-----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, PznbRZSbuJxKQ+DzLvSryTLQ/xFkM1q/NpJoH+gLCN0BufSbgBmbQFT7yChM5t2l rq7t/Hu17/LpYxhXdgod6g== 0000889812-95-000760.txt : 19951218 0000889812-95-000760.hdr.sgml : 19951218 ACCESSION NUMBER: 0000889812-95-000760 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAL FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000811644 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 232455294 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-88966 FILM NUMBER: 95602177 BUSINESS ADDRESS: STREET 1: 500 CYPRESS CREEK ROAD WEST STREET 2: STE 590 CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 3059388200 MAIL ADDRESS: STREET 1: 500 CYPRESS CREEK ROAD WEST STREET 2: SUITE 590 CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: CORPORATE FINANCIAL VENTURES INC DATE OF NAME CHANGE: 19920703 10QSB/A 1 AMENDED QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB/A-1 [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1995 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________________ to ____________________. Commission File Number: 0-25476 NAL FINANCIAL GROUP INC. (Exact name of small business issuer as specified in its charter) Delaware 23-24552194 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 Cypress Creek Road West Suite 590 Fort Lauderdale, Florida 33309 (Address of Principal Executive Offices) Registrant's Telephone Number, including area code: 305-938-8200 Check 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 past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety days. (1) Yes X No _____ (2) Yes X No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the Registrant's sole class of common stock, as of August 10, 1995 is 5,771,749 shares. Transitional Small Business Disclosure Format Yes _____ No X NAL FINANCIAL GROUP INC. INDEX Part I Financial Information* Page - ------ ---------------------- ---- Item 1 Consolidated Balance Sheets - June 30, 1995 and December 31, 1994 3 Consolidated Condensed Statements of Operations - for the Six and Three Months Ended June 30, 1995 and 1994. 4 Consolidated Condensed Statements of Cash Flows - for the Six Months Ended June 30, 1995 and 1994 5 Notes to Consolidated Financial Statements 6-8 Item 2 Management's Discussion and Analysis or Plan of Operation 9-17 Part II Other Information - ------- ----------------- Item 1 Legal Proceedings 18 Item 2 Changes in Securities 18 Item 3 Defaults Upon Senior Securities 18 Item 4 Submission of Matters to a Vote of Securities Holders 18 Item 5 Other Information 18 Item 6 Exhibits and Reports on Form 8-K 18 * The accompanying financial information is not covered by an Independent Certified Public Accountant's Report. 2 NAL Financial Group Inc. Consolidated Balance Sheets June 30, December 31, 1995 1994 ---- ---- Assets Net loan and lease receivables $75,342,797 $29,984,290 Cash and cash equivalents 334,235 664,848 Restricted cash 875,734 1,061,041 Net investment in operating leases 2,502,788 1,230,647 Returned automobile inventory, net 870,554 150,779 Real estate owned 209,819 44,250 Debt issue costs, net 499,270 214,112 Property and equipment, net 849,093 510,885 Accrued interest receivable 599,307 167,692 Other assets, net 2,174,664 489,809 ------------ ------------ Total Assets $84,258,261 $34,518,353 ============ ============ Liabilities and Stockholders' Equity Participations and notes payable 67,475,917 22,502,041 Accounts payable and accrued expenses 576,796 400,057 Security deposits 655,756 344,834 Accrued income taxes 186,342 110,460 Other liabilities 1,346,121 242,660 Due to shareholder 1,127,960 62,494 ------------ ------------ Total liabilities 71,368,892 23,662,546 ------------ ------------ Stockholders' equity Preferred stock, $1,000 par value, 10,000,000 shares authorized, no shares issued -- -- Common stock, $.15 par value, 50,000,000 shares authorized, 5,771,749 and 5,592,968 shares issued and outstanding at June 30, 1995 and December 31, 1994, respectively 865,762 838,945 Paid in capital 10,029,241 8,483,714 Retained earnings 1,994,366 1,533,148 ------------ ------------ Total stockholders' equity 12,889,369 10,855,807 ------------ ------------ Total liabilities and stockholders' equity $84,258,261 $35,210,845 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 3 NAL Financial Group Inc. Consolidated Condensed Statements of Operations
