-----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, KxyC6I15/oECOYnNUkeWBlrAZ/7QuKAApT8QoSuBANC6eeDB8aGmbapgLUgYGPWb 1pqTBajWencLL77olwQKTw== 0001005477-99-005141.txt : 19991115 0001005477-99-005141.hdr.sgml : 19991115 ACCESSION NUMBER: 0001005477-99-005141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOINFO INC CENTRAL INDEX KEY: 0000351017 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 132867481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11497 FILM NUMBER: 99747509 BUSINESS ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 BUSINESS PHONE: 2019301800 MAIL ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 |X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: September 30, 1999 Commission File Number: 0-14786 AUTOINFO, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-2867481 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification number) of incorporation or organization) P.O. Box 4383, Stamford, CT 06907-0383 - -------------------------------------------------------------------------------- (Address of principal executive office) (203) 595-0005 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Number of shares outstanding of the registrant's common stock as of November 11, 1999: 7,756,953 shares of common stock, $.01 par value. AUTOINFO, INC. AND SUBSIDIARIES INDEX Part I. Financial Information: Item 1. Financial Statements: Page Consolidated Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998 ............................................. 3 Consolidated Statements of Operations (unaudited)- Three and Nine months ended September 30, 1999 and 1998 .......................................................... 4 Consolidated Statements of Cash Flows (unaudited)- Three and Nine months ended September 30, 1999 and 1998 .......................................................... 5 Notes to Unaudited Consolidated Financial Statements .................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 12 Part II. Other Information ................................................ 17 Signatures ................................................................ 18 2 AUTOINFO, INC. AND SUBSIDIARIES BALANCE SHEETS
September 30, December 31, 1999 1998 -------------- -------------- Unaudited Audited ASSETS Cash $ 42,980 $ 116,570 Short-term investments 997,759 2,282,515 Investment in and advances to subsidiary (741,679) (741,679) Fixed assets, net -- 250,887 Other assets 43,208 101,929 ------------ ------------ $ 342,268 $ 2,010,222 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Subordinated notes and other debt $ 9,395,206 $ 10,038,028 Accrued interest payable 706,995 -- Accounts payable and accrued liabilities 118,494 536,581 ------------ ------------ Total liabilities 10,220,695 10,574,609 ------------ ------------ Stockholders' Equity Common stock - authorized 20,000,000 shares $.01 par value; issued and outstanding - 7,756,953 shares as of September 30, 1999 and December 31, 1998 77,570 77,570 Additional paid-in capital 17,772,431 17,772,431 Deferred compensation under stock bonus plan (275,691) (,287,097) Retained deficit (27,452,737) (26,127,291) ------------ ------------ Total stockholders' equity (9,878,427) (8,564,387) ------------ ------------ $ 342,268 $ 2,010,222 ============ ============
See notes to condensed unaudited financial statements 3 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Investment income $ 76,400 $ 92,881 $ 26,208 $ 40,386 ------------ ------------ ------------ ------------ Costs and expenses: Interest expense 719,886 50,150 235,325 16,537 Operating expenses 662,694 1,036,714 95,665 131,053 Depreciation & amortization 19,266 59,175 -- 19,725 ------------ ------------ ------------ ------------ Total operating expenses 1,401,846 1,146,039 330,990 167,315 ------------ ------------ ------------ ------------ Loss from continuing operations (1,325,446) (1,053,158) (304,782) (126,929) Loss from discontinued operations -- (10,937,521) -- (5,324,212) ------------ ------------ ------------ ------------ Loss before extraordinary item (1,325,446) (11,990,679) (304,782) (5,451,141) Extraordinary item - gain on debt extinguishment -- 1,703,017 -- -- ------------ ------------ ------------ ------------ Net loss $ (1,325,446) $(10,287,662) $ (304,782) $ (5,451,141) ============ ============ ============ ============ Basic and diluted net (loss) income per share: From continuing operations $ (.17) $ (.13) $ (.04) $ (.02) From discontinued operations -- (1.37) -- (.67) Extraordinary item -- .21 -- -- ------------ ------------ ------------ ------------ Basic and diluted net loss per share $ (.17) $ (1.29) $ (.04) $ (.68) ============ ============ ============ ============ Weighted average number of common and common equivalent shares 7,756,953 7,996,752 7,756,953 7,996,752 ------------ ------------ ------------ ------------
