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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1997
Commission File Number 0-23484
STANDARD FUNDING CORP.
(Name of Small Business Issuer 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)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
[_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $6,327,115.
State the aggregate market value of voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $3,893,760 based on the price at which the stock was sold on March 25,
1998.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,760,000 shares of Common
Stock, $.001 par value per share, were outstanding at March 27, 1998.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 9, 10, 11 and 12 is
incorporated herein by reference from Standard Funding Corp.'s definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 21, 1998
which will be filed on or before April 21, 1998.
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<PAGE>
STANDARD FUNDING CORP.
1997 ANNUAL REPORT ON FORM 10-KSB
Item Page
Number Number
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PART I
1. Description of Business 1
2. Description of Property 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security-Holders 5
PART II
5. Market for the Company's Common Equity and
Related Shareholder Matters 6
6. Management's Discussion and Analysis or Plan of Operation 6
7. Financial Statements 10
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 11
10. Executive Compensation 11
11. Security Ownership of Certain Beneficial Owners and Management 11
12. Certain Relationships and Related Transactions 11
Index to Financial Statements F-1
<PAGE>
PART I
Item 1. Description of Business.
General
Standard Funding Corp. (the "Company"), incorporated in New York in 1978,
is a financial services company engaged in the business of financing the payment
of insurance premiums. The Company offers financing of approximately 75 to 85%
of an insurance premium to individual and commercial purchasers of property,
casualty and liability insurance who wish to pay their insurance premiums on an
installment basis. While many insurance carriers require advance payment of a
full year's premium, the Company allows the insured to spread the cost of the
insurance policy over time.
The Company finances insurance premiums without assuming the risk of loss
borne by insurance carriers. When the insured buys an insurance policy from an
independent insurance agent or broker who offers financing through the Company,
the insured generally pays a down payment of approximately 15% to 25% of the
total premium and signs a premium finance agreement for the balance. Under the
terms of the Company's standard form of financing contract, the Company is given
the power to cancel the insurance policy if there is a default in the payment on
the finance contract and to collect the unearned portion of the premium from the
insurance carrier. The down payment is set at a level designed, in the event of
cancellation of a policy, such that the return premium from the insurance
carrier is sufficient to cover the loan balance plus interest and other charges
due to the Company. To finance its insurance premium loans, the Company relies
primarily on proceeds of short-term lines of credit, subordinated debt, the
issuance of commercial paper and the sale of equity. The Company derives profit
to the extent that interest earned and fees charged generate income exceeding
the interest expense for borrowed funds and the Company's operating and selling
expenses and provision for possible credit losses.
The Company is licensed as an insurance premium finance company in the
States of New York, New Jersey, Connecticut, Pennsylvania, Massachusetts,
Missouri, Delaware, Illinois, New Hampshire, Maryland and in the District of
Columbia. The Company is in the process of obtaining a license as an insurance
premium financing company in the States of Virginia, Vermont, Michigan, Rhode
Island and Wisconsin. Management believes that approximately 81% of the total
premiums financed by the Company as of December 31, 1997 originated in New York.
Management estimates that approximately 95% of the Company's outstanding
receivables are commercial accounts and approximately 5% are personal lines. At
December 31, 1997, the Company had approximately 17,700 active outstanding
accounts.
The Company's marketing strategy is based on establishing and maintaining
relationships with insurance agents by offering a high degree of service. Senior
management is directly involved in the Company's marketing efforts which
currently focus on commercial accounts. The Company believes that these accounts
provide higher returns at lower risk than other sectors of the marketplace. The
Company has three marketing sales executives.
Industry Background
Premium finance companies are licensed to finance property, casualty and
liability insurance premiums for corporate and individual insured's that are
unable to or do not wish to pay an entire insurance premium in one lump sum. The
insured may be able to finance a premium with an affiliated company of the
insurance carrier, if any, an independent premium finance company such as the
Company, a bank or other lending institution. Customarily, insurance agents
utilize the services of premium finance companies to assist in the sale of an
insurance policy to their customers. Upon the execution of a finance agreement
with the insured, the agent forwards the completed documents to a premium
finance company. The premium finance company then pays the premium in full to
the insurance carrier, agent, or broker. The premium finance company collects
principal and interest from the insured (borrower) in the form of an installment
payment. In the event the insured (borrower) defaults, the Company has the right
to cancel the insurance policy by mailing a notice of cancellation to the
insurance carrier. The insurance carrier is then required by state law to refund
the gross unearned premium in full to the finance company for the benefit of the
insured.
