UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] 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 000-21673
AUTOBOND ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2487218
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1512 WEST 35TH STREET CUT-OFF, SUITE 310 78755
(Address of principal executive offices) (Zip Code)
(512) 436-7200
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ______ No __X___
As of January 31, 2001 there were 5,962,561 shares of the registrant's Common
Stock, no par value, and 1,073,500 shares of registrant's 15% Preferred Stock,
no par value, outstanding
1
TABLE OF CONTENTS
PART I- FINANCIAL INFORMATION............................................................................1
ITEM 1. FINANCIAL STATEMENTS..........................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION..........8
PART II-OTHER INFORMATION...............................................................................14
ITEM 1. LEGAL PROCEEDINGS............................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................14
ITEM 5. OTHER INFORMATION............................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................15
SIGNATURES..............................................................................................16
EXHIBIT 27.1............................................................................................17
PART I- FINANCIAL INFORMATION
ITEM 1. Financial Statements
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 2000
(Unaudited)
-------------------------------------------
ASSETS
Cash and cash equivalents $ 7,050,088 $ 5,745,222
Investments 100,000 175,000
Notes receivable 500,000
Other assets 125,000 137,200
-------------------------------------------
Total assets $ 7,275,088 $ 6,557,422
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Payables and accrued liabilities $ 667,660 $ 593,175
-------------------------------------------
Total liabilities $ 667,660 $ 593,175
Commitments and Contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; 1,073,500
shares of 15% Series A cumulative preferred stock, $10 liquidation
preference, issued and outstanding, at (Dividends in arrears of
$3,220,501 at December 31, 2000) 10,341,000 10,341,000
Common stock, no par value; 25,000,000 shares authorized; 5,962,561
shares issued and outstanding 1,000 1,000
Capital in excess of stated capital 7,563,566 7,563,566
Due from shareholders (10,592) (10,592)
Accumulated deficit (11,287,546) (11,930,727)
-------------------------------------------
Total shareholders' equity 6,607,428 5,964,247
-------------------------------------------
Total liabilities and shareholders' equity $7,275,088 $ 6,557,422
===========================================
The accompanying notes are an integral part of the consolidated financial statements
1
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
1999 2000
Revenues:
Interest income $ 47,835 $ 107,372
(Loss) on sale of finance contracts (171,331)
Servicing income 334,213
Other income 201,266 15,009
---------------------------------------
Total revenues 411,983 122,381
Expenses:
Provision for credit loss (26,997)
Interest expense 510,771
Salaries and benefits 742,295 341,547
General and administrative 1,753,645 417,251
Impairment of retained interest in securitizations 4,235,272
Other operating expenses 589,858 6,764
---------------------------------------
Total expenses 7,804,844 765,562
----------------------------------------
(Loss) before income taxes (7,392,861) (643,181)
Benefit for income taxes
----------------------------------------
Net (loss) income (7,392,861) (643,181)
Income attributable to preferred shareholders 421,875 402,563
----------------------------------------
Net (loss) available to common shareholders $(7,814,736) $(1,045,744)
========================================
Weighted average number of common shares:
Basic and diluted 6,531,311 5,962,561
(Loss) per common share - basic and diluted $(1.20) $(0.18)
The accompanying notes are an integral part of the consolidated financial statements
2
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Capital in Due from Accumulated Total
Stock Excess of Shareholders Deficit Shareholder
Stated Capital Equity
October 1, 2000 $10,341,000 $1,000 $7,563,566 $(10,592) $(11,287,546) $6,607,428
Net Loss (643,181) (643,181)
-------------------------------------------------------------------------------------------
December 31, 2000 $10,341,000 $1,000 $7,563,566 $(10,592) $(11,930,727) $5,964,247
===========================================================================================
The accompanying notes are an integral part of the consolidated financial statements
3
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended December 31,
1999 2000
OPERATING ACTIVITIES:
Net (Loss) $(7,392,861) $ (643,181)
Adjustments to reconcile (loss) to net cash from operating activities
Amortization of debt issuance costs and discounts 298,031
Provision for credit loss (26,997)
