SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number 0-23484
September 30, 1998
STANDARD FUNDING CORP.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-2523559
- ---------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
335 Crossways Park Drive, Woodbury, New York 11797
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip code)
(516) 364-0200
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
-----------------------------
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, $.001 par value, outstanding as of November 12, 1998: 2,760,000
shares
Transitional Small Business Disclosure Format: Yes |_| No |X|
<PAGE>
STANDARD FUNDING CORP.
- --------------------------------------------------------------------------------
Quarterly Report on Form 10-QSB
for the period ended September 30, 1998
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
BALANCE SHEETS AT SEPTEMBER 30, 1998 AND
DECEMBER 31, 1997...................................... 3
STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997........ 4
STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997........ 5
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997......... 6
NOTES TO FINANCIAL STATEMENTS............................. 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.......................... 15
- --------------------------------------------------------------------------------
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
STANDARD FUNDING CORP.
BALANCE SHEETS
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS:
Cash ........................................... $ 115,836 $ 203,014
------------ ------------
Installment loans receivable
under premium finance agreements ............ 48,191,175 43,167,571
Less: Unearned Interest ........................ (1,094,075) (1,014,004)
Allowance for possible credit losses ..... (310,000) (310,000)
------------ ------------
Installment loans receivable
under premium finance agreements - net ...... 46,787,100 41,843,567
Due from officers .............................. 147,093 153,933
Property and equipment - net ................... 238,842 283,255
Other assets ................................... 816,348 454,961
------------ ------------
Total ....................................... $ 48,105,219 $ 42,938,730
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable to financial institutions ........ $ 29,900,000 $ 26,500,000
Commercial paper issued ........................ 2,507,463 2,428,398
Amounts due to insurance companies ............. 1,862,398 1,389,346
Accrued expenses and other ..................... 499,829 313,053
Deferred income taxes payable .................. 423,065 192,027
------------ ------------
Total, exclusive of subordinated debt ....... 35,192,755 30,822,824
Subordinated debt .............................. 5,453,000 5,003,000
------------ ------------
Total Liabilities ........................... 40,645,755 35,825,824
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.001 per share:
1,000,000 authorized, none issued ........... -- --
Common stock, par value $.001 per share:
4,000,000 authorized, 2,760,000 shares
issued and outstanding ...................... 2,760 2,760
Additional paid-in capital ..................... 3,991,501 3,991,501
Retained earnings .............................. 3,465,203 3,118,645
------------ ------------
Total Shareholders' Equity .................. 7,459,464 7,112,906
------------ ------------
Total .................................... $ 48,105,219 $ 42,938,730
============ ============
See notes to financial statements.
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<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF INCOME (UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
NET INTEREST INCOME:
Finance charge income and other ..... $5,277,857 $4,776,471
Less: Interest and other expenses on
borrowings ....................... 2,219,120 1,734,502
---------- ----------
Net Interest Income ............. 3,058,737 3,041,969
---------- ----------
OTHER EXPENSES:
Operating expenses .................. 1,625,870 1,431,996
Selling expenses .................... 606,536 490,821
Provisions for possible credit losses
(Note 2) ......................... 248,734 444,892
---------- ----------
Total ............................ 2,481,140 2,367,709
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES ........................ 577,597 674,260
PROVISION FOR INCOME TAXES ............. 231,039 269,704
---------- ----------
NET INCOME ............................. $ 346,558 $ 404,556
========== ==========
NET INCOME PER SHARE (Note 1) ..........
BASIC $ .13 $ .15
========== ==========
DILUTED $ .13 $ .15
========== ==========
AVERAGE NUMBER OF
SHARES OUTSTANDING ................... 2,760,000 2,760,000
========== ==========
See notes to financial statements.
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<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF INCOME (UNAUDITED)
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
NET INTEREST INCOME:
Finance charge income and other ..... $1,823,573 $1,581,125
Less: Interest and other expenses on
borrowings ....................... 783,941 613,738
---------- ----------
Net Interest Income ............. 1,039,632 967,387
---------- ----------
OTHER EXPENSES:
Operating expenses .................. 562,549 466,562
Selling expenses .................... 204,941 182,454
Provisions for possible credit losses
(Note 2) ......................... 91,729 141,685
---------- ----------
Total ............................ 859,219 790,701
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES ........................ 180,413 176,686
PROVISION FOR INCOME TAXES ............. 72,166 70,674
---------- ----------
NET INCOME ............................. $ 108,247 $ 106,012
========== ==========
NET INCOME PER SHARE (Note 1) ..........
