
Recapture of insurance policy write down - | (495,683)
Gain in adversary settlement (451,040) | -
Changes in assets and liabilities: |
(Increase) decrease in assets: |
Accounts receivable matured policies - | -
Other receivables 44,340 | -
Prepaid expenses (14,967) | 167,381
Installment contracts receivable 216,642 | 538,129
Purchased insurance policies 71,587 | 691,136
Interest on escrow deposit - | (78,009)
Interest accrued on note receivable - NPD, Inc. - | (227,648)
Other assets (119,281) | (300)
Increase (decrease) in liabilities: |
Accounts payable other and accrued liabilities (436,542) | 462,716
Accrued interest expense | 546,656
------------- | ------------
Cash provided (used) by operating activities $ (1,137,640) | $ 907,763
------------- | ------------
|
Cash flow from investing activities: |
IAP securities - | 614,560
------------- | ------------
Cash provided by investing activities $ - | $ 614,560
------------- | ------------
Cash flow from financing activities: |
Payments to debenture holders (2,794,000) | -
------------- | ------------
Cash used in financing activities $ (2,794,000) | $ -
------------- | ------------
Net increase (decrease) in cash and cash equivalents $ (3,931,640) | $ 1,522,323
Cash and cash equivalents at beginning of period 4,937,937 | 769,736
------------- | ------------
Cash and cash equivalents at end of period $ 1,006,297 | $ 2,292,059
============= | ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(unaudited)
NON-CASH INVESTING AND FINANCING ACTIVITES
Non-cash investing and financing activities for the nine months ended December
31, 1999, was the result of the settlement of the adversary claim against Nunzio
P. DeSantis and consisted of the following:
The Company cancelled accrued payroll and expenses owed by the Company to Mr.
DeSantis in the amount of $256,230 and cancelled $7,058 in accrued payroll
taxes. The Company acquired from Mr. DeSantis furniture and fixtures with a
resale value of $37,752. Additionally, a receivable in the amount of $150,000
was recorded to account for the outstanding value of equity securities due the
Company by Mr. DeSantis; the transfer of these securities is to be completed by
July 11, 2000. The net total of the above resulted in a gain on the adversary
settlement of $451,040.
7
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
(1) Summary of Significant Accounting Policies: Basis of Presentation, Going
Concern
The accompanying consolidated financial statements of AutoLend Group, Inc. and
its wholly owned subsidiaries AutoLend Corporation, LB NM, Inc., and American
Life Resources Group, Inc. (collectively, the "Company") have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business. As
a result of the Company's inability to make repayment on, and resultant default
on, its Convertible Subordinated Debentures due September 19, 1997 (the
"Debentures"), the Company filed for protection under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
New Mexico (the "Bankruptcy Court") on September 22, 1997. The Bankruptcy Court
confirmed a Plan of Reorganization (the "Plan"), which became effective on March
5, 1999, at which time the Company attained a positive net equity, and was no
longer classified as a "debtor-in-possession." On January 13, 2000, the
Bankruptcy Court entered its final decree, thereby closing the Company's Chapter
11 case.
The Company's audited consolidated financial statements as of March 31, 1999,
and the accompanying unaudited consolidated financial statements as of December
31, 1999 and 1998, have been presented in conformity with the American Institute
of Certified Public Accountants' Statement of Position 90-7. While it was in
Chapter 11, the Company (the "Predecessor") adopted fresh-start reporting and
gave effect to its emergence as of March 5, 1999. Under fresh-start accounting,
all assets and liabilities are restated to reflect their reorganized value,
which approximates fair value. Since fresh-start reporting has been reflected in
the accompanying consolidated financial statements as of March 31, 1999, and are
those of a reorganized entity certain material aspects of these financial
statements are not comparable to such statements of any prior period. A "black
line" has been drawn between the Registrant's financial statements and those of
the Predecessor.
With respect to the unaudited consolidated financial statements for the three
and nine months ended December 31, 1999 and December 31, 1998, it is the
Company's opinion that all necessary adjustments (consisting of normal and
recurring adjustments) have been included to present a fair statement of results
for the interim periods. These statements should be read in conjunction with the
Company's consolidated financial statements in its Annual Report on Form 10-K
for the fiscal year ended March 31, 1999. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
pursuant to the general rules and regulations promulgated by the Securities and
Exchange Commission (the "SEC").
