<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 0-26410
JAYHAWK ACCEPTANCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-2486444
- ----------------------------------- ------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
BRYAN TOWER
2001 Bryan Street, Suite 600, Dallas, TX 75201
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 754-1000
------------------
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
--- ---
At May 14, 1998, the latest practicable date, there were
27,785,326 shares of Common Stock, $.01 par value, outstanding.
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets at March 31, 1998 (Unaudited) and
December 31, 1997......................................................3
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997 (Unaudited)....................................4
Consolidated Statement of Shareholders' Equity for the three months
ended March 31, 1998 (Unaudited).......................................5
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (Unaudited)....................................6
Notes to Consolidated Financial Statements (Unaudited).................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................9
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................15
SIGNATURES.................................................................16
- ----------
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------------- --------------------
<S> <C> <C>
(UNAUDITED)
Cash and cash equivalents $ 1,582 $ 1,905
Restricted cash 448 1,426
Medical contracts receivable, net 12,943 13,085
Automotive contracts receivable, net 35,845 47,525
Furniture, fixtures and equipment, net 4,820 5,384
Other assets 1,534 1,361
-------------------- --------------------
Total assets $ 57,172 $ 70,686
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 5,016 $ 5,935
Dealer payable 8,466 8,436
Deferred provider fees, net 998 1,027
Unearned service contract fees -- 39
Notes payable (including $20,840 to the principal shareholder at
March 31, 1998 and December 31, 1997) 38,199 51,072
-------------------- --------------------
Total liabilities 52,679 66,509
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value; 40,000,000 shares authorized;
27,785,326 shares issued and outstanding at March 31, 1998
and December 31, 1997 278 278
Additional paid-in capital 93,722 93,722
Accumulated deficit (89,507) (89,823)
-------------------- --------------------
Total shareholders' equity 4,493 4,177
-------------------- --------------------
Total liabilities and shareholders' equity $ 57,172 $ 70,686
==================== ====================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
Revenues:
Finance charges $ 4,378 $ 9,203
Dealer and provider fees 874 3,299
Service contracts 42 1,549
------------------ ----------------
5,294 14,051
Costs and expenses:
Sales and marketing 749 3,772
Operating 3,204 6,325
Provision for credit losses -- 5,423
Provision for service contract claims -- 642
Interest 1,025 2,708
------------------ ----------------
4,978 18,870
------------------ ----------------
Income (loss) before reorganization expense 316 (4,819)
Reorganization expense -- 1,000
------------------ ----------------
Income (loss) before income taxes 316 (5,819)
Income taxes -- --
------------------ ----------------
Net income (loss) $ 316 $ (5,819)
================== ================
Basic net income (loss) per share $ .01 $ (0.24)
================== ================
Diluted net income (loss) per share $ .01 $ (0.24)
================== ================
Weighted average number of shares outstanding 27,785 23,924
================== ================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 278 $ 93,722 $ (89,823) $ 4,177
Net income -- -- 316 316
--------------- ---------------- ------------------ ----------------
Balance at March 31, 1998 $ 278 $ 93,722 $ (89,507) $ 4,493
=============== ================ ================== ================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
-------------------------------------------
1998 1997
-------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 316 $ (5,819)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 564 863
Loss on sale/write down of fixed assets -- 47
Provision for credit losses -- 5,423
Changes in operating assets and liabilities:
Installment contracts receivable (2,255) 832
Income taxes receivable -- 1,100
Other assets (173) 28
Dealer Payable 30 --
Accounts payable and accrued liabilities (912) (3,332)
Deferred dealer and provider fees, net (29) (188)
-------------------- ------------------
Net cash provided by operating activities (2,459) (1,046)
Cash flows from investing activities:
Payments to dealers and providers (2,304) (15,925)
Collections of principal on installment contracts receivable 16,335 24,637
Capital expenditures -- (1,848)
Decrease (increase) in restricted cash 978 2,019
-------------------- ------------------
Net cash provided by investing activities 15,009 8,883
Cash flows from financing activities:
Net borrowings (principal payments) under revolving credit facility (9,000) (9,220)
Proceeds from issuance of notes payable to principal shareholder -- 19,540
Principal payments on secured notes payable (3,873) (14,661)
Proceeds from sales of common stock, net -- 10
-------------------- ------------------
Net cash provided by (used in) financing activities (12,873) (4,331)
-------------------- ------------------
Net increase in cash and cash equivalents (323) 3,506
Cash and cash equivalents at the beginning of the period 1,905 253
-------------------- ------------------
Cash and cash equivalents at the end of period $ 1,582 $ 3,759
==================== ==================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,149 $ 2,777
==================== ==================
Cash paid for income taxes $ -- $ --
==================== ==================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Jayhawk
Acceptance Corporation and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, Jayhawk Services, Inc., Jayhawk
Funding Trust I ("Funding Trust"), and Jayhawk Medical Acceptance Corporation
("JMAC"). All significant intercompany balances and transactions have been
eliminated upon consolidation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, filed with the Securities and
Exchange Commission on April 15, 1998 (the "1997 10-K").
