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 June 30, 1998.
( ) 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 June 23, 1999
1,000 Common Shares
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
<PAGE>
Sterling Financial Services of Florida I, Inc.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets as of June 30, 1998 and December 31,
1997......................................................... 3
Statements of Operations for the three and six-months ended June
30, 1998, the three-months ended June 30, 1997 and the period
January 3, 1997 (date of inception) to June 30, 1997.......... 4
Statement of Stockholders' Deficit for the six-months ended June
30, 1998 ..................................................... 5
Statements of Cash Flows for the three and six-months ended June 30,
1998, the three-months ended June 30, 1997 and the period January
3, 1997 (date of inception) to June 30, 1997 ................. 6
Notes to Financial Statements ............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................ 11
Item 2. Changes in Securities .............................. 11
Item 3. Defaults Upon Senior Securities .......................... 11
Item 4. Submission of Matters to a Vote of Securities Holders 11
Item 5. Other Information.................................. 11
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signatures
-2-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
BALANCE SHEETS
- -------------------------------------------------------------------
June 30 December
ASSETS 1998 31, 1997
- ------ Unaudited
---------- ----------
Cash and cash equivalents $1,836,324 $ 816,433
----------- ------------
Receivables:
Finance 759,633 196,503
Mobile home floor plan 191,066 86,040
Affiliate 12,300 12,550
----------
-----------
Total receivables 962,999 295,093
----------- ----------
Inventories 12,000 12,000
----------- ------------
Property and equipment - 228,569 173,231
net
----------- ------------
Deferred debt issuance 357,407 172,856
costs, net
----------- ------------
TOTAL $3,397,299 $ 1,469,613
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Secured notes payable $3,803,000 $ 1,612,000
Accrued and other 36,621 8,150
liabilities
----------- ------------
Total liabilities 3,839,621 1,620,150
----------- ------------
STOCKHOLDERS' DEFICIT
Common stock, no par value, 10,000
shares authorized,
1,000 shares issued and outstanding 1,000 1,000
Deficit (443,322) (151,537)
----------- ------------
Total stockholders' deficit (442,322) (150,537)
----------- ------------
TOTAL $3,397,299 $ 1,469,613
=========== ============
- -------------------------------------------------------------------
See accompanying notes.
-3-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
- -----------------------------------------------------------------------------
Period
January
Three-Months Three-Months Six-Months 3, 1997
Ended Ended Ended (date of
June 30, June 30, June inception)
1998 1997 30,1998 to June
30, 1997
------------ ------------ -----------------------
REVENUES:
Interest and fees $ 65,211 $ 89,552
Rental income 24,437 43,317
Other 1,080 3,745
------------ -----------
Total revenues 90,728 136,614
------------ -----------
OPERATING EXPENSES:
Management fees 88,488 $ 4,550 137,189 $ 4,550
Interest 102,579 796 161,428 796
Occupancy and equipment 35,392 4,400 80,660 4,400
Professional fees 10,763 15,013
Other (1,310) 250 34,109 700
------------ ------------ -----------------------
Total operating 235,912 9,996 428,399 10,446
expenses
------------ ------------ -----------------------
NET LOSS $(145,184) $ (9,996) $(291,785) $ (10,446)
============ ============ =======================
LOSS PER COMMON SHARE $ (145.18) $ (10.00) $ (291.79) $ (10.45)
============ ============ =======================
- -----------------------------------------------------------------------------
See accompanying notes.
-4-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
- ------------------------------------------------------------------------------
Common Stock
Shares Amount Deficit Total
-------- ----------- ---------- --------
Balances, December 31, 1,000 $ 1,000 $(151,537) $ (150,537)
1997
Net loss for the six
months ended (291,785) (291,785)
June 30, 1998
-------- ----------- ----------- -----------
Balances, June 30, 1998 1,000 $ 1,000 (443,322) $ (442,322)
======== =========== =========== ===========
- ------------------------------------------------------------------------------
See accompanying notes.
