UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
( X ) Quarterly report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934.
For the quarterly period ended September 30, 1997.
( ) Transition report pursuant to Section 13 or 15(d) of the Exchange
Act for the transition period from _____
____________ to ____________ .
Commission File Number: 333-06328
Sterling Financial Services of Florida I, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Florida 65-0716464
(State of Incorporation) (I.R.S.
Employer I.D. No)
239 Halliday Park Drive, Tampa, Florida 33612
(Address of Principal Executive Offices)
(813) 932-2228
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 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)
Indicate the number of shares outstanding of each of the issuer's classes of
stock as of April 21, 1999.
1,000 Common Shares
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
<PAGE>
Sterling Financial Services of Florida I, Inc.
(A Development Stage Company)
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets as of September 30, 1997 and January 10, 1997 3
Statements of Operations for the Three Months Ended September 30,
1997 and the Period January 3, 1997 (Inception) to September 30,
1997...................................................... 4
Statement of Stockholders' Deficit as of September 30, 1997 5
Statements of Cash Flows for the Three Months Ended September 30,
1997 and the Period January 3, 1997 (Inception) to September 30,
1997..................................................... 6
Notes to Financial Statements ........................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................. 12
Item 2. Changes in Securities .............................. 12
Item 3. Defaults Upon Senior Securities .................... 12
Item 4. Submission of Matters to a Vote of Securities Holders 12
Item 5. Other Information................................... 12
Item 6. Exhibits and Reports on Form 8-K.................... 12
Signatures
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<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
(A Development Stage Company)
BALANCE SHEETS
-----------------------------------------------------------
September
30, 1997 January
ASSETS (Unaudited) 10, 1997
---------- ----------
Cash and cash equivalents $ 620,811 $ 1,000
Finance receivables 79,115 0
Property and equipment - net 113,976 0
Deferred debt issuance cost,net 151,284 0
------------- -----------
TOTAL $ 965,186 $ 1,000
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Secured notes payable $ 984,000 $ 0
Due to stockholder 1,750 0
Accrued expenses 30,200 0
------------- -----------
Total liabilities 1,015,950 0
------------- -----------
STOCKHOLDERS' DEFICIT
Common stock, no par value,
10,000 shares
authorized; 1,000 shares
issued and outstanding 1,000 1,000
Deficit accumulated
during the development stage (51,764) 0
------------- -----------
Total stockholders' deficit (50,764) 1,000
------------- -----------
TOTAL $ 965,186 $ 1,000
============= ===========
-----------------------------------------------------------
See accompanying notes.
-3-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
------------------------------------------------------
Period
Three January
Months 3,
Ended 1997
September Inception
30, 1997 to
September
30,1997
---------- ----------
REVENUES:
Rental income $ 647 $ 647
Floor plan charges and 1,180 1,180
fees
Appraisal fees 500 500
----------- ------------
Total revenues 2,327 2,327
----------- ------------
OPERATING EXPENSES:
Management fees
- related party 14,025 18,575
Office rent
- related party 8,825 13,225
Depreciation 1,815 1,815
Other 149 849
----------- ------------
Total operating expenses 24,814 34,464
----------- ------------
LOSS FROM OPERATIONS (22,487) (32,137)
INTEREST EXPENSE (18,831) (19,627)
----------- ------------
NET LOSS $ (41,318) $ (51,764)
=========== ============
LOSS PER COMMON SHARE $ (41.32) $ (51.76)
=========== ============
------------------------------------------------------
See accompanying notes.
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<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I,INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
- ----------------------------------------------------------------------------
Deficit
Accumulated
During
Common Stock the
Development
Shares Amount Stage Total
------- -------- ---------- ------
Balances, January 3, 1997 0 $ 0 $ 0 $ 0
(Inception)
Issue of common stock 1,000 1,000 1,000
Net loss for period
January 3,1997 (Inception)
through September 30, 1997 (51,764) (51,764)
------- -------- ----------- ---------
Balances, September 30, 1997 1,000 $ 1,000 $ (51,764) $ (50,764)
======= ======== =========== =========
- ----------------------------------------------------------------------------
See accompanying notes.