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. ("SFAS") 130, "Reporting Comprehensive
Income", which is effective for fiscal years beginning after December 15, 1997.
The Company adopted SFAS 130 on January 1, 1998. For the quarters ended March
31, 1998 and 1997, there was no difference between net income as reported by the
Company and comprehensive income as required to be reported by SFAS 130.
7
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Numerator:
Net income (loss) $ 316,000 $ (5,819,000)
================== ==================
Denominator:
Denominator for basic earnings per
share - weighted average shares 27,785,326 23,923,771
Effect of dilutive securities:
Stock options -- --
------------------ ------------------
Dilutive potential common shares -- --
Denominator for diluted earnings per
share - adjusted weighted average shares
and assumed conversions 27,785,326 23,923,771
================== ==================
Basic net income (loss) per share $ 0.01 $ (0.24)
================== ==================
Diluted net income (loss) per share $ 0.01 $ (0.24)
================== ==================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
TOTAL REVENUE. Total revenue decreased from $14.1 million for the three
months ended March 31, 1997 to $5.3 million for the same period in 1998, a
decrease of $8.8 million or 62.4%. The decrease was due to an $8.8 million, or
69.8%, decrease in revenues attributable to the Company's automobile finance
program. Revenues attributable to JMAC's elective health care program
approximated $1.4 million in the first quarter of both 1998 and 1997. JMAC
incurred losses of approximately $257,000 in the three months ended March 31,
1998, and the Company anticipates that JMAC will continue to incur losses until
JMAC obtains additional financing. See "--Liquidity and Capital Resources".
The decrease in total revenue reflects decreased finance charges, dealer and
provider fees, and service contract revenue.
The decrease in finance charges resulted primarily from the increased
number of non-accrual automotive installment sale contracts ("Automotive
Contracts") held in the Company's portfolio and from the overall reduction of
the Company's Automotive Contract portfolio as existing Automotive Contracts are
repaid. The Company's Automotive Contracts receivable, net of allowance for
credit losses, decreased from $244.5 million at March 31, 1997 to $35.8 million
at March 31, 1998, a decrease of $208.7 million or 85.4%. Finance charges from
Automotive Contracts decreased from $9.0 million for the three months ended
March 31, 1997 to $3.8 million for the same period in 1998, a decrease of $5.2
million or 57.8%. The Company's Medical Contracts receivable, net of allowance
for credit losses, increased from $11.1 million at March 31, 1997 to $12.9
million at March 31, 1998, and finance charges from medical procedure
installment sale contracts ("Medical Contracts") increased from $161,000 during
the first quarter of 1997 to $556,000 for the same period in 1998.