Provision for market impairment of finance contracts (316,186)
Depreciation and amortization 110,447
Impairment of retained interests in securitizations 4,235,272
Gain on sale of finance contracts 171,331
Changes in operating assets and liabilities
Finance contracts held for sale, net 58,946
Retained interest in securitizations 67,414
Due from affiliates 204,325
Other assets 1,269,238 (12,200)
Payables and accrued liabilities 771,227 (74,485)
---------------------------------------
CASH (USED) BY OPERATIONS (549,813) (729,866)
---------------------------------------
INVESTING ACTIVITIES:
Proceeds from disposal of collateral 176,397
Proceeds from property, plant and equipment 110,000
Note receivable funded (500,000)
Purchase of investments (75,000)
---------------------------------------
CASH PROVIDED (USED) BY INVESTING 286,397 (575,000)
---------------------------------------
FINANCING ACTIVITIES:
Payments on notes payable (3,601)
---------------------------------------
CASH PROVIDED BY (USED IN) FINANCING (3,601) -0-
---------------------------------------
(DECREASE) IN CASH (267,017) (1,304,866)
BEGINNING CASH BALANCE 1,102,317 7,050,088
---------------------------------------
ENDING CASH BALANCE $ 835,300 $5,745,222
=======================================
The accompanying notes are an integral part of the consolidated financial statements
4
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The consolidated financial statements of AutoBond Acceptance
Corporation (the "Company") included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial reporting and Securities and Exchange Commission ("SEC") regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted
pursuant to regulations. In the opinion of management, the financial statements
reflect all adjustments (consisting only of a normal and recurring nature) which
are necessary to present fairly the financial position, results of operations,
changes in shareholders' equity and cash flows for the interim periods. Results
for interim periods are not necessarily indicative of the results for a full
year. For further information, refer to the audited financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
period ended September 30, 2000 (SEC File Number 000-21673). Certain data from
the prior periods have been reclassified to conform to the 2000 presentation.
2. New business plan
In July 2000, the Board of Directors of the Company approved changing
the Company's name to Agility Capital, Inc. ("Agility Capital") and the adoption
of a new business plan. The Company has begun doing business as Agility Capital,
Inc.
3. New accounting pronouncements
The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS Nos. 137 and
138, and as interpreted by the FASB and the Derivatives Implementation Group
through "Statement 133 Implementation Issues", as of October 1, 2000. The
Company has not engaged in any derivative instruments or any embedded derivative
instruments that require bifurcation. The Company has not engaged in hedging
activities.
4. Investments.
In August 2000, the Company made an investment of $100,000 in an
emerging company as part of its new business plan. In October 2000, the Company
invested $75,000 in an investment company and has committed an additional
$425,000 to this company over the next 4 years. The Company records its
investments at fair value. The fair value of investments is determined based
upon the Company's valuation policy.
Under the valuation policy of the Company, unrestricted securities are
valued at the average closing price for publicly held securities for the last
three days of the month. Restricted securities, including securities of
publicly-owned companies which are subject to restrictions on resale, are valued
at fair value as determined by the Board of Directors. Fair value is considered
to be the amount which the Corporation may reasonably expect to receive for
portfolio securities if such securities were sold on the valuation date.
Valuations as of any particular date, however, are not necessarily indicative of
amounts which may ultimately be realized as a result of future sales or other
dispositions of securities. Among the factors considered by the Board of
Directors in determining the fair value of restricted securities are the
financial condition and operating results, projected operations, and other
analytical data relating to the investment. Also considered are the market
prices for unrestricted securities of the same
5
class (if applicable) and other matters which may have an impact on the value of
the portfolio company.
5. Note receivable
The Company issued at par for $500,000 an 8% convertible note in
October 2000.
6. Other assets
The company entered into an agreement with Institutional Equity
Corporation (IEC) to assist the Company with the placement of its proposed
private offering. The Company paid a retainer of $125,000 to IEC upon signing
the agreement. In the event that the private offering is not consummated, IEC
will be reimbursed only for its actual out of pocket expenses, not to exceed
$50,000.
