-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WaIGSHz7QUj/ICNEwMGXc6E2xjvy9w6iAZhjaaQzD7pOEuu2RalyZwT6VFVv2b2i 7xN0tCHARcrc8ib8doBiiA== 0000891554-96-000082.txt : 19960220 0000891554-96-000082.hdr.sgml : 19960220 ACCESSION NUMBER: 0000891554-96-000082 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951206 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960216 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOINFO INC CENTRAL INDEX KEY: 0000351017 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 132867481 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11497 FILM NUMBER: 96522835 BUSINESS ADDRESS: STREET 1: 1600 ROUTE 208 CITY: FAIR LAWN STATE: NJ ZIP: 07410 BUSINESS PHONE: 2017030500 MAIL ADDRESS: STREET 1: 1600 ROUTE 208 CITY: FAIR LAWN STATE: NJ ZIP: 07410 8-K/A 1 FORM 8-K/A FOR AUTOINFO, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 6, 1995 AUTOINFO, INC. (Exact name of Registrant as specified in its charter) DELAWARE 0-14786 13-2867481 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1600 ROUTE 208, FAIR LAWN, NEW JERSEY 07410 (Address of principal executive office) (Zip Code) (201) 703-0500 Registrant's telephone number, including area code: N/A (Former name or former address, if changed since last report) The Registrant hereby amends its report on Form 8-K to include the following financial statements Item 7: Financial Statements, Pro Forma Financial Information (a) Audited Financial Statements of Falk Finance Company, Inc. 1. Independent Auditors' Report 2. Balance Sheets as of December 31, 1993 and 1994 3. Statements of Income (Loss) and Retained Earnings (Deficit) for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994 4. Statements of Changes in members' Capital and Shareholders Equity for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994 5. Statements of Cash Flows for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994 6. Notes to Financial Statements (b) Unaudited Financial Statements of Falk Finance Company, Inc. 1. Balance Sheet as of November 30, 1995 2. Statement of Loss and Retained Earnings (Deficit) for the Eleven Month Period ended November 30, 1995 3. Statement of Cash Flows for the Eleven Month Period ended November 30, 1995 (c) Unaudited Pro Forma Financial Information 1. Condensed Pro Forma Consolidated Balance Sheets of AutoInfo, Inc. as of November 30, 1995 2. Condensed Pro Forma Consolidated Statement of Operations for the Year Ended May 31, 1995 3. Condensed Pro Forma Consolidated Statement of Operations for the Six Month Period Ended November 30, 1995 4. Notes to Condensed Pro Forma Consolidated Financial Statements FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Financial Statements For the Period from October 19, 1992 (inception) to December 31, 1992 and for the Years ended December 31, 1993 and 1994 (With Independent Auditors' Report Thereon) FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) INDEX TO FINANCIAL STATEMENTS Page ---- Independent Auditors' Report 1 Balance Sheets as of December 31, 1993 and 1994 2 Statements of Income (Loss) and Retained Earnings (Deficit) for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994 3 Statements of Changes in Members' Capital and Shareholders' Equity for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years ended December 31, 1993 and 1994 4 Statements of Cash Flows for the period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994 5 Notes to Financial Statements 7 KPMG Peat Marwick LLP 2100 Dominion Tower 999 Waterside Drive Norfolk, VA 23510 INDEPENDENT AUDITORS' REPORT The Board of Directors Falk Finance Company, Inc.: We have audited the accompanying balance sheets of Falk Finance Company, Inc. (formerly known as Falk Finance Company, L.C.) as of December 31, 1993 and 1994 and the related statements of income (loss) and retained earnings (deficit), statements of changes in members' capital and shareholders' equity and cash flows for the period from October 19, 1992 (inception) to December 31, 1992 and for the years ended December 31, 1993 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Falk Finance Company, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the period from October 19, 1992 (inception) to December 31, 1992 and for the years ended December 31, 1993 and 1994, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP November 30, 1995 1 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Balance Sheets December 31, 1993 and 1994
Assets 1993 1994 ---- ---- Cash $ 1,225,862 2,034,404 Finance receivables, net (notes 2 and 5) 16,267,772 21,633,842 Other receivables including receivables from related parties (notes 3 and 9) 1,074,622 2,508,478 Prepaid income taxes -- 159,692 Repossessed assets -- 820,753 Property and equipment, net (note 4) 236,778 466,937 Organization and debt issuance costs (at cost, less accumulated amortization of $12,815 and $40,823, respectively) 69,409 323,642 Deferred income taxes (note 8) 10,000 390,000 Other assets 11,381 17,802 ----------- ---------- Total assets $18,895,824 28,355,550 =========== ========== Liabilities and Shareholders' Equity Notes payable (note 5) 13,904,269 19,613,025 Accounts payable and accrued liabilities (note 9) 82,156 483,751 Income taxes payable (note 8) 289,614 -- Convertible subordinated debt (note 6) -- 4,900,000 ----------- ---------- Total liabilities 14,276,039 24,996,776 ----------- ---------- Shareholders' equity: Common stock, class A nonvoting, no par value, 20,000,000 shares authorized, 3,200,000 shares outstanding (note 7) 3,788,023 3,788,023 Common stock, class B voting, no par value, 1,000,000 shares authorized, 500,000 shares outstanding (note 7) 357,894 357,894 Retained earnings (deficit) 473,868 (787,143) ----------- ---------- Total shareholders' equity 4,619,785 3,358,774 Commitments, contingencies and subsequent events (notes 10 and 11) ----------- ---------- Total liabilities and shareholders' equity $18,895,824 28,355,550 =========== ==========
See accompanying notes to financial statements. 2 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Statements of Income (Loss) and Retained Earnings (Deficit) For the Period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994
