<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 June 30, 1997
-------------
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)
Registrant's telephone number including area code (714) 995-0627
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
equity as of the latest practicable date.
Common Stock 4,515,271 as of July 24, 1997
---------
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<PAGE>
Cypress Financial Services, Inc.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet as
of June 30, 1997.................................. 1
Condensed Consolidated Statements of
Operations for the Three and Nine-month periods
ended June 30, 1997 and 1996...................... 2 to 3
Condensed Consolidated Statements of
Cash Flows for the Nine-month periods
ended June 30, 1997 and 1996...................... 4
Notes to Condensed Consolidated Financial
Statements........................................ 5 to 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 8 to 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................. 12
Item 3. Changes in Securities............................. 12
Item 4. Defaults Upon Senior Securities................... 12
Item 5. Submission of Matters to a Vote of
Security Holders.................................. 12
Item 6. Exhibits and Reports on Form 8-K.................. 12
</TABLE>
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
<TABLE>
ASSETS
<S> <C>
Cash $ 341,539
Restricted cash 436,573
Accounts receivable, net 645,619
Portfolio receivables 561,458
Notes receivable from shareholders 61,750
Property, net 2,558,235
Other assets 20,952
-----------
$ 4,626,126
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 31,964
Trust payables 436,573
Accrued liabilities 258,889
Line of credit 1,232,862
Long-term debt 2,568,565
-----------
Total liabilities 4,528,853
-----------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, 5,000,000 shares authorized
authorized, 345,000 issued and outstanding 690,000
Common stock, $ 0.001 par value; 30,000,000
shares authorized; 4,515,271 shares issued
and outstanding 7,000
Additional paid-in capital 495,500
Accumulated deficit (1,095,227)
-----------
Total shareholders' equity 97,273
-----------
$ 4,626,126
===========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
1
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine-Month Periods Ended
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Service fees $3,096,041 $3,579,992
Portfolio income 753,723 182,862
---------- ----------
Total 3,849,764 3,762,854
Selling, general and administrative 3,866,572 3,615,363
---------- ----------
Income (loss) from operations (16,808) 147,491
---------- ----------
Other income (expense):
Interest income 482 0
Interest expense (197,679) (174,343)
Rental operations, net 86,677 84,241
---------- ----------
Total (110,520) ( 90,102)
---------- ----------
Income (loss) before income taxes (127,328) 57,389
Provision for income taxes 5,251 21,604
---------- ----------
Net income (loss) $ (132,579) $ 35,785
========== ==========
Net income (loss) per share $ (0.03) $ 0.01
========== ==========
Weighted average shares outstanding 4,515,271 4,500,271
========== ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
2
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three-Month Periods Ended
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Service fees $1,075,916 $1,232,472
Portfolio income 246,035 134,812
---------- ----------
Total 1,321,951 1,367,284
Selling, general and administrative 1,273,196 1,266,230
---------- ----------
Income from operations 48,755 101,054
---------- ----------
Other income (expense):
Interest expense (69,858) (63,858)
Rental operaitons, net 22,167 28,154
---------- ----------
Total (47,691) (35,704)
---------- ----------
Income before income taxes 1,064 65,350
Provision for income taxes 0 17,655
---------- ----------
Net income $ 1,064 $ 47,695
========== ==========
Net income per share $ 0.00 $ 0.01
========== ==========
Weighted average shares outstanding 4,515,271 4,500,271
========== ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
3
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine-Month Periods Ended
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(132,579) $ 35,785
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 135,567 70,350
Changes in operating assets and
liabilities:
Accounts receivables (53,047) (214,024)
Portfolio receivables (74,953) (63,246)
Accounts payable (40,978) (40,939)
Trust payables (16,017) 11,201
Accrued liabilities (132,080) (19,395)
--------- ---------
Net cash used in operating activities (314,087) (220,268)
Cash flows from investing activities:
Purchases of property and equipment (74,788) (33,638)
Decrease (increase) in other assets 1,825 (419)
Decrease (increase) in restricted cash 16,017 (11,201)
--------- ---------
Net cash provided by (used in) investing
activites (56,896) (45,258)
Cash flows from financing activities:
Common stock purchase 2,500 0
Net borrowings from line of credit 240,777 93,175
Note payments payable to shareholder 0 (60,000)
Long-term debt (51,461) 274,878
--------- ---------
Net cash provided by (used in)
financing activities 191,816 308,053
--------- ---------
Net increase (decrease) in cash (179,167) 42,527
Cash, at beginning of period 520,706 362,234
--------- ---------
Cash, at end of period $ 341,539 $ 404,761
========= =========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
4
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine-Month Periods Ended
June 30, 1997 and 1996
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 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 nine-month period ended June 30, 1997:
<TABLE>
<S> <C>
Face Value of Portfolio Receivables,
September 30, 1996 $ 58,658,758
Add-Face Value of Portfolio Receivables Purchased 21,060,125
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
5
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
For The Nine-Month Periods Ended
June 30, 1997 and 1996
NOTE 2 - PORTFOLIO RECEIVABLES, Continued
- -----------------------------------------
<TABLE>
<S> <C>
Less-Face Value of Portfolio Receivables
Sold/Collected (15,553,145)
Face Value of Portfolio Receivables,
June 30, 1997 $ 64,165,738
============
</TABLE>
The following is the activity of Portfolio Receivables, on a cost basis, during
the nine-month period ended June 30, 1997:
<TABLE>
<S> <C>
Portfolio Receivables, September 30, 1996 $ 486,505
Add: Purchases of Portfolio Receivables 615,862
Less: Proceeds from sales (cost recovery) (108,295)
Collections (cost recovery) (432,614)
Portfolio Receivables, June 30, 1997 $ 561,458
=========
</TABLE>
As reflected in the accompanying 1997 condensed consolidated statement of
operations as revenues, the Company collected or received proceeds from sales of
its Portfolio Receivables, in excess of their original cost on a portfolio by
portfolio basis, aggregating $753,723. Total cash received from all collections
and sales of the Company's Portfolio Receivables during the nine-month period
ended June 30, 1997 totaled $ 1,289,627.