BASIC $ .04 $ .04
========== ==========
DILUTED $ .04 $ .04
========== ==========
AVERAGE NUMBER OF
SHARES OUTSTANDING ................... 2,760,000 2,760,000
========== ==========
See notes to financial statements.
-5-
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 346,558 $ 404,556
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses ................ 248,734 444,892
Deferred income taxes ............................... 231,038 269,703
Depreciation and amortization ....................... 101,541 59,955
Changes in assets and liabilities:
Due from officers and other assets ................. 354,547 341,439
Accrued expenses and other amounts
due to insurance companies ....................... 659,828 2,311,180
Funds due-accounts receivable participation program -- 537,857
------------ ------------
Net cash provided by operating activities .......... 1,942,246 4,369,582
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment loans receivable originated ............... (86,433,497) (76,983,799)
Collections of installment loans receivable ........... 80,499,731 66,073,054
Purchase of equipment ................................. (24,723) (81,640)
------------ ------------
Net cash used in investing activities .............. (5,958,489) (10,992,385)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from accounts receivable participation program -- 4,153,656
Payment of accounts receivable participation program .. -- (2,530,096)
Proceeds from bank notes - net ........................ 3,400,000 4,800,000
Proceeds (Repayment) of commercial paper issued - net . 79,065 99,880
Proceeds (Repayment) of subordinated debt-net ......... 450,000 90,000
------------ ------------
Net cash provided by financing activities .......... 3,929,065 6,613,440
------------ ------------
INCREASE (DECREASE) IN CASH ............................. (87,178) (9,363)
CASH AT BEGINNING OF YEAR ............................... 203,014 132,563
------------ ------------
CASH AT END OF PERIOD ................................... $ 115,836 $ 123,200
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Income taxes paid .................................... $ 191,462 $ 298,206
============ ============
Interest paid ........................................ $ 1,957,375 $ 1,673,571
============ ============
</TABLE>
See notes to financial statements.
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<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
For the nine months ended September 30, 1998 and 1997 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Business - Standard Funding Corp. (the "Company") is a financial service
company engaged in the business of financing the payment of insurance
premiums. The Company finances substantially all forms of property,
casualty and liability premiums on policies, which are written through
independent insurance agents and brokers.
Interim Financial Statements - The financial statements for the three
month and nine month periods ended September 30, 1998 and 1997 are
unaudited. In the opinion of management, the accompanying unaudited
financial statements contain all the adjustments necessary for a fair
presentation of the financial condition and results of operations for the
three month and nine month periods ended September 30, 1998 and 1997. The
interim financial results are not necessarily indicative of the results to
be expected for a full year.
Revenue Recognition - Unearned interest on installment loans receivable
under premium finance agreements is recognized as income using a method
which approximates the results which would be obtained using the interest
method.
The Company has entered into agreements to transfer to financial
insitutions on a non-recourse basis, interests in its installment loans
receivable under premium finance agreements. The differential of stated
interest to be recorded over the course of the finance period and interest
to be paid to the financial institutions is recognized as interest expense
over the course of the outstanding transfer. As of September 30, 1998, the
Company had no outstanding borrowings under these agreements.
Loan processing costs incurred are deferred and amortized on the
straight-line method over the term of the related installment loans
receivable under premium finance agreements. Cancellation fees and late
charges are recognized as income when received.
Allowance for Possible Credit Losses - The balance in the allowance for
possible credit losses is based on management's assessment of risk in the
installment loan portfolio. The Company writes off receivables upon
determination that no further collections are probable.
Property and Equipment - net - Property and equipment are stated at cost.
Depreciation is provided on the straight-line basis over such assets'
estimated useful service lives which range from three to five years.
Leasehold improvements are amortized over the shorter of their estimated
useful lives or the remaining term of the lease.
Revenue and Credit Concentration - The Company receives substantially all
of its revenues from financing arrangements made within New York, New
Jersey, Connecticut, Pennsylvania and Massachusetts. Accordingly, at
September 30, 1998, substantially all of the Company's installment loans
outstanding were from this geographic region.
-7-
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Income Taxes - The Company accounts for income taxes pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that
have been included in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined
based on the differences between the financial accounting and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Stock-based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
Impairment of Long-Lived Assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting For the Impairment of
Long-Lived Assets and Four Long-Lived Assets To Be Disposed Of" ("SFAS No.
