U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14189
CELTIC INVESTMENT, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 36-3729989
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification
No.)
17W220 22nd Street, Suite 420
Oakbrook Terrace, Il 60181
(Address of principal executive offices)
Issuer's telephone number, including area code: (630) 993-9010
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 x/ No
.
Common Stock outstanding at February 13, 1997 - 3,306,471 shares of $.001 par
value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
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FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
CELTIC INVESTMENT, INC.
For the Quarter Ended December 31, 1996
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet--December 31, 1996 and
June 30, 1996 3
Condensed Consolidated Statements of Income--for the three months
ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Income--for the six months
ended December 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows--for the six
months ended December 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6(a). Exhibits 11
Item 6(b). Reports of Form 8-K 11
2
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CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
December 31, 1996 June 30, 1996
Cash $ 640,853 $ 450,864
Receivables 4,037,778 3,746,347
Furniture, fixtures and equipment, net of
accumulated depreciation 56,272 61,803
Deferred Finance Fees, net of accumulated 120,312 158,951
amortization
Prepaid Expenses and Other Assets 16,301 7,713
Total assets $ 4,871,516 $ 4,425,678
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and Accrued Expenses 147,757 263,804
Due to factoring clients 1,316,585 1,321,829
Note Payable - Line of Credit (Capital Factors) 524,654 -
____________________________
Total liabilities 1,988,996 1,585,633
Commitments
Stockholders' equity:
Preferred stock - -
Common stock 3,306 3,306
Additional paid-in capital 4,232,904 4,232,904
Accumulated deficit (1,281,144) (1,324,889)
_____________________________
Total stockholders' equity 2,955,066 2,911,321
Less notes receivable and interest receivable from
stockholders (72,546) (71,276)
_____________________________
2,882,520 2,840,045
_____________________________
Total liability and stockholders'equity $ 4,871,516 $ 4,425,678
=============================
See accompanying notes to consolidated financial statements
3
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CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
December 31, 1996 December 31, 1995
Revenues:
Factoring income $ 303,672 $ 255,531
Interest 7,113 2,542
Other 38,757 882
________________ ______________
Total revenues 349,542 258,955
Interest expense 40,764 -
________________ ______________
Income after interest expense 308,778 258,955
Operating Expenses:
Salaries and employee benefits 134,488 112,878
Occupancy 24,268 29,516
Servicing Costs 23,487 78,665
Professional fees 58,461 105,455
Other 66,861 44,088
________________ ______________
Total operating expenses 307,565 370,602
Net Income (loss) $ 1,213 $ (111,647)
================ =============
Primary Earnings (loss) per Share 0.00 $ (0.04)
================ =============
Fully Diluted Earnings per Share 0.00 N/A
================ =============
Weighted average shares outstanding 3,486,442 2,778,438
================= =============
See accompanying notes to consolidated financial statements
2
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CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Six Months Ended
December 31, 1996 December 31, 1995
Revenues:
Factoring income $ 634,320 $ 581,170
Interest 11,356 15,503
Other 76,617 1,058
________________ _____________
Total revenues 722,293 597,731
Interest expense 64,920 -
________________ _____________
Income after interest expense 657,373 597,731
Operating Expenses:
Salaries and employee benefits 266,751 244,921
Occupancy 49,993 52,310
Servicing Costs 41,717 129,245
Professional fees 122,994 228,950
Other 132,173 155,434
________________ _____________
Total operating expenses 613,628 810,860
Net Income (loss) $ 43,745 $ (213,129)
================ ==============
Primary Earnings (loss) per Share 0.01 $ (0.08)
================ ==============
Fully Diluted Earnings per Share 0.01 N/A
================ ==============
Weighted average shares outstanding 3,486,442 2,778,438
================ ==============
See accompanying notes to consolidated financial statements
3
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CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 43,745 $ (213,129)
Adjustments to reconcile net income to net cash
provided (used in) by operating activities:
Depreciation 9,221 8,848
Amortization of deferred finance fees 38,639 -
Changes in operating assets and liabilities:
(Increase) Decrease in receivables (291,431) (1,069,379)
Increase in accounts payable and accru (116,047) (47,842)
Increase (Decrease) in payables to fac (5,244) 650,112
(Increase) in prepaid expenses and other ass (9,858) (106,087)
Net cash (used in)
operating activities (330,975) (777,477)
______________ _____________
Cash flows from investing activities -
Purchase of furniture, fixtures and equipment (3,690) (2,256)
Sale of furniture, fixtures, and equipment - 2,565
Net cash provided by (used in) by (3,690) 309
investing activities ______________ _____________
Cash flows from financing activities:
Proceeds from offering of secured notes - 500,000
Advances from Note Payable 524,654 -
Repurchase and cancellation of common stock - (49,049)
_____________ _____________
Net cash provided by (used in) financing
activities 524,654 450,951
_____________ _____________
Increase/(decrease) in cash during the period 189,989 (326,217)
Cash at beginning of period 450,864 2,117,621
_____________ _____________
Cash at end of period $ 640,853 1,791,404
============ =============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CELTIC INVESTMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------
1. General
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly its financial position
as of December 31, 1996 and the results of its operations for the six
months ended December 31, 1996 and 1995 and cash flows for the six months
ended December 31, 1996 and 1995. The statements are condensed and
therefore do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The statements should be read in conjunction with the
consolidated financial statements and the footnotes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996. The
results of operations for the six months ended December 31, 1996 and 1995
are not necessarily indicative of the results to be expected for the full
year.