See notes to condensed unaudited financial statements 4 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1999 1998 -------------- -------------- Cash flows from operating activities: Net (loss) income $ (1,325,446) $ (4,836,821) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 19,266 287,898 Amortization of deferred compensation 11,406 8,446 Loss on sale of automobile receivables -- 1,035,406 Loss on sale of property and equipment -- 115,547 Changes in assets and liabilities: Automobile receivables, net -- 30,543,667 Other assets 290,342 2,531,050 Accounts payable and accrued liabilities 288,908 (779,481) ------------ ------------ Net cash provided by (used in) operating activities (715,524) 28,905,712 ------------ ------------ Cash flows from investing activities: Capital expenditures -- (2,863) Sale of property and equipment -- 78,000 Proceeds from sale of automobile receivables -- 20,661,173 Proceeds from redemptions of short term investments 1,284,756 47,706 ------------ ------------ Net cash provided (used in) by investing activities 1,284,756 20,784,016 ------------ ------------ Cash flows from financing activities: Decrease in borrowings, net (642,822) (51,918,970) Decrease in restricted cash -- 826,113 ------------ ------------ Net cash (used in) provided by financing activities (642,822) (51,092,857) ------------ ------------ Net decrease in cash (73,590) (1,403,129) Cash at beginning of period 116,570 2,506,502 ------------ ------------ Cash at end of period $ 42,980 $ 1,103,373 ============ ============
See notes to condensed unaudited financial statements 5 AUTOINFO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS Forward Looking Statements Various statements made in this Quarterly Report on Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The forward-looking statements included in this report are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of these assumptions could prove inaccurate and, therefore, we cannot assure you that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included in this report, the inclusion of these statements should not be interpreted by anyone that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the factors set forth in, "Certain Factors That May Affect Future Growth," under Part I, Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998 as filed with the Securities and Exchange Commission. Note 1. - Business and Summary of Significant Accounting Policies Business In December 1995, AutoInfo, Inc., (the "Company"), a Delaware corporation, acquired the operating assets of Falk Finance Company ("FFC"), a Norfolk, Virginia based specialty financial services company for $5,125,000 in cash and the assumption of liabilities and debt approximating $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 1997 and 1998, several non-prime automobile finance companies, including the Company, experienced poor loan performance, higher delinquency rates and increased credit losses on their portfolio assets. In addition, during this period, a number of non-prime automobile finance companies made strategic decisions to exit the market-place. This trend was the direct result of several factors including: (a) the impact of increased levels of competition on loan acquisition discounts; (b) the heightened demand created by the increased supply of capital and used automobile inventories; (c) the need to attract consumers with lower credit qualifications to meet this additional demand; (d) economic uncertainties and financial difficulties within the non-prime automobile industry as well as management upheavals at certain industry leaders; and (e) the increased levels of outstanding consumer debt and personal bankruptcies. These factors contributed to a significant reduction in available warehouse lines of credit and a material decline in financial markets investments into the non-prime automobile industry through the sale of equity securities, subordinated debt instruments and securitized notes. 6 The Company experienced material operating losses during 1996, 1997 and 1998. As a result of these losses, the adverse changes in the non-prime automobile finance industry and the deterioration in the Company's financial condition, during 1998, the Company discontinued the operation of its non-prime automotive finance business. As a result of these factors, the Company was unable to maintain adequate levels of net worth to satisfy the loan covenant requirement under its warehouse facility agreement with CS First Boston Mortgage Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes issued in October 1996. As of December 31, 1997, CSFB no longer funded the acquisition of non-prime automobile receivables generated by the Company. The Company, among other actions, restructured operations and significantly reduced overhead and successfully completed the sale of approximately $58 million of automobile receivables and repaid $47 million under its warehouse line with CSFB. Additionally, in conjunction with a July 1998 sale of approximately $8 million of automobile receivables which collateralized the Company's securitized notes, the remaining balance outstanding on these notes of approximately $7 million was paid in full. During the fourth quarter of 1997, the Company closed its Northeast Regional center in Norwalk, Connecticut. During the fourth quarter of 1998, the Company sold all remaining repossessed vehicles, closed its Norfolk, Virginia operating facility, further reduced overhead and completed the restructuring of outstanding debt under its warehouse facility with CSFB and subordinated note holders. After the sale of all of its automobile receivables, the Company owed CSFB approximately $4.5 million under the warehouse facility. CSFB agreed