-----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, HRlyjk1gdtKg1eJHoUiaJM6iRYjafu12Q6zweYRnG6Ba14Woo3oumNLlnhfw4xDa ++4QwDLcgEziLdTmTIU9Pg== 0000852220-96-000018.txt : 19961113 0000852220-96-000018.hdr.sgml : 19961113 ACCESSION NUMBER: 0000852220-96-000018 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLSTATE FINANCIAL CORP /VA/ CENTRAL INDEX KEY: 0000852220 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 541208450 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17832 FILM NUMBER: 96658552 BUSINESS ADDRESS: STREET 1: 2700 S QUINCY ST STE 540 CITY: ARLINGTON STATE: VA ZIP: 22206 BUSINESS PHONE: 7039312274 MAIL ADDRESS: STREET 1: 2700 S QUINCY STREET STREET 2: STE 540 CITY: ARLINGTON STATE: VA ZIP: 22206 10QSB 1 3RD QTR 1996 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 0-17832 Allstate Financial Corporation (exact name of registrant as specified in its charter) Virginia 54-1208450 (State of Incorporation) (I.R.S. Employer Identification No) 2700 South Quincy Street, Suite 540, Arlington, VA 22206 (address of principal executive offices) (zip code) Registrant's Telephone Number, Including Area Code: (703) 931-2274 Indicate by the check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 and 15 of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] 2,317,519 Common Shares were outstanding as of September 30, 1996. ALLSTATE FINANCIAL CORPORATION FORM 10-QSB INDEX Page Number Part I. Financial Information Item 1 - Financial Statements Consolidated Balance Sheets at September 30, 1996 and December 31, 1995 .................................................. 1-2 Consolidated Statements of Income Three and Nine Months Ended September 30, 1996 and 1995 ............................................ 3 Consolidated Statements of Shareholders' Equity Three Months Ended September 30, 1996 and Year Ended December 31, 1995 ...................................................... 4 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1996 and 1995 ............................................ 5-6 Notes to Consolidated Financial Statements.............................. 7-9 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Conditions .................................... 9-19 Part II Item 1 - Legal Proceedings ............................................. 20 Item 4 - Submission of Matters To a Vote of Security Holders ........... 21 Item 5 - Other Information ............................................. 21 Item 6 - Exhibits and Reports on Form 8-K ........................... 21-22 Signatures ............................................................... 23 PART I - FINANCIAL INFORMATION 1 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS ---------- CURRENT ASSETS: Cash ........................................... $ 1,471,585 $ 754,295 Receivables: Finance, net ............................... 29,959,723 32,670,706 Purchased life insurance contracts, net .... 4,499,389 4,292,332 Other ...................................... 3,575,826 2,756,342 Prepaid expenses ............................. 225,025 204,823 Prepaid income taxes ......................... 1,546,211 722,081 Deferred income taxes ........................ 893,000 893,000 ----------- ----------- TOTAL CURRENT ASSETS ....................... 42,170,759 42,293,579 PROPERTY AND EQUIPMENT, Net ...................... 491,484 537,629 OTHER ASSETS ..................................... 822,549 2,049,323 ----------- ----------- $43,484,792 $44,880,531 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable and accrued expenses ....... $ 502,875 $ 292,602 Notes payable ............................... 12,840,215 13,516,938 Note payable-related party .................. 103,000 103,000 Credit balances of factoring clients ........ 2,841,823 2,333,729 ----------- ----------- TOTAL CURRENT LIABILITIES ................ 16,287,913 16,246,269 2 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) September 30, December 31, 1996 1995 ------------ ------------ (Unaudited) NONCURRENT PORTION OF NOTES PAYABLE: Related parties .............. 60,532 58,788 Convertible Subordinated Notes 4,981,000 2,838,000 Other ........................ 7,110 7,110 ---------- ---------- TOTAL LIABILITIES ......... 21,336,555 19,150,167 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, authorized 2,000,000 shares with no par value; no shares issued or outstanding ........................ -- -- Common stock, authorized 10,000,000 shares with no par value; issued and outstanding 2,317,519 shares at September 30, 1996 and 2,655,128 at December 31, 1995 ............... 40,000 40,000 Additional paid-in-capital .................... 18,852,312 18,852,312 Treasury Stock (785,475 shares at September 30, 1996 and 447,200 shares at December 31, 1995) (5,037,584) (2,871,901) Retained Earnings ............................ 8,293,509 9,709,953 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY .................. 22,148,237 25,730,364 ------------ ------------ $ 43,484,792 $ 44,880,531 ============ ============ See Notes to Consolidated Financial Statements 3
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- --------------------------------- 1996 1995 1996 1995 ----------- ---------- ------------ ----------- INCOME: Earned discounts .................................. $2,423,715 $2,578,345 $ 7,479,676 $7,876,644 Fees and other income ............................. 499,802 600,245 1,615,052 1,656,397 ---------- ---------- ------------ ---------- 2,923,517 3,178,590 9,094,728 9,533,041 ---------- ---------- ------------ ---------- EXPENSES: Compensation and fringe benefits .................. 737,910 785,161 2,584,291 2,345,710 General and administrative expense ................ 632,985 642,766 2,184,707 1,981,763 Interest expense .................................. 360,627 205,307 1,142,970 629,833 Provision for credit losses ....................... 527,341 859,000 5,079,570 2,770,600 Commission ........................................ 126,248 64,928 352,034 199,645 ---------- ---------- ------------ ---------- TOTAL EXPENSES ................................ 2,385,111 2,557,162 11,343,572 7,927,551 ---------- ---------- ------------ ---------- INCOME/(LOSS) BEFORE INCOME TAXES ................... 538,406 621,428 (2,248,844) 1,605,490 INCOME TAXES/(BENEFIT) .............................. 198,800 228,700 (832,400) 591,200 ---------- ---------- ------------ ---------- NET INCOME/(LOSS) ................................... $ 339,606 $ 392,728 $ (1,416,444) $1,014,290 ========== ========== ============ ========== NET INCOME/(LOSS) PER SHARE ......................... $ .15 $ .13 $ (0.61) $ .33 ========== ========== ============ ========== WEIGHTED AVERAGE NUMBER OF SHARES ................... 2,317,237 3,009,971 2,331,797 3,071,204 ========== ========== ============ ==========
4
ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 Common Paid in Treasury Retained Stock Capital Stock Earnings ---------- ----------- ------------ ------------- BALANCE - January 1, 1995 ........................ $40,000 $18,852,312 $ -- $ 9,228,853 Exchange of Convertible Subordinated Notes for 447,200 shares of common stock ................. -- -- (2,871,901) -- Net Income ..................................... -- -- -- 481,100 ------- ----------- ----------- ----------- BALANCE - December 31, 1995 ...................... $40,000 $18,852,312 (2,871,901) 9,709,953 Exchange of Convertible Subordinated Notes for 338,275 shares of common stock ................ -- -- (2,165,683) -- Net (Loss) .................................... -- -- -- (1,416,444) ------- ----------- ----------- ----------- BALANCE - September 30, 1996 ..................... $40,000 $18,852,312 $(5,037,584) $ 8,293,509 ======= =========== =========== =========== 5 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, ------------------------------- 1996 1995 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) ................................ $(1,416,444) $ 1,014,290 Adjustments to reconcile net income/(loss) to cash provided by operating activities: Depreciation - net ............................. 97,400 106,104 Provision for credit losses .................... 5,079,570 2,770,600 Changes in operating assets and liabilities: (Increase)/Decrease in other receivables ..... (819,484) 186,966 (Increase) in prepaid expenses ............... (20,202) (74,820) (Increase)/Decrease in other assets .......... 1,226,774 (40,982) Increase in accounts payable and accrued expenses ....................... 210,273 85,979 (Increase)/Decrease in prepaid income taxes .. (824,130) 182,242 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES ...... 3,533,757 4,230,379 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of finance receivables, including accounts receivable, secured advances, repurchases and life insurance contracts ... (142,451,717) (121,242,831) Collection of finance receivables, including accounts receivable, secured advances, repurchases and life insurance contracts ... 139,876,073 123,398,808 Increase (Decrease) in credit balances of factoring clients .......................... 508,094 (68,152) Purchase of property and equipment ........... (51,255) (140,689) -------------- ------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ......................... (2,118,805) 1,947,136 -------------- ----------- 6 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Nine Months Ended September 30, ------------------------------- 1996 1995 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit and other borrowings ......................... 45,155,265 51,228,768 Principal payments on line of credit and other borrowings ..................... (45,830,244) (57,371,467) Treasury Stock Acquisition Costs ........... (22,683) (1,726) ------------ ------------ NET CASH (USED) IN FINANCING ACTIVITIES ....................... (697,662) (6,144,425) ------------ ------------ INCREASE (DECREASE) IN CASH .................. 717,290 33,090 CASH, Beginning of period .................... 754,295 1,763,930 ------------ ------------ CASH, End of period .......................... $ 1,471,585 $ 1,797,020 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid ............................ $ 1,142,970 $ 615,643 ============ ============ Income taxes paid ........................ $ -- $ 408,958 ============ ============ Supplemental Schedule of Noncash Activities Transfer of finance and other receivables to other assets ........................... $ -- $ 125,000 ============ ============ Issuance of Convertible Subordinated Notes in exchange for Common Stock .............. $ 2,148,000 $ 2,838,000 ============ ============ Issuance of Common Stock in exchange for Subordinated Notes ................. $ 5,000 $ -- ============ ============ 7 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General. The consolidated financial statements of Allstate Financial Corporation (the "Company") included herein are unaudited for all periods ended September 30, 1996 and 1995; however, they reflect all adjustments which, in the opinion of management, are necessary to present fairly the results for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Allstate Financial Corporation believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results of operations to be expected for the remainder of the year. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Allstate Financial Corporation's Annual Report on Form 10-KSB for the year ended December 31, 1995. 2. Net income/(loss) per share. Net income/(loss) per share of common stock has been computed by dividing net income/(loss) by the weighted average number of common shares outstanding during the periods presented. For the quarters ended September 30, 1996 and 1995, weighted average shares outstanding were 2,317,237 and 3,009,971, respectively. At September 30, 1996 and December 31, 1995 there were 123,700 and 42,167 stock options outstanding, respectively, at exercise prices ranging from $5.375 to $14.00 per share. During the year ended December 31, 1995, 53,470 options were forfeited. There were no options exercised during 1995 or during the nine months ended September 30, 1996. 3. Line of credit. As of September 30, 1996, the Company had approximately $12.9 million available under a $25.0 million secured revolving line of credit. Borrowings under the credit facility bear interest at the bank's base rate plus .75%. The current maturity date of this credit facility is May 13, 1997. The Company is subject to restrictive covenants which are typical in revolving credit facilities of this type. As of September 30, 1996, Lifetime Options, Inc., a Viatical Settlement Company ("Lifetime Options"), a wholly owned subsidiary of the Company, had approximately $1.2 million available under a $2.0 million revolving line of credit and an additional $1.3 million available under a $4 million availability from the Company. Lifetime Options' revolving line of credit is payable on December 31, 1996; (ii) bears interest at the prime rate of interest plus 1%; and (iii) is collateralized by specific purchased life insurance contracts. 4. Convertible Subordinated Notes Payable. As of September 30, 1996, the Company had outstanding $4,981,000 in aggregate principal amount of Convertible Subordinated Notes issued in exchange for 785,475 shares of common stock of the Company. The Notes (i) mature on September 30, 2000; (ii) currently bear interest at the rate of 9.5% per annum which rate may fluctuate in accordance with the prime rate, but may not fall below 8% nor rise above 10% per annum; (iii) are convertible into common stock of the Company at the rate of $7.50 per share; (iv) are subordinated to Senior Indebtedness (as defined) of the Company and (v) were issued pursuant to an indenture which contains certain covenants which are less restrictive than 8 those contained in the Company's secured revolving credit facility. Upon the occurrence of certain change of control events, holders of the Notes have the right to have their Notes redeemed at par. 5. Certain Contingencies. The Company is a defendant in White, Trustee v. Allstate Financial Corporation pending in the U.S. Bankruptcy Court for the Western District of Pennsylvania. The Company provided receivables financing and advances