1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended December 31, 1996
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 0-21591
GRANITE FINANCIAL, INC.
(Name of small business issuer as specified in its charter)
Delaware 84-1349929
(State of Incorporation) (I.R.S. Employer
Identification No.)
6424 West 91st Avenue
Westminster, Colorado 80030
(Address of principal executive offices)
(303) 650-4059
(IssuerOs telephone number)
Check whether the issuer (1) filed all reports required to
be filled by Section 13 or 15(d) of the Exchange Act during the
past 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 X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13, or 15 (d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court.
Yes __ No__
State the number of shares outstanding of each of the
issuerOs classes of common equity, as of the latest practicable
date.
Common stock, $.001 par value, 3,725,000 shares outstanding
as of December 31, 1996
Transitional Small Business Disclosure Format (check one):
Yes __ No_X
GRANITE FINANCIAL, INC.
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1996
INDEX
PART 1. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in 5
Stockholders' Equity
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-16
ITEM 2. MANAGEMENTOS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17-24
PART 2. OTHER INFORMATION 25
EXHIBITS
11.1 COMPUTATION OF EARNINGS PER COMMON
SHARE AND COMMON EQUIVALENT SHARE 26
27 FINANCIAL DATA SCHEDULE 27
SIGNATURES 28
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $8,393,125 $ 0
Direct financing leases available for
sale (Notes 2 and 3) 8,250,395 8,671,869
Direct financing leases assigned to
lender (Note 2) 20,783,512 22,575,827
Prepaid and other assets 734,832 141,729
Deferred offering costs (Note 5) - 97,765
Furniture and equipment, net 613,178 399,150
Loan origination fees, net 926,015 450,342
Organization costs, net 15,673 16,222
Total assets $ 39,716,730 $ 32,352,904
Liabilities and Equity
Line-of-credit (Note 4) $ 3,901,856 $ 3,690,618
Checks written in excess of bank balance - 288,848
Accounts payable and accrued expenses 897,944 667,870
Due to affiliate (Note 3) 1,019,376 93,590
Lease payments due to trustee 383,427 -
Current and deferred income taxes
payable (Note 6) 629,521 -
Limited recourse Class A note payable
(Note 2) 17,800,170 20,761,785
Notes payable (Note 4) 900,654 4,090,818
25,532,948 29,593,529
Commitments
Common stock, $.001 par value;
20,000,000 shares authorized;
3,725,000 shares issued and
outstanding 3,725 -
Additional paid-in capital 13,742,430 -
Retained earnings 437,627 -
Members' equity - 2,759,375
Total stockholders' and members' equity
(Note 5) 14,183,782 2,759,375
Total liabilities and equity $ 39,716,730 $ 32,352,904
</TABLE>
See notes to consolidated financial statements
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues
Sales of leases (Note 3) $17,428,941 $ 7,852,356 $27,855,164 $ 12,484,649
Income from direct
financing leases 981,890 1,378 1,911,504 18,062
Total revenues 18,410,831 7,853,734 29,766,668 12,502,711
Costs
Cost of leases sold 16,168,227 7,352,488 26,011,352 11,646,171
Provision for credit
losses 106,000 (78,083) 131,000 1,619
Interest expense 502,761 1,325 940,750 1,325
Securitization expenses
and amortization 75,454 - 143,231 -
Total costs 16,852,442 7,275,730 27,226,333 11,649,115
Gross profit 1,558,389 578,004 2,540,335 853,596
Other expenses
Salaries and benefits 344,426 134,474 604,135 267,456
General and administrative 252,239 121,462 414,309 197,284
Depreciation and
amortization 48,482 14,311 91,225 14,311
Total other expenses 645,147 270,247 1,109,669 479,051
Income before income taxes 913,242 307,757 1,430,666 374,545
Income taxes (see note below)(438,074) (113,870) (629,521) (138,582)
Net income $ 475,168 $ 193,887 $ 801,145 $ 235,963
Earnings per share $ 0.15 $ 0.10 $ 0.30 $ 0.12
Weighted average number of
common and common equivalent
shares (Notes 1 and 5) 3,243,438 2,000,000 2,656,482 2,000,000
</TABLE>
Note: Income taxes for the 1996 periods reflect federal and state income taxes
including a one-time charge to earnings of $100,000 as part of the
reorganization from an LLC Company to a C Corporation. Income taxes for
the 1995 periods reflect pro forma taxes at 37% as if the entity was
taxed as a C Corporation.
See notes to consolidated financial statements.
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Period June 30, 1996 to December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional
Members' Common Stock Paid-in Retained
Equity Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1996 $2,759,375 - $ - $ - $ - $2,759,375
Net income
for the period
July 1 - October 25,
1996 363,519 - - - - 363,519
Distribution to members
to pay tax liabilities
related to
the LLC (111,000) - - - - (111,000)
Restructuring of Granite
Financial, LLC into
Granite Financial,
Inc. (3,011,894) 2,000,000 2,000 3,009,894 - -
Issuance of common
stock pursuant to
initial public
offering (net of
issuance costs of
$2,203,239) - 1,725,000 1,725 10,732,536 - 10,734,261
Net income for the period
October 26 - December
31, 1996 - - - - 437,627 437,627
Balance, December 31,
1996 $ - 3,725,000 $ 3,725 $13,742,430 $437,627 $14,183,782
</TABLE?
