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, 1999.
( ) 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 February 15, 2000
1,000 Common Shares
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
Sterling Financial Services of Florida I, Inc.
1
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INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets as of September 30, 1999 and December 31,1998..... 3
Statements of Operations for the three and nine-months ended
September 30, 1999 and 1998.................................... 4
Statement of Stockholders' Deficit for the nine-months ended
September 30, 1999............................................. 5
Statements of Cash Flows for the three and nine-months ended
September 30, 1999 and 1998.................................... 6
Notes to Financial Statements.................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (including Year 2000 Issues and
Cautionary Statement).......................................... 9
PART II.OTHER INFORMATION
Item 1. Legal Proceedings................................................ 14
Item 2. Changes in Securities............................................ 14
Item 3. Defaults Upon Senior Securities.................................. 14
Item 4. Submission of Matters to a Vote of Securities Holders............ 14
Item 5. Other Information................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signatures
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STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September
30, 1999 December 31,
ASSETS (Unaudited) 1998
- ------ -------------- ---------------
<S> <C> <C>
Cash and cash equivalents $ 1,363,677 $ 1,282,906
----------------- ----------------
Receivables:
Finance-net 3,331,953 1,485,697
Mobile home floor plan 331,335 182,007
Affiliate 98,655 257,278
Interest and fees 66,560 8,920
---------------- -----------------
Total receivables 3,828,503 1,933,902
---------------- ----------------
Inventories 1,291,683 433,597
--------------- ----------------
Investment in and advances to Parkwood
Estates Mobile Home Park, L.C. 728,564 602,178
----------------- ----------------
Property and equipment - net 300,798 254,541
----------------- ----------------
Other assets:
Software not yet placed in service 69,115
Deferred debt issuance costs - net 760,757 514,999
Repossessed mobile homes 118,369 85,417
----------------- ----------------
Total other assets 948,241 600,416
----------------- ----------------
TOTAL $ 8,461,466 5,107,540
================= ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Secured notes payable $ 9,943,000 5,974,000
Due to Sterling Financial Services 80,989
Accrued and other liabilities 89,489 56,334
----------------- ----------------
Total liabilities 10,113,478 6,030,334
----------------- ----------------
STOCKHOLDERS' DEFICIT
Common stock, no par value, 10,000 shares authorized,
1,000 shares issued and outstanding
1,000 1,000
Deficit (1,653,012) (923,794)
----------------- ----------------
Total stockholders' deficit (1,652,012) (922,794)
----------------- ----------------
TOTAL $ 8,461,466 5,107,540
================= ================
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</TABLE>
See accompanying notes.
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STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three-Months Three-Months Nine-Months Ended Nine-Months
Ended Ended September 30, Ended
September September 30, 1998 1999 September 30, 1998
30, 1999
----------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C> REVENUES:
Mobile home sales $470,069 $1,160,594
Interest and fees 215,997 $ 74,892 498,347 $ 164,444 $
Rental income 28,357 27,203 91,726 69,520
Other 100 174 2,619 4,919
----------------- ------------------- ------------ --------
Total revenues 714,523 102,269 1,753,286 238,883
----------------- ------------------- ------------ --------
OPERATING EXPENSES:
Cost of mobile homes sold 374,792 915,451
Management fees - Related Party 139,973 145,000 448,447 282,190
Interest 322,186 142,619 785,107 304,046
Occupancy and equipment 29,105 36,372 88,093 117,033
Professional fees 9,325 16,739 59,825 31,752
Equity in loss of Parkwood Estates
Mobile Home Park, L.C. 9,662 3,607 29,074 3,607
Other 68,907 6,609 156,507 40,717
----------------- ------------------- ------------ --------
Total operating expenses 953,950 350,946 2,482,504 779,345
----------------- ------------------- ------------ --------
NET LOSS $(239,427) $(248,677) $(729,218) $(540,462)
================= =================== ================== ===================
LOSS PER COMMON SHARE $(239.43) $ (248.68) $(729.22) $ (540.46)
================= =================== ================== ===================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
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STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Common Stock
Shares Amount Deficit Total
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 1,000 $ 1,000 $ (923,794) $ (922,794)
Net loss for the nine months ended
September 30, 1999 (unaudited) (729,218) (729,218)
------------ ------------ ---------------- -----------------
Balances, September 30, 1999 (unaudited) 1,000 $ 1,000 $ (1,653,012) $ (1,652,012)
