FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
Commission File Number: 0-18819
MONACO FINANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado
(State or Other Jurisdiction of Incorporation or Organization)
84-1088131
(I.R.S. Employer Identification No.)
370 Seventeenth Street, Suite 5060 Denver, Colorado 80202
(Address of Principal Executive Offices)
(303) 592-9411
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports),
Yes X No
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of the Issuer's Common Stock, as of March 31,
1997.
Class A Common Stock, $.01 par value: 5,648,379 shares
Class B Common Stock, $.01 par value: 1,323,715 shares
Exhibit index is located on page 24.
Total number of pages is 27.
1
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 (unaudited) 3
Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1996 4
Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 1997(unaudited) 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-14
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-23
PART II - OTHER INFORMATION 24-26
EXHIBIT 11 - Computation of Net Earnings (Loss) per
Common and Common Equivalent Share 25
EXHIBIT 27 - Financial Data Schedule 26
SIGNATURE 27
2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
MONACO FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
<S> <C> <C>
1997 1996
------------- -----------
REVENUES:
Interest $ 3,265,126 $3,192,832
Other income 121,994 29,303
------------- -----------
Total revenues 3,387,120 3,222,135
COSTS AND EXPENSES:
Provision for credit losses (Note 2) 116,979 301,263
Operating expenses 3,179,275 2,498,787
Interest expense (Note 4) 1,401,160 1,051,150
------------- -----------
Total costs and expenses 4,697,414 3,851,200
------------- -----------
(Loss) from continuing operations before income taxes (1,310,294) (629,065)
Income tax (benefit) (Note 6) - (235,270)
------------- -----------
(Loss) from continuing operations (1,310,294) (393,795)
(Loss) on disposal of discontinued business, net of
applicable income taxes (Note 7) - (93,900)
------------- -----------
Net (loss) ($1,310,294) ($487,695)
============= ===========
EARNINGS (LOSS) PER SHARE (NOTES 1 AND 5):
(Loss) from continuing operations ($0.19) ($0.06)
(Loss) on disposal of discontinued business - (0.01)
------------- -----------
Net (loss) per common and common equivalent share ($0.19) ($0.07)
============= ===========
Weighted average number of shares outstanding 6,972,094 6,895,779
<FN>
See notes to consolidated financial statements.
3
<PAGE>
</TABLE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
MARCH 31, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,334,849 $ 1,227,441
Restricted cash 4,676,431 4,463,744
Automobile receivables - net (Notes 2 and 4) 78,801,369 81,890,935
Repossessed vehicles held for sale 2,235,827 2,314,869
Income tax receivable (Note 6) 350,000 350,000
Deferred income taxes (Note 6) 1,581,651 1,581,651
Furniture and equipment, net of accumulated
depreciation of $1,545,248 (1997) and $1,326,215 (1996) 2,294,501 2,055,902
Other assets 1,455,800 1,379,526
---------------- --------------
Total assets $ 92,730,428 $ 95,264,068
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 809,424 $ 851,838
Accrued expenses and other liabilities 686,843 619,125
Notes payable (Note 4) 7,250,000 5,250,000
Installment note payable (Note 4) 3,000,000 3,000,000
Convertible subordinated debt (Note 4) 1,385,000 1,385,000
Senior subordinated debt (Note 4) 4,583,333 5,000,000
Convertible senior subordinated debt (Note 4) 5,000,000 5,000,000
Automobile receivables-backed notes (Note 4) 56,324,118 59,156,101
---------------- --------------
Total liabilities 79,038,718 80,262,064
Commitments and contingencies (Note 3)
Stockholders' equity (Note 5)
Preferred stock; no par value, 5,000,000 shares
authorized, none issued or outstanding - -
Class A common stock, $.01 par value; 17,750,000
shares authorized, 5,648,379 shares (1997) and
5,648,379 shares (1996) issued 56,484 56,484
Class B common stock, $.01 par value; 2,250,000
shares authorized, 1,323,715 shares (1997) and
1,323,715 shares (1996) issued 13,237 13,237
Additional paid-in capital 22,066,089 22,066,089
Retained earnings (deficit) (8,444,100) (7,133,806)
---------------- --------------
Total stockholders' equity 13,691,710 15,002,004
Total liabilities and stockholders' equity $ 92,730,428 $ 95,264,068
================ ==============
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Class A Class B Additional
Common Stock Common Stock Paid-in- Retained
Shares Amount Shares Amount Capital Earnings Total
--------- ------- --------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 5,648,379 $56,484 1,323,715 $13,237 $22,066,089 ($7,133,806) $15,002,004
Net (loss) for the quarter - - - - - (1,310,294) (1,310,294)
--------- ------- --------- ------- ----------- ------------ ------------
Balance - March 31, 1997 5,648,379 $56,484 1,323,715 $13,237 $22,066,089 ($8,444,100) $13,691,710
========= ======= ========= ======= =========== ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(unaudited)
Three Months ended March 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
- ---------------------------------------------------------------------
(Loss) from continuing operations ($1,310,294) ($393,795)
Adjustments to reconcile (loss) from continuing operations to
net cash provided by operating activities:
Depreciation 220,811 135,054
Provision for credit losses 116,979 301,263
Amortization of excess interest 1,213,605 601,506
Amortization of other assets 182,740 192,943
Deferred tax asset - (235,271)
Other 5,180 14,881
------------- ------------
429,021 616,581
Change in assets and liabilities:
Receivables (198,185) 212,433
Prepaid expenses (204,334) (32,234)
Accounts payable (42,414) (103,833)
Accrued liabilities and other 57,972 217,479
------------- ------------
Net cash flows from continuing operations 42,060 910,426
Net cash flows from discontinued operations - 389,394
------------- ------------
Net cash provided by operating activities 42,060 1,299,820
------------- ------------
Cash flows from investing activities:
- ---------------------------------------------------------------------
Retail installment sales contracts - purchased (7,993,574) (8,466,710)
Retail installment sales contracts - originated - (1,093,350)
Proceeds from payments on contracts - purchased 9,512,677 7,013,623
Proceeds from payments on contracts - originated 0 1,788,692
Purchase of furniture and equipment (460,136) (273,524)
Equipment deposits and other 726 -
------------- ------------
Net cash (used in) investing activities 1,059,693 (1,031,269)
------------- ------------
Cash flows from financing activities:
- ---------------------------------------------------------------------
Net borrowings (repayments) under line of credit 2,000,000 -
Net (increase) in restricted cash (212,687) (480,940)
Borrowings on asset-backed notes 4,663,456 6,358,409
Repayments on asset-backed notes (7,495,439) (8,548,232)
Repayments on senior subordinated debentures (416,667) -
Proceeds from issuance of convertible senior subordinated notes - 5,000,000
Purchases of treasury stock - (48,898)
Increase in debt issue and conversion costs (33,373) (257,555)
Net cash provided by (used in) financing activities (1,494,710) 2,022,784
------------- ------------
Net increase in cash and cash equivalents (392,957) 2,291,335
Cash and cash equivalents, January 1 1,227,441 7,247,670
------------- ------------
Cash and cash equivalents, March 31 $ 834,484 $ 9,539,005
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,419,834 $ 1,066,240
============= ============
Cash paid during the year for income taxes $ 2,074 $ 645
============= ============
<FN>
See notes to consolidated financial statements.
</TABLE>
6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Monaco Finance, Inc. (the "Company"), is engaged in the business of
providing alternative financing programs primarily to purchasers of used
vehicles. The Company commenced operations in June 1988. The Company provides
such automobile financing programs by acquiring retail installment sale
contracts (the "Contracts") from certain selected automobile dealers in
approximately 21 states ("Dealer Network") . The contracts are acquired by the
Company through automobile financing programs it sponsors. In February
1996, the Company announced that it intended to discontinue its CarMart retail
used car sales and associated financing operations. The CarMart business
ceased operations on May 31, 1996.
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-QSB and consequently do not
include all of the disclosures normally made in the registrant's annual Form
10-KSB filing. These financial statements should be read in conjunction with
the financial statements and notes thereto included in Monaco Finance, Inc.'s
latest annual report on Form 10-KSB.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
Monaco Finance, Inc. and its wholly-owned subsidiaries, CarMart Auto
Receivables Company and MF Receivables Corp. I (the "Subsidiaries"). All
intercompany accounts and transactions have been eliminated in consolidation.
