United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to_______________
Commission File Number 0-25714
THE AEGIS CONSUMER FUNDING GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3008867
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 North Cobb Parkway, Suite 428, Marietta, Georgia 30062
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 281-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ].
As of May 20, 1998, 30,000,000 shares of the issuer's common stock were
outstanding.
<PAGE>
THE AEGIS CONSUMER FUNDING GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION No.
<S> <C>
Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited):
Consolidated Condensed Statements of Financial Condition -
March 31, 1998 and June 30, 1997............................ 3
Consolidated Condensed Statements of Operations - three and nine
months ended March 31, 1998 and 1997........................ 4
Consolidated Condensed Statements of Cash Flows - nine
months ended March 31, 1998 and 1997........................ 5
Notes to Consolidated Condensed Financial Statements........... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 27
Item 2. Changes in Securities.......................................... 27
Item 3. Defaults upon Senior Securities................................ 28
Item 4. Submission of Matters to a Vote of Security Holders............ 28
Item 5. Other information.............................................. 28
Item 6. Exhibits and Reports on Form 8-K............................... 28
SIGNATURES.................................................................... 29
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
THE AEGIS CONSUMER FUNDING GROUP, INC.
Consolidated Condensed Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 4,973,430 $ 4,492,591
Automobile finance receivables, net 41,515,663 34,654,507
Retained interests in securitized receivables 15,464,779 33,329,946
Other assets, including fixed assets 8,569,406 11,005,696
-------------- -------------
$ 70,523,278 $ 83,482,740
============= ============
Liabilities and Stockholders' Deficit
Warehouse credit facilities $ 34,661,844 $ 17,407,004
Notes payable 33,398,329 36,812,869
Advances on proposed sale of SST 7,000,000 -
Accounts payable and accrued expenses 10,175,357 15,808,781
------------- ------------
Total liabilities 85,235,530 70,028,654
------------- ------------
Subordinated debentures, net -- 24,031,746
------------- ------------
Stockholders' deficit:
Common stock, $.01 par value; 30,000,000
shares authorized; 30,000,000 shares
issued and outstanding 300,000 176,772
Preferred stock, $0.10 par value; 2,000,000 shares
authorized:
Series C, 1,100 shares designated; 920 shares
issued; 21 shares outstanding 2 11
Class D, 21,350 shares designated; 21,107 shares
issued and outstanding 2,110 --
Class E, 2100 shares designated; 2000 shares
issued and outstanding 200 --
Class F, 2100 shares designated; 2000 shares
issued and outstanding 200 --
Paid-in capital 47,326,484 22,303,034
Retained deficit since date of
recapitalization (March 1, 1992) (62,341,248) (33,057,477)
------------- ------------
Total stockholders' deficit (14,712,252) (10,577,660)
------------- ------------
$ 70,523,278 $83,482,740
============== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
THE AEGIS CONSUMER FUNDING GROUP, INC.
Consolidated Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
------------ ------------- ------------ ---------
Revenues:
<S> <C> <C> <C> <C>
Servicing fee income $ 4,103,744 $ 84,624 $ 10,885,118 $ 84,624
Fees and commissions earned 5,100 36,962 51,882 107,504
Gains (losses) from securitization
transactions -- 6,016,327 5,610,941 15,787,653
Write down of retained interests in
securitized receivables (4,100,358) (4,397,000) (15,562,145) (35,397,000)
Interest income 1,544,345 9,340,415 6,923,345 21,515,924
Other income 90,759 128,651 861,522 267,636
------------ ------------- ------------ -------------
1,643,590 11,209,979 8,770,663 2,366,341
------------ ------------- ------------ -------------
Operating expenses:
Salaries and other employee costs 4,054,512 5,027,470 14,096,587 9,155,565
Provision for credit losses 17,483 1,399,564 4,993,141 7,979,089
Interest expense 1,624,624 6,446,475 7,469,567 13,674,274
Other expenses 2,390,355 3,498,850 11,473,939 8,910,483
------------ ------------- ------------ -------------
8,086,974 16,372,359 38,033,234 39,719,411
------------ ------------- ------------ -------------
Net loss before income tax benefit (6,443,384) (5,162,380) (29,262,571) (37,353,070)
Income tax benefit -- -- -- (8,427,030)
------------ ------------- ------------ -------------
Net loss $ (6,443,384) $ (5,162,380) $(29,262,571) $ (28,926,040)
============ ============= ============ ==============
Net loss available to common stockholders $ (6,443,384) $ (5,207,097) $(29,262,571) $ (29,104,280)
============= ============= ============= ==============
Basic and Diluted Earnings Per Share $ (.23) $ (.31) $ (1.38) $ (1.80)
============ ============ ============= ===============
Weighted Average Number of Shares Used
In the Calculation of Basic and Diluted
Earnings Per Share 28,220,043 16,534,761 21,140,189 16,124,517
============ ============= ============ =============
</TABLE>
See accompanying notes.
4
<PAGE>
THE AEGIS CONSUMER FUNDING GROUP, INC.
Consolidated Condensed Statements of Cash Flows Nine
months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (29,262,571) $ (28,926,040)
Adjustments to reconcile net
(loss) income to net cash used in
operating activities:
Amortization and depreciation expense 678,052 847,341
Write off of leasehold improvements 453,100 --
Provision for credit losses, net 4,993,141 7,979,089
Unrealized gains on securitization transactions -- (12,316,889)
Write down of retained interests in
securitized receivables 15,562,145 35,397,000
(Increase) decrease in automobile finance
receivables portfolio (10,758,062) (31,445,378)
(Increase) decrease in other assets 2,385,253 (230,431)
Increase (decrease) in accounts payable
and accrued expenses (5,633,426) 1,855,609
Decrease in income taxes payable -- (9,157,289)
-------------- --------------
Net cash used in operating activities (21,582,368) (35,996,988)
--------------- -------------
Cash flows from investing activities:
Distributions from retained interests
in securitized receivables 2,303,022 1,362,355
Additional payments to securitized receivable trusts -- (2,421,284)
Acquisition of fixed assets (1,080,115) (3,756,804)
--------------- --------------
Net cash provided by (used in) investing activities 1,222,907 (4,815,733)
-------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under warehouse credit facilities 178,472,841 515,970,559
Repayment of borrowings under warehouse credit facilities (161,218,001) (512,345,462)
Proceeds from subordinated debt -- 5,000,000
Proceeds from borrowings under notes payable -- 48,322,444
Repayment of borrowings under notes payable (3,414,540) (17,186,942)
Proceeds from advances on proposed sale of SST 7,000,000 --
Purchase of treasury stock -- (340,000)
--------------- --------------
Net cash provided by financing activities 20,840,300 39,420,599
--------------- -------------
Net increase, (decrease) in cash and cash equivalents 480,839 (1,392,122)
Cash and cash equivalents, beginning of period 4,492,591 3,090,624
-------------- -------------
Cash and cash equivalents, end of period $ 4,973,430 $ 1,698,502
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,006,055 $ 13,522,064
============== =============
Income taxes $ 50,125 $ 130,440
============== =============
</TABLE>
See accompanying notes.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial data is unaudited; however, in the opinion of management,
the interim data includes all adjustments necessary for a fair statement of the
results for the interim periods. Results for interim periods are not necessarily
indicative of the results for a full year. The consolidated financial statements
included herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Pursuant to
interim accounting disclosure rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The organization and business of the Company, accounting policies
followed by the Company and other information are contained in the notes to the
Company's consolidated financial statements filed as part of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997. This
quarterly report should be read in conjunction with such Annual Report on Form
10-K.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, Earnings Per Share, which is effective for annual and interim financial
statements issued for periods ending after December 15, 1997. SFAS No. 128,
which supersedes APB No. 15, specifies the computation, presentation and
disclosure requirements for earnings per share. Primary EPS and fully diluted
EPS are replaced by basic EPS and diluted EPS, respectively. Basic EPS, unlike
primary EPS, excludes all dilution while diluted EPS, like fully diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted into common shares.
2. COMPANY OPERATIONS AND LIQUIDITY
As a result of the factors described below and the absence of committed
operating capital, the Company has very little liquidity and its financial
condition is precarious. There can be no assurance that the Company's efforts to
alleviate its liquidity problems and restore its operations to profitability
will be successful. If the Company is unsuccessful in its efforts, it may be
unable to meet its obligations, which raises substantial doubt about the
Company's ability to continue as a going concern. If the Company is unable to
continue as a going concern and is forced to liquidate assets to meet its
obligations, the Company may not be able to recover the recorded amounts of such
assets. The Company's consolidated financial statements do not include any
adjustments that might result from this uncertainty.
As reflected in the accompanying statement of financial condition as of March
31, 1998 and the consolidated condensed statement of operations for the nine
months then ended, the Company has suffered substantial losses and, accordingly
substantial reductions in stockholders' equity. These negative financial trends
have resulted primarily from (i) material increases in delinquencies and losses
on owned and managed finance contracts acquired since the Company's inception
and, to a lesser extent, (ii) one time charges relating to the consolidation of
the Company's operations and relocation of administrative functions to Marietta,
Georgia.
6
<PAGE>
As a result of increasingly high rejection rates and backlog in risk default
insurance claims processing by the Company's insurance providers, the Company's
expected receipts from retained interests in securitized receivables has been
reduced significantly in some cases and substantially delayed.
