pay securitization fees and expenses;
fund spread accounts in connection with securitizations;
satisfy working capital requirements and pay operating expenses;
pay taxes; and
pay interest expense.
We have to date matched our liquidity needs to our available sources of funding by reducing our acquisition of new automobile contracts, at times to merely nominal levels. There can be no assurance that we will continue to be successful with that strategy.
We Are Not Presently Profitable
We have incurred net losses every quarter subsequent to the quarter ended June 30, 2008. We have been adverse- ly affected by the economic recession affecting the United States as a whole, by increased financing costs and de- creased availability of capital to fund our purchases of automobile contracts, and by a decrease in the overall level of sales of automobiles and light trucks.
We Have a Negative Book Value
As of June 30, 2011, we had a negative book value of $7,487,000, as compared to a positive book value of $2,421,000 at December 31, 2010. The recorded value of all of our assets at June 30, 2011 is exceeded by the recorded value of all our liabilities (including the $20.2 million of outstanding Notes). If we were unable success- fully to manage our liquidity, including the use of the strategies described in the reports that are incorporated by reference into this prospectus, then our negative book value could impair our ability to repay the Notes.
Our Results of Operations Will Depend on Our Ability to Secure and Maintain Adequate Credit and Warehouse Financing on Favorable Terms.
Our business strategy requires that warehouse credit facilities be available in order to purchase significant vo- lumes of receivables.
Historically, our primary sources of day-to-day liquidity were our warehouse credit facilities, in which we sold and contributed automobile contracts, as often as twice a week, to special-purpose subsidiaries, where they were "warehoused" until they were securitized, at which time funds advanced under one or more warehouse credit facil- ities were repaid from the proceeds of the securitizations. The special-purpose subsidiaries obtained the funds to purchase these automobile contracts by pledging the automobile contracts to a trustee for the benefit of senior warehouse lenders, who advanced funds to our special-purpose subsidiaries based on the dollar amount of the au- tomobile contracts pledged. Through November 2008, we depended substantially on two warehouse credit facili- ties: (i) a $200 million warehouse credit facility, which we established in November 2005 and expired by its terms in November 2008; and (ii) a $200 million warehouse credit facility, which we established in June 2004 and which was amended in December 2008 to eliminate future advances and to provide for repayment of the related debt from the cash collections on the related pledged automobile contracts, and certain other principal reductions until it was repaid in September 2009. In September 2009 we entered into a new $50 million two-year multiple-draw credit facility, which, like a warehouse facility, allows us advances against new purchases of automobile contracts, and in March 2010 we entered into a second $50 million delayed draw credit facility, which likewise allows us advances against new purchases of automobile contracts. More recently, we increased our short-term contract fi- nancing resources by entering into a $100 million credit facility in December 2010 and another $100 million credit facility in February 2011. These facilities have provided us the liquidity to increase gradually our automobile con- tract purchases from dealers.
As stated elsewhere in this prospectus, since the fourth quarter of 2007 we have observed adverse changes in the market for securitized pools of automobile contracts. If we are unable to maintain warehouse financing on accept- able terms, our results of operations, financial condition and cash flows could be materially and adversely affected.
Our Results of Operations Will Depend on Our Ability to Securitize Our Portfolio of Automobile Contracts.
Historically we have depended upon our ability to obtain permanent financing for pools of automobile contracts by conducting term securitization transactions. By "permanent financing" we mean financing that extends to cover the full term during which the underlying automobile contracts are outstanding and requires repayment as the un- derlying automobile contracts are repaid or charged off. By contrast, our warehouse credit facilities permit us to borrow against the value of such receivables only for limited periods of time. Our past practice and future plan has