1992 1993 1994 ---- ---- ---- Interest income: Interest and fee income $ 183,305 4,102,182 6,288,891 Interest expense 10,074 708,634 2,026,265 ---------- --------- --------- Interest income before provision for credit losses 173,231 3,393,548 4,262,626 Provision for credit losses (note 2) 15,075 773,377 2,632,227 ---------- --------- --------- Net interest income 158,156 2,620,171 1,630,399 ---------- --------- --------- Insurance commissions and other income, net -- 47,971 26,385 ---------- --------- --------- Other expenses: Salaries and fringe benefits (note 9) 62,939 700,149 1,424,225 Advisory fees (note 9) 25,106 467,992 647,161 General and administrative (note 9) 29,961 426,970 794,841 Depreciation and amortization 1,533 40,351 86,842 ---------- --------- --------- Total other expenses 119,539 1,635,462 2,953,069 ---------- --------- --------- Income (loss) before income taxes 38,617 1,032,680 (1,296,285) Income tax expense (benefit) (note 8) -- 279,614 (279,474) ---------- --------- --------- Net income (loss) 38,617 753,066 (1,016,811) Retained earnings, beginning of year -- 15,447 473,868 Distributions declared to members 23,170 -- -- Dividends declared to shareholders -- 294,645 244,200 ---------- --------- --------- Retained earnings (deficit), end of year $ 15,447 473,868 (787,143) ========== ========= ========= Per share information: Weighted average number of common shares outstanding $3,000,000 3,274,000 3,700,000 ========== ========= ========= Earnings (loss) per share $ .01 .23 (.27) ========== ========= ========= Pro forma income data: Income before income taxes 38,617 1,032,680 Pro forma provision for income taxes (unaudited) (note 8) 14,659 392,005 ---------- --------- Pro forma net income (unaudited) $ 23,958 640,675 ========== =========
See accompanying notes to financial statements. 3 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Statements of Changes in Members' Capital and Shareholders' Equity For the Period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994
Common Common Contributed Stock Stock Retained Capital Class A Class B Earnings Total ----------- ---------- ------- ---------- ---------- Balance at October 19, 1992 $ -- -- -- -- -- Capital contribution from members 1,789,474 -- -- -- 1,789,474 Net income -- -- -- 38,617 38,617 Dividends declared to members -- -- -- (23,170) (23,170) ----------- ---------- ------- ---------- ---------- Balance at December 31, 1992 1,789,474 -- -- 15,447 1,804,921 Exchange of members' capital to common stock (1,789,474) 1,431,580 357,894 -- -- Common stock issued in a private stock offering, net -- 3,448,443 -- -- 3,448,443 Common stock redeemed -- (1,092,000) -- -- (1,092,000) Net income -- -- -- 753,066 753,066 Dividends declared to shareholders -- -- -- (294,645) (294,645) ----------- ---------- ------- ---------- ---------- Balance at December 31, 1993 -- 3,788,023 357,894 473,868 4,619,785 Net loss -- -- -- (1,016,811) (1,016,811) Dividends declared to shareholders -- -- -- (244,200) (244,200) ----------- ---------- ------- ---------- ---------- Balance at December 31, 1994 $ -- 3,788,023 357,894 (787,143) 3,358,774 =========== ========== ======= ========== ==========
See accompanying notes to financial statements. 4 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Statements of Cash Flows For the Period from October 19, 1992 (inception) to December 31, 1992 and for the Years Ended December 31, 1993 and 1994
1992 1993 1994 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ 38,617 753,066 (1,016,811) ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,533 40,351 86,842 Provision for credit losses 15,075 773,377 2,632,227 Changes in assets and liabilities relating to operating activities: Other receivables -- (931,333) (1,433,856) Repossessed assets -- -- (820,753) Prepaid income taxes -- -- (159,692) Other assets (33,500) (60,106) (288,661) Deferred income taxes -- (10,000) (380,000) Accounts payable and accrued liabilities 57,149 25,006 401,595 Income taxes payable -- 289,614 (289,614) ----------- ----------- ----------- Total adjustments 40,257 126,909 (251,912) ----------- ----------- ----------- Net cash provided by (used in) operating activities 78,874 879,975 (1,268,723) ----------- ----------- ----------- Cash flows from investing activities: Finance receivables acquired (1,393,157) (18,223,848) (21,055,884) Principal collected on finance receivables -- 3,536,165 8,552,499 Proceeds for repurchased finance receivables and sale of repossessed vehicles -- 2,388,431 4,496,299 Purchases of property and equipment -- (264,297) (300,555) ----------- ----------- ----------- Net cash used in investing activities (1,393,157) (12,563,549) (8,307,641) ----------- ----------- ----------- Cash flows from financing activities: Net proceeds from revolving loans 1,013,286 10,742,331 5,708,756 Issuance of convertible subordinated debt -- -- 4,900,000 Capital contributed in cash by members 429,474 -- -- Net proceeds from private stock offering -- 3,448,443 -- Payment for redemption of common stock -- (1,092,000) -- Dividends and distributions paid to members (20,069) (297,746) (223,850) ----------- ----------- ----------- Net cash provided by financing activities 1,422,691 12,801,028 10,384,906 ----------- ----------- ----------- Net increase in cash 108,408 1,117,454 808,542 Cash at beginning of period -- 108,408 1,225,862 ----------- ----------- ----------- Cash at end of period $ 108,408 1,225,862 2,034,404 =========== =========== =========== Supplemental disclosure of cash flow information -- Cash paid during the period for interest $ 10,074 708,634 1,854,077 =========== =========== =========== Cash paid during the period for income taxes $ -- -- 549,832 =========== =========== ===========