to a reduction of $2.25 million, which resulted in a gain on extinguishment of approximately $2.0 million net of applicable expenses, and the Company paid the remaining balance of approximately $2.3 million in cash. The Company also granted CSFB a five year warrant to purchase 1,357,467 common shares at $ .03 per share. Further, the holders of the Company's $8.2 million of 12% subordinated notes, due in 1999 and 2000, exchanged such notes for new notes totaling approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The principal balance of the New Notes includes accrued interest of approximately $1.15 million through December 31, 1998. Interest on these new notes is due quarterly at the option of the Company at the rate of 10% if paid in cash and 12% if paid in common shares of the Company. Interest on the New Notes through September 30, 1999 has been accrued at the rate of 10%, but not paid. The Company is presently negotiating with representatives of the debt holders in furtherance of its restructuring plan. Representatives of these note holders designated three members of the Company's Board of Directors, one of whom subsequently resigned. In April 1999, the Company negotiated the termination of its lease in Montvale, New Jersey and vacated the premises. The Company is presently occupying temporary office space in Stamford, 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, CarLoan Co., Inc. ("CLC"), filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code (Note 12). 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. 7 Summary of Significant Accounting Policies Basis of Presentation The financial statements of the Company have been prepared using the accrual basis of accounting under generally accepted accounting principles ("GAAP"). The accounting policies of the Company conform with GAAP and with general practices within the financial services industry. Principles of Consolidation The financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition The Company recognized interest income from automobile receivables on the interest method. The accrual of interest income was suspended when a loan became ninety days contractually delinquent. All discounts on the purchase of installment contracts from dealers were held in reserve and were considered to cover future anticipated credit losses. Fees received for the purchase of automobile receivables were deferred and amortized to interest income over the contractual lives of the contracts using the interest method. Short-term Investments Investments are carried at cost which approximates market value and included: September 30, December 31, 1999 1998 ---------- ---------- Common stock and bond funds $ 873,600 $1,000,009 Money market instruments 124,159 386,177 Commercial paper -- 896,329 ---------- ---------- $ 997,759 $2,282,515 ---------- ---------- Fixed Assets Fixed assets are carried at cost less accumulated depreciation. Depreciation of fixed assets is provided on the straight-line method over the estimated useful lives of the related assets which range from three to five years. At December 31, 1998, fixed assets consisted predominantly of furniture, fixtures and equipment at the Company's Montvale, New Jersey headquarters facility. During the quarter ended June 30, 1999, the Company terminated its lease in Montvale, New Jersey and vacated the premises. According, the remaining net fixed assets were written-off. Loss Per Share In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. All earnings per share amounts for prior periods have been restated to conform to the new requirements. 8 Basic loss per share is based on net loss divided by the weighted average number of common shares outstanding. Common stock equivalents outstanding were antidilutive for the three and nine month periods ended September 30, 1999 and 1998. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The Company believes that all such assumptions are reasonable and that all estimates are adequate, however, actual results could differ from those estimates. Income Taxes The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, 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. As of September 30, 1999, the Company had a net operating loss carryforward of approximately $27 million for federal income tax purposes which expires in 2013 and 2014. Any benefit from the utilization of these net operating loss carryforwards has been fully reserved for in the accompanying financial statements. Note 2 - General The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1999 and 1998 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the financial statement and footnotes thereto included in the Company's Report on Form 10-K for the year ended December 31, 1998. Note 3 - Liquidity and Capital Resources Since its entry into the Non-Prime Automobile industry in December 1995 and until it ceased the operations of its non-prime automobile business during 1998, the Company funded its operations with payments received from automobile receivables, borrowings under senior credit facilities and the issuance of asset backed secured notes. In October 1996, the Company issued $36.3 million of securitized notes backed by $40.3 million of automobile receivables to a group of institutional investors in a private