See notes to consolidated financial statements
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
6 Months 6 Months
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 801,145 $ 374,545
Adjustments to reconcile net income
to net cash used in operating
activities:
Due to affiliates 925,786 25,000
Due to trustee 383,427 -
Depreciation and amortization 296,851 14,311
Net changes in operating assets
and liabilities:
Decrease in provision for losses (398,502) (8,381)
Increase (decrease) in direct financing
leases available for sale 819,976 (461,165)
Decrease in prepaids and other assets (593,200) (2,251)
Increase in accounts payable and
accrued expenses 230,074 191,420
Increase in income taxes 629,521 0
2,293,933 (241,066)
Net cash provided by operating
activities 3,095,078 133,479
Cash flows from investing activities:
Payments received on leases assigned to
lender 1,792,315 -
Expenditures for organization costs - (6,076)
Purchase of furniture and equipment (267,395) (67,844)
Net cash provided by (used in)
investing activities 1,524,920 (73,920)
Cash flows from financing activities:
Checks written in excess of bank balance (288,848) -
Proceeds from notes payable 1,302,875 -
Principal payments on notes payable (4,493,039) -
Net proceeds from line-of-credit 212,238 -
Principal payments on Class A note
payable (2,961,615) -
Expenditures for loan origination
and organizational fees (718,511) (14,250)
Proceeds from issuance of common stock 12,937,500 -
Costs related to issuance of common stock (2,105,473) -
Members' equity contribution net of
related costs - 55,000
Distribution to members of the LLC (111,000) -
Net cash provided by financing
activites 3,773,127 40,750
Net increase in cash and cash equivalents 8,393,125 100,309
Cash and cash equivalents - beginning of
period - 443,657
Cash and cash equivalents - end of period 8,393,125 543,966
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid during the quarters ended December 31, 1996 and 1995 for interest
was $999,412 and $0, respectively.
Noncash investing and financing activities:
Concurrently with the consummation of the public offering (Notes 2 ans 5),
the Company exchanged shares of its common stock for all of the outstanding
membership interests of the LLC Company.
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies
Granite Financial, LLC ("LLC Company") was organized in
Colorado on February 21, 1995. In June 1996, Granite Financial,
Inc. ("GFI") was incorporated. Concurrently with the
consummation of the public offering (Note 5), GFI exchanged
2,000,000 shares of its common stock for all of the outstanding
membership interests of the LLC Company, as a result of which GFI
became the sole member of the LLC Company. Contemporaneously,
GFI caused the LLC Company to be liquidated and the assets of
the LLC Company were distributed to GFI as the sole member of the
LLC Company. GFI owns all of the capital stock of GF Funding
Corp. I and GF Funding Corp. II and has assumed responsibility
for all servicing and other activities formerly undertaken by the
LLC Company. Granite Financial, LLC, its successor GFI and its
wholly-owned subsidiaries, GF Funding Corp. I and GF Funding
Corp. II will hereinafter be referred to as the "Company".
The Company is principally engaged in the business of
originating, holding, servicing and selling lease contracts. The
lease contracts provide financing primarily for the acquisition
of computer, office products, medical equipment and other
business equipment. All equipment leased is acquired from
unrelated parties.
The consolidated financial statements included herein are
presented in accordance with the requirements of Form 10-QSB and
consequently do not include all of the disclosures normally made
in the registrant's annual Form 10-KSB filing. These financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Amendment
No. 3 to Form SB-2 which was filed with the Securities and
Exchange Commission on October 24, 1996.
Interim unaudited financial statements
Information with respect to December 31, 1996 and 1995, and
the periods then ended, have not been audited by the Company's
independent auditors, but in the opinion of management, reflect
all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the operations of the
Company. The results of operations for the three months ended
December 31, 1996 and 1995 are not necessarily indicative of the
results of the entire year.
Reclassifications
Certain amounts in 1995 have been reclassified to conform to
the 1996 presentation.
Direct Financing Leases Available for Sale
The Company has entered into various lease agreements which,
in accordance with Statement No. 13 of the Financial Accounting
Standards Board, meet the criteria of capitalization and are
accounted for as direct financing leases. Under this method, the
amount by which gross lease rentals exceed the cost of the
related assets, less the estimated recoverable residual value at
the expiration of the lease, less the amount of expected losses,
is recognized as earned income over the life of the lease using
the interest method.
Leases in which the Company surrenders control of the future
economic benefits in the lease and the underlying equipment are
accounted for as a sale. The direct financing leases available
for sale, which are sold, are eliminated and the cost and related
sales proceeds recognized upon such sale. To the extent the
Company surrenders control of a portion of a pool of lease
assets, the Company will allocate the recorded lease investment
between the portion sold and the portion retained based on the
relative fair values of each portion on the date the leases were
acquired or, if not practical, on the date of sale. The Company
will continue to carry on its balance sheet an asset for the
portion retained. Any permanent reduction in the estimated
residual value of leased property is charged to operations in
the period it occurs.
Direct Financing Leases Assigned to Lender
Direct financing leases transferred and sold as part of a
securitization to a special-purpose entity that issues debt
securities are accounted for as collateralized borrowings. The
securitized leases, recorded as Direct Financing Leases Assigned
to Lenders, and the related debt are reflected in the
consolidated balance sheet. Direct financing leases sold to a
special-purpose entity that issues equity interests instead of
debt securities have been accounted for as a sale. The
consolidated statement of operations would reflect a gain or loss
and the securitized leases would be eliminated from the
consolidated balance sheet on the date of sale.
Lease Acquisition Costs and Broker Commissions
Lease acquisition costs consist of broker bonuses and
commissions paid upon the origination of the lease contracts.
These costs are included in direct financing leases held for sale
and are amortized to expense over the life of the related lease
contracts on the interest method.
Income Taxes
The LLC Company was taxable as a partnership under federal
and state income tax laws. As such, it was not subject to income
taxes as a separate entity and its income or loss was required to
be included in the income tax returns of its members. Upon
consummation of the public offering (Note 5), the LLC Company was
liquidated and the successor corporation, GFI is taxed as a
regular, or C corporation. The 1996 statements of income reflect
a one-time charge to earnings associated with the change in tax
status from an LLC to a C Corporation.