(Continued) 5 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Statements of Cash Flows, Continued Supplemental disclosures of noncash investing and financing activities: During the period ended December 31, 1992, certain members contributed to capital finance receivables with a net value of $1,360,000. During the year ended December 31, 1993, the Company acquired certain finance receivables from Charlie Falk's Auto Wholesale, Incorporated (CFAW) at a net value of $2,148,652 in exchange for the assumption of a revolving loan of $2,102,335. The balance of $46,317 was paid to CFAW in cash. During the year ended December 31, 1993, Falk Finance Company, L.C. merged into Falk Finance Company, Inc. and $1,789,474 of members' contributed capital was exchanged for $1,431,580 of Class A common stock and $357,894 of Class B common stock. See accompanying notes to financial statements. 6 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements (1) Description of Business and Summary of Significant Accounting Policies (a) Description of Business Falk Finance Company, Inc. was formed on March 31, 1993 as the result of a merger of Falk Finance Company, L.C. with and into Falk Finance, Inc., collectively referred to as the Company. The Company is a special financial services company that primarily purchases from Charlie Falk's Auto Wholesale, Incorporated (CFAW) on a nonrecourse basis retail installment contracts (installment contracts) secured by automobiles and other vehicles along with unsecured down payment loans (down payment loans) and tax, title and tag loans (TTT loans). Installment contracts, down payment loans and TTT loans are collectively referred to as finance receivables. CFAW buys used passenger cars and light trucks (collectively, "cars") and sells them to purchasers predominately located in the Hampton Roads area of Virginia who have limited access to traditional sources of consumer credit. Because of the Company's dependence upon purchasers located in Hampton Roads, a decline in regional economic conditions could result in fewer contracts available for purchase by the Company and affect consumers' ability to honor contracts. Operations of the Company effectively commenced on October 19, 1992. (b) Income Recognition Interest income from finance receivables is recognized for financial reporting purposes using the interest method. Interest continues to accrue until a loan is charged off. Commissions received on the sale of credit life insurance and warranty policies which are underwritten by third parties, are taken into income on the straight-line method over the estimated term of the related policies. Late charges are recorded as income when collected. (c) Organization and Debt Issuance Costs Costs incurred in organizing the Company and in connection with the issuance of the subordinated debt are being amortized on a straight-line basis. (d) Allowance for Finance Credit Losses and Acquisition Discount As part of the Company's agreement with CFAW, the Company has the right of first refusal to purchase installment contracts generated by CFAW at 80% of the installment contract's face value, without recourse to CFAW. This nonrefundable acquisition discount is retained by the Company and is available to absorb potential credit losses. The Company maintains an allowance for finance credit losses at a level which, in management's opinion, is adequate to cover losses expected to occur in the existing finance receivable portfolio over and above the amounts in the acquisition discount account. Management evaluates allowance requirements by considering the nature of finance receivables, their aging status and the value of the underlying collateral. A provision for credit losses is charged to income in an amount sufficient to maintain the allowance. 7 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements Effective January 1, 1994, the Company began allocating a portion of unearned interest income to the acquisition discount account in order to reflect more accurately the credit risk and the potential for future losses. This was accounted for as a change in estimate. Whereas the acquisition discount account is the primary account against which losses in the finance receivable portfolio are charged, the Company's allowance for finance credit losses provides further coverage in the event the entire acquisition discount is insufficient to absorb such losses in their entirety. In March 1993, the Company also began purchasing down payment loans and TTT loans from CFAW at 80% of such loans' face value. These loans are without recourse to CFAW and the acquisition discount is retained by the Company and is available to absorb potential credit losses. Installment contracts are charged off against the acquisition discount at the earlier of the date of repossession and sale of collateral or the date at which they become three months contractually delinquent. Any related down payment loan or TTT loan is also charged off after repossession unless payments are being received. Recoveries on losses previously charged to the acquisition discount are credited to the acquisition discount at the time the recovery is made. (e) Repossessed Assets Repossessed collateral is valued at the lower of cost or market. (f) Property and Equipment Property and equipment are carried at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. (g) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has accounted for income taxes in this manner since it became a C corporation on March 31, 1993. Prior to March 31, 1993, the Company operated as a limited liability company and, as such, earnings of the Company were taxable to the individual members rather than to the Company. Accordingly, income taxes were not provided for in the financial statements for December 31, 1992. Distributions were paid to members in amounts sufficient to pay their individual income tax liabilities attributable to their pro rata share of the Company's taxable income. The income tax effect of the change in corporate tax status was recognized in the 1993 statement of income and retained earnings. (h) Earnings Per Share Information Earnings (loss) per share was computed by dividing net income (loss) by the pro forma weighted average number of common shares outstanding, as if the capitalization and issuance of 3,000,000 shares that occurred on March 31, 1993 when Falk Finance Company, 8 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements Inc. was formed had been consummated as of October 19, 1992 (see note 7). (2) Finance Receivables Finance receivables at December 31 consist of the following:
1993 1994 ---- ---- Retail installment contracts $ 27,510,576 38,582,607 Down payment loans - installment and short term 872,117 592,974 Tax, title and tag loans 413,418 36,406 ------------ ---------- Gross finance receivables 28,796,111 39,211,987 Unearned interest and fee income (9,016,976) (8,888,794) Unearned insurance and warranty commissions (31,900) (26,658) ------------ ----------- Finance receivables 19,747,235 30,296,535 ------------ ----------- Credit loss allowances: Acquisition discount (2,691,011) (5,242,014) Allowance for finance credit losses (788,452) (3,420,679) ------------ ----------- Total credit loss allowances (3,479,463) (8,662,693) ------------ ----------- Finance receivables, net $16,267,772 21,633,842 ============ ===========
Contractual maturities of finance receivables by year are not readily available at December 31, 1993 and 1994, but experience has shown that such information is not meaningful in that receivables may be paid off or charged off prior to actual maturity. Principal cash collections (excluding finance charges earned) for the years ended December 31, 1993 and 1994 were as follows: 1993 1994 ---- ---- Principal cash collections $3,536,165 8,552,499 Percent of average principal balances 31% 34% A summary of changes in acquisition discount follows:
1992 1993 1994 ---- ---- ---- Balance at beginning of year $ - 708,225 2,691,011 Additions applicable to new volume 711,600 4,265,593 4,385,268 Allocation of unearned interest - - 4,500,126 Loans charged off, net of recoveries (3,375) (2,282,807) (6,334,391) ----------- ------------ ------------- Balance at end of year $ 708,225 2,691,011 5,242,014 =========== ============= =============
Effective January 1, 1994, the Company began allocating a portion of unearned interest to the acquisition discount account in order to reflect more accurately credit risk and the potential for future losses. For calendar year 1994, $1,896,608 of the $4,500,126 was 9 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements charged against interest income, thereby reducing the average effective rate on the related retail installment contracts from 31% to 24%. A summary of changes in the allowance for finance credit losses follows: 1992 1993 1994 ---- ---- ---- Balance at beginning of year $ - 15,075 788,452 Provision for credit losses 15,075 773,377 2,632,227 ---------- ----------- ------------ Balance at end of year $ 15,075 788,452 3,420,679 ========== =========== ============ (3) Other Receivables Other receivables at December 31 consist of the following:
1993 1994 ---- ---- Receivable from CFAW for floor plan advances under a revolving credit facility $ 614,713 429,096 Receivable from CFAW for reimbursement of repair costs, operating expenses and property and equipment purchases - 753,102 Receivable from CFAW for purchase of repossessed vehicles 254,372 90,452 Receivable from CFAW for certain finance contracts agreed to be repurchased 184,432 1,073,500 Amounts due from employees, insurance claims and other 21,105 162,328 ---------- --------- $1,074,622 2,508,478 ========== =========
(4) Property and Equipment Property and equipment at December 31 consists of the following: 1993 1994 ---- ---- Equipment $ 186,866 419,998 Leasehold improvements 77,432 144,855 --------- --------- 264,298 564,853 Less accumulated depreciation and amortization 27,520 97,916 --------- --------- Net property and equipment $ 236,778 466,937 ========= ========= 10 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements (5) Notes Payable Notes payable at December 31 consist of the following:
1993 1994 ---- ---- Revolving loan with a savings bank, interest payable monthly at the rate of prime plus 2%, secured by motor vehicle retail installment contracts, maximum amount of $6,000,000, initial term through October 2002, automatically renewable for subsequent one-year terms thereafter. Paid off in 1994. $ 6,000,000 - Revolving loan with a finance company, interest payable monthly at LIBOR plus 5.85%, secured by motor vehicle retail installment contracts, maximum amount of $10,000,000, initial term through July 1994, automatically renewable for subsequent one-year terms thereafter, guaranteed by majority shareholder. Paid off in 1994. 7,904,269 - Revolving loan with a finance company, interest payable monthly at prime plus 1.75% secured by motor vehicle retail installment contracts, maximum amount of $42,000,000, initial term through September 1999, guaranteed by Charles E. Falk, Sr. - 19,613,025 ------------ ---------- $ 13,904,269 19,613,025 ============ ===========
The outstanding loan agreement with the finance company contains various covenants including the maintenance of certain ratios and restrictions on dividends. As of December 31, 1994, the Company failed to meet certain of the financial covenants as required under its outstanding loan agreement; however, as of November 30, 1995, the lender has not demanded repayment of the loan. (6) Convertible Subordinated Debt During March 1994, the Company sold $4,900,000 of unsecured subordinated convertible notes in a private placement which was intended to qualify as a nonpublic offering under Regulation D promulgated by the SEC under the Securities Act of 1933. The subordinated notes bear interest at the rate of 12% per annum, payable monthly. These subordinated notes mature on May 1, 1999, however, the Company may request annual extensions, subject to noteholder approval, until May 1, 2009. The subordinated notes are convertible into the Company's Class A nonvoting common stock at the conversion price of $6.00 per share commencing on May 1, 1995 and increasing by $1.00 per share on each anniversary date thereafter until May 1, 2009. 