U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from _______________ to _______________
Commission File No. 0-12240
NOTE BANKERS OF AMERICA, INC.
(Name of Small Business Issuer in its Charter)
TEXAS 84-0882076
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
770 S. Post Oak Lane Suite 690
Houston, Texas 77056
(Address of Principal Executive Offices)
Issuer's Telephone Number: (713) 840-0230
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
(1) Yes / / No /X/ (2) 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
November 10, 1997
Common Voting Stock - 23,555,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
NOTE BANKERS OF AMERICA, INC.
UNAUDITED
Consolidated Balance Sheets
September 30, 1997
ASSETS
------
<S> <C>
CASH $ 5,253
LOANS HELD FOR RESALE 809,660
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
accumulated depreciation of $13,681 7,096
REAL ESTATE OWNED 55,466
ACCRUED INCOME AND OTHER ASSETS 24,078
GOODWILL 40,511
$ 942,064
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------------------------
BANK LINE OF CREDIT $ 46,848
ESCROW DEPOSITS 47,277
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 307,463
NOTES PAYABLE 1,139,484
STOCKHOLDERS' DEFICIT
Preferred Stock, No Par Value; 150,000,000
shares authorized; none issued -
Common Stock, $.001 par value; 500,000,000
shares authorized, 23,555,000 shares
issued and outstanding 23,555
Paid In Capital 73,231
Accumulated Deficit (695,794)
Total Stockholders' Deficit (599,008)
$ 942,064
</TABLE>
<TABLE>
<CAPTION>
NOTE BANKERS OF AMERICA, INC.
UNAUDITED
Consolidated Statements of Operations
For the Three Months Ended September 30
1997 1996
------------ -----------
<S> <C> <C>
REVENUE:
Brokerage Income $ 34,587 $ 108,551
Gain on Loan Sales 0 4,658
Interest on Loans 31,395 40,407
Loan Servicing Fees 1,916 1,906
Total Revenue 67,898 155,522
OPERATING EXPENSES
Brokerage Commissions 5,003 53,157
Interest Expense 34,629 40,290
Salaries and Benefits 57,633 105,378
Occupancy 8,430 6,763
Legal and Accounting Expense 1,390 36,802
Amortization and Depreciation 831 876
Other 19,541 30,311
Total Operating Expenses 127,457 273,577
LOSS FROM OPERATIONS (59,559) (118,055)
OTHER INCOME
Gain on Sale of Real Estate 16,594 1,992
Other Income 7,578 5,715
Total Other Income 24,172 7,707
NET LOSS (35,387) (110,348)
Net Losses of Subsidiaries Prior to Acquisition 0 20,033
CONSOLIDATED NET LOSS $ (35,387) $ (90,315)
LOSS PER SHARE AMOUNTS ($0.00155) ($0.02389)
WEIGHTED AVERAGE SHARES OUTSTANDING 22,805,000 3,781,000
</TABLE>
<TABLE>
<CAPTION>
NOTE BANKERS OF AMERICA, INC.
UNAUDITED
Consolidated Statement of Change in Stockholders' Equity
For the Three Months Ended September 30, 1997
Common Stock Paid In Retained Stockholders'
Shares Amount Capital Earnings Equity
------------- -------- ------- --------- --------------
<S> <C> <C> <C> <C> <C>
Balances June 30, 1997 22,430,000 22,430 73,231 (660,407) (564,746)
Net Loss - 3 months ended 9/30/97 (35,387) (35,387)
Issue stock in exchange for services 1,125,000 1,125 1,125
Balances September 30, 1997 23,555,000 23,555 73,231 (695,794) (599,008)
</TABLE>
<TABLE>
<CAPTION>
NOTE BANKERS OF AMERICA, INC.