Effective upon liquidation of the LLC Company, the
successor, GFI will apply FAS 109, "Accounting for Income Taxes".
Under FAS 109, the Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Deferred tax liabilities and assets are determined
based on he difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in
effect. The amount of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Allowance for Credit Losses
An allowance for credit losses is maintained at a level
which is estimated by the Company to be necessary and adequate to
provide for expected losses in the existing portfolio of leases
for which the Company has either full or partial recourse. The
leases are collateralized by the equipment under lease and
lessees generally are required to personally guarantee lease
payments. The Company's risk of loss is partially mitigated by
recovering collateral and enforcing guarantees. However, the
resale value of leased equipment generally is initially less than
the original principal amount of the lease and declines at a rate
greater than the principal of the lease, so full recovery on
defaulted leases is usually not possible.
Accounting Standard Not Yet Adopted
In June 1996, the Financial Accounting Standards Board
("FASB") issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("FAS 125"). FAS 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Under FAS 125, after a
transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. FAS
125 prohibits early application and, accordingly, the Company
plans to adopt this standard for transactions occurring after
December 31, 1996. Upon adoption, transferred lease assets that
qualify for sales treatment under FAS 125 and the related
nonrecourse debt will be removed from the balance sheet with the
resulting gain or loss on sale reflected in the statement of
operations. The Company is unable to estimate the effect of the
adoption on the statement of operations as the amount and
structure of future securitization transactions are unknown. If
FAS 125 would have been applied to the Company's prior
securitization transactions, they would have been accounted for
as a sale.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 2 - Direct Financing Leases
The Company's direct financing leases at December 31, 1996
consist of the following:
<TABLE>
<CAPTION>
Available Assigned
For Sale to Lender
<S> <C> <C>
Minimum lease payments receivable $9,965,431 $24,668,110
Estimated residual values of leased
property 310,640 849,159
Lease acquisition costs and broker
commissions 1,281,959 594,187
Unearned income and allowance for
credit losses (3,074,929) (5,028,303)
Security deposits (232,706) (299,641)
Net direct financing leases $8,250,395 $20,783,512
</TABLE>
Scheduled collections of minimum lease payments receivable are as
follows:
<TABLE>
<CAPTION>
Available Assigned
Year Ending June 30, For Sale to Lender
<S> <C> <C>
1997 (for six months ending) $ 2,708,784 $ 8,559,160
1998 2,714,042 7,828,049
1999 2,333,039 4,833,108
2000 1,384,930 3,081,828
Thereafter 824,636 365,965
$ 9,965,431 $24,668,110
</TABLE>
The Company is required to estimate the amount of leases
expected to result in default and to estimate the amount of loss
that will be incurred under each default. The Company currently
provides allowances for these losses based on the historical
performance of the leases. These losses relate both to leases
that are held by the Company to maturity along with losses that
could result to the Company on leases sold to third parties under
full or partial recourse arrangements. The actual losses
incurred could differ materially from the amounts that the
Company has estimated in preparing the historical financial
statements.
Private Offering of Lease-Backed Term Note
In April 1996, the Company's wholly-owned subsidiary, GF
Funding Corp. I, completed a private offering of a $21,688,993,
6.33% Class A lease-backed term note ("Class A Note"). The Class
A Note requires monthly principal and interest payments as
specified in the Class A Note and the Trust Indenture which
secures the indebtedness evidenced thereby through November 2001.
The principal balance of the Class A Note was $17,800,170 at
December 31, 1996. The Class A Note is collateralized by 1) the
cash flows of the underlying lease assets, 2) all of GF Funding
Corp. I's rights and interest in the related equipment, 3) a cash
collateral account maintained by a trustee and, 4) a financial
guaranty insurance policy which provides an unconditional
guarantee of all principal and interest payments on the Class A
Note in the case of defaults or prepayments on the lease assets.
Of the underlying lease assets which had a carrying value of
$19,266,232 at December 31, 1996, the Company has transferred,
assigned and sold all of its right, title and interest in the
future cash flows from these lease assets and the related
equipment to G.F. Funding Corp. I for the benefit of the holder
of the Class A Note. The Company has surrendered all control
over the future economic benefit of these lease assets and there
is limited recourse to the Company to the extent that the value
of the leases transferred to G.F. Funding Corp. I exceeds the
note balance. The underlying lease assets at a carrying value of
$19,266,232 have been reflected as direct financing leases
assigned to lender in the accompanying consolidated balance
sheet. On a monthly basis, the Company may receive any remaining
cash flows (the securitization residual interest) of the
underlying lease assets and related equipment after the Class A
note is satisfied as defined in the Trust Indenture. All
payments received from the underlying leases are to be sent
directly to a trustee where the cash flow is distributed in the
priorities provided for in the Trust Indenture. The Company is
paid a servicing fee as the servicer for all the underlying lease
contracts.
Note 3-Sale of Leases
The Company entered into agreements with certain financial
institutions to sell, on an ongoing basis, certain leases, either
on a recourse or non-recourse basis. The purchase price of the
leases is determined on a transaction by transaction basis based
upon the present value of the payments to be received under the
lease. Revenue, in the amount of the purchase price, is
recognized on the date of sale. The Company retains servicing of
all leases under the agreements. During the quarters ended
December 31, 1995 and 1996, the cost and related sales proceeds
of leases sold, on a nonrecourse basis, were $7,352,488 and
$7,852,356 and $16,168,227 and $17,428,941, respectively.
