The Company commenced purchasing Installment Contracts Receivable in May 1994 and ceased making such purchases in December 1995. The Company commenced its Inventory Assistance Program ("IAP") in March 1995. Under the terms of the Stipulation (see "Business-Change in Management"), IAP was sold by the Company effective September 18, 1996. Accordingly, for the fiscal years ended March 31, 1997 and 1996, net assets of IAP are included in the Financial
Statements as "Net assets of discontinued operations," and IAP net operating losses are included as "Discontinued operations--loss from operations of discontinued subsidiary," net of applicable income tax. IAP's revenues consist of a non-refundable administrative fee received on the date of each loan, and interest revenue collected and recognized during the time the loan is outstanding. For the fiscal years ended March 31, 1997 and 1996, administrative fees and interest revenues totaled $ 0.8 million and $ 0.4 million, respectively.
Fiscal year ended March 31, 1997 compared to fiscal year ended March 31, 1996
Revenues on the consumer loan portfolio from Installment Contracts Receivable (consumer used-car loans) were $1.7 million for the fiscal year ended March 31, 1997, which represented a $6.1 million decrease compared to the $7.8 million realized for the fiscal year ended March 31, 1996. This decrease resulted from the reduced size of the Company's loan portfolio; the Company ceased purchasing consumer loans in December 1995. The principal repayment portion of the loans is not reflected in gross revenues.
General and administrative expenses for the fiscal year ended March 31, 1997 were $5.9 million, compared to $9.9 million expended in the prior year. The decrease of $4.0 million resulted from the effect of the Company's downsizing in December 1995, and the additional downsizing in September 1996 following the change in management. The cost of collecting the consumer car portfolio is included in general and administrative expenses; this effort has been subcontracted out since January 1996. Provision for credit losses in connection with the portfolio of installment
During the year ended March 31, 1997, the Company's operating loss was $7.4 million, compared to an operating loss of $10.4 million during the year ended March 31, 1996. The decrease in operating loss was primarily attributable to the developments described above, including the combined reduction of general and administrative expense and credit loss provisions by $9.3 million, while total net revenues declined by $6.2 million, yielding a net improvement of $3.0 million.
Fiscal year ended March 31, 1996 compared to fiscal year ended March 31, 1995
Revenues from Installment Contracts Receivable (consumer used-car loans) were $7.8 million for the fiscal year ended March 31, 1996, which represents a $5.1 million increase compared to the $2.7 million realized for the fiscal year ended March 31, 1995. This increase resulted from the increased size of the Company's portfolio of Installment Contracts Receivable for the fiscal year ended March 31, 1996.
Net viatical revenues were $ 0.5 million, reflecting the maturity of 12 Policies for the year ended March 31, 1996, as compared with $6.7 million, reflecting the maturity of 195 Policies during the fiscal year ended March 31, 1995. The result is a $6.2 million decrease in net viatical revenues for the year ended March 31, 1996. The decrease in policy maturities and net viatical revenues resulted from the Company's decision not to purchase new Policies after September 1994, and the sale in May and July 1995 of a total of 225 policies for approximately $17.5 million to Viaticus, Inc.
General and administrative expenses were $ 9.9 million during the year end March 31, 1996, an increase of $ 3.3 million during the year ended March 31, 1996, from the $6.6 million incurred during the year ended March 31, 1995. This increase resulted primarily from approximately $1.9 million in increased costs due to the expanded activity of the Company's Installment Contracts Receivable business during the first three quarters of the year, $ 0.4 million in legal and professional fees, $ 0.2 million in severance pay resulting from the Company's downsizing during the third quarter of 1996, and $ 0.2 million in costs incurred in 1993 and 1994 relating to the Company's offering of securities and its 1995 organization of an Australian joint venture. As a result of the Company's downsizing during the third quarter of 1996, salary expense was approximately $ 0.2 million during the three months ended March 31, 1996 as compared with approximately $ 0.9 million during the three months ended September 30, 1995.
Provision for credit losses in connection with the portfolio of installment contracts receivable were $8.8 million for the year ended March 31, 1996, which represents an increase of $7.3 million compared to the $1.5 million provided for the year ended March 31, 1995. The $7.3 million increase in credit loss provision resulted both from the increased size of the portfolio and the rapid deterioration of the portfolio, which led to the decision to cease purchasing such loan contracts.