UNAUDITED
Consolidated Statements of Cash Flow
For the Three Months Ended September 30
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (35,388) $(110,348)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and Amortization 824 876
Expenses paid by a shareholder on behalf of the company
and accounted for as contributed capital 4,801
Amortization of unearned
discounts and fees (10,270) (6,035)
Changes in operating assets and liabilities:
Decrease (increase) in accrued
income and other assets (532) (1,260)
(Decrease) increase in accounts payable and accrued expenses 33,174 21,095
Less accrued expenses paid by a shareholder on behalf of
the company and accounted for as contributed capital 15,199
Stock issued for consulting expense 1,125
Gain on sale of loans (4,658)
Gain on sale of real estate (16,594) (1,992)
Net cash used in operating
activities (27,661) (82,322)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Loans (103,602)
Proceeds from sale of loans 95,743
Payments received on loans 43,250 27,757
Purchase of real estate and improvements (732)
Proceeds from sale of real estate 88,917 31,602
Increase in Loans to Stockholders (3,000)
Net cash provided by (used in)
investing activities 132,167 47,768
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in escrow
deposits 2,563 10,346
Payments on bank line of credit (18,500)
Proceeds from notes payable 85,274
Payments on notes payable (108,816) (63,719)
Proceeds from sale of stock 30,000
Net cash provided by (used in)
financing activities (106,253) 43,401
(DECREASE) INCREASE IN CASH (1,747) 8,847
CASH - beginning of period 7,000 22,801
CASH - end of period $ 5,253 $ 31,648
</TABLE>
NOTE BANKERS OF AMERICA, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Organization:
-------------
(1) Note Bankers of America, Inc. holds 100% of the stock of Private
Mortgage Bankers, Inc., a buyer/broker of owner financed mortgages, and Life
Today, Inc., a viatical settlement broker.
(2) Business Activities:
--------------------
The Company purchases privately held, owner financed mortgages from
individuals who have personally financed the sale of real property. The
Company either holds the loans for investment purposes or sells them to
individual investors, banks or other institutions. The Company is also in the
business of brokering owner-financed mortgages.
Another principal business activity of the Company is to broker life insurance
policies of terminally ill individuals to other investors or institutions.
The life insurance policyholder receives a percentage of the face amount of
the policy, determined by certain factors, including the insured=s life
expectancy. The Company receives a commission to provide this brokerage
service.
(3) Consolidation Accounting Policies:
------------------------------------
The financial statements reflect the acquisitions of Life Today by Private
Mortgage Bankers, Inc., as a purchase resulting in Goodwill (excess of
purchase price over net worth) of $40,511. The acquisition of Private Mortgage
Bankers, Inc., by Note Bankers of America, Inc. represents and has been
accounted for as a pooling of interest. All intercompany transactions are
eliminated in consolidation.
(4) Furniture, Fixtures and Equipment:
-------------------------------------
Furniture, fixtures and equipment is stated at cost less accumulated
depreciation. Depreciation of furniture, fixtures and equipment is computed
using the straight-line method over estimated useful lives of the assets of
five years.
(5) Loans Held for Resale:
------------------------
Loans to be held for an indefinite period of time are classified as available
for sale and are carried at the lower of cost or market. Cost is computed as
the principal amount outstanding, net of unearned discounts and deferred loan
fees and expenses. Unearned discounts on loans are recognized as income over
the term of the loans on a level-yield method. These loans are sold in
response to changes in market interest rates, liquidity needs or other similar
factors.
The allowance of credit losses is established through a provision for credit
losses charged to operating expense. The allowance represents an amount which,
in management=s judgement will be adequate to absorb possible losses on
existing credits which may become uncollectible. Management=s judgement in
determining the adequacy of the allowance is based on evaluations of the
collect ability of loans. These evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, current
economic conditions, overall portfolio quality and review of specific credits.
The Company began accounting for impaired loans in 1995 as prescribed in
Statement of Financial Accounting Standards No.118, AAccounting by Creditors
for Impairment of a Loan@ (SFAS No.118). Impaired loans are measured on the
present value of expected future cash flows discounted at the loan=s effective
interest rate or, as a practical expedient, at the loan=s observable market
price or the fair value of the collateral if the loan is collateral dependent.
The adoption of SFAS No.118 had no material impact upon the financial
statement of the Company.
(6) Loan Origination Costs:
------------------------
Loan origination costs are deferred and amortized over the lives of the
related loans as an adjustment of yield.