The Company accrued interest on its note receivable of $8,986 and on
its interest bearing cash accounts of $3,214 which has been earned but not paid
as of December 31, 2000.
7. Earnings per Share
Basic earnings per share excludes potential dilution of potential
shares and is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company unless such issuance would be anti-dilutive.
8. Income taxes
Management has reduced the deferred tax asset by a valuation allowance
due to uncertainty of realizing certain tax loss carry-forwards and other
deferred tax assets. The increase in net deferred tax assets during the three
month period ended December 31, 2000 was offset by a corresponding increase in
the valuation allowance. Accordingly no tax benefit was recognized for the net
loss.
9. Stockholders' Equity
Preferred Stock
As dividends on the 15% Preferred Stock are in arrears for at least two
quarterly dividend periods, holders of the Preferred Stock have exercised their
right to call a special meeting of the Preferred Stock holders for the purpose
of electing two directors to serve on the Company's Board of Directors until
such dividend arrearage is eliminated. Such meeting was held on October 1, 1999;
however, because a quorum of preferred shareholders did not attend or provide
proxies for the meeting, no additional directors were elected. Two of the
Company's directors have been designated by the board as representing the
Preferred Stock holders. In addition, certain changes that could materially
affect the holders of Preferred Stock, such as a merger of the Company, cannot
be made without the affirmative vote of the holders of two-thirds of the shares
of Preferred Stock, voting as a separate class. The Preferred Stock ranks senior
to the common stock with respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up. In the event of liquidation, dissolution
or winding up of the Company, the amount required to satisfy the preferred
shareholders is $14.0 million at December 31, 2000 which includes dividends in
arrears of $3.2 million.
6
10. Commitments and Contingencies
In 1998, the Company initiated suit in state court in Houston, Texas
against Progressive Northern Insurance Co. arising out of insurance policies
issued by Progressive affiliates to the Company. The policies provided
deficiency balance coverage and physical damage coverage on automobile loans
acquired by the Company and sold into certain securitizations. Progressive
contended that there was a cumulative limit on claims under the Deficiency
Balance Policy of 88% of the total premiums paid on that Policy, which was
contrary to the Company's position. On this point, the Company's position was
confirmed by the court. Progressive also contended that it had the right to
cancel the Policies, without any refund of the fully-paid premiums, at any time
pursuant to 30 days' notice and in fact did so in March 1998. The Company and
the securitization trustees disputed this termination as contrary to the terms
and understandings reached with Progressive and relied upon by the parties in
interest, including the securitization market. This issue was submitted by the
court to the jury. After a three week trial in January 2000, the Company failed
to win a verdict against Progressive. The Company filed a motion to set aside
the verdict based on various legal issues and the court denied this motion and
entered a take nothing judgment against the Company. The Company is currently
appealing this verdict.
The Company and Tejas Securities Group, the lead underwriter of the
sale in February 1998 of the Company's 15% Series A Cumulative Preferred Stock,
was sued by a former holder of the Preferred Stock. Plaintiff claimed that he
purchased the Preferred Stock from Tejas in reliance upon alleged
representations made by both the Company and Tejas that the financing the
Company had in place with Dynex Capital, Inc. was "secure". Plaintiff alleged
violations of the Texas Securities Act, fraud, negligent misrepresentation,
civil conspiracy and violations of the Texas Business and Commerce Code.
Plaintiff had previously filed a similar suit in Federal Court against the
Company which was dismissed. The Company and the Plaintiff settled the dispute
through a settlement agreement signed on January 11, 2001.
In August 2000, the trustee for the Company's securitizations in 1995
and 1996 made demand, on behalf of the certificate holders, on the Company that
it repurchase approximately $4.5 million in defaulted loans for which the
trustee claimed Interstate Insurance was refusing to pay claims. The trustee
claimed such refusal constituted a breach of representation by the Company
regarding the insurance coverage on the finance contracts. The Company has
vigorously disputed the trustee's claim and expects that any liability for
unpaid claims will be posited with the insurer.