121"), the Company reviews its long-lived assets, including property and
equipment, and other assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
fully be recoverable. To determine recoverability of its long-lived
assets, the Company evaluates the probability that future undiscounted net
cash flows, without interest charges, will be less than the carrying
amount of the assets. Impairment is measured at fair value. SFAS No. 121
had no effect on the Company's financial statement.
Earnings Per Share - The Company has adopted Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS No. 128") which requires
dual presentation of basic and diluted earnings per share on the face of
the income statement.
Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
share are based on the weighted average number of shares of common stock
and common stock equivalents (options and warrants) outstanding during the
period, computed in accordance with the treasury stock method.
2. INSTALLMENT LOANS RECEIVABLE UNDER PREMIUM FINANCE AGREEMENTS
Substantially all installment loans receivable under premium finance
agreements are repayable in less than one year. In the event of default by
a borrower, the Company is entitled to cancel the underlying insurance
policy financed and receive a refund from the insurance carrier for the
premium in respect of the unused term of such policy.
In October 1996, the Company entered into an agreement with a financial
institution to transfer, on a non-recourse basis, a fifty percent interest
in certain designated installment loans receivable, not to exceed
$1,000,000 at any one point. This limit was increased to $2,000,000 in
April 1997. The Company entered into similar financing agreements with two
additional financial institutions with an aggregate borrowing limit of
$4,000,000 during 1997. Under terms of these agreements, the Company
remitted each financial institution's share of the monthly installment
loans receivable collected. Interest was payable monthly based upon the
average outstanding balance under this
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<PAGE>
agreement at a rate equal to LIBOR (at the time of purchase) plus 200 or
225 basis points as stipulated in these agreements.
During 1997, the Company adopted the provision of Statement of Financial
Accounting Standards No. 125, "Accounting For Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125").
Installment loans receivables under these agreements were classified as
securitized loan payable. As of September 30, 1998, the Company had no
outstanding borrowings under these agreements.
A summary of activity in the allowance for possible credit losses is as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Balance, beginning of period .................. $310,000 $300,000
Provision ..................................... 248,734 572,297
Charge-offs - net of recoveries of $104,226 and
$44,504,respectively .......................... (248,734) (562,297)
-------- --------
Balance, end of period ........................ $310,000 $310,000
======== ========
</TABLE>
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Comparison of Nine Months Ended September 30, 1998 to Nine Months Ended
September 30, 1997
Finance charge income increased by 10.5% to $5,277,857 in the first nine
months of 1998 from $4,776,471 in the first nine months of 1997 primarily
because of an increase in total installment loans financed over the prior
period. Total installment loans financed increased 12.3% to $86,433,497 from
$76,983,799. The Company's average receivables for the period ended September
30, 1998 increased 19.5% to $47,285,799 from $39,582,116 for the period ended
September 30, 1997. This increase in installment loans receivable is consistent
with the increase in financing activity. Interest expense for the period ended
September 30, 1998 increased 27.9% to $2,219,120 from $1,734,502 for the period
ended September 30, 1997, an increase of $484,618, due to an increase in
borrowings. Selling and operating expenses increased during the period ended
September 30, 1998 to $2,232,406 from $1,922,817 in the period ended September
30, 1997. This increase was primarily attributable to staff additions and
expenses.
The provision for possible credit losses decreased to $248,734 for the
period ended September 30, 1998 from $444,892 for the period ended September 30,
1997. This decrease of $196,158 is due primarily to the curtailment of financing
assigned risk automobile policies.
Comparison of Three Months Ended September 30, 1998 to Three Months Ended
September 30, 1997
Finance charge income increased by 15.3% to $1,823,573 in the third
quarter of 1998 from $1,581,125 in the third quarter of 1997 primarily because
of an increase in total installment loans financed over the prior period. Total
installment loans financed increased 13.5% to $27,905,647 from $24,576,885. The
Company's average receivables for the third quarter of 1998 increased 16.4% to
$48,954,675 from $42,070,097 for the third quarter of 1997. This increase in
installment loans receivable is consistent with the increase in financing
activity. Interest expense for the third quarter of 1998 increased 27.7% to
$783,941 from $613,738 for the third quarter of 1997, an increase of $170,203,
due to an increase in borrowings. Selling and operating expenses increased
during the third quarter of 1998 to $767,490 from $649,016 in the third quarter
of 1997. This increase was primarily attributable to staff additions and
expenses.
The provision for possible credit losses decreased to $91,729 for the
third quarter of 1998 from $141,685 for the third quarter of 1997. This decrease
of $49,956 is due primarily to the curtailment of financing assigned risk
automobile policies.