(7) Real Estate Owned:
--------------------
Real estate owned represents property purchased for investment or acquired
through foreclosure. Real estate owned is carried at the lower of cost or
fair value. Reductions in the balance of real estate owned at the time of
foreclosure are charged to the allowance for credit losses. Any subsequent
write downs to reflect current fair value are charged to operating expense.
(8) Income Taxes:
--------------
The Company recognizes income taxes in accordance with Statement of Financial
Accounting Standards No.109, AAccounting for Income Taxes@ (SAS No.109). Under
this method, deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.
Under SAS No.109, deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carry forwards, and then a
valuation allowance is established to reduce that deferred tax asset if it is
Amore likely than not@ that the related tax benefits will not be realized.
(9) Brokerage Income:
------------------
Revenue is recognized when a life insurance policy is sold to an investor or
institution and both parties are funded. Under insurance regulations, the
insured has 15 calendar days, after receipt of the proceeds, to rescind the
sale of the life insurance policy. If the sale is rescinded, the sales
proceeds and the commission is returned to the purchasing insurance company.
The Company accounts for any rescissions during the month the life insurance
policy was originally sold. Since inception, the Company has not had a policy
sale rescinded.
(10) Commitments and Contingencies:
-------------------------------
The company executed a "Loan Acquisition, Servicing and Repurchase
Agreement" with a bank in 1991 under the terms of which the company brokered
certain mortgage loans to the bank and provides servicing of the loans for the
bank. The agreement includes a default agreement under which the company is to
"buy back" mortgage loans that become delinquent. As of September 30,1997
there were 20 loans being serviced by the company with a amortized cost basis
to the bank of approximately $461,239. All of the loans are secured by single
family, owner occupied residences in the greater Houston area and one was 60
days past due at September 30, 1997 with a basis of $32,558. Performance under
the agreement is guaranteed by a major stockholder of the Company. No
significant loss to the company under this agreement is anticipated by
management.
(11) Estimates:
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount 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.
(12) Fair Value of Financial Instruments
---------------------------------------
The Company=s only financial instruments are accounts payable and accrued
expenses. Management believes the carrying amount of these financial
instruments approximate their fair values.
(13) Revolving Line of Credit:
---------------------------
The Company had a revolving line of credit with a bank in the maximum amount
of $250,000 which matured September 23, 1997. The line of credit was used by
the Company solely to finance the purchase of single family residential loans
and the holding of such loans until they are sold. The balance of $46,848 as
of September 30, 1997 is being liquidated as the Company sells the underlying
mortgages. Funds from sources other than the underlying mortgages will be
required to fully liquidate the balance.
(14) Notes Payable:
--------------
On September 30, 1997, the Company had financial arrangements with various
individuals through their individual retirement (IRA) accounts, which were
originated to finance the purchase of mortgage loans and real estate. Notes
collateralized by mortgage loans mature at various dates from 1997 to 2021.
The notes become due and payable immediately upon demand of individuals.
Principal and interest are payable monthly, at rates ranging from 11% to 12 %.
In the event of foreclosure, the notes payable are collateralized by the
underlying real estate; principal payments are discontinued and interest only
is payable monthly. Upon the Company=s sale of the real estate and creation
of a new mortgage loan, principal payments and interest are due monthly, based
on the term and maturity date of the new mortgage loan. Upon the Company=s
sale of real estate for cash, the note payable becomes unsecured. The Company
is obligated to make a best effort to collateralize the note with a new
mortgage loan purchase or real estate purchase. Unsecured notes and notes
secured by real estate have no stated maturity date. Interest is payable
monthly at rates ranging from 11% to 12%. At September 30, 1997 the notes
payable to individuals pursuant to this arrangement totaled $834,872.
As of September 30, 1997 five regularly scheduled payments of principal and
interest on the above notes were currently and past due. The payments total
$68,004 and are included in Accounts Payable and Accrued Expenses. Subsequent
to September 30, 1997 assignments passing title to the collateral mortgages
were recorded by the IRA account trustee. The effect on the financial
statements of the company will be a significant reduction in assets with a
similar reduction in notes payable.