11 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements (7) Members' Capital and Shareholders' Equity At December 31, 1992, the financial statements reflect an initial capital contribution from members of $1,789,474. Of this amount, $429,474 was contributed in cash and $1,360,000 was contributed by CFAW on behalf of certain members in the form of finance receivables consisting of down payment loans (installment and short-term noninterest bearing) and TTT loans with a combined principal face value of approximately $1,700,000 reduced by a 20% discount of $340,000. Through December 31, 1992 and until February 28, 1993, CFAW effectively received all principal payments collected on these $1,700,000 of finance receivables and, in turn, replaced paid down receivables with new down payment loans and TTT loans or cash to maintain the face value of contributed finance receivables and cash at $1,700,000. In addition, CFAW paid the Company all interest earned on these receivables until February 28, 1993. Effective March 1, 1993, the Company took complete control over these contributed receivables and began receiving all payments related to these receivables directly. As of March 1, 1993, CFAW agreed to reimburse the Company for any future losses of principal (that existed as of March 1, 1993) in excess of $396,000 ($340,000 plus an additional acquisition discount of $56,000) on the $1,700,000 of loans contributed. As of December 31, 1994, no reimbursement is due from CFAW. On March 31, 1993, Falk Finance Company, L.C. merged into Falk Finance Company, Inc. On that date Falk Finance Company, Inc. had authorized 20,000,000 Class A common shares and 1,000,000 Class B common shares. In connection with the merger, each member of Falk Finance Company, L.C. received for their respective initial capital contributions, proportionate shares of 2,500,000 Class A nonvoting no par value common shares and 500,000 Class B voting no par value common shares. The remainder of the members' capital account balances were carried over as beginning retained earnings of the Company. On August 4, 1993, the Company issued 1,000,000 shares at $4.00 per share of its Class A nonvoting common stock in a private offering memorandum. The net proceeds to the Company of $3,448,443 were primarily used to redeem 300,000 shares of Class A Non-Voting Common Stock at $3.64 per share, for repayment of two demand notes with original principal amounts of $450,000 and $300,000 and to purchase finance receivables from CFAW. At December 31, 1994, the Company had warrants outstanding for the purchase of an aggregate 465,000 shares of Class A Common Stock at an exercise price of $4.00 per share. These warrants are exercisable at various times through 2004. (8) Income Taxes As discussed in note 1, the Company changed its tax status from a limited liability company to a C corporation on March 31, 1993. The resulting income tax benefit of $72,253 has been reflected in the income tax expense in the statement of income and retained earnings for the year ended December 31, 1993. 12 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements Components of income tax expense (benefit) for the period from October 19, 1992 (inception) to December 31, 1992 and for the years ended December 31, 1993 and 1994 are as follows:
1992 1993 1994 ---- ---- ---- As Reported: Federal - Current $ - 243,650 86,822 Federal - Deferred - (8,234) (320,266) State - Current - 45,964 13,704 State - Deferred - (1,766) (59,734) ----------- -------- -------- Total income tax expense (benefit) $ - 279,614 (279,474) =========== ======== =========
The unaudited pro forma provision for income taxes presented on the income statements for the years ended December 31, 1992 and 1993 represents the estimated taxes that would have been recorded had the Company been a C corporation for the entire year for each of the years presented. The pro forma provision for income taxes for the years ended December 31, 1992 and 1993 consists of the following: 1992 1993 ---- ---- Pro forma (unaudited): Federal $ 12,342 330,044 State 2,317 61,961 ------- -------- Total pro forma $ 14,659 392,005 ======== ======== Income tax expense (benefit) differed from the amount computed by applying the U.S. Federal income tax rate of 34 percent to pretax income (loss) as a result of the following:
Years ended December 31 -------------------------------------------- 1992 1993 1993 1994 Pro Forma As Reported Pro Forma As Reported --------- ----------- --------- ----------- (unaudited) (unaudited) Computed "expected" tax expense (benefit) $ 13,130 351,111 351,111 (440,736) Increase (reduction) in income taxes resulting from: State income taxes, net of federal income tax effect 1,529 41,140 40,894 (29,078) Income tax expense attributable to operations from January 1, 1993 to March 31, 1993 before change in corporate tax status - (42,500) - - Recognition of net deferred income tax asset as a result of March 31, 1993 change in corporate tax status - (72,253) - - Change in the balance of the valuation allowance - - - 177,690 Other, net - 2,116 - 12,650 --------- ---------- ----------- ------------- $ 14,659 279,614 392,005 (279,474) ========= ========== =========== ==============
13 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements The significant components of deferred income tax benefit are as follows:
Years ended December 31 ----------------------- 1993 1994 ---- ---- Deferred tax benefit (exclusive of the effects of other components listed below) - (579,946) Deferred income tax expense attributable to C corporation operations from April 1, 1993 to December 31, 1993 62,253 - Recognition of net deferred income tax assets as a result of March 31, 1993 change in corporate tax status (72,253) - Increase in the balance of the valuation allowance for deferred tax assets - 199,946 ----------- --------- $ (10,000) (380,000) ============ ==========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 and 1994 are presented below:
1993 1994 ---- ---- Deferred tax asset - finance receivable, due to acquisition discount and allowance for finance credit losses $ 55,343 635,280 Less valuation allowance (37,334) (237,280) ------------ ----------- Net deferred tax asset 18,009 398,000 Deferred tax liability - property and equipment due to depreciation (8,009) (8,000) ------------ ----------- Net deferred tax asset $ 10,000 390,000 =========== ===========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts to 1993 and 1994 taxable income, management believes the existing net deductible temporary differences will reverse during periods in which carrybacks are available. (9) Related Party Transactions and Balances Related party transactions and balances consist of approximately the following:
1992 1993 1994 ---- ---- ---- Rent expense paid to CFAW (see description below) $ 7,500 42,500 61,500 Salaries, fringe benefits, and general and administrative expenses reimbursed to CFAW 89,000 323,000 334,000 Advisory fees paid to related parties (see description below) 25,000 468,000 647,000
14 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements
1992 1993 1994 ---- ---- ---- Net finance receivables purchased from CFAW $ 1,371,000 17,600,000 19,160,000 Finance receivables contributed by CFAW 1,360,000 - - Advances to and repayment from member 66,000 - - Repossessed vehicles sold to CFAW 4,000 1,324,000 2,630,000 Net contracts repurchased by CFAW (see description below) - 1,773,000 1,226,000 Receivables from CFAW (see description below) N/A 439,000 1,917,000 Property and equipment purchased from CFAW - 152,000 301,000 Amounts advanced and repaid under notes receivable from CFAW - 600,000 - Receivables from CFAW for floor plan advances under a revolving credit facility (see description below) N/A 615,000 429,000 Organizational costs reimbursed to CFAW - 43,500 - Amounts owed to CFAW included in accounts payable N/A 39,000 180,000
The Company is related to CFAW through common control of Falk Holding Corp., the parent company of CFAW and the majority shareholder of the Company. In March 1993, the Company signed a formal lease agreement with CFAW for office facilities. The initial term was for one year at $60,000 with automatic renewals thereafter. Receivables due from CFAW primarily represent amounts due to the Company for repossessed vehicles sold to CFAW, for certain finance receivables agreed to be repurchased by CFAW and for certain cash disbursements agreed to be reimbursed by CFAW. The Company has extended a revolving credit facility to CFAW in an amount not to exceed $2,500,000 which is secured by certain motor vehicles. The agreement expires December 31, 2004 with interest accruing at 18% annually which is due monthly. At December 31, 1994, $429,096 was outstanding. The Company has entered into agreements with three of the shareholders and the placement agent for the private offering to compensate these parties for their efforts in developing financing facilities and increasing and managing the finance receivables portfolios. These advisory fees were based on a percentage of assets until the shareholders' agreements were amended on October 26, 1994, to provide for warrants to be granted monthly commencing October 1, 1994, to purchase 55,000 shares of Class A Common Stock at an exercise price of $4.00 per share. See note 10 for a description of future commitments related to such advisory fees, including those which are part of certain employment agreements. The agreement with the placement agent was terminated as of October 1, 1994 for a cancellation fee of $170,079. 15 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements In 1994, in general, defaulted installment contracts with less than 10% paid by the customer as a down payment in cash, cash value of a trade-in or payments made pursuant to a down payment loan, were repurchased by CFAW from the Company at 80% of the finance receivables' face values, provided that the repurchase price did not exceed the amount originally paid to CFAW by the Company. In 1993, in general, if a borrower failed to pay off his down payment loan, CFAW agreed to repurchase the related finance receivables from the Company at 80% of finance receivables' face values. In 1994 and 1993, contracts repurchased by CFAW were approximately $1,226,000 and $1,773,000, respectively. (10) Commitments and Contingencies The Company has employment agreements with two of its executive officers who are also shareholders. One agreement has an initial term through 1998 and calls for the officer to be paid an annual base salary in addition to an annual amount equal to .5% of the assets of the Company, calculated monthly plus an amount payable monthly for asset growth equal to .5% of the difference between the assets on the last day of the preceding month and the assets on the last day of the current month. The other employment agreement has an initial term through 2003 and stipulates the officer to be paid an annual amount equal to 1.5% of the assets of the Company, calculated monthly. Both agreements were amended on October 26, 1994 to provide for monthly compensation to be provided in the form of warrants to purchase 35,000 shares of Class A Common Stock during the period from October 1, 1994 through September 30, 1995. Subsequent to September 30, 1995, the salary computations will revert to the pre-October 1, 1994 calculation; however, the agreement expiring in 1998 cannot exceed $5,000 per month and the agreement expiring in 2003 cannot exceed $30,000 per month. In addition to the fees included in the employment agreements discussed above, the Company is committed to pay a shareholder an annual advisory fee of 1% of the assets of the Company calculated quarterly through 1998, except during the period from October 1, 1994 through September 30, 1995, the shareholder will receive monthly consideration for services in the form of warrants to purchase 20,000 shares of Class A Common Stock. Subsequent to September 30, 1995, the advisory fee will revert to the pre-October 1, 1994 calculation; however, such fee cannot exceed $20,000 per month. (11) Subsequent Events (a) Sale of Company On December 6, 1995, the Company is expected to sign an agreement with a wholly owned subsidiary of AutoInfo, Inc. (AutoInfo), whereby AutoInfo will acquire substantially all of the assets of the Company and a covenant not to compete (excluding certain receivables from CFAW) for $3,625,000, payable in cash of $2,025,000 and a Junior Subordinated Note in the principal amount of $1,600,000, plus the assumption of specified liabilities, including all notes payable and convertible subordinated debt. Immediately prior to the closing, all of the shares of stock of the Company not owned by Falk Holding Corp. will be redeemed by the Company in exchange for liabilities of $5,251,000 which will also be assumed by AutoInfo. 