For the quarters ended December 31, 1995 and 1996, the cost
and related sales proceeds of leases sold to Heartland Bank were
$7,282,246 and $7,773,905 and $7,207,168 and $7,594,120,
respectively. Heartland Bank became a principal shareholder of
the Company in January 1996. The costs and related sales amounts
are included in the accompanying consolidated statements of
income. At December 31, 1996, $1,019,376 is included in Due to
Affiliate in the accompanying consolidated balance sheet. This
amount is comprised of $8,572 due to the Company for lease
servicing and sales tax reimbursements and $1,027,948 due to
Heartland Bank as a result of a payment made by Heartland Bank
for the purchase of leases. Such purchase was not consummated
and the Company returned the payment to Heartland Bank in January
1997. Subsequent to December 31, 1996, the Company has not sold
any leases to Heartland Bank. With respect to the leases sold to
Heartland Bank, there is recourse to the Company for the amount
of the related residuals of approximately $758,623 at December
31, 1996.
Note 4-Credit Facilities
Line-of-Credit
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
$7,000,000 line-of-credit to a bank, due June 30,
1997. Interest at the bank's reference rate
plus 1% (9.25% at December 31, 1996) payable
monthly. The line is collateralized by
security interests in certain eligible
leases, as defined, entered into by the
Company, including a security interest in the
equipment covered by such leases. $3,901,856
</TABLE>
In February 1997, the Company entered into a $36 million
revolving line of credit agreement with a consortium of lenders
which includes CoreStates Bank of Philadelphia, Pennsylvania as
the lead lender, Colorado National Bank of Denver, Colorado, PNC
National Bank of Philadelphia, Pennsylvania and Bank Leumi of New
York, New York. CoreStates Bank and Colorado National Bank
previously had a credit facility available to the Company. These
credit facilities, which combined totaled $12 million, were
terminated upon the signing of the $36 million credit facility.
The new credit facility is secured by a first security interest
in the specific leases pledged as collateral, as well as a first
security interest in the underlying equipment. This facility
bears interest at the lead lender's prime rate plus five-eighths
of one percent. This facility matures one year from the date of
the agreement. The Company uses this facility to warehouse
leases unless and until such leases are sold or securitized.
Additionally, in January 1997, the Company entered into an
agreement with Colorado National Bank for a $2 million unsecured
revolving credit agreement. This agreement expires on January
31, 1998 and bears interest at the bank's reference rate plus
three fourths of one percent.
Notes payable
Note payable to bank; the note requires a minimum
monthly payment of $86,700, as defined in the agreement,
and interest at 11%, with all unpaid principal and
interest due July 31, 1997. This note is secured by a pledge
of all of the stock of G.F. Funding Corp. I owned by the Company.
The note was paid in full in November 1996 using
proceeds from the initial public offering (Note 5).
Note payable to bank, payable in monthly installments of $78,754, including
interest at the Treasury Rate plus 3%, through February, 2000 when all
unpaid principal and interest is due; collateralized by certain leases
including a security interest in the underlying equipment. Note was repaid
in full in November 1996 as part of a sale of leases into the Company's
second securitization.
<TABLE>
<CAPTION>
December 31,
1996
<S> <C>
Note payable to bank, payable in monthly installments
of $28,303, including interest of 9.80% through
January, 2000; collateralized by certain
leases including a security interest in
the underlying equipment. $ 900,654
</TABLE>
Maturities due on the note payable is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending June 30
1997 (for six months ending) $ 128,281
1998 276,129
1999 304,439
2000 191,805
$ 900,654
</TABLE>
Note 5-Members' Equity
Initial Public Offering
In October 1996, the Company completed its initial public
offering. The offering was comprised of 1,500,000 shares of
common stock priced at $7.50 per share. Additionally, the
Company granted, to the Underwriters of the offering, a 45-day
option to purchase an aggregate of up to 225,000 additional
shares of common stock to cover over-allotments. In December
1996, the Underwriter of the offering exercised its over-
allotment option in full at $7.50 per share. At December 31,
1996, offering costs of $2,203,239 are reflected as a reduction
to additional paid-in-capital in the accompanying consolidated
balance sheet.
Stock Option Plan
The Company adopted its 1996 Omnibus Stock Option Plan
effective June 1996 (the "Option Plan"). An aggregate of 450,000
shares of Common Stock are currently reserved for issuance under
the Option Plan.
The Option Plan provides for the granting of incentive stock
options ("Incentive Stock Options") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended ("Code") and
non-qualified stock options. Non-qualified stock options may be
granted to employees, directors and consultants of the Company,
while Incentive Stock Options may be granted only to employees.
The Option Plan is currently administered by the Compensation
Committee of the Board of Directors, which determines the terms
and conditions of the options granted under the Option Plan,
including the exercise price, number of shares subject to the
option and the exercisability thereof. The Option Plan was
approved by the sole shareholder of GFI as of June 22, 1996.
The exercise price of all Incentive Stock Options granted
under the Option Plan must be equal to the fair market value of
the Common Stock of the Company on the date of grant, and must be
at least 110% of fair market value when granted to a 10% or more
shareholder. The exercise price of all non-qualified stock
options granted under the Option Plan shall be not less than 85%
of the fair market value of the Common Stock on the date of
grant. The term of all options granted under the Incentive Plan
may not exceed ten years, except the term of Incentive Stock
Options granted to a 10% or more shareholder may not exceed five
years.
The Option Plan may be amended or terminated by the Board of
Directors, but no such action may impair the rights of a
participant under a previously granted option.
As of December 31, 1996, a total of 295,000 non-qualified
and Incentive Stock Options were outstanding with exercise prices
ranging from $5.95 to $8.375 per share and a weighted average
exercise price per share of $6.64.
Note 6-Income Taxes
The Company's status as an LLC was terminated upon
completion of the initial public offering. At that time,
deferred tax liabilities were recorded, and a charge to earnings
of $100,000 was included in continuing operations during the
period of the change in tax status. The Company distributed
$111,000 to the members of the LLC to provide the members with
sufficient funds to pay tax liabilities arising as a result of
income allocated to the members for calendar year 1995.