placement transaction. These notes were issued in two classes, $ 34.3 million of 6.53% Class "A" notes rated, at the time of issuance, "AAA" by Standard & Poor's Rating Group and "Aaa" by Moody's Investors Service and $ 2.0 million of 11.31% Class "B" notes rated, at the time of issuance, "BB" by Standard & Poor's Rating Group. The Class "A" notes were credit enhanced with an insurance policy issued by MBIA Insurance Corporation. The proceeds from the securitization were used to fund Cash Reserve accounts ($5.6 million) and the balance was used to reduce the amount outstanding under the Company's Senior Credit facility. Among other provisions, the notes require the maintenance of certain 9 performance standards with respect to the portfolio of loan contracts securitized and certain overall financial considerations of the Company as a whole, including not realizing a net loss from operations in any two consecutive quarters and maintenance of minimum tangible net worth, as defined, of $7 million. At December 31, 1997 the Company had a tangible deficiency, as defined, of ($200,000) and, accordingly, did not meet the minimum tangible net worth standard. In addition, the Company had experienced a net loss from operations for each of the quarters ended September 30, 1997, December 31, 1997, March 31, 1998 and September 30, 1998. Accordingly, the Company did not meet the interest coverage ratio requirement. In July 1998, the Company sold approximately $7.7 million of these automobile receivables and received proceeds of approximately $6.5 million. These proceeds, as well as available balances in Cash Reserve accounts, were used to redeem the Class A and Class B notes in full. In December 1996, the Company entered into a financing agreement with CSFB which provides for a $100 million line of credit to be used for the funding of the acquisition of non-prime automobile receivables. This facility provides for borrowings at LIBOR plus 300 basis points. Among other provisions, this facility requires the Company to maintain tangible net worth, as defined, of $10 million and is cancelable in the event of a material adverse change in the Company's business. In October 1997, the Company and CSFB entered into an amended and restated agreement which provided CSFB with additional collateral including a residual interest in the anticipated cash flows upon the satisfaction of the Class A and Class B securitized notes issued in October 1996 and any income tax refund received by the Company for the tax year ended May 31, 1998. In July 1998, the Company redeemed the Class A and Class B securitized notes resulting in a residual cash balance consisting primarily of balances in restricted Cash Reserve accounts of approximately $1.7 million which was remitted to CSFB. In August 1998, the Company received its federal income tax refund of approximately $3 million, which was remitted to CSFB. After the sale of all the remaining automobile receivables in October 1998, the Company owed CSFB approximately $4.5 million. In November 1998, CSFB agreed to a discount of $2.25 million and the Company paid the remaining balance of approximately $2.3 million in cash. The Company also granted CSFB a five year warrant to purchase 1,357,467 common shares at $.03 per share. The Company has outstanding $9.3 million of subordinated debt comprised of $8.2 million of 12% notes, included with the liabilities assumed with the acquisition of FALK Finance Company, Inc. ("FFC") in December 1995, plus accrued interest of $1.1 million through December 31, 1998. the holders of the Company's $8.2 million of 12% subordinated notes, due in 1999 and 2000, exchanged such notes for new notes totaling approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The principle balance of the New Notes includes accrued interest of approximately $1.15 million through December 31, 1998. Interest on these new notes is due quarterly at the option of the Company at the rate of 10% if paid in cash and 12% if paid in common shares of the Company. Interest on the New Notes through September 30, 1999 has been accrued at the rate of 10%, but not paid. The Company is presently negotiating with representatives of the debt holders in furtherance of its restructuring plan. Representatives of these note holders designated three members of the Company's Board of Directors, one of whom subsequently resigned. The Company's liquid assets amounted to $1.0 million as of September 30, 1999. 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. If the Company is unsuccessful in identifying and consummating such a transaction, the Company does not have sufficient liquid assets and available lines of credit to meet its short and long-term capital requirements. Note 4 - Sale of Automobile Receivables During the nine months ended September 30, 1998 and in October 1998, the Company sold a total of 8,547 loan contracts with a net principal balance of approximately $66 million of which 4,374 loan contacts and $29.6 million were sold during the three month period ended September 30, 1998 and in October 1998. The proceeds from the sale of these automobile receivables were used to reduce the outstanding debt under the Company's revolving line 10 of credit and to redeem in full the Class A and Class B securitized notes. The Company recognized a loss on these transactions of approximately $3.5 million. Note 5 - Debt Extinguishment In April 1998, the holders of the Company's $2 million of 7.55% subordinated notes, originally due in equal principal installments in January 1998, 1999 and 2000, released the Company from such obligation in exchange for two off-balance sheet assets and its long distance telephone service business. The two off-balance sheet assets consist 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. This transaction resulted in a net gain of $1.7 million. 