SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934.
January 31, 1997
Date of Report (Date of earliest event reported)
CELTIC INVESTMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-37436-C 36-3729989
State of Commission File No. IRS Employer
Incorporation Identification No.
17W220 22nd Street, Suite 420
Oakbrook Terrace, IL 60181
(Address of principal executive offices)
(630) 993-9010
(Registrant's telephone number)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
On February 14, 1997, the Registrant filed a Form 8-K to report on its
acquisition of Salt Lake Mortgage Corp. The Registrant did not file copies of
the financial statements of Salt Lake Mortgage and proforma financial statements
of the Registrant and Salt Lake Mortgage with such Form 8-K. This Amended Form
8-K is filed for the purpose of filing such financial statements.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Statements.
Celtic Investment, Inc. and Salt Lake Mortgage
For the 12 months ended June 30, 1996 - Unaudited
For the six months ended December 31, 1996 - Unaudited
(b) Financial Statements.
Salt Lake Mortgage - February 28, 1996 and February 29, 1995 -
Audited.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: April 14, 1997 CELTIC INVESTMENT, INC.
By /s/ Douglas P. Morris
Douglas P. Morris
President
3
<PAGE>
PRO FORMA FINANCIAL DATA
(Unaudited)
The following unaudited consolidated pro forma balance sheet and a
statements of operations have been derived from the statements of operations of
the Company for the fiscal years ended June 30, 1996 and the six months ended
December 31, 1996 and adjust such information to give the effect if the
Recapitalization had occurred on July 1, 1995. The consolidated proforma
statements are presented for informational purposes only and do not purport to
be indicative of the results of operations or balance sheet conditions that
actually would have resulted if the Recapitalization had been consummated on
July 1,1995 nor which may result from future operations.
Historically, the Company has not experienced a great deal of seasonality
with results of operations. Accordingly, results during the first six months of
the fiscal year have not been historically different than the balance of the
year. The Pro Forma Consolidated Financial Statements and notes thereto should
be read in conjunction with the the Company's consolidated financial statements
and related notes thereto contained in this Prospectus.
4
<PAGE>
CELTIC INVESTMENT, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for twelve month period ending June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ADVANTAGE
REALTY & PROFORMA
CELTIC SALT LAKE PROFORMA CELTIC
INVESTMENT MORTGAGE ADJUSTMENT INVESTMENT
<S> <C> <C> <C> <C>
$ $ $ $
Total Revenues: 1,245,763 1,895,047 0 3,140,810
Interest expense 35,026 0 0 35,026
--------------- ------------ -------------- -----------
Income after interest
expense 1,210,737 1,895,047 0 3,105,784
Total operating expenses 1,380,739 1,745,029 90,870(1) 3,216,638
---------- ----------- -------------- -----------
Net Income (loss) before
Income Tax $ (170,002) 150,018 (90,870) (110,854)
Provision for Inco N.A. N.A. N.A. (3) 0
----- ---------- --------- -----------
Net Income (loss) after
Income Tax (170,002) 150,018 (90,870) (110,854)
--------- ---------- --------- ------------
Primary earnings (loss)
per share (0.05) 0.14 0.00 (0.02)
--------- ---------- --------- -----------
Fully diluted earnings
per share (0.05) 0.14 0.00 (0.02)
---------- ---------- --------- -----------
Weighted average
shares outstanding 3,441,551 1,100,000 0 4,541,551
--------- ---------- --------- ------------
</TABLE>
5
<PAGE>
CELTIC INVESTMENT, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for six month period ending December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ADVANTAGE
REALTY & PROFORMA
CELTIC SALT LAKE PROFORMA CELTIC
INVESTMENT MORTGAGE ADJUSTMENT INVESTMENT
<S> <C> <C> <C> <C>
$ $ $ $
Total Revenues: 722,293 690,977 0 1,413,270
Interest expense 64,920 2,629 0 67,549
------------ ---------------- ------------ --------------
Income after interest
expense 657,373 688,348 0 1,345,721
(30,000)(2)
Total operating expenses 613,628 723,837 45,435(1) 1,352,900
-------------- ---------------- ------------ -------------
Net Income (loss) before
Income Tax $ 43,745 (35,489) (15,435) (7,179)
Provision for Income Tax N.A. N.A. N.A. (3) 0
----- --------------- ------------ ------------
Net Income (loss) after
Income Tax 43,745 (35,489) (15,435) (7,179)
--------------- -------------- ------------ ------------------
Primary earnings (loss)
per share 0.01 ( 0.03) 0.00 0.00
---- ------- ---- --------
Fully diluted earnings
per share 0.01 ( 0.03) 0.00 0.00
---- --------- ------- --------
Weighted average
shares outstanding 3,486,442 1,100,000 0.00 4,586,442
------------ ---------- -------- -----------
</TABLE>
6
<PAGE>
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Year ending June 30, 1996
and the Six Months Ended December 31, 1996
(1) The Adjustment for the Goodwill expense reflects the 1,100,000 restricted
share stock exchange between Celtic Investment and Salt Lake Mortgage/Advantage
Realty. The calculation includes a 25% discount for the restrictive shares in
the exchange and a 15 year amortization for the Goodwill.