for Lyons Transportation Lines, Inc. ("Lyons"). Lyons was the subject of a leveraged buy-out and subsequently filed a bankruptcy petition. In 1991, the Lyon's trustee brought an action against the Company claiming, among other things, fraudulent transfer and breach of contract. A summary judgement was granted in favor of the Company which reduced the fraudulent transfer claim by $1.6 million. As a consequence, the remaining fraudulent transfer claim was approximately $1,000,000. In late 1994, the Company reached a settlement agreement with the Lyons trustee, subject to approval by the bankruptcy court, which would have released the Company from all claims upon the payment of $300,000. In connection with the settlement, the Company paid and added $300,000 to the provision for credit losses in 1994. A creditor in the bankruptcy proceeding, Sherwin-Williams Company, objected to the proposed settlement amount and, in March 1995, the objection was sustained by the bankruptcy court. The Company appealed the order sustaining the objection, but in April 1996 the appellate court exercised its discretion not to hear the appeal at that time. The $300,000 previously paid by the Company was returned to the Company in April 1996. The matter is currently being litigated in the District Court. Management does not believe at this time that the Company has a material exposure significantly in excess of the previously agreed upon settlement amount. In connection with the same transaction, the Company was also named in January 1994 as a defendant in Sherwin-Williams Company v. Robert Castello et. al. pending in the United States District Court for the Northern District of Ohio. Sherwin-Williams is suing all parties with any involvement in the transaction to recover damages allegedly incurred by Sherwin-Williams in connection with the leveraged buy-out and the bankruptcy litigation arising therefrom. Sherwin-Williams asserts that it has or will incur pension fund liabilities and other liabilities as a result of the transaction in the approximate amount of $11 million and has asserted claims against the Company in that amount. The complaint asserts, among other things, that the purchasers of Lyons breached their purchase agreement with Sherwin-Williams by pledging the assets of Lyons to the Company to obtain the down payment. The Company was not a party to the purchase agreement. The complaint seeks relief against the Company based upon a claim of "acting in concert" and "misrepresentation" in connection with this purchase agreement without a specific identification of the alleged misrepresentation made by the Company. The Company filed a motion to dismiss the claims and a motion to stay discovery pending a ruling on the motion to dismiss. The motion to stay discovery was granted and, in March 1996, a federal magistrate recommended to the District Court that the Company's motion to dismiss be granted. Prior to the District Court ruling on the magistrate's recommendation, Sherwin-Williams filed an amended complaint. The amended complaint retains the claims for "acting in concert" and "misrepresentation" and adds two additional claims for "civil conspiracy" and "tortious interference with contract". The two new claims arise from essentially the same allegations set forth in the earlier claims, i.e., that the Company assisted in the breach of the purchase agreement. Management does not believe the litigation will have a material effect on the financial position or results of operations of the Company because, in management's opinion, the claims are without merit. 9 The Company is a defendant in Harold B. Murphy, Chapter 7 Trustee v. Allstate Financial Corporation, et al. pending in the U.S. Bankruptcy Court in the District of Massachusetts. The Company factored the accounts receivable of Clearpoint Research Corporation ("CRC") from late 1992 through early 1993. In July 1993 CRC filed a petition in bankruptcy, after the Company had collected all amounts owed to it. The bankruptcy trustee has sued the Company seeking recovery of alleged preferential transfers made during the course of the factoring relationship. The bankruptcy trustee alleges that the Company did not properly perfect its security interest in the accounts receivable. No specific damage amount is specified in the complaint but it is assumed the bankruptcy trustee is seeking recovery of the full amount of accounts receivables collected (approximately $4 million). The Company has filed an answer to the complaint denying the substantive allegations asserted by the bankruptcy trustee. The Company has removed the action to federal district court. The Company has filed a motion for summary judgement which is currently pending before the District Court. In the event the motion for summary judgement is unsuccessful, the Company believes it has a number of strong defenses to the complaint and intends to vigorously defend all claims. The litigation is in a preliminary stage and the probability of an unfavorable outcome and the potential amount of loss, if any, cannot be determined or estimated at this time. As previously disclosed in the Company's Form 10-QSB for the quarter ended September 30, 1995, the Company has reached a settlement of 1,400,000 with the Trustee in the bankruptcy of Premium Sales Corporation, a former client of one of the Company's wholly-owned subsidiaries. The settlement is intended to be a full release of any and all claims between the Company (and its subsidiaries) and the Trustee including, without limitation, any alleged preference liability of the Company and its subsidiaries. The settlement was approved by the bankruptcy court in January 1996. The settlement will become fully effective and the settlement monies will be disbursed at the time a plan of distribution in the Premium Sales Corporation bankruptcy is approved by the bankruptcy court. The impact of this settlement has been reflected in the Company's financial statements. Except as described above, the Company is not party to any litigation other than routine proceedings incidental to its business, and the Company does not expect that these proceedings will have a material adverse effect on the Company. From time to time, the Company is required to initiate litigation to collect amounts owed by former clients, guarantors or obligors. In connection with such litigation, the Company periodically encounters counterclaims by defendant(s) for material amounts. Such counterclaims are typically without any factual basis and, management believes, are usually asserted for defensive purposes by the litigant. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's principal business is the discounted purchase of accounts receivable, usually on a full recourse, full notification basis. In addition, the Company also makes advances collateralized by inventory, equipment and real estate (collectively, "Collateralized Advances"). The Company has elected to more aggressively pursue the making of Collateralized Advances, as it perceives the need by its targeted customers for such funding and such funding is not readily available from many of the Company's competitors. As of September 30, 1996, Collateralized Advances constituted approximately 34% of the Company's portfolio of finance 10 receivables. On occasion, the Company will provide other specialized financing structures which satisfy the unique requirements of the Company's clients. The Company also provides its clients with letters of guaranty, arranges for the issuance of letters of credit for its clients and provides other related financial services. The Company's clients are small- to medium-sized businesses with annual revenues typically ranging between $600,000 and $50,000,000. The Company's clients do not typically qualify for traditional bank or asset-based financing because they are either too new, too small, undercapitalized (or over-leveraged), unprofitable or otherwise unable to satisfy the requirements of a bank or traditional, asset-based lender. Accordingly, there is a significant risk of default and client failure inherent in the Company's business. The Company addresses these risks in various ways, including: (i) the Company thoroughly evaluates the collateral to be made available by each client; (ii) the Company usually collects its factored accounts receivable directly from account debtors, which are frequently (though not always) large, creditworthy companies or governmental entities; (iii) the Company purchases, or takes a first priority security interest in, all accounts receivable of each client; (iv) the Company takes, whenever available, blanket liens on all of its clients' other assets and, when making Collateralized Advances, the Company employs what management believes to be conservative loan-to-value ratios based on auction or liquidation value appraisals performed by independent appraisers; (v) the Company usually requires personal guaranties (either unlimited guaranties or validity guaranties limited to the validity and collectibility of factored accounts receivable) from its clients' principals; (vi) the Company actively monitors its portfolio of factored accounts receivable, including the creditworthiness of account debtors and periodically evaluates the value of other collateral securing Collateralized Advances and (vii) the Company maintains loss reserves which management believes are adequate and appropriate for its business. Notwithstanding the foregoing, clients (and account debtors) may fail and the collateral available to the Company (together with personal guaranties) may prove insufficient to enable the Company to recover all amounts due in full. Lifetime Options, a wholly-owned subsidiary of the Company, provides financial assistance to individuals facing life-threatening illnesses by purchasing their life insurance policies at a discount from face value. The amount of the discount is determined by Lifetime Options based on the size of the policy being purchased, the maximum life expectancy of the insured, the amount of the anticipated premiums payable with respect to the policy being purchased and the anticipated financing cost associated with purchasing and carrying the policy. In general, the purchase price for a policy is between 55% and 85% of the benefits payable under the policy. Because most of the life insurance policies purchased by Lifetime Options are underwritten by highly rated insurance companies (and, in many cases, backed by state guaranty funds), management of Lifetime Options believes that credit risk is not material to its business. Before purchasing each policy, Lifetime Options has each insured's medical records reviewed by at least one independent physician who provides Lifetime Options with an opinion of the insured's life expectancy. Historically, Lifetime Options typically required up to three independent reviews but, based on its experience, management of Lifetime Options no longer believes multiple medical reviews are necessary. To date, the physician engaged by Lifetime Options has provided life expectancies which, on average, fairly approximate actual lifespans. However, there is no assurance that the physician engaged by Lifetime Options will in the future be able to perform as he has in the past. If the physician engaged by Lifetime Options were to systematically underestimate life expectancies or if life extending treatments (or a cure) 11 were found for AIDS (almost all of the life insurance policies purchased by Lifetime Options to date have been purchased from individuals with AIDS), there would be a material adverse effect on the earnings of Lifetime Options. Lifetime Options relies on its independent physician to assist in monitoring medical advances (and potential medical advances). In particular, Lifetime Options' independent physician is closely monitoring the effects of a relatively new family of drugs known as protease inhibitors. These drugs, while not a cure for AIDS, may extend the lives of certain individuals infected with HIV. Other than Lifetime Options, none of the Company's subsidiaries is currently engaged in business which could have a material effect on the Company. Results of Operations The following table sets forth certain items of income and expense for the periods indicated and indicates the percentage relationship of each item to total income. For the Three Months Ended September 30, ------------------------------------------- 1996 1995 ------------------- -------------------- (Unaudited) INCOME Earned discounts ............. $2,423,715 82.9% $2,578,345 81.1% Fees and other income ........ 499,802 19.1 600,245 18.9 ---------- ------ ---------- ------ TOTAL INCOME ................ 2,923,517 100.0% 3,178,590 100.0% ---------- ------ ---------- ------ EXPENSE Compensantion and fringe benefits 737,910 25.3 785,161 24.7 General and administrative expense 632,985 21.7 642,766 20.2 Interest Expense 360,627 12.3 205,307 6.5 Provision for credit losses 527,341 18.0 859,000 27.0 Commissions 126,248 4.3 64,928 2.0 ---------- ------ ---------- ------ 2,385,111 81.6 2,557,162 80.4 ---------- ------ ---------- ------ INCOME/(LOSS) BEFORE INCOME TAXES 538,406 18.4 621,428 19.6 INCOME TAXES 198,800 6.8 228,700 7.2 ---------- ----- ---------- ----- NET INCOME $339,606 11.6% $392,728 12.4% ========== ===== ========== ===== NET INCOME PER SHARE $ .15 $ .13 ===== ===== WEIGHTED AVERAGE NUMBER OF SHARES 2,317,237 3,009,971 ========= ========= 12 For the Nine Months Ended September 30, ----------------------------------------- 1996 1995 ------------------- ------------------- (Unaudited) INCOME Earned discounts ............. $7,479,676 82.2% $7,876,644 82.6% Fees and other income ........ 1,615,052 17.8 1,656,397 17.4 ---------- ----- ---------- ----- TOTAL INCOME ................ 9,094,728 100.0% 9,533,041 100.0% ---------- ----- ---------- ------ EXPENSE Compensation and fringe benefits ... 2,584,291 28.4% 2,345,710 24.6 General and administrative expense . 2,184,707 24.0 1,981,763 20.8 Interest expense ................... 1,142,970 12.6 629,833 6.6 Provision for credit losses ........ 5,079,570 55.8 2,770,600 29.1 Commissions ........................ 