In October and November 1997, III Finance Ltd. ("III Finance"), High Risk
Opportunities Fund Ltd. ("HRO") and Greenwich Capital Financial Products, Inc.
converted their subordinated debentures to preferred stock. The conversion of
debt to equity reduced the Company's annual debt service requirements by
approximately $3.0 million. Payment of preferred stock dividends, if any, are
subject to the approval of the Board of Directors. See Note 5.
In November 1997, the Company entered into negotiations to sell all outstanding
capital stock of its servicing subsidiary, Systems & Services Technologies, Inc.
("SST"), for $7.0 million to Adams, Viner & Mosler, Ltd. ("AVM") and III
Associates (collectively referred to as the "Purchasers"), subject to
stockholder approval. On January 28, 1998, the Company executed the Stock
Purchase Agreement (the "Agreement") for the sale of the stock of SST. The
Company received advances on the sale of SST totaling $7.0 million through March
31, 1998. In connection with the sale, the Company has a repurchase option,
expiring on December 31, 1998, to repurchase SST for $7.0 million plus a 5%
premium. Under the terms of the Agreement, SST is restricted from declaring or
paying any dividends, distributing any assets or making any loans to the
Company.
AVM and III Associates are controlled by the same principals. These principals
also control III Offshore Advisors which is the trading advisor to III Finance
and HRO.
To further address liquidity problems, the Company is executing its strategic
business plan to (1) reduce operating overheads and expenses through
consolidation of operations, and (2) develop and implement new products and fee
based services to enhance operating revenues. Further, the Company is working
closely with its funding source, III Finance, to ensure continued funding for
new originations and to sustain continued operations. See Note 3.
3. WAREHOUSE AND OTHER CREDIT FACILITIES
Through March 31, 1998, the Company securitized an aggregate amount of $543.3
million in seven securitization transactions under its $1.0 billion purchase
facility. Future securitizations under the purchase facility ($456.7 million
remained available as of March 31, 1998) are subject to customary conditions and
are uncommitted. The purchase facility provides for initial financing through
the Company's warehouse line as the finance contracts are acquired and
subsequently sold into the purchase facility.
As of December 31, 1997, the Company was in technical default under its
warehouse line and its Retained Yield (RTY) financing provided by III Finance
for failing to meet certain net worth requirements. On February 26, 1998 the
warehouse line, previously $75 million, was reduced to $50
7
<PAGE>
million and the Company obtained waivers of net worth covenants for all of its
facilities with III Finance through March 31, 1998. In connection with the
waiver, the Company can incur a shortfall of what it owes III Finance on its
monthly pay-downs, not to exceed $500,000. As further described in Note 6, the
Company has negotiated with III Finance to extend waivers of such defaults
through June 30, 1998 subject to final approval and execution of the waiver
agreements.
The lease line with III Finance expired March 31, 1998 with approximately $4.3
million outstanding. The Company has negotiated an extension of the maturity
date of that facility through June 30, 1998.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management of the Company, the
amount of any ultimate liability with respect to these actions will not
materially affect the results of operations, cash flows or financial position of
the Company. See Note 6.
5. CAPITAL STOCK
On October 16, 1997, III Finance and HRO converted $21.3 million of the
Company's 12% convertible subordinated debenture (the "Debenture") into $21.1
million of 12.75% non-voting Redeemable Preferred Stock, Class D ("Class D
Preferred Shares"). The Class D Preferred Shares are redeemable at the holder's
option, in which event the Company may pay the holders in cash or common stock
at $1.26 per share.
On November 10, 1997, the remaining subordinated debt holder, Greenwich Capital
Financial Products, Inc., converted its $4.0 million of subordinated debt into
$4.0 million of Redeemable Preferred Stock ("Class E and F Preferred Shares").
The debt was converted into 2,000 shares each of Class E and F Preferred Shares
with a 12.0% dividend and a redemption value of $4.0 million. The Class E
Preferred Shares are redeemable at the holders option, in which event the
Company may pay the holders in cash or common stock at $1.26 per share and the
Class F Preferred Shares are redeemable for cash or common stock at $2.00 per
share.
On January 13, 1998, HRO with III Offshore Advisors acting as investment
advisor, converted 85 shares of the Company's Series C Preferred Stock into
12,322,783 shares of Common Stock at a conversion price of $0.7968. According to
HRO's Schedule 13-D filing, HRO directly owns 13,135,987 shares of the Company's
common stock and indirectly owns 3,047,700 shares of common stock through its
ownership of the 21 remaining outstanding shares of the Company's Series C
Preferred Stock.
As a result of the Company's inability to satisfy NASDAQ's minimum bid
requirement of $1.00 per share, or its alternative test of $4.0 million in net
tangible assets and $3.0 million in market value of public float, the Company's
stock was delisted from NASDAQ Stock Market effective at the close of business
on Friday, February 5, 1998. The Company retains the right to apply to be
relisted on NASDAQ should the Company satisfy NASDAQ's listing requirements.
8
<PAGE>
6. SUBSEQUENT EVENTS
On April 24, 1998, the Company received a waiver from the Purchaser with respect
to the Agreement, allowing SST to pay the Company on or before June 1, 1998, up
to $455,000 owed by SST to the Company or its affiliates in respect to the tax
sharing arrangement existing between them. On May 12, 1998, the Company received
an additional $473,000 under the tax sharing arrangement.
On May 1, 1998, the bankruptcy trustee for The Bennett Funding Group, Inc. filed
suit against the Company in the Northern District of New York, captioned In re:
The Bennett Funding Group, Inc., Debtor, Richard C. Breeden, Trustee of The
Bennett Funding Group, Inc., et al., Plaintiff v. The Aegis Consumer Funding
Group, Inc., et al., alleging that all transactions between the Debtor and the
Company were not arms lengths transactions and that The Bennet Funding Group,
Inc. did not receive adequate consideration for such transactions. As a result,
the Trustee is asserting that any monies transferred from Debtor to the Company
should be returned to the Trustee with interest. The Company believes that it
has meritorious defenses to all of the claims alleged by the Trustee.
As of March 31, 1998, the Company was in technical default under its warehouse
line and its RTY Financing provided by III Finance for failing to meet certain
net worth requirements. On February 26, 1998 the warehouse line was reduced from
$75 million to $50 million and the Company obtained waivers of such defaults for
all of its facilities with III Finance through March 31, 1998. The Company has
negotiated with III to extend waivers of such defaults for all of its facilities
with III Finance through June 30, 1998 subject to final approval and execution
of the waiver agreements. In connection with the waiver, the Company can incur a
shortfall of what it owes III Finance on its monthly pay-downs, not to exceed
$500,000. During the three months ended March 31, 1998, while the Company was in
technical default under its financing arrangements with III Finance, the Company
continued to receive funding for the acquisition of finance contracts.
On April 17, 1998, Norwest Bank Minnesota, N.A., as Trustee for the 96-1, 96-2,
96-3, and 97-1 Aegis Auto Receivables Trusts, filed in New Jersey Superior Court
a breach of contract and declaratory judgment action against The Connecticut
Indemnity Company in connection with Risk Default Insurance policies sold by
Connecticut Indemnity. The lawsuit seeks damages and a declaration as to the
extent of coverage under the Connecticut Indemnity policies applicable to the
Trusts. On May 15, 1998, Connecticut Indemnity removed the case to the United
States District Court for the District of New Jersey. Connecticut Indemnity must
respond to the complaint by the first week of July 1998.
7. PRO FORMA INFORMATION
As discussed in Note 2, the Company entered into an Agreement for the sale of
the stock of SST. The accompanying pro forma condensed statement of financial
condition and condensed statement of operations gives effect to the transaction
as if it had occurred as of June 30, 1997 and the repurchase option expires
unexercised. It has been assumed that the proceeds from the sale have been used
to reduce liabilities.
9
<PAGE>
Pro Forma Condensed Statement of Financial Condition
March 31, 1998
(in thousands)
As Reported Pro Forma
(Unaudited) (Unaudited)
Assets $ 70,523 $ 61,806
======== ========
Liabilities 85,235 75,027
Stockholders' equity (deficit) $ (14,712) (13,221)
---------- --------
Total liabilities and stockholders'
equity (deficit) $70,523 $ 61,806
======= ========
Pro Forma Condensed Statement of Operations
Nine Months Ended March 31, 1998
(in thousands)
As Reported Pro Forma
(Unaudited) (Unaudited)
----------- -----------
Revenues $ 8,771 $ (2,468)
Expenses 38,033 30,611
------------ -------------
Net (loss) before gain (29,262) (33,079)
------------ -------------
On sale of SST stock
Gain on sale of SST stock -- 1,492
----------- -------------
Net (loss) $ (29,262) $ (31,587)
============ =============
Basic and Diluted Earnings Per Share $ (1.38) $ (1.49)
============ ============
Pro forma information that relates to the period ended March 31, 1997 was not
considered to be relevant as SST's operations were in the process of being
established.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements contained in this Management's Discussion And Analysis Of
Financial Condition And Results Of Operations contain "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that future results covered
by the forward-looking statements will be achieved. The Company cautions readers
of this Quarterly Report on Form 10-Q that a number of important factors could
cause the Company's actual results, performance or achievements in fiscal year
ended 1998 and beyond to differ materially from the results, performance or
achievements expressed in, or implied by, such forward-looking statements.