No adjustment has been made for the 1,000,000 restricted share
options. These option shares have a exercise price of $3.00 per share are
considered "out the money" at 12/31/96. Furthermore, issuance is contingent on
the operating results of Salt Lake Mortgage and Advantage Realty. If and when
the opinion shares are to be exercised and issued, these shares would also be
restricted.
(2) During the period from July 1,1996 to December 31, 1996 Celtic had
expended approximately $30,000 with regard to the merger of Celtic Investment
and Salt Lake Mortgage and Advantage Realty. These expense items are deemed to
be acquisition costs and have been reversed.
(3) Because of a net carry forward loss position, no income tax expense is
required at this time.
7
<PAGE>
CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Advantage
Realty &
Celtic Salt Lake Proforma
Celtic
Investment Mortgage Adjustments Investment
<S> <C> <C> <C> <C>
Cash $ 640,853 $ 213,354 $ $ 854,207
Receivables 4,037,778 40,744 4,078,522
Furniture, fixtures and equipment,
0
net of accumulated depreciation 56,272 96,202 152,474
Deferred finance fees,
net of accumulated amortization 120,312 0 120,312
Prepaid expenses and other ass 16,301 2,613 70,000 (2) 88,914
Goodwill 0 0 1,410,570(1,3) 1,410,570
----------- ---------- --------------- ------------
Total assets $ 4,871,516 $ 352,913 $1,480,570 $ 6,704,999
----------- ------------ ------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and
accrued expenses 147,757 $82,347 $40,000(2) $ 270,104
Due to factoring clients 1,316,585 0 1,316,585
Note payable -
- - line of credit (Capital Factors) 524,654 0 524,654
Capital leases, Deferred taxes 0 16,734 16,734
------------- ---------- ----------
Total liabilities 1,988,996 99,081 40,000 2,128,077
Stockholders' equity :
Preferred stock - 100,000 -100,000(1) 0
Common stock 3,306 26,000 -24,900(1) 4,406
Additional paid-in capital 4,232,904 0 1,671,775(1) 5,904,679
Retained Earning (1,281,144) 127,832 106305(1,3) (1,259,617)
----------- -------- -----------
</TABLE>
8
<PAGE>
CELTIC INVESTMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited) - Continued
Total stockholders' equity 2,955,066 253,832 1,440,570 4,649,468
Less notes and interest receivable
from shareholders (72,546) 0 0 (72,546)
2,882,520 253,832 1,440,570 4,576,922
Total liabilities and
stockholders' equity 4,871,516 $352,913 $1,480,570 6,704,999
--------- --------- ---------- ---------
9
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet
(1) The Adjustment to record the exchange of the common and preferred shares
of Salt Lake Mortgage shares and the common shares of Advantage Realty in
exchange for those of Celtic Investment Inc.. A total of 1,100,000 shares were
issued of which 500,000 shares are being held in escrow. The release of these
escrow shares is based on a formula involving capital infusion occurs and
operating profitability during the next two years. The calculation reflects a
25% discount on the 1,100,000 restricted shares and a 15 year amortization of
the Goodwill net of the existing Salt Lake Mortgage/Advantage Realty balance
sheet. Fair market value was used for the balance sheet valuation.