For the Six Months For the Three Months Ended June 30, Ended June 30, 1995 1994 1995 1994 ---- ---- ---- ---- Revenues Interest income $5,703,118 $1,436,249 $3,416,473 $810,118 Purchase discount accretion 420,397 1,170,694 174,833 585,763 Gain on sale of loan pools -- 1,439,762 -- 27,519 Other income 364,630 121,531 209,147 56,481 ---------- ---------- ---------- ---------- 6,488,145 4,168,236 3,800,453 1,479,881 ---------- ---------- ---------- ---------- Expenses Interest expense 2,503,413 873,193 1,564,877 439,019 Operating expenses 2,458,055 2,238,494 1,250,991 1,181,457 Provision for credit loss 702,776 134,522 385,402 64,522 Compensation expense related to shares to be released under a Voting Trust Arrangement (Note 4) 80,000 -- 80,000 -- ---------- ---------- ---------- ---------- 5,744,244 3,246,209 3,281,270 1,684,998 ---------- ---------- ---------- ---------- Income (loss) before provision for taxes 743,901 922,027 519,183 (205,117) Provision (credit) for taxes 282,682 359,591 197,290 (68,343) ---------- ---------- ---------- ---------- Net Income (Loss) $461,219 $562,436 $321,893 ($136,774) ========== ========== ========== ========== Per Share Data Earnings per share: Primary $.09 $.11 $.06 $(.03) Fully diluted .08 .10 .05 (.03) Weighted average number of shares outstanding: Primary 5,416,166 5,192,968 5,447,300 5,192,968 Fully diluted 5,853,535 5,592,968 5,853,535 5,192,968
The accompanying notes are an integral part of these consolidated financial statements. 4 NAL Financial Group Inc. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1995 and 1994 1995 1994 ---- ---- Cash flows from operating activities: $461,219 $562,436 Net income Adjustments to reconcile net income to net cash provided by operating activities: Accretion of purchase discount (420,397) (1,170,694) Provision for credit losses 702,776 134,522 Depreciation and amortization 324,747 129,887 Gain on sale of loan pools -- (1,439,762) Non-cash charge for compensation 80,000 -- Changes in assets and liabilities: Payments received on loan and lease receivables 20,530,368 9,712,248 Other, net (284,492) 187,831 ------------ ----------- Net cash provided by operating activities 21,394,221 8,116,468 ------------ ----------- Cash flows from investing activities: Proceeds from sale of loan pools -- 16,092,299 Purchase of loan and lease receivables (68,453,657) (14,972,718) Purchase of property and equipment (380,208) (81,720) ------------ ----------- Net cash provided by (used in) investing activities (68,833,865) 1,037,861 ------------ ----------- Cash flows from financing activities: Proceeds from participations and notes payable, net 62,064,660 11,973,734 Borrowings from shareholder 1,065,466 -- Repayments of participations and notes payable (16,021,095) (20,608,072) Dividends -- (616,000) ------------ ----------- Net cash provided by (used in) financing activities 47,109,031 (9,250,338) ------------ ----------- Net decrease in cash and cash equivalents (330,613) (96,009) Cash and cash equivalents, beginning of period 664,848 96,009 ------------ ----------- Cash and cash equivalents, end of period $334,235 $ -- ============ =========== Supplemental disclosures of cash flow information Cash paid during the period for interest $2,190,254 $825,954 ============ =========== Cash paid during the period for taxes $206,802 $275,000 ============ =========== The accompanying notes are an integral part of these consolidated financial statements. 5 NAL Financial Group Inc. Notes To Consolidated Financial Statements June 30, 1995 1. Basis of Presentation The interim financial information of NAL Financial Group Inc. (the "Company"), which is included herein, is unaudited and has been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. In the opinion of management, these interim financial statements include all the adjustments necessary to fairly present the results of the interim periods and all such adjustments are of a normal recurring nature. The interim financial statements presented herein include the accounts of the Company and its wholly-owned subsidiaries and should be read in conjunction with the audited financial statements, and the footnotes thereto, for the year ended December 31, 1994. Certain 1994 amounts have been reclassified to conform with the current year presentation. Operating results for the six and three month periods ended June 30, 1995 are not necessarily indicative of the results which may be expected for the year ended December 31, 1995. 2. Earnings Per Common Share Earnings per common share are computed based on the weighted average number of common and common equivalent shares outstanding during the period. 