============ ============ ================ =================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
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STERLING FINANCIAL SERVICES OF FLORIDA I, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three-Months Three-Months Nine-Months Nine-Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(239,427) $(248,677) $(729,218) (540,462)
Adjustments to reconcile net loss to net cash used in
operating
activities:
Depreciation 6,619 6,974 19,858 19,866
Amortization and write off of deferred debt issuance costs 64,590 28,183 151,339 61,933
Equity in loss of Parkwood Estates Mobile Home Park, L.C. 9,662 3,607 29,074 3,607
Increase in inventories (49,680) (140,355) (858,086) (140,355)
Increase in interest and fee receivables (46,426) (57,640)
Increase in accrued and other liabilities 18,605 29,945 33,155 58,416
---------------- -------------- ---------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (236,057) (320,323) (1,411,518) (536,995)
---------------- --------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and software not yet
placed in service (89,980) (11,255) (135,230) (79,485)
Investment in Parkwood Estates Mobile Home Park, L.C. (561,606) (561,606)
Advances to Parkwood Estates Mobile Home Park, L.C. (85,460) (155,460)
Proceeds from sales of repossessed mobile homes 51,728 184,479
Net increase in finance receivables (334,220) (315,191) (2,063,687) (878,321)
Net decrease (increase) in mobile home floor plan 61,266 (74,026) (149,328) (179,052)
receivables
------------------------------------------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (396,666) (962,078) (2,319,226) (1,698,464)
---------------- --------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of secured notes payable 125,000 1,327,000 3,969,000 3,518,000
(Increase) decrease in affiliate receivables (6,000) 158,623 (5,750)
Increase in due to Sterling Financial Services 80,989
Cash paid for deferred debt issuance costs (12,497) (105,699) (397,097) (324,000)
---------------- --------------- ---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 112,503 1,215,301 3,811,515 3,188,250
---------------- --------------- ---------------- ---------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (520,220) (67,100) 80,771 952,791
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,883,897 1,836,324 1,282,906 816,433
--------------- --------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,363,677 $1,769,224 1,363,677 $1,769,224
================ =============== ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Interest paid $257,596 $ 114,436 $633,768 $242,113
================ =============== ================ ===============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
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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 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") and has a 25% ownership interest
in a mobile home park located in Hillsborough County, Florida (see Note D). 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 nine-month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. The accompanying financial statements and the notes should be
read in conjunction with the Company's audited financial statements as of
December 31, 1998 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 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.
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 nine-month periods ended
September 30, 1999 and 1998 was 1,000.
Reclassifications
Certain amounts in the September 30, 1998 financial statements have been
reclassified to conform with the September 30, 1999 presentations.
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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. As of September 30, 1999, the Company had sold
$9,943,000 of such notes. The Company was offering the Notes on a best efforts
basis through Broker-dealers (who were members of the National Association of
Securities Dealers, Inc.), through June 30, 1999 (the termination of the
offering).
NOTE D - RELATED PARTY TRANSACTIONS
Sterling Financial Services, Inc. ("SFS"), a related party by virtue of Anthony
Sutter's ownership of SFS (Mr. Sutter is the Company's President and majority
stockholder), 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 expensed under this arrangement during the three and nine-months
periods ended September 30, 1999 and 1998 are reflected as Management fees -
Related Party in the accompanying statements of operations.
At December 31, 1998, the Company had effectively prepaid a significant portion
of management fee expense included in the nine-months ended September 30, 1999
by advancing SFS approximately $227,000 as of December 31, 1998. As a result of
such prepayment, during the nine-months ended September 30, 1999, the Company
reduced their receivable from SFS by approximately $227,000.
During the nine-months ended September 30, 1999, the Company advanced
approximately $224,000 to affiliates of the Company (including Parkwood Estates
Mobile Home Park, L.C. discussed below). With the exception of the advance to
SFS (see preceding paragraph) which is non-interest bearing, affiliate
receivables bear interest at 12.9%, are unsecured and contain no specified
repayment terms as to principal and/or accrued interest.