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<PAGE>
Insurance Premium Financing Services
The Company offers financing to qualified purchasers of various types of
insurance policies including coverage for property, casualty and liability
insurance, of up to approximately 75% to 85% of the entire premium for such
policies. The Company's standard form of premium finance agreement discloses to
the insured, among other things: the price of the total premium; the amount of
the cash down payment made; the amount financed; the amount of the finance
charge; the amount which will be paid after the insured has made all payments as
scheduled; the applicable annual percentage rate charged; the fact that a late
charge is due in the event a payment is late; the insureds entitlement to a
refund of part of the finance charge in the event of prepayment by the insured;
the grant of a security interest in any and all unearned return premiums which
may become payable under the policy; and the insured's appointment of the
Company as the attorney-in-fact with authority to cancel the policy and to
receive from the insurance carrier the unearned portion of the premium. The
Company's agreements generally provide for monthly payments over a period of
between seven to nine months on a one-year policy.
Each insurance broker in the Company's referral network is provided with
financing kits. When an insured seeks premium financing, the broker completes
(and has the insured sign) the Company's form of premium finance agreement and
collects a down payment of approximately 15% to 25% of the total premium. The
broker also signs the contract to certify that the insurance policy has been
issued and delivered and warrants to the correctness of the information in the
premium finance agreement. The broker submits the original and one copy of the
executed premium finance agreement to the Company, along with its check or the
insured's certified check or money order for the down payment. Upon acceptance
of the finance contract, the Company issues a check payable to the insurance
carrier, agent, or broker for the total premium. The Company inputs all
information into its computer system and sends a payment book to the insured
with the first payment due approximately 30 days from the effective date of
coverage. The Company gives notice to the carrier of its interest in the policy
and informs the carrier that any return premium must be sent to the Company in
the event of cancellation of the policy.
Although the insured is primarily liable on the finance contract, the
Company does not look solely to the insured's creditworthiness for payment.
Rather, the insured assigns to the Company its interest in any unearned premium
in the financed insurance policy as security for the loan and grants to the
Company the power to cancel the insurance policy and collect the unearned
premium if there is a default in payment on the finance contract. Thus, the
unearned premiums held by the insurance company provide a collateral source of
payment on a delinquent finance contract.
The Company endeavors to increase revenues by using its resources to
finance as many premiums as is practicable. From the inception of the Company's
operations through December 31, 1997, the Company has financed the premiums on
more than 150,000 insurance policies. The Company currently does business with
more than 700 insurance brokers, more than 500 insurance companies and had,
during the year ended December 31, 1997, average amounts originally financed of
approximately $4,236 per finance contract.
In order to minimize losses, the Company will not finance premiums unless
the insurance policy provides for the return of unearned premiums upon
cancellation. The Company generally requires policyholders to make loan payments
sufficient to insure that at all times the unearned premium available for refund
will pay the loan balance plus interest and other charges. Advance payment of
approximately 15% to 25% of the premium generally ensures such a margin. Any
monies paid for insurance coverage for time extending after the cancellation
date constitute "unearned premiums" and must, under applicable state statutes,
be refunded to the insured. The Company's form of premium finance agreement
provides that all such refunds be remitted by the insurance carrier to the
Company on behalf of the insured. Before it forwards the refund to the insured
(or to the broker on behalf of the insured where state regulations require), the
Company deducts all interest earned, service and late charges due. In the
Company's experience, the time periods between the cancellation date and receipt
of the refund of unearned premiums has averaged between 60 and 120 days. There
can be no assurances, however, that the Company will be able to collect, or will
not experience increasing delays in collecting, such refunds in the future.
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<PAGE>
Upon receipt of the gross return premium from the insurance carrier, and
the crediting of this return to the insured's account, debit balances might
still be reflected in certain instances. The causes of such a situation include
improper disclosure of information to insurance agents on the insured's
application for insurance or clerical errors by Company personnel. The Company
uses its in-house collection department in an attempt to collect such balances.
If in-house efforts are unsuccessful, the use of external collection attorneys
is initiated. Certain transactions are written with recourse against the
producing agent, broker or agency and/or offsetting reserves to a few selected
insurance producers.
The Company charges against income a general provision for possible credit
losses on finance receivables in such amounts as management deems appropriate.
Case-by-case direct write-offs, net of recoveries on finance receivables, are
charged to the Company's allowance for possible losses. The amount of such
allowance is reviewed periodically in light of economic conditions, the status
of the outstanding finance receivables and other factors. The following table
sets forth information concerning the Company's allowance for possible credit
losses on finance receivables and its loss experience for the year ended
December 31, 1997.