-5-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January
Three-Months Three-Months Six-Months 3, 1997
Ended Ended Ended (date of
June 30, June 30, June inception)
1998 1997 30,1998 to June
30, 1997
------------ ------------ -----------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(145,184) $(9,996) $ (291,785)$ (10,446)
Adjustments to reconcile net loss to net
cash provided bY
(used in) operating activities:
Depreciation 6,446 12,892
Amortization and write off of deferred 21,189 33,750
debt issuance costs
Increase in accrued and other 21,893 30,000 28,471 30,000
liabilities
---------- ----------- ----------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (95,665) 20,004 (216,672) 19,554
---------- ---------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (37,164) (9,635) (68,230) (9,635)
Finance receivables originated and
purchased, net of (444,940) (563,130)
payments and discounts
Floor plan receivables, net of payments (54,526) (105,026)
---------- ---------- ----------------------
NET CASH USED BY INVESTING ACTIVITIES (536,630) (9,635) (736,386) (9,635)
---------- ---------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,000
Proceeds from issuance of secured notes 1,602,000 139,000 2,191,000 139,000
payable
Net increase (decrease) in stockholder (5,000) 1,750
advance
Decrease in affiliate receivables 250
Cash paid for deferred debt issuance (167,001) (46,326) (218,301) (53,316)
costs
---------- ---------- ----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,434,999 87,674 1,972,949 88,434
---------- ---------- ----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 802,713 98,042 1,019,891 98,353
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,033,611 311 816,433
---------- ---------- ----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,836,324 $ 98,353 $1,836,324 $ 98,353
========== ========== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Interest paid $ 81,390 $ 796 $ 127,678 $ 796
========== ========== ======================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes.
-6-
<PAGE>
STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
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
was in the development stage through December 31, 1997, is primarily in the
business of originating and purchasing retail mobile home installment sales
contracts created in connection with the financing of manufactured homes. The
Company also owns and rents mobile homes located in the Halliday Village Mobile
Home Park ("Halliday"); a related party. The Company's operations are located in
Tampa, Florida and substantially all of its customers are Florida residents.
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 and six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. The accompanying financial statements and the notes should be
read in conjunction with the Company's audited financial statements as of
December 31, 1997 contained in its Form 10-KSB.
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. Estimates from management that are critical to
the accompanying financial statements include the appropriate level or allowance
for credit losses which can be significantly impacted by future industry, market
and economic trends and conditions. Actual results could differ from those
estimates.
Allowance for Credit Losses
The Company enters into agreements with dealers that establish the allowance for
credit losses through non-refundable 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 allowance at a level consistent with anticipated loan charge offs,
and if necessary will charge earnings when the negotiated discounts do not
appear adequate to absorb losses.
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.
-7-
<PAGE>
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 such shares outstanding for the three and six-month periods ended June
30, 1998, the three-months ended June 30, 1997 and the period January 3, 1997
(date of inception) to June 30, 1997 was 1,000.
NOTE C - SECURED NOTES PAYABLE
Secured notes payable bear interest at 10.5%, with interest payable monthly, and
mature on June 30, 2002. The notes, which may be prepaid in whole or in part at
any time without premium or penalty, are secured by a first lien on any assets
acquired with the proceeds. The Company has registered $9.9 million of such
notes and as of June 30, 1998 is continuing to offer the remaining $6,097,000 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 D - RELATED PARTY TRANSACTIONS
Affiliate receivables bear interest at 12.9%, are unsecured and contain no
specified repayment terms.
Sterling Financial Services, Inc. ("SFS"), a related party due to common
ownership, manages the Company and provides all services in connection with the
origination, purchasing and servicing of receivables. As consideration for these
services, the Company pays SFS for all of its expenses plus 20%. Management fees
paid to SFS during the three and six-months ended June 30, 1998 and the
three-months ended June 30, 1997 approximated $88,000, $137,189, $4,550,
respectively. No management fees were paid prior to the three-months ended June
30, 1997.