INTERIM UNAUDITED FINANCIAL STATEMENTS
Information with respect to March 31, 1997 and 1996, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations
of the Company. The results of operations for the three months ended March 31,
1997 and 1996 are not necessarily indicative of the results of the entire
year.
REPOSSESSED VEHICLES HELD FOR RESALE
At March 31, 1997 and December 31, 1996, 618 and 651 repossessed vehicles,
respectively, were held for resale. Included in vehicles held for resale are
vehicles which have been sold for which payment has not been received and
unlocated vehicles (skips), the value for which may be reimbursed from
insurance.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform to the classifications used in the current year.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income (loss) by the weighted
average number of common and common equivalent shares outstanding during
the period. Common stock equivalents are determined using the treasury stock
method. The computation of weighted average common and common equivalent
shares outstanding excludes anti-dilutive common equivalent shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes that such estimates have
been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates.
TREASURY STOCK
In accordance with Section 7-106-302 of the Colorado Business Corporation
Act, shares of its own capital stock acquired by a Colorado corporation are
deemed to be authorized but unissued shares. APB Opinion No. 6 requires the
7
<PAGE>
accounting treatment for acquired stock to conform to applicable state law. As
such, 26,900 shares of Class A Common Stock purchased in 1996 have been
reported as a reduction to Class A Common Stock and Additional
Paid-in-Capital.
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, on
January 1, 1996. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position, results of
operations, or liquidity.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996 and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of SFAS
No. 125 will have a material impact on the Company's financial position,
results of operations, or liquidity.
<TABLE>
<CAPTION>
NOTE 2 - AUTOMOBILE RECEIVABLES
Automobile Receivables consist of the following:
March 31, December 31,
<S> <C> <C>
1997 1996
------------ ------------
Automobile Receivables
Retail installment sales contracts $11,529,784 $11,777,343
Retail installment sales contracts-Trust (Note 4) 67,569,502 71,129,192
Excess interest receivable 5,994,190 6,555,682
Other 665,330 616,230
Accrued interest 1,161,707 1,331,450
------------ ------------
Total finance receivables 86,920,513 91,409,897
Allowance for credit losses (8,119,144) (9,518,962)
------------ ------------
Automobile receivables - net $78,801,369 $81,890,935
============ ============
<FN>
</TABLE>
At March 31, 1997, the accrual of interest income was suspended on
$164,077 of principal amount of retail installment sales contracts.
At the time installment sales contracts ("Contracts") are originated or
purchased, the Company estimates future losses of principal based on the type
and terms of the contract, the credit quality of the borrower and the
underlying value of the vehicle financed. This estimate of loss is based on
the Company's risk model, which takes into account historical data from
similar contracts originated or purchased by the Company since its inception
in 1988. However, since the risk model uses past history to predict the
future, changes in national and regional economic conditions, borrower mix and
other factors could result in actual losses differing from initially predicted
losses.
The allowance for credit losses, as presented below, has been established
utilizing data obtained from the Company's risk models and is continually
reviewed and adjusted in order to maintain the allowance at a level which, in
the opinion of management, provides adequately for current and future losses
that may develop in the present portfolio. A provision for credit losses is
charged to earnings in an amount sufficient to maintain the allowance. This
allowance is reported as a reduction to Automobile Receivables.
8
<PAGE>
<TABLE>
<CAPTION>
Allowance for
Credit Losses
---------------
<S> <C>
Balance as of December 31, 1996 $ 9,518,962
Provision for credit losses 116,979
Unearned interest income 652,113
Unearned discounts 295,526
Retail installment sale contracts charged off (4,943,201)
Recoveries 2,478,765
---------------
Balance as of March 31, 1997 8,119,144
===============
<FN>
</TABLE>
The provision for credit losses is based on estimated losses on all
Contracts purchased prior to January 1, 1995 with zero discounts ("100%
Contracts") and for all Contracts originated by CarMart which have been and
will continue to be provided for by additions to the Company's allowance for
credit losses as determined by the Company's risk analysis.
Effective January 1, 1995, upon the acquisition of certain Contracts from
its Dealer Network, a portion of future interest income, as determined by the
Company's risk analysis, was capitalized into Automobile Receivables (excess
interest receivable) and correspondingly used to increase the allowance for
credit losses (unearned interest income). Subsequent receipts of excess
interest are applied to reduce excess interest receivable. For the three
months ended March 31, 1997, $1,213,605 of excess interest income was
amortized against excess interest receivable.
Unearned discounts result from the purchase of Contracts from the Dealer
Network at less than 100% of the face amount of the note. All such discounts
are used to increase the allowance for credit losses.
Effective October 1, 1996, the Company adopted a new methodology for
reserving for and analyzing its loan losses. This accounting method is
commonly referred to as static pooling. The static pooling reserve methodology
allows the Company to stratify its Automobile Receivables portfolio, and the
related components of its Allowance for Credit Losses (i.e. discounts, excess
interest, charge offs and recoveries) into separate and identifiable quarterly
pools. These quarterly pools, along with the Company's estimate of future
principal losses and recoveries, are analyzed quarterly to determine the
adequacy of the Allowance for Credit Losses. The method previously used by the
Company to analyze the Allowance for Credit Losses was based on the total
Automobile Receivables portfolio. In management's opinion, the static pool
reserve method provides a more sophisticated and comprehensive analysis of the
adequacy of the Allowance for Credit Losses and is preferable to the method
previously used. With the adoption of the static pooling reserve method, the
Company increased its Allowance for Credit Losses by $4,912,790 in the fourth
quarter of 1996. This amount was included in the Consolidated Statements of
Operations under the caption "Cumulative effect of a change in accounting
principle".
As part of its adoption of the static pooling reserve method, where
necessary, the Company adjusted its quarterly pool allowances to a level
necessary to cover all anticipated future losses (i.e. life of loan) for each
related quarterly pool of loans.
Under static pooling, excess interest and discounts are used to increase
the Allowance for Credit Losses and represent the Company's primary reserve
for future losses on its portfolio. To the extent that any quarterly pool's
excess interest and discount reserves are insufficient to absorb future
estimated losses, net of recoveries, adjusted for the impact of current
delinquencies, collection efforts, and other economic indicators including
analysis of the Company's historical data, the Company will provide for such
deficiency through a charge to the Provision for Credit Losses and the
establishment of an additional Allowance for Credit Losses. To the extent that
any excess interest and discount reserves are determined to be sufficient to
absorb future estimated losses, net of recoveries, the difference will be
accreted into interest income on an effective yield method over the estimated
remaining life of the related monthly static pool.
NOTE 3 - COMMITMENTS & CONTINGENCIES
CONTINGENCIES
On May 8, 1995, Milton Karsh, a former Officer and Director of the
Company, filed a civil suit in the District Court for the City and County of
Denver, State of Colorado against the Company, its President, Morris Ginsburg,
and its Executive Vice President, Irwin L. Sandler, both of whom are Directors
9
<PAGE>
of the Company. The plaintiff alleged breach of contract, breach of fiduciary
duty and conversion in connection with the plaintiff's proposed sale of the
Class A Common Stock of the Company pursuant to Rule 144 under the Securities
Act of 1933. Plaintiff claimed he sustained approximately $450,000 in
damages. The defendants denied the material allegations of the complaint, set
forth several affirmative defenses, alleged that the complaint was frivolous
and filed a counterclaim against the plaintiff alleging breach of contract.
Mediation had been set for August 14, 1996.
In August 1996, the parties settled the above lawsuit. Under the
settlement, the Company agreed to retain the plaintiff as a consultant for the
period of three years, to reimburse the plaintiff's attorney fees and to
release and abandon any claim to ownership or option to acquire 20,715 shares
of Class B Common Stock owned by the plaintiff.
The Company has agreed to pay all litigation costs, including fees, and to
indemnify the Directors to the maximum extent provided by Colorado law, as
stated in the Company's By-Laws.