6 3. Loan and Lease Receivables Loan and lease receivables as of June 30, 1995 and December 31, 1994 consists of the following: 1995 1994 ---- ---- Automotive Finance Contracts - ---------------------------- Automotive finance contracts $75,917,311 $26,795,132 Less: Unearned income (5,485,636) (2,004,435) Unearned purchase discount (1,177,403) (815,768) Deferred loan fees, net (143,040) -- ------------ ----------- Automotive contracts net 69,111,232 23,974,929 ------------ ----------- Consumer Contracts Receivable - ----------------------------- Consumer loans receivable 2,929,091 2,333,016 Less: Unearned income (494,772) -- Unearned purchase discount (392,984) (841,322) ------------ ----------- Consumer loans receivable net 2,041,335 1,491,694 ------------ ----------- Mortgage Loans Receivable - ------------------------- Mortgage loans receivable 5,840,989 6,041,464 Less: Unearned purchase discount (1,149,371) (1,218,797) ------------ ----------- Mortgage loans receivable net 4,691,618 4,822,667 ------------ ----------- Less: Allowance for possible losses (501,388) (305,000) ------------ ----------- Total loan and lease receivable net $75,342,797 $29,984,290 ============ =========== 7 4. Voting Trust Arrangement Of the shares of the Company's common stock received by certain stockholders in conjunction with the merger of the Company in November 1994, 400,000 shares were placed into a voting trust arrangement (the "voting trust") by which shares may be released on an annual basis pursuant to a formula tied to net income earned by the Company subsequent to June 30, 1994. Any shares not released from the voting trust at the end of three years will be canceled. Originally, the Company intended to account for the release of all the shares held in the voting trust as compensation expense and, accordingly, compensation expense of $80,000 had been reflected as a charge to earnings for the quarter ended June 30, 1995 for shares that may be released based on cumulative net income through the quarter end. The Company has reassessed the accounting for these shares and, after further consideration of the relevant facts and circumstances, has determined that the release of 340,000 of the 400,000 shares placed into the voting trust will be considered additional consideration in conjunction with the merger in November 1994 and will not result in compensation expense. The remaining 60,000 shares will still be considered compensatory in nature resulting in a charge for the fair market value of the shares as they become eligible for release. This expense will be a non-cash charge with no effect on working capital and total stockholders' equity. No adjustment has been made to the $80,000 in compensation expense for the revised accounting treatment in the financial statements for the quarter ended June 30, 1995 as the Company believes that any reduction of this amount would not be significant to these financial statements. 8 Item 2. Management's Discussion and Analysis or Plan of Operation Results of Operations - Overview NAL Financial Group Inc. (the "Company") commenced operations during June 1991 as a specialized finance company for the purpose of engaging in consumer finance transactions involving the origination, purchase, remarketing and servicing of consumer and mortgage loans and auto lease receivables. Because of the opportunities presented by the insolvency and reorganization of many financial institutions at the time, the Company's principal activities, from inception through the second quarter of 1994, involved the bulk purchase and servicing of seasoned portfolios of consumer and mortgage loans and auto lease receivables that had been administered by the Resolution Trust Corporation or Federal Deposit Insurance Corporation. In response to the decreasing availability of these portfolios, since the second quarter of 1994 the Company's principal focus has shifted to the acquisition and servicing of automotive leases and loans originated by dealers in connection with sales or leases to persons with sub-prime credit. The Company's results of operations from inception in 1991 through the second quarter of 1994 principally reflected the Company's investment earnings on and gains realized from the sale of seasoned loan and lease portfolios acquired in bulk-purchase transactions at significant discounts from their principal balances. The rate of return earned on these portfolios included both interest earned on the leases and loans, as well as the purchase discount accretion, which reflects the increase in the value of a portfolio as it approaches maturity. As the principal balances of the bulk-purchased portfolios decreases due to paydowns and maturities, and the portfolio of sub-prime automotive contracts expands, the Company's earnings will be increasingly dependent on the interest, rental income and fees charged on the sub-prime portfolio. Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994 The Company reported net income of $461,000 for the six months ended June 30, 1995 on revenues of $6,488,000. This compares to net income of $562,000 on revenues of $4,168,000 for the six months ended June 30, 1994. Net income for the six months ended June 30, 1995 includes a non-cash charge of $49,600 (after-tax) for common stock earned pursuant to a Voting Trust Agreement (the "Voting Trust Agreement") established in connection with the Merger (the "Merger") on November 30, 1994. Excluding this charge, operating income after taxes was $511,000 for the 1995 period. This charge has no effect on working capital and did not significantly affect stockholders' equity. The Company's results of operations for the six months ended June 30, 1995 principally reflect net interest and fees earned on its expanded portfolio of sub-prime automobile contracts receivable, provision for possible losses, and overhead incurred for underwriting and servicing these contracts. The results of operations for the six month period ended June 30, 1994 principally reflect interest and discount earned on bulk purchased portfolios and gains from the sale of these portfolios. The Company's level of sub-prime automobile contracts acquired increased by $61,800,000 when comparing the six months ended June 30, 1995 to the six months ended June 30, 1994. Contracts acquired in the 1995 period totalled $65,000,000 compared to $3,200,000 for the 1994 period. The significant increase reflects the change in the Company's principal focus facilitated by the establishment and expansion of its network of automobile dealerships. 9 Net Interest Spread The following table presents net interest spread information for the six months ended June 30, 1995 and 1994: Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Net investment in loans and leases - average balance $51,130,153 $16,124,033 Interest income and purchase discount accretion 6,123,515 2,606,943 Annualized effective earnings rate 23.95% 32.34% Participations and notes payable - average balance $44,731,479 $14,667,970 Interest expense 2,503,413 873,193 Annualized effective cost rate 11.19% 11.91% Net interest spread rate 12.76% 20.43% During the six months ended June 30, 1995, the Company's net interest spread rate, or the difference between the effective rate earned on interest - earning assets and the effective rate paid on interest - bearing borrowings, decreased 7.67%, from 20.43% to 12.76%, when compared to the same period of the preceding year. This decrease was due primarily to a 8.40% decrease in the effective rate earned on interest earning assets, from 32.34% to 23.95%. The decrease in the earnings rate was offset to only a minor extent by a decrease in the Company's effective cost rate from 11.91% to 11.19%, or 0.72%. During the six months ended June 30, 1994, a greater portion of the Company's earnings was derived from purchase discount accretion than during the 1995 period. During that period purchase discount accretion was $1,171,000 compared to $420,000 for the 1995 period. This resulted in a higher effective earnings rate for the 1994 period. The decrease in purchase discount accretion reflects the Company's shift in focus from acquiring bulk loan and lease portfolios at significant discounts to acquiring and servicing sub-prime automotive loan and lease contracts receivable. Although the automotive contracts do not provide as much earnings from purchase discount accretion as the bulk purchase portfolios, the coupon interest rate earned on the contracts is higher. Interest income increased from $1,436,000 for the 1994 period to $5,699,000 for the 1995 period. This increase was due to higher contractual rates earned on sub-prime contacts and an increase in the average balance of loan and lease receivables from $16,124,000 in the 1994 period to $51,130,000 in the 1995 period. Substantially all of the increase in the balance of loan and lease receivables is attributable to acquired automotive contracts. The slight decrease in the Company's effective cost rate was attributable to an increase in borrowings to finance the expansion of the automobile contracts portfolio. For the most part, the Company has financed its acquisitions of automotive contracts with borrowings which have had interest rates which were established at the time of financing based on the prime rate or LIBOR rate in effect at the time. These borrowings had rates which were lower than the rates on borrowings utilized during the 1994 period to finance bulk-purchase portfolios. These