16 FALK FINANCE COMPANY, INC. (formerly known as Falk Finance Company, L.C.) Notes to Financial Statements (b) Threatened Shareholder Litigation Contemporaneously with the completion of the Company's private placement of its Class A nonvoting common stock in 1993, the Company entered into a number of agreements which, among other things, provided for the manner in which the Company would purchase automobile finance receivables from CFAW and restricted the ability of the Company to engage in transactions with affiliates. Certain shareholders of the Company disagreed with CFAW and other affiliates as to whether defaults have occurred under such agreements, and the amount of financial damage, if any, caused by such defaults. On August 31, 1995, in an effort to avoid the expense that would be associated with litigation, the Company entered into a Standstill Agreement with CFAW and certain other affiliates and certain shareholders of the Company. Under the terms of the Standstill Agreement, the parties acknowledged and agreed that it was their intention for the Company to enter into a sale transaction (see note 11(a)) and until the earlier of December 16, 1995 or the date of final closing, certain shareholders agreed to forebear in the commencement of litigation against any of the other parties to the agreement. In addition, simultaneously with the final closing on the sale of substantially all assets of the Company, all parties to the Standstill Agreement will execute mutual releases and waivers regarding any legal action. 17 FALK FINANCE COMPANY, INC. Balance Sheet November 30, 1995 (Unaudited) Assets Cash $ 36,706 Finance receivables 26,281,856 Other receivables 1,445,861 Repossessed assets 746,908 Property and equipment 633,815 Organization and debt issuance costs 305,172 Defferred income taxes 704,793 Other assets 386,674 ------------ Total assets $ 30,541,785 ============ Liabilities and Shareholders' Equity Notes payable $ 23,175,615 Accounts payable and accrued liabilities 816,720 Convertible subordinated debt 4,900,000 ------------ Total liabilities 28,892,335 ------------ Shareholders' equity Common stock, class A non-voting, no par value, 20,000,000 shares authorized, 3,200,000 shares outstanding 3,788,023 Common stock, class B voting, no par value, 1,000,000 shares authorized, 500,000 shares outstanding 357,894 Retained earnings (deficit) (2,496,467) ------------ Total shareholders' equity 1,649,450 ------------ Total liabilities and shareholders' equity $ 30,541,785 ============ 18 FALK FINANCE COMPANY, INC. Statement of Loss and Retained Earnings (Deficit) For the Eleven Month Period Ended November 30, 1995 (Unaudited) Interest income: Interest and fee income $6,513,732 Interest Expense 2,695,021 ---------- Interest income before provision for credit loses 3,818,711 Provision for credit losses 2,672,618 ---------- Net interest income 1,146,093 ---------- Insurance commission and other income, net 71,581 ---------- Other expenses: Salaries and fringe benefits 1,625,843 General and administrative 1,139,518 Depreciation and amortization 120,937 ---------- Total other expenses 2,886,298 ---------- Loss before income taxes (1,668,624) Income taxes -- ---------- Net loss (1,668,624) Deficits, beginning of year (787,143) Dividends declared to shareholders 40,700 ---------- Deficit, end of year ($ 614,124) ---------- Per share information: Weighted average number of common shares outstanding 3,700,000 ---------- Loss per share ($ .45) ---------- 19 FALK FINANCE COMPANY, INC. Statement of Cash Flows For the Eleven Months Ended November 30, 1995 (Unaudited) Cash Flows from operating activities Net loss ($ 1,668,624) ------------ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 120,937 Provision for credit losses 2,672,618 Changes in assets and liabilities relating to Operating activities: Other receivables 1,062,617 Repossessed assets 73,845 Other assets (368,872) Deferred income taxes (155,101) Accounts payable and accrued liabilities 332,969 ------------ Total Adjustments 3,739,013 ------------ Net cash provided by (used in) operating activites 2,070,389 ------------ Cash flows from investing activities: Finance receivables acquired (18,017,092) Principal collected on finance receivables 7,239,987 Proceeds from repurchased finance receivables and sale of repossessed vehicles 3,456,473 Purchase of property and equipment (269,345) ------------ Net cash used in investing activities: (7,589,977) ------------ Cash flows fron financing activities: Net proceeds from revolving loans 3,562,590 Dividend and distributions paid to members (40,700) ------------ Net cash provided by financing activities 3,521,890 ------------ Net increase in cash (1,997,698) Cash at beginning of year 2,034,404 ------------ Cash at end of year $ 36,706 ============ 20 AUTOINFO, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT NOVEMBER 30, 1995
Historical Adjustments Pro Forma ---------- ----------- --------- (1) Assets Current Assets Cash $ 185,913 $ 421,716 $ 607,629 Short-term investments 33,413,474 (5,999,650) 27,413,824 Accounts receivable 54,744 24,409,269 24,464,013 Other current assets 261,345 561,486 822,831 ------------ ------------ ------------ Total current assets 33,915,476 19,392,821 53,308,297 Property and equipment, net 39,893 200,000 239,893 Goodwill and other intangibles, net 0 13,916,520 13,916,520 ------------ ------------ ------------ $ 33,955,369 $ 33,509,341 $ 67,464,710 ------------ ------------ ------------ Liabilities and stockholders' equity Current liabilities Current portion of long-term debt $ 54,159 $ 22,919,778 $ 22,973,937 Accounts payable and accrued liabilities 1,072,941 558,563 1,631,504 ------------ ------------ ------------ Total current liabilities 1,127,100 23,478,341 24,605,441 Long-term debt 2,000,000 10,031,00 12,031,000 Stockholders' equity 30,828,269 -- 30,828,269 ------------ ------------ ------------ $ 33,955,369 $ 33,509,341 $ 67,464,710 ------------ ------------ ------------ See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