The Company has made a capital commitment of $500,000 to an investment
fund that co-invests in private venture-stage companies with whom the principals
of the fund have business or professional relationships. $75,000 of the
commitment was paid in October 2000.
The Company is the plaintiff or the defendant in several legal
proceedings that its management considers to be the normal kinds of actions to
which an enterprise of its size and nature might be subject, and are not
material to the Company's overall business or financial condition, results of
operations or cash flows.
7
ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results
of Operation
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the other financial data
included herein. Certain of the financial information set forth below has been
rounded in order to simplify its presentation. However, the ratios and
percentages set forth below are calculated using the detailed financial
information contained in the Financial Statements and the Notes thereto, and the
financial data included elsewhere in this Form 10-Q. For further information,
refer to the audited consolidated financial statements and footnotes thereto
included in the Company's Form 10-K for the period ended September 30, 2000 (SEC
File Number 000-21673).
On June 9, 2000, the litigation between Dynex Capital, Inc. ("Dynex")
and the Company was settled, with Dynex paying $20 million to the Company and
agreeing to the cancellation of $3 million of notes issued by the Company.
Through December 31, 2000, the Company has applied proceeds from the Dynex
settlement to the retirement of indebtedness, the payment of fees and expenses
related to the litigation, salaries and compensation expenses, auditing expenses
and certain investments related to the Company's establishment of a private
investment fund, as more fully discussed below. The Company reached agreement
with Fleet/Bank Boston, the holder of the Company's remaining long-term debt,
and a final payment of $6,500,000 was made to Bank Boston on July 27, 2000.
The Company has moved its headquarters in Austin Texas from 100
Congress to 1512 West 35th Street Cutoff and is also maintaining an office at
Agility Capital Inc., 750 Washington Boulevard, 5th Floor, Stamford, Connecticut
06901. The Company currently has 5 employees. In July 2000, the Board of
Directors of the Company approved changing the Company's name to Agility
Capital, Inc. ("Agility Capital") and the adoption of a new business plan. As
Agility Capital, the Company will pursue revenues by acting as an advisor to,
and investor in, new economy ventures through the establishment of one or more
investment funds. In connection with this strategy, the Company has hired Thomas
Blinten as the new President of the Company. Mr. Blinten has been a director of
the Company since 1996 and has 18 years experience in investment banking, with
recent experience in starting, financing, and managing Internet-related
businesses.
The Company is in the process of raising, pursuant to a private
placement, a $50,000,000 venture capital investment fund with a projected
10-year term, to be called the Agility Capital Fund, LLC (the "Fund"). The Fund
will sell and issue membership interests to accredited and institutional
investors. The Company will invest in such interests and will also serve as the
managing member and the initial advisor to the Fund. The Fund will invest in
early stage, privately held companies operating in the e-commerce business
services/internet, information technology and services, new media, enterprise
and application software, and communications industries. On a select basis,
later stage companies in other industries may also be considered.
The Fund's business model is to invest in companies that can benefit
from the collective operating and financial experience of the Fund's managers
and its advisors. The management and advisory team's business and industry
experience and professional relationships will be relevant to the industries
targeted and will be used to help the Fund achieve significant and timely
venture capital rates of returns.
In addition to providing growth capital to a selected group of
companies, the Fund will provide these companies ("Portfolio Companies") with
access to a network of contacts to help them anticipate and address challenges
when they arise and help accelerate their path to profitability. The Fund can
also provide Portfolio Companies with access to technology strategy and software
development resources via its proposed relationship with a technological
consulting and development firm, as well as management recruiting services
through the Fund's proposed
8
association with an executive recruitment firm. Portfolio Companies will be
provided with access to marketing, advertising, and communication expertise to
help them develop marketing strategies to build brand awareness in the digital
marketplace through the Fund's association with a founder and former President
of one of the largest advertising and communications agencies in the US. Access
to significant debt and equity funding resources to help further portfolio
company growth will be facilitated through the Fund's management team's
extensive contacts in the financial community. Additionally, Portfolio Companies
will have access to state of the art business, technology and consumer market
intelligence through the Fund's association with a leading provider of business
technology research, consumer and market intelligence and decision making tools.