10
<PAGE>
The following discussion and analysis of financial condition and results of
operations of the Company relates to the nine months and three months ended
March 31, 1998 and 1997 and should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and Notes included elsewhere in this
Quarterly Report. The unaudited results for the three and nine months ended
March 31, 1998 are not necessarily indicative of results to be expected for the
entire fiscal year.
Overview
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by Dealers in connection
with the sale of late-model used and, to a lesser extent, new cars to consumers
with sub-prime credit. Since commencing the acquisition of finance contracts in
May 1992 through March 31, 1998, the Company has acquired approximately $1.39
billion of finance contracts, of which $1.19 billion have been securitized in
twenty-four offerings of asset-backed securities.
As a result of the factors described below and the absence of committed
operating capital, the Company has very little liquidity and its financial
condition is precarious. There can be no assurance that the Company's efforts to
alleviate its liquidity problems and restore its operations to profitability
will be successful. If the Company is unsuccessful in its efforts, it may be
unable to meet its obligations, which raises substantial doubt about the
Company's ability to continue as a going concern. If the Company is unable to
continue as a going concern and is forced to liquidate assets to meet its
obligations, the Company may not be able to recover the recorded amounts of such
assets. The Company's consolidated financial statements do not include any
adjustments that might result from this uncertainty.
As reflected in the accompanying statement of financial condition as of March
31, 1998 and the consolidated condensed statement of operations for the nine
months then ended, the Company has suffered substantial losses and, accordingly
substantial reductions in stockholders' equity. These negative financial trends
have resulted primarily from (i) material increases in delinquencies and losses
on owned and managed finance contracts acquired since the Company's inception
and, to a lesser extent, (ii) one time charges relating to the consolidation of
the Company's operations and relocation of administrative functions to Marietta,
Georgia.
The following table illustrates the Company's finance contract acquisition
volume, total revenue, securitization activity and servicing portfolio during
the past nine fiscal quarters.
<TABLE>
<CAPTION>
For the Quarters Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar.31, June 30, Sept. 30, Dec 31, Mar 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
Number of finance contracts
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
acquired during period ......... 10,569 12,037 15,401 14,584 8,992 8,745 8,724 2,874 1,357
Average finance contract balance . $12.4 $12.4 $12.3 $12.3 $12.6 $12.6 $12.8 $12.7 $12.8
Aggregate value of finance
contracts acquired during period 128,781 149,612 190,843 179,933 110,580 110,485 112,044 36,417 17,341
Gains (losses) from securitization
transactions(1)(2) ......... 12,759 10,824 10,349 (578) 5,979 5,797 2,913 2,698 --
Gains from whole loan sales ...... 111 290 -- -- 37 -- -- -- --
Net interest (expense) income .... 546 993 2,129 2,747 2,894 1,931 (312) (154) (80)
Revenue(3)(4) .................... 10,341 111,916 10,675 (26,747) 4,765 (5,291) 6,886 (5,613) 19
Finance contracts securitized
during period .................. 130,138 149,274 173,258 4,870 238,393 148,814 87,316 66,974 --
Finance contracts sold during
period ......................... 2,752 2,250 -- -- 15,000 -- -- -- --
Servicing portfolio(at period
end)(5) ....................... 401,704 500,694 645,551 759,304 783,757 813,055 838,067 874,685(6) 809,004(6)
(1) Excludes gains from whole loan sales of finance contracts.
(2) The quarters ended December 31, 1995 through March 31, 1998 are before write downs of
$3.1 million, $1.5 million, $3.5 million, $2.0 million, $29.0 million, $4.4
million, $13.6 million, $0, and $11.5 million respectively, taken on prior
retained interests in securitized receivables.
(3) Revenue is net of interest expense and includes the write-downs on retained
interests in securitized receivables.
(4) The quarter ended March 31, 1997 has been restated to reflect a $4.4 million write
down on retained interests in securitization receivables resulting from a
correction of an error discovered in the Company's valuation model, relating
to such quarter, during the valuation process for the June 30, 1997 quarter.
(5) Through September 1997, excludes finance contracts in bankruptcy, authorized
for repossession and in repossession and still eligible for reinstatement.
(6) Includes all finance contracts except those considered inactive, fully
liquidated, have balances less than $1,000 or where default insurance has
been rejected or paid.
</TABLE>
11
<PAGE>
Revenues
During the quarter ended March 31, 1998, there were no securitization
transactions. Accordingly, the Company's primary sources of revenues consist of
servicing fees and interest income.
Gains or Losses from Securitization Transactions and Write-Downs on Retained
Interest in Securitized Receivables. The Company warehouses the finance
contracts it acquires and periodically sells them to a trust, which in turn
sells asset-backed securities to investors. By securitizing its finance
contracts, the Company is able to lock in the difference ("gross spread")
between the annual rate of interest paid by the consumer ("APR") on the finance
contracts acquired and the interest rate on the asset-backed securities sold
("Certificate Rate"). When the Company securitizes its finance contracts, it may
record a gain or loss from securitization transactions and, if appropriate,
establish an asset referred to as retained interest in securitized receivables.
Gains or losses from securitization transactions are equal to (i) the retained
interest, if any, in the securitized receivables, (ii) the difference between
the net proceeds from the securitization and the cost (including the cost of
Vender's Single Interest Insurance Policy ("VSI Policy") and credit default
premiums ("RDI") to the Company) of the finance contracts sold, and (iii)
reserve funds, if required.
During the nine months ended March 31, 1998, the Company did not record any
additions to retained interest in securitized receivables.
12
<PAGE>
The Company reviews on a quarterly basis the retained interest in securitized
receivables. If actual experience differs from the Company's assumptions or to
the extent that market and economic changes occur that adversely impact the
assumptions utilized in determining the retained interest in securitized
receivables, the Company records a charge against earnings (See "Results of
Operations"). Because the Company's current assumptions utilized in evaluating
its retained interest in securitized receivables incorporate (i) market discount
rates, (ii) expected default rates over the life of the securitization trust,
(iii) expected prepayments by the obligors, and (iv) expected recovery rates on
the underlying collateral, the Company sustained large write downs to prior
period recordings of retained interest in securitized receivables.
As of March 31, 1998, the market discount rate utilized in determining the
retained interest in securitized receivables is based on the Company's estimate
of the yield required by a third party purchaser of such instrument. The
Company's prepayment assumptions are based primarily on the age of the portfolio
of finance contracts and prior prepayment history. The Company bases its default
assumptions on anticipated losses after considering the performance
characteristics of the Company's finance contract portfolio to date and
comparative industry defaults. The Company's default assumptions are based on
estimated repossession rates, anticipated proceeds from the liquidation of
repossessed vehicles, proceeds from VSI Policy coverage and recoveries from the
Company's RDI insurance.
Increasingly high insurance claim rejection rates and a backlog in RDI claims
processing by the Company's insurance provider has resulted in shortfalls to the
trusts which in turn has caused a shortfall in the release to the Company of
retained interest that the Company had anticipated receiving. This has
contributed to the write down of the retained yield interest.
Securitizations
The following table provides information for each of the Company's rated
securitizations:
<TABLE>
<CAPTION>
Weighted
Remaining Average Weighted Retained
Balance at Finance Average Interest in
Original Mar. 31, Contract Certificate Current Gross Net Securitized
Securitization Balance 1998 Rate(1) Rate(1) Ratings Spread(1)(2) Spread(1)(3) Receivables(13)
- -------------- ------- ---- ------- ------- ------- ------------ ------------ ---------------
(dollars in thousands)
Aegis Auto
Receivables Trust,
Series:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994-A......... $18,539 $1,043 20.28% 7.74% A (4) 12.54% 8.70% $356
1994-2......... 23,251 2,307 19.82 8.04 A+ (4) 11.78 8.12 589
1994-3......... 21,000(5) 2,796 19.66 9.46 A+ (4) 10.20 6.46 896
1995-1......... 21,000(5) 3,429 20.41 8.60 A+ (4) 11.81 8.46 680
1995-2......... 54,000(5) 11,182 19.94 7.16 A+ (4) 12.78 8.98 3,627
1995-3......... 60,000(5) 14,818 20.04 7.09 A+ (4) 12.95 10.12 3,719
1995-4......... 70,000(5) 19,533 19.88 6.65 B -(4) 13.23 10.41 5,380
1996-1......... 92,000(5) 29,316 20.13 8.44(6) (7) 11.69 8.89 --
1996-2......... 105,000(5) 39,325 20.10 8.93(8) (9) 11.17 8.40 --
1996-3......... 110,000(5) 48,928 20.20 8.82(10) (11) 11.40 8.75 --
Aegis Auto
Owners Trust - 95 148,347 56,533 20.14 6.53 (12) 13.61 10.87 --
- ----------
(1) Percentages as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the Weighted
Average APR on the trust certificates (the "Weighted Average Certificate
Rate"). (3) Difference between Weighted Average APR on finance contracts and the
Weighted Average
Certificate Rate, net of servicing and trustee fees.
(4) Indicates ratings by Duff & Phelps.
(5) Includes prefunded amounts which were transferred to the related trust by
the end of the quarter for 1995-1, 1995-2, 1995-3, 1995-4, 1996-1, 1996-2,
1996-3 and by the first week of the next quarter for 1994-3.