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<PAGE>
Liquidity and Capital Resources
The Company's operations are dependent upon the continued availability of
funds on satisfactory terms and rates. The Company uses such funds principally
to finance the origination of installment loans under premium finance
agreements. The Company obtains required funds from a variety of sources,
including internal generation of funds, unsecured borrowings under lines of
credit, direct issuance of commercial paper, placement of subordinated debt, the
transfer of accounts receivable participation program and the sale of common
equity.
As the Company increases the size of its business, it originates more
installment loans receivable than it collects, resulting in a larger outstanding
balance of installment loans receivable. For the nine month periods ended
September 30, 1998 and 1997, the Company originated installment loans receivable
of $86,433,497 and $76,983,799, respectively, compared to installment loans
collected for each period of $80,499,731 and $66,073,054, respectively. The
result was an increase in outstanding installment loans receivable to
$48,191,175 from $40,413,151 at September 30, 1998 and 1997, respectively.
The growth in the Company's loan portfolio has been the single largest
factor influencing the Company's cash flow from operations. The determining
factor influencing the growth in the loan portfolio has been the extent to which
the Company has been able to leverage its capital into subordinated debt and
then into short-term senior debt. For the nine month periods ended September 30,
1998 and 1997, net cash provided by operating activities was $1,942,246 and
$4,369,582, respectively, which amounts were comprised primarily of net
earnings, loss provisions, depreciation and amortization and other changes in
assets and liabilities. For the nine month periods ended September 30, 1998 and
1997, net cash provided by financing activities was $3,929,065 and $6,613,440
respectively, comprised primarily of proceeds from bank notes and repayment of
bank notes, net proceeds from sales and repayments of commercial paper, net
proceeds of subordinated debt and the sale of accounts receivable participation
program.
The following table sets forth the amounts of installment loans receivable
originated and the collections of installment loans receivable for the periods
indicated.
For the Nine Month Period
Ended September 30,
--------------------------
1998 1997
------------ -----------
Installment loans originated ......... $86,433,497 $76,983,799
Installment loans collected .......... $80,499,731 $66,073,054
The Company has no present plans related to significant capital
expenditures but does intend to add marketing locations in order to increase its
volume of new business. The Company does not expect that such additional
marketing locations will require any significant capital expenditures. The
Company is not aware of any pending legislation that would have a material
effect on its capital requirements or business prospects.
The Company is subject to minimum capital requirements imposed by certain
of the states in which it is licensed. In addition, the Company is prohibited
from declaring or paying any dividends on its capital stock (other than
dividends payable solely in shares of Common Stock) pursuant to one of the
Company's subordinated debt arrangements which matures on December 27, 2000.
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<PAGE>
The sources of funds (other than internal generation of funds) which are
presently available or have been utilized by the Company are described below.
Management believes that the sources of funds presently available to the Company
are adequate for the conduct of its business at its present level. To the extent
that the Company in the future expands its business and increases its total
installment receivables outstanding beyond its present levels, funding may not
be available or, if available, may not be on terms acceptable to the Company.
Lines of Credit
The Company entered into a $45,000,000 revolving credit agreement with a
consortium of banks in January 1998. Amounts outstanding under this agreement
bear interest at a rate stipulated by the agreement that is contingent upon
borrowing levels. The borrowing is unsecured and there are no compensating
balance agreements. This revolving credit facility expires on January 2001.
During the nine month period ended September 30, 1998, the maximum aggregate
amount outstanding under the revolving credit agreement at any time was
$32,100,000 and during the prior comparable period, the maximum aggregate amount
outstanding under the Company's advised line facilities was $24,800,000. The
Company terminated the advised line facilities when it entered into the
revolving credit agreement.
Commercial Paper
The Company directly issues its own commercial paper with maturities of up
to 270 days, which is unsecured and is unrated by commercial paper rating
agencies. Commercial paper outstanding at September 30, 1998 bore interest at
fixed annual rates ranging from 5.50% to 6.56%. During the nine month period
ended September 30, 1998, the maximum outstanding commercial paper at any month
end was $3,626,650. Such commercial paper is generally sold to officers of the
Company and their affiliates and to non-affiliated investors. The Company has
obtained no commitments from any purchaser of its commercial paper regarding
additional or future purchases. It is the Company's policy to maintain unused
short-term bank lines of credit in an amount in excess of the amount of
commercial paper outstanding. The interest rate on the Company's commercial
paper has been and will continue to be determined by reference to prevailing
interest rates in the commercial paper market. The Company does not anticipate
any change in the level of financing provided by affiliates of the Company or
any changes in the costs of financing provided by such affiliates. There can be
no assurance, however, that such levels of financing will be maintained in the
future.