rates are fixed throughout the term of the financing, thereby enabling the Company to establish a fixed spread between the interest rate earned on the automotive contract and the rate paid on the financing. At June 30, 1995, the Company had 10 borrowed approximately $63,700,000 under arrangements in which the interest rates were fixed at the time of financing, and approximately $3,300,000 under a line of credit arrangement which bears interest at a variable rate tied to the prime rate. Gains On Sales of Loans Gains on sales of loans totalled $1,439,000 during the 1994 period compared with no gains for the 1995 period. Prior to 1995, gains on sales of loans constituted a significant element of the Company's results of operations. The sales consisted primarily of loan pools which had been purchased at discounts and sold within a short period after purchase. It is the Company's current intention to hold principally all of its present portfolio until maturity. Because the opportunities for purchase and resale have become, in general, less attractive to the Company due to increased competition in the industry, it is unlikely that the Company will experience gains on the sales of loan pools as in the past. Other Income Other income increased $243,000 from $122,000 in the 1994 period to $365,000 in the 1995 period, due primarily to the commissions earned by the Company's insurance brokerage services from placing insurance policies for its automotive loan and lease customers. Provision For Possible Credit Losses The provision for possible credit losses totalled $703,000 for the 1995 period, or $568,000 more than the $135,000 reported for the 1994 period. This increase related primarily to provisions recorded for an estimate of possible losses which may be incurred for new automotive contracts acquired during the 1995 period. Management periodically reviews the adequacy of the allowance for loan and lease losses and considers whether the level of allowance is sufficient to cover any losses of the carrying value of its existing portfolios. This review includes an evaluation of the value of the collateral pledged for the loans and leases receivable, an analysis of the equity invested in the collateral by the borrowers, delinquency data and historical loss experience, and any recourse arrangements the Company has with dealers or other sellers of contracts and portfolios. 11 Operating and Other Expenses Operating expenses increased $220,000 from $2,238,000 during the 1994 period to $2,458,000 during the 1995 period, due primarily to increased overhead and costs associated with the Company's automotive contract financing business. This increase was attributable to an increase in compensation and employee benefits paid due to an expansion of the Company's workforce. Additional personnel were hired to assist with underwriting, collecting and servicing of the Company's expanding automobile portfolio. Consequently, compensation expense increased by $772,000, from $977,000 for the 1994 period to $1,749,000 for the 1995 period. Included in other expenses is $80,000 which has been recorded during the 1995 period for common stock that is eligible for release pursuant to the Voting Trust Agreement. The Voting Trust Agreement required that certain shares be placed in escrow to be released based on the terms of the agreement. In the event that any of the shares are released from the Voting Trust, such release may, for financial reporting purposes, result in compensation expense to the Company. Although final determination is pending, $80,000 in compensation expense has been recorded during the second quarter for shares that have been earned, but not yet released. The amount of compensation expense recorded is a non-cash charge, which has no effect on working capital and does not significantly affect stockholders' equity. The Company incurs certain direct loan and lease acquisition costs associated with the automobile contracts purchased from dealers. These costs are deferred and amortized over the life of the related receivable. Management expects that operating expenses will increase as the size of its automotive contract portfolio increases, but does not expect the growth of expenses to be disproportionate with the growth of revenues from the portfolio. Three Months Ended June 30, 1995 Compared to Three Months Ended June 30, 1994 The Company reported net income of $321,000 for the three months June 30, 1995 on revenues of $3,800,000 compared to a net loss of $137,000 on revenues of $1,480,000 for the three months ended June 30, 1994. Net income for the three months ended June 30, 1995 