NOTE 4 - DEBT
CONVERTIBLE SUBORDINATED DEBENTURES
On March 15, 1993, the Company completed a private placement of $2,000,000,
7% Convertible Subordinated Notes (the "Notes") with interest payable
semiannually commencing September 1, 1993. The principal amount of the Notes,
plus accrued and unpaid interest, is due on March 1, 1998. Additionally, the
purchasers of the Notes exercised an option to purchase an additional
$1,000,000 aggregate principal amount of the Notes on September 15, 1993. The
Notes are convertible into the Class A Common Stock of the Company at any time
prior to maturity at a conversion price of $3.42 per share, subject to
adjustment for dilution. As detailed below, Notes with an aggregate principal
amount of $1,615,000 have been converted resulting in the issuance of 472,219
shares of Class A Common Stock. Commencing March 15, 1996, the Company has the
option to pre-pay up to one-third of the outstanding Notes at par.
<TABLE>
<CAPTION>
Class A
Common Stock
Conversion Date Notes Converted Issued
- --------------- ---------------- ------------
<S> <C> <C>
September 1994 $ 385,000 112,572
March 1995 770,000 225,147
August 1995 85,000 24,853
September 1995 375,000 109,647
---------------- ------------
$ 1,615,000 472,219
================ ============
<FN>
</TABLE>
SENIOR SUBORDINATED DEBENTURES
On November 1, 1994 the Company sold, in a private placement, unsecured
Senior Subordinated Notes ("Senior Notes") in the principal amount of
$5,000,000 to Rothschild North America, Inc. The Senior Notes accrue interest
at a fixed rate per annum of 9.5% through October 1, 1997, and for each month
thereafter, a fluctuating rate per annum equal to the lesser of (a) 11.5% or
(b) 3.5% above the London Interbank Offered Rate ("LIBOR").
Interest is due and payable the first day of each quarter commencing on
January 1, 1995. Principal payments in the amount of $416,667 are due and
payable the first day of January, April, August and October of each year
commencing January 1, 1997. The unpaid principal amount of the Senior Notes,
plus accrued and unpaid interest, are due October 1, 1999.
AUTOMOBILE RECEIVABLES - BACKED NOTES
In November 1994 MF Receivables Corp I. ("MF Receivables"), the Company's
wholly owned special purpose subsidiary, sold, in a private placement,
$23,861,823 of 7.6% automobile receivables-backed notes ("Series 1994-A
Notes"). The Series 1994-A Notes accrue interest at a fixed rate of 7.6% per
annum. The Series 1994-A Notes are expected to be fully amortized by March
1998; however, the debt maturities are based on principal payments received on
the underlying receivables, which may result in a different final
maturity.
10
<PAGE>
In May of 1995, MF Receivables issued its Floating Rate Auto Receivable-Backed
Note ("Revolving Note" or "Series 1995-A Note"). The Revolving Note has a
stated maturity of October 16, 2002. MF Receivables acquires Contracts from
the Company which are pledged under the terms of the Revolving Note and
Indenture for up to $40 million in borrowing. Subsequently, the Revolving Note
is repaid by the proceeds from the issuance of secured Term Notes or repaid
from collection of principal payments and interest on the underlying
Contracts. The Revolving Note can be used to borrow up to an aggregate of $150
million through May 16, 1998. The Term Notes have a fixed rate of interest and
likewise are repaid from collections on the underlying Contracts. An Indenture
and Servicing Agreement require that the Company and MF Receivables maintain
certain financial ratios, as well as other representations, warranties and
covenants. The Indenture requires MF Receivables to pledge all Contracts owned
by it for repayment of the Revolving Note or Term Notes, including Contracts
pledged as collateral for Series 1994-A Term Notes, the Series 1995-B Term
Notes, as well as all future Contracts acquired by MF Receivables.
The Series 1995-A Note bears interest at LIBOR plus 75 basis points. The
initial funding of this Note was $26,966,489 on May 16, 1995. The Company, as
servicer, provides customary collection and servicing activities for the
Contracts. The Revolving Note has a stated maturity of October 16, 2002 and an
expected termination date of May 16, 1997. The maximum limit for the Series
1995-A Note is $40 million. On September 15, 1995, MF Receivables issued its
Series 1995-B Term Notes ("Series 1995-B Notes") in the amount of $35,552,602.
The Series 1995-B Notes accrue interest at a fixed note rate of 6.45% per
annum. The Series 1995-B Notes are expected to be fully amortized by June
1999; however, the debt maturities are based on principal payments received on
the underlying receivables which may result in a different final maturity. The
proceeds from the issuance of the Series 1995-B Notes were used to retire, in
full, the 1995-A Note, which will be used to accumulate an additional $114.4
million in $40 million increments.
The assets of MF Receivables are not available to pay general creditors of the
Company. In the event there is insufficient cash flow from the Contracts
(principal and interest) to service the Revolving Note and Term Notes a
nationally recognized insurance company (MBIA) has guaranteed repayment. The
MBIA insured Series 1994-A Notes, Series 1995-A Note and Series 1995-B Notes
received a corresponding AAA rating by Standard and Poor's and an Aaa rating
by Moody's and were purchased by institutional investors. The underlying
Contracts accrue interest at rates of approximately 21% to 29%. All cash
collections in excess of disbursements to the Series 1994-A, Series 1995-A and
Series 1995-B noteholders and other general disbursements are paid to MF
Receivables on a monthly basis.
As of March 31, 1997, the Series 1994-A Notes, Series 1995-A Note and the
Series 1995-B Notes and underlying receivables backing those notes were as
follows:
<TABLE>
<CAPTION>
Underlying
Receivable
Note Balance Balance
------------- -----------
<S> <C> <C>
Series 1994-A Notes $ 3,916,318 $ 3,743,075
Series 1995-A Note 39,994,304 50,766,884
Series 1995-B Notes 12,413,496 13,059,543
------------- -----------
TOTAL $ 56,324,118 $67,569,502
============= ===========
<FN>
</TABLE>
CONVERTIBLE SENIOR SUBORDINATED NOTE OFFERING
On January 9, 1996, the Company entered into a Purchase Agreement for the
sale of an aggregate of $5 million in principal amount of 12% Convertible
Senior Subordinated Notes due 2001 (the "12% Notes"). This agreement was
subsequently amended and passed by the Company's Booard of Directors on
September, 10, 1996. Interest on the 12% Notes is payable monthly at the rate
of 12% per annum and the 12% Notes are convertible, subject to certain terms
contained in the Indenture, into shares of the Company's Class A Common Stock,
par value $.01 per share, at a conversion price of $4.00 per share,
subject to adjustment under certain circumstances. The 12% Notes were issued
pursuant to an Indenture dated January 9, 1996, between the Company and
Norwest Bank Minnesota, N.A., as trustee. The Company agreed to register, for
public sale, the shares of restricted Common Stock issuable upon conversion of
the 12% Notes. The 12% Notes were sold pursuant to an exemption from the
registration requirements under the Securities Act of 1933, as amended.
Provisions have been made for the issuance of up to an additional $5 million
in principal amount of the 12% Notes on or before September 10, 1998, with an
initial conversion price of $3.00 per share.
11
<PAGE>
REVOLVING LINE OF CREDIT - LASALLE NATIONAL BANK
In January 1996, the Company entered into a revolving line of credit
agreement with LaSalle National Bank ("LaSalle")providing a line of credit of
up to $15 million, not to exceed a borrowing base consisting of eligible
accounts receivable to be acquired. The scheduled maturity date of the line of
credit is January 1, 1998. At the option of the Company, the interest rate
charged on the loans shall be either .5% in excess of the prime rate charged
by lender or 2.75% over the applicable LIBOR rate. The Company is obligated to
pay the lender a fee equal to .25% per annum of the average daily unused
portion of the credit commitment. The obligation of the lender to make
advances is subject to standard conditions. The collateral securing payment
consists of all Contracts pledged and all other assets of the Company. The
Company has agreed to maintain certain restrictive financial covenants. As of
March 31, 1997, the Company had borrowed $7,250,000 against this line of
credit.
INSTALLMENT NOTE PAYABLE - PACIFIC USA HOLDINGS CORP.
On October 9, 1996, the Company entered into a Securities Purchase Agreement
with Pacific USA Holdings Corp. ("Pacific") whereby, among other things,
Pacific agreed to acquire certain shares of the Company's Class A Common
Stock. On November 1, 1996, the Company entered into a Loan Agreement with
Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan"). On
February 7, 1997, the Securities Purchase Agreement was terminated by the
parties; however, the Pacific Loan and its corresponding Installment Note
remained in effect.