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. On March 23, 1999, the Company paid $585,000 representing full payment, net of a $25,000 discount, of principal and accrued interest on a note which had been previously declared in default by the lender. Note 6 - Discontinued Operations During 1998, the Company discontinued the operation of CLC, its non-prime automobile finance subsidiary. Accordingly, the three and Nine month periods ended September 30, 1998 has been restated to reflect the operating results for CLC as discontinued operations and consists of the following: Nine Months Three Months Ended Ended September 30, 1999 ------------------------------ Revenues $ 6,880,341 $ 674,936 ------------ ------------ Expenses: Interest expense 4,337,628 175,917 Operating expenses 5,525,418 3,205,816 Depreciation and amortization 359,382 110,934 Provision for credit losses 3,938,300 300 Loss on sale of fixed assets 115,547 -- Loss on sale of automobile receivables 3,541,587 2,506,181 ------------ ------------ 17,817,862 5,999,148 ------------ ------------ Net (loss) from discontinued operations $(10,937,521) $ (5,324,212) ------------ ------------ On January 29, 1999, the Company's wholly owned subsidiary, CarLoan Co. ("CLC") filed a voluntary bankruptcy petition under Chapter 7 of the United States Bankruptcy Code (the "Bankruptcy Filing"). Since 1995, CLC had operated the Company's non-prime automobile financing business. As of the date of the Bankruptcy Filing, CLC had no assets and liabilities of approximately $57 million, including approximately $56 million of intercompany advances from the Company. Accordingly,. the net liabilities of CLC as of December 31, 1998 have been reclassified as Investment in and advances subsidiary, subject to compromise as they may be affected by the outcome of the Bankruptcy Filing. 11 AUTOINFO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition And Results of Operations General In December 1995, AutoInfo, Inc., (the "Company"), a Delaware corporation, acquired the operating assets of Falk Finance Company ("FFC"), a Norfolk, Virginia based specialty financial services company for $5,125,000 in cash and the assumption of liabilities and debt approximating $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 1997 and 1998, several non-prime automobile finance companies, including the Company, experienced poor loan performance, higher delinquency rates and increased credit losses on their portfolio assets. In addition, during this period, a number of non-prime automobile finance companies made strategic decisions to exit the market-place. This trend was the direct result of several factors including: (a) the impact of increased levels of competition on loan acquisition discounts; (b) the heightened demand created by the increased supply of capital and used automobile inventories; (c) the need to attract consumers with lower credit qualifications to meet this additional demand; (d) economic uncertainties and financial difficulties within the non-prime automobile industry as well as management upheavals at certain industry leaders; and (e) the increased levels of outstanding consumer debt and personal bankruptcies. These factors contributed to a significant reduction in available warehouse lines of credit and a material decline in financial markets investments into the non-prime automobile industry through the sale of equity securities, subordinated debt instruments and securitized notes. The Company experienced material operating losses during 1996, 1997 and 1998. As a result of these losses, the adverse changes in the non-prime automobile finance industry and the deterioration in the Company's financial condition, the Company determined to discontinue the operation of its non-prime automotive finance business. As a result of these factors, the Company was unable to maintain adequate levels of net worth to satisfy the loan covenant requirement under its warehouse facility agreement with CS First Boston Mortgage Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes issued in October 1996. As of December 31, 1997, CSFB no longer funded the acquisition of non-prime automobile receivables generated by the Company. The Company, among other actions, restructured operations and significantly reduced overhead and successfully completed the sale of approximately $58 million of automobile receivables and repaid $47 million under its warehouse line with CSFB. Additionally, in conjunction with a July 1998 sale of approximately $8 million of automobile receivables which collateralized the Company's securitized notes, the remaining balance outstanding on these notes of approximately $7 million was paid in full. During the fourth quarter of 1998, the Company sold