(6) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.39%, the Class B certificate rate is 7.86%
and the Class C certificate rate is 12.14%.
(7) The 1996-1 Securitization has Class A Notes rated CCC by Duff & Phelps and
DDD by Fitch; Class B Notes rated CCC by Duff & Phelps and D by Fitch and
Class C Notes rated CCC by Duff & Phelps and D by Fitch.
(8) The Weighted Average Certificate Rate is composed of the following: the
Class A certificate rate is 8.9%, the Class B certificate rate is 8.4% and
the Class C certificate rate is 11.65%.
(9) The 1996-2 Securitization has Class A notes rated CCC by Duff & Phelps and
DD by Fitch; Class B notes rated CCC by Duff and Phelps and D by Fitch
and Class C notes rated CCC by Duff & Phelps and D by Fitch.
(10) The weighted average Certificate Rate is composed of the following: the
Class A certificate is 8.8%, the Class B certificate is 8.3% and the Class
C certificate is 11.1%.
(11) The 1996-3 Securitization has Class A notes rated CCC by Duff & Phelps and
DDD by Fitch; Class B notes rated CCC by Duff & Phelps and D by Fitch and
Class C notes rated CCC by Duff & Phelps and D by Fitch.
(12) The Owner Trust Facility has Class A notes rated AAA by Standard & Poor's
and Aaa by Moody's and Class B certificates rated Ba1 by Moody's. The Class
B certificates are under review by Moody's for possible down grade.
(13) The sum of the retained interest in securitized receivables in the above
table is $20.14 million which excludes approximately $180,000 of retained
interests relating to transactions entered into prior to 1994.
</TABLE>
13
<PAGE>
The following table provides information for each of the Company's
securitizations under its $1.0 billion purchase facility:
<TABLE>
<CAPTION>
Weighted
Remaining Average Weighted
Balance at Finance Average
Original March 31, Contract Certificate Gross Net
Securitization Balance 1998 Rate(1) Rate(1) Spread (1)(2) Spread(1)(3)
- --------------------- -------- ---- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1997-1......... $238,693 $125,610 20.43% 9.5%(4) 10.93% 8.46%
1997-2......... 37,163 22,169 20.67 9.75(5) 10.92 8.48
1997-3......... 38,475 24,324 20.73 9.53(6) 11.20 8.81
1997-4......... 74,721 48,598 20.40 9.38(7) 11.22 8.62
1997-5......... 48,128 34,432 20.6 9.18(8) 11.39 8.91
1997-6......... 39,189 30,115 20.5 9.32(9) 11.17 8.69
1997-7......... 66,974 55,745 20.4 9.06(10) 11.34 8.55
</TABLE>
- ----------
(1) Percentages as of closing date.
(2) Difference between the Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate.
(3) Difference between Weighted Average APR on finance contracts and the
Weighted Average Certificate Rate, net of servicing and trustee fees.
(4) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.3% and the Class B Certificate rate is 13.73%
(5) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.5% and the Class B Certificate rate is 13.9%.
(6) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.25% and the Class B Certificate rate is
13.8%.
(7) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.1% and the Class B Certificate Rate is 13.6%.
(8) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 6.90% and the Class B Certificate rate is
13.41%.
(9) The weighted average Certificate Rate is composed of the following: the
Class A certificate rate is 7.05% and the Class B Certificate Rate is
13.54%.
(10) The weighted average Certificate is composed solely of the Class A
Certificate except for 1997-7 in which a single Class A Certificate was
issued.
Servicing Fee Income. Servicing fees are earned at a contracted rate, based on
the receivable balance outstanding, from the owner of the asset. Subsequent to
securitization, the Company continues to service the securitized finance
contracts, for which it recognizes servicing fees over the life of the
securitization. SST services the finance contracts of the Company, which are
eliminated in consolidation, and certain securitization trusts. Servicing fee
income includes fees earned on subservicing agreements with third party
servicers.
The Company was notified on March 27, 1998 by Norwest Bank Minnesota, N.A.,
trustee for Aegis Auto Owner Trust 1995 that Aegis Auto Finance, Inc. was being
terminated as servicer of the Aegis Auto Owner Trust - 95 finance contract
pools.
Interest Income. Interest income consists of: (i) interest income earned on
finance contracts (ii) interest income earned on leases (the Company ceased
funding leases in the quarter ended September 30, 1995), (iii) the accretion of
finance contract acquisition discounts net of related capitalized costs and (iv)
the amortization of capitalized costs net of origination discounts for leases.
Other factors influencing interest income during a given fiscal period include
(a) the annual percentage rate of the finance contracts acquired, (b) the
aggregate principal balance of finance contracts acquired and funded through the
Company's warehouse credit facilities prior to securitization, (c) the length of
14
<PAGE>
time such finance contracts are funded by the warehouse credit facilities prior
to securitization, and (d) defaults on finance contracts owned by the Company.
Finance contract acquisition growth has a significant impact on the amount of
interest income earned by the Company.
Results of Operations
Nine Months Ended March 31, 1998 Compared To Nine Months Ended March 31, 1997
Revenues. Revenues before write downs on retained interests in securitized
receivables decreased $13.5 million to $24.3 million or 35.7% for the nine month
period ended March 31, 1998 compared with the prior year period.
Gains or Losses from Securitization Transactions. Gains from securitization
transactions were $5.6 million for the nine month period ended March 31, 1998
compared with $15.8 million for the nine month period ended March 31, 1997.
Write Downs of Retained Interest in Securitized Receivables. The Company
revalues its retained interests in securitized receivables quarterly using
anticipated future experience on the respective underlying securitization
trust's finance contract performance. When the actual experience differs from
the original assumptions utilized in the initial valuation in a detrimental
direction, the Company can incur permanent losses in the carrying value of these
assets. The write down of retained interests in securitized receivables during
the nine month period ended March 31, 1998 is a result of the Company's current
assumptions utilized in evaluating its retained interests in securitized
receivables, which incorporate a higher discount rate on future cash flows and
expected default rates over the life of the securitization trust, lower recovery
rates on the underlying collateral, and higher prepayments than expected
compared to the levels used in the comparable period a year ago. Write downs of
retained interests in securitized receivables were $15.6 million for the
nine-month period ended March 31, 1998 compared with $35.4 million in the prior
year comparable period.
Servicing Fee Income. Servicing fee income was $10.9 million for the nine months
ended March 31, 1998 compared with $0.08 million of servicing fee income for the
nine months ended March 31, 1997. This increase is a result of the Company's
servicing subsidiary, SST, commencing operations in the quarter ended March 31,
1997.
Interest Income. Interest income decreased to $6.9 million for the nine months
ended March 31, 1998 from $21.5 million for the nine months ended March 31,
1997, a decrease of $14.6 million or 67.8%. The decrease in interest income is
attributed to (i) the lower average amount of loans held for securitization for
the nine months ended March 31, 1998 as compared to the same period in 1997, and
(ii) the increase in the number of non performing finance contracts in the
finance contracts portfolio.
Operating Expenses. Operating expenses decreased to $38.0 million for the nine
months ended March 31, 1998 from $39.7 million for the nine months ended March
31, 1997, a decrease of $1.7 million or 4.2%. The decrease in operating expenses
primarily resulted from the consolidation of operations and relocation of the
Company's administrative functions to Marietta, Georgia, in December 1997 and
was partially offset by (i) one time charges of $2.4 million relating to the
consolidation and (ii) a $5.6 million increase in Salaries and Employee Costs
primarily attributable to the operation of SST which was in formation during the
comparable period ended March 31, 1997.
15
<PAGE>
Interest Expense. Interest expense decreased to $7.5 million for the nine months
ended March 31, 1998 from $13.7 million for the nine months ended March 31,
1997, a decrease of $6.2 million or 45.4%, as a result of the decreased
financing required to maintain loans held for securitization in the Company's
warehouse facilities due to lower loan origination volumes. The decrease in
interest expense is primarily attributable to the Company's warehouse credit
facilities, which had a lower monthly average outstanding balance.
Salaries and Other Employee Costs. Salaries and other employee costs increased
to $14.1 million for the nine months ended March 31, 1998 from $9.2 million for
the nine months ended March 31, 1997, an increase of $4.9 million or 54.0%. The
increase is attributable primarily to the growth in the employee base at SST to
support its expanding operations.
Provision for Credit Losses. The provision for credit losses decreased to $5.0
million for the nine months ended March 31, 1998 from $8.0 for the nine months
ended March 31, 1997, a decrease of $3.0 million or 37.4%. The current provision
for credit losses is affected by the Company's volume of finance contracts
acquired and the aging of all owned contracts.
All Other Operating Expenses. All other operating expenses increased to $11.5
million for the nine months ended March 31, 1998 from $8.9 million for the nine
months ended March 31, 1997, an increase of $2.6 million or 29.2 %. The
significant components of the increase in all other operating expenses include
$2.4 million of restructuring charges related to the move of the Company's
administrative offices to Marietta, Georgia and one-time severance and other
employee costs, and a $900,000 write off of capitalized costs related to certain
of the Company's financing arrangements. In addition, the Company's general and
administrative expenses increased to support SST's expanding loan servicing
processing center.