The Company rents certain lot space for mobile home rental units it owns, and
prior to April 1998 certain office space for its administrative operations, from
Halliday, a related party by virtue of Anthony Sutter's ownership. In May 1998,
SFS began to pay the rent on the administrative space and accordingly, the
related rent expense is included in SFS expenses on which the Company pays
management fees (see preceding paragraph). Total rent paid under these
arrangements for the three and six-months ended June 30, 1998 and the three
months ended June 30, 1997 approximated $22,200, $48,600 and $4,400,
respectively. No rent was paid prior to the three months ended June 30, 1997.
-8-
<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 December 31, 1997 and the financial statements as of and for
the three and six-months ended June 30, 1998, the three-months ended June 30,
1997 and the period January 3, 1997 (date of inception) to June 30, 1997
included with this Form 10-QSB. The Company did not have significant operations
during the three-months ended June 30, 1997 or for the period January 3, 1997
(date of inception) to June 30, 1997 and as such this analysis does not include
any additional discussion as of and for such periods.
The Company, which was in the development stage through December 31, 1997, is
primarily in the business of originating and purchasing retail mobile home
installment sales contracts created in connection with the financing of
manufactured homes. The Company also owns and rents mobile homes located in the
Halliday Village Mobile Home Park ("Halliday"); a related party. The Company's
operations are located in Tampa, Florida and substantially all of its customers
are Florida residents.
Readers are referred to the cautionary statement, which addresses
forward-looking statements made by the Company.
RESULTS OF OPERATIONS
Three and Six-Months Ended June 30, 1998
The Company generated revenues of approximately $90,700 and $136,600 during the
three and six-months ended June 30, 1998, respectively as they continued to
implement their business plan. These revenues consisted primarily of interest
and fees earned on receivables and cash equivalents of approximately $65,200 and
$89,500 during the respective three and six-month periods ended June 30, 1998.
In addition, the Company generated rental income of approximately $24,400 and
$43,300 of rental revenues from the rental of mobile homes owned by the Company
during the three and six-months ended June 30, 1998, respectively. Operating
expenses during the three and six-months ended June 30, 1998 approximated
$236,000 and $428,400, respectively and consisted primarily of management fees
of $88,500 and $137,200, respectively and interest of approximately $102,600 and
$161,400, respectively. In addition, occupancy and equipment included rent
expense of approximately $22,000 and $46,000 during the respective three and
six-months ended June 30, 1998. The management fees and rent were paid to
Sterling Financial Services, Inc. ("SFS") and Halliday, respectively, which are
related to the Company by virtue of common ownership. Interest expense included
cash outlays of $81,390 and $127,678 during the three and six-months ended June
30, 1998, respectively on secured notes payable. The differences between such
amounts and actual interest expense resulted from amortization of deferred debt
issuance costs incurred in connection with the sale of the secured notes. The
net losses for the three and six-months ended June 30, 1998 approximated
$145,200 and $291,800, respectively and arose substantially because the
Company's revenue generating assets did not provide sufficient income to cover
fixed expenses arising from interest on the secured notes, and various other
expenses necessary to implement the Company's business plan.
LIQUIDITY AND CAPITAL RESOURCES
Three and Six-Months Ended June 30, 1998
Operating activities during the six-months ended June 30, 1998 used cash of
approximately $216,700, of which approximately $95,600 was used during the
three-months ended June 30, 1998. This cash was used to fund the aforementioned
net losses less non-cash expenses (i.e. depreciation and amortization) and
certain accrued expenses which did not require the outlay of cash during such
reporting periods.