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 as discussed above. Total rent paid under these arrangements for
the three and nine-months ended September 30, 1999 and 1998 was approximately as
follows:
September 30, 1999 September 30, 1998
------------------ ------------------
Three-Months Ended $22,500 $22,900
Nine-Months Ended $68,200 $71,500
During the three-months ended September 30, 1998, the Company purchased a
twenty-five percent interest in Parkwood Estates Mobile Home Park, L.C.
("Parkwood") for approximately $561,600; such entity was formed in August 1998
for the purpose of purchasing, selling and leasing Parkwood Estates Mobile Home
Park. The remaining 75% interest is owned by Anthony Sutter. In addition to such
investment, the Company has agreed to loan Parkwood up to $350,000 to fund its
cash flow needs. Advances under this arrangement accrue interest at a fixed rate
of 12.9%, are unsecured and have no specified repayment terms as to principal
and/or interest. At September 30, 1999 the Company had advanced approximately
$210,500 under this arrangement, of which $155,500 was advanced during the
nine-months ended September 30, 1999.
NOTE E - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the respective three and nine-month periods ended September 30, 1999,
approximately $16,200 and $217,400 of finance receivables were reclassified to
repossessed mobile homes when certain customers of the Company defaulted on
their finance receivables.
- --------------------------------------------------------------------------
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<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, 1998 and the financial statements as of and for
the three and nine-months ended September 30, 1999 and 1998 included with this
Form 10-QSB.
The Company 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") and has a 25% ownership
interest in Parkwood Estates Mobile Home Park, L. C. ("Parkwood") which was
formed in 1998 for the purpose of purchasing and leasing Parkwood Mobile Home
Park in Hillsborough County, Florida (the "Park"). Halliday and Parkwood are
related to the Company by virtue of Anthony Sutter's majority ownership in the
Company, Halliday and Parkwood. 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 at page 13, which addresses
forward-looking statements made by the Company.
RESULTS OF OPERATIONS
Three-Months Ended September 30, 1999 and 1998
During the three months ended September 30, 1999 and 1998, the Company generated
revenues of approximately $714,500 and $102,300, respectively. This represented
an increase of approximately 600% or $612,200 and resulted substantially because
the Company experienced significant growth in revenue generating assets in the
last three months of 1998 and during the first nine-months of 1999. This
increase was made possible by proceeds received from the sale of the Notes.
Because of the relatively small amount of revenues generated during the
three-months ended September 30, 1998, this analysis does not include any
additional discussion on such revenues.
Revenues generated during the three-months ended September 30, 1999 resulted
substantially from sales of mobile homes, and interest and fee revenues of
approximately $470,000 and $216,000, respectively. The Company generated margins
of approximately 20% on sales of mobile homes; substantially all of which
occurred at the Park, and management believes that sales of such homes, and
related costs of sales, will continue to represent a significant portion of the
Company's revenues and expenses for the foreseeable future. Interest and fee
revenues consisted substantially of interest and fees earned on finance
receivables, cash equivalents and mobile home floor plan receivables (interest
income on cash equivalents occurs because of the lag time between the receipt of
proceeds from sale of the Notes and the date the funds were invested in finance
and/or other interest bearing receivables). Interest earned on finance
receivables increased significantly because of the related increase in finance
receivables since September 30, 1998. In addition to interest and fee revenues,
the Company generated approximately $28,400 of rental revenues from the rental
of its mobile homes.
Operating expenses during the three months ended September 30, 1999 and 1998
approximated $954,000 and $351,000, respectively. This represented an increase
of approximately 172% or $603,000 and resulted substantially because of the
aforementioned growth since September 30, 1998. The Company's revenues grew at a
faster pace than its expenses because certain expenses are fixed and therefore
did not increase significantly. In addition to the cost of mobile homes sold
discussed above, significant operating expenses arose from management fees
charged by SFS and interest paid on the Notes.
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<PAGE>
Management fees approximated $140,000 for the three-months ended September 30,
1999 as compared to approximately $145,000 for the corresponding period of the
preceding year. The small change was a result of SFS's operations and expenses
remaining relatively stable during these periods.
Interest expense increased to approximately $322,200 for the quarter ended
September 30, 1999 from approximately $142,600 for the quarter ended September
30, 1998. This represented an increase of approximately $179,600 or 126%.