Taxes on Income. For the nine months ended March 31, 1998, the Company recorded
no income tax expenses or benefits compared with a net tax benefit of $8.4
million recorded by the Company for the nine months ended March 31, 1997, which
is net of a valuation adjustment of $5.4 million representing an adjustment to
the income tax benefit relating to losses incurred in excess of previously
earned income.
Net (Loss) Income. The Company recognized a net loss of $29.3 million for the
nine months ended March 31, 1998 compared with a net loss of $28.9 million for
the nine months ended March 31, 1997, an increase of 1.4%. The net loss for the
nine months ended March 31, 1998 resulted from several factors including: (i) a
write down of $15.6 million in retained interest in securitized receivables;
(ii) a $2.4 million dollar charge related to the move of the Company's
facilities to Marietta, Georgia, (iii) a $900,000 write off of capitalized costs
related to certain of the Company's financing arrangements and (iv) operating
losses incurred while the Company attempts to rebuild its finance contract
volume.
16
<PAGE>
Three Months Ended March 31, 1998 Compared To Three Months Ended March 31, 1997
Revenues. Revenues before write downs on retained interests in securitized
receivables decreased $9.9 million to $5.7 million, or 63.5%, for the three
month period ended March 31, 1998 compared with the comparable period in the
prior year.
Gains or Losses from Securitization Transactions. There were no gains from
securitization transactions for the three month period ended March 31, 1998
compared with a gain of $6.0 million for the three month period ended March 31,
1997.
Write Downs of Retained Interest in Securitized Receivables. The Company
revalues its retained interests in securitized receivables quarterly using
estimated future experience on the respective underlying securitization trust's
finance contract performance. When the actual experience differs from the
original assumptions utilized in the initial valuation in a detrimental
direction, the Company can incur permanent losses in the carrying value of these
assets. The write down of retained interests in securitized receivables during
the three month period ended March 31, 1998 is a result of the Company's current
assumptions utilized in evaluating its retained interests in securitized
receivables, which incorporate a higher discount rates on future cash flows,
expected default rates over the life of the securitization trust, lower recovery
rates on the underlying collateral, and higher than expected prepayment rates
compared to the levels used in the comparable period a year ago. Write downs of
retained interests in securitized receivables were $4.1 million for the
three-month period ended March 31, 1998 compared with write downs of $4.4
million for the three-month period ended March 31, 1997.
Servicing Fee Income. Servicing fee income increased to $4.1 million for the
three months ended March 31, 1998 from approximately $80,000 for the three
months ended March 31, 1997. This increase is a result of the Company's
servicing subsidiary, SST, commencing operations during the quarter ended March
31, 1997.
Interest Income. Interest income decreased to $1.5 million for the three months
ended March 31, 1998 from $9.3 million for the three months ended March 31,
1997, a decrease of $7.8 million or 83.5%. The decrease in interest income is
attributed to (i) the lower average amount of loans held during the period ended
March 31, 1998 compared with the period ended March 31, 1997, and (ii) the
amount of non-performing finance contracts in the finance contract portfolio.
Operating Expenses. Operating expenses decreased to $8.1 million for the three
months ended March 31, 1998 from $16.4 million for the three months ended March
31, 1997, a decrease of $8.3 million or 50.6%. The decrease in operating
expenses was primarily driven by a decrease in interest expense attributable to
a lower balance outstanding on the Company's warehouse credit facility and
consolidation of operations and relocation of the Company's administrative
functions to Marietta, Georgia.
Interest Expense. Interest expense decreased to $1.6 million for the three
months ended March 31, 1998 from $6.4 million for the three months ended March
31, 1997, a decrease of $4.8 million or 74.8%, due to lower loan origination
volumes and outstanding loan amounts under the Company's warehouse credit
facility.
17
<PAGE>
Salaries and Other Employee Costs. Salaries and other employee costs decreased
to $4.0 million for the three months ended March 31, 1998 from $5.0 million for
the three months ended March 31, 1997, a decrease of $1.0 million or 20.0%. The
decrease is attributable primarily to the consolidation of operations and
relocation of the Company's administrative functions to Marietta, Georgia and
partially offset by growth in the employee base at SST to support its expanding
operations.
Provision for Credit Losses. The provision for credit losses decreased to
$17,000 for the three months ended March 31, 1998 from $1.4 million for the
three months ended March 31, 1997, a decrease of $1.4 million or 98.8%. The
current provision for credit losses is affected by the Company's volume of
finance contracts acquired and the aging of all owned contracts.
All Other Operating Expenses. All other operating expenses decreased to $2.4
million for the three months ended March 31, 1998 from $3.5 million for the
three months ended March 31, 1997, a decrease of $1.1 million or 31.7 %. The
significant components of the decrease in all other operating expenses relate to
consolidation of the Company's operations and relocation of the Company's
administrative offices to Marietta, Georgia. These decreases were partially
offset by increases in the Company's general and administrative expenses to
support SST's expanding loan servicing processing center.
Taxes on Income. For the three months ended March 31, 1998, the Company recorded
no income tax expenses or benefits. The Company recorded a tax benefit of $0.3
million, which was offset by a valuation adjustment of $0.3 million, for the
three months ended March 31, 1997.
Net (Loss) Income. The Company recognized a net loss of $6.4 million for the
three months ended March 31, 1998 compared with a net loss of $5.2 million for
the three months ended March 31, 1997, an increase of 23.1%. The net loss during
the three months ended March 31, 1998 resulted from several factors including:
(i) a write down of $4.1 million in retained interest in securitized receivables
and (ii) operating losses incurred while the Company attempts to rebuild its
finance contract volume.
Financial Condition
Automobile Finance Receivables, Net. Automobile finance receivables consist of
finance contracts held for sale, finance contracts held for investment
(including vehicles held in the repossession process) and the Company's lease
portfolio. The Company ceased originating lease contracts in the first quarter
of its 1996 fiscal year.
Automobile finance receivables, net of allowance for credit losses, increased to
$41.5 million at March 31, 1998 from $34.7 million at June 30, 1997, a increase
of $6.8 million or 19.8%. Automobile finance contracts increased to $34.8
million at March 31, 1998 from $30.4 million at June 30, 1997, a increase of
$4.4 million or 14.5%. Automobile leases decreased to $6.7 million at March 31,
1998 from $11.2 million at June 30, 1997, a decrease of $4.5 million or 40.2%.
The allowance for credit losses increased to $8.5 million at March 31, 1998 from
$6.9 million at June 30, 1997, an increase of $1.6 million or 23.2%. The
increase in reserve for credit losses can be attributed to management's current
view of aged receivables and the likelihood of collection.
18
<PAGE>
Retained Interests in Securitized Receivables. The following table provides
historical data regarding the retained interests in securitized receivables for
the periods shown:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30, December 31, March 31,
1997 1997 1997 1998
------------- ------------- --------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance......... $ 70,243 $ 33,330 $ 32,532 $ 20,322
Additions................. 13,709 -- -- --
Amortization.............. (1,622) (798) (748) (757)
Write downs............... (49,000) -- (11,462) (4,100)
------------- ------------- ------------- -------------
Ending balance............ $ 33,330 $ 32,532 $ 20,322 $ 15,465
============= ============= ============= =============
</TABLE>
Delinquency Experience
The following tables reflect the delinquency experience of finance contracts
acquired, including those sold in whole finance contract sales or
securitization, by the Company at the dates shown:
<TABLE>
<CAPTION>
Finance Contract Portfolio
At March 31, At June 30,
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Principal balance
outstanding ............. $809,004(3) $813,055(1)
-------- --------
Number of finance
contracts outstanding.... 85,572(3) 75,847(1)
Delinquent loans
31-59 days.............. $50,248 6.2% $71,008 8.7%
60-89 days ............. 16,118 2.0% 21,831 2.7%
90 days and over........ 12,936(4) 1.6% 4,781 0.6%
------ ------ ------ ----
Total.................. 79,302 9.8% 97,620 12.0%
Finance contracts in repossession
or bankruptcy............ 202,898(5) 25.1% 69,485(2) 8.5%
------- ------ ------- ----
Grand Total $282,200 34.9% $167,105 20.5%
======== ====== ======== =====
</TABLE>
(1) Excludes contracts for which notice of intent to liquidate has expired
and those having an outstanding balance less than or equal to $500.
(2) Excludes finance contracts in bankruptcy, authorized for repossession and in
repossession and still eligible for reinstatement.
(3) Includes all finance contracts except those considered inactive, fully
liquidated, have balances less than $1,000, or where risk default insurance
has been rejected or paid.
(4) At March 31, 1998, includes delinquent loans in the 90 to 120 days category
(see (5) below).
(5) At March 31, 1998, this amount represents contracts in bankruptcy and
delinquent loans more than 120 days.
Credit Loss and Repossession Experience
An allowance for credit losses is maintained for all finance contracts held for
sale and for all finance contracts held for investment. Management evaluates the
reasonableness of the assumptions employed by reviewing credit loss experience,
19
<PAGE>
delinquencies, repossession trends, the size of the finance contract portfolio
and general economic conditions and trends. If necessary, assumptions are
changed to reflect historical experience to the extent it deviates materially
from that which was assumed.