The Company's management is using its best efforts to raise the capital
necessary to establish the Fund as a viable venture. The Company has engaged a
securities broker/dealer to serve as placement agent, assembled an initial
advisory board and engaged the services of two consultants. However, market
conditions for private equity funds are challenging, competitive and volatile.
Accordingly, there can be no assurance that the Company will be successful in
establishing the Fund. If the Fund cannot be established within a reasonable
timeframe, the Company's capital resources would eventually be strained and the
Company could be unable to monetize the investments currently made in
anticipation of their conveyance to the Fund.
Potential investors should be aware that an investment in the Fund
involves a significant degree of risk. There can be no assurance that the Fund's
investment objectives will be achieved or that investors will receive a return
of their capital.
REVENUES
The Company's current source of revenues consists of investment income
on net proceeds from its settlement with Dynex Capital, Inc. Prior to ceasing
its specialty finance business the Company's revenue consisted of three
components: interest income, gain on sale of finance contracts and servicing fee
income.
Gain on Sale of Finance Contracts. For transfers of financial assets
that result in the recognition of a sale, the newly created assets obtained and
liabilities incurred by the transferor as a part of a transfer of financial
assets are initially measured at fair value. An impairment review of the
retained interest in securitizations was performed periodically by calculating
the net present value of the expected future excess spread cash flows after
giving effect to changes in assumptions due to market and economic changes and
the performance of the loan pool to date. Impairment is determined on a
disaggregated basis consistent with the risk characteristics of the underlying
finance contracts as well as the performance of the pool to date. To the extent
that the Company deems the asset to be permanently impaired, the Company would
record a charge against earnings and write down the asset accordingly. The
Company recorded a charge to income of $4,235,272 during the three months ended
December 31, 1999 as a result of the impairment review of its retained interests
in securitizations.
Servicing Fee Income. The Company earned substantially all of its
servicing fee income on the contracts it serviced on behalf of securitization
trusts. Servicing fee income consisted of: (i) contractual administrative and
servicing fees received through securitizations, and (ii) fee income earned as
servicer for such items as late charges and documentation fees, which are earned
whether or not a securitization has occurred. The Company completed the transfer
of all of its servicing activities to third party servicers by October 1999.
The Company's source of revenues for the three months ended December
31, 2000 consists of interest and dividends on its cash and investments.
9
RESULTS OF OPERATIONS
Due to the Company's cessation of its specialty finance business in
1999, period-to-period comparisons of operating results will not be meaningful,
and results of operations from prior and current periods may not be indicative
of future results. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto.
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1999
Net Loss
In the three months ended December 31, 2000, net loss decreased
$6,749,680 to a net loss of $643,181 from a net loss of $7,392,861 for the three
months ended December 31, 1999. The decrease in net loss resulted primarily from
there being no further write downs of retained interests in securitizations in
2000, as well as, from the Company reducing its staff from 27 employees at
December 31, 1999 to 5 employees at December 31, 2000. The Company's expenses
were reduced because of the cessation of its prior business of acquiring and
servicing finance contracts during the three months ended December 31, 1999.
Total Revenues
Total revenues decreased $289,602 to $122,381 for the three months
ended December 3, 2000 from $411,983 for the three months ended December 31,
1999. The decrease was due to the Company winding down its specialty finance
operations, and transferring its remaining servicing rights in October 1999.
Interest Income. Interest income increased $59,537 to $107,372 from
$47,835. Interest in 2000 was generated from interest earned on the invested
proceeds from the Dynex settlement.
Loss on Sale of Finance Contracts. The Company's remaining finance
contract portfolio was completely liquidated during the three months ended
December 31, 1999 reflecting whole loans sales at a loss. No finance contracts
were sold in the 2000 period.
Servicing Fee Income. The Company earned no servicing fees for the
three months ended December 31, 2000. The Company transferred all servicing
responsibilities to third parties during 1999. Servicing fee income for the
three months ended December 31, 1999 was $334,213.