The Company's immediate viability as a going concern is dependent upon the restructuring of its obligations, and ultimately, a return to profitability. At March 31, 1997, the Company had cash and cash equivalents of $12.4 million, which represents a significant increase for the year. The Company believes it has sufficient funds to finance currently contemplated operations for a short period of time, but would require additional funds to finance the complete repayment of the Debentures which remain outstanding following the Offer.
There was positive cash flow from operations of $3.0 million for the fiscal year ended March 31, 1997. These cash flows were primarily derived from the administration and ongoing liquidation and payout of the Installment Contracts Receivable portfolio of consumer car loans. Cash flows from operations for the fiscal year ended March 31, 1996 were $8.7 million, which included $17.8 million from the sale of a substantial portion of the viatical portfolio. Consequently, the net operating effect excluding this infusion of cash from the sale of the portfolio was a deficit of approximately $9.1 million. The relative improvement in the present period against this deficit is primarily due to the cessation of further use of the Company's funds for investment in both the consumer car loan portfolio and the IAP dealer loan portfolio.
The Company's portfolio of Installment Contracts Receivable at March 31, 1997 was $2.9 million (excluding such contracts with respect to which there has been a repossession of underlying collateral, a charge-off, or the establishment of a reserve), and consisted of approximately 900 active used car loans. The Company commenced its purchases of these contracts in May 1994 and ceased purchases in December 1995.
The Company's portfolio of unmatured viatical insurance policies totaled 19 at March 31, 1997, having a combined face value of $2.0 million and a net book value of $ 0.5 million. The Company generally ceased purchasing new policies in September 1994.
As a result of the involuntary bankruptcy proceeding against the Company, the Company was prevented from purchasing from Robert Brennan ("Brennan") an approximately 25% equity interest in International Thoroughbred Breeders, Inc. ("ITB"). Consequently, NPD, Inc. ("NPD"), a newly formed company owned by Nunzio P. DeSantis and Anthony Coelho, the Chairman and Chief Executive Officer and a Director, respectively, of the Company, purchased the ITB shares in lieu of the Company. NPD concurrently granted the Company an option to purchase the ITB shares. In consideration of the option, the Company agreed to make a loan to NPD to finance a portion of the cash purchase price to be paid by NPD to Brennan at closing and further agreed that, following the dismissal of the involuntary bankruptcy petition, it would guarantee up to $2.0 million of NPD's obligation to pay the remaining portion of the purchase price due Brennan for the ITB shares, and deposit $2.0 million into a cash collateral escrow account to secure its guarantee obligation.
The Bankruptcy Court enjoined the proposed loan by the Company to NPD, and, as a result, the option was not granted to the Company. Nonetheless, following the dismissal of the involuntary bankruptcy petition, in accordance with the agreement, the Company executed and delivered its guarantee as aforesaid and deposited the required $2.0 million in the cash collateral escrow account. In June 1997, in order to reinstate the Company to the position it would have been as the purchaser of the ITB shares, the Company's Board of Directors approved an agreement in principle with NPD pursuant to which the Company could purchase from NPD, for a purchase price of $2.5 million ($200,000 in cash and a note for $2.3 million), an option to acquire 100% of the ITB shares owned by NPD. If the option is exercised, the Company will purchase the ITB shares for the same cash portion of the purchase price NPD paid for the ITB shares and by assuming the $5.8 million promissory note issued by NPD to Brennan at the closing for the remainder of the purchase price for the ITB shares.
In addition, the Company is making a loan to NPD for $3.0 million secured by the ITB shares, subject to a prior lien on the ITB shares granted to Brennan. NPD will use the loan proceeds to repay an earlier loan made to NPD by an unaffiliated third party, which repayment will terminate the third party's prior option to purchase the ITB shares which had been granted when it made the loan.
At March 31, 1997, the Company had cash on hand of $12.4 million. Subsequently, the Company paid $5.7 million to buy back Debentures at a discount from face value. Had these transactions occurred as of March 31, 1997, the cash balance would have been reduced to $6.7 million. Notwithstanding these purchases and the Exchange Offer (see Item 1 above), the Company's assets remain insufficient to repay the presently outstanding Debentures when they come due in September 1997. There can be no assurance that the