(2) Court closes Chapter 11 Reorganization Case. Stock Registration now
effective; Prospectus mailed out.
On January 13, 2000, the Bankruptcy Court entered its final decree, thereby
closing the Company's Chapter 11 reorganization case.
On January 19, 2000, the U.S. Securities and Exchange Commission (the "SEC")
declared the Company's Registration Statement on Form S-1 effective. On January
20, the corresponding Prospectus (Form 424B1) was filed, offering certain shares
to holders of the Company's presently outstanding securities (all of which were
cancelled effective March 5, 1999, in connection with the Court approval of the
Company's Plan of Reorganization). Shares will also be issued to certain former
Debenture holders,
8
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
as prescribed in the Plan. Copies of the Prospectus were mailed to shareholders
of record on approximately January 25, 2000. A letter to the shareholders
describing the mechanics of participating in the offering (along with a
transmittal sheet for subscribing) was mailed to shareholders on January 31,
2000. The offering is only open to present holders of the Company's securities,
including the common stock, preferred stock, warrants, and options. The offering
deadline is March 18 for the common and preferred stockholders, and March 4 for
warrant and option holders. Common and preferred stockholders who participate by
March 18 will have an additional period (ending April 18) in which to elect
further participation.
(3) Plan of Reorganization
The Plan (which became effective on March 5, 1999) resulted in the cancellation
of $7.2 million principal amount of Debentures and accrued interest thereon, and
all of the Company's equity securities (including all previously issued shares
of Common Stock) as of March 5, 1999. Unsecured creditors have now received
payments for 100 percent of their allowed claims.
The holders of the Debentures will receive in total approximately 1.0 million
shares of the Company's new Common Stock, $3.0 million in cash, and non-interest
bearing, uncollateralized notes totaling $0.6 million, payable in five annual
payments. For financial statement presentation, these notes have been discounted
based on an imputed interest rate of 6% resulting in an unamortized discount of
$0.1 million. These notes have been recorded at their discounted value of $0.5
million. The Company made the first cash distributions (approximately $1.8
million) related to the Debentures under the Plan during June 1999, and as of
February 1, 2000, has distributed $2.8 million of the $3.0 million in cash
payments. The Company is presently verifying the appropriateness of any
remaining disbursements, for which the corresponding cash has been escrowed.
Pursuant to the terms of the Plan, this escrow consisted of $0.3 million and
$2.8 million of restricted cash on December 31, 1999 and March 31, 1999
respectively.
The holders of the canceled Common and Preferred Stock have the right to
purchase defined amounts of shares of new Common Stock during certain periods
beginning on the effective date (January 19, 2000) of the Company's Registration
Statement on Form S-1 (see "The Offering" below). The price per share of the new
Common Stock is $1.00. The holders of the Company's Class A and B Warrants and
Options have a 12-month period beginning March 5, 1999, to purchase the same
number of shares of new Common Stock as originally provided for under the
Warrants or Options, at $4.00 per share. The Company expects that only a portion
of the additional shares as described above will actually be purchased by
existing equity holders, resulting in projected total Common Stock outstanding
of from 1.5 million to 9.0 million shares. This would result in a total new
equity (before the impact of any interim operating results) of from $0.5 million
to $8.0 million.
9
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
(4) The Offering
A Registration Statement on Form S-1 (the "Registration Statement") was filed on
June 8, 1999, with the SEC to register the shares of our new Common Stock to be
issued in connection with the Plan. Several revised amended Forms S-1/A were
later filed, and on January 19, 2000, the Registration Statement became
effective. On January 20, 2000, the Prospectus (Form 424B1) was filed, and thus
these shares will be issuable under the terms of the Plan. Pursuant to the Plan,
which has been clarified to conform to the offering as more fully described in
the Company's Registration Statement, the Company is offering shares of new
Common Stock (the "Offering") to holders of old Common and Preferred Stock and
Class A and B Warrants, Options, and Debentures, all of which were canceled on
March 5, 1999, under the Plan.
Specifically, the Offering will include 1,040,000 shares of new Common Stock for
Debenture holders; up to 6,079,530 shares of new Common Stock for holders of old
Common Stock; up to 5,780,000 shares of new Common Stock for holders of old
Preferred Stock; up to 2,663,500 shares of new Common Stock for holders of old
Class A and B Warrants; and, up to 3,660,000 shares for holders of old Options.