Note 7-Disclosure About Fair Value of Financial Instruments
Direct Financing Leases
The fair values of the direct financing leases available for
sale and the direct financing leases assigned to lender were
determined based on the estimated remaining cash flows discounted
at an estimated current market rate of 11 1/2%.
Notes Payable
The fair value of the line-of-credit and bank notes payable
at December 31, 1996 approximated the carrying value because of
the short-term nature of these instruments. The fair value of
the Class A lease-backed term note approximated the carrying
value due to the nominal difference between the coupon and
current market interest rate.
<TABLE>
<CAPTION>
December 31, 1996
Carrying Fair
Amount Value
<S> <C> <C>
Direct financing leases $19,266,232 $21,241,085
assigned to lender
Direct financing leases 8,250,395 8,914,995
available for sale
Line-of-credit (3,901,856) (3,901,856)
Note payable (900,654) (900,654)
Limited recourse Class A (17,800,170) (17,800,170)
note payable
</TABLE>
The preceding methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it is practicable to estimate that value. Fair value estimates
are made at a specific point in time for the Company's financial
instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and, therefore,
cannot be determined with precision. Fair value estimates do not
reflect the total value of the Company as a going concern.
Note 8-Related Party Transactions
An officer and director of the Company has devoted
approximately 50% of his time to the operations of the LLC
Company, but did not receive any compensation from the LLC
Company. The officer's salary has been paid in full since
February 1995 by a related company.
The Company has agreed to reimburse the related company
$76,000 paid to the officer through June 30, 1996 on the LLC
Company's behalf. For services rendered following September 19,
1996, the Company has agreed to compensate the officer for
service which he will render directly to the Company. Since
September 19, 1996, the officer has devoted full-time to the
Company's business and affairs.
In September 1996, the members advanced to the Company the
sum of $300,000. The notes, evidencing the resulting
indebtedness, which had an 11% interest rate, were scheduled to
mature on November 29, 1996. In November 1996, the Company
repaid in full the advance using proceeds from the initial public
offering (Note 5).
See Note 3 for additional related party transactions.
Note 9-Major Supplier
The Company's leases are originated through a network of 48
independent lease originators located throughout the United
States. Transactions generated by a single independent lease
originator accounted for approximately 18.2% of the Company's
leases funded during the quarter ended December 31, 1996.
Transactions generated by the Company's ten largest independent
lease originators accounted for approximately 63.5% of leases
funded during the quarter ended December 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Factors that may Affect Operating Results
The statements contained in this Report on Form 10-QSB that
are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-
looking statements included in this document are based on
information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual
results could differ materially from those in such forward-
looking statements. Among the factors that could cause actual
results to differ materially are the risk factors set forth in
the Company's Registration Statement on Form SB-2 (Registration
No. 333-5264-D). The reader should consult these risk factors
as well as risk factors listed from time to time in the Company's
reports on Forms 10-QSB, 10-KSB and filings under the Securities
Act of 1933, as amended.
Forward-looking statements include those relating to: (i)
expected volume of equipment leases the Company funds and sells,
(ii) the availability of short- and long-term credit to finance
new equipment leases, (iii) success of the Company in
implementing and maintaining strict underwriting procedures and
guidelines and in securing creditworthy lessees, (iv) success of
the Company in limiting delinquencies and charge-offs in
accordance with historical delinquency and loss statistics, (v)
success of the Company in operating using a highly leveraged
capital structure, (vi) success of additional marketing
initiatives to be undertaken by the Company, (vii) the Company's
success in competing against other financial service companies,
financial institutions, savings and loan associations and credit
unions that provide equipment financing, as well as conventional
leasing companies, (viii) the Company's success in retaining its
independent lease originators and the success of such lease
originators in maintaining or increasing their lease
originations, (ix) the Company's success in managing interest
rate risk, (x) the timing and extent to which the Company is
successful in expanding its lease finance product line, and (xi)
the realization of residual interests, including securitization
residual interests and residual interests of leased equipment.
The forward-looking statements included herein are based on
current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on
assumptions that the Company will continue to secure short-and
long-term credit to finance new equipment leases on a timely
basis, that competitive conditions within the equipment leasing
industry will not change materially or adversely, that demand for
equipment leases will remain strong, that the market will accept
the Company's introduction of new lease finance products, that
risks due to changes in interest rates can be managed and
minimized, that the Company's forecasts will accurately
anticipate demand for equipment leases within the Company's
market, and that there would be no material adverse change in the
Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking
information will prove to be accurate.
In addition, the business and operations of the Company are
subject to substantial risks which increase the uncertainty
inherent in such forward-looking statements. These risk factors
are discussed in detail in the Company's Registration Statement
on Form SB-2 which was declared effective by the Securities an
Exchange Commission on October 25, 1996 (Registration No. 333-
5264-D). Any of the other factors disclosed under "Risk Factors"
in such Registration Statement could cause the Company's revenues
or net income, or growth in revenues or net income, to differ
materially from prior results. Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause the
Company to alter its lease finance, marketing, capital
expenditure or other budgets, which may in turn affect the
Company's results of operations. In light of these significant
uncertainties inherent in forward-looking information included
herein, the inclusion of such information should not be regarded
as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
The Company competes in the equipment leasing industry with
established companies, some of which have substantially greater
financial, marketing, and personnel resources than the Company.
No assurance can be given that the Company will be able to
compete successfully in the equipment leasing industry or that it
will be able to successfully introduce new lease finance products
in the future. The failure of the Company to compete
successfully in the equipment leasing industry would materially
and adversely affect the Company's financial condition and
results of operations.
The Company is highly dependent on access to substantial
short- and long-term credit to finance new equipment leases.