Interest expense for the respective quarters ended September 30, 1999 and 1998
consisted of interest paid to the Note holders of approximately $257,600 and
$114,400 and amortization of deferred debt issuance costs of approximately
$64,600 and $28,200, respectively (the amortization is a non-cash expense and
arises from commissions and other costs incurred to sell the Notes). The
significant increase in interest expense resulted from the corresponding
increases in the Notes and related deferred debt issuance costs.
Occupancy and equipment expenses approximated $29,100 and $36,400 for the
respective quarters ended September 30, 1999 and 1998, respectively. This
decline resulted substantially because the Company was paying rent expense of
approximately $2,200 a month to Halliday until April 1998, at which time such
expenses were paid to SFS in accordance with the Servicing Agreement between the
entities. Accordingly, rent expenses subsequent to April 1998 are effectively
included in management fees paid to SFS. With respect to the Company's rental
homes, the Company rents lot space from Halliday. In connection therewith, the
Company paid lot rent of approximately $22,500 and $22,900 to Halliday during
the quarters ended September 30, 1999 and 1998, respectively.
The September 30, 1999 results of operations also included recognition of the
Company's loss of approximately $9,700 in Parkwood. This amount represents 25%
(the Company's ownership percentage) of the total loss generated by Parkwood
during such quarter.
There were no other individual expenses of significance for either of the
quarters ending September 30, 1999 and 1998.
The net losses for the respective quarters ended September 30, 1999 and 1998
approximated $239,400 and $248,700, respectively; such losses occurred because
the Company's interest bearing assets did not generate sufficient income to
cover expenses arising substantially from management fees and interest expense
on the Notes.
Nine-Months Ended September 30, 1999 and 1998
During the nine-months ended September 30, 1999 and 1998, the Company generated
revenues of approximately $1,753,300 and $238,900, respectively. This
represented an increase of approximately 633% or $1,513,500 and resulted
substantially because the Company experienced significant growth in revenue
generating assets in the last three-months of 1998 and during the first
nine-months of 1999. This increase was made possible by proceeds received from
the sale of the Notes. Because of the relatively small amount of revenues
generated during the nine-months ended September 30, 1998, this analysis does
not include any additional discussion on such revenues.
Revenues generated during the nine-months ended September 30, 1999 resulted
substantially from sales of mobile homes, and interest and fee revenues of
approximately $1,160,600 and $498,300, respectively. The Company generated
margins of approximately 21% on sales of mobile homes; substantially all of
which occurred at the Park, and management believes that sales of such homes,
and related costs of sales, will continue to represent a significant portion of
the Company's revenues and expenses for the foreseeable future. Interest and fee
revenues consisted substantially of interest and fees earned on finance
receivables, cash equivalents and mobile home floor plan receivables (interest
income on cash equivalents occurs because of the lag time between the receipt of
proceeds from sale of the Notes and the date the funds were invested in finance
and/or other interest bearing receivables). Interest earned on finance
receivables increased significantly because of the related increase in finance
receivables since September 30, 1998. In addition to interest and fee revenues,
the Company generated approximately $91,700 of rental revenues from the rental
of its mobile homes.
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<PAGE>
Operating expenses during the nine-months ended September 30, 1999 and 1998
approximated $2,482,500 and $779,300, respectively. This represented an increase
of approximately 218% or $1,703,200 and resulted substantially because of the
aforementioned growth since September 30, 1998. The Company's revenues grew at a
faster pace than its expenses because certain expenses are fixed and therefore
did not increase significantly.
In addition to the cost of mobile homes sold discussed above, significant
operating expenses arose from management fees charged by SFS and interest paid
on the Notes. Management fees approximated $448,400 for the nine- months ended
September 30, 1999 as compared to approximately $282,200 for the corresponding
period of the preceding fiscal year. This increase of approximately 59% or
$166,200 resulted because SFS required additional personnel and expenses to
originate and service the Company's finance and mobile home floor plan
receivables, as well as to manage the Company's operations.
Interest expense increased to approximately $785,100 for the nine-months ended
September 30, 1999 from approximately $304,000 for the nine-months ended
September 30, 1998. This represented an increase of approximately $481,100 or
158%. Interest expense for the respective nine-month periods ended September 30,
1999 and 1998 consisted of cash outlays of approximately $633,800 and $242,100
on the Notes and amortization of deferred debt issuance costs of approximately
$151,300 and $61,900, respectively (the amortization costs represent non-cash
expenses and arise from commissions and other costs incurred to sell the Notes).