all remaining repossessed vehicles, closed its Norfolk, Virginia operating facility, further reduced overhead and completed the restructuring of outstanding debt under its warehouse facility with CSFB and subordinated note holders. After the sale of all of its automobile receivables, the Company owed CSFB approximately $4.5 million. CSFB agreed to a reduction of $2.25 million and the Company paid the remaining balance of approximately $2.3 million in cash. The Company also granted CSFB a five year warrant to purchase 1,357,467 common shares at $ .03 per share. Further, the holders of the Company's $8.2 million of 12% subordinated notes, due in 1999 and 2000, exchanged such notes for new notes totaling approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The New Notes include accrued the capitalization of interest of approximately $1.15 million through December 31, 1998 to principal. Interest on these new notes is due quarterly at the option of the Company at the rate of 10% if paid in cash and 12% if paid in 12 common shares of the Company. In addition, representatives of these note holders have designated three members of the Company's Board of Directors, one of whom subsequently resigned. During the quarter ended June 30, 1999, the Company negotiated the termination of its lease in Montvale, New Jersey and vacated the premises. The Company is presently occupying temporary office space in Stamford, 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, CarLoan Co., 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. Results of Operations Three and Nine Months Ended September 30, 1999 and 1998 Revenues Revenues for the three and nine month periods ended September 30, 1999 and 1998 consisted of interest and dividends on short-term investments. Costs and Expenses Interest expense for the three month periods ended September 30, 1999 and 1998 ($235,000 and $35,000, respectively) and the nine month periods ended September 30, 1999 and 1998 ($720,000 and $50,000, respectively) was related to subordinated debt and other bank debt. The increase is directly related to the assumption by the Company of $9,348,000 of subordinated debt pursuant to the debt restructuring plan implemented during the fourth quarter of 1998. Operating expenses for the three months ended September 30, 1999 and 1998 ($96,000 and $130,000, respectively) and the nine months ended September 30, 1999 and 1998 ($663,000 and $1,037,000, respectively) consisted primarily of corporate overhead. The decrease is directly related to reduction in corporate staff and the results of the cost reduction plan implemented by the Company. Depreciation and amortization expense for the three months ended September 30, 1999 and 1998 ($0 and $20,000, respectively) and for the nine months ended September 30, 1999 and 1998 ($0 and $60,000, respectively) consisted of the depreciation of fixed assets. During the quarter ended June 30, 1999, the Company terminated its lease in Montvale, New Jersey and vacated the premises. According, the remaining net fixed assets were written-off. The loss from discontinued operations consists of the operating results of CLC, the Company's non-prime automobile finance subsidiary which was discontinued during 1998. Loss from Operations 13 The loss from continuing operations for the three months ended September 30, 1999 and 1998 was $305,000 and $127,000, respectively, and for the nine months ended September 30, 1999 and 1998 was $1,325,000 and $1,053,000, respectively. The net loss from operations for the three months ended September 30, 1999 and 1998 was $305,000 and $5,451,000, respectively, and for the nine months ended September 30, 1999 and 1998 was $1,325,000 and $10,288,000, respectively. The increase in the loss from continuing operations is the direct result of the assumption by the Company of $9,348,000 of subordinated debt pursuant to the debt restructuring plan implemented during the fourth quarter of 1998. There is no income tax benefit for the three and nine month periods ended September 30, 1999 and 1998 since the Company has recorded the utilization of its available income tax carrybacks as of December 31, 1997. Liquidity and Capital Resources Trends and Uncertainties During 1997 and 1998, several non-prime automobile finance companies, including the Company, experienced poor loan performance, higher delinquency rates and increased credit losses on their portfolio assets. In addition, during this period, a number of non-prime automobile finance companies made strategic decisions to exit the market-place. This trend was the direct result of several factors including: (a) the impact of increased levels of competition on loan acquisition discounts; (b) the heightened demand created by the increased supply of capital and used automobile inventories; (c) the need to attract consumers with lower credit qualifications to meet this additional demand; (d) economic uncertainties and financial difficulties within the non-prime automobile industry as well as management upheavals at certain industry leaders; and (e) the increased levels of outstanding consumer debt and personal bankruptcies. These factors contributed to a significant reduction in available warehouse lines of credit and a material decline in financial markets investments into the