NOTE 3 - PROPERTY
- -----------------
Property consists of the following at June 30, 1997:
<TABLE>
<S> <C>
Land $ 866,575
Building 1,540,577
Equipment and furnishings 1,499,721
-----------
3,906,873
Less: accumulated depreciation (1,348,638)
Property - net $ 2,558,235
===========
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
6
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
For the Nine-Month Periods Ended
June 30, 1997 and 1996
NOTE 4 - INDEBTEDNESS
- ---------------------
On January 29, 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 June 30, 1997 amounted to $1,232,862.
Interest on the borrowings are charged monthly based a commercial bank's prime
rate plus 2.0% per annum (10.25% at June 30, 1997). The line of credit expires
on January 29, 1998.
Long-term debt at June 30, 1997 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. $ 702,021
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. 1,866,544
----------
Long-term debt $2,568,565
==========
</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 June 30, 1997, were not considered significant.
7
<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 contingency fee
commission on receivables collected for the Company's clients, and since 1995,
the Company has begun 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 contingency collection business, the cost and
availability of capital to finance its Portfolio Receivables 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 June 30, 1997 versus Three-months ended June 30, 1996
The Company's operating revenues of $1,321,951 for the three-months ended June
30, 1997 are compared to its operating revenues for the three-months ended June
30, 1996 of $1,367,284. The Company has operating revenues from two sources:
contingency fee commission revenue and Portfolio Receivables revenue. The
decrease in revenues of $45,333 is primarily due to the reduced commission
structure of each of the Company's contingency collection divisions. The Company
recognized revenues on its purchased Portfolio Receivables of $246,035, or 18.6%
of operating revenues for the three-months ended June 30, 1997 as compared to
revenues of $134,812, or 9.9% of operating revenues for the three-months ended
June 30, 1996.
As of June 30, 1997, the Company's direct purchases of Portfolio Receivables had
a remaining face value of $64,165,738 as compared to a remaining face value of
$49,845,206 as of June 30, 1996. The Company's accounting policy does not
recognize
8
<PAGE>
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 June 30, 1997, the Company received proceeds from
sales and collections of Portfolio Receivables of $381,401 as compared to
$490,747 for the three-months ended June 30, 1996. The decrease in proceeds
from recovery of Portfolio Receivables was due to the Company's practice during
the quarter of retaining a larger portion of the accounts for collection in its
own portfolios for a longer period of time rather than selling off the accounts.
During the three-months ended June 30, 1997, the Company received collections of
$324,080 and sales of $57,321 on its portfolio receivables as compared to
collections of $263,759 and sales of $226,988 for the three-months ended June
30, 1996.
Operating expenses for the three-months ended June 30, 1997 were $1,273,196 as
compared to operating expenses of $1,266,230 for the three-months ended June 30,
1996. The expenses were consistent with those for the three-months ended June
30, 1996 and reflect the Company's normal operating expenses.
Interest expense for the three-months ended June 30, 1997 increased to $69,858
from $63,858 for the three-months ended June 30, 1996. The increase relates to
the Company's 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 June 30, 1997 was $22,167 as
compared to $28,154 for the three-months ended June 30, 1996. The decrease in
net rental income is attributable to the Company utilizing more space and
thereby leasing out less space in the Company owned office building.