Year Ended
December 31, 1997
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(Dollars in
Thousands)
Allowance for possible credit losses at beginning of period $300
Provision for possible credit losses during period 572
Charge offs during period (607)
Amounts recovered during period 45
----
Allowance for possible credit losses at end of period $310
====
Percentage of allowance for possible credit losses to
finance receivables outstanding at end of period .72%
Percentage of net credit losses to finance
receivables liquidated during period .60%
The Company bears the credit risk of collections from insurance carriers.
Upon a carrier becoming insolvent and unable to pay claims to an insured or
refund unearned premiums upon cancellation of a policy to a finance company,
each state provides a state guaranty fund that will pay such refund, less a per
claim deductible in certain states. The Company seeks to diversify its financing
activities among a wide range of brokers and insurance carriers.
Sales and Marketing
The Company generates business through referrals from independent
insurance agents and brokers, and through its own sales efforts. Such brokers
are associated with various insurance companies. Insurance brokers may refer
financing business to an insurance premium financing company because such
companies can assist them in servicing their clients, particularly where the
insurance carrier does not offer an installment payment option. Since the
Company has no contracts with any brokers to continue to refer business to the
Company, there can be no assurance that brokers presently directing financing
business to the Company will continue to do so, or that the Company will be able
to locate and establish relationships with additional brokers.
The Company believes that it offers more flexibility with regard to late
payments and policy cancellations than affiliated companies of insurance
carriers, banks and other lending institutions, which generally subject a policy
to automatic cancellation on a designated date if a premium payment is late. It
is the Company's general policy to notify the broker immediately when any
payment is past due, thereby allowing the broker to arrange with the insured for
payment and to prevent cancellation of the policy. Under certain circumstances
the grace period can be extended, thereby avoiding cancellation of the policy
and the loss of part of the broker's commission which may result from such
cancellation. No assurances can be given that the affiliated companies of the
insurance carriers, banks and other lending institutions will not add greater
flexibility to their insurance financing business practices and, in the event
this should occur, there may be a material adverse effect on the Company's
business operations.
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<PAGE>
Regulation
State statutes regulate the Company's operations, and regulations
promulgated thereunder, which provide for the licensing, administration and
supervision of premium finance companies. Such statutes and regulations impose
significant restrictions on the operation of the Company's business.
The Company is licensed as an insurance premium company in the States of
New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Maine, Delaware,
Illinois, New Hampshire, Maryland and in the District of Columbia. The Company
must renew its license to operate as a premium finance company each year in
every state except New Jersey which requires renewal every two years. The
Company is also subject to periodic examinations and investigations by state
regulators.
State statutes and regulations impose minimum capital requirements, govern
the form and content of financing agreements and limit the interest and service
charges the Company may impose. The Commonwealth of Pennsylvania requires a
minimum net worth of $50,000. The State of New York requires that equity capital
be equal to at least 10% of outstanding and, in any event, not less than $1,500.
State statutes also prescribe notice periods prior to the cancellation of
policies for non-payment, limit delinquency and collection charges and govern
the procedure for cancellation of policies and collection of unearned premiums.
Changes in the regulation of the Company's activities, such as increased
rate regulation, could have an adverse effect on the Company's operations. The
statutes do not provide for automatic adjustments in the rates a premium finance
company may charge. Consequently, during periods of high prevailing interest
rates on institutional indebtedness and fixed statutory ceilings on rates the
Company may charge its insured's, the Company's ability to operate profitably
could be adversely affected.
Competition
The Company encounters intense competition from numerous other firms,
including companies affiliated with insurance carriers, independent insurance
brokers who offer premium finance services, banks and other lending
institutions. Some of the Company's competitors are larger and have greater
financial and other resources and are better known to consumers than the
Company. In addition, there are few, if any, barriers to entry in the event
other firms, particularly insurance carriers and their affiliates, seek to
compete in this market.
The market for premium finance companies is two-tiered. The first tier is
that of national companies that are owned by insurance companies, banks, and
commercial finance companies. In this group are five companies that on a
combined basis finance over $9 billion per annum of premium finance agreements.
Management believes that one of these companies financed over $3 billion in
insurance premiums in 1997 and is a major competitor of the Company. The second
tier is comprised of smaller local companies and is highly fragmented. The
Company believes that it offers better service and more flexibility with regard
to late payments and policy cancellations than affiliates of insurance carriers,
banks and other lending institutions. The Company competes with these entities
by emphasizing a high level of knowledge of the insurance industry, flexibility
in structuring financing transactions and the timely purchase of qualifying
contracts. The Company believes that its commitment to account service also
distinguishes it from its competitors. It is the Company's general policy to
notify the insurance agent when an insured is in default and to assist in
collection, if requested by the agent. To the extent that affiliates of
insurance carriers, banks, and other lending institutions add greater service
and flexibility to their financing practices in the future, the Company's
operations could be adversely affected. There can be no assurance that the
Company will be able to continue to compete successfully in its markets.
Personnel
The Company's staff consists of 30 employees (of whom 26 are full-time
employees and four part-time employees), including three executive officers,
four sales and marketing representatives and 23 clerical and administrative
employees.
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<PAGE>
Item 2. Description of Property.
The Company's offices are located at 335 Crossways Park Drive, Woodbury,
New York 11797. The Company leases (from a non-affiliated person) approximately
5,676 square feet of office space at a cost of $8,967 per month under a
five-year lease expiring on the 31st day of May 2001.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters.
The Company's Common Stock has been listed on the Nasdaq SmallCap Market
under the symbol "SFUN" and traded publicly since August 9, 1994. The table
below sets forth, for the periods indicated, the high and low bid prices per
share of Common Stock, as reported on the Nasdaq SmallCap Market. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
1996 Period High Low
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First Quarter $ 6 1/16 $ 4 3/4
Second Quarter $ 5 $ 4 7/16
Third Quarter $ 4 7/16 $ 3 3/4
Fourth Quarter $ 4 3/4 $ 3 3/4
1997 Period High Low
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First Quarter $ 5 $ 4
Second Quarter $ 4 3/4 $ 4 1/4
Third Quarter $ 4 1/2 $ 4 1/4
Fourth Quarter $ 3 1/8 $ 2 3/8
There were 433 shareholders of record of the Company's Common Stock as of
December 31, 1997. The Company has not declared or paid any dividends on its
Common Stock since its inception. It is the present intention of the Company to
retain any future earnings to provide funds for the operation and expansion of
its business. Future payment of dividends, if any, will be at the discretion of
the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors may deem relevant. The Company is prohibited from
declaring or paying any dividends on its capital stock (other than dividends
payable solely in shares of its Common stock) pursuant to one of the Company's
subordinated debt arrangements which matures on December 27, 2000.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company derives profits to the extent that finance rates and fees
charged generate income exceeding the Company's cost of funds, operating and
selling expenses and provision for possible credit losses. The Company borrows
funds from various financial institutions in the wholesale market and from other
sources and lends such funds on a secured basis to individual and commercial
purchasers of property and casualty insurance. The cost of borrowed funds
(interest expense) constitutes by far the largest expense of the Company and to
a large degree is beyond the control of the Company. The difference between
finance charge income and the Company's cost of funds is sometimes referred to
as net interest income or "spread." The Company's "spread" is affected by
changes in market interest rates, competitive conditions and other factors.
Presently, all of the Company's lines of credit are on a variable rate basis and
all of its commercial paper and subordinated debt is on a fixed rate basis. See
"Liquidity and Capital Resources." While the Company's installment loans
receivable are all on a fixed rate basis, the rapid rate of turnover of the
Company's total loan portfolio, 3.1 times in both 1997 and 1996, and the short
term to maturity of its outstanding installment loans, with an average maturity
of approximately four months at December 31, 1997, help to reduce the Company's
exposure to interest rate fluctuations.
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<PAGE>
The following table sets forth the spread that the Company has maintained
for the last two fiscal years, based upon average monthly receivable balances:
Year Ended December 31,
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1997 1996
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(Dollars in Thousands)
Average Installment Loans Receivable - net $40,270 $27,578
Net Interest Income (Spread) 3,796 3,743
% of Spread to Average Loans Receivable 9.4 13.6
The Company is licensed as an insurance premium company in the States of
New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Missouri,
Delaware, Illinois, New Hampshire, Maryland and in the District of Columbia. At
December 31, 1997, management estimates that approximately 81% of premium
finance receivables were with New York insured's.
The following table sets forth certain income statement items as a
percentage of total finance charge income:
Year Ended December 31,
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1997 1996
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NET INTEREST INCOME:
Finance charge income and other 100.00% 100.00%
Less: Interest and other expenses on borrowings 40.00 33.99
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Net interest income 60.00 66.01
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OTHER EXPENSES:
Operating expenses 28.60 30.15
Selling expenses 11.38 9.96
Provision for possible credit losses 9.05 10.29
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Total 49.03 50.40
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INCOME BEFORE PROVISION FOR INCOME TAXES 10.97 15.61
PROVISION FOR INCOME TAXES 4.90 5.99
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NET INCOME 6.07% 9.62%
==== ====
Finance charge income increased by 11.58% to $6,327,115 in the year ended