2. Summary of Significant Accounting Policies
Per Share Data
Primary (Loss) per common share data is based on the weighted average
number of common shares outstanding including common share equivalents,
when diluted during each year. The 1996 fully diluted earnings per share
also considers the exercise of warrants. In computing the 1995 primary
earnings (Loss) per share, stock options are not considered because they
have an anti-dilutive effect.
Reclassifications
Certain amounts have been reclassified in the 1995 financial statements to
conform to the 1996 presentation.
3. Commitments and Contingencies
The Company has entered into an operating lease agreement for office space
beginning December 1, 1996 through November 30, 1999. The lease commitment
is approximately $54,000 for Year 1, $55,000 for Year 2, and $56,000 for
Year 3.
7
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PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
The Company commenced operations in the business of purchasing accounts
receivable in July 1994 when it acquired USCF. For accounting purposes,
the acquisition of USCF was treated as a reverse merger, with USCF
treated, for accounting purposes only, as the acquiring or surviving
company. Prior to the acquisition transaction, the Company had conducted
no business operations and its activities were limited to the sale of its
securities to raise its initial capital. USCF was formed in April, 1994
but did not commence operations until July 1994. From July 1994 through
September 30, 1994, the Company devoted most of its efforts to commencing
active operations in the accounts receivable business.
The Company organized USCF Illinois as a wholly owned subsidiary in March
1995. USCF Illinois was formed to conduct operations in the business of
purchasing accounts receivables on a recourse basis. The Company (through
USCF) typically purchases accounts receivable for between 70% and 80% of
face amount depending upon the size, age, and type of accounts being
purchased. The difference between the face amount of the receivable and
the purchase price of the receivable known is the discount. The Company's
discount typically ranges from 2.5% to 7.0%. The Company's revenues are
derived primarily from discounts. The Company's revenues are, to a great
extent dependent upon the amount of capital available for the purchase of
accounts receivable.
USCF currently has two relationships with other factors that provides both
factored accounts receivable volume and related factoring servicing of
those accounts. The relationship with Capitol Resource Funding of
Alexandria, Virginia started in March 1996 and a relationship with
Berkshire Financial Group of Tampa, Florida began in December 1996. Both
of these relationships have been positive in all financial aspects and are
on-going.
Liquidity and Capital Resources
The Company's capital requirements will increase as the volume of
purchased receivables increase although faster turnover of receivables can
mitigate some of those capital needs. Prior to May 1996 the Company relied
exclusively on cash proceeds from the sale of common stock to fund its
operations. Inasmuch as the Companys operations in the past were limited
this equity capital was sufficient. However, in order to expand its
ability to purchase receivables on a meaningful basis, it was necessary to
obtain additional capital from debt financing. On April 30, 1996 the
Company entered intoagreement with Capital Business Credit a division of
Capital Factors Inc., of Los Angeles, California for a $6,000,000 line of
credit. In July 1996, the Company began borrowing under this agreement.
8
<PAGE>
At December 31, 1996, the Company had total assets of $4,871,516 and total
liabilities of $1,988,996. This compares to the total assets of $4,425,678
and total liabilities of $1,585,633 at June 30, 1996. Cash at December 31,
1996, totaled $640,853 compared to $450,864 at June 30, 1996. The increase
in the cash balance is that of a timing issue. The increase in total
assets and total liabilities at December 31, 1996 is the direct result of
increased factoring volume that were financed using the Line of Credit.
The Company intends to continue to purchase receivables through existing
cash and through the use of the line of credit.
The Company anticipates that its monthly general and administrative costs,
exclusive of depreciation and marketing expenses, commissions, and
professional fees, will be approximately $65,000 for each of the next six
months based upon current operations. However, if operations increase, the
Company may be required to increase its staff which will increase its
monthly general and administrative expenses. The Company anticipates that
existing working capital and the line of credit will be adequate to fund
its operations and projected factoring volume during the next twelve
months.
On January 17, 1997, the Company announced that it had executed a
definitive Agreement and plan of merger with Salt Lake Mortgage Corp., a
Salt Lake City based mortgage broker, and a real estate marketing company.
This acquisition is intended to diversify the Company's operations and is
consistent with the Company's business plan to become a diversified
financial services company. The merger was structured as a stock for stock
exchange transaction. The Company issued 1.1 million shares of its stock
for the shares of Salt Lake Mortgage. The closing occurred on January 31,
1997.