(2) During the period from July 1,1996 to December 31, 1996 Celtic had
expended approximately $30,000 in acquisition expense to acquire Salt Lake
Mortgage and Advantage Realty. These items are acquisition costs related. In
addition $40,000 more will be spent to complete the merger by Celtic. These
amounts total approximately $70,000 and have been included in the Goodwill
calculation.
(3) Adjustment to record Goodwill Expense from July 1, 1995 at a rate of
$90,870 per year.
10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Salt Lake Mortgage Corp.
Salt Lake City, Utah
We have audited the accompanying balance sheet of Salt Lake Mortgage Corp. as of
February 29, 1996, and the related statements of operations, cash flows, changes
in stockholder's equity, and analysis of net worth for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Salt Lake Mortgage Corp. as of
February 29, 1996 and the results of its operations and its cash flows and its
analysis of net worth and changes in stockholder's equity for the year then
ended in conformity with generally accepted accounting principles.
May 28, 1996
GERALD K. STRONG, CPA
11
<PAGE>
SALT LAKE MORTGAGE CORP.
BALANCE SHEET
February 29, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 167,928
Accounts receivable - trade, net of allowance
for doubtful accounts of $810 20,068
Other current receivables 46,335
Notes receivable 14,850
Mortgage not receivable (Note 3) 60,000
---------
Total Current Assets 309,181
PROPERTY AND EQUIPMENT (NOTE 4):
Vehicles 32,899
Furniture, equipment and computers 71,800
Less allowance for depreciation and amortization ( 30,400 )
---------
Net Property and Equipment 74,299
---------
OTHER ASSETS:
Refundable deposits 2,613
---------
$ 386,093
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 56,624
Accrued fees, payroll and payroll taxes 43,406
Federal and state income taxes payable (Note 6) 7,843
Current portion capital leases (Note 5) 638
-------
108,511
-------
DEFERRED INCOME TAXES (NOTE 5) 3,080
-------
12
<PAGE>
SALT LAKE MORTGAGE CORP.
BALANCE SHEET - Continued
February 29, 1996
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDER'S EQUITY:
Preferred stock; $100 par value; 10,000
shares authorized; 1,000 issued 100,000
Common stock; no par value; 2,050,000
shares authorized; 50,000 issued 25,000
Retained earnings 149,502
--------
Total Stockholder's Equity 274,502
---------
$ 386,093
_________
The accompanying notes are an integral part of this statement
13
<PAGE>
SALT LAKE MORTGAGE CORP.
STATEMENT OF OPERATIONS
For the Year Ended February 29, 1996
OPERATING REVENUES $ 1,552,587
OPERATING COSTS AND EXPENSES:
Promotion and advertising $ 103,804
Direct loan expense 523,924
Loan processing 479,915
Depreciation and amortization 12,054
Appraisal expenses 5,457
General and administrative 418,977
---------
Total Operating Expenses 1,544,131
-----------
OPERATING INCOME 8,456
OTHER INCOME (EXPENSE):
Rental income $ 20,015
Interest income 1,018
---------
21,033
-----------
INCOME BEFORE INCOME TAXES 29,489
Provision for income taxes (Note 6) 8,620
-----------
NET INCOME $ 20,869
-----------
The accompanying notes are an integral part of this statement
14
<PAGE>
SALT LAKE MORTGAGE CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
For the Year ended February 29, 1996
Preferred Common Stock Retained
Stock Earnings
BALANCES AT FEBRUARY 28, 1995 $ 100,000 $ 25,000 $ 128,633
Net earnings - 1996 - - 20,869
---------- ---------- ----------
BALANCES AT FEBRUARY 29, 1996 $ 100,000 $ 25,000 $ 149,502
---------- ---------- ----------
The accompanying notes are an integral part of this statement
15
<PAGE>
SALT LAKE MORTGAGE CORP.