352,034 3.9 199,645 2.1 ---------- ------ ---------- ----- TOTAL EXPENSES ................... 11,343,572 124.7 7,927,551 83.2 ---------- ------ --------- ----- INCOME (LOSS) BEFORE INCOME TAXES (2,248,844) (24.7) 1,605,490 6.2 INCOME TAXES/(BENEFIT) (832,400) 9.2 591,200 6.2 ---------- ------- ----------- ------ NET INCOME/(LOSS) $(1,416,444) (15.5)% $1,014,290 10.6% ============ ======= =========== ====== NET INCOME/(LOSS) PER SHARE $(0.61) $ 0.33 ======= ====== WEIGHTED AVERAGE NUMBER OF SHARES 2,331,797 3,071,204 ========= ========= Total Income. Total income consists of (i) earned discounts and (ii) fees and other income. "Earned discounts" consist primarily of income from the purchase of accounts receivable and life insurance policies and income from Collateralized Advances. "Fees and other income" consist primarily of application fees, commitment or facility fees, other related financing fees and supplemental discounts paid by clients who do not sell the minimum volume of accounts receivable required by their contracts with the Company (including as a result of "graduating" to a lower cost source of funding). The following table breaks down total income by type of transaction for the periods indicated and the percentage relationship of each type of transaction to total income. 13 For the Three Months Ended September 30, 1996 1995 ------------------- ------------------ Earned % of Total Earned % of Total Income Income Income Income --------- --------- --------- --------- Discount on Factored Accounts Receivable ...................... $1,471,677 50.4% $1,707,513 53.7% Earnings on Collateralized Advances ......................... 685,778 23.4 517,578 16.3 Earnings on Purchased Life Insurance Policies ................. 149,172 5.1 191,581 6.0 Other Earnings ..................... 118,088 4.0 161,673 5.1 ---------- ----- -------- ----- Total ........................... 2,423,715 82.9 2,578,345 81.1 Fees and Other Income .............. 499,802 17.1 600,245 18.9 ---------- ------ --------- ----- Total Income .................... $2,923,517 100.0% $3,178,590 100.0% ========== ====== ========== ====== For the Nine Months Ended September 30, 1996 1995 --------------------- ------------------ Earned % of Total Earned % of Total Income Income Income Income --------- --------- ---------- -------- Discount on Factored Accounts Receivable ...................... $4,033,922 44.3% $4,455,384 46.7% Earnings on Collateralized Advances ......................... 2,345,413 25.8 2,111,793 22.1 Earnings on Purchased Life Insurance Policies ................. 491,244 5.4 702,408 7.4 Other Earnings ..................... 609,097 6.7 607,059 6.4 ---------- ------- --------- ----- Total ........................... 7,479,676 82.2 7,876,644 82.6 Fees and Other Income .............. 1,615,052 17.8 1,656,397 17.4 ---------- ------- --------- ----- Total Income .................... $9,094,728 100.0% $9,533,041 100.0% ========== ======= ========== ===== 14 Total income decreased 4.6% in the first nine months of 1996 from the same period in 1995, from $9.5 million to $9.1 million; total income decreased 8.0% for the third quarter of 1996 over the same period in 1995, from $3.2 million to $2.9 million. Earned discounts from factored accounts receivable decreased 9.5%, from $4.5 million to $4.0 million in the first nine months of 1996 versus the first nine months of 1995. In the third quarter, earned discounts from factored accounts decreased 13.8% to $1.5 million from $1.7 million. Earned discounts from factored accounts receivable as a percentage of total factored accounts receivable purchased were 3.4% and 4.4% in the nine months ended September 30, 1996 and 1995, respectively; in the third quarters of 1996 and 1995, earned discounts were 3.4% and 4.6%, respectively, of factored accounts receivable purchased. The reduction during the three and nine months ended September 30, 1996 versus the three and nine months ended September 30, 1995 in the average earned discount from factored accounts receivable reflects the downward pressure on pricing from competition in the Company's core factoring business. In the first nine months of 1996 and 1995, earned discounts from factored accounts receivable accounted for 44.3% and 46.7%, respectively, of total income. In the third quarters of 1996 and 1995, earned discounts from factored accounts receivable accounted for 50.4% and 53.7%, respectively, of total income. Earned discounts from Collateralized Advances increased approximately 11.0% in the first nine months of 1996 over the comparable period in 1995, from approximately $2.1 million to $2.3 million and increased approximately 32.0% in the third quarter of 1996 over the same quarter in 1995, from approximately $518 thousand to $685 thousand. In the first nine months of 1996 and 1995, earned discounts from Collateralized Advances constituted approximately 25.8% and 22.1%, respectively, of total income. In the third quarters of 1996 and 1995, earned discounts from Collateralized Advances constituted 23.4% and 16.3%, respectively, of total income. Collateralized Advances currently bear interest at a rate, on average, of approximately 2% per month calculated generally on the highest outstanding amount of the Collateralized Advance during the month. Earned discounts from Collateralized Advances are required to be paid in cash monthly in arrears. See Provision for Credit Losses below. As of September 30, 1996 and December 31, 1995, factored accounts receivable included on the Company's balance sheet were $21.8 million (61.4%) and $25.2 million (64.5%), respectively, of gross finance receivables. As of September 30, 1996 and December 31, 1995, Collateralized Advances included on the Company's balance sheet were $12.0 million (32.4%) and $10.8 million (27.8%), respectively, of gross finance receivables. The Company intends to pursue its strategy of making Collateralized Advances in conjunction with its core factoring business. Fees and other income remained relatively flat, approximately $1.7 million, in the first nine months of 1996 as compared to $1.6 million for the same period in 1995. In the third quarter of 1996, fees and other income decreased approximately 16.7% from the third quarter of 1995, from approximately $600 thousand to $500 thousand. The decrease for the third quarter of 1996 from the comparable period in 1995 is largely attributable to a reduction in supplemental discounts. This reflects a decrease in client turnover. Compensation and Fringe Benefits. In the first nine months of 1996 and 1995, compensation and fringe benefits were $2.6 million (28.4% of total income) and $2.3 million (24.6% of total income), respectively. For the third quarters of 1996 and 1995, compensation and fringe benefits were $738 thousand (25.2% of total income) and $785 thousand (24.7% of total income), respectively. Within compensation and fringe benefits, executive compensation 14 increased in the first nine months of 1996 as compared to the same period in 1995, from $749 thousand (7.9% of total income) to $904 thousand (9.9% of total income). Executive compensation decreased in the third quarter of 1996 as compared