Other Income. For the three months ended December 31, 2000 and 1999
other income was $15,009 and $201,266, respectively, and consisted primarily of
insurance settlement proceeds on auto finance contracts and dividends.
Total Expenses
Total expenses of the Company decreased $7,039,282 to $765,562 for the
three months ended December 31, 2000 from $7,804,844 for the three months ended
December 31, 1999, due to the Company writing down its retained interests in
securitization by $4,235,272 in 1999, winding down its specialty finance
operations, terminating employees and focusing on mitigating its losses caused
by the cessation of funding by Dynex.
Provision for Credit Loss. There was no provision for credit losses for
the three months ended December 31, 2000. The Company owned no finance contracts
or other receivable that
10
was doubtful of collection. Actual collections on finance contracts exceeded the
estimated amounts by $26,997 for the comparable period in 1999.
Interest Expense. There was no interest expense for the three months
ended December 31, 2000. There was $510,771 interest expense for the three
months ending December 31, 1999. The decrease was the result of the
extinguishment of all interest bearing debt.
Salaries and Benefits. Salaries and benefits decreased $400,748 to
$341,547 for the three months ended December 31, 2000 from $742,295 because of
the head count reduction caused by the cessation of the Company's specialty
finance operations during 1999. The Company had 27 employees at December 31,
1999. There were 5 employees as of December 31, 2000.
General and Administrative Expenses. General and administrative
expenses decreased $1,336,394 to $417,251 for the three months ended December
31, 2000 from $1,753,645 for the three months ended December 31, 1999. During
the three months ended December 31, 1999 the Company incurred professional fees
associated with litigation with both Progressive Insurance and Dynex Capital,
Inc. During the three months ended December 31, 2000, the Company's general and
administrative expenses were primarily professional expenses including
accounting fees for the completion of the audit, corporate counsel fees,
Progressive litigation fees, and fees and expenses related to the pursuit of the
Company's new business plan.
Impairment of Retained Interest in Securitizations. The Company
periodically reviewed the fair value of its retained interest in
securitizations. The Company recorded a charge against earnings for impairment
of these assets of $4,235,272 for the three months ending December 31, 1999.
This impairment reflected the revaluation of expected future cash flows to the
Company from these securitizations. The revaluation of the retained interests to
zero as of the end of the period ended December 31, 1999 reflects the
uncertainty regarding the receipt of any future cash flows from those
securitizations as to which the Company still maintains a retained interest.
Other Operating Expenses. Other operating expenses (consisting
principally of servicer fees, credit bureau reports, communications and
insurance) decreased $583,094 to $6,764 for the three months ended December 31,
2000 from $589,858 for the three months ended December 31, 1999 because the
Company no longer services loans, the elimination of a substantial portion of
the Company's communication system and the decreased need for insurance.
FINANCIAL CONDITION
Cash and cash equivalents. Cash and cash equivalents decreased
$1,304,866 at December 31, 2000 from $7,050,088 at September 30, 2000. The
decrease in cash and cash equivalents was the result of an operating loss of
$643,181, venture investments in two companies of $175,000, issuance of a note
receivable of $500,000 and a reduction in the Company's payables.
Investments. The following table sets forth the investments made by the
company:
September 30, 2000 December 31, 2000
------------------ -----------------
Yehti Corporation 100,000 100,000
Access Ventures 75,000
------------------------------------------
Total $ 100,000 $175,000
==========================================
Note Receivable. In October 2000, the Company issued at par for
$500,000 an 8% convertible note from Modelwire, Inc.
11
Other Assets. Other assets consists of deferred private placement costs
and accrued interest earned. Other assets increased $12,200 to $137,200 at
December 31, 2000 from $125,000 at September 30, 2000. The increase resulted
from the accrual of interest earned on notes receivable and cash equivalents.