The average annualized yield on the Company's automobile finance portfolio
increased from 10% to 13% for the three months ended March 31, 1997 and March
31, 1998, respectively. The Company has not purchased any new Automotive
Contracts during 1998. The yield on the Company's automobile finance portfolio
for the three months ended March 31, 1998 was impacted by the amount of actual
collections compared to the estimated future collections used by the Company in
establishing the carrying value of the portfolio at December 31, 1997. See "--
Credit Loss Policy" and the 1997 10-K. The Company recognizes cash basis income
on non-accrual Automotive Contracts provided the estimated net realizable value
of the portfolio continues to equal or exceed the carrying value. During the
three months ended March 31, 1998, actual collections exceeded estimated future
collections used in the December 31, 1997 valuation.
Non-accrual Automotive Contracts as a percentage of the total number of
active (consisting of contracts that have not been charged off for financial
statement purposes) Automotive Contracts in the Company's portfolio increased
from 17.9% at March 31, 1997 to 52.9% at March 31, 1998. Due to the
discontinuation of Automotive Contract purchases, the Company anticipates that
the average age of the Automotive Contracts included in its portfolio will
increase, resulting in an increase in non-accrual Automotive Contracts as a
percentage of the total number of Automotive Contracts included in the Company's
portfolio. At March 31, 1998, the non-accrual Medical Contracts as a percentage
of the total number of Medical Contracts included in the Company's portfolio was
16.7%. The Company anticipates that as the average age of the Medical Contracts
included in its portfolio increases, non-accrual Medical Contracts as a
percentage of total Medical Contracts in the portfolio will also increase.
Dealer and provider fees decreased from $3.3 million for the three months
ended March 31, 1997 to $0.9 million for the three months ended March 31, 1998,
a decrease of $2.4 million or 72.7%. As no new Dealers are enrolling in the
Company's automobile finance program, no dealer fees were recognized during the
three months ended March 31, 1998, resulting in a $2.0 million decrease in
revenues as compared to the same period in 1997. Fees from providers related to
Medical Contracts purchased in JMAC's elective health care program, approximated
$0.9 million for the first three months of 1998 compared to $1.3 million for the
same period in 1997, a decrease of $0.4 million or 30.8%. This decrease is the
result of lower volumes of new provider enrollments and new loan originations in
the first quarter of 1998 compared to the same period in 1997.
9
<PAGE>
Service contract revenue was $42,000 for the three months ended March 31,
1998 as compared with $1,549,000 for the same period in 1997. Service contract
revenue is recognized over the term of the service contract. Since the Company
has discontinued new Automotive Contract purchases and because substantially all
service contracts related to existing loans have expired, the Company does not
expect to record service contract revenue in the future.
SALES AND MARKETING. Sales and marketing expenses decreased from $3.8
million for the three months ended March 31, 1997 to $0.7 million for the same
period in 1998 and decreased as a percentage of total revenue from 26.8% for the
three months ended March 31, 1997 to 14.1% for the three months ended March 31,
1998. No sales and marketing expenses related to the Company's automobile
finance program were incurred during the three months ended March 31, 1998,
resulting in a $1.9 million decrease in expenses when compared to the same
period in 1997. Sales and marketing expenses related to JMAC's elective health
care program decreased from $1.9 million for the three months ended March 31,
1997 to $0.7 million for the same period in 1998, a decrease of $1.2 million or
63.2%, and decreased as a percentage of related revenues from 133.3% for the
first quarter of 1997 to 47.5% for the first quarter of 1998.
OPERATING EXPENSES. Operating expenses decreased from $6.3 million for the
three months ended March 31, 1997 to $3.2 million for the same period in 1998, a
decrease of $3.1 million or 49.2%, but increased as a percentage of total
revenue from 45.0% for the first quarter of 1997 to 60.5% for the first quarter
of 1998. The dollar decrease in operating expenses was due to a decrease of
$2.5 million, or 47.8%, in operating expenses attributable to the Company's
automobile finance program and a $0.4 million, or 40.0%, decrease in operating
expenses attributable to JMAC's elective health care program. The increase in
operating expenses as a percentage of total revenue is primarily attributable to
the reduction of revenue as a result of the higher percentage of non-accrual
Contracts included within the Company's portfolio during the first quarter of
1998 when compared with the first quarter of 1997.