to the same period in 1995, from $275 thousand (8.6% of total income) to $190 thousand (6.5% of total income). All of the increases in 1996 in compensation and fringe benefits (including executive compensation) are chiefly the result of expenses associated with the severance of a key employee and costs associated with replacing that employee, including hiring a former Company executive on an interim basis to help identify and train the severed employee's replacement. General and Administrative Expense. General and administrative expense was $2.2 million (24.0% of total income) as compared to $2.0 million (20.8% of total income) for the first nine months of 1996 and 1995, respectively. For the third quarters of 1996 and 1995, general and administrative expense was $633 thousand (21.7% of total income) and $643 thousand (20.2% of total income), respectively. The increase for the first nine months of 1996 was primarily attributable to an increase in professional fees offset partially by decreases in licenses and taxes and duplicating expense. Professional fees were $980 thousand (10.8% of total income) in the first nine months of 1996 versus $653 thousand (6.8% of total income) in the first nine months of 1995. The increase in 1996 in professional fees was attributable, in part, to on-going litigation and, in part, to the final resolution of legal proceedings instituted in prior years. General and administrative expense (other than professional fees) for the nine months ended September 30, 1996 and 1995 was $1.2 million (13.2%) and $1.3 million (10.0%), respectively. For the three months ended September 30, 1996 and 1995, general and administrative (other than professional fees) was $407 thousand (13.9%) and $409 thousand (12.9%), respectively. Interest Expense. Interest expense was $1.1 million (12.6% of total income) versus $630 thousand (6.5% of total income) for the first nine months of 1996 and 1995, respectively, and $360 thousand (12.3% of total income) versus $205 thousand (6.4% of total income) for the third quarters of 1996 and 1995, respectively. The rise in interest expense is attributable to interest expense related to the Company's Convertible, Subordinated Notes issued in September 1995 and January 1996 and to an increase in the average daily balance outstanding on the Company's revolving lines of credit. Interest expense on the Convertible Subordinated Notes was $347 thousand (3.8%) in the first nine months of 1996 and $118 thousand (4.0%) in the third quarter of 1996. The average daily outstanding balance on the Company's revolving line of credit was $10.4 million and $7.9 million for the first nine months of 1996 and 1995, respectively, and $9.5 million and $6.6 million for the three months ended September 30, 1996 and 1995, respectively. The average interest rate paid on the Company's revolving line of credit decreased to 9.15% during the first nine months of 1996 from 9.48% during the first nine months of 1995 and to 9.12% during the third quarter of 1996 as compared to 9.28% during the third quarter of 1995. Provision for Credit Losses. The provision for credit losses was $5.1 million (55.9% of total income) for the first nine months of 1996 versus $2.8 million (29.1% of total income) for the first nine months of 1995 and $527 thousand (18.0% of total income) for the third quarter of 1996 versus $859 thousand (27.0% of total income) for the third quarter of 1995. As disclosed in the Company's Form 10-QSB for the period ended June 30, 1996, following certain events in the second quarter of 1996, management determined that it was necessary and appropriate to write off or write down nine non-performing assets totalling $4.2 million. Prior to the write-offs and write downs, these assets were included in non-earning receivables, other 16 receivables and other assets on the Company's balance sheet. The provision for credit losses in the second quarter of 1996 reflected the amount deemed necessary by management to enable the Company to charge the allowance for credit losses for the foregoing write-offs and to leave a balance in the allowance for credit losses deemed sufficient to cover potential future write-offs. The allowance for credit losses was 4.9% ($1.7 million) of gross finance receivables at September 30, 1996 and 6.0% ($2.4 million) of gross finance receivables at December 31, 1995. At September 30, 1996 the accrual of earnings was suspended on $300 thousand of gross finance receivables as compared to $1.6 million of gross finance receivables at December 31, 1995. In addition, "other receivables" and "other assets" appearing on the Company's balance sheet typically do not accrue earnings for financial statement purposes. The following table provides a summary of the Company's gross finance receivables (which includes primarily factored accounts receivable, Collateralized Advances and non-earning receivables), "other receivables" and "other assets" and information regarding the allowance for credit losses as of the dates indicated. As of September 30, -------------------------- 1996 1995 ----------- ----------- (Dollars in thousands) Gross Finance Receivables, Other Receivables and Other Assets Data: Gross Finance Receivables .......................... $ 35,416 $ 27,404 Non-Earning Receivables (also included in Gross Finance Receivables) .................... 313 2,726 Other Receivables (excluding miscellaneous) ........ 3,565 3,188 Other Assets (excluding miscellaneous) ............. 590 2,210 Allowance for credit losses: Balance, January 1 ................................. $ 2,351 $ 2,511 Provision for credit losses ........................................... 5,080 2,771 Receivables charged off ............................ (5,708) (3,131) Recoveries ......................................... 15 42 -------- -------- Balance, September 30 .............................. $ 1,738 $ 2,193 ======== ======== 17 As of September 30, ------------------- 1996 1995 -------- -------- Allowance for Credit Losses as a percent of: Gross Finance Receivables ............................. 4.91% 8.00% Non-Earning Receivables ............................... 555.27% 80.45% Non-Earning Receivables, Other Receivables and Other Assets ........................ 39.00% 27.00% As a percent of the sum of Gross Finance Receivables, Other Receivables and Other Assets: Non-Earning Receivables ......................................... 0.1% 8.3% Other Receivables ..................................... 8.95% 9.7% Other Assets .......................................... 