Although the Company has to date been successful in securing
recourse borrowings, equity financing, funds from asset
securitizations, and funds from lease sales, there can be no
assurance the Company will obtain additional financing when
needed, on acceptable terms or in required amounts. The
Company's credit facilities require the Company to maintain
certain financial ratios and to meet certain other requirements,
the violation of which could result in a default and acceleration
of a repayment obligation. The Company will be dependent on the
receipt of additional financing in future periods in order to
finance new equipment leases, the unavailability of which would
materially and adversely affect results of operations.
The specialty finance industry recently experienced an
upheaval as a result of announcements of adverse developments by
two companies engaged in the purchase, securitization, sale and
servicing of motor vehicle retail installment sale contracts
originated by automobile dealers. The Company is not principally
engaged in the purchase, securitization, sale or servicing of
motor vehicle retail installment sale contracts or leases.
Nonetheless, the Company believes that adverse publicity
concerning this segment of the specialty finance industry could
adversely affect the specialty finance industry as a whole.
Liquidity and Capital Resources
Equipment leasing is a capital intensive business. As such,
the Company requires access to substantial short and long-term
credit to fund new equipment leases. From inception through
December 31, 1996, the Company has funded its operations
primarily through sale of leases, recourse borrowings, the
initial public offering and private sales of equity and through
securitization transactions. The Company's requirements for
liquidity and access to additional capital have been, and will
continue to be, significant. In the event the growth in leases
funded and sold continues at recent rates, the Company's capital
requirements will likewise continue to increase.
On October 25, 1996, the Company completed its initial
public offering of 1,500,000 shares of common stock priced at
$7.50 per share. Additionally, during December 1996, the
underwriter of such offering exercised an option to purchase up
to 225,000 additional shares of common stock to cover over-
allotments at $7.50 per share. The Company received net proceeds
from such offering, including the over-allotment shares, of
approximately $10,735,000 (after deducting the underwriter's
discounts and expenses and other expenses payable by the Company
estimated at $2,203,000). The proceeds from the offering were or
will be used primarily to fund expanded leasing operations, pay
expenses and fund collateral enhancements required by future
securitizations, repay a term loan of $874,856, repay advances
from shareholders, fund a distribution to members of the LLC
Company, for income taxes and for other working capital and
general corporate purposes.
On November 5, 1996, the Company closed its second
securitization transaction. The aggregate amount available for
funding under such securitization is $65 million. On the initial
closing date of November 5, 1996, the investor funded
approximately $7.2 million. The remaining amount under such
facility is available for funding on a monthly basis, subject to
certain monthly minimum and maximum amounts, during the period
beginning on November 5, 1996, and, unless sooner terminated,
ending on January 20, 1998. In December 1996, the Company
deposited additional leases into the securitization with the
investor funding approximately $1,933,000. Based on the
structure of this securitization, the Company will account for
all fundings on a sale basis for financial statement purposes,
which allows the Company to recognize immediately gain on leases
contributed and sold through such securitization. Transactions
occurring on or after January 1, 1997 will be accounted for
following the provisions of FAS 125. The Company's first
securitization completed in April 1996 was accounted for as a
collateralized borrowing rather than on a sale basis due to the
different structure of that securitization. The overall effect
on the Company's financial position and results of operations of
future securitizations may differ significantly based on the
accounting method utilized for such securitizations.
As of December 31, 1996 the Company maintained various bank
credit facilities in the aggregate amount of $19.3 million. Each
credit facility is secured by a first security interest in the
specific leases pledged as collateral, as well as a first
security interest in the underlying equipment. At December 31,
1996, an aggregate of $4.8 million was outstanding under these
facilities. In February 1997, the Company entered into a $36
million revolving line of credit agreement with a consortium of
lenders which include CoreStates Bank of Philadelphia,
Pennsylvania as lead lender, Colorado National Bank of Denver,
Colorado, PNC National Bank of Philadelphia, Pennsylvania and
Bank Leumi of New York, New York. The interest rate on this
facility is prime rate plus five-eighths of one percent. Prior
to this agreement, the Company had an existing credit facility
with each of CoreStates Bank and Colorado National Bank. These
credit facilities, which on a combined basis totaled $12 million,
were terminated upon the signing of the $36 million credit
facility. The interest rates on the terminated facilities were
prime plus three quarters of one percent and prime plus one
percent for CoreStates and Colorado National Bank, respectively.
The new credit facility is secured by a first security interest
in the specific leases pledged as collateral, as well as a first
security interest in the underlying equipment. The Company uses
these facilities to warehouse leases unless and until such leases
are sold or securitized. Additionally, in January 1997, the
Company entered into an agreement with Colorado National Bank for
a $2 million unsecured revolving credit agreement.
In November 1996, a term loan in the amount of $874,856 was
repaid using the proceeds from the initial public offering. The
Company also repaid another term loan in the amount of $2,729,079
from the proceeds received as a result of the initial funding
into its second securitization.
In June 1995, the Company entered into a Lease Sale
Agreement with Heartland Bank to sell leases to Heartland Bank at
a price equal to the remaining cash flows of the leases
(including residual interests), discounted to present value at an
11 1/2 % per annum rate. For the quarter ended December 31,
1996, Heartland Bank purchased leases with a present value of
approximately $7.6 million from the Company. These lease
purchases provided the Company with significant liquidity during
this period.
The Company's cash and cash equivalents at December 31, 1996
were $8,393,125. For the quarter ended December 31, 1996, net
cash provided by operating activities was $3,095,000. Cash used
to fund direct financing leases available for sale of $820,000
and an increase in prepaids and other assets of $593,000 was
partially offset by advances from affiliates of $926,000. Net
cash provided by financing activities was $3,773,000 for the
quarter ended December 31, 1996, reflecting net proceeds from the
issuance of common stock of $10,832,000, proceeds received from
notes payable of $1,303,000, and offset by principal payments of
the Class A notes of $3,000,000 and principal payments on notes
payable of $4,493,000.