If a delinquency exists and default is deemed inevitable or the collateral is in
jeopardy, the Company's collections department and or Servicers will initiate
appropriate collection efforts that may include repossession of the financed
vehicle. Bonded, insured outside repossession agencies are used to secure
involuntary repossessions. In most jurisdictions, notice to the borrower of the
Company's intention to sell the repossessed automobile is required, whereupon
the borrower may exercise certain rights to cure his or her default or redeem
the automobile. Following the expiration of the legally required notice period,
the repossessed vehicle is sold at a wholesale auto auction, usually within 150
days of the repossession. The Company monitors vehicles set for auction, and
procures an appraisal under the VSI Policy prior to sale. Liquidation proceeds
are applied to the borrower's outstanding obligation under the finance contract.
Loss deficiency claims under the VSI Policy and credit default insurance policy
are appropriately filed.
The Company has experienced claim denials under the RDI policies, which it is
contesting. On April 17, 1998, Norwest Bank Minnesota, N.A., as Trustee for the
96-1, 96-2, 96-3, and 97-1 Aegis Auto Receivables Trusts, filed in New Jersey
Superior Court a breach of contract and declaratory judgment action against The
Connecticut Indemnity Company in connection with Risk Default Insurance policies
sold by Connecticut Indemnity. The lawsuit seeks damages and a declaration as to
the extent of coverage under the Connecticut Indemnity policies applicable to
the Trusts. On May 15, 1998, Connecticut Indemnity removed the case to the
United States District Court for the District of New Jersey. Connecticut
Indemnity must respond to the complaint by the first week of July 1998. If the
Trustee is unsuccessful in its efforts, the Company may experience an adverse
financial impact. The Company reports the remaining deficiency as a net
charge-off against the allowance for credit losses for automobile finance
receivables owned by the Company. For finance contracts held in securitization
trusts, charge-offs are accounted for in accordance with the underlying pooling
and servicing agreements.
On an annualized basis through March 31, 1998, the Company's owned and managed
liquidated and defaulted receivables rate increased to 29.9% from 22.1% in the
fiscal year ended June 30, 1997 and from 13.1% in the fiscal year ended June 30,
1996. Additionally, the Company's net charge-offs as a percentage of the average
principal balance outstanding on an annualized basis though March 31, 1998
increased to 19.2% from 12.1% in the fiscal year ended June 30, 1997 and from
6.6% in the fiscal year ended June 30, 1996. The increase in default rates from
June 30, 1997 to March 31, 1998 can be attributed to the change in the
definition of a defaulted receivable in the purchase facility to 90 days
delinquent from other pooling and servicing arrangements which define
receivables defaulted at either 120 days or 180 days. The causes for the
increase for the Company's net charge-off rate is due to the (i) increase in
defaulted receivables, (ii) deterioration in the Company's recovery rates from
the disposition of repossessed vehicles, and (iii) slower than expected
settlement of credit default insurance claims. Without an improvement in the
delinquency and charge-off rates relating to the more recently acquired finance
contracts, the Company's decreased ability to continue to obtain credit or
securitize its finance contracts would have an adverse effect on the Company's
results of operations and financial condition.
20
<PAGE>
The following table shows the Company's repossession and loss experience for its
managed finance contract portfolio for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months
June 30,(*) Ended March 31,
1996 1997 1998
---------- ------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Average principal balance
outstanding(1)............................. $304,394 $624,341 $811,030
Balance of liquidated and defaulted
receivables(2)............................. $39,932 $138,008 $181,931
Recoveries (3) and (4)....................... 16,039 46,952 55,118
------ ------- ------
Gross charge-off(5).......................... 23,893 91,056 126,813
Credit default insurance approvals (6)....... 3,849 15,611 9,964
----- ------ -----
Net charge-offs.............................. $20,044 $75,445 $116,849
======= ======= ========
Liquidated and defaulted receivables
as a percentage of average principal
balance outstanding(7).................... 13.1% 22.1% 29.9%
Gross charge-offs as a percentage of
average principal balance outstanding (7). 7.6 14.6 20.8%
Net charge-offs as a percentage of average
principal balance outstanding (7)......... 6.6 12.1 19.2%
</TABLE>
- ----------
(1) Arithmetic mean of beginning and ending outstanding principal balance,
excluding defaulted receivables, of finance contracts acquired including
those previously sold in securitization transactions.
(2) Defaults recognized in accordance with the terms underlying the specific
pooling and servicing agreements.
(3) Includes proceeds from collateral liquidations, property insurance claims,
rebates, borrowers and other sources.
(4) Includes recoveries on liquidated and defaulted receivables recognized in
prior periods.
(5) Balance of liquidated and defaulted receivables minus recoveries.
(6) Value of credit insurance approvals.
(7) March 31, 1998 percentages are annualized.
(*) The amounts and percentages for the fiscal years ended June 30, 1996 and
1997 have been restated from previously reported information to reflect the
change in definition and timing of defaulted receivables.
The Company has prepared analyses, based on its own credit experience and
available industry data, to identify the relationship between finance contract
delinquency and default rates at the various stages of a finance contract
repayment term. The results of these analyses, which have been incorporated into
the Company's methodology of determining gains and losses from securitization
transactions and valuing retained interests in securitized receivables, suggest
that the probability of a finance contract becoming delinquent or going into
default is highest during the "seasoning period" that occurs between the sixth
and the eighteenth month payment period after the acquisition date.
A greater portion of the Company's finance contract acquisition volume is
expected to fall into the "seasoning period" described above, which may cause a
rise in the overall finance contract portfolio delinquency and default rates,
without regard to underwriting performance. Assuming no changes in any other
factors that may affect delinquency and default rates, the Company believes this
trend should stabilize or reverse when the volume of mature finance contracts
(with lower delinquency and default rates) is sufficient to offset the total
finance contract portfolio delinquency and default rates.
The Company has introduced new products and improved underwriting processes that
management believes have reduced delinquencies and losses on the more recently
acquired contracts. During the fiscal year ended June 30, 1997, the Company
dedicated approximately $3.0 million of working capital to the development and
implementation of its own servicing company through its wholly owned subsidiary,
Systems and Services Technology, Inc. ("SST"). While SST was developing, the
Company contracted for certain collection functions through a sub-servicing
agreement with its third party servicer, American Lenders Facility,
Inc.("ALFI"). Through this arrangement the Company assumed responsibility for
all customer contact with respect to all existing leases and with respect to
finance contracts that were included in the Company's December 1994
securitization transaction and all finance contracts acquired thereafter. In
addition, the Company assumed responsibility for liquidation activities on its
entire finance contract portfolio (including securitized finance contracts) at
21
<PAGE>
such time. In January 1997, SST began servicing a portion of the Company's
finance contracts from the time of acquisition. As of March 1997, SST was
awarded the servicing on all of the Company's finance contracts simultaneously
with their acquisition. SST does not perform any servicing on the Company's
lease portfolio. The Company continues to perform collection functions under its
sub-servicing agreement with ALFI on the remaining finance contracts serviced by
ALFI. There can be no assurance that the performance of the Company's portfolio
will be maintained, or that the rate of future defaults and/or losses will be
consistent with prior experience or at levels that will not adversely affect the
Company's profitability. In January 1998, the Company agreed, subject to
approval by the stockholders and certain creditors of the Company, to sell all
of the outstanding stock of its wholly owned subsidiary, SST. The Company
intends to continue to have SST service its finance contracts. (See "Liquidity
and Capital Resources").
With respect to the Company's owned portfolio, the Company does not record its
provision for credit losses based on a percentage of the Company's finance
contract portfolio outstanding because percentages can be favorably affected by
large balances of recently acquired finance contracts. The Company utilizes
actual dollar levels of delinquencies and charge-offs and analyzes the data on a
"static pool" basis.
Liquidity and Capital Resources
The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) amounts necessary to
acquire automobile finance contracts pending disposition, primarily through
securitization, (ii) cash held from time to time in restricted reserve accounts
to support securitization and other securitization expenses, and (iii) cash
required to operate its servicing operations. The Company also uses material
amounts of cash for operating expenses and debt service. The Company has
operated on a negative cash flow basis and experienced significant losses during
the past two years. The Company has funded its negative operating cash flows
principally through borrowings from III Finance, sales of equity securities and
most recently, advances from the proposed sale of SST, its servicing subsidiary
(subject to shareholder approval). There can be no assurance that the Company
will have access to capital markets in the future or that financing will be
available to satisfy the Company's operating and debt service requirements or to
implement its business plan and to operate on a positive cash flow basis. If
these resources are not available on terms acceptable to the Company, the
Company may have to further curtail operations that may result in a new
restructuring plan or in discontinuing its operations.
As a result of the factors described below and the absence of committed
operating capital, the Company has very little liquidity and its financial
condition is precarious. There can be no assurance that the Company's efforts to
alleviate its liquidity problems and restore its operations to profitability
will be successful. If the Company is unsuccessful in its efforts, it may be
unable to meet its obligations, which raises substantial doubt about the
Company's ability to continue as a going concern. If the Company is unable to
continue as a going concern and is forced to liquidate assets to meet its
obligations, the Company may not be able to recover the recorded amounts of such
assets. The Company's consolidated financial statements do not include any
adjustments that might result from this uncertainty.