COMPUTATION OF ADJUSTED NET WORTH
To Determine Compliance With
HUD Net Worth Requirements
February 29, 1996
STOCKHOLDER'S EQUITY (NET WORTH) PER BALANCE SHEET $274,502
Less unacceptable assets -
--------
ADJUSTED NET WORTH FOR HUD REQUIREMENT PURPOSES $ 274,502
--------
The accompanying notes are an integral part of this statement
16
<PAGE>
SALT LAKE MORTGAGE
STATEMENT OF CASH FLOWS
For the Year Ended February 29, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,870
---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,054
(Increase) decrease in accounts receivable 17,521
Increase (decrease) in accounts payable 37,161
Increase (decrease) in income taxes payable ( 26,984 )
Increase (decrease) in deferred taxes payable 777
---------
Total adjustments 40,529
---------
Net cash provided by operating activities 61,399
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash invested in mortgage note ( 102,500 )
Collections on mortgage note 42,500
Increase in notes receivable ( 46,645 )
---------
Net cash (used) by investing activities ( 121,495 )
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases ( 2,429 )
---------
Net cash (used) by financing activities ( 2,429 )
---------
17
<PAGE>
SALT LAKE MORTGAGE
STATEMENT OF CASH FLOWS
For the Year Ended February 29, 1996
NET (DECREASE) IN CASH AND EQUIVALENTS ( 62,525 )
Cash and equivalents, beginning 230,453
---------
Cash and equivalents, ending $ 167,928
---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes $ 34,404
---------
The accompanying notes are an integral part of this statement.
18
<PAGE>
SALT LAKE MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
1. BUSINESS ACTIVITY
The Company was incorporated under the laws of the State of Utah on March 1,
1993. The Company is engaged as a mortgage loan broker; making loans to
qualified borrowers and then reselling them to investors. The Company does not
inventory or service the loans. Many loans are insured by FHA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company uses the accrual method of accounting. Revenues are recognized at
the time a loan is closed.
Depreciation and Amortization
Furniture, equipment and computers are carried at cost less accumulated
depreciation and amortization. Depreciation is computed on the straight-line
basis over estimated useful lives ranging from 5 to 10 years. Capitalized leases
are amortized over 4 years.
Income Taxes
The Company conforms to the requirements of Financial Accounting Standards
Statement No. 109 "Accounting for Income taxes."
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
3. MORTGAGE NOTE RECEIVABLE
Mortgage note in the amount of $60,000 is due plus interest at 8% in two
payments of $25,000 on or before April 1, 1996 and $35,000 on or before August
1, 1996. The debtor is an employee of the Company. The note is secured by
residential property.
4. PROPERTY AND EQUIPMENT
At February 29, 1996 components consist of:
Property Property Under
Owned Capital Leases
Vehicles $ 32,899 $ -
Equipment 53,476 18,324
Depreciation and amortization ( 16,657 ) ( 13,743 )
------- -------
$ 69,718 $ 4,581
======= =======
<PAGE>
SALT LAKE MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS - continued
February 29, 1996
5. LEASE OBLIGATIONS
The Company operates primarily in leased facilities with no contingent payment
provisions. Certain items of equipment and furnishings are also leased. Rent
expense under operating leases consist of:
Fiscal 1996
Rent - premises $61,292
Rents - equipment and furnishings 29,732
-------
$91,024
=======
Sublease rental income - premises $20,015
=======
At February 29, 1996, the Company's minimum rental commitments under capital
leases and noncancelable operating leases with initial or remaining terms of
more than one year were as follows:
Years Ending Capital Operating
February 29 Leases Leases
------ ------
1997 $ 638 $ 72,673
1998 - 70,228
1999 - 71,685
2000 - 73,243
2001 - 74,579
After 2001 12,467
------
Total minimum lease payments $ 638 $374,875
======
Less current obligations under
capital leases 638
-----
Long-term capital lease
obligations $ -
======
19
<PAGE>
SALT LAKE MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS - Continued
February 29, 1996
6. INCOME TAXES
The provision for income tax expense for the current fiscal year consisted of
the following:
Current $ 7,843
Deferred 777
------
$ 8,620
Deferred income tax provisions resulting from differences between accounting for
financial statement purposes and accounting for tax purposes were as follows:
Depreciation and amortization $ 3,080
-------
Tax effects of timing differences $ 3,080
=======
Deferred tax liabilities (assets) are composed of the following at February 29,
1996:
Deferred tax liability $ 3,080
Deferred tax assets -
Valuation allowance -
-------
Net deferred tax liability $ 3,080
=======
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Salt Lake Mortgage Corp.