A total of up to 19,223,030 shares of new Common Stock may be issued and
outstanding. However, the Company estimates that only between 1.5 and 9.0
million shares will be issued as a result of the Offering, depending upon the
number of shares subscribed for. Holders of old Common Stock and/or old
Preferred Stock must pay $1.00 per share for any share of new Common Stock.
These holders have 60 days following the January 19, 2000 effective date of the
Registration Statement in which to elect their purchase; the sixty-day period
will expire on March 18, 2000. Following that, subscribers (who purchased during
that period) will have an additional thirty days (until April 18, 2000) to elect
the purchase of possible additional shares. Holders of old Warrants and/or
Options have until March 4, 2000, to buy new Common Stock at $4.00 per share.
For a more complete description, refer to the Prospectus. The 1,040,000 shares
of issuable new Common Stock have been accounted for as outstanding, as no
further consideration for this stock will be received pursuant to the Plan
approximately $119,000. The professional fees and other costs associated with
the Offering have been deferred until which time the Offering closes and at that
time all costs will be accordingly charged to equity.
(5) Proposed New Business
The Company has been considering various prospects to develop a new business
suitable for its situation. In general, any new business development is
difficult, and the Company's particular realities impose significant constraints
that make such an undertaking even more difficult. These constraints include the
following: the need to acquire or develop the business without paying
substantial cash or taking on significant debt; the handicap of not having
actively traded stock to use to procure this business; the requirement that,
after launch, the business will not need a significant capital investment to
fund its "ramp-up"; and, the requirement that the new business immediately
produce a positive cash flow.
10
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
The Plan involves developing a new business that consists primarily of providing
gaming devices and gaming machines for certain non-profit fraternal
organizations in New Mexico. In 1997, the New Mexico Legislature passed the
"Gaming Control Act," and on approximately July 2, 1999, the first legalized
gaming in a non-profit fraternal organization began in New Mexico. The Company
proposes to provide, supply, and service gaming devices as described in the
Gaming Control Act, and the business would be regulated by the New Mexico Gaming
Control Board as described in the Gaming Control Act. The Company has commenced
its efforts in this arena, doing business as Kachina Gaming, which has been
organized as a Division of AutoLend Group, Inc. In connection with these
efforts, the Company has hired a Vice President of Gaming Development and
Marketing.
The Company's management believes it can obtain the proper licenses, gaming
machines, and contracts with non-profit organizations to make this business
viable, and which will allow the Company to meet its obligations. In this
regard, the Company has made application to the New Mexico Gaming Control Board
for licensure as a distributor. Additionally, the Company has signed a number of
contingent contacts with fraternal organizations whereby the Company would
supply gaming machines to licensed operators. The contracts are contingent upon
certain matters such as, the Company and the fraternal organizations' ability to
obtain the appropriate state licensing as well as the actual approval of the
respective contracts by the Gaming Control Board. The Company is also holding
discussions with several licensed gaming machine manufacturers with respect to
obtaining such machines. In as much as no distributors have yet developed any
sustained financial history for such licensed operations in New Mexico, and no
fraternal organizations have established routine records of average "net drops"
under regulated gaming in New Mexico, potential operating results are unknown,
and thus the Company cannot be assured of success in this venture. The New
Mexico Gaming Control Board is currently processing the Company's application
for licensure as a distributor. In connection with this review, the Company has
received correspondence from them indicating that the process has been
significantly lengthened due to the still unconcluded SEC investigation. (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.) At this relatively early point in the development of legalized
fraternal gaming in New Mexico, only 14 fraternal clubs have actually started
gaming, out of the estimated 200, which are potentially licensable statewide.
(6) Income Taxes
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
On an interim basis, the Company provides for income taxes using the estimated
annual effective rate method. The Company did not recognize a quarterly or
annual income tax expense or benefit in 1998 and in 1999.
As of December 31, 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:
11
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
<TABLE>
<CAPTION>
Unused Capital Federal Unused Net State Unused Net
Year of Loss Operating Loss Operating Loss
Expiration Carryforwards Carryforwards Carryforwards
- ---------- ------------- ------------------ ----------------
<S> <C> <C> <C>
2000 $ 1,359,000 $ - $ -
2002 1,023,000 - 6,116,000
2003 - - 220,000
2004 - - 2,939,000
2005 - - 675,000
2012 - 6,078,000 -
2013 - 220,000 -
2019 - 2,939,000 -
2020 - 675,000 -
------------- ------------------ ----------------
Total $ 2,382,000 $ 9,912,000 $ 9,950,000
============= ================== ================
</TABLE>
Capital loss carryforwards arise due to losses incurred on the disposal of
capital assets, and may be used to offset future capital gains associated with
the disposal of capital assets (but may not be used to offset ordinary income).