PROVISION FOR CREDIT LOSSES. The amount provided for credit losses
decreased from $5.4 million for the three months ended March 31, 1997 to $0.0
million for the same period in 1998. The decrease in the provision for credit
losses is primarily due to the substantial elimination of new Automotive
Contract purchases in 1997, the maturity of the Company's portfolio of
Automotive Contracts, and the level of allowances for credit losses established
in prior periods. See "--Credit Loss Policy".
PROVISION FOR SERVICE CONTRACT CLAIMS. As substantially all service
contracts have expired and existing accruals for estimated claims are considered
adequate, no provision for service contract claims was included in the results
of operations for the three months ended March 31, 1998. The Company provided
$0.6 million for service contract claims for the same period in 1997.
INTEREST EXPENSE. Interest expense decreased from $2.7 million during the
first quarter of 1997 to $1.0 million during the same period in 1998. The
decrease was due primarily to the retirement of debt secured by the Company's
portfolio of Automotive Contracts.
REORGANIZATION EXPENSES. Reorganization expenses relate to costs incurred
by the Company in connection with its filing of a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code on February 7,
1997. The Company incurred $1.0 million of reorganization expenses in the first
quarter of 1997. The Company's Plan of Reorganization ("Plan") was confirmed
effective October 21, 1997, and no further reorganization expenses were incurred
during the first quarter of 1998.
INCOME TAXES. Due to net operating losses in 1997 and the availability of
net operating loss carryforwards in 1998, the Company's effective income tax
rate was 0% for the three-month periods ended March 31, 1998 and March 31, 1997.
10
<PAGE>
MEDICAL CONTRACTS RECEIVABLE
Medical Contracts receivable, net consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------------- ------------------------
<S> <C> <C>
(UNAUDITED)
Gross installment contracts receivable $ 18,897 $ 21,375
Unearned finance charges (1,500) (1,863)
Deferred loan origination fees (893) (945)
------------------------- ------------------------
Medical Contracts receivable 16,504 18,567
Allowance for credit losses (3,561) (5,482)
------------------------- ------------------------
Medical Contracts receivable, net $ 12,943 $ 13,085
========================= ========================
</TABLE>
AUTOMOTIVE CONTRACTS RECEIVABLE
Automotive Contracts receivable, net consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------------- ------------------------
<S> <C> <C>
(UNAUDITED)
Gross installment contracts receivable $ 107,141 $ 156,473
Unearned finance charges (13,596) (17,600)
------------------------- ------------------------
Automotive Contracts receivable 93,545 138,873
Allowance for credit losses (57,700) (91,348)
------------------------- ------------------------
Automotive Contracts receivable, net $ 35,845 $ 47,525
========================= ========================
</TABLE>
CREDIT LOSS POLICY
The level of unrecovered acquisition payments and the possible impact of
economic conditions on the creditworthiness of obligors are given major
consideration in determining the adequacy of the allowance for credit losses.
Credit loss experience, changes in the character, size and age of the Company's
overall installment contracts portfolio, and management's judgment are other
factors used in assessing the overall adequacy of the resulting provision for
credit losses. Ultimate losses may vary from current estimates, and the amount
of the provision, which is a current expense, may be either greater or less than
the actual charge-offs. See the 1997 10-K.
Revenue on Automotive Contracts is recognized under the interest method of
accounting until the underlying obligation is 120 days contractually past due or
the collateral securing the Contract is repossessed, whichever occurs first.
Revenue on non-accrual Automotive Contracts is recognized as collected, provided
the estimated net realizable value equals or exceeds the net carrying value of
the remaining Automotive Contracts. Revenue on Medical Contracts is recognized
under the interest method of accounting until the underlying obligation is 60
days contractually past due.