As reflected in the accompanying statement of financial condition as of March
31, 1998 and the consolidated condensed statement of operations for the nine
months then ended, the Company has suffered substantial losses and, accordingly
substantial reductions in stockholders' equity. These negative financial trends
have resulted primarily from (i) material increases in delinquencies and losses
on owned and managed finance contracts acquired since the Company's inception
and, to a lesser extent, (ii) one time charges relating to the consolidation of
the Company's operations and relocation of administrative functions to Marietta,
Georgia.
22
<PAGE>
The Company's external capital resources primarily consist of its $50 million
warehouse credit facility ($75 million prior to February 26, 1998) and the
Company's $1.0 billion purchase facility, both of which are provided by III
Finance. When the Company securitizes finance contracts through its purchase
facility, it repays a portion of its outstanding warehouse indebtedness with the
proceeds from such securitization, making such portion available for future
borrowing. The terms under the purchase facility provide the Company with a
periodic securitization strategy. In the nine months ended March 31, 1998, the
Company completed three securitizations totaling $154.3 million under the terms
of the purchase facility but the Company completed no securitizations during the
three months ended March 31, 1998. Since establishing the purchase facility in
March 1997, the Company has sold an aggregate amount of $543.3 million and
expects to securitize finance contracts periodically during the year. There can
be no assurances that transactions under the purchase facility will be
successfully completed. The Company also continues to seek additional
arrangements with financial institutions with respect to the disposition of its
portfolio assets through securitization, whole loan sale or other exit
strategies. In addition, the Company, in the past, had been able to borrow
against its retained interests in securitized receivables to provide liquidity.
To further enhance the Company's liquidity, its wholly owned subsidiary, SST,
began its servicing operations. As a servicer of the Company's finance contracts
sold in the securitization process, SST receives its fee for services rendered
to the respective trusts directly from those trusts prior to any other
distributions. However, under the terms of the Agreement for the sale of SST,
SST is restricted from declaring or paying any dividends, distributing any
assets or making any loans to the Company.
As of March 31, 1998, the Company was in technical default under its warehouse
line and its RTY Financing provided by III Finance for failing to meet certain
net worth requirements. On February 26, 1998 the warehouse line was reduced from
$75 million to $50 million and the Company obtained waivers of such defaults for
all of its facilities with III Finance through March 31, 1998. The Company has
negotiated with III Finance to extend waivers of such defaults for all of its
facilities with III Finance through June 30, 1998 subject to final approval and
execution of the waiver agreements. In connection with the waiver, the Company
can incur a shortfall of what it owes III Finance on its monthly pay-downs, not
to exceed $500,000.
The Company executed a Stock Purchase Agreement (the "Agreement"), dated as of
January 28, 1998, for the sale of all capital stock of its servicing subsidiary,
Systems & Services Technologies, Inc. ("SST"), for $7.0 million to Adams, Viner
& Mosler, Ltd., and III Associates (collectively referred to as the
"Purchasers"), subject to stockholder approval. The Agreement grants the Company
the option to repurchase SST at any time on or before December 31, 1998, for
$7.0 million plus a 5% premium. Under the terms of the Agreement, SST is
restricted from declaring or paying any dividends, distributing any assets or
making any loans to the Company. The Company has received advances on the sale
of SST of $7.0 million as of March 31, 1998. It is expected that SST will
continue to service the Company's finance contracts subsequent to the sale. The
Company does not expect to record a gain on this transaction unless and until
the repurchase option expires unexercised. In addition, the Company expects to
consolidate the results of SST's operations until the repurchase option expires,
at which time SST's operations will no longer be consolidated.
23
<PAGE>
The following table sets forth the major components of the increase (decrease)
in cash and cash equivalents for the periods shown:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Net cash used in operating activities $ (21,582,368) $ (35,996,988)
Net cash (used in) provided by investing activities (1,222,907) (4,815,733)
Net cash provided by financing activities 20,840,300 39,420,599
---------------- --------------
Net increase (decrease) in cash and cash equivalents $ 480,839 $ (1,392,122)
================ ==============
</TABLE>
Net cash used in operating activities primarily represents cash flows utilized
to support the Company's on-going operations which include (i) the acquisition
of finance contracts (including capitalized acquisition costs), net of cash
proceeds of sales (including through securitization (no securitization
transactions were completed during the three months ended March 31, 1998) and
repayments from automobile finance receivables), (ii) costs to maintain its
production, marketing, re-marketing and collection activities, and (iii) in the
case of the nine months ended March 31, 1998, the costs of relocating the
Company's headquarters from New Jersey to Georgia. The source of cash used to
acquire finance contracts is generated primarily by financing activities under
the Company's warehouse credit facilities.
The Company's cash flows and results of operations may be affected adversely by
rising interest rates. The Company's warehouse credit facilities are at floating
rates of interest, and increases in rates cannot immediately be passed on to
consumers, whose finance contracts are at fixed rates of interest. In addition,
rising interest rates result in a decrease in the Company's net spreads on
securitization transactions, thereby decreasing future projected cash flows from
retained interests in securitized receivables. Furthermore, the Company's
discount rate utilized in determining its borrowing base may also rise,
decreasing the amount available to borrow. Moreover, interest rates charged by
the Company may be more significantly affected by factors other than prevailing
interest rates, most notably geographic distribution and varying state interest
rate limitations.
In connection with its securitization transactions, the Company enters into
pooling and servicing agreements (the "Agreements") in which its finance
contracts are sold to a trust which, in turn, sells securities to investors. The
terms of the Agreements generally require that the excess servicing cash flows
of the finance contracts be retained in a bank account under the control of the
trustee (the "Reserve Fund") until the Reserve Fund meets predetermined deposit
requirements. Any cash flows in excess of Reserve Fund requirements are released
to the Company on a monthly basis. For the nine months ended March 31, 1998 and
1997, the Company received $2.3 million and $1.4 million, respectively, in
excess servicing cash flows from Reserve Funds. In the event that the finance
contracts owned by the Trusts fail to meet predetermined delinquency and loss
performance measures, the Agreements require that the Trustee retain excess
servicing cash flows until the Reserve Fund attains pre-set incrementally higher
levels of credit enhancement. The predetermined performance measures are not
24
<PAGE>
always maintained on a consistent monthly basis, thus deferring the release of
the cash flows to the Company from the Reserve Fund of the applicable Trust. In
addition, certain of the Agreements required the Company to deposit additional
cash into the Trust's Reserve Fund if its initial minimum required levels were
not met within a predetermined time frame. For the nine months ended March 31,
1997, the Company paid additional cash contributions to certain Reserve Funds of
$3.1 million and none for the period ended March 31, 1998.
The purchase facility includes a commitment from III Finance for the purchase of
$350.0 million of trust certificates. The Certificates are backed by the
Company's finance contracts and are unrated. The $75.0 million warehouse line
($50 million as of February 26, 1998) supports the purchase facility. As of
March 31, 1998, the Company securitized an aggregate amount of $543.3 million in
seven securitization transactions under its $1 billion purchase facility. Future
securitizations under the purchase facility ($456.7 million remained available
as of March 31, 1998) are subject to customary conditions and are uncommitted.
The purchase facility provides for initial financing through the warehouse line
as the finance contracts are acquired and subsequently sold, generally on a
monthly basis, into the purchase facility.
The Company's $50.0 million warehouse line supporting the purchase facility,
provides the Company with a two year (expiring the sooner of March 13, 1999 or
an event of default as defined thereunder) warehouse line bearing interest at
LIBOR plus 3% from the date the loan is made with borrowing limits of the lesser
of $50.0 million or the sum of (A) 100% of the outstanding principal amount of
finance contracts and (B) the lesser of 90% of the outstanding principal amount
of non-conforming finance contracts (which percentages are reduced to 80% and
70%, respectively). Proceeds from borrowings under this warehouse facility may
be used for the purpose of acquiring automobile finance contracts in accordance
with the Company's underwriting guidelines. Concurrent with the closing of the
current facility in March 1997, the Company's $50.0 million warehouse credit
facility for originating lease transactions was amended to reduce it to the then
outstanding balance and no additional borrowing is allowed under the lease
facility.
The lease line with III Finance expired March 31, 1998. The Company has
negotiated an extension of the maturity date of that facility through June 30,
1998.
For the nine months ended March 31, 1998, the Company securitized approximately
$154.3 million of finance contracts and used the net proceeds to pay down
borrowings under its warehouse credit facilities. During the three months ended
March 31, 1998, there were no securitization transactions.
On October 16, 1997, the holders of the Debenture converted the Debenture into
non-voting Cumulative Convertible Preferred Stock, Class D ("Class D Preferred
Shares"). The Class D Preferred Shares has a 12.75% dividend and a redemption
value of approximately $21.1 million, and is redeemable at the holders option,
in which event the Company can pay common stock at $1.26 per share (a total of
16,751,412 shares of common stock) rather than cash.
On November 10, 1997, the Company's holders of its $4.0 million subordinated
debt with Greenwich Capital Financial Products, Inc., converted the debt into
Cumulative Preferred Stock ("Class E and F Preferred Shares"). The debt, with a
face value of $4.0 million and an interest rate of 12% was converted into 2,000
shares each of Class E and F Preferred Shares with a 12.0% dividend and a
redemption value of $4.0 million. The Class E Preferred Shares are convertible
into common stock at $1.26 per share and the Class F Preferred Shares are
convertible into common stock at $2.00 per share.