Net operating loss carryforwards are the result of prior (and current) years'
operations, which had recorded a net loss in terms of income tax computations.
In general, operating loss carryforwards can be used to offset future operating
profits, thus negating the necessity to pay corresponding future income taxes
(until the loss carryforwards become used up or expire). Any such future
operating profits (which might realize these tax benefits) could be derived
internally, or could be derived from acquiring additional assets, or from the
purchase of another qualified business entity through the acquisition of its
stock. If there is a substantial change in ownership involved, tax benefits
could be reduced. Other limiting factors may also apply.
With the Plan now effective, net operating loss carryforwards listed above are
intact and usable. At a combined federal and state corporate statutory tax rate
of 38.6 percent, the present losses can, in a valid situation, result in the
cancellation of a requirement to pay approximately $3.8 million in federal and
state income taxes, either immediately in one year or spread out over many
years. The requirements to utilize such loss carryforwards are strict, and the
possibilities for usage are limited.
(7) Resolution of Significant Legal Proceedings.
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. On December 15, 1999, the Court dismissed this
adversary claim.
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
January 7, 2000, the Bankruptcy
12
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(unaudited)
Court entered an order resolving this adversary claim. The order includes
cancellation of debts owed by the Company to Mr. DeSantis of $256,230; a
transfer to the Company by Mr. DeSantis of $37,752 in furniture, equipment and
leasehold improvements, as well as the transfer by July 11, 2000 of equity
securities with a value of at least $150,000 to the Company. The financial
effect of this event has been determined to be a net $0.5 million increase to
the Company's net equity.
On July 2, 1999, the Company filed a Motion for Final Decree to close the
bankruptcy estate. One objection was filed. On September 28, 1999, a court
hearing was held on the motion, and on January 13, 2000, the Bankruptcy Court
entered its final decree, thereby closing the bankruptcy.
13
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
On January 13, 2000, the Bankruptcy Court entered its final decree, thereby
closing the Company's Chapter 11 reorganization case.
On January 19, 2000, the U.S. Securities and Exchange Commission (the
"SEC") declared the Company's Registration Statement on Form S-1 effective.
On January 20, the corresponding Prospectus (Form 424B1) was filed,
offering certain shares to holders of the Company's presently outstanding
securities (all of which were cancelled effective March 5, 1999, in
connection with the Court approval of the Company's Plan of
Reorganization). Shares will also be issued to certain former Debenture
holders, as prescribed in the Plan. Copies of the Prospectus were mailed
to shareholders of record on approximately January 25, 2000. A letter to
the shareholders describing the mechanics of participating in the offering
(along with a transmittal sheet for subscribing) was mailed to shareholders
on January 31, 2000. The offering is only open to present holders of the
Company's securities, including the common stock, preferred stock,
warrants, and options. The offering deadline is March 18 for the common
and preferred stockholders, and March 4 for warrant and option holders.
Common and preferred stockholders who participate by March 18 will have an
additional period (ending April 18) in which to elect further
participation.
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, the Company was required to adopt fresh-start
accounting as of March 5, 1999. The Predecessor's financial statements
(prior to March 6, 1999) are not comparable to the reorganized Company's
financial statements (subsequent to March 5, 1999). (See Note 1 to the
Company's Consolidated Financial Statements.) However, for purposes of
management's discussion and analysis of results of operations, the nine
months ended December 31, 1999, is being compared to 1998 since the results
of operations are comparable.
Results of Operations: Nine-month periods ended December 31, 1999 and 1998
The Company recorded a net loss of approximately $0.3 million for the nine-
month period ended December 31, 1999. The loss was primarily due to $0.8
million in operating losses and $0.2 million in reorganization costs, which
was partially offset by approximately $0.7 million in non-operating income.