The total dollar amount of non-accrual Automotive Contracts as a percentage
of Automotive Contracts receivable was approximately 65% and 19% at March 31,
1998 and March 31, 1997, respectively. The total dollar amount of non-accrual
Medical Contracts as a percentage of Medical Contracts receivable was
approximately 16% at March 31, 1998. Due to the discontinuation of Automotive
Contract purchases, the Company anticipates that the average age of the
Automotive Contracts included in its portfolio will increase, resulting in an
increase in non-accrual contracts as a percentage of the total number and amount
of Automotive Contracts included in the Company's portfolio. At the same time,
the Company anticipates that as the average age of the Medical Contracts
included in its portfolio increases, non-accrual contracts as a
11
<PAGE>
percentage of total Medical Contracts in the portfolio will also rise. Contract
balances on which no material payment has been received for a significant period
of time (in no event greater than one year) are charged-off against the related
allowance for credit losses.
The following tables set forth certain information regarding charge-offs,
the provision for credit losses, the allowance for credit losses and dealer
holdbacks for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Gross installment contracts receivable charged off $ 36,588 $ 44,916
Charged against dealer holdbacks (1) -- 35,933
Charged against unearned finance charges 1,804 7,013
Charged against allowance for credit losses 34,784 1,970
Provision for credit losses -- 5,423
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
As a % of gross installment contracts receivable:
Dealer holdbacks, net (1) --% 33.4%
Allowance for credit losses 48.6% 20.0%
As a % of installment contracts receivable:
Allowance for credit losses 55.7% 23.3%
Net charge-offs against allowance for credit losses 31.6% 0.6%
</TABLE>
- --------------------------
(1) As a result of the Plan, the Company no longer splits collections 80%
to a dealer's pool and 20% to the Company. Due to this change in the
nature of the Company's obligations to Dealers, the Company no longer
reports a dealer holdback netted against advances to Dealers. See the
1997 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Plan was confirmed effective October 21, 1997. The Company will rely
upon collections on its existing Automotive Contracts for liquidity to meet Plan
obligations. At projected levels of collections, the funds available for
purposes other than meeting Plan obligations would be very limited.
Additionally, although the Company believes the projected levels of collections
on its Automotive Contracts are attainable, there can be no assurance that such
projections will ultimately be realized, and any failure to realize the
projected level of collections could have a material adverse effect on the
Company. The Plan generally requires the Company to make monthly payments to
various creditors aggregating approximately $11.7 million and $10.3 million in
the second and third quarters of 1998, respectively, at which time the Company's
former revolving credit lender will be paid in full. Thereafter, the Plan
provides for quarterly payments to creditors of approximately $2.5 million
through December 1999. See the 1997 10-K.
The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers and JMAC) until after repayment of the
Company's former revolving credit lender in order to assure the adequacy of its
working capital after a scheduled payment. The Company deferred approximately
$1.1 million of the $2.6 million in payments to unsecured creditors originally
scheduled for the first quarter 1998 and expects to defer a portion of the
payments to unsecured creditors scheduled for the second quarter 1998. The
possibility of such a deferral was anticipated by the Plan and does not cause
the Company to be in default under any provision of the Plan, nor does it
require Bankruptcy Court approval.
12
<PAGE>
While JMAC was not a party to the Company's Chapter 11 Petition, it was
adversely affected by the Chapter 11 Proceeding. JMAC had made a $7.1 million
loan to the Company (the "JMAC Loan") prior to the Company's filing of the
Chapter 11 Petition, and the Bankruptcy Court prohibited the Company from
providing JMAC with any cash to finance its activities, including any repayment
of such loan, prior to confirmation of the Plan. Under the Plan, the JMAC Loan
(which is eliminated in consolidation for financial statement purposes) is to be
repaid in installments with three initial quarterly installments of $750,000,
including interest, commencing March 31, 1998, and the remaining balance payable
in five equal installments, including interest, through December 1999. In
connection with the deferral of payments to unsecured creditors discussed above,
the Company deferred approximately $416,000 of the $750,000 originally scheduled
for payment to JMAC at March 31, 1998. Additionally, after commencement of the
Chapter 11 Petition, JMAC's revolving credit lender refused to make any further
advances under JMAC's revolving credit facility. To fund JMAC's operations, Mr.