Results of Operations
The following table sets forth, for the periods indicated,
the percentage of total revenues represented by certain items
included in the CompanyOs Consolidated Statements of Income:
GRANITE FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
6 Months 6 Months
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Revenues
Total revenues 100.0% 100.0%
Cost
Cost of leases sold 87.4% 93.1%
Provision for credit losses 0.4% 0.0%
Interest expense 3.2% 0.0%
Securitization expenses and
amortization 0.5% 0.0%
Total costs 91.5% 93.2%
Gross Profit 8.5% 6.8%
Othere expenses
Salaries and benefits 2.0% 2.1%
General and administrative 1.4% 1.6%
Depreciation and amortization 0.3% 0.1%
Total other expenses 3.7% 3.8%
Income before income taxes 4.8% 3.0%
Income taxes (see note below) (2.1%) (1.1)%
Net income 2.7% 1.9%
</TABLE>
Note: Income taxes for the 1996 period reflects federal and state income
taxes including a one-time charge to earnings of $100,000 as part of
the reorganization from an LLC Company to a C Corporation. Income taxes
for the 1995 period reflects pro forma taxes at 37% as if the entity
was taxed as a C Corporation.
Six months ended December 31, 1996 and December 31, 1995
The Company's revenues are primarily a function of both the
immediate gain recognition from leases sold and the accretion of
income from leases held in the Company's lease portfolio. Sales
of leases to financial institutions during the six months ended
December 31, 1996 ("1996 Period") totaled approximately $27.9
million, an increase of $15.4 million from $12.5 million during
the six months ended December 31, 1995 ("1995 Period"). Income
from direct financing leases increased from $18,000 in the 1995
Period to approximately $1,912,000 in the 1996 Period. The
income from direct financing leases reflects the accounting for
the April 1996 securitization as a collateralized borrowing.
Under this method of accounting for the securitization, the
Company records the securitized leases and related limited
recourse debt in the financial statements and recognizes the
related finance income over the life of the leases using the
interest method. A significant amount of the 1996 Period income
from direct financing leases is attributable to leases included
in the April 1996 securitization. The growth in the sales of
leases and income from direct financing leases is primarily
attributable to the increase in the number of leases funded by
the Company. The number of leases funded by the Company
increased from 482 leases in the 1995 Period to 1,047 leases in
the 1996 Period. Additionally, the dollar amount of leases
funded increased from $11.8 million in the 1995 Period to $26.8
million in the 1996 Period.
Cost of leases sold increased approximately $14.3 million
from $11.7 million in the 1995 Period to approximately $26.0
million in the 1996 Period. However, the cost of leases sold as
a percentage of revenues declined from 93.1% in the 1995 Period
to 87.4% in the 1996 Period, reflecting the favorable impact of
the April 1996 securitization on the cost of leases sold.
The Company's gross profit as a percentage of revenues
increased from 6.8% in the 1995 Period to 8.5% in the 1996
Period. The costs included in the calculation of gross profit
include not only the cost of leases sold but also the provision
for credit losses and interest expense related to the income from
leases held in the Company's portfolio. Other costs included in
the calculation of gross profit are securitization expenses and
closing costs directly associated with each securitization
transaction. The Company's gross profit is directly related to
the difference between the implied rate of interest received on
leases funded and interest paid on amounts borrowed or the
implicit rate of interest in the arrangement under which leases
are securitized (referred to as the margin). The increase in the
gross profit percentages from the 1995 Period to the 1996 Period
is primarily attributable to the impact of the greater margins
achieved as a result of the securitization transactions
completed in April 1996 and November 1996 which carry
advantageous borrowing rates.
Interest expense increased from $1,300 in the 1995 Period to
$941,000 in the 1996 Period. The increase in interest expense
was primarily a result of the increase in borrowings, both under
credit lines and under the $21 million limited recourse note from
the April 1996 securitization. The increase in borrowings were a
direct result of the overall growth in the number of leases
funded by the Company from the 1995 Period to the 1996 Period.
Salaries and benefits increased by $337,000 from $267,000 in the
1995 Period to $604,000 in the 1996 Period. Salaries and
benefits represent personnel costs directly attributable to the
Company's executive, underwriting, marketing, documentation, data
processing and accounting functions. The addition of eleven
employees from the 1995 Period to the 1996 Period, which were
necessary to support the Company's growth in business, has
resulted in the increase in salaries and benefits. General and
administrative expenses increased $217,000 from $197,000 in the
1995 Period to $414,000 in the 1996 Period. General and
administrative expenses include operational expenses such as
office overhead, accounting, legal and other expenses not
directly attributable to personnel. The increase from the 1995
Period to the 1996 Period was primarily due to expenses directly
associated with the growth in lease fundings such as, but not
limited to, UCC filing fees, credit reports, postage, and
telephone expense. Depreciation and amortization increased
$77,000 from $14,000 in the 1995 Period to $91,000 in the 1996
Period. This increase reflects the Company's addition of office
and computer equipment as operations expanded from the 1995
Period to the 1996 Period. Also adding to the increase were loan
costs paid in the 1996 Period as a result of utilizing certain
credit facilities.
Net income increased $565,000, from $236,000 in the 1995
Period to $801,000 in the 1996 Period. As Granite Financial, LLC
was not subject to federal and state income taxes, net income
represents the difference between gross profit and other
expenses. To allow comparisons with C Corporations, net income
for the 1995 period reflects income taxes at a combined federal
and state tax rate of 37.0%. Based on this assumption, the
Company would have incurred income taxes of $139,000 in the 1995
Period. In the 1996 period, the Company has estimated $630,000
of income tax expense. This includes a $100,000 one-time charge
to earnings which was incurred as part of the reorganization from
an LLC Company to a C Corporation.
