<PAGE>
================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1996
-----------------
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------- -----------
Commission File Number 0-17192
-------------------------------
CYPRESS FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 84-1061382
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5400 ORANGE AVENUE, SUITE 200, CYPRESS CA 90630
(Address of Principle Executive Office) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed 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 report), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock 4,500,271 as of January 12, 1997
---------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
-------
<C> <S> <C>
Item 1. Condensed Consolidated Balance Sheet as
of December 31, 1996........................... 1
Condensed Consolidated Statements of
Operations for the three-month periods ended
December 31, 1996 and 1995..................... 2
Condensed Consolidated Statements of
Cash Flows for the three-month periods
ended December 31, 1996 and 1995............... 3
Notes to Condensed Consolidated Financial
Statements..................................... 4 to 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 7 to 9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings..............................
Item 2. Changes in Securities..........................
Item 3. Defaults Upon Senior Securities................
Item 4. Submission of Matters to a Vote of Security
Holders........................................
Item 5. Other Information..............................
Item 6. Exhibits and Reports on Form 8-K...............
</TABLE>
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 312,698
Restricted cash 376,850
Accounts receivable, net 514,915
Portfolio receivables 253,348
Notes receivable from shareholders 61,750
Property, net 2,611,001
Other assets 23,720
-----------
$ 4,154,282
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 45,817
Trust payables 376,850
Accrued liabilities 186,371
Line of credit 850,000
Long-term debt 2,603,312
-----------
Total liabilities 4,062,350
-----------
Commitments and contingencies
Shareholders' equity:
Series A convertible, redeemable preferred
stock, $0.001 par value, $2.00 liquidation
preference per share, 5,000,000 shares
authorized; 345,000 shares issued and
outstanding 690,000
Common stock, $ 0.001 par value; 30,000,000
shares authorized; 4,500,271 shares issued
and outstanding 4,500
Additional paid-in capital 495,500
Accumulated deficit (1,098,068)
-----------
Total shareholders' equity 91,932
-----------
$ 4,154,282
===========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
1
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three-Month Periods Ended
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Service fees $ 974,996 $1,034,472
Portfolio income 212,824 2,431
---------- ----------
Total 1,187,820 1,036,903
Selling, general and administrative 1,290,071 1,070,477
---------- ----------
Loss from operations (102,251) (33,574)
---------- ----------
Other income (expense):
Interest expense (59,545) (58,032)
Rental operations, net 29,048 35,201
---------- ----------
Total (30,497) (22,831)
---------- ----------
Loss before income taxes (132,748) (56,405)
Provision for income taxes 2,672 3,949
---------- ----------
Net loss $ (135,420) $ (60,354)
========== ==========
Net loss per share $ (0.03) $ (0.01)
========== ==========
Weighted average shares outstanding 4,500,271 4,500,271
========== ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
2
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three-Month Periods Ended
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(135,420) $ (60,354)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 43,955 21,990
Changes in operating assets and
liabilities:
Accounts receivables 77,657 14,262
Portfolio receivables 233,157 (10,802)
Accounts payable (27,299) (57,586)
Trust payables 0 (46,368)
Accrued liabilities (204,424) (139,582)
--------- ---------
Net cash used in operating activities (12,374) (278,440)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (35,942) (4,684)
Notes receivable from shareholder 0 (5,083)
Decrease (increase) in other assets (893) (16,361)
Decrease in restricted cash 0 46,868
--------- ---------
Net cash provided by (used in) investing
activities (36,835) 20,740
--------- ---------
Cash flows from financing activities:
Net borrowings/repayments from line
of credit (142,085) 90,100
Long-term debt (16,714) (20,655)
--------- ---------
Net cash provided by (used in)
financing activities (158,799) 69,445
--------- ---------
Net decrease in cash (208,008) (188,255)
Cash, at beginning of period 520,706 362,234
--------- ---------
Cash, at end of period $ 312,698 $ 173,979
========= =========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
3
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended
December 31, 1996 and 1995
Note 1 - QUARTERLY INFORMATION
- ------------------------------
The accompanying unaudited, condensed and consolidated financial statements have
been prepared in accordance with Securities and Exchange Commission requirements
for interim financial statements. Therefore, they do not include all
disclosures that would be presented in the Annual Report on Form 10-KSB of
Cypress Financial Services, Inc. (the "Company"). These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements contained in the Company's 1996 Annual Report on Form 10-
KSB.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of consolidated financial position and results of operations
for the interim periods. The operating results are not necessarily indicative
of results to be expected for the year ending September 30, 1997.
NOTE 2 - PORTFOLIO RECEIVABLES
- ------------------------------
Portfolio receivables represent liquidating portfolios of delinquent accounts
which have been purchased by the Company for collection and are stated at cost.
Cost is reduced by cash collections on a portfolio by portfolio basis and
revenue is recognized when cash collections for a portfolio exceed its cost
basis.