The Installment Note accrues interest at a fixed rate per annum of 9% and is
payable interest only from November, 1996 through November, 1997; monthly
principal payments of $100,000 are due beginning December, 1997, and
continuing each month thereafter through and including November, 1998. The
unpaid principal amount of the Installment Note, plus accrued and unpaid
interest, is due and payable November 16, 1998.
The collateral securing payment of the Installment Note consists of 100% of
the authorized, issued and outstanding shares of stock of MF Receivables Corp.
I, consisting of 1,000 shares of common stock $0.01 par value per share. Among
other covenants, the Company has agreed to maintain the monthly outstanding
balance of all retail installment contracts owned by MF Receivables Corp. I,
less the then outstanding principal balance of all debt issued by MF
Receivables Corp. I, at a level in excess of 3.5 times the then outstanding
principal balance of the Installment Note.
The Installment Note was paid in full on April 25, 1997 in exchange for
1,500,000 newly-issued shares of the Company's Class A Common Stock (See Note
8).
NOTE 5 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has two classes of common stock. The two classes are the same
except for the voting rights of each. Each share of Class B common stock is
entitled to three votes while each share of Class A common stock is entitled
to one vote.
STOCK OPTION PLANS
During the three months ended March 31, 1997, stock options to acquire
125,000 shares were granted to certain officers of the Company under the
Company's stock option plan. No options were exercised and options to acquire
75,000 shares were canceled.
ADOPTION OF NEW ACCOUNTING RULES
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant.
12
<PAGE>
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (the Model), for purposes of valuing its stock options
grants. The Model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, it requires the input of highly subjective assumptions including
the expected stock price volatility, expected dividend yields, the risk free
interest rate, and the expected life. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the value determined by the Model is
not necessarily indicative of the ultimate value of the granted options.
NOTE 6 - INCOME TAXES
The Company is required to measure current and deferred tax consequences of
all events recognized in the financial statements by applying the provisions
of enacted tax laws to determine the amount of taxes payable or refundable
currently or in future years. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. The major and primary
source of any differences is due to the Company accounting for income and
expense items differently for financial reporting and income tax purposes.
A reconciliation of the statutory federal income tax to the effective
anticipated tax is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ----------
<S> <C> <C>
Pretax income (loss) - continuing and
discontinued operations $(1,310,294) $(779,065)
============ ==========
Federal tax expense (benefit)
at statutory rate - 34% $ (445,500) $(264,882)
State income tax expense (benefit) (44,550) (26,488)
------------ ----------
$ (490,050) $(291,370)
Less valuation allowance $ (490,050) -
------------ ----------
Income tax expense (benefit) $ 0.00 $(291,370)
============ ==========
<FN>
</TABLE>
13
<PAGE>
Deferred taxes are recorded based upon differences between the financial
statements and tax basis of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities as of March 31,
1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Federal and State NOL tax carry-forward $ 5,832,512
Other 50,795
------------
5,883,307
Valuation Allowance 2,327,433
------------
Total deferred tax assets 3,555,874
Deferred tax liabilities:
Depreciation (109,468)
Allowances (1,864,755)
------------
Total deferred tax liability (1,974,223)
------------
Net deferred tax asset $ 1,581,651
============
<FN>
</TABLE>
NOTE 7 - DISCONTINUED OPERATIONS
In February 1996, the Company announced that it intends to discontinue its
CarMart retail used car sales and associated financing operations. In April
1996, the Company extended the expected disposal date of the CarMart business
from April 30, 1996 to May 31, 1996.
Effective May 31, 1996, the Company entered into a sublease agreement on all
of its former CarMart properties for the entire lease terms at an amount
approximately equal to the Company's obligation.
NOTE 8 - SUBSEQUENT EVENTS
On April 25, 1997, the Company executed a Conversion and Rights Agreement (the
"Conversion Agreement") with Pacific USA Holdings Corp. ("Pacific"). The
Conversion Agreement converted the entire $3,000,000 outstanding principal
amount of a secured loan made by Pacific to the Company into 1.5 million
restricted shares of the Company's Class A Common Stock. The Conversion
Agreement also released the Company from all liability under the Loan
Agreement executed on October 29, 1996 between the Company and Pacific
pursuant to which the $3 million loan was made.
On April 25, 1997, Morris Ginsburg, the Company's President, and Irwin L.
Sandler, the Company's Executive Vice President and Secretary/Treasurer,
agreed to grant an option (the "Option") to purchase all shares of the
Company's common stock owned by them to SPGC, LLC ("SPGC") at $4.00 per share.
The Option is subject to execution of a definitive option agreement
acceptable to the parties. The option agreement will also provide that
Messrs. Ginsburg and Sandler may "put" 50% of the shares owned or controlled
by them to SPGC on the second anniversary of the effectiveness of the Option
and the other 50% on the third anniversary of the Option at $4.00 per share.
Messrs. Ginsburg and Sandler have agreed to deliver to SPGC irrevocable
proxies for all shares owned or controlled by them upon effective of the
Option. The Option will become effective when SPGC provides security for the
prompt payment of the "put" price in the form of cash, letter of credit or
other collateral satisfactory to Messrs. Ginsburg and Sandler. SPGC is a
limited liability corporation controlled by The Stone Pine Companies, a
privately held group of financial services companies. In connection with the
Option, the Company has engaged SPGC to provide strategic advisory and
investment banking services.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
This quarterly report on form 10-QSB for the period ended March 31, 1997
contains forward looking statements. Additional written or oral foreward
looking statements may be made by the company from time to time in filings
with the Securities and Exchange Commission or otherwise. Such forward
looking statements are within the meaning of that term in section 27 A of the
Securities Act of 1933, as amended, and section 21 E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, projections of revenues, income, or loss, capital expenditures,
plans for future operations, financing needs or plans, objectives related to
the Automobile Receivables and the related allowance, and plans related to
products or services of the Company, as well as assumptions related to the
foregoing.
Foreward looking statements are inherently subject to risks and uncertainties
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward looking statements. Statements in this Quarterly
Report included in the Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others that could contribute to or cause
such differences. Additional factors that could cause actual results to
differ from materially from those expressed in such forward looking statements
are set forth in Exhibit 99 to the company's annual report filed on form
10-KSB.
SUMMARY
The company's revenues and net income (loss) from continuing operations
primarily are derived the Company's Loan Portfolio consisting of Contracts
purchased from the Dealer Network, Contracts purchased from third party
originators, and Contracts purchased from vehicle sales at the Companies
Dealerships.
In February 1996 the Company announced that it intended to discontinue its
CarMart retail used car sales and its associated financing operations related
to its CarMart business. The CarMart business ceased operations on May 31,
1996. The results of operations of the CarMart business for 1996 were included
in the loss on disposal.
The average discount on all Contracts purchased pursuant to discounted Finance
Programs during the quarters ended March 31, 1997 and 1996 was approximately
4.6% and 10% respectively. The company services all of the loans that it
owns. The loan portfolio at March 31, 1997 carries a contract annual
percentage rate of interest that approximates 23.23% before discounts and has
an original weighted average term of approximately 50 months. The average
amount financed per Contract for the quarters ended March 31, 1997 and 1996
was approximately $10,518 and $8,621 respectively.