21
AUTOINFO, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 1995 Minus Add Pro Forma Pro Forma Disposed Acquired Historical Business Business Pro Forma ------------ ------------ ------------ ------------ (A) (E) (B) (F) Revenues $ 4,797,531 ($ 3,767,103) $ 6,543,285 $ 7,573,713 ------------ ------------ ------------ ------------ Operating Expenses: Interest espense -- -- 2,417,001 2,417,001 Provision for loan losses -- -- 2,735,465 2,735,465 System and support costs 1,992,881 (1,992,881) 0 0 Salaries and employee benefits 2,057,496 (1,351,968) 1,524,671 2,230,199 Selling, general and administrative 1,657,672 (499,421) 1,421,825 2,580,076 Depreciation and amortization 413,926 (388,768) 920,444 945,602 ------------ ------------ ------------ ------------ Total operating expenses 6,121,975 (4,233,038) 9,019,406 10,908,343 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) from operations (1,324,444) 465,935 (2,476,121) (3,334,630) ------------ ------------ ------------ ------------ Other (income) expenses: Interest income (568,449) 182 -- (568,267) Interest expense 315,908 0 -- 315,908 Write-off Computerlogic 1,804,256 0 -- 1,804,256 Minority interest in net loss of partnership (67,133) 67,133 -- 0 ------------ ------------ ------------ ------------ Total other (income) and expenses 1,484,582 67,315 0 1,551,897 ------------ ------------ ------------ ------------ Income (loss) before income taxes (2,809,026) 398,620 (2,476,121) (4,886,527) Provision for (benefit from) income taxes (634,623) 302,343 (990,448) (1,322,728) ------------ ------------ ------------ ------------ Income (loss) from continuing operations (2,174,403) 96,277 (1,485,673) (3,563,799) Income from discontinued operations, net 1,614,936 -- -- 1,614,936 Gain on sale of discontinued operations, net 8,885,688 -- -- 8,885,688 ------------ ------------ ------------ ------------ Net income (loss) $ 8,326,221 $ 96,277 ($ 1,485,673) $ 6,936,825 ============ ============ ============ ============ Net income (loss) per share Continuing operations ($0.29) ($0.48) Discontinued operations 0.22 0.22 Gain on sale of discontinued operations 1.19 1.19 ------------ ------------ $1.12 $0.94 ------------ ------------ Weighted average number of common and common equivalent shares 7,410,548 7,410,548 ------------ ------------ See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
22
AUTOINFO, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995 Add Pro Forma Acquired Historical Business Pro Forma ----------- ----------- ----------- (C) (D) Revenues $ 382,843 $ 3,725,939 $ 4,108,782 ----------- ----------- ----------- Operating Expenses: Interest expense 1,460,008 1,460,008 Provision for loan losses 672,618 672,618 Salaries and employee benefits 376,594 931,970 1,308,564 Selling, general and administrative 648,812 558,861 1,207,673 Depreciation and amortization 7,499 482,390 489,889 ----------- ----------- ----------- Total operating expenses 1,032,905 4,105,847 5,138,752 ----------- ----------- ----------- Loss from operations (650,062) (379,908) (1,029,970) Other (income) expenses: Interest income (773,202) (773,202) Interest expense (134,467) (134,467) Write-off Computerlogic 118,964 118,964 ----------- ----------- ----------- Total other (income) and expenses (788,705) 0 (708,705) ----------- ----------- ----------- Income (loss) before income taxes 138,643 (379,908) (241,265) Provision for (benefit from) income taxes (233,485) (151,963) (385,448) ----------- ----------- ----------- Income (loss) from continuing operations 372,128 (227,945) 144,183 Income (loss) from discontinued operations, net (28,190) (28,190) Gain on sale of discontinued operations, net 296,839 296,839 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) $ 640,777 $ (227,945) $ 412,832 =========== =========== =========== Net income per share Continuing operations $0.05 $0.02 Discontinued operations -- -- Gain on sale of discontinued operations 0.03 0.03 ----------- ----------- $0.08 $0.05 ----------- ----------- Weighted average number of common and common equivalent shares 7,768,953 7,768,953 ----------- ----------- See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
23 NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT NOVEMBER 30, 1995 AND FOR THE YEAR ENDED MAY 31, 1995 AND THE SIX MONTHS ENDED NOVEMBER 30, 1995. Balance Sheet (1) To record the use of Cash for the Transaction (including related direct costs and expenses) and to record the assets purchased and liabilities assumed by the Company. Statements of Operations (A) To eliminate Revenue and Operating expenses relating to the disposition in July 1995 of the operating assets of the Company's Insurance Inspection Division for the period June 1, 1994 to May 31, 1995. Such expenses have been limited to direct operating expenses attributable to such business and do not include any allocation of corporate or administrative costs. (B) To record Revenue and Operating Expenses of the acquired business and the amortization of Goodwill and other intangible assets associated with the Transaction for the period June 1, 1994 to May 31, 1995. (C) To record Revenue and Operating Expenses of the acquired business and the amortization of Goodwill and other intangible assets associated with the Transaction for the period June 1, 1995 to November 30, 1995. (D) The Company has not recorded the estimated reduction in income from the use of Cash for the Transaction for the period June 1, 1994 to November 30, 1995. (E) The Company has not recorded the estimated reduction in income from the use of Cash for the Transaction for the period June 1, 1995 to November 30, 1995. (F) The Company has not recorded any estimated income from the investment of the proceeds from the disposition of the operating assets of its Insurance Inspection Division for the period June 1, 1994 to May 31, 1995. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AUTOINFO, INC. Date: February 16, 1996 By: /s/ WILLIAM WUNDERLICH ------------------------------------------- William Wunderlich, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----