10-Q 1 a29698.txt AGILITY CAPITAL, INC. 10-Q 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 March 31, 2001 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 Agility Capital, Inc. (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 March 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 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...............................................................................16 ITEM 1. LEGAL PROCEEDINGS............................................................................16 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................16 ITEM 5. OTHER INFORMATION............................................................................17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................18 SIGNATURES..............................................................................................19 EXHIBIT 27.1............................................................................................20

ii PART I- FINANCIAL INFORMATION ITEM 1. Financial Statements AGILITY CAPITAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial statements 1 AGILITY CAPITAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of the consolidated financial statements 2 AGILITY CAPITAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of the consolidated financial statements 3 AGILITY CAPITAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The consolidated financial statements of Agility Capital, Inc. and subsidiaries (the "Company") formerly AutoBond Acceptance Corporation, 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") from AutoBond Acceptance Corporation and the adoption of a new business plan. The Company has begun doing business as Agility Capital. 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. The Company's new business plan calls for the Company to invest in promising new, privately held companies, located in the Southwestern and Eastern United States technology "hotbeds", operating in the Internet, software, communications, electronics, and new media industries. 3. 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. In February and March 2001, the Company made investments totaling $200,000 in another emerging company. 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 class (if applicable) and other matters which may have an impact on the value of the portfolio company. 4 4. Note receivable In October 2000, the Company purchased at par a $500,000 convertible note bearing interest at 8% from an emerging company. The note is to be converted at the option of the Company into shares of securities being offered at the time of a Qualifying Financing. A Qualifying Financing is defined as a private financing resulting in proceeds before expenses of $5,000,000 or more to the emerging company. The number of shares shall be computed by dividing (i) the principal amount of the note together with accrued interest on such principal amount as of the date of conversion by (ii) the lower of (x) $4.00 per common equivalent share or (y) the price per share of the securities issued in such Qualifying Financing discounted by 35% of such price. The note is due and payable upon the earliest to occur of the following: (a) the second anniversary of the date issued; or (b) upon sale by the note issuer of all or substantially all of its assets; or (c) upon liquidation of the note issuer; or (d) upon any merger involving the note issuer in which the note issuer is not the resulting or surviving entity. 5. 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 $18,849 and on its interest bearing cash accounts of $4,171 which has been earned but not paid as of March 31, 2001. 6. 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. As the Company posted a net loss, the effects of stock options and contingently issuable shares are anti-dilutive and not included in the computation of diluted loss per share. The Company's market price for shares of its stock remains below all outstanding option and warrant prices; therefore all options and warrants are not dilutive and not included in the computation of diluted earnings per share for the six months ended March 31, 2001. 7. 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 six month period ended March 31, 2001 was offset by a corresponding increase in the valuation allowance. Accordingly no tax benefit was recognized for the net loss. 5 8. 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 Stockholders 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 Stockholders did not attend or provide proxies for the meeting, no additional directors were elected. At the annual meeting of shareholders held in March 2001, the Preferred Stockholders were again given the opportunity to elect two additional directors, but a quorum was not achieved. Accordingly, the common stockholders elected two additional directors on behalf of the Preferred Stockholders. 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 Stockholders is $14.4 million at March 31, 2001 which includes dividends in arrears of $3.6 million Stock Option Plan The Company adopted the Agility Capital, Inc. 2001 Stock Option Plan at the March 6, 2001 shareholder's meeting. The plan is intended to advance the interests of the Company and its stockholders and subsidiaries by attracting, retaining and motivating the performance of selected directors, officers and employees of the Company of high caliber and potential upon whose judgement, initiative and effort the Company is largely dependent for the successful conduct of its business, and to encourage and enable such directors, officers and employees to acquire and retain a proprietary interest in the Company by ownership of its common stock. Subject to adjustment, the maximum number of shares of Common Stock which may be issued and sold under the plan in the aggregate shall be 1,100,000 shares. The Company has agreed to issue options for 600,000 shares to its president as part of the plan. 9. 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 6 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 is currently in negotiations with the trustee, the investors and the insurance company to resolve the situation. 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 remainder of the commitment is due when called over the next four years. 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. 10. 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. 