The significant increase in interest expense resulted from the corresponding
increases in the Notes and related deferred debt issuance costs.
Occupancy and equipment expenses approximated $88,100 and $117,700 for the
respective nine-month periods ended September 30, 1999 and 1998, respectively.
This decline resulted partially because the Company was paying rent expense of
approximately $2,200 a month to Halliday until April 1998, at which time such
expenses were paid to SFS in accordance with the Servicing Agreement between the
entities. Accordingly, rent expenses subsequent to April 1998 are effectively
included in management fees paid to SFS. In addition, September 30, 1998
occupancy expense included repairs and maintenance of approximately $12,000
arising from costs incurred on mobile home rentals; no such expenses were
incurred during the nine-months ended September 30, 1999. With respect to the
Company's rental homes, the Company rents lot space from Halliday. In connection
therewith, the Company paid lot rent of approximately $68,200 and $62,700 to
Halliday during the nine-month periods ended September 30, 1999 and 1998,
respectively.
The September 30, 1999 results of operations also included recognition of the
Company's loss of approximately $29,000 in Parkwood. This amount represents 25%
(the Company's ownership percentage) of the total loss generated by Parkwood
during such nine-month period.
The net losses for the respective nine-month periods ended September 30, 1999
and 1998 approximated $729,200 and $540,500, respectively; such losses occurred
because the Company's interest bearing assets did not generate sufficient income
to cover expenses arising substantially from management fees and interest
expense on the Notes.
LIQUIDITY AND CAPITAL RESOURCES
Three and Nine-Months Ended September 30, 1998
Operating activities during the three and nine months ended September 30, 1999
used cash of approximately $236,100 and $1,411,500, respectively as compared to
net cash used by operating activities of approximately $320,300 and $537,000,
for the respective three and nine-months ended September 30, 1998. This cash was
primarily used to fund the aforementioned net losses less non-cash expenses
which did not require the outlay of cash during such reporting periods, and to
purchase mobile home park inventories which are being sold at the Park.
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<PAGE>
Investing activities during the three and nine-months ended September 30, 1999
used cash of approximately $396,700 and $2,319,200, respectively as compared to
net cash used by such activities of approximately $962,100 and $1,698,500 during
the corresponding periods of the preceding year. Cash used for investing
activities was approximately $565,400 greater during the quarter ended September
30, 1998 than the corresponding period of the current fiscal year substantially
because of the Company's investment in Parkwood in August 1998. Cash used for
investing activities during the nine-months ended September 30, 1999 was
approximately $620,800 greater than cash used for such activities during the
nine-months ended September 30, 1998 because of the increase in lending activity
made possible by proceeds received from the sale of the Notes. The net increase
in finance and floor plan receivables during the nine-month ended September 30,
1999 was approximately $1,155,600 greater than the net increase in such
receivables during the nine-months ended September 30, 1998.This amount was
offset by the aforementioned investment in Parkwood of approximately $561,600 in
August 1998. The Company is attempting to limit its exposure to risk resulting
from interest rate spread by investing funds in interest bearing receivables as
proceeds are received from the Notes since the cost of such Notes is
significantly higher than the yield on cash and cash equivalents.
In addition, during the three and nine-months ended September 30, 1999, the
Company advanced approximately $85,500 and $155,500, respectively to Parkwood.
These advances resulted from an arrangement between the Company and Parkwood,
whereby the Company has agreed to loan Parkwood up to $350,000 to fund its cash
flow needs. Advances under this arrangement accrue interest at a fixed rate of
12.9%, are unsecured and have no specified repayment terms for the principal
and/or accrued interest.
The only other investing cash outlays of significance arose from the net
increase in property and equipment, and software not yet placed in service,
which approximated $90,000 and $135,200 for the three and nine-months ended
September 30, 1999 as compared to expenditures of approximately $11,300 and
$79,500 for the respective three and nine-months ended September 30, 1998. The
1999 increases resulted substantially because the Company has engaged a software
consultant to develop software for use in its operations.
The above investment outlays for the three and nine-months ended September 30,
1999 were partially offset by proceeds received from sales of repossessed mobile
homes of approximately $51,700 and $184,500, respectively.