Net revenues realized from viatical policies (the "Policies") in the nine
months ended December 31, 1999, were approximately $0.1 million, as
compared to $0.3 million in viatical revenues in the nine months ended
December 31, 1998. The current period revenues were the result of the sale
of four Policies for a gross total of $0.2 million, having a cost of $0.1
million. The Company generally ceased purchasing Policies after September
1994, and in May and July 1995 sold the majority of its portfolio. Future
net revenues from the remaining portfolio of 6 Policies will be irregular,
depending primarily upon the timing of mortality of the insured.
Revenues from consumer used-car loans, which are also referred to as
installment contracts receivable (the "Loans"), were approximately $25,000
during the nine months ended December
14
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
31, 1999, which represented a $70,000 decrease compared to the $95,000
realized during the nine months ended December 31, 1998. This decrease is a
result of the reduced size of the Company's portfolio of the Loans; the
Company ceased purchasing new Loans in December 1995 and as Loans are paid
in full or written off, the portfolio decreases in size. The cost to
collect these Loans is not reflected in net revenue, but as general and
administrative expenses.
Loan loss recovery in connection with the portfolio of Loans for the nine
months ended December 31, 1999 represented the recovery of $0.2 million
related to previously charged off loans. This is compared to a recovery of
$0.3 million for the nine months ended December 31, 1998. The recoveries
in both periods were primarily the result of collections on old Loans,
which had, in the past, been more than six months in arrears and had
therefore been written off, in accordance with the Company's long-standing
procedures.
General and administrative expenses were approximately $1.1 million during
the nine months ended December 31, 1999, compared to the $1.0 million
expended during the nine months ended December 31, 1998. The increase of
approximately $75,000 in general and administrative expenses was due to
additional salary and travel expense in connection with the development of
the gaming business. (These amounts exclude the $0.2 million and $0.3
million in Chapter 11 reorganization costs for the nine months ended
December 31, 1999 and 1998, respectively.)
Operating losses for the nine months ended December 31, 1999, were $0.8
million, compared to operating losses of $0.3 million for the nine months
ended December 31, 1998. The $0.5 million increase in operating losses was
primarily due to approximately a $0.3 million decrease in net revenue and a
$0.1 million decrease in loan loss recoveries.
The impact of non-operating items for the nine months ended December 31,
1999 was a net $0.7 million in income, compared to a non-operating income
of $0.2 million for the nine months ended December 31, 1998. The $0.7
million in non-operating income for the present period was primarily due to
the $0.5 million gain as a result of the settlement with Nunzio DeSantis
and the $0.2 million cancellation of a Florida tax claim.
In addition to the above, for the nine months ended December 31, 1999 and
1998, the Company incurred $0.2 million and $0.3 million, respectively, in
each period in reorganization costs related to the bankruptcy proceedings.
The net effect of all of the foregoing was a net loss of approximately $0.3
million, or $0.26 per share, for the nine months ended December 31, 1999.
The net loss for the same period last year was approximately $0.4 million,
or $0.07 per share. The $0.3 million loss in the current period was due
primarily to an operating loss of $0.8 million and reorganization costs of
$0.2 million, partially offset by non-operating income of $0.7 million.
Income per share for the period ended December 31, 1999 was calculated
based upon 1.0 million shares of issuable common stock per the Plan. The
net loss for the same period last year of approximately $0.4 million was
primarily due to an operating loss of $0.3 million and reorganization costs
of $0.3 million, partially offset by non-operating income of $0.2 million.
Losses per share for the period ended December 31, 1998 were calculated
based upon the weighted average number of common and common equivalent
shares then outstanding of 6.1 million.
15
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Results of Operations: Three-month periods ended December 31, 1999 and
1998
The Company recorded a net loss of $0.3 million for the three-month period
ended December 31, 1999. The loss was primarily due to operating losses,
caused in large part by low revenues.
Net revenues realized from Policies in the three months ended December 31,
1999 were zero, as were the viatical revenues in the three months ended
December 31, 1998.
Revenues from consumer used-car loans, which are also referred to as the
Loans, were approximately $10,000 during the three months ended December
31, 1999, which represented a $8,000 decrease compared to the $18,000
realized during the three months ended December 31, 1998. This decrease is
a result of the reduced size of the Company's portfolio of the Loans.
Loan loss recovery in connection with the portfolio of Loans for the three
months ended December 31, 1999 represented the recovery of $54,000 related
to previously charged-off loans. This is compared to a similar recovery of
$87,000 for the three months ended December 31, 1998. The recoveries in
both periods were primarily the result of collections on old Loans, which
had, in the past, been more than six months in arrears and had therefore
been written off, in accordance with the Company's long-standing
procedures.