includes a non-cash charge of $49,600 (after-tax) for common stock eligible for release pursuant to the Voting Trust Agreement established in connection with the Merger on November 30, 1994. Excluding this non-cash charge, operating income after taxes was $371,000 for the 1995 period. This charge has no effect on working capital and does not significantly affect stockholders' equity. The Company's results of operations for the three months ended June 30, 1995 reflect the Company's shift in focus from acquiring seasoned loan and lease portfolios at significant discounts to the acquisition and servicing of sub-prime automobile leases and loans. Consequently, the earnings principally reflect net interest and fees earned on its expanded portfolio of sub-prime automobile contracts receivable, provision for possible losses, and overhead incurred for underwriting and servicing these contracts. The results of operations for the three month's ended June 30, 1994 principally reflect interest and discount earned on bulk purchased portfolios. Gains on the sale of loan portfolios were minimal during this period which contributed to an overall loss for the 1994 quarter. 12 Net Interest Spread The following table presents net interest spread information for the three months ended June 30, 1995 and 1994. Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Net Investment - loans and leases - average balance $65,153,212 $14,694,905 Interest income and purchase discount accretion 3,591,306 1,395,881 Annualized effective earnings rate 22.04% 38.00% Participations and notes payable - average balance $56,322,482 $12,439,550 Interest expense 1,564,877 439,019 Annualized effective cost rate 11.11% 14.12% Net interest spread rate 10.93% 23.88% During the three months ended June 30, 1995, the Company's net interest spread rate decreased 12.95%, from 23.88% for the 1994 period to 10.93% for the 1995 period. This decrease was due primarily to a decrease in the effective rate earned on interest-earning assets from 38.00% to 22.04%, or 15.96% decrease. This decrease was offset partially by a 3.01% decrease in the effective cost rate. During the three months ended June 30, 1994, a greater portion of the Company's earnings was derived from purchase discount accretion. During this period, purchase discount accretion was $586,000 compared to $175,000 for the 1995 period. This resulted in a higher effective earnings rate for the 1994 period. The decrease in purchase discount reflects the Company's shift in focus from acquiring bulk loan and lease portfolios at significant discounts to acquiring and servicing sub-prime automobile loan and lease contracts receivable. Although the automobile contracts do not provide as much earning from purchase discount accretion as the bulk portfolios, the coupon interest rate earned on the contracts is higher. Interest income increased from $810,000 during the 1994 period to $3,416,000 during the 1995 period. This increase was due to higher contractual rates earned on sub-prime contracts and an increase in the average balance of loan and lease receivables, from $14,695,000 in the 1994 period to $65,153,212 in the 1995 period. Substantially all of the increase in the average balance is attributable to acquired automotive contracts. The decrease in the effective cost rate of 3.01% was attributable to increased borrowings under financing arrangements with lower cost of funds used to finance the expansion of the automotive contracts portfolio. Previously, financing arrangements with higher cost of funds were used to acquire bulk portfolios. 13 Gain on Sales of Loans Gains on the sales of loans totalled $28,000 for the three months ended June 30, 1994 compared with no gains for the 1995 period. It is the Company's current intention to hold principally all of its present portfolio until maturity. Because the opportunities for purchase and resale have become, in general, less attractive for the Company, it is unlikely that the Company will experience gains on the sale of loan pools as in the past. Other Income Other income increased to $209,000 for the 1995 period from $56,000 in the 1994 period. This increase of $153,000 was primarily due to the commissions earned by the Company's insurance brokerage services from placing insurance policies for its automotive loan and lease customers. Provision for Possible Credit Losses The provision for possible credit losses totalled $385,000 for the 1995 period compared with $65,000 for the 1994 period, or a $320,000 increase. This increase related primarily to provisions recorded for an estimate of possible losses which may be incurred