The Company reported net income of $1,064 for the three-months ended June 30,
1997 as compared to net income of $47,695 for the three-months ended June 30,
1996. The decrease in net income is primarily due to two factors: lower
contingency commission fees received during this period and the Company's
practice of retaining Portfolio Receivables for a longer period of time thus
reducing sales revenues.
Results of Operations
- ---------------------
Nine-months ended June 30, 1997 versus Nine-months ended June 30, 1996
The Company's operating revenues of $3,849,764 for the nine-months ended June
30, 1997 are compared to its operating revenues for the nine-months ended June
30, 1996 of $3,762,854. The increase of $86,910 is primarily due to the Company
recognizing $753,723 in revenues, or 19.6% of total operating revenues from its
Portfolio Receivables for the nine-months ended June 30, 1997 as compared to
revenues of $182,862, or 4.9% of total operating revenues for the nine-months
ended June 30, 1996. This increase more than offset lower revenues generated by
the Company's contingency collection business.
9
<PAGE>
The Company expects to continue to focus on increasing its purchase of Portfolio
Receivables.
As of June 30, 1997, the Company's direct purchases of Portfolio Receivables had
a remaining face value of $64,165,738 as compared to a remaining face value of
$49,845,206 as of June 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 nine-months ended June 30, 1997, the Company received proceeds from
sales and collections of Portfolio Receivables of $1,289,627 as compared to
$1,266,226 for the nine-months ended June 30, 1996. The increase in proceeds
from Portfolio Receivables was due to the Company's continued focus on expanding
its Portfolio Receivables business.
Operating expenses for the nine-months ended June 30, 1997 were $3,866,572 as
compared to operating expenses of $3,615,363 for the nine-months ended June 30,
1996. The increase in operating expenses of $251,209 is primarily attributed to
an increase in payroll costs, advertising and public relation expenses,
insurance costs and other expenses directly related to its collection of
contingency business as well as its own Portfolio Receivables.
Interest expense for the nine-months ended June 30, 1997 increased to $197,679
from $174,343 for the nine-months ended June 30, 1996. The increase relates to
the Company's 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 nine-months ended June 30, 1997 was $86,677 as
compared to $84,241 for the nine-months ended June 30, 1996. The increase in
net rental income is directly attributable to the decrease in rental expenses
for repairs of the building.
The Company reported a net loss of ($132,579) for the nine-months ended June 30,
1997 as compared to net income of $35,785 for the nine-months ended June 30,
1996. The decrease in net income was due to increases in operating expenses and
certain revenue loss during the first quarter. The Company experienced down time
in collection activity in the first quarter due to upgrading its collection
software, computer hardware and additional personnel training time.
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 $1,232,862 as of June 30, 1997, 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 purchase additional Portfolio Receivables
which will necessitate the raising of additional capital through the
10
<PAGE>
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 $2,568,565, which is collateralized by a mortgage and certain equipment. The
Company's equipment debt is a term note with a remaining balance of $702,021 due
in December, 2000 and carries an interest rate of 11% per annum. The Company's
mortgage note has a remaining balance of $1,866,544, carries an interest rate of
8% per annum and is due on March 5, 2000. Management is currently evaluating
the feasibility of refinancing the mortgage note. In either case, management
expects to continue to service its outstanding long-term debt through its cash
flows from operations.
11
<PAGE>
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
Not Applicable
(b) Reports on Form 8-K
Not Applicable
12
<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: July 24, 1997 By: /s/ FARREST HAYDEN
-------------------------------
Farrest Hayden
Chairman of the Board and
Chief Executive Officer
Date: July 24, 1997 By: /s/ OTTO J. LACAYO
-------------------------------
Otto J. Lacayo
Director, Chief Financial
Officer and Vice President
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997
<PERIOD-START> OCT-01-1996 APR-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 341,539 0
<SECURITIES> 0 0
<RECEIVABLES> 645,619 0
<ALLOWANCES> 15,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,046,939 0
<PP&E> 3,906,873 0
<DEPRECIATION> 1,348,638 0
<TOTAL-ASSETS> 4,626,126 0
<CURRENT-LIABILITIES> 1,960,288 0
<BONDS> 2,568,565 0
0 0
690,000 0
<COMMON> 502,500 0
<OTHER-SE> (1,095,227) 0
<TOTAL-LIABILITY-AND-EQUITY> 4,626,126 0
<SALES> 3,849,764 1,321,951
<TOTAL-REVENUES> 3,936,923 1,344,118
<CGS> 0 0
<TOTAL-COSTS> 3,866,572 1,273,196
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 197,679 69,858
<INCOME-PRETAX> (127,328) 1,064
<INCOME-TAX> 5,251 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (132,579) 1,064
<EPS-PRIMARY> (0.03) 0.00
<EPS-DILUTED> 0 0
</TABLE>