General and administrative expenses were $331,000 during the three months
ended December 31, 1999 and $274,000 during the three months ended December
31, 1998. The increase of approximately $57,000 was due to additional
salaries and travel expense in connection with the development of the
gaming business.
Operating losses for the three months ended December 31, 1999, were
approximately $267,000, compared to operating losses of approximately
$170,000 for the three months ended December 31, 1998. The $97,000 increase
in operating losses was primarily due to approximately a $57,000 increase
in general and administrative expense, a decrease of $33,000 in loan
recoveries and a $8,000 decrease in net revenue.
The impact of non-operating items for the three months ended December 31,
1999 was a net $33,000 in income, compared to a non-operating loss of
$157,000 for the three months ended December 31, 1998. The $33,000 in non-
operating income for the present period was primarily due to interest
income of $12,000 and other income of $29,000, partially offset by loan
discount amortization of $8,000. The $157,000 non-operating loss for the
same period last year was primarily due to net accrued interest expense of
$106,000, which was partially offset by interest income of $13,000, and
other expenses of $64,000.
In addition to the above, for the three months ended December 31, 1999 and
1998, the Company incurred $46,000 and $72,000, respectively, in the
periods then ended, in reorganization costs related to the bankruptcy
proceedings.
16
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
The net effect of all of the foregoing was a net loss of $0.3 million, or
$0.27 per share, for the three months ended December 31, 1999. The net
loss for the same period last year was $0.4 million, or $0.07 per share.
The $0.3 million loss in the current period was due primarily to an
operating loss of $0.3 million. Losses per share for the period ended
December 31, 1999 were calculated based upon 1.0 million shares of issuable
common stock per the Plan. Losses per share for the period ended December
31, 1998 were calculated based upon the weighted average number of common
and common equivalent shares then outstanding of 6.1 million.
Liquidity and Capital Resources
The Company's immediate viability as a going concern ultimately depends
upon the successful installation of a new line of business, and the
attainment of profitability. On September 22, 1997, the Company filed for
voluntary bankruptcy reorganization. On March 5, 1999, the Company's Plan
became effective, and on January 13, 2000, the Court entered its final
decree, thereby closing the bankruptcy. Cash flow from operations was a
negative $1.1 million for the nine months ended December 31, 1999, which
was primarily due to $0.4 million in payments on accounts payables and
accrued liabilities incurred in prior periods, and $0.7 million in current
period net losses (exclusive of non cash gains). At December 31, 1999, the
Company had cash and cash equivalents of $1.0 million, and a positive net
equity of $0.3 million. Of the $1.0 million in cash on hand at December
31, 1999, $0.3 million was escrowed for payment to certain former Debenture
holders recognized under the Plan. As of February 1, 2000, the Company has
distributed $2.8 million related to these Debenture obligations.
The Company's portfolio of used-car consumer installment Loans at December
31, 1999, was approximately $27,000, and consisted of 2 active Loans. The
Company ceased purchasing Loans in December 1995. In addition to the
active portion of the portfolio, the Company also has a substantial
inactive portion, which consists of Loans that have been more than six
months in arrears and have been written off. These inactive Loans
presently provide the Company with an irregular net cash flow of
approximately $20,000 per month. There are 3,900 such inactive Loans,
having a combined face value of approximately $15 million. The Company's
portfolio of unmatured viatical insurance Policies totaled 6 at December
31, 1999, having a combined face value of $0.4 million and a net book value
of $55,000. The Company generally ceased purchasing Policies in September
1994.
There was no cash provided or used by investing activities for the nine
months ended December 31, 1999. Cash flows provided by investing
activities was $0.6 million for the nine months ended December 31, 1998, as
a result of the IAP securities redemption.
Cash flows used in financing activities was $2.8 million for the nine
months ended December 31, 1999 as a result of payments made to debenture
holders under the Plan. There was no cash provided by or used in financing
activities during the nine months ended December 31, 1998.