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<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
( A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------
Period
Three January
Months 3, 1997
Ended (Inception)
September to
30, 1997 September
30, 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (41,318) $ (51,764)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 1,815 1,815
Amortization 6,888 6,888
Increase in accrued expenses 200 30,200
------------- ---------
NET CASH USED BY OPERATING ACTIVITIES (32,415) (12,861)
------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (106,156) (115,791)
Finance receivables originated, net of payments
and discounts (79,115) (79,115)
------------- ---------
NET CASH USED BY INVESTING ACTIVITIES (185,271) (194,906)
------------- ---------
CASH FLOWS FROM FINANCING ACTIVITES:
Issuance of common stock 1,000
Issuance of secured notes payable 845,000 984,000
Net increase(decrease) in stockholder loan 1,750
Cash paid for deferred debt issuance costs (158,172)
(104,856)
------------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 740,144 828,578
------------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 522,458 620,811
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 98,353 0
------------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 620,811 $ 620,811
============= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- - Interest paid $ 11,943 $ 12,739
============= =========
- ------------------------------------------------------------------------------
See accompanying notes.
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<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- ------------------------------------------------------------------------------
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
Sterling Financial Services of Florida, I, Inc. (the "Company") was incorporated
under the laws of the state of Florida on January 3, 1997. The Company, which is
considered to be in the development stage as defined in Financial Accounting
Standard No. 7, intends to offer financial services to the sub-prime mobile home
industry, including originating and refinancing for its own account installment
contracts created in connection with the sale of used and new mobile homes. The
Company also owns and rents mobile homes.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principals for interim
financial information and the instructions to Form 10-QSB and Rule 10-1 of
Regulation S-X of the Securities and Exchange Commission (the "SEC").
Accordingly, these financial statements do not include all of the footnotes
required by generally accepted accounting principals. In the opinion of
management, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 1997 and the period January 3,
1997 (Inception) to September 30, 1997 are not necessarily indicative of the
results that may be expected for the period January 3, 1997 (Inception) to
December 31, 1997. The accompanying financial statements and the notes should be
read in conjunction with the Company's audited financial statements as of
January 10, 1997 contained in its Amendment No.3 Registration Statement on Form
S-1.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principals requires that management make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of the revenues and expenses during the
reporting period may be affected by the estimates and assumptions that
management is required to make. Actual results could differ from those
estimates.
Basis of Accounting
The Company's financial statements are prepared using the accrual basis of
accounting.
Year End
The Company's year-end for financial and tax-reporting purposes is December 31.
Revenue Recognition
Interest income is recognized using the interest (actuarial ) method. Unearned
finance charges are rebated to customers under the Rule of 78's method. The
difference between income previously recognized under the interest method and
the Rule of 78's method is recognized as an adjustment to interest income at the
time of rebate. Accrual of interest income on finance receivables is generally
suspended when no payment has been received for ninety days; the accrual of
income is not resumed until management believes such interest is collectible.
-7-
<PAGE>
Nonrefundable Acquisition Discounts and Allowance for Credit Losses
The Company enters into agreements with dealers that establish nonrefundable
acquisition discounts to protect the Company from potential losses associated
with the financing of installment sales contracts. All or a portion of these
negotiated discounts are available to absorb credit losses. Credit loss
experience, contractual delinquency of loan receivables, the value of underlying
collateral and current economic conditions are factors management uses in
negotiating the discounts and assessing the overall adequacy of the discounts to
absorb losses. Management attempts to maintain the nonrefundable acquisition
discount account at a level consistent with anticipated loan charge offs.
The allowance for credit losses is established through a charge to earnings
based on management's evaluation of potential losses inherent in the portfolio.
Such evaluation includes a review of all such assets for which full
recoverability may not be reasonably assured. At September 30, 1997, management
believes no allowance for credit losses is necessary.