The following is the activity of Portfolio Receivables, at face value, during
the three-month period ended December 31, 1996:
<TABLE>
<S> <C>
Face Value of Portfolio Receivables,
September 30, 1996 $ 58,658,758
Add-Face Value of Portfolio Receivables Purchased 1,258,003
Less-Face Value of Portfolio Receivables
Sold/Collected (2,333,341)
------------
Face Value of Portfolio Receivables,
December 31, 1996 $ 57,583,420
============
</TABLE>
4
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Three-Month Periods Ended
December 31, 1996 and 1995
NOTE 2 - PORTFOLIO RECEIVABLES, continued
- -----------------------------------------
The following is the activity of Portfolio Receivables, on a cost basis, during
the three-month period ended December 31, 1996:
<TABLE>
<S> <C>
Portfolio Receivables, September 30, 1996 $ 486,505
Add: Purchases of Portfolio Receivables 9,000
Less: Proceeds from sales (cost recovery) (139,392)
Collections (cost recovery) (102,765)
---------
Portfolio Receivables, December 31, 1996 $ 253,348
=========
</TABLE>
The Company has recorded as revenues, in the accompanying 1996 condensed
consolidated statement of operations, amounts collected or received from sales
of its Portfolio Receivables, in excess of the original cost on a portfolio by
portfolio basis, aggregating $212,824. Total cash received from all collections
and sales of the Company's Portfolio Receivables during the three-month period
ended December 31, 1996 totaled $454,981.
NOTE 3 - PROPERTY
- -----------------
Property consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land $ 866,575
Building 1,540,577
Equipment and furnishings 1,460,715
-----------
3,867,867
Less: accumulated depreciation (1,256,866)
-----------
Property - net $ 2,611,001
===========
</TABLE>
5
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Three-Month Periods Ended
December 31, 1996 and 1995
NOTE 4 - INDEBTEDNESS
- ---------------------
On January 28, 1997, the Company and its bank amended the maximum borrowings
under the line of credit agreement from $1,250,000 to $1,500,000. Net
borrowings from the line of credit at December 31, 1996 amounted to $850,000.
Interest on the borrowings are charged monthly based a commercial bank's prime
rate plus 2.0% per annum (10.25% at December 31, 1996). The line of credit
expires on January 29, 1998.
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Note payable to bank, secured by certain equipment,
due in monthly payments of $10,969, including
interest at 11% per annum, through June, 2000
at which time the entire principal balance is due and payable. $ 727,953
Mortgage note payable to bank, collateralized by land and
building, due in monthly payments of $14,089, including interest
at 8% per annum through December, 2000 at which time the entire
principal balance is due and payable. 1,875,359
-----------
Long-term debt $ 2,603,312
===========
</TABLE>
NOTE 5 - INCOME TAXES
- ---------------------
Income tax expense for the periods presented are based on the estimated
effective tax rate to be incurred for the year. Deferred tax assets and
liabilities at December 31, 1996, were not considered significant.
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
The Company is engaged in the collection of receivables owned by entities in the
commercial, retail and medical industries. The Company earns commission on
receivables collected for the Company's clients. In 1994, management identified
a downward trend in the commission rate structure of the collection business and
commencing January 1995, the Company began purchasing a significant amount of
receivables for its own collection account ("Portfolio Receivables"). The
Company has aggressively increased its purchases of Portfolio Receivables for
its own collection and anticipates that this will become a significant portion
of its future operations. The Company's accounting policy does not recognize
revenue from ongoing collection and resale of its Portfolio Receivables until
after the recovery of the cost of each portfolio.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with consolidated financial statements
and notes thereto included elsewhere in this report.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, competition which has and will continue to put
price pressure on the Company's third party collection business, the cost and
availability of capital to finance its receivables portfolio and overall macro
economic conditions which generally have a direct effect on the Company's
ability to collect on the receivables.
RESULTS OF OPERATIONS
- ---------------------
THREE-MONTHS ENDED DECEMBER 31, 1996 VERSUS THREE-MONTHS ENDED DECEMBER 31, 1995
The Company's operating revenues of approximately $1,188,000 for the three-
months ended December 31, 1996 are compared to its operating revenues for the
three-months ended December 31, 1995 of approximately $ 1,037,000. The increase
of approximately $151,000 (14.6% ) is primarily the result of an increase in
revenues of approximately $210,000 from its collection and sales of Portfolio
Receivables for the period ended December 31, 1996 as compared to the same
period last fiscal year.
Revenues generated by the Company's collection service divisions decreased to
$974,996 for the three-month period ended December 31, 1996 as compared to
$1,034,472 for the same period last fiscal year. Each of the Company's
collection service divisions have either decreased or remained relatively
constant as a result of the continuing efforts of the Company to expand its
purchases of receivables and other debtor obligations for its own portfolio. In
addition, the Company upgraded its collection software and replaced certain of
its old computer hardware, which resulted in lower collection revenues because
of the
7
<PAGE>
additional training and other down time for the collection staff during the
conversion period.