Salt Lake City, Utah
We have audited the accompanying balance sheet of Salt Lake Mortgage Corp. as of
February 28, 1995, and the related statements of operations, cash flows, changes
in stockholder's equity, and analysis of net worth for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we planed and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Salt Lake Mortgage Corp. as of
February 28, 1995 and the results of its operations and its cash flows and its
analysis of net worth and changes in stockholder's equity for the year then
ended in conformity with generally accepted accounting principles.
May 26, 1995
GERALD K. STRONG, CPA
21
<PAGE>
SALT LAKE MORTGAGE CORP.
BALANCE SHEET
February 28, 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $230,453
Accounts receivable - trade 36,222
Other current receivables 47,702
------
Total Current Assets 314,377
PROPERTY AND EQUIPMENT (NOTE 4):
Furniture, equipment and computers 84,549
Less allowance for depreciation
and amortization ( 27,178 )
-------
Net Property and Equipment 57,371
OTHER ASSETS:
Refundable deposits 2,613
$374,361
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 49,309
Accrued fees, payroll and taxes 13,560
Federal and state income taxes
payable (Note 6) 34,827
Current portion capital leases (Note 5) 14,940
------
Total Current Liabilities 112,636
LONG TERM DEBT:
Capital leases (net of current portion) 5,790
-----
DEFERRED INCOME TAXES (NOTE 6) 2,303
-----
COMMITMENTS AND CONTINGENCIES (NOTE 5)
22
<PAGE>
SALT LAKE MORTGAGE CORP.
BALANCE SHEET - Continued
February 28, 1995
STOCKHOLDERS' EQUITY:
Preferred stock; $100 par value; 100,000
shares authorized; 1,000 issued (Note 3) 100,000
Common stock; no par value; 2,050,000
shares authorized; 50,000 issued 25,000
Retained earnings 128,632
-------
Total Stockholders' Equity 253,632
-------
$374,361
========
The accompanying notes are an integral part of this statement
23
<PAGE>
SALT LAKE MORTGAGE CORP.
STATEMENT OF OPERATIONS
For the Year Ended February 28, 1995
OPERATING REVENUES $ 1,290,012
OPERATING COSTS AND EXPENSES:
Promotion and advertising $109,494
Direct loan expense 352,994
Loan processing 306,241
Depreciation and amortization 16,962
Appraisal expenses 31,633
General and administrative 347,352
---------
Total Operating Expenses 1,164,676
----------
OPERATING INCOME 125,336
OTHER INCOME (EXPENSE):
Rental income $ 11,675
Interest income 1,376
Lapsed property option ( 13,000 )
---------
51
----------
INCOME BEFORE INCOME TAXES 125,387
Provision for income taxes (Note 6) 37,130
----------
NET INCOME $ 88,257
-----------
The accompanying notes are an integral part of this statement
24
<PAGE>
SALT LAKE MORTGAGE CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
For the Year Ended February 28, 1995
Preferred Common Stock Retained
Stock Earnings
BALANCES AT FEBRUARY 28, 1994 $ 250,000 $ 25,000 $ 40,375
Redemption of preferred stock ( 150,000) - -
Net earnings - 1995 - - 88,257
---------- ----------
BALANCES AT FEBRUARY 28, 1995 $ 100,000 $ 25,000 $ 128,632
=========== ========== ==========
The accompanying notes are an integral part of this statement
25
<PAGE>
SALT LAKE MORTGAGE CORP.