The Company has various notes to two individuals, having no written terms,
including the maturity dates and interest rates. Some of the notes are due
upon the maturity of the underlying mortgage loan collateral; and the other
notes have no stated maturity date and are unsecured. Interest rates vary
between 12% to 13% and for some notes, interest is payable monthly; for
others, interest is due at maturity of the underlying mortgage loan
collateral. Should an individual desire to liquidate his account, upon
written notice, the Company will employ its best efforts and has up to six
months to sell the underlying collateral for cash proceeds to be remitted to
the individual. In such liquidation, funds from sources other than the
underlying mortgage loans would be required. The collateralized notes total
$88,999 and the unsecured notes total $154,132 at September 30, 1997.
The Company has two notes payable for the purchase of stock in Private
Mortgage Bankers, Inc. of $30,000 each due August 15, 1999 with interest
payable monthly at the rate of eight percent. Five interest payments totaling
$2,000 were past due at September 30, 1997 and are included in Accounts
Payable and Accrued Expenses.
(15) Concentrations of Credit Risk
--------------------------------
The Company=s financial instruments which are exposed to concentrations
of credit risk consist primarily of loans receivable secured by single
family residential mortgages in Houston and surrounding area. The Company
assesses its credit risk and provides an allowance for credit loss for any
loans which it deems doubtful of collection.
`(16) Loans Receivable:
-----------------
Major classifications of loans at September 30, 1997 are as follows:
Residential real estate:
Single Family residential $915,752
Multi-Family residential 17,241
Commercial: 14,307
Land: 5,920
--------
953,220
Less:
Loan fees and unearned discounts 133,560
Allowance for credit losses 10,000
--------
$809,660
========
(17) Liquidity and Ability to Continue as a Going Concern
------------------------------------------------------------
The Company used $273,913 in cash for operations during the year ended June
30, 1997 and an additional $27,661 during the three months ended September 30,
1997. The Company will require additional sums to continue in operations in
the future without a significant increase in brokerage income. There can be no
assurance that any increase in brokerage income can be obtained. The Company=s
other primary sources of cash during those periods was funds generated from
the sale of loans and real estate and an increase in borrowed funds. There can
be no assurance that additional funds can be obtained from the sale of loans
and real estate or that borrowed funds will continue to be available. The
liquidity of the Company and its ability to continue as a going concern is
contingent upon the above items.
Item 2. Management's Discussion and Analysis or Plan of Operation.
This report on Form 10-QSB contains 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. The Company intends that such
forward-looking statements be subject to its safe harbors created thereby.
The following is a discussion and analysis of the consolidated financial
condition of the Company as of September 30, 1997 and of the results of
operations for the Company for the three months ended September 30, 1997 and
1996, and of certain factors that may affect the Company's prospective
financial condition and results of operations. The following should be read
in conjunction with the unaudited consolidated financial statements and
related notes appearing elsewhere herein.
OVERVIEW
The Company is a speciality financial services holding company that
primarily conducts business in two distinct areas:
(1) providing viatical settlements for terminally ill individuals by
acting as a broker.
(2) purchasing, brokering, acquiring, repackaging, holding for
investment and acting as a dealer in portfolios of "owner financed"
residential and "light"commercial real property first mortgage loans,
primarily originated as owner financed ("Mortgage Receivables").
The Company's financial statements consolidate the assets, liabilities
and operations of Private Mortgage Bankers, Inc. ("P.B."), the Company's
wholly-owned special purpose subsidiary through which the Company conducts its
mortgage purchase operations, and Life Today, Inc. ("Life today"), the
Company's wholly-owned special purpose subsidiary through which the Company
conducts its viatical settlement business operations.
RECENT DEVELOPMENTS
As of September 30, 1997 five regularly scheduled payments of principal
and interest on the notes to certain IRA accounts collateralized by mortgages
were currently and past due. The payments total $68,004 and are included in
Accounts Payable and Accrued Expenses. Subsequent to September 30, 1997
assignments passing title to the collateral mortgages were recorded by the IRA
account trustee. The effect on the financial statements of the company will be
a significant reduction in assets with a similar reduction in notes payable.
Combined company losses of $343,175 for the year ended June 30, 1997 and
additional losses of $35,387 for the quarter ended September 30, 1997 resulted
in cash used by operations of $273,913 and $27,661 for the same periods.
