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 QUARTERLY PERIOD ENDED JUNE 30, 1996.
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ___________
to ___________
COMMISSION FILE NUMBER: 33-46921-A
KELLER FINANCIAL SERVICES OF FLORIDA, INC.
FLORIDA 59-3110610
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(State of Incorporation) (IRS Employer I.D. No.)
Address of Principal Executive Offices:
18167 U.S. HIGHWAY 19 NORTH, CLEARWATER, FLORIDA 34624-6572
Registrant's telephone number, including area code:
(813) 524-1400
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of May 10, 1996.
2,000,000 COMMON SHARES
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TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item I - Financial Statements 3
Item II - Management's Discussion and Analysis
of Financial Condition and Results of Operation 3
PART II OTHER INFORMATION
Item I - Legal Proceedings 5
Item II - Changes in Securities 5
Item III - Default upon Senior Securities 5
Item IV - Submission of Matters to a Vote of Security 5
Holders
Item V - Other Information 5
Item VI - Exhibits and Reports on Form 8-K 5
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KELLER FINANCIAL SERVICES OF FLORIDA, INC.
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
The Corporation is not filing financial information at this time for the reasons
included in ITEM II.
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
The Corporation is not filing financial information at this time for the reasons
included herein. The Corporation and its affiliates purchased $58,993,042 of
gross retail installment contracts during the quarter. Management now realizes
that unlike the first quarter of 1995, when losses began to abate late in the
quarter, the loss trend continued throughout the entire first quarter, and
thereafter. However, although management is certain that losses will occur, it
has decided to delay the establishment of loan loss reserves in the financial
statements until a previously reported financial model being prepared by Michael
Nixon, President and CEO, is completed. Based upon the results of this model and
the previously unavailable data from the Corporation's new computer system,
installed in April, 1996, management will establish these reserves. Management
anticipates that such reserves will be significant, thus creating a significant
operating loss. Management also anticipates that it will take at least 60 days,
or longer, to complete this project. In the interim, the Corporation will
continue implementing all aspects of its new business plan and process
reengineering program. When the project is completed, the Corporation will file
an amendment to this report, including the financial statements which reflect
the reserves, with the Commission.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation believes that its capital resources are sufficient to
fund its day-to-day operations and to make all interest payments on the secured
notes and dividend payments on the Convertible Preferred Stock when due and
payable for the foreseeable future. Management believes that with the
implementation of its new business plan and the continued improvements resulting
from the process reengineering, the Corporation will return to a level of
profitability sufficient to meet all other obligations. To verify its belief,
management has asked Mr. Nixon to prepare a financial model to assess the level
of profitability the Corporation must achieve to meet such obligations.
Management anticipates that it will take at least 60 days, or longer, to
complete this project. In the interim, the Corporation will continue
implementing all aspects of its new business plan and process reengineering
program. When the project is completed, the Corporation will file an amendment
to this report with the Commission indicating the results thereof.
PROCESS REENGINEERING
GENERAL. Management of KFS has recognized that, due to the extremely
competitive nature of the industry, successful companies in the sub-prime
lending industry will be those which are best able to do the following: (i) Hire
and retain a professional operations management team which is capable of
recruiting, training, leading and motivating their respective units, (ii)
Deliver a product that is consistently superior in both loan underwriting and
service quality, (iii) Accurately measure operational and financial performance
and make timely,
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responsive changes to plans or programs as necessary, and (iv) Leverage current
and evolving technologies to achieve a competitive advantage.
KFS has embarked upon a process reengineering program to accomplish the
foregoing. Process reengineering involves reviewing, at a significant level of
detail, the basic businesses and work flows of a company to determine the most
efficient use of human and financial resources, and to restructure, or
"reengineer," the organization and its business processes to assure efficiency,
consistency, control, profitability, financial stability and the future health
of the organization.
In order to effect process reengineering to achieve these desired
performance standards, Greg Stiff, Vice President - Operations, has been charged
with building a new Operations Control Unit (OCU). The OCU will assume the
following responsibilities: (I) Assure that formal, written communications
within the Corporation, including management reporting, bulletins, policies and
procedures are in place, current and under constant review and scrutiny for
improvement, (ii)Assure that all KFS branch offices and operational units are in
compliance with current KFS policies and procedures by means of periodic reviews
and audits by the OCU, (iii) Assure that appropriate performance goals are set
for each KFS operational unit and associates, (iv) Implement consistent,
accurate control tools and reporting to assure the stated objectives are
achieved, (v) Assure that each KFS associate clearly understands his or her job
assignments, has been properly trained, knows the expected level of their
performance, and understands their personal responsibility for achieving their
performance objectives, and (vi) Assure that the operations organization is
efficiently structured and that the flow of work within and between each unit
and other KFS departments facilitates the ultimate objective of booking quality,
profitable automobile receivables.
The initial objective of the OCU is to review the current communication
flows within KFS to assure they are adequate and are being utilized. It is
critical that information flow quickly and accurately to all operational units.
Operations management will then review all major work flows and processes.
Based upon this review appropriate operations strategies will be initiated to
successfully implement KFS's new business plan to centralize all operations in
conjunction with the introduction of new marketing programs.
CREDIT UNDERWRITING AND SCORING. KFS is in the process of implementing
sophisticated credit-scoring algorithms in order to better predict default rate
on the loan contracts. This credit scoring technology has been developed by Fair
Isaac of California ("FICO"), the leading credit-scoring company in the
industry. Mr. Nixon has utilized FICO technology since 1985 and he has developed
credit-scoring underwriting algorithms for three sub-prime finance lenders.
KFS will score all contract applications with FICO technology called
"Credit Desk." Credit desk uses information from credit bureaus and demographic
determents to generate a score which will be the basis for an initial decision.
If an application is approved, based on its score, the customer will be required
to meet certain secondary requirement which may include: monthly income; time on
job, time at residence; and payment affordability. If the customer meets these
secondarY requirements KFS will fund the Contract.
The FICO credit score technology will assist KFS in managing the balance
between risk and reward and in improving the overall quality and predictability
of the portfolio.
BUSINESS COMBINATION
Effective April 29, 1996, the Company's Board adopted a plan to exchange
shares of the Company for all the shares of several of its affiliates; Keller
Financial Services of Tampa Bay, Inc., Keller Financial Services of St.
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Petersburg, Inc., Keller Financial Services of Clearwater, Inc., Keller
Financial Services of Pinellas, Inc., Keller Financial Services of Central
Florida, Inc., Keller Financial Services of West Florida, Inc., Keller Financial
Services of the Sun Coast, Inc., Keller Financial Services of North Florida,
Inc., Keller Financial Services of Mid-Florida, Inc., related entities by common
ownership and control. The transaction became effective May 24, 1996 will be
accounted for as a combination of interests in a manner similar to a
pooling-of-interest. No company will recognize a gain or loss as a result of the
transaction. Beginning with the second quarter the companies will file
consolidated reports under the parent Company, commission file #33-46921-A.
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KELLER FINANCIAL SERVICES OF FLORIDA, INC.
PART II - OTHER INFORMATION
Item I - Legal Proceedings
None.
Item II - Changes in Securities
None.
Item III - Default upon Senior Securities
None.
Item IV - Submission of Matters to a Vote of Security Holders
None.
Item V - Other Information
None.
Item VI - Exhibits and Reports on Form 8-K
Form 8-K, Resignation of Director, dated June 18, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly report to be signed on its behalf by
the undersigned, thereto duly authorized.
OCTOBER 8, 1996 BY /s/ MICHAEL NIXON
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Date Michael Nixon
President and Chief Executive Officer
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