Carl Westcott, the Company's Chairman, Chief Executive Officer, and largest
shareholder, provided approximately $12.3 million of financing to JMAC between
January 30, 1997 and September 30, 1997 (including the $5 million of proceeds
from Mr. Westcott's purchase of 50,000 shares of JMAC preferred stock which was
subsequently exchanged for 3,855,555 shares of the Company's Common Stock).
Furthermore, at the request of JMAC's revolving credit lender, Mr. Westcott
purchased the revolving credit promissory note evidencing the $13.5 million
principal amount of indebtedness outstanding under the facility.
On November 12, 1997 Mr. Westcott agreed to consolidate and extend the
maturities of the notes evidencing his loans to JMAC. Accordingly, these loans
are now evidenced by two notes. The first note is in the principal amount of
$7.1 million, bears interest at the prime rate and is payable when, and to the
extent, any proceeds are received by JMAC with respect to the JMAC Loan;
provided that any unpaid principal and interest is due in November 1999. The
second note is in the principal amount of $13.7 million, bears interest at the
prime rate and is due in November 1999. Both notes are secured by all of the
assets of JMAC, and JMAC continues to owe Mr. Westcott approximately $1.4
million of accrued interest. Mr. Westcott has advised the Company that he does
not intend to provide additional funds to JMAC.
As the Plan has been confirmed, the Company intends to seek new sources of
debt and equity financing to support the growth of JMAC's operations. Without
obtaining this additional financing, the Company does not believe that JMAC can
achieve the level of contract purchases necessary to become profitable. There
can be no assurance that such additional financing will be available on terms
which are acceptable to the Company, if at all. The failure of the Company to
receive additional financing would adversely affect its ability to grow JMAC's
elective health care procedure financing business and JMAC's ability to attain
profitability.
SEASONALITY
The Company's operations are affected by higher delinquency rates during
certain holiday periods. Collections on Automotive Contracts tend to be higher
during the period at the beginning of the calendar year when many persons
receive state and federal tax refunds.
IMPACT OF INFLATION
Increases in the inflation rate generally result in increased interest
rates. Because a significant portion of the Company's outstanding indebtedness
bears interest at variable interest rates, any increase in interest rates will
increase the borrowing costs of the Company. In addition, since the health care
procedures indirectly financed by JMAC's program are elective in nature,
increases in interest rates may deter prospective patients from purchasing such
procedures as a result of higher borrowing costs.
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations or elsewhere herein, including the matters
relating to the Plan and any beliefs with respect thereto and financial
projections, are forward looking statements that are dependent upon a number of
risks and uncertainties that could cause actual results to differ materially
from those in the forward looking statements. These risks and uncertainties
include the recoverability of amounts paid for Contracts, the delinquency and
default rates with respect to the Contracts included in the Company's portfolio,
the impact of competitive services and
13
<PAGE>
products, changes in market conditions, JMAC's limited operating history, the
impact of changes in regulation or litigation, the management of growth and
other risks described herein. The Company does not intend to provide updated
information about the matters referred to in these forward looking statements,
other than in the context of management's discussion and analysis in the
Company's quarterly and annual reports on Form 10-Q and 10-K.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<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.
JAYHAWK ACCEPTANCE CORPORATION
Date: May 15, 1998 By: /s/ Philip E. Falcosky
---------------------------------------
Philip E. Falcosky
Controller and Chief Accounting Officer
16
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,030
<SECURITIES> 0
<RECEIVABLES> 110,049
<ALLOWANCES> 61,261
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,500
<DEPRECIATION> 6,680
<TOTAL-ASSETS> 57,172
<CURRENT-LIABILITIES> 14,480
<BONDS> 0
0
0
<COMMON> 278
<OTHER-SE> 4,215
<TOTAL-LIABILITY-AND-EQUITY> 57,172
<SALES> 0
<TOTAL-REVENUES> 5,294
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,025
<INCOME-PRETAX> 316
<INCOME-TAX> 0
<INCOME-CONTINUING> 316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