Accounts Payable and Accrued Liabilities. Accounts payable and accrued
liabilities decreased $74,485 to $593,175 at December 31, 2000 from $667,660 at
September 30, 2000. The Company is reducing its debt. Accounts payables and
accrued liabilities consists primarily of lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had just over $5.7 million in cash
and no long-term indebtedness. Management believes the Company has sufficient
liquidity to meet its obligations (primarily employee/consultant fees and
expenses, rent and professional expenses) and to make selected investments
through 2001. Management hopes to generate additional liquidity and revenues
through the establishment of the Agility Capital Fund in the following ways: (i)
the sale to the Fund (at cost) of certain investments made by the Company on
behalf of the Fund, (ii) a management fee of up to 2.5% per annum of committed
funds, (iii) the pro rata share of realized investment gains on the Company's
investment in the Fund (expected to be 1% of size of the Fund, or a maximum of
$500,000), and (iv) additional fees of up to 20% of the realized gains on Fund
investments (less amounts utilized for compensation arrangements for the
officers of the Fund Manager). There can be no assurance that the Fund will be
established or managed in a manner in which those revenue goals are met.
Cash Flows. Significant cash flows related to the Company's operating
activities include the use of cash to pay salaries, professional consultant
fees, and reduction of trade accounts payable. Net cash used by operating
activities totaled $729,866 during the three months ended December 31, 2000.
Significant cash flows used by investing activities consisted of the
purchase of an investment for $75,000 and the funding of a note receivable for
$500,000.
There were no cash flows from financing activities during the three
months ended December 31, 2000.
Equity Offerings. In February 1998, the Company completed the
underwritten public offering of 1,125,000 shares of its 15% Series A Cumulative
Preferred Stock (the "Preferred Stock"), with a liquidation preference of $10
per share. The price to the public was $10 per share, with net proceeds to the
Company of approximately $10,386,000. Such net proceeds have been utilized for
working capital purposes, including the funding of finance contracts. Dividends
on the Preferred Stock are cumulative and payable quarterly on the last day of
March, June, September and December of each year, commencing on June 30, 1998,
at the rate of 15% per annum. After three years from the date of issuance, the
Company may, at its option, redeem one-sixth of the Preferred Stock each year,
in cash at the liquidation price per share (plus accrued and unpaid dividends),
or, if in Common Stock, that number of shares equal to $10 per share of
Preferred Stock to be redeemed, divided by 85% of the average closing sale price
per share for the Common Stock for the 5 trading days prior to the redemption
date. The Preferred Stock is not redeemable at the option of the holder and has
no stated maturity.
As dividends on the Preferred Stock are in arrears for at least two
quarterly dividend periods, holders of the Preferred Stock have exercised their
right to call a special meeting of the Preferred Stock holders for the purpose
of electing two additional directors to serve on the Company's Board of
Directors until such dividend arrearage is eliminated. Such meeting was held on
October 1, 1999; however, because a quorum of preferred shareholders did not
attend or provide proxies for the meeting, no additional directors were elected.
Two of the Company's
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directors have been designated by the board as representing the Preferred Stock
holders. In addition, certain changes that could materially affect the holders
of Preferred Stock, such as a merger of the Company, cannot be made without the
affirmative vote of the holders of two-thirds of the shares of Preferred Stock,
voting as a separate class. The Preferred Stock ranks senior to the Common Stock
with respect to the payment of dividends and amounts upon liquidation,
dissolution or winding up. During the years 1999 and 2000, no dividends have
been paid on the Preferred Stock and the Company at December 31, 2000 is
$3,220,501 in arrears in dividend payments.
IMPACT OF INFLATION AND CHANGING PRICES
Since the Company does not originate finance contracts and has no debt,
the Company does not believe that inflation directly has a material adverse
effect on its financial condition or results of operations. Inflation can
adversely affect the Company's operating expenses, such as rent and employee
expenses, and can also positively affect investment income.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS Nos. 137 and
138, and as interpreted by the FASB and the Derivatives Implementation Group
through "Statement 133 Implementation Issues", as of October 1, 2000. The
Company has not engaged in any derivative instruments or any embedded derivative
instruments that require bifurcation. The Company has not engaged in hedging
activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates and in equity and commodity
prices. Market risk is inherent to both derivative and non-derivative financial
instruments. The Company's market risk management procedures include all market
risk sensitive financial instruments. The Company has no derivative financial
instruments, exposure to currency exchange rates nor commodity risk exposure.