non-prime automobile industry through the sale of equity securities, subordinated debt instruments and securitized notes. The Company experienced material operating losses during 1996, 1997 and 1998. As a result of these losses, the adverse changes in the non-prime automobile finance industry and the deterioration in the Company's financial condition, during 1998, the Company discontinued the operation of its non-prime automotive finance business. As a result of these factors, the Company was unable to maintain adequate levels of net worth to satisfy the loan covenant requirement under its warehouse facility agreement with CS First Boston Mortgage Capital Corp. ("CSFB") and similar covenants pursuant to securitized notes issued in October 1996. As of December 31, 1997, CSFB no longer funded the acquisition of non-prime automobile receivables generated by the Company. The Company, among other actions, restructured operations and significantly reduced overhead and successfully completed the sale of approximately $58 million of automobile receivables and repaid $47 million under its warehouse line with CSFB. Additionally, in conjunction with a July 1998 sale of approximately $8 million of automobile receivables which collateralized the Company's securitized notes, the remaining balance outstanding on these notes of approximately $7 million was paid in full. During the fourth quarter of 1997, the Company closed its Northeast Regional center in Norwalk, Connecticut. During the fourth quarter of 1998, the Company sold all remaining repossessed vehicles, closed its Norfolk, Virginia operating facility, further reduced overhead and completed the restructuring of outstanding debt under its warehouse facility with CSFB and subordinated note holders. After the sale of all of its automobile receivables, the Company owed CSFB approximately $4.5 million under the warehouse facility. CSFB agreed to a reduction of $2.25 million, which resulted in a gain on extinguishment of approximately $2.0 million net of applicable expenses, and 14 the Company paid the remaining balance of approximately $2.3 million in cash. The Company also granted CSFB a five year warrant to purchase 1,357,467 common shares at $ .03 per share. Further, the holders of the Company's $8.2 million of 12% subordinated notes (Note 5), due in 1999 and 2000, exchanged such notes for new notes totaling approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The New Notes include accrued interest of approximately $1.15 million through December 31, 1998 to principal. Interest on these new notes is due quarterly at the option of the Company at the rate of 10% if paid in cash and 12% if paid in common shares of the Company. Interest on the New Notes through September 30, 1999 has been accrued at the rate of 10%, but not paid. The Company is presently negotiating with representatives of the debt holders in furtherance of its restructuring plan. Representatives of these note holders designated three members of the Company's Board of Directors, one of whom subsequently resigned. 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, CarLoan Co., 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. Liquidity and Capital Resources The Company's cash and short-term investments amounted to $1.1 million as of September 30, 1999. The total amount of debt outstanding as of September 30, 1999 and December 31, 1998 was $9.4 million and $10.0 million, respectively. This following table presents the Company's debt instruments and weighted average interest rates on such instruments as of September 30, 1999 and December 31, 1998, respectively: September 30, 1999 December 31,1998 Weighted Weighted Average Average Balance Rate Balance Rate ----------------------------------------- Subordinated debt $9.3 12.0% $9.3 12.0% Other debt $ .1 8.5% $ .7 8.5% 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. If the Company is unsuccessful in identifying and consummating such a transaction, the Company does not have sufficient liquid assets and available lines of credit to meet its short and long-term capital requirements. Inflation and changing prices had no material impact on revenues or the results of operations for the three months ended September 30, 1999. 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, CarLoan Co., 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 15 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. Year 2000 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. 16 AUTOINFO, INC. AND SUBSIDIARIES Part II - OTHER INFORMATION Item 1 - 3: Inapplicable Item 4: Submission of Matters to a Vote of Security Holders: None Item 5: Inapplicable Item 6 (a): None Item 6 (b): None 17 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized. AUTOINFO, INC. (Registrant) ------------------------------------------ /s/ William I. Wunderlich ------------------------------------------ William I. Wunderlich President and Principal Financial Officer Date: November 11, 1999 EX-27 2 ART. 5 FDS FOR THE 10-K
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 42,980 997,759 0 0 0 1,040,739 0 0 342,268 825,489 9,395,206 0 0 77,570 (9,955,997) 342,268 0 76,400 0 681,960 0 0 719,886 (1,325,446) 0 (1,325,446) 0 0 0 (1,325,446) (0.170) (0.170)
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