0.9% 6.7% Although the Company maintains an allowance for credit losses in an amount deemed by management to be adequate to cover potential losses, no assurance can be given that the allowance will in fact be adequate or that an inadequacy, if any, in the allowance could not have a material adverse effect on the Company's earnings in future periods. Furthermore, although management believes that its periodic estimates of the value of "other receivables" and "other assets" are appropriate, no assurance can be given that the amounts which the Company ultimately collects with respect to other receivables and other assets will not differ significantly from management's estimates or that those differences, if any, could not have a material adverse effect on the Company's earnings in future periods. Management recognizes that Collateralized Advances entail different, and possibly greater, risks to the Company than the factoring of accounts receivable. Risks associated with the making of Collateralized Advances (but not the factoring of accounts receivable) include, among others (i) certain types of collateral securing Collateralized Advances may diminish in value (possibly precipitously) over time (sometimes short periods of time), (ii) repossessing, safeguarding and liquidating collateral securing Collateralized Advances may require the Company to incur significant fees and expenses some or all of which may not be recoverable, (iii) clients may dispose of (or conceal) the collateral securing Collateralized Advances and (iv) clients or natural disasters may destroy the collateral securing Collateralized Advances. The Company attempts to manage these risks, respectively, by (i) engaging independent appraisers to review periodically the value of collateral securing Collateralized Advances at intervals established by management based on the characteristics of the underlying collateral, (ii) employing conservative loan-to-value ratios which management believes should generally enable the Company to recover from liquidation proceeds most of the fees and expenses incurred in connection with repossessing, safeguarding and liquidating collateral, (iii) using its internal field examiners to inspect collateral periodically and, when appropriate, engaging independent collateral monitoring firms to implement appropriate collateral control systems including bonding certain of the client's employees and (iv) requiring clients to maintain appropriate amounts and 18 types of insurance issued by insurers acceptable to the Company naming the Company as the party to whom loss is paid. Although management believes that the Company has (or third parties acting on behalf of the Company have) the requisite skill to evaluate, monitor and manage the risks associated with the making of Collateralized Advances, there can be no assurance that the Company will in fact be successful in doing so. Commissions. Commission expense rose to $352 thousand (3.9% of total income) in the first nine months of 1996 from $200 thousand (2.1% of total income) in the first nine months of 1995 and to $126 thousand (4.3% of total income) in the third quarter of 1996 from $65 thousand (2.0% of total income) in the third quarter of 1995. The increase was the result of a larger portion of gross finance receivables acquired in 1996 being generated by commissioned brokers and other professionals to whom the Company paid referral fees. Impact of Inflation Management believes that inflation has not had a material effect on the Company's income, expenses or liquidity during the past three years. Changes in interest rate levels do not generally affect the income earned by the Company in the form of discounts charged. Rising interest rates would, however, increase the Company's cost of borrowed money based on its current borrowing arrangements which are prime or base rate adjusted credit facilities. Changes in Financial Condition The Company's total assets decreased 3.1% to $43.5 million at September 30, 1996 from $44.9 million at December 31, 1995. The decrease for the nine months is primarily the result of the decrease in net finance receivables and other assets. Liquidity and Capital Resources. The Company's principal funding sources are the collection of factored accounts receivable, retained cash flow and external borrowings. As of September 30, 1996 the Company had approximately $12.9 million available under a $25.0 million secured revolving line of credit. The credit facility contains a $5.0 million sub-facility for the issuance of letters of credit and, as of April 1996, a new $2 million sub-facility (which under certain circumstances may increase to $4 million) the proceeds of which may be used by the Company to make advances to clients secured by machinery and equipment and a $2.5 million sub-facility the proceeds of which may be used by the Company to make advances to clients secured by inventory. Borrowings under the credit facility bear interest at the bank's base rate plus .75%. The current maturity date of this credit facility is May 13, 1997. The Company is subject to covenants which are typical in revolving credit facilities of this type. As of September 30, 1996 Lifetime Options had approximately $1.2 million available under a $2.0 million line of credit and an additional $1.3 million available under a $4 million availability from the Company. Lifetime Options' revolving line of credit: (i) is payable on on December 31, 1996; (ii) bears interest at the prime rate of interest plus 1% and (iii) is collateralized by specific purchased life insurance contracts. 19 As of September 30, 1996 and December 31, 1995, the Company had outstanding approximately $4,981,000 and $2,838,000, respectively, in aggregate principal amount of Convertible Subordinated Notes issued in exchange for shares of the Company's common stock. The Convertible Subordinated Notes outstanding at December 31, 1995 were issued in exchange for 447,200 shares of common stock and the Convertible Subordinated Notes outstanding at September 30, 1996 were issued in exchange for 785,475 shares of common stock (including the 447,200 shares of common exchanged prior to December 31, 1995). The Notes (i) mature on September 30, 2000; (ii) currently bear interest at the rate of 9.5% per annum which rate may fluctuate in accordance with the prime rate, but may not fall below 8% nor rise above 10% per annum; (iii) are convertible into common stock of the Company at the rate of $7.50 per share; (iv) are subordinated to Senior Indebtedness (as defined) of the Company and (v) were issued pursuant to an indenture which contains certain covenants which are less restrictive than those contained in the Company's secured revolving credit facility. Upon the occurrence of certain change of control events, holders of the Notes have the right to have their Notes redeemed at par. At September 30, 1996 the Company had working capital of $25.9 million and a ratio of current assets to current liabilities of 2.59 to 1 as compared to December 31, 1995 working capital of $26.0 million and a ratio of current assets to current liabilities of 2.60 to 1. [THIS SPACE INTENTIONALLY LEFT BLANK] 20 PART II -OTHER INFORMATION ITEM 1. -LEGAL PROCEEDINGS The Company is a defendant in White, Trustee v. Allstate Financial Corporation pending in the U.S. Bankruptcy Court for the Western District of Pennsylvania. The Company provided receivables financing and advances for Lyons Transportation Lines, Inc. ("Lyons"). Lyons was the subject of a leveraged buy-out and subsequently filed a bankruptcy petition. In 1991, the Lyon's trustee brought an action against the Company claiming, among other things, fraudulent