Results of Operations
Revenues
Total revenues increased 17% to $722,293 for the six months ended
Decembcompared 96 to $597,731 for the six months ended December 31, 1995.
Total revenues increased 35% to $349,542 for the quarter ended December
31, 1996 compared to $258,955 for the three months ended December 31,
1995. This year to year revenue increaseresult of a 52% increase in the
volume of factored receivables. The Company has expanded its base of
clients and industries for purchased receivables. The Company also
continues to be successful in purchasing outright factor's client
receivables and co-participating in purchasing other factoring companies'
client receivables.
Interest Expenses
For the three months and six months ended December 31, 1995, the Company
had no interest expense; compared to interest expense of $40,764 and
$64,920 for the three and six months ended December, 1996. The interest
expense was the result of payment of interest on the Line of Credit and
the amortization of deferred financing costs relating to the Line of
Credit. As a result of anticipated increased usage of the $6,000,000 line
of credit, the Company anticipates that interest expense will continue to
increase during the second quarter of 1997.
9
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Credit Losses
The Company provided for no credit losses for the six months ended
December 31, 1996 or December 31, 1995. The current allowance for credit
losses of $74,000 appear to be adequate. Management will make provisions
for credit losses based upon its continuing review of the Company's
portfolio of invoices. The Company believes that the current allowance for
credit losses is adequate.However, there can be no assurance that
provisions for credit losses will be sufficient to cover any actual
losses. Although the Company intends to minimize credit losses through
adequate due diligence procedures, there is always the possibility that it
will incur credit losses.
Operating Expenses
Total operating expense for the six month period ending December 31, 1996
decreased versus the six month period ending December 31, 1995. Operating
expense were $197,232 or 24% lower for the six month period ending
December 31, 1996. There were two significant reasons for this reduction.
First, professional service fees decreased $105,956 in 1996 as the Company
incurred no private debt placement expense and collection expenses have
been reduced from the 1995 level. Second, outside servicing expense
decreased $87,528 for the six months ending December 31, 1996. The
reduction was the result of discontinuing an outside servicing contract
with an outside service provider and lower servicing per unit prices with
several outside portfolio servicing entities.
The Company's total operating expenses for the three months ended December
31, 1996 decreased to $307,565 from $370,602 for the three months ended
December 31, 1995. This is a reduction of approximately seventeen
percent(17%). There were two significant reasons for this reduction.
First, professional service fees decreased nearly $50,000 from the quarter
ending December 31, 1995. The Company had participated in a debt private
placement offering and was involved in the collection of various
non-recourse receivables during 1995 all of which increased professional
fees. Second, the Company reduced contractual portfolio servicing expenses
in the quarter ending December 31, 1996 from 1995. The Company
discontinued an outside servicing contract which resulted in an increase
in internal servicing operations. In addition, the Company lowered
servicing per unit prices with several other outside portfolio servicing
entities. The result of these actions lowered overall expenses by
approximately $33,000 for the quarter ending December 31, 1996.
Net Income (Loss)
As a result of increased revenues and decreased operating expenses the
Company's net income for the quarter ended December 31, 1996 was $ 1,213
compared to a net loss of $111,647 for the quarter ended December 31,
1995. This is the fourth consecutive quarter of profitability for the
Company. For the six months ending December 31, 1996, net income totaled
$43,745 versus a net loss for the six months ended December 31, 1995 of
$213,129.
Inflation
Business operations were not materially affected by inflation during the
past and current fiscal year.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceeding
The company is involved with two lawsuits as part of its
normal business. The larger suit involves Computer
Consultants of Georgia. An initial response is expected
by February 20, 1997.
Item 2. Changes is Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security HoldNone.
Item 5. Other Information None.
Item 6.(a) Exhibits None.
Item 6.(b) Reports on Form 8-K
On November 11, 1996, The Company resolved to extend
various Warrants while allowing the Class B warrants to
expire on December 31, 1996.
The ACAP Inc. warrants were allowed to expire on October 21, 1996.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or I 5(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CELTIC INVESTMENT, INC.
Date: February 13, 1997 /s/ Douglas P. Morris
By: Douglas P. Morris
President and Principal Executive Officer
Date: February 13, 1997 /s/ Frank Lucchese
------------------
By: Frank Lucchese
Principal Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CELTIC INVESTMENT, INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 640,853
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 640,853
<SECURITIES> 0
<RECEIVABLES> 4,037,778
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,678,631
<PP&E> 56,272
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,871,516
<CURRENT-LIABILITIES> 1,988,996
<BONDS> 0
0
0
<COMMON> 3,306
<OTHER-SE> 2,951,760
<TOTAL-LIABILITY-AND-EQUITY> 4,871,516
<SALES> 0
<TOTAL-REVENUES> 349,542
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 307,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,764
<INCOME-PRETAX> 1,213
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1213
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