7 ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results of Operations 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 March 31, 2001, 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, corporate expenses and funding 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., 2 Soundview, Stamford, Connecticut 06901. The Company currently has 6 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 $100,000,000 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 through an investment of its cash balances and conveyance of the Company's current investments 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's managers 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 8 technological consulting and development firm, as well as management recruiting services through the Fund's proposed 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. In order to accomplish the establishment of the Fund on terms acceptable to investors in the Fund, it may be necessary to amend certain of the proposed terms of the Fund. In particular, the size of the Fund may be reduced, the Company may be precluded from selling certain investments to the Fund, the amount of the management fee or 20% carry payable to the Company may be reduced or delayed, and/or the Company may be required to assume a greater share of placement agency fees. Such modifications could have an adverse effect on the profitability of the Fund for the Company. The success of the Fund will primarily depend upon the efforts of individuals designated by the Company, in its capacity as Fund Manager, to manage the Fund's investments. The Company expects that the attraction and continued retention of qualified individuals will require compensating these individuals through the utilization of substantially all of the management fees received by Company, as well as the reallocation to such individuals of a portion of the Company's 20% share of the Fund's net profits. Therefore, even if the Fund is successfully established, there can be no assurance as to the ultimate revenues available for the Company's shareholders. 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 9 against earnings and write down the asset accordingly. The Company recorded a charge to income of $4,235,272 during the six months ended March 31, 2000 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 six months ended March 31, 2001 consists of interest and dividends on its cash, investments and note receivable . 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 March 31, 2001 Compared to Three Months Ended March 31, 2000 Net Loss In the three months ended March 31, 2001, net loss decreased $1,245,920 to a net loss of $432,251 from a net loss of $1,678,171 for the three months ended March 31, 2000. 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 during the three months ended March 31, 2000 to 5 employees at March 31, 2001. The Company's expenses were reduced because of the cessation of its prior business of acquiring and servicing finance contracts. Total Revenues Total revenues increased $149,709 to $185,796 for the three months ended March 31, 2001 from $36,087 for the three months ended March 31, 2000. The increase was due to interest earned on the Company's investments and insurance settlement proceeds on auto finance contracts and dividends. Actual collections on receivables exceeded the previously estimated amounts by $104,817 for the three months ended March 31, 2001. During the three months ended March 31, 2000, the Company's revenue was generated from winding down its prior business. Interest Income. Interest income increased $78,324 to $80,979 from $2,655. Interest in 2001 was generated from interest earned on the invested proceeds from the Dynex settlement, and its note receivable. Loss on Sale of Finance Contracts. The Company's remaining finance contract portfolio was completely liquidated during the three months ended March 31, 2000 reflecting whole loans sales at a loss. No finance contracts were sold in fiscal year 2001. Servicing Fee Income. The Company earned no servicing fees for the three months ended March 31, 2001 and March 31, 2000. The Company transferred all servicing responsibilities to third parties during 1999. 10 Other Income. For the three months ended March 31, 2001 and 2000 other income was $104,817 and $41,530, respectively. Other Income for the three months ended March 31, 2000 consisted primarily of insurance settlement proceeds on auto finance contracts and dividends. Actual collections on receivables exceeded the estimated collectible amount by $104,817 for the three months ended March 31, 2001. Total Expenses Total expenses of the Company decreased $1,096,211 to $618,047 for the three months ended March 31, 2001 from $1,714,258 for the three months ended March 31, 2000. The Company has relocated to smaller and less expensive offices and has reduced the associated overhead of communications, insurance, and equipment costs. There is no legal expense related to litigation with Dynex. The Company has retired its interest bearing debt. Provision for Credit Loss. There was no provision for credit losses for the three months ended March 31, 2001. Interest Expense. There was no interest expense for the three months ended March 31, 2001. There was $417,254 interest expense for the three months ending March 31, 2000. The decrease was the result of the extinguishment of all interest bearing debt. Salaries and Benefits. Salaries and benefits decreased $161,153 to $214,899 for the three months ended March 31, 2001 from $376,052 because of the head count reduction caused by the cessation of the Company's specialty finance operations. The Company had 27 employees during the quarter ended March 31, 2000. There were 5 employees as of March 31, 2001. General and Administrative Expenses. General and administrative expenses decreased $481,419 to $391,350 for the three months ended March 31, 2001 from $872,769 for the three months ended March 31, 2000. During the three months ended March 31, 2000 the Company incurred professional fees associated with litigation with both Progressive Insurance and Dynex Capital, Inc. During the three months ended March 31, 2001, the Company's general and administrative expenses were primarily professional expenses including 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. 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 March 31, 2000 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 $36,385 to $11,798 for the three months ended March 31, 2001 from $48,183 for the three months ended March 31, 2000 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. Six Months Ended March 31, 2001 Compared to Six Months Ended March 31, 2000 Net Loss In the six months ended March 31, 2001, net loss decreased $7,995,599 to a net loss of $1,075,432 from a net loss of $9,071,031 for the six months ended March 31, 2000. The decrease in net loss resulted primarily from there being no further write downs of retained interests in securitizations in 2001, as well as, from the Company reducing its staff from 27 11 employees at March 31, 2000 to 5 employees at March 31, 2001. The Company's expenses were reduced due to the completion of its litigation with Dynex and the cessation of its prior business of acquiring and servicing finance contracts during the six months ended March 31, 2000. Total Revenues Total revenues decreased $139,892 to $308,177 for the six months ended March 31, 2001 from $448,069 for the six months ended March 31, 2000. 