RESULTS OF OPERATION
OVERVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
Quarter Ended March 31,
<S> <C> <C>
(dollars in thousands, except per share amounts) 1997 1996
----------- -----------
Total revenues $ 3,387 $ 3,222
Total costs and expenses $ 4,697 $ 3,851
Income (loss) from continuing operations before income taxes $ (1,310) $ (629)
Income tax expense (benefit) 0 $ (235)
Income (loss) from continuing operations $ (1,310) $ (394)
(Loss) on disposal of discontinued business, net of income taxes. - $ (94)
Net income (loss) $ (1,310) $ (488)
Net income (loss) per share $ (0.19) $ (0.07)
Weighted average number of shares outstanding 6,972,094 6,895,779
<FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
INCOME STATEMENT DATA
AS A % OF OUTSTANDING LOAN PORTFOLIO
Quarter Ended March 31,
<S> <C> <C>
1997 1996
------------ ------------
Average Interest Bearing Loan Portfolio Balance $80,346,152 $60,304,023
============
Interest Income 16.25% 21.18%
Interest Expense 6.97% 6.97%
------------ ------------
9.28% 14.21%
Operating Expenses 15.83% 16.58%
Provision for Credit Losses 0.58% 2.00%
Other Income -0.61% -0.19%
------------ ------------
15.80% 18.38%
Loss from continuing operations before income taxes -6.52% -4.17%
Income Tax Benefit - -1.56%
------------ ------------
Loss from continuing operations -6.52% -2.61%
Loss on disposal of discontinued business, net of taxes 0 -0.62%
------------ ------------
Net Loss -6.52% -3.23%
<FN>
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
<S> <C> <C>
March 31, 1997 December 31, 1996
--------------- ------------------
(dollars in thousands)
Total assets $ 92,730 $ 95,264
Total liabilities $ 79,038 $ 80,262
Stockholders' equity $ 13,692 $ 15,002
<FN>
</TABLE>
The Company's revenues increased 6% from $3.2 million in the first quarter of
1996 to $3.4 million in the comparable 1997 period. Net income (loss)
increased from $(0.5) million in 1996 to $(1.3) million in 1997. Earnings
(loss) per share for 1997 were $ (0.19), based on 7.0 million weighted
average shares outstanding, compared with $(0.07) per share, based on 6.9
million weighted average shares outstanding, for 1996.
16
<PAGE>
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
SELECTED OPERATING DATA
Quarter Ended March 31,
<S> <C> <C>
(dollars in thousands, except where noted) 1997 1996
-------- -------
Interest income $ 3,265 $3,193
Other income $ 122 $ 29
Provision for credit losses $ 117 $ 301
Operating expenses $ 3,179 $2,499
Interest expense $ 1,401 $1,051
Operating expenses as a % of revenues 94% 78%
Contracts from Dealer Network 607 948
Contracts from Company Dealerships 0 104
-------- -------
Total contracts 607 1,052
Average amount financed (dollars) $10,518 $8,621
<FN>
</TABLE>
REVENUES
Total revenues for the quarter ended March 31, 1997 increased $.2 million
when compared to the same period in 1996 primarily due to a one-time credit of
$120,000 from the company's forced place insurance provider and an
increase of $72,000 in interest income when compared to the same period in
1996. The rate of interest income earned for the quarter ended March 31, 1997
was 16.25% based on an average interest bearing portfolio balance of
$80,346,152 as compared to a rate of interest income earned of 21.18% based on
an average interest bearing portfolio balance of $60,304,023 for the quarter
ended March 31, 1996. The decrease in effective yield reported by the company
for the first quarter of 1997 is lower than that of the prior years'
comparable quarter due primarily to changing the Company's portfolio mix,
resulting in lower contract interest rates and lower purchase discounts.
Acquisition of Contracts with lower interest rates and discounts was due to
increased competition in the sub-prime automobile finance industry and the
Company's decision to increase the credit quality of its loans. The Company's
management believes the yields for the first quarter of 1997 should be
representative of loans purchased for the balance of the year using similar
programs and buying criteria which are subject to change based on the
Company's future business plans.
The lower reported interest rate - when compared to the contract annual
percentage rate of interest (23.23% for the 3 months ended March 31, 1997 and
approximately 25% for the three months ended March 31, 1996) - results from
the Company's use of the excess interest method of accounting. Under this
method the Company uses part of its interest income as well as contract
discounts and a provision for credit losses to establish its allowance for
credit losses on its portfolio over their entire life.
The most significant aspect of the growth of the company's loan portfolio is
attributable to loans generated from the Dealer Network during 1996. During
1996, the Company's loan portfolio increased 33% from $62.2 million at
December 31, 1995 to $82.9 million at December 31, 1996. The number of
contracts generated from the Dealer Network increased 25% during 1996 and the
dollar value of contracts acquired increased $21.5 million or 51%. The
increase in contracts mainly was due to the expansion of the Dealer Network
during 1996.
During the first quarter of 1997 the Company's net Automobile Receivables
decreased from $81.9 million at December 31, 1996 to $78.8 million at March
31, 1997. During the three month period ended March 31, 1997, the Company
originated 607 loans totaling $6.4 million with an average amount financed of
$10,518 as compared to loan originations of 1052 totaling $9.7 million with
an average amount financed of $8,621 for the three months ended March 31,
1996. The average discount on all contracts purchased decreased from 10% in
1996 to approximately 4.6% in 1997.
The decline in the number and dollar value of loan originations during the
first three months of 1997 as compared to the first three months of 1996 of
42.3% and 29.6% respectively, as well as the decline in purchase discounts of
approximately 50% and the increase in average amount financed of 22%, resulted
from a change in Monaco's business philosophy in the latter part of 1996
which carried over into the first quarter of 1997. This change resulted from
the completion of the company's credit scoring system and its restructuring as
a result of closing its CarMart retail sales and financing operations and
ceasing its deep discount loan acquisition programs. All of these measures
were aimed at increasing the credit quality of the Company's loan portfolio.
17
<PAGE>
At March 31, 1997 only $3.6 million of the company's Auto Receivable Loan
Portfolio were generated from the discontinued CarMart operations as compared
to 10.3 million or 21% of its portfolio at March 31, 1996.
COSTS AND EXPENSES
The provision for credit losses decreased $0.2 million from $0.3 million in
the quarter ended March 31, 1996 to $0.1 million in the comparable 1997
period. The provision for credit losses represents estimated current losses
based on the Company's risk analysis of historical trends and expected future
results. The decrease in the provision for credit losses primarily was due to
the introduction of the excess interest method to record allowances effective
January 1, 1995 (see Note 2), as well as changes in certain of the Company's
programs. Net charge-offs as a percentage of average net automobile
receivables decreased from 6.0% in the first quarter of 1996 to 3.0% in the
first quarter of 1997. Although the Company believes that its allowance for
credit losses is sufficient for the life of its current portfolio, a provision
for credit losses may be charged to future earnings in an amount
sufficient to maintain the allowance. The Company had 2.2% of its loan
portfolio over 60 days past due at December 31, 1996 compared with 2.5% at
March 31, 1997.
The Company believes that the decrease in net charge-offs as a percentage of
Average Net Automobile Receivables is due to the following factors:
1. Portfolio mix; Changes in the composition of the Company's portfolio,
due specifically to closing the CarMart retail stores and elimination of the
high interest rate deep discount programs, will reduce charge-offs as a
percentage of average automobile receivables.
2. Credit quality; All originations subsequent to August 31, 1996 were
acquired using the company's credit scorecard including more stringent credit
criteria. These Contracts should result in lower net charge-offs and higher
risk adjusted yields in the future than for comparable periods in 1996.
3. Collections and recoveries; In February 1997, the Company reorganized
its collection and recovery departments. The top three people in charge of
these departments were replaced with individuals with many years of experience
in collecting sub-prime automobile contracts. It is too soon to determine
whether changes in the department are partially responsible for the reduction
in net charge-offs experienced in February, March and April of 1997 as
compared to the same months of 1996.
The allowance for credit losses, which anticipates losses based on the
Company's risk analysis of historical trends and expected future results, is
continually reviewed and adjusted to maintain the allowance at a level which,
in the opinion of management, provides adequately for existing and future
losses that may develop in the present portfolio. A provision for credit
losses is charged to earnings in an amount sufficient to maintain the
allowance. However, since the risk model uses past history to predict the
future, changes in national and regional economic conditions, borrower mix and
other factors could result in actual losses differing from initially
predicted losses.
Operating expenses increased $0.7 million, or 28%, from $2.5 million in
the first quarter of 1996 to $3.2 million in the comparable 1997 period. This
increase primarily was due to an increase in salaries and benefits of
$125,000, consulting and professional fees of $164,000 and depreciation and
amortization of $76,000. The major components of the increase in operating
expenses are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(dollars in thousands) 1997 1996 Increase
------- ------- ---------
Salaries and benefits $1,527 $1,402 $ 125
Depreciation and amortization 404 328 76
Consulting and professional fees 370 206 164
Telephone 156 87 69
Travel and entertainment 75 75 -
Loan origination fees (81) (272) 191
Rent/Office Supplies/Postage 242 219 23
All other 487 454 33
-------
$3,180 $2,499 $ 681
======= ====== =========
<FN>
</TABLE>
Interest expense increased $0.4 million, or 40%, from $1.0 million in the
first quarter of 1996 to $1.4 million in the first quarter of 1997. This
increase primarily was due to an increase in borrowings that provided the
necessary working capital for the Company to increase its loan portfolio from
$60.3 million at March 31, 1996 to $78.8 million at March 31, 1997. Since
March 31, 1996, net increases in the Company's debt were as follows:
18
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Notes payable - LaSalle $ 7,250
Installment note payable 3,000
Convertible senior subordinated debt (417)
Automobile receivables-backed notes 8,844
--------
Total $18,677
========
<FN>
</TABLE>
The average annualized interest rate on the Company's debt was 7.24% for the
first quarter of 1997 versus 7.3% for the first quarter of 1996. The decline
in rate was primarily due to lower interest rates associated with the
Company's Series 1995-A Notes as compared to those charged during the prior
period.