The Company's fixed rate debt was paid off through settlement
agreements with Dynex on June 9, 2000 and with Bank Boston on July 27, 2000. The
Company's new business plan does not contemplate the incurrence by the Company
of additional material long-term indebtedness.
FORWARD LOOKING STATEMENTS
The statements contained in this document that are not historical facts
are forward looking statements. Actual results may differ from those projected
in the forward looking statements. These forward looking statements involve
risks and uncertainties, including but not limited to the following risks and
uncertainties: changes in the performance of the financial markets, in the
demand for and market acceptance of the Company's services, and in general
economic conditions, including interest rates, presence of competitors with
greater financial resources and the impact of competitive products and pricing;
the effect of the Company's policies; the ability of the Company to find
adequate funding sources, the ability of the Company to raise a venture capital
fund, and the ability of the Company to find suitable investments for the
venture capital fund that provide an ongoing revenue stream to the Company.
Investors also are directed to other risks discussed in documents filed by the
Company with the SEC.
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PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
In the course of its previous business as a specialty finance company,
the Company from time to time has been made a party to litigation involving
consumer-law claims. These claims typically allege improprieties on the part of
the originating dealer and name the Company and/or its assignees as subsequent
holders of the finance contracts. To date, none of these actions have been
certified as eligible for class-action status.
In 1998, the Company initiated suit in state court in Houston, Texas
against Progressive Northern Insurance Co. arising out of insurance policies
issued by Progressive affiliates to the Company. The policies provided
deficiency balance coverage and physical damage coverage on automobile loans
acquired by the Company and sold into certain securitizations. Progressive
contended that there was a cumulative limit on claims under the Deficiency
Balance Policy of 88% of the total premiums paid on that Policy, which was
contrary to the Company's position. On this point, the Company's position was
confirmed by the court. Progressive also contended that it had the right to
cancel the Policies, without any refund of the fully-paid premiums, at any time
pursuant to 30 days' notice and in fact did so in March 1998. The Company and
the securitization trustees disputed this termination as contrary to the terms
and understandings reached with Progressive and relied upon by the parties in
interest, including the securitization market. This issue was submitted by the
court to the jury. After a three week trial in January 2000, the Company failed
to win a verdict against Progressive. The Company filed a motion to set aside
the verdict based on various legal issues and the court denied this motion and
entered a take nothing judgment against the Company. The Company is currently
appealing this verdict.
The Company and Tejas Securities Group, the lead underwriter of the
sale in February 1998 of the Company's 15% Series A Cumulative Preferred Stock,
was sued by a former holder of the Preferred Stock. Plaintiff claimed that he
purchased the Preferred Stock from Tejas in reliance upon alleged
representations made by both the Company and Tejas that the financing the
Company had in place with Dynex Capital, Inc. was "secure". Plaintiff alleged
violations of the Texas Securities Act, fraud, negligent misrepresentation,
civil conspiracy and violations of the Texas Business and Commerce Code.
Plaintiff had previously filed a similar suit in Federal Court against the
Company which was dismissed. The Company and the Plaintiff settled the dispute
through a settlement agreement signed on January 11, 2001.
ITEM 2. Changes in Securities and Use of Proceeds
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
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ITEM 6. Exhibits and Reports on Form 8-K
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------
3.1 (1)...... Restated Articles of Incorporation of the Company
3.2 (1)...... Amended and restated Bylaws of the Company
4.1 (1)...... Specimen Common Stock Certificate
10.1 (1)..... Employment Agreement effective as of May 1, 1996 between
William O. Winsauer and the Company
21.1 (2)..... Subsidiaries of the Company
27.1......... Financial Data Schedule
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No.333-05359).
(2) Incorporated by reference to the Company's annual report on form 10-K for
the period ended September 30, 2000
Reports on Form 8 K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on February 15, 2001.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM O. WINSAUER
----------------------------
WILLIAM O. WINSAUER,
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
By: /s/ A. DALE HENRY
----------------------------
A. DALE HENRY,
CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
16