The Company rents approximately 7,800 square feet of space at One Paragon Drive, Montvale, New Jersey where it maintains its executive offices. The lease runs through June 2002 at an annual rental of approximately $170,000, subject to certain rent escalation provisions. The Company believes that its present facilities are suitable and adequate for its reasonably foreseeable growth.
The following is a summary of selected consolidated financial data relating to the Company. This summary has been restated to present the businesses sold as discontinued operations and should be read in conjunction with the audited financial statements included herein.
Cautionary Statement Identifying Important Factors That Could Cause the Company's Actual Results to Differ From Those Projected in Forward Looking Statements.
$34,000,000. As a result, the Company became a specialized consumer finance company that acquired and serviced automobile receivables from automobile dealers selling new and used vehicles to non-prime customers. In July 1996, the Company commenced operations of its Northeast Regional center in Norwalk, Connecticut to provide its complete range of services to dealers in the Northeast.
During the fourth quarter of 1997, the Company closed its Northeast Regional center in Norwalk, Connecticut.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has no remaining automobile receivables and has ceased to operate as an automobile finance company. On January 29, 1999, the Company's wholly-owned subsidiary, CarLoanCo., Inc. ("CLC"), filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code. CLC's carrying amount in the December 31, 1998 consolidated financial statements has been written off as a result of the bankruptcy filing. The Company is in the process of identifying new business opportunities in furtherance of its plan to rebuild the Company and create shareholder value. The foregoing factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Accordingly, the carrying amounts of the Company's assets and liabilities do not purport to represent realizable or settlement amounts.
Except as otherwise noted, the following discussion of the results of operations is with respect to the Company's non-prime automobile finance business, its primary business for each of the past three years.
Revenues for the year ended December 31, 1998 totaled $7,004,000 as compared with $19,846,000 in the prior year. Revenues from the non-prime automobile finance business decreased to $6,809,000 from $19,099,000 in the prior year. This decrease of $12,842,000 is directly related to the sale of portfolio assets and the ceasing to operate as a non-prime automobile finance company. Investment income decreased to $132,000 from $433,000 in the prior year. This decrease is the direct result of the reduction in short-term investments utilized to repay senior indebtedness and fund operations. Revenues from the Company's long distance services business decreased to $63,000 from $315,000 in the prior year. This decrease of $252,000 is the result of the sale of this business in settlement of outstanding indebtedness in April 1998.
Operating expenses for the year ended December 31, 1998 were $5,050,000 as compared to $10,235,000 in the prior year. The decrease in operating expenses of $5,185,000 is directly related to the sale of portfolio assets and the ceasing to operate as an non-prime automobile finance company.
The Company sold approximately $66 million of automobile receivables resulting in a loss of $3,542,000.
The gain on debt settlement consists of $1,703,000 from the extinguishment of the Company's $2 million of 7.55% subordinated notes, in exchange for two off-balance sheet assets and its long distance telephone service business and $1,986,000 as the result of a discount granted by CSFB in final settlement of amounts outstanding under the Company's revolving credit agreement. The two off-balance sheet assets consisted of the Company's preferred stock investment in ComputerLogic, Inc. ("ComputerLogic") and an equity interest in a start-up corporation pursuing a roll-up transaction of new car dealerships. The Company's preferred stock investment in ComputerLogic was written off in May 1995 due to the poor financial condition of ComputerLogic and its failure to make timely dividend payments.
Interest expense for the year ended December 31, 1997 was $8,146,000 as compared to $3,990,000 in the prior year. Interest expenses was primarily related to the non-prime automobile financing business and the debt outstanding under the Company's senior credit facilities ($67.9 million as of December 31, 1997), securitized notes ($14.1 million as of December 31, 1997) and subordinated and other debt ($11.2 million as of December 31, 1997). The increase in interest expense of $4,156,000 is directly related to the growth of the automobile receivables portfolio acquired and serviced by the Company.
The Company entered the non-prime automobile finance business in December 1995. The results of operations for the short year (seven months) ended December 31, 1995 include the operation of the Company's non-prime business for only one month. Certain information for the full year ended December 31, 1996 is not comparable to the prior year.
Revenues for the year ended December 31, 1996 were derived from the non-prime automobile finance business ($11,789,000), the long distance telephone service business ($512,000) and investment income ($884,000), respectively.
pertinent data on the Company's automobile receivables portfolio as of and for the years ended December 31, 1996 and the seven months ended December 31, 1995:
Yield on loans 24.6% 28.1% Cost of funds 10.2% 11.0% ----------- ----------- Net interest spread 14.4% 17.1% ----------- -----------
1996 1995 ------------ ----------- Allowance for credit losses $ 15,725,000 $ 6,818,000 Percentage of outstanding automobile receivables 25.5% 21.3%
1996 1996 1995 1995 ---------- ---- ---------- ---- Amount % Amount % ---------- --- ---------- --- 60 to 89 days delinquent $3,290,000 4.1% $2,071,000 4.7% 90 days or more delinquent 1,739,000 2.2% 1,387,000 3.1% ---------- --- ---------- ---
The Company has no remaining automobile receivables and has ceased to operate as an automobile finance company. The Company is in the process of identifying new business opportunities in furtherance of its plan to rebuild the Company and create shareholder value. No assurances can be given, however, that the Company will successfully consummate any transaction, or if consummated, that such transaction will enhance shareholder value. As a result, there is substantial doubt about the Company's ability to continue as a going concern.
The Company's liquid assets amounted to $2.4 million as of December 31, 1998.
Inflation and changing prices had no material impact on revenues or the results of operations for the year ended December 31, 1998.
The Company maintained a sophisticated data processing support and management information systems. Since the Company ceased operating as a non-prime automobile finance company during 1998, Finance Manager, the Company's custom designed proprietary software management system, is only used as a source of historical customer data files. In prior years, this system had been updated and maintained by the Company's MIS Department based in Norfolk, Virginia. During 1997, the Company had made a comprehensive assessment of the impact of the year 2000 on its business. This assessment included the preparation of a comprehensive inventory of computer systems and computer-controlled devices. As of December 31, 1997, the Company's compliance efforts were complete. Finance Manager software was designed to account for consumer loan contracts with maturity dates beyond the year 2000. This system has been in use by the Company since 1996. Accordingly, the Company does not expect that the cost of ensuring Year 2000 compliance will have a material adverse impact on its financial position or results of operations in the current year or in future years.