The annualized net interest margin percentage, representing the difference
between interest income and interest expense divided by average finance
receivables, decreased from 14.2% in the first quarter of 1996 to 9.3% in the
first quarter of 1997. The decrease was due primarily to the amortization of
excess interest receivable as described in Note 2 of the Notes to Consolidated
Financial Statements.
NET INCOME
Net (loss) from continuing operations increased $0.9 million from $(0.4) in
the first quarter of 1996 to $(1.3) million in the first quarter of 1997. This
increase in loss (decrease to net income) was primarily due to the
following changes on the Consolidated Statement of Operations:
<TABLE>
<CAPTION>
<S> <C>
Increase (Decrease) to Net Income
(in millions of dollars) From Cont. Operations
-----------------------------------
Interest and other income $ 0.2
Provision for credit losses 0.2
Operating expenses (0.7)
Interest expense (0.4)
Income tax expense (0.2)
-----------------------------------
Net (decrease) to net income
from continuing operations $ (0.9)
===================================
<FN>
</TABLE>
Effective October 1, 1996, the Company adopted a new methodology for reserving
for and analyzing its loan losses. This accounting method is commonly referred
to as static pooling. The static pooling reserve methodology allows the
Company to stratify its Automobile Receivables portfolio, and the related
components of its Allowance for Credit Losses (i.e. discounts, excess
interest, charge offs and recoveries) into separate and identifiable quarterly
pools. These quarterly pools, along with the Company's estimate of future
principle losses and recoveries, are analyzed quarterly to determine the
adequacy of the Allowance for Credit Losses. The method previously used by the
Company to analyze the Allowance for Credit Losses was based on the total
Automobile Receivables portfolio.
As part of its adoption of the static pooling reserve method, where necessary,
the Company adjusted its quarterly pool allowances to a level necessary to
cover all anticipated future losses (i.e. life of loan) for each related
quarterly pool of loans.
Under static pooling, excess interest and discounts are used to increase the
Allowance for Credit Losses and represent the Company's primary reserve for
future losses on its portfolio. To the extent that any quarterly pool's excess
interest and discount reserves are insufficient to absorb future estimated
losses, net of recoveries, adjusted for the impact of current delinquencies,
collection efforts, and other economic indicators including analysis of the
Company's historical data, the Company will provide for such deficiency
through a charge to the Provision for Credit Losses and the establishment of
an additional Allowance for Credit Losses. To the extent that any excess
interest and discount reserves are determined to be sufficient to absorb
future estimated losses, net of recoveries, the difference will be accreted
into interest income on an effective yield method over the estimated remaining
life of the related quarterly static pool.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows for the quarters ended March 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
CASH FLOW DATA
Quarter Ended March 31,
<S> <C> <C>
(dollars in thousands) 1997 1996
-------- --------
Cash flows provided by (used in):
Operating activities $ 42 $ 1,300
Investing activities 1,560 (1,031)
Financing activities (1,495) 2,022
-------- --------
Net increase in cash and cash equivalents $ 107 $ 2,291
======== ========
<FN>
</TABLE>
The Company's business has been and will continue to be cash intensive. The
Company's principal need for capital is to fund cash payments made to Dealers
and to third-party originators in connection with purchases of installment
contracts. These purchases have been financed through the Company's capital,
private placement borrowings and cash flows from operations. It is the
Company's intent to use its Revolving Note and revolving line of credit, as
described in detail below, to provide the liquidity to finance the purchase of
installment Contracts.
In order to further insure the Company's ability to finance the purchase of
installment contracts and thereby continue to grow, the Company is seeking to
obtain an additional warehouse credit facility on terms more favorable than
the Revolving Note described in Note 4 to the Company's Consolidated Financial
Statements. If the Company is successful in obtaining such a credit facility,
it will provide the Company with additional working capital to the extent that
the new cash advance terms are more favorable than the Revolving Note.
Although the Company believes it will be able to consummate such a new credit
facility, no assurance can be given that it will be consummated.
In addition to its efforts to obtain a new credit facility, as described
above, the Company on November 1, 1996, obtained a $3 million term loan from
Pacific USA Holdings Corp., which was converted to 1,500,000 shares of Class
A Common Stock as of April 25, 1997, as described in Notes 4 and 8 to the
Company's Consolidated Financial Statements.
The Agreements underlying the terms of the Company's Automobile Receivable -
Backed Securitization Program ("Securitization Program") and the corresponding
Revolving Notes and Warehouse Notes, described below, contain certain
covenants which if not complied with, could materially restrict the Company's
liquidity. Although the Company endeavors to comply with these covenants, no
assurance is given that the Company will continue to be in compliance.
Furthermore, if Net Charge-Offs increase in the future, the Company's
liquidity and its ability to increase its loan portfolio may be impacted
negatively. Under the terms of the Revolving Note, approximately 80% of the
face amount of Contracts, in the aggregate, is advanced to the Company for
purchasing qualifying Contracts. The balance must be financed through capital.
During 1993, the Company completed the Note Offering described in Note 4 of
the Notes to Consolidated Financial Statements. In the Note Offering, the
Company sold 7% Convertible Subordinated Notes in the aggregate principal
amount of $2,000,000. The purchasers of the Notes exercised an option to
purchase an additional $1,000,000 aggregate principal amount on September 15,
1993. The principal amount of the Notes, plus accrued interest thereon, is due
March 1, 1998. The Notes are convertible into Class A Common Stock of the
Company at any time prior to maturity at a conversion price of $3.42 per
share, subject to adjustment for dilution. Certain of these Notes with an
aggregate principal amount of $1,615,000 were converted in 1994 and 1995,
resulting in the issuance of 472,219 shares of Class A Common Stock.
On November 1, 1994, the Company sold in a private placement unsecured Senior
Subordinated Notes (Senior Notes") in the principal amount of $5,000,000 to
Rothschild North America, Inc. Interest is due and payable the first day of
each quarter commencing on January 1, 1995. Principal payments in the amount
of $416,667 are due and payable the first day of January, April, August and
October of each year, commencing January 1, 1997. The unpaid principal amount
of the Notes, plus accrued and unpaid interest, are due October 1, 1999.
20
<PAGE>
In November 1994, MF Receivables Corp. I ("MF Receivables") sold, in a private
placement, $23,861,823 of 7.6% automobile receivables- backed notes ("Series
1994-A Notes"). The Series 1994-A Notes accrue interest at a fixed rate of
7.6% per annum. The Series 1994-A Notes are expected to be fully amortized by
March 1998; however, the debt maturities are based on principal payments
received on the underlying receivables, which may result in a different final
maturity.
In May of 1995, MF Receivables issued its Floating Rate Auto Receivable-Backed
Note ("Revolving Note" or "Series 1995-A Note"). The Revolving Note has a
stated maturity of October 16, 2002. MF Receivables acquires Contracts from
the Company which are pledged under the terms of the Revolving Note and
Indenture for up to $40 million in borrowing. Subsequently, the Revolving Note
is repaid by the proceeds from the issuance of secured Term Notes or repaid
from collection of principal payments and interest, on the underlying
Contracts. The Revolving Note can be used to borrow up to an aggregate of $150
million through May 16, 1998. The Term Notes have a fixed rate of interest and
likewise are repaid from collections on the underlying Contracts. An Indenture
and Servicing Agreement require that the Company and MF Receivables maintain
certain financial ratios, as well as other representations, warranties and
covenants. The Indenture requires MF Receivables to pledge all Contracts owned
by it for repayment of the Revolving Note or Term Notes, including Contracts
pledged as collateral for Series 1994-A Term Notes and the Series 1995-B Term
Notes, as well as all future Contracts acquired by MF Receivables.
