This company had been purchasing automobile installment contracts from dealers throughout the country and the majority of these contracts purchased used a unique accounting method called "Rule of 78^th" to calculate its payoff amount. The company used a well-known third party loan servicing system running on mainframe to service all branches in U.S. through leased T1 lines. This computer system has the following two serious problems to service their securitized receivables:

1. The system could not calculate the sales price for those "Rule of 78^th" contracts based on the securitization program. To calculate regular interest bearing contract is easy but, for rule of 78^th calculation, the system had to go through development and testing for many months, even years, before it can be used on this "Wall Street" securitization program. In addition. Servicing these contracts on a monthly basis and report them to the trustees would also be impossible.
   
2. The system could not handle different types of sales arrangements. If the securitization program is changed for any reason, The system, then, can not service it.

Time had run out, the management over New York had to move on and Kao & Kao was called in to their Division headquarter at Sacramento, California and consulted on these issues. In fact, on that very same day, the first "automobile contract " securitization transaction of the company was completed at New York, and there was no servicing program. Kao & Kao immediately suggested to them a local area solution using the downloaded data from the mainframe system. Then, Kao & Kao, using all internal resources, solved all the problems by doing the following:

1. Combining its database programming, accounting, financial background, Kao & Kao, very rapidly, developed multi-user sales and servicing program running on Sacramento's local network using downloaded data from the mainframe.
   
2. Set up different pools for different sales agreements and serviced them accordingly. Kao & Kao, after initial development, used high-speed modem to maintain and service them remotely from Los Angeles.

Kao & Kao C.P.A.'s
1848 Lincoln Blvd., #200, Santa Monica, CA 90404    Tel:(310)396-5448