transfer and breach of contract. A partial summary judgement was granted in favor of the Company which reduced the fraudulent transfer claim by $1.6 million. As a consequence, the remaining fraudulent transfer claim was approximately $1,000,000. In late 1994, the Company reached a settlement agreement with the Lyons trustee, subject to approval by the bankruptcy court, which would have released the Company from all claims upon the payment of $300,000. In connection with the settlement, the Company paid and added $300,000 to the provision for credit losses in 1994. A creditor in the bankruptcy proceeding, Sherwin-Williams Company, objected to the proposed settlement amount and, in March 1995, the objection, was sustained by the bankruptcy court. The Company appealed the order sustaining the objection, however, in April 1996 the appellate court exercised its discretion not to hear the appeal at that time. The $300,000 previously paid by the Company was returned to the Company in April 1996. The matter is currently being litigated in the District Court. Management does not believe at this time that the Company has a material exposure significantly in excess of the previously agreed upon settlement amount. In connection with the same transaction, the Company was also named in January 1994 as a defendant in Sherwin-Williams Company v. Robert Castello et. al. pending in the United States District Court for the Northern District of Ohio. Sherwin-Williams is suing all parties with any involvement in the transaction to recover damages allegedly incurred by Sherwin-Williams in connection with the leveraged buy-out and the bankruptcy litigation arising therefrom. Sherwin-Williams asserts that it has or will incur pension fund liabilities and other liabilities as a result of the transaction in the approximate amount of $11 million and has asserted claims against the Company in that amount. The complaint asserts, among other things, that the purchasers of Lyons breached their purchase agreement with Sherwin-Williams by pledging the assets of Lyons to the Company to obtain the down payment. The Company was not a party to the purchase agreement. The complaint seeks relief against the Company based upon a claim of "acting in concert" and "misrepresentation" in connection with this purchase agreement without a specific identification of the alleged misrepresentation made by the Company. The Company filed a motion to dismiss the claims and a motion to stay discovery pending a ruling on the motion to dismiss. The motion to stay discovery was granted and, in March 1996, a federal magistrate recommended to the District Court that the Company's motion to dismiss be granted. Prior to the District Court ruling on the magistrate's recommendation, Sherwin-Williams filed an amended complaint. The amended complaint retains the claims for "acting in concert" and "misrepresentation" and adds two additional claims for "civil conspiracy" and "tortious interference with contract". The two new claims arise from essentially the same allegations set forth in the earlier claims, i.e., that the Company assisted in the breach of the purchase agreement. Management does not believe the litigation will have a material effect on the financial position or results of operations of the Company because, in management's opinion, the claims are without merit. 21 The Company is a defendant in Harold B. Murphy, Chapter 7 Trustee v. Allstate Financial Corporation, et al. pending in the U.S. Bankruptcy Court in the District of Massachusetts. The Company factored the accounts receivable of Clearpoint Research Corporation ("CRC") from late 1992 through early 1993. In July 1993 CRC filed a petition in bankruptcy, after the Company had collected all amounts owed to it. The bankruptcy trustee has sued the Company seeking recovery of alleged preferential transfers made during the course of the factoring relationship. The bankruptcy trustee alleges that the Company did not properly perfect its security interest in the accounts receivable. No specific damage amount is specified in the complaint but it is assumed the bankruptcy trustee is seeking recovery of the full amount of accounts receivables collected (approximately $4 million). The Company has filed an answer to the complaint denying the substantive allegations asserted by the bankruptcy trustee. The Company has removed the action to federal district court. The Company has filed a motion for summary judgment which is currently pending before the District Court. In the event the motion for summary judgment is unsuccessful, the Company believes it has a number of strong defenses to the complaint and intends to vigorously defend all claims. The litigation is in a preliminary stage and the probability of an unfavorable outcome and the potential amount of loss, if any, cannot be determined or estimated at this time. As previously disclosed in the Company's Form 10-QSB for the quarter ended June 30, 1995, the Company has reached a settlement with the Trustee in the bankruptcy of Premium Sales Corporation, a former client of one of the Company's wholly-owned subsidiaries. The settlement is intended to be a full release of any and all claims between the Company (and its subsidiaries) and the Trustee including, without limitation, any alleged preference liability of the Company and its subsidiaries. The settlement was approved by the bankruptcy court in January 1996. The settlement will become fully effective and the settlement monies will be disbursed at the time a plan of distribution in the Premium Sales Corporation bankruptcy is approved by the bankruptcy court. The impact of this settlement has been reflected in the Company's financial statements. Except as described above, the Company is not party to any litigation other than routine proceedings incidental to its business, and the Company does not expect that these proceedings will have a material adverse effect on the Company. From time to time, the Company is required to initiate litigation to collect amounts owed by former clients, guarantors or obligors. In connection with such litigation, the Company periodically encounters counterclaims by defendant(s) for material amounts. Such counterclaims are typically without any factual basis and, management believes, are usually asserted for defensive purposes by the litigant. ITEM 4. -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. -OTHER INFORMATION None. ITEM 6(a). -EXHIBITS Exhibit 27. 22 ITEM 6(b). -REPORTS ON FORM 8-K None. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934, The Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLSTATE FINANCIAL CORPORATION Date November 12, 1996 /s/ Lawrence M. Winkler ------------------------------ Lawrence M. Winkler Secretary/Treasurer Chief Financial Officer
EX-27 2 FDS SEP 96
5 0000852220 ALLSTATE FINANCIAL CORP 9-MOS DEC-31-1996 SEP-30-1996 1471585 0 31744295 1784572 0 42170759 1319553 828069 43484792 16287913 0 0 0 40000 22108237 43484792 0 9094728 0 0 5121032 5079570 1142970 (2248844) (832400) (1416444) 0 0 0 (1416444) (.61) (.61)
-----END PRIVACY-ENHANCED MESSAGE-----