The Company generally initiates repossession proceedings when an account is more
than two payments contractually past due, but the repossession process is
accelerated for loans which become delinquent in the first or second payment.
Financial Instruments
The Company believes the book value of their cash and cash equivalents and
accrued expenses approximates their fair values due to their short-term nature.
The book value of the Company's finance receivables and secured notes payable
approximates their fair values as the current interest rates approximate rates
at which similar types of lending and/or borrowing arrangements could be
currently negotiated by the Company.
Property and Equipment
Property and equipment are stated at cost. Major additions are capitalized,
while minor additions and maintenance and repairs, which do not extend the
useful life of an asset, are expensed as incurred. Depreciation is computed
using an accelerated method over the assets' estimated useful lives of 5 to 27.5
years.
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal Revenue
Code, and accordingly is not subject to income taxes as the results of
operations flow through to the shareholders for inclusion in their personal tax
returns.
Deferred Debt Issuance Costs
Direct costs incurred to register and issue the secured notes payable are
deferred and amortized to interest expense over the lives of the loans using the
actuarial method.
Loss per Common Share
Loss per common share is based on the weighted average number of common and
common equivalent shares outstanding during the period. The weighted average
number of common shares outstanding during the period January 3, 1997
(Inception) to September 30, 1997 was 1,000.
-8-
<PAGE>
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of finance receivables and cash. Management
believes risk with respect to such receivables is mitigated because the Company
performs ongoing credit evaluations of its' customers financial condition, and
because such receivables are collateralized by the mobile homes purchased with
the proceeds of the loans. The Company maintains all of its cash and cash
equivalents at one FDIC insured institution that has a maximum insurance limit
of $100,000. Accordingly, at September 30, 1997 the Company's uninsured cash
balances approximated $521,000.
NOTE C - FINANCE RECEIVABLES - NET
The finance receivables generally have terms of 60 to 120 months with rates
ranging from 13% to 17.9%. At September 30, 1997 no interest income had been
suspended on finance receivables.
NOTE D - SECURED NOTE PAYABLES
Secured notes payable bear interest at 10.5%, with interest payable monthly, and
mature on June 30, 2002. The notes are secured by a first lien on any assets
acquired with the proceeds of the notes. The notes are prepayable in whole or in
part at any time without premium or penalty. The Company has registered $9.9
million of such notes and is continuing to offer the remaining $9,761,000 of
secured notes for sale. The notes are being offered on a "best-efforts" basis by
broker-dealers who are members of the National Association of Securities
Dealers, Inc.
NOTE E - RELATED PARTY TRANSACTIONS
The Company's majority stockholder advanced $6,750 to the Company of which
$5,000 was repaid during the period January 3, 1997 (Inception) to September 30,
1997; the remaining $1,750 is reflected in the accompanying balance sheet as a
due to stockholder. The advances were and are unsecured, non-interest bearing
and due on demand.
Sterling Financial Services, Inc. ("SFS"), a related party due to common
ownership manages the Company and leases space to the Company for its
operations. Management fees and office rent paid to SFS during the period
January 3, 1997 (Inception) to September 30, 1997 totaled $22,850.
-9-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW
The following discussion and analysis should be read in conjunction with the
balance sheet as of January 10, 1997 and the financial statements as of and for
the three months ended September 30, 1997 and the period January 3, 1997
(Inception) to September 30, 1997 included with this Form 10-QSB.
The Company, which is currently in the development stage, intends to offer
financial services to the sub-prime mobile home industry by originating and
refinancing sub-prime mobile home installment contracts. The Company also owns
and rents mobile homes.
RESULTS OF OPERATIONS
The Company generated revenue of $2,327 during the three months ended September
30, 1997. No revenue was generated prior to the three months ended September 30,
1997. The revenues arose primarily from fees charged to floor plan customers.
Operating expenses for the three months ended September 30, 1997 and for the
period January 3, 1997 (Inception) to September 30, 1997 totaled $24,814 and
$34,464, respectively and consisted primarily of management fees and office
rent. These amounts were paid to Sterling Financial Services ("SFS"), which is
related to the Company by virtue of common ownership. Interest expense incurred
on the secured notes payable, including amortization of deferred debt issuance
costs of $6,888, was $18,831 and $19,627, respectively for the three months
ended September 30, 1997 and for the period January 3, 1997 (Inception) to
September 30, 1997. The net losses for the three months ended September 30, 1997
and for the period January 3, 1997 (Inception) to September 30, 1997 were
$41,318 and $51,764, respectively. The losses are the result of the initial
start up costs incurred to implement the Company's business plan.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the three months ended September 30, 1997 and the
period January 3, 1997 (Inception) to September 30, 1997 used $32,415 and
$12,861 of cash, respectively. These cash outlays were used to fund the
aforementioned net losses less various non-cash expenses and accrued expenses of
$8,703 and $30,200, respectively.
Investing activities, which arose from purchases of property and equipment and
the origination of finance receivables, used cash of $185,271 and $194,906
during the three months ended September 30, 1997 and the period January 3, 1997
(Inception) to September 30, 1997, respectively. No finance receivables had been
originated prior to the three months ended September 30, 1997. Finance
receivables generally have terms of 60 to 120 months with interest rates ranging
from 13% to 17.9%.
Financing activities have generated net cash flow of $740,144 during the three
months ended September 30, 1997 and $828,578 for the period January 3, 1997
(Inception) to September 30, 1997. Cash inflows from financing activities arose
primarily from the sale of $984,000 of secured notes payable (of which $845,000
related to the three months ended September 30, 1997). Financing cash outflows
relate primarily from the payment of deferred debt issuance costs of $158,172
(of which $104,856 was paid during the three months ended September 30, 1997).
The Company also repaid $5,000 that had been advanced by the majority
stockholder during the three months ended June 30, 1997. The balance of the
stockholder advance is $1,750; such amount is unsecured non-interest bearing,
and due on demand.
-10-
<PAGE>
The Company is offering subscriptions for a maximum of 9,900 secured notes in
the principal amount of $1,000 each. As such, $8,916,000 of notes remain
available for sale as of September 30, 1997. If all of these notes are sold, the
Company will net approximately $8,024,400. The notes bear simple interest at
10.5% and mature on June 30, 2002. Interest is payable monthly. The notes are
secured by a first lien on the assets acquired with the proceeds of the
offering. The notes are prepayable in whole or in part at any time without
premium or penalty.
The Company believes that it will be able to satisfy its cash requirements for
the foreseeable future if it does not expand its business by originating
additional finance receivable contracts. However, in order for the Company to
expand its dealer base and portfolio of finance receivable contracts, the
Company must secure additional capital resources through additional debt or
equity offerings and/or institutional financing, such as a line of credit. No
assurance can be given that additional capital resources will be available
through such sources, or available on reasonable terms. If the Company is unable
to originate finance receivable contracts in an amount and at a pace that
approximates the amount and the pace that capital is raised through the issue of
secured notes, the interest earned on the capital raised will not be sufficient
to cover the cost of the interest on the secured notes.
- ------------------------------------------------------------------------------
-11-
<PAGE>
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 Securities Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
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.
05/03/99 /s/ Anthony A. Sutter
- ---------------------------- --------------------------------
Date Anthony A. Sutter, President
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 620,811
<SECURITIES> 0
<RECEIVABLES> 79,115
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 699,926
<PP&E> 115,791
<DEPRECIATION> 1,815
<TOTAL-ASSETS> 965,186
<CURRENT-LIABILITIES> 31,950
<BONDS> 984,000
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 965,186
<SALES> 0
<TOTAL-REVENUES> 2,327
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,627
<INCOME-PRETAX> (51,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,764)
<EPS-PRIMARY> (51.76)
<EPS-DILUTED> (51.76)
</TABLE>