STATEMENT OF CASH FLOWS
For the Year Ended February 28, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 88,257
--------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 29,962
(Increase) decrease in accounts receivable ( 27,190)
Increase (decrease) in accrued liabilities (386,665)
Increase (decrease) in income taxes payable 25,202
Increase (decrease) in deferred taxes payable 2,303
--------
Total adjustments (356,388)
--------
Net cash (used) by operating activities (268,131)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of preferred stock (150,000)
Principal payments under capital leases ( 14,940)
--------
Net cash (used) by financing activities (164,940)
--------
NET (DECREASE) IN CASH AND EQUIVALENTS (433,071)
Cash and equivalents, beginning 663,524
--------
Cash and equivalents, ending $ 230,453
--------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes $ 9,625
The accompanying notes are an integral part of this statement
26
<PAGE>
SALT LAKE MORTGAGE CORP.
COMPUTATION OF ADJUSTED NET WORTH
To Determine Compliance With
HUD Net Worth Requirements
February 28, 1995
STOCKHOLDERS' EQUITY (NET WORTH) PER
BALANCE SHEET $253,632
Less unacceptable assets -
--------
ADJUSTED NET WORTH FOR HUD REQUIREMENT
PURPOSES $253,632
--------
The accompanying notes are an integral part of this statement
27
<PAGE>
SALT LAKE MORTGAGE CORP.
notes to financial statements
February 28, 1995
1. BUSINESS ACTIVITY
The Company was incorporated under the laws of the State of Utah on March 1,
1993. The Company is engaged as a mortgage loan broker; making loans to
qualified borrowers and then reselling them to investors. The Company does not
inventory or service the loans. Many loans are insured by FHA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company uses the accrual method of accounting. Revenues are recognized at
the time a loan is closed.
Depreciation and Amortization
Furniture, equipment and computers are carried at cost less accumulated
depreciation and amortization. Depreciation is computed on the straight-line
basis over estimated useful lives ranging from 5 to 10 years. Capitalized leases
are amortized over 4 years.
Income Taxes
The Company conforms to the requirements of Financial Accounting Standards
Statement No. 109 "Accounting for Income taxes."
Cash Equivalents
For Purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
3. REDEMPTION OF PREFERRED STOCK
During the current fiscal year, the Company redeemed 1,500 shares of preferred
stock at par of $100 per share.
4. PROPERTY AND EQUIPMENT
At February 2, 1995, components consist of:
28
<PAGE>
Property Property Under
Owner Capital Leases
Equipment $ 39,729 $ 44,820
Depreciation and Amortization ( 9,662) (17,516)
-------- -------
$ 30,067 $ 27,304
======== ========
5. LEASE OBLIGATIONS
The Company operates primarily in leased facilities with no contingent payment
provisions. Certain items of equipment and furnishings are also leased. Rent
expense under operating leases consist of:
Fiscal 1995
Rent - premises $ 54,450
Rents - equipment and furnishings 58,678
------
$ 113,218
=========
Sublease rental income - premises $ 11,675
=========
At February 28, 1995, the Company's minimum rental commitments under capital
leases and noncancelable operating leases with initial or remaining terms of
more than one year were as follows:
Years Ending Capital Operating
February 28 Leases Leases
1996 $ 14,940 $ 61,248
1997 5,790 10,640
1998 - -
1999 - -
2000 - -
After 2000 - -
--------------- _____________
Total minimum lease payments 20,730 $ 71,888
========
Less current obligations under
capital leases 14,940
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Long-term capital lease
obligations $ 5,790
=======
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SALT LAKE MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS - Continued
February 28, 1995
6. INCOME TAXES
The provision for income tax expense for the current fiscal year consisted of
the following:
Current $34,827
Deferred 2,303
$37,130
Deferred income tax provisions resulting from differences between accounting for
financial statement purposes and accounting for tax purposes were as follows:
Depreciation and amortization $ 2,303
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Tax effects of timing differences $ 2,203
=======
Deferred tax liabilities (assets) are composed of the following at February 28,
1995:
Deferred tax liability $ 2,203
Deferred tax assets -
Valuation allowance -
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Net deferred tax liability $ 2,203
=======
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