The Series 1995-A Note bears interest at LIBOR plus 75 basis points. The
initial funding of this Note was $26,966,489 on May 16, 1995. The Company, as
servicer, provides customary collection and servicing activities for the
Contracts. The Revolving Note has a stated maturity of October 16, 2002 and an
expected termination date of May 16, 1998. The maximum limit for the Series
1995-A Note is $40 million. On September 15, 1995, MF Receivables issued the
Series 1995-B Term Notes ("Series 1995-B Notes") in the amount of $35,552,602.
The Series 1995-B Notes accrue interest at a fixed note rate of 6.45% per
annum. The Series 1995-B Notes are expected to be fully amortized by June
1999; however, the debt maturities are based on principal payments received on
the underlying receivables which may result in a different final maturity. The
proceeds from the issuance of the Series 1995-B Notes were used to retire, in
full, the 1995-A Note, which will be used to accumulate an additional $114.4
million in $40 million increments.
The assets of MF Receivables are not available to pay general creditors of the
Company. In the event there is insufficient cash flow from the Contracts
(principal and interest) to service the Revolving Note and Term Notes, a
nationally recognized insurance company (MBIA) has guaranteed to repay. The
MBIA insured Series 1994-A Notes, Series 1995-A Note and Series 1995-B Notes
received a corresponding AAA rating by Standard and Poor's and an Aaa rating
by Moody's and were purchased by institutional investors. The underlying
Contracts accrue interest at rates of approximately 21% to 29%. All cash
collections in excess of disbursements to the Series 1994-A, Series 1995-A and
Series 1995-B noteholders and other general disbursements are paid to MF
Receivables monthly.
As of March 31 1997, the Series 1994-A Notes, Series 1995-A Note and Series
1995-B Notes and underlying receivables backing those notes were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Underlying
(dollars in thousands) Note Balance Receivable Balance
------------- -------------------
Series 1994-A Notes $ 3,916 $ 3,743
Series 1995-A Note 39,994 50,767
Series 1995-B Notes 12,414 13,060
------------- -------------------
Total $ 56,324 $ 67,570
============= ===================
<FN>
</TABLE>
On January 9, 1996, the Company entered into a Purchase Agreement for the sale
of an aggregate of $5 million in principal amount of 12% Convertible Senior
Subordinated Notes due 2001 (the "12% Notes"). This agreement was subsequently
amended and passed by the Company's Board of Directors on September, 10, 1996.
Interest on the 12% Notes is payable monthly at the rate of 12% per annum and
the 12% Notes are convertible, subject to certain terms contained in the
Indenture, into shares of the Company's Class A Common Stock, par value $.01
per share, at a conversion price of $4.000 per share, subject to adjustment
under certain circumstances. The 12% Notes were issued pursuant to an
Indenture dated January 9, 1996, between the Company and Norwest Bank
Minnesota, N.A., as trustee. The Company agreed to register, for public sale,
the shares of restricted Common Stock issuable upon conversion of the 12%
Notes. The 12% Notes were sold pursuant to an exemption from the registration
requirements under the Securities Act of 1933, as amended.
Provisions have been made for the issuance of up to an additional $5 million
in principal amount of the 12% Notes on or before September 10, 1998, with an
initial conversion price of $3.00 per share.
21
<PAGE>
In January 1996, the Company entered into a revolving line of credit agreement
with LaSalle National Bank providing a line of credit of up to $15 million,
not to exceed a borrowing base consisting of eligible accounts receivable to
be acquired. The scheduled maturity date of the line of credit is January 1,
1998. At the option of the Company, the interest rate charged on the loans
shall be either .5% in excess of the prime rate charged by the lender or 2.75%
over the applicable LIBOR rate. The Company is obligated to pay the lender a
fee equal to .25% per annum of the average daily unused portion of the credit
commitment. The obligation of the lender to make advances is subject to
standard conditions. The collateral securing payment of the line of credit
consists of all Contracts pledged and all other assets of the Company. The
Company has agreed to maintain certain restrictive loan covenants. As of March
31, 1997, the Company had borrowed $7,250,000 against this line of credit.
On October 9, 1996, the Company entered into a Securities Purchase Agreement
with Pacific USA Holdings Corp. ("Pacific") whereby, amongst other things,
Pacific agreed to acquire certain shares of the Company's Class A Common
Stock. On November 1, 1996, the Company entered into a Loan Agreement with
Pacific whereby Pacific loaned the Company $3 million ("Pacific Loan"). On
February 7, 1997, the Securities Purchase Agreement was terminated by the
parties; however, the Pacific Loan and its corresponding Installment Note
remained in effect.
The Installment Note accrues interest at a fixed rate per annum of 9% and is
payable interest only from November, 1996 through November, 1997; monthly
principal payments of $100,000 are due beginning December, 1997, and
continuing each month thereafter through and including November, 1998. The
unpaid principal amount of the Installment Note, plus accrued and unpaid
interest, is due and payable November 16, 1998.
The collateral securing payment of the Installment Note consists of 100% of
the authorized, issued and outstanding shares of stock of MF Receivables Corp.
I, consisting of 1,000 shares of common stock $0.01 par value per share. Among
other covenants, the Company has agreed to maintain the monthly outstanding
balance of all retail installment contracts owned by MF Receivables Corp. I,
less the then outstanding principal balance of all debt issued by MF
Receivables Corp. I, at a level in excess of 3.5 times the then outstanding
principal balance of the Installment Note. (See Note 8 of Notes to
Consolidated Financial Statements.)
In March 1996, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of Class A Common Stock,
representing approximately 10% of its Class A Common Stock outstanding.
Subject to applicable securities laws, repurchases may be made at such times,
and in such amounts, as the Company's management deems appropriate. As of
March 31, 1997, the Company had repurchased 26,900 shares of Class A Common
Stock.
The Company has never paid cash dividends on its Common Stock and does not
anticipate a change in this policy in the foreseeable future. Certain of the
Company's loan agreements contain covenants that restrict the payment of cash
dividends.
The Company's cash needs will, in part, continue to be funded through a
combination of earnings and cash flow from operations and its existing
warehouse credit facility and line of credit. In addition, the Company
continues to pursue additional sources of funds including, but not limited to,
various forms of debt and/or equity. The ability of the Company to maintain
past growth levels will, in large part, be dependent upon obtaining such
additional sources of funding, of which no assurance can be given. Failure to
obtain additional funding sources will materially restrict the Company's
future business activities and could, in the future, require the Company to
sell certain of the Loans in its Portfolio to meet its liquidity
requirements.
OTHER
ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board ("FASB")issued Statement
No. 123, Accounting for Stock Based Compensation, (SFAS 123) which encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options and other equity instruments to employees. SFAS
123 is required for such grants, described above, to acquire goods and
services from non-employees. Additionally, although expense recognition is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting rules to disclose pro forma net income and earnings per share
information using the new method. The Company has adopted SFAS 123 in the
fourth quarter of fiscal 1995 and disclosed pro forma net income and earnings
per share information related to the 272,500 employee stock options granted in
1996 in Note 6 of the Notes to Consolidated Financial Statements.
In June 1996, the FASB issued SFAS No. 125, (Subsequently amended by SFAS No.
127) Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. The Company intends to adopt SFAS No. 125.
22
<PAGE>
effective January 1, 1997. Under SFAS No. 125, future asset securitization in
which control of the securitized financial assets is transferred would be
accounted for by recognizing all assets sold and recognizing in earnings any
gain or loss on the sale.
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company from inception to March 31, 1997.
FUTURE EXPANSION AND STRATEGY
The Company's strategy is to increase the size of its loan portfolio
while maintaining the integrity of the credit quality of auto loans acquired.
The Company plans to implement its growth strategy by: (1) Expanding its
Dealer Network; (2) Increasing the number and amount of loans purchased from
third-party originators; (3) Purchasing portfolios of seasoned loans
originated by others; (4) Continuing its efforts to increase the credit
quality of its portfolios and reduce credit losses and charge-offs; and (5)
Decrease the percentage of Operating Expenses to Total Portfolio Outstanding
by increasing the Portfolio while decreasing Operating Expenses.