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 $137,861 to $188,351 from $50,490. Interest in 2001 was generated from interest earned on the invested proceeds from the Dynex settlement and from interest accrued from its note receivable. Loss on Sale of Finance Contracts. The Company's remaining finance contract portfolio was completely liquidated during the six months ended March 31, 2000 reflecting whole loans sales at a loss. No finance contracts were sold in the 2001 period. Servicing Fee Income. The Company earned no servicing fees for the six months ended March 31, 2001. The Company transferred all servicing responsibilities to third parties during 1999. Servicing fee income for the six months ended March 31, 2000 was $334,213. Other Income. For the six months ended March 31, 2001 and 2000 other income was $119,826 and $242,796 respectively, and consisted primarily of insurance settlement proceeds on auto finance contracts and dividends. Actual collections on receivables exceeded the estimated collectible amount by $104,817 for the three months ended March 31, 2001. Total Expenses Total expenses of the Company decreased $8,135,491 to $1,383,609 for the six months ended March 31, 2001 from $9,519,100 for the six months ended March 31, 2000, due to the Company writing down its retained interests in securitizations by $4,235,272 in 2000, 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 six months ended March 31, 2001. The Company owned no finance contracts or other receivable that was doubtful of collection. Actual collections on finance contracts exceeded the estimated provision by $26,997 for the comparable period. Interest Expense. There was no interest expense for the six months ended March 31, 2001. There was $928,022 interest expense for the six months ending March 31, 2000. The decrease was the result of the extinguishment of all interest bearing debt. Salaries and Benefits. Salaries and benefits decreased $561,902 to $556,446 for the six months ended March 31, 2001 from $1,118,348 because of the head count reduction caused by the cessation of the Company's specialty finance operations during 2000. The Company had 27 employees during the six months ended March 31, 2000. There were 5 employees as of March 31, 2001. General and Administrative Expenses. General and administrative expenses decreased $1,817,814 to $808,601 for the six months ended March 31, 2001 from $2,626,415 for the six months ended March 31, 2000. During the six months ended March 31, 2000 the Company incurred professional fees associated with litigation with both Progressive Insurance and Dynex 12 Capital, Inc. During the six months ended March 31, 2001, 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 six months ended March 31, 2000. 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 March 31, 2000 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 $619,478 to $18,562 for the six months ended March 31, 2001 from $638,040 for the six months ended March 31, 2000 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 $2,077,278 at March 31, 2001 from $7,050,088 at September 30, 2000. The decrease in cash and cash equivalents was the result of an operating loss of $1,075,432, venture investments in two companies of $275,000, 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:

Note Receivable. In October 2000, the Company purchased at par a $500,000 8% convertible note from Modelwire, Inc. Other Assets. Other assets consists of deferred private placement costs and accrued interest earned. Other assets increased $23,020 to $148,020 at March 31, 2001 from $125,000 at September 30, 2000. The increase resulted from the accrual of interest earned on the note receivable and cash equivalents. Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities decreased $203,826 to $463,834 at March 31, 2001 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 March 31, 2001, the Company had just over $4.9 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 13 investment gains on the Company's investment in the Fund (expected to be 1% of the 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 $1,302,278 during the six months ended March 31, 2001. Significant cash flows used by investing activities consisted of the purchase of investments for $275,000 and the funding of a note receivable for $500,000. There were no cash flows from financing activities during the six months ended March 31, 2001. 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. At the annual meeting of shareholders held in March 2001, the Preferred Stockholders were again given the opportunity to elect two additional directors, but a quorum was not achieved. Accordingly, the common stockholders elected two additional directors that have been designated by the board as representing the Preferred Stockholders. 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 March 31, 2001 is $3,623,064 in arrears in dividend payments. The Company adopted the Agility Capital, Inc. 2001 Stock Option Plan at the March 6, 2001 shareholder's meeting. The plan is intended to advance the interests of the Company and its stockholders and subsidiaries by attracting, retaining and motivating the performance of selected directors, officers and employees of the Company of high caliber and potential upon whose judgement, initiative and effort the Company is largely dependent for the successful conduct of its business, and to encourage and enable such directors, officers and employees to acquire and retain a proprietary interest in the Company by ownership of its common stock. 14 Subject to adjustment, the maximum number of shares of Common Stock which may be issued and sold under the plan in the aggregate shall be 1,100,000 shares. 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. 15 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 The Company's annual meeting of the shareholders was held on March 6, 2001 at the Four Seasons Hotel, 98 San Jacinto Boulevard, Austin, Texas. A quorum of 4,765,750 shares of the Company's common stock was present through shares held by William O. Winsauer and John S. Winsauer. A quorum of preferred shares was not achieved. At the meeting, William O. Winsauer, John S. Winsauer, Mark Esposito, Thomas I. Blinten, Mark W. Cooper, David R. Wulf, and Robert A. Shuey each were elected to additional 16 one-year terms as directors of the Company. Messrs. Wulf and Shuey were designated as representatives on behalf of the Preferred Stockholders. Mr. Stuart A. Jones declined to stand for reelection as director. The resolution relating to the adoption of an amendment to the Company's Certificate of Incorporation to change the Company's name to Agility Capital, Inc. was presented for consideration and approved. The third shareholder's resolution relating to the ratification of Deloitte & Touche LLP as independent public accountants was presented for consideration and was ratified. The final shareholder's resolution relating to the adoption of the Company's 2001 Stock Option Plan was presented for consideration and was adopted. ITEM 5. Other Information None 17 ITEM 6. Exhibits and Reports on Form 8-K

(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 18 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 May 15, 2001. AGILITY CAPITAL, INC. 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 19

AUTOBOND ACCEPTANCE CORP 10-Q