Static Pool Analysis
The Company has monitored its underwriting and collections
performance using "static pool" analysis since inception. Static
pool analysis is a statistical monitoring methodology by which
each month's lease originations are treated as a unique pool and the
performance of this pool is tracked separately. The measure of
performance is based on several factors which include
delinquencies over 31 days, gross defaults and net write-offs.
Static pool analysis is one of the tools used by rating agencies
and lenders to analyze a company's historical performance and
make estimates for future performance.
The following tables set forth delinquencies 31 or more days
past due and net write-offs for the Company as of December 31,
1996. The net write-offs table presents net write-offs for a
quarter as a percentage of original net investment in the lease
portfolio for that quarter. For periods denoted with a negative
number in the net write-off table, the amount of recoveries
exceeded the amounts written off in that period. The 31 or more
days past due delinquencies table presents the delinquent leases
for a quarter as a percentage of the remaining lease receivable
balance for that pool. While the Company analyzes its static
pools on a monthly basis, for presentation purposes, the
information in the table is presented on a quarterly basis. The
data in both tables are in line with what the management of the
Company expected with regard to its overall portfolio
performance.
Static Pool Reporting
31+ Days Delinquent
(000's)
<TABLE>
<CAPTION>
Original
Lease Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr5 Qtr 6 Qtr 7 Qtr 8
Receivable
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st quarter
1995 $ 31 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
2nd Quarter 1,748 0.0% 0.0% 0.0% 0.4% 0.4% 0.3% 0.9%
1995
3rd Quarter 6,082 0.0% 2.5% 2.1% 3.5% 3.9% 5.6%
1995
4th Quarter 10,444 0.0% 0.9% 2.4% 3.0% 5.3%
1995
1st Quarter 15,906 0.0% 0.8% 2.0% 3.3%
1996
2nd Quarter 16,849 0.0% 1.2% 2.6%
1996
3rd Quarter 15,467 0.0% 0.8%
1996
4th Quarter 22,220 0.0%
1996
</TABLE>
Static Pool Reporting
Net Investment Write Off
(000's)
<TABLE>
<CAPTION>
Original
Investment Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8
Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 23 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1995
2nd Quarter 1,337 0.0% 0.0% 0.0% 0.0% 1.0% 0.0% -0.4%
1995
3rd Quarter 4,755 0.0% 0.0% 0.0% 0.0% 0.0% 0.5%
1995
4th Quarter 8,107 0.0% 0.0% 0.2% 0.2% 2.4%
1995
1st Quarter 12,377 0.0% 0.0% 0.1% 1.0%
1996
2nd Quarter 13,174 0.0% 0.0% 1.1%
1996
3rd Quarter 12,077 -0.1% 0.0%
1996
4th Quarter 17,338 0.0%
1996
</TABLE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly
authorized.
GRANITE FINANCIAL, INC.
Dated: February 14, 1997 By: s/ William W. Wehner
X
William W. Wehner
Chairman and President
Dated: February 14, 1997 By: s/ William S. Cobb
x
William S. Cobb
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 8,393,125 8,393,115
<SECURITIES> 0 0
<RECEIVABLES> 29,383,618 29,383,618
<ALLOWANCES> 349,711 349,711
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 703,895 703,895
<DEPRECIATION> 90,717 90,717
<TOTAL-ASSETS> 39,716,730 39,716,730
<CURRENT-LIABILITIES> 0 0
<BONDS> 22,602,680 22,602,680
0 0
0 0
<COMMON> 3,725 3,725
<OTHER-SE> 14,180,057 14,180,057
<TOTAL-LIABILITY-AND-EQUITY> 39,716,730 39,716,730
<SALES> 17,428,941 27,855,164
<TOTAL-REVENUES> 18,410,831 29,766,668
<CGS> 16,168,227 26,011,352
<TOTAL-COSTS> 684,215 1,214,981
<OTHER-EXPENSES> 645,147 1,109,669
<LOSS-PROVISION> 106,000 131,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 913,242 1,430,666
<INCOME-TAX> 438,074 629,521
<INCOME-CONTINUING> 475,168 801,145
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 475,168 801,145
<EPS-PRIMARY> .15 .30
<EPS-DILUTED> .15 .30
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1Computation of Earnings Per Share
EXHIBIT 11.1
GRANITE FINANCIAL, INC.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1995 1996
<S> <C> <C>
Earnings Per Share - Primary
Earnings
Income from continuing operations (a) $235,963 $801,145
Net Income $235,963 $801,145
Shares
Weighted average shares outstanding 2,000,000 2,586,957
Shares issuable from assumed exercise
of stock options ( b ) - 69,525
Common stock and common stock equivalents 2,000,000 2,656,482
Earnings per share - primary
Income from continuing operations $ 0.12 $ .30
Earnings per share - primary $ 0.12 $ .30
Earnings Per Share - Assuming Full Dilution
Earnings
Income from continuing operations $ 235,963 $ 801,145
Net Income $ 235,963 $ 801,145
Shares
Common stock and primary common stock
equivalents 2,000,000 2,656,482
Additional dilutive effect of assumed
exercise of stock options - 13,651
Common stock and common stock
equivalents 2,000,000 2,670,133
Earnings per share - assuming full
dilution (c)
Income from continuing operations $ 0.12 $ 0.30
Earnings per share - fully diluted $ 0.12 $ 0.30
</TABLE>
(a) Income from continuing operations for the 1996 period includes a
one-time charge to earnings of $100,000 as part of the
reorganization from an LLC Company to a C Corporation. The 1995 period
reflects pro forma taxes at 37% as if the entity was taxed as a C
Corporation.
(b) Common stock equivalents are calculated using the treasury stock
method.
(c) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by Footnote
2 to paragraph 14 APB Opinion No.15 because it results in
dilution of less than 3%.