During 1996 the Company acquired Contracts from approximately 425 Dealers in
21 states, the majority of which were purchased in 5 states ("Primary
States"). In order to increase efficiency and reduce operating expenses , the
Company in 1997 has temporarily reduced its marketing representatives from 16
to 6 in the Primary States. In order to expand it's Dealer Network in the last
three quarters of 1997 the Company intends selectively to hire and train new
marketing representatives and to emphasize quality Dealer service.
In the latter part of 1996 the Company initiated a program of purchasing loans
from a third-party originator for a fee. These loans were underwritten by the
third-party originator to conform to standards established by the Company.
All loans purchased by the Company are either re-underwritten or audited by
Company personnel prior to funding. During the first quarter of 1997 the
Company has entered into agreements with two similar originators and is
negotiating an agreement with an additional party to provide contracts for the
Company to purchase These third-party agreements, if successful, may provide
additional loan production for the Company without certain of the costs
associated with purchasing loans through its dealer network.
The Company also plans to pursue the purchase of loan portfolios previously
originated by sub-prime automobile contract originators. The Company does not
know, at this time, if such portfolios can be acquired at prices that provide
a risk adjusted yield to the Company that is sufficient to meet the Company's
criteria. Nor does the Company know if Capital or credit facilities can be
obtained to fund such purchases.
Other strategies for the future include forming a strategic alliance with
another company, either currently engaged in or interested in entering the
sub-prime automobile finance industry. An alliance, if formed, may result in
additional Capital and warehouse lines of credit as well as increased loan
volume and cost efficiencies obtained by combining operations.
In addition to the above, the Company intends to pursue contractual servicing
arrangements, whereby, the Company will earn fee income by providing servicing
of loan portfolios owned by third-parties. Although no assurance can be given
that such contractual arrangements will be consummated, the Company believes
such opportunities exist and intends to pursue them accordingly.
Implementation of the foregoing strategy will be dependent upon a number of
factors including, but not limited to: i) competition; ii) marketing
efficiency; iii) ability of the Company to acquire Contracts at prices
commensurate with estimated risk; and, iv) maintaining and increasing capital
and warehouse lines of credit, of which no assurance is given.
23
<PAGE>
MONACO FINANCE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(b.) Certain of the Company's loan agreements, including loan agreements
entered into in the first quarter of 1996, contain covenants that restrict the
payment of cash dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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:
Exhibit 11 - Computation of Net Earnings per Common and Common Equivalent
Share.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8 - K:
A Form 8-K dated February 7, 1997 was filed announcing the termination of
the previously reported Securities Purchase Agreement, Stock Purchase Warrant
and Shareholder Option Agreement with Pacific USA Holdings Corp.
24
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
MONACO FINANCE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
THREE MONTHS ENDED MARCH 31,
1997 1996
------------ -----------
<S> <C> <C>
EARNINGS (LOSS) PER SHARE - PRIMARY AND FULLY DILUTED
NET EARNINGS (LOSS)
- -----------------------------------------------------------
Income (loss) from continuing operations $(1,310,294) $ (393,795)
(Loss) from discontinued operations - -
(Loss) on disposal of discontinued business - (93,900)
------------ -----------
Net income (loss) $(1,310,294) $ (487,695)
============ ===========
AVERAGE SHARES OUTSTANDING
- -----------------------------------------------------------
Weighted average shares outstanding 6,972,094 6,895,779
Shares issuable from assumed exercise of stock options (a) (b) (b)
Shares issuable from assumed exercise of underwriters'
units (a) (b) (b)
Shares issuable from assumed exercise of stock
warrants (a) (b) (b)
------------ -----------
Common stock and common stock equivalents - primary 6,972,094 6,895,779
Shares issuable from assumed conversion of 7% subordinated
debt (c) (b) (b)
------------ -----------
Common stock and common stock equivalents - fully
diluted 6,972,094 6,895,779
============ ===========
EARNINGS (LOSS)PER SHARE - PRIMARY AND FULLY DILUTED
- -----------------------------------------------------------
Income (loss) from continuing operations $ (0.19) $ (0.06)
(Loss) on disposal of discontinued business - (0.01)
------------ -----------
Net income (loss) per share $ (0.19) $ (0.07)
============ ===========
<FN>
Notes:
(a) Common Stock equivalents are calculated using the treasury stock method.
(b) The computation of average number of common stock and common stock
equivalent shares outstanding excludes anti-dilutive common equivalent shares.
(c) Subordinated debentures were not included in the calculation of primary
earnings per share in accordance with paragraph 33 of APB Opinion No. 15.
</TABLE>
27
<PAGE>
EXHIBIT 27
<TABLE>
<CAPTION>
MONACO FINANCE, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
FOR THE THREE MONTHS ENDED MARCH 31, 1997
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
Item 3 -mos Year-to-date
- ---------------------------------------------------------- ------------ --------------
<S> <C> <C>
Fiscal year end 31-Dec-97 31-Dec-97
Period end 31-Mar-97 31-Mar-97
Period type 3 month 12 month
Cash and cash items $ 6,011,280 $ 6,011,280
Marketable securities $ 0 $ 0
Notes and accounts receivable trade $ 86,920,513 $ 86,920,513
Allowance for doubtful accounts ($8,119,144) ($8,119,144)
Inventory $ 0 $ 0
Total current assets $ 0 $ 0
Property, plant and equipment $ 3,839,749 $ 3,839,749
Accumulated depreciation $ 1,545,248 $ 1,545,248
Total assets $ 92,730,428 $ 92,730,428
Total current liabilities $ 0 $ 0
Bonds, mortgages and similar debt $ 77,542,451 $ 77,542,451
Preferred stock-mandatory redemption $ 0 $ 0
Preferred stock no-mandatory redemption $ 0 $ 0
Common stock $ 56,484 $ 56,484
Other stockholders' equity $ 13,691,710 $ 13,691,710
Total liabilities and stockholders' equity $ 92,730,428 $ 92,730,428
Net sales of tangible products $ 0 $ 0
Total revenues $ 3,387,120 $ 3,387,120
Cost of tangible goods sold $ 0 $ 0
Total costs and expenses applicable to sales and revenues $ 3,179,275 $ 3,179,275
Other costs and expenses $ 0 $ 0
Provision for doubtful accounts and notes $ 116,979 $ 116,979
Interest and amortization of debt discount $ 1,401,160 $ 1,401,160
Income before taxes and other items ($1,310,294) ($1,310,294)
Income tax expense $ 0 $ 0
Income/(loss) continuing operations ($1,310,294) ($1,310,294)
Discontinued operations $ 0 $ 0
Extraordinary items $ 0 $ 0
Cumulative effect-changes in accounting principals $ 0 $ 0
Net income (loss) ($1,310,294) ($1,310,294)
Earnings per share-primary ($0.19) ($0.19)
Earnings per share-fully diluted ($0.19) ($0.19)
<FN>
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MONACO FINANCE, INC.
Date: May 15, 1997
By: /s/ Morris Ginsburg
-------------------------
Morris Ginsburg
President,
By: /s/ Craig L. Caukin
-------------------------
Craig L. Caukin,
Executive Vice President
By: /s/ Michael H. Feinstein
-------------------------------
Michael H. Feinstein,
Chief Financial Officer
27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 6,011,280 6,011,280
<SECURITIES> 0 0
<RECEIVABLES> 86,920,513 86,920,513
<ALLOWANCES> (8,119,144) (8,119,144)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 3,839,749 3,839,749
<DEPRECIATION> 1,545,248 1,545,248
<TOTAL-ASSETS> 92,730,428 92,730,428
<CURRENT-LIABILITIES> 0 0
<BONDS> 77,542,451 77,542,451
0 0
0 0
<COMMON> 56,484 56,484
<OTHER-SE> 13,691,710 13,691,710
<TOTAL-LIABILITY-AND-EQUITY> 92,730,428 92,730,428
<SALES> 0 0
<TOTAL-REVENUES> 3,387,120 3,387,120
<CGS> 0 0
<TOTAL-COSTS> 3,179,275 3,179,275
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 116,979 116,979
<INTEREST-EXPENSE> 1,401,160 1,401,160
<INCOME-PRETAX> (1,310,294) (1,310,294)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,310,294) (1,310,294)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,310,294) (1,310,294)
<EPS-PRIMARY> (0.19) (0.19)
<EPS-DILUTED> (0.19) (0.19)
</TABLE>