for new automobile contracts acquired during the 1995 period. Operating and Other Expenses Operating expenses increased $70,000 from $1,181,000 during the 1994 period to $1,251,000 during the 1995 period, due primarily to increased overhead and costs associated with the Company's automotive contract financing business. This increase was attributable to an increase in compensation and employee benefits from $471,000 for the 1994 period to $1,043,000 for the 1995 period, a $572,000 increase. During the 1995 period, the Company hired additional personnel to assist with the underwriting, collecting, and servicing of its expanding automobile portfolio. In addition, $80,000 has been recorded as compensation expense during the 1995 period representing an accrual for common stock eligible for release pursuant to a Voting Trust Agreement. 14 Delinquency Experience The following table summarizes the Company's delinquency experience on accounts over 30 days past due on both a number of contracts and a dollar basis. The table excludes two underperforming portfolios which were purchased during the year ended December 31, 1994 at substantial discounts. The Company is accounting for a portion of these portfolios using the cost recovery method. Under this method, income is recognized only for the excess of collections received over the purchase price basis of the loans. The principal balances and book values totalled $776,508 and $317,249 at June 30, 1995 and $2,271,000 and $897,000 at December 31, 1994, respectively. June 30, 1995 December 31, 1994 ------------- ----------------- Dollars # Contracts Dollars # Contracts ------- ----------- ------- ----------- Principal Outstanding $83,910,883 7,014 $33,165,177 3,560 Delinquencies: 30-59 Days 5,606,412 521 2,549,165 311 60-89 Days 1,295,222 109 214,966 19 90 Days or more 1,257,572 69 423,258 27 Total Delinquencies over 30 Days as a % of Principal/Contracts 8,159,206 699 3,187,389 357 9.72% 9.97% 9.61% 10.03% Total Delinquencies over 60 Days as a % of Principal/Contracts 2,552,794 178 638,224 46 3.04% 2.54% 1.92% 1.29% Net Credit Loss Experience The following table summarizes the company's net credit loss experience for the period ended June 30, 1995 and 1994. Six Months Ended 1995 1994 ---- ---- Principal outstanding $83,910,883 $24,878,541 Average principal outstanding $56,630,240 $27,356,512 Charge-offs and lease termination losses $ 469,812 $ 241,838 Net losses as a % principal outstanding 0.56% 0.97% Net losses as a % average principal 0.83% 0.88% Due to the limited historical experience reflecting the results of the Company's program of auto loan and lease acquisitions, management is uncertain about the level or extent of future credit losses. Credit losses in the future will be dependent on the Company's credit criteria, advance rates in relation to the value of the secured automobiles, and the value received from the disposition of any repossessed automobiles in relation to the outstanding balance of the lease or loan. 15 Liquidity and Capital Resources Since inception, the Company's principal sources of working capital have been provided through operations, borrowings through participation arrangements, revolving lines of credit from the Company's principal lenders, and the private placement of debt and equity securities. The following chart summarizes the principal manner in which funds have been received and utilized by the Company for the six month period ended June 30, 1995: Inflows - ------- Payments Received From Collections $20,530,368 Net Proceeds From Financing 63,130,126 Cash Provided by Operations 863,853 ------------ 84,524,347 ------------ Outflows - -------- Acquisitions of Loan and Lease Contracts 68,453,657 Capital Expenditures 380,208 Repayment of Notes and Participations Payable 16,021,095 ------------ 84,854,960 ------------ Net Outflow ($330,613) ============ As of June 30, 1995, the Company's liquidity was being provided by a series of borrowings under debt participation arrangements, certain unsecured notes, and lines of credit in the following amounts: Lines of credit $23,949,793 Debt participation interests and subordinated notes $42,987,633 Unsecured note $67,076 The Company has a $20,000,000 revolving credit facility which matures in 1996. The facility bears interest at 2.00% over prime rate. At June 30, 1995, the Company had drawn down approximately $3,308,000 and had an available borrowing base of approximately $16,692,000 for the financing of additional loan and lease portfolios which meet certain credit guidelines established by the lender in its sole discretion. The Company has a $25,000,000 