Management is therefore keeping operations at a minimum while seeking a
business solution. No assurance can be made that a viable solution can be
found that will allow the company to continue as a going concern.
RESULTS OF OPERATIONS
BROKERAGE INCOME - The company closed 1 mortgage and 6 viatical
transactions for a total amount of $34,587 (an average of $4,941 each) for the
three months ended September 30, 1997 and 3 mortgage and 12 viatical
transactions for a total amount of $108,551 (an average of $7,237 each)for
same period in 1996.
GAIN ON LOAN SALES - The company sold 2 loans for a total gain of
$4,658 for the quarter ended September 30, 1996, but no loans were sold for
the quarter ended September 30, 1997.
INTEREST INCOME - Loans Held for Resale decreased $254,279 from
$1,063,939 on September 30, 1996 to $809,660 on September 30, 1997, which
resulted in the $9,012 decrease in interest income.
GAIN ON SALE OF HOUSES - The company sold 1 house for a gain of
$16,594 for the quarter ended September 30, 1997. For the same period in 1996,
the company sold 2 houses for a total gain of $1,992.
OTHER OPERATING EXPENSE - Other operating expense decreased from
$273,577 for the quarter ended September 30, 1996 to $127,457 for the
respective quarter in 1997. The decrease is due to less use of outside
viatical brokers, a reduction in corporate staff and legal and accounting
services. In addition Notes Payable and the Bank Line of Credit decreased a
combined $307,090 from September 30, 1996 to September 30, 1997, resulting in
reduced interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $273,913 in cash for operations during the year ended
June 30, 1997 and an additional $27,661 during the three months ended
September 30, 1997. The Company will require additional sums to continue
operations in the future without a significant increase in brokerage income.
There can be no assurance that any increase in brokerage income can be
obtained. The Company's other primary sources of cash during those periods was
funds generated from the sale of loans and real estate and an increase in
borrowed funds. There can be no assurance that additional funds can be
obtained from the sale of loans and real estate or that borrowed funds will
continue to be available. The liquidity of the Company and its ability to
continue as a going concern is contingent upon the above items.
Management is currently keeping operations and related expenditures at a
minimum while investigating possible alternative courses of action.
As of September 30, 1997, the Company's current liabilities exceeded
current assets by $636,821, a ratio of 1.7 to 1. The available cash of $5,253
represented .6% of total current assets. Cash flow required by operating
activities decreased by 43.9% ($21,670) form the quarter ended June 30, 1997
to the quarter ended September 30, 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
None; not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Sheet
(b) Reports on Form 8-K.
July 21, 1997 the company filed Form 8-K to report a restructuring as of June
30, 1997 whereby dormant subsidiaries were spun-off as non reporting companies
to the shareholders as of that date. This report is incorporatedby reference
herein.
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.
NOTE BANKERS OF AMERICA, INC.
Date: November 10, 1997 By /S/ E. Donald DeYoung
__________________________________________
E. Donald DeYoung, Director/President
Date: November 10, 1997 By /S/ Allen E. Myers
__________________________________________
Allen E. Myers, Director/CEO
Date: November 10, 1997 By /S/ Louis J. Blenderman
__________________________________________
Louis J. Blenderman, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements contained in the form 10-Q for the three
months ended September 30, 1997, and is qualified in its entirety by
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5253
<SECURITIES> 0
<RECEIVABLES> 24078
<ALLOWANCES> (10000)
<INVENTORY> 809660
<CURRENT-ASSETS> 828991
<PP&E> 20777
<DEPRECIATION> (13681)
<TOTAL-ASSETS> 942064
<CURRENT-LIABILITIES> 1465812
<BONDS> 0
0
0
<COMMON> 23555
<OTHER-SE> 73231
<TOTAL-LIABILITY-AND-EQUITY> 942064
<SALES> 88917
<TOTAL-REVENUES> 164393
<CGS> 72323
<TOTAL-COSTS> 77326
<OTHER-EXPENSES> 87825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34629
<INCOME-PRETAX> (35387)
<INCOME-TAX> 2
<INCOME-CONTINUING> (35387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35387)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