In summary, the Company decreased its cash and cash equivalents by $3.9
million during the nine months ended December 31, 1999, to a total of $1.0
million. The decrease was largely due to the $2.8 million in payments to
Debenture holders under the Plan, the $0.4 million in
17
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
payments on accounts payable and accrued liabilities from prior periods,
and the $0.7 million net use of cash from operations during the current
period. In comparison, there was a $1.5 million increase in cash during the
nine months ended December 31, 1998, primarily due to cash flows provided
by operations of approximately $0.9 million and $0.6 million from investing
activities as a result of the IAP securities redemption.
On March 5, 1999, all outstanding Debentures (and accrued interest
thereon), and all Common and Preferred Stock, Warrants, and Options were
canceled in conjunction with the Plan. The Company has recently completed
a Registration Statement with the SEC, effective January 19, 2000. Under
this Registration Statement, which will close on April 18, 2000, the
Company may receive additional equity capital, which could be as much as $8
million. However, the amount received could be far lower, and the Company
cannot assure the success of sales of its Common Stock. The professional
fees and other costs associated with the Offering have been deferred until
which time the Offering closes and at that time all costs will be
accordingly charged to equity.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
18
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Part II: Other Information
Item 1. Legal Proceedings.
On July 14, 1998, the Company filed an adversary claim against Nunzio P.
DeSantis to recover certain payments made to him and for indemnity. On July
12, 1999, the Bankruptcy Court approved a Motion to Approve Compromise (the
"Motion") to resolve this adversary claim. The Motion proposed
cancellation of debts owed by the Company to Mr. DeSantis of $256,230; the
contribution to the Company by Mr. DeSantis of substantial furniture,
equipment, and leasehold improvements; the transfer by July 11, 2000 of
equity securities with a value of at least $500,000 by Mr. DeSantis to the
Company; the indemnification of Mr. DeSantis by the Company from liability
up to $350,000 under a non-compete agreement between Mr. DeSantis and a
third party dated March 1995; and the transfer to Mr. DeSantis of the
Company's contingent rights with respect to possible proceeds receivable
under a sale of the former El Rancho Hotel property in Las Vegas, Nevada.
The order became final on July 26, 1999. However, on September 27, 1999, a
motion was filed to set aside this settlement, which the Court granted on
December 15, 1999. Thereafter, the Company, the objecting party, and Mr.
DeSantis reached an agreement, which slightly modified the earlier terms.
The modifications consisted of eliminating the $350,000 indemnity, reducing
the stock contribution (due July 11, 2000) to $150,000, and granting the
Company the rights to any proceeds which may be received by Mr. DeSantis in
conjunction with any sale of the El Rancho property. The impact to net
equity for the Company did not change as a result of settlement
modification. The revised agreement was approved by Court Order dated
January 7, 2000. The financial effect of this event has been determined to
be a net $0.5 million increase to the Company's net equity.
On November 24, 1998, the State of Florida Department of Revenue asserted a
tax claim for the period June 30, 1994 through June 30, 1998 for intangible
tax of $668,531, and a claim for the period March 31, 1993 through March
31, 1997 for corporate income tax of $42,751. A court order dismissing the
claim became effective on August 27, 1999.
On June 4, 1999, the Company filed an adversary claim against Express
Scripts, Inc., for declaratory judgement with regard to a non-compete
agreement with Mr. DeSantis dated March 5, 1995. On October 1, 1999,
Express Scripts filed a motion to dismiss the adversary for alleged lack of
jurisdiction. A bankruptcy court hearing on jurisdiction was held on
November 21, 1999, and on December 15, 1999, the Court dismissed this
adversary claim.
On July 2, 1999, the Company filed a Motion for Final Decree to close the
bankruptcy estate. One objection was filed. On September 28, 1999, a court
hearing was held on the motion, and on January 13, 2000, the Bankruptcy
Court entered its final decree, thereby closing the bankruptcy.
Item 2. Changes in Securities and Use of Proceeds.
None.
19
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
None
20
<PAGE>
AUTOLEND GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the registrant has
caused this report to be signed on its behalf by the following duly
authorized persons.
AUTOLEND GROUP, INC.
(Registrant)
SIGNATURE TITLE DATE
---------------------- ----- ----
/s/ NUNZIO P. DESANTIS
---------------------- Chairman of the Board, February 4, 2000
Nunzio P. DeSantis Chief Executive Officer
/s/ JEFFREY OVINGTON
---------------------- Executive Vice President February 4, 2000
Jeffrey Ovington (principal accounting and
financial officer)
21
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<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
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