25
<PAGE>
Strategic Plan. The Company's new executive management team has developed and is
implementing its strategic business plan (the "Plan") to: rebuild the Company's
equity; reduce debt burden as well as the related expense; enhance operating
capital; restructure operations and administrative functions to achieve
efficiencies and reduce operating expenses; introduce new products and services
and restructure existing products to achieve profitability and credit
performance in a highly competitive market; and enhance credit management
processes.
During the second and third quarter of its current fiscal year, the Company
began to execute the Plan to address the current operating losses and liquidity
issues. The plan calls for reductions in the Company's overhead by consolidation
of operations from Jersey City, New Jersey to Marietta, Georgia. In addition to
the consolidation to the Georgia office, the Plan also called for substantial
reductions in the work force related to management, production, California
servicing, and field representatives. Based on management estimates, staffing
reductions and downsizing of space requirements should reduce operating expenses
by approximately one-half and still allow the production facility to operate at
a capacity up to 2,500 loans per month.
The table below summarizes the effects of the Plan, on current operations for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997, net of SST related costs.
Three Months Ended
March 31, March 31,
1998 1997
(in thousands)
Salaries and Other Employee Costs $ 2,324 $ 4,505
Other Expenses (excluding interest and provision
for credit losses) 1,925 3,261
----------- ------------
Total $ 4,249 $ 7,766
=========== ============
Finance Contracts Acquired $ 17,341 $ 110,580
=========== ============
The Plan also calls for development and implementation of new products and fee
based services to enhance operating revenues. Fee based services include
subcontracting the Company's origination services to other companies to enhance
operating revenues by utilizing the current excess capacity. There can be no
assurances that the Company will be successful in raising the necessary capital,
alleviate its liquidity problems and restore its operations. If the Company is
unsuccessful in its efforts, it will be unable to meet its obligations and will
not be able to continue as a going concern.
Inflation
While inflation has not had a material impact upon the Company's results of
operations, there can be no assurance that the Company's business will not be
affected by inflation in the future. Increases in the inflation rate generally
result in increased interest rates and can be expected to result in increases in
the Company's operating expenses. As the Company borrows funds at variable rates
26
<PAGE>
and generally acquires finance contracts at an average interest rate of
approximately 20%, increased interest rates will increase the borrowing costs of
the Company, and such increased borrowing costs may not be offset by increases
in the interest rates with respect to finance contracts acquired.
Seasonality
The Company's operations are affected to some extent by seasonal fluctuations.
Finance contract acquisitions tend to increase in March through June and
September and October, while finance contract acquisitions are lowest in
December and January. Delinquencies also tend to be higher during certain
holiday periods, particularly at calendar year end.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 17, 1998, Norwest Bank Minnesota, N.A., as Trustee for the 96-1, 96-2,
96-3, and 97-1 Aegis Auto Receivables Trusts, filed in New Jersey Superior Court
a breach of contract and declaratory judgment action against The Connecticut
Indemnity Company in connection with Risk Default Insurance policies sold by
Connecticut Indemnity. The lawsuit seeks damages and a declaration as to the
extent of coverage under the Connecticut Indemnity policies applicable to the
Trusts. On May 15, 1998, Connecticut Indemnity removed the case to the United
States District Court for the District of New Jersey. Connecticut Indemnity must
respond to the complaint by the first week of July 1998.
On May 1, 1998, the bankruptcy trustee for The Bennett Funding Group, Inc. filed
suit against the Company in the Northern District of New York, captioned In re
The Bennett Funding Group, Inc., Debtor, Richard C. Breeden, Trustee of The
Bennett Funding Group, Inc., et al., Plaintiff v. The Aegis Consumer Funding
Group, Inc., et al., alleging that all transactions between the Debtor and the
Company were not arms lengths transactions and that The Bennet Funding Group,
Inc. did not receive adequate consideration for such transactions. As a result,
the Trustee is asserting that any monies transferred from Debtor to the Company
should be returned to the Trustee with interest. The Company believes that it
has meritorious defenses to all of the claims alleged by the Trustee.
Item 2. Changes in Securities
(b) - On January 13, 1998, HRO with III Offshore Advisors acting as investment
advisor, converted 85 shares of the Company's Series C Preferred Stock into
12,322,783 shares of common stock at a conversion price of $0.7968. According to
HRO's Schedule 13-D filing, HRO directly owns 13,135,987 shares of common stock
through its ownership of the 21 remaining outstanding shares of the Company's
Series C Preferred Stock. As of the date of this report, there are 30 million
shares of common stock authorized and outstanding. Accordingly, the redemption
of any of the shares for the Company's Series C (or Class D, E, or F) Preferred
Stock for Common Stock can not be accomplished without amending the certificate
of incorporation of the Company.
Item 3. Defaults Upon Senior Securities
As of March 31, 1998, the Company was in technical default under its warehouse
line and its RTY Financing provided by III Finance for failing to meet certain
net worth requirements. On February 26, 1998 the warehouse line was reduced from
$75 million to $50 million and the Company obtained waivers of such defaults for
all of its facilities with III Finance through March 31, 1998. The Company has
negotiated with III Finance to extend waivers of such defaults for all of its
facilities with III Finance through June 30, 1998, subject to final approval and
execution of the waiver agreements. In connection with the waiver, the Company
can incur a shortfall of what it owes III Finance on its monthly pay-downs, not
to exceed $500,000.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Effective January 21, 1998, Felice R. Cutler resigned from the Board of
Directors.
Effective March 8, 1998, the Board of Directors of the Company elected Cyril
Means as Executive Vice President and General Council, Robert Micalizzi as
Assistant Treasurer and Vice President, and Troy Cavallaro as Vice President.
On April 24, 1998, the Company received a waiver with respect to the Stock
Purchase Agreement for the sale of the stock of SST, allowing SST to pay the
Company on or before June 1, 1998, up to $455,000 owed by SST to the Company or
its affiliates in respect to the tax sharing arrangement existing between them.
On May 12, 1998, the Company received an additional $473,000 under the tax
sharing arrangement.
27
<PAGE>
Item 6.
(a) Exhibits -
Exhibit No.
3.1 Amended and Restated Certificate of Incorporation(1).
3.2 Amended and Restated By-laws(1).
3.3 Certificate of Designations for Class D Redeemable Preferred
Stock(2)
3.4 Certificate of Amendment to the Certificate of Designations for
Class D Redeemable Preferred Stock(2)
3.5 Certificate of Designations for Class E Redeemable Preferred
Stock(2)
3.6 Certificate of Designations for Class F Redeemable Preferred
Stock(2)
10.108.2 Waiver, dated April 24, 1998, with respect to the Stock Purchase
Agreement dated as of January 28, 1998 between The Aegis Consumer
Funding Group, Inc., Adams, Viner & Mosler, Ltd. and III
Associates.
27 Financial Data Schedule
(1) Incorporated by reference to documents filed as exhibits to the Company's
Registration Statement on Form SB-2 originally filed on April 6, 1995 (Reg.
No. 33-85836).
(2) Incorporated by reference to documents filed as exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997.
(b) Reports on form 8-K
The Company filed a Current Report on Form 8-K, dated January 13, 1998, to
report the conversion of 85 shares of Series C Preferred Stock held by HRO
into an aggregate of 12,332,783 shares of Common Stock.
28
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE AEGIS CONSUMER FUNDING GROUP, INC.
Date: May 20, 1998 By: /s/Mathew B. Burns
-------------------
Mathew B. Burns
Chief Executive Officer
Signing on behalf of the registrant
and as principal financial and
accounting officer.
April 24, 1998
The Aegis Consumer Funding Group, Inc.
200 North Cobb Parkway, Suite 428
Marietta, Georgia 30062
Attention: Matthew Burns
Dear Mr. Burns:
Reference is made to the Stock Purchase Agreement dated as of January 28, 1998
(the "Agreement"), among The Aegis Consumer Funding Group, Inc. ("Aegis"), and
the undersigned. Notwithstanding Section 7.12 of the Agreement, the undersigned
agree that Systems and Services Technologies, Inc. ("SST"), may pay to Aegis, to
the extent of SST's net income after deduction of payments required by Section
7.9(a)(v) of the Agreement, at any time on or before June 1, 1998, up to
$455,000 owed by SST to Aegis or its affiliates in respect of the tax sharing
arrangement or agreement existing between or among them, subject to providing
the undersigned with reasonable evidence of the amounts so owed. This letter is
a one-time waiver and does not affect any other rights or obligations of Aegis
or the undersigned pursuant to the Agreement.
Sincerely,
ADAMS, VINER & MOSLER LTD.
By: /s/ Warren B. Mosler
--------------------
Name: Warren B. Mosler
Title: General Partner,
AVM Associates
III ASSOCIATES
By: /s/ Robert H. Fasulo
---------------------
Name: Robert H. Fasulo
Title: Secretary, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,973,430
<SECURITIES> 0
<RECEIVABLES> 41,515,663
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,523,278
<CURRENT-LIABILITIES> 85,235,530
<BONDS> 0
0
2,512
<COMMON> 300,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 70,523,278
<SALES> 0
<TOTAL-REVENUES> 8,770,663
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,033,234
<LOSS-PROVISION> 4,993,141
<INTEREST-EXPENSE> 7,469,567
<INCOME-PRETAX> (29,262,571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,262,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,262,571)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