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<PAGE>
Subordinated Debt
The Company has obtained unsecured senior subordinated debt in the amount
of $4,550,000 and unsecured junior subordinated debt in the amount of $903,000
from outside investors. These notes bear interest at fixed rates from 10% to
14.25% and are due from December 27, 1998 to December 31, 2003. Some of the
notes restrict the Company's ability, among other things, to merge, pay
dividends and permit its business to be heavily concentrated with a single
broker or agency. Several of the underlying agreements also contain various
covenants requiring the Company to meet certain financial ratios and other
restrictions on acquisitions and investments. The Company may, at its option,
prepay the loans in whole or in part. However, with respect to several of the
notes, the Company must reimburse the investors for any loss of margin on
reemployment of the funds so repaid or pay a prepayment penalty on certain other
notes. The Company does not currently anticipate prepaying or otherwise
refinancing its existing senior subordinated debt prior to its maturity. The
interest rates are fixed and vary in term. The following table indicates
amounts, rates and maturity dates as at September 30, 1998.
Rate Due Date Amount
---- -------- ------
14.25% 06/30/2001 $ 810,000
14.00% 11/01/2000 500,000
14.00% 12/27/1998 400,000
14.00% 06/27/1999 400,000
14.00% 12/27/1999 400,000
14.00% 06/27/2000 400,000
14.00% 12/27/2000 1,000,000
12.50% 03/31/2001 510,000
12.00% 02/16/2001 50,000
11.25% 09/30/2001 43,000
10.95% 12/31/2003 850,000
10.00% 03/31/2002 90,000
-----------
$ 5,453,000
===========
Subordinated debt is generally sold to officers and directors of the
Company and their affiliates and to non-affiliated investors. The Company has
obtained no commitments from any holder of its subordinated debt regarding
additional or future purchases.
Other Sources
In addition to the sources of funds described above, pursuant to certain
financing agreements the Company has transferred to banks participating
interests in certain receivables. The interests in these receivables have been
transferred on a pari passu basis without any recourse to the Company. As of
September 30, 1998, there was a zero balance with these institutions.
The Company continually engages in discussions with both current and
prospective lenders regarding obtaining increases in, extensions of or additions
to, its short-term lines of credit, its subordinated borrowings and its
participation program. The Company is currently engaged in such discussions with
several lenders, but can give no assurance as to whether or when such
discussions will be favorably consummated.
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<PAGE>
Year 2000 Matters
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, invoices, or engage
in similar normal business activities.
In 1997, the Company initiated a conversion from its then existing
accounting software to programs that are year 2000 compliant. Management has
determined that the year 2000 issue will not pose significant operational
problems for its computer systems. The Company will utilize both internal and
external resources to reprogram, or replace, and test all of its operating
software for Year 2000 modifications. The Company has retained a consulting firm
to assist it in the conversion of its operating systems. The Company anticipates
completing the Year 2000 project during the fourth quarter of 1998, which is
prior to any anticipated impact on its operating systems. The total cost of the
Year 2000 project is estimated at $25,000.00, of which $9,000.00 has been spent
to date and is being funded through operating cash flows. The total project cost
is attributable to the re-engineering of current software and such costs will be
expensed as incurred.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material delays
or difficulties in implementing the project include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There can be no guarantee that the systems
of other companies on which the Company's system rely will be timely converted
or that the failure to make such a conversion will not have an adverse effect on
the Company's systems.
Forward-Looking Statements
All statements other than statements of historical fact contained herein
are forward looking statements. When used herein, words such as "anticipate,"
"expect," "believe," and "estimate" as they relate to the Company and its
management, identify forward-looking statements. Such forward-looking statements
reflect the current views, and are based upon the beliefs, of the Company's
management. Actual results could differ materially from those in the forward
looking statements as a result of certain factors, including but not limited to,
the volume of insurance premiums financed by the Company, changes in legal or
regulatory requirements, competitive factors and pricing pressures and general
economic conditions.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
None.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STANDARD FUNDING CORP.
Date: November 12, 1998 /s/ Alan J. Karp
-------------------------------------
Alan J. Karp
President and Chief Executive Officer
Date: November 12, 1998 /s/ David E. Fisher
-------------------------------------
David E. Fisher
Treasurer and Chief Financial Officer
-16-
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