As of December 31, 1996, the Company's direct purchases of Portfolio Receivables
had a remaining face value of approximately $57,583,000 as compared to a
remaining face value of approximately of $58,659,000 as of September 30, 1996.
The Company's accounting policy does not recognize revenue from the sales or
collections of its Portfolio Receivables until after the recovery of the cost of
each portfolio. During the three-months ended December 31, 1996, the Company
received proceeds from sales and collections of Portfolio Receivables of
approximately $454,981 as compared to approximately $423,582 for the three-
months ended December 31, 1995. The Company was able to realize a significant
increase in revenues from its Portfolio Receivables during the three-month
period ended December 31, 1996, as compared to the same period last year,
despite receiving comparable proceeds, as a result of the prior cost recovery
from its earlier purchases of Portfolio Receivables.
Operating expenses for the three-months ended December 31, 1996 were
approximately $1,290,071 as compared to operating expenses of approximately
$1,070,477 for the three-months ended December 31, 1995. The increase is
primarily attributable to an increase in payroll costs, advertising and
brochure expenses, court costs, insurance expenses, depreciation and other
expenses for the collection of the Company's Portfolio Receivables, as well as
expenses incurred in acquiring, installing and training for the Company's new
computer system.
The Company had a loss from operations for the three-months ended December 31,
1996 of approximately $102,251 as compared to a loss from operations of
approximately $33,574 for the three-months ended December 31, 1995. The
increase in loss from operations is primarily attributable to the increase in
operating expenses and certain revenue loss attributable to the upgrading of its
collection software and computer hardware, which resulted in unusual down time
for the collection staff.
Interest expense for the three-months ended December 31, 1996 increased to
approximately $59,545 from approximately $58,032 for the three-months ended
December 31, 1995. The increase relates to the borrowings to acquire its
Portfolio Receivables. The Company expects to continue to utilize its credit
facility to finance future acquisitions of Portfolio Receivables.
Net rental income for the three-months ended December 31, 1996 was approximately
$29,048 as compared to approximately $35,201 for the three-months ended December
31, 1995. The decrease in net rental income is directly attributable to the
Company utilizing more space and thereby leasing out less space in the Company
owned office building.
The Company reported a net loss of approximately $135,420 for the three-months
ended December 31, 1996 as compared to a net loss of approximately $60,354 for
the three-months ended December 31, 1995. The increase in net loss resulted
primarily from the increase in operating loss for the reason stated above.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has historically been funded primarily through cash flows from
operations. The Company has recently used its existing credit facility, which
has an outstanding balance of approximately $850,000 as of December 31, 1996, to
acquire Portfolio Receivables. The Company's credit facility, which carries an
interest rate of prime plus 2%, has been increased to $1,500,000 and is due to
expire on January 29, 1998. Management plans to expand its purchases of
additional Portfolio Receivables, which will require the raising of additional
capital through the issuance of either debt or equity securities. There are no
assurances that such financing will be obtained and any delays in raising
additional capital will affect the Company's ability to acquire a material
amount of additional Portfolio Receivables.
The Company currently has outstanding long-term debt with financial institutions
of approximately $2,603,312 which is collateralized by a mortgage and certain
equipment. The Company's equipment debt is a term note with a remaining balance
of approximately $727,953 is due in June, 2000 and carries an interest rate of
11% per annum. The Company's mortgage note has a remaining balance of
approximately $1,875,359, carries an interest rate of 8% per annum and is due in
December, 2000. Management is currently evaluating the feasibility of
refinancing the mortgage note payable. In either case, management expects to
continue to service its outstanding long-term debt through its cash flows from
operations.
9
<PAGE>
<TABLE>
<C> <S>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EX 27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
</TABLE>
10
<PAGE>
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.
CYPRESS FINANCIAL SERVICES, INC.
Date: February 7, 1997 By: /s/ FARREST HAYDEN
-----------------------------
Farrest Hayden
Chairman of the Board and
Chief Executive Officer
Date: February 7, 1997 By: /s/ OTTO J. LACAYO
-----------------------------
Otto J. Lacayo
Director, Chief Financial
Officer and Vice President
(Principle Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 312,698
<SECURITIES> 0
<RECEIVABLES> 514,915
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,519,561
<PP&E> 3,867,867
<DEPRECIATION> 1,256,866
<TOTAL-ASSETS> 4,154,282
<CURRENT-LIABILITIES> 1,459,038
<BONDS> 2,603,312
0
690,000
<COMMON> 500,000
<OTHER-SE> (1,098,068)
<TOTAL-LIABILITY-AND-EQUITY> 4,154,282
<SALES> 1,187,820
<TOTAL-REVENUES> 1,216,868
<CGS> 0
<TOTAL-COSTS> 1,246,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,545
<INCOME-PRETAX> (132,748)
<INCOME-TAX> 2,672
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,420)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