Cash used by operating and financing activities was funded by financing
activities which generated net cash inflows of approximately $112,500 and
$1,215,300 for the respective three-month periods ended September 30, 1999 and
1998 and $3,811,500 and $3,188,300 for the respective nine-months ended
September 30, 1999 and 1998. These cash inflows resulted almost exclusively from
net proceeds received from the sale of Notes (principal amount less cash paid
for deferred debt issuance costs). The Notes bear simple interest at 10.5%
(interest is payable monthly) and are payable in full on June 30, 2002. The
Company sold total Notes of $9,943,000 through the offering (which has
terminated). Because debt issuance costs approximated 10% of the Notes sold, net
proceeds to the Company approximated $8,922,000 in total. The Notes are secured
by a first lien on the assets acquired with proceeds generated from their sale,
and may be prepaid in whole or in part at any time.
The only other significant cash used by financing activities resulted from
advances of approximately $68,400 to Anthony Sutter and/or his affiliates during
the nine-months ended September 30, 1999 (after consideration of the reversal of
management fees prepaid to SFS as of December 31, 1998). These advances are
unsecured, bear interest at 12.9% per annum and contain no specified repayment
terms as to principal or interest.
The net impact of the above operating, investing and financing activities was
that cash and cash equivalents decreased by approximately $520,300 and $67,100
for the respective three-months ended September 30, 1999 and 1998, and increased
by $80,800 and $952,800 for the respective nine-months ended September 30, 1999
and 1998.
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 and/or making other investments.
However, in order for the Company to continue 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 significant cash
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<PAGE>
from operations and/or secure additional capital resources (i.e. other debt or
equity). 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
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 the Notes, the
interest earned on the capital raised will not be sufficient to cover the cost
of the interest on the Notes.
YEAR 2000 ISSUE
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
Year 2000 could result in miscalculations or system failures which could result
in an adverse effect on the Company's operations.
The Company does not currently utilize any critical date sensitive systems.
Although many of the Company's transactions rely on date sensitive calculations,
such calculations are currently being performed either manually or using off the
shelf spreadsheet programs. However, the Company is currently involved in
installing a new PC based server and accounting application, which is
represented to be Year 2000 compliant.
The Company has not incurred any costs to date related to Year 2000 compliance
nor does it believe that its cost of conversion will be significant because of
the installation of new systems that are represented to be fully Year 2000
compliant. The Company believes the costs to transition its remaining systems to
Year 2000 compliance will not have a material effect on its financial position
or results of operations.
The Company has not deferred any information technology projects to address the
Year 2000 issue. In addition to internal Year 2000 activities, the Company will
communicate with others with which their systems interface or on which they rely
to determine the extent to which those companies are addressing their Year 2000
compliance. There can be no assurance that there will not be an adverse effect
on the Company, if third parties, such as utility companies or mobile home
suppliers, do not convert their systems in a timely manner and in a way that is
compatible with the Company's systems. However, management believes that ongoing
communication with, and assessment of, these third parties will minimize these
risks. Although the Company anticipates minimal business disruption will occur
as a result of Year 2000 issues, possible consequences include, but are not
limited to, loss of electric power, inability to process transactions or engage
in similar business activities.
To date, the Company has not established a contingency plan for possible Year
2000 issues. Where needed, the Company will establish contingency plans based on
assessment of outside risks and actual testing experience with suppliers. It is
not anticipated that a contingency plan will need to be developed as manual
processes mitigate outside risks. The cost of the conversion and the completion
dates are based on management's best estimates and may be updated, as additional
information becomes available.
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
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13
<PAGE>
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.
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.
- ---------------------------- --------------------------------
Date Anthony A. Sutter, President
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,363,677
<SECURITIES> 0
<RECEIVABLES> 3,828,503
<ALLOWANCES> 0
<INVENTORY> 1,291,683
<CURRENT-ASSETS> 6,483,863
<PP&E> 348,802
<DEPRECIATION> 48,004
<TOTAL-ASSETS> 8,461,466
<CURRENT-LIABILITIES> 120,478
<BONDS> 9,943,000
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,461,466
<SALES> 0
<TOTAL-REVENUES> 714,523
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 631,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,186
<INCOME-PRETAX> (239,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (239,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,427)
<EPS-BASIC> (239.43)
<EPS-DILUTED> (239.43)
</TABLE>