credit facility for the financing of automobile loan and lease receivables, with rates established and fixed at time of financing. At June 30, 1995, the Company had drawn down approximately $20,642,000 under the facility. The facility is automatically approved 16 annually in March each year unless the lender provides the Company with notice of termination 90 days prior to such renewal. At June 30, 1995, the Company had an existing series of borrowings under participation agreements in the amount of $38,887,633 secured by certain lease and loan contracts, and consumer and mortgage loans receivable. The participations bear interest at prime plus 2.5% fixed at the time of financing, with principal and interest due monthly. In general, under the terms of the participation agreements, payments on the agreements are tied to the payments received from the secured contracts and loans receivable. A significant component of the Company's working capital continues to be realized through the private placement of securities. During the quarter ended June 30, 1995, the Company completed the sale of $5,650,000 of convertible subordinated debentures offered in debenture units pursuant to a private placement transaction. Each debenture unit consists of $500,000 principal amount 9% convertible subordinated debenture and 50,000 warrants. Each warrant entitles the holder to purchase one share of the Company's common stock for a three year period at an exercise price of $9 per share. At June 30, 1995, the Company had $4,100,000 of these debentures outstanding with the remaining amount converting to shares of the Company's common stock. This gives effect to the conversion of $1,550,000 of debentures during the second quarter. The Company's sales of debenture units continued after June 30, 1995, and as of the date of this report, the Company has realized approximately $9,900,000 from the sale of debenture units. Management believes that the Company's current cash flow from operations and advances on its credit facilities and debt participation arrangements is adequate to meet the Company's liquidity requirements for its existing operations. The terms of the borrowings under the participation agreements and the credit facilities provide for repayments of principal and interest to the lenders in amounts, which, in general, correspond with and are exceeded by the scheduled repayment of the secured loans and leases receivable. Significant additional growth of the Company's portfolios will require the Company to identify and secure additional sources of funding. Given the Company's dependence on financing for current cash flow and continued growth, loss of its financing sources would have a material adverse impact on the Company's conduct of business and prospects. Management is presently evaluating additional sources of financing, including the continuation of offering debt participation interests to institutional investors, expansion of traditional lines of credit, and through additional equity and debt placements. During the first quarter of 1995, the Company recently engaged an investment banking firm to act as lead manager on a best efforts basis of a private placement of approximately $20,000,000 of convertible preferred stock. Although the Company has received positive reassurance from the firm, pricing issues and placement of securities have yet to be finalized, and there can be no assurances that the offering will be completed. If successful, the Company intends to use the proceeds from the offering to facilitate the expansion of its existing credit facilities, thereby enhancing its ability to acquire additional loans and leases. 17 PART II OTHER INFORMATION Item 1. Legal Proceedings. Reference is hereby made to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. None. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this Form 10-QSB/A-1 to be signed on its behalf by the undersigned, thereunto duly authorized. NAL FINANCIAL GROUP INC. BY: /s/ Robert R. Bartolini Dated: December 15, 1995 -------------------------- Robert R. Bartolini Chairman of the Board Chief Executive Officer (Principal Executive Officer) BY: /s/ Robert J. Carlson Dated: December 15, 1995 -------------------------- Robert J. Carlson Vice President, Finance (Principal Financial and Accounting Officer) 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1995 JUN-30-1995 1,209,969 0 75,844,185 501,388 870,554 0 1,027,107 (178,014) 84,258,261 0 67,475,917 865,762 0 0 12,023,607 84,258,261 0 6,488,145 0 0 2,458,055 702,776 2,503,413 743,901 282,682 461,219 0 0 0 461,219 .09 .08
-----END PRIVACY-ENHANCED MESSAGE-----