-9-
<PAGE>
Investing activities during the six-months ended June 30, 1998 used cash of
approximately $736,400, of which approximately $536,600 was used during the
three months ended June 30, 1998. The majority of these cash outflows resulted
from the purchase and/or origination of finance and floor plan receivables of
approximately $668,200 during the six-months ended June 30, 1998, of which
approximately $499,400 related to the three-months ended June 30, 1998 (both of
such amounts are net of principal reductions on such receivables). In addition,
during the six-months ended June 30, 1998, the Company purchased property and
equipment to be used in its operations of $68,230 (including $37,164 purchased
during the three-months ended June 30, 1998).
The above cash outflows were funded through cash existing at the beginning of
the respective periods and additional cash raised through financing activities
of approximately $1,435,000 and $1,973,000 during the respective three and
six-month periods ended June 30, 1998. These cash inflows resulted from net
proceeds received from the sale of secured notes payable of $1,434,999 (gross
proceeds of $1,602,000 less cash paid for debt issuance costs of $167,001) and
$1,972,699 (gross proceeds of $2,191,000 less cash paid for debt issuance costs
of $218,301) during the respective three and six-month periods ended June 30,
1998.
The Company is offering subscriptions for a maximum of 9,900 secured notes in
the principal amount of $1,000 each. As such, $6,097,000 of secured notes remain
available for sale as of June 30, 1998. If all of these notes are sold, the
Company will net approximately $5,487,000. The notes, which bear simple interest
at 10.5% and mature on June 30, 2002, require monthly payments of interest only,
may be prepaid in whole or in part at any time without premium or penalty and
are secured by a first lien on the assets acquired with the proceeds of the
offering.
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, and to
ultimately pay the Notes in full, the Company will have to generate profitable
results of operations and/or 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 the Company will generate
profitable results of operations or that additional capital resources will be
available, or available on reasonable terms. Also, if the Company is unable to
originate 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.
CAUTIONARY STATEMENT
This Form 10-QSB, press releases and certain information provided periodically
in writing or orally by the Company's officers or its agents contain statements
which constitute forward-looking statements within the meaning of Section 27A of
the Securities Act, as amended and Section 21E of the Securities Exchange Act of
1934. The words expect, anticipate, believe, goal, plan, intend, estimate and
similar expressions and variations thereof if used are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-QSB and in other places, particularly, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (i)
the Company's liquidity and capital resources; (ii) the Company's financing
opportunities and plans and (iii) the Company's future performance and operating
results. Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The factors that might cause such differences include, among others,
the following: (i) any material inability of the Company to successfully
identify, consummate and integrate the acquisition of finance receivables at
reasonable and anticipated costs to the Company; (ii) any material inability of
the Company to successfully internally develop its products; (iii) any adverse
effect or limitations caused by Governmental regulations; (iv) any adverse
effect on the Company's continued positive cash flow and abilities to obtain
acceptable financing in connection with its growth plans; (v) any increased
competition in business; (vi) any inability of the Company to successfully
conduct its business in new markets; and (vii) other risks including those
identified in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly update or revise the forward
looking statements made in this Form 10-QSB to reflect events or circumstances
after the date of this Form 10-QSB or to reflect the occurrence of unanticipated
events.
-10-
<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.
July, 15, 1999 /s/ Anthony A. Sutter
- ---------------------------- --------------------------------
Date Anthony A. Sutter, President
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,836,324
<SECURITIES> 0
<RECEIVABLES> 962,999
<ALLOWANCES> 0
<INVENTORY> 12,000
<CURRENT-ASSETS> 2,811,323
<PP&E> 247,745
<DEPRECIATION> 19,176
<TOTAL-ASSETS> 3,397,299
<CURRENT-LIABILITIES> 36,621
<BONDS> 3,803,000
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,397,299
<SALES> 0
<TOTAL-REVENUES> 136,614
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,428
<INCOME-PRETAX> (291,785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,785)
<EPS-BASIC> (291.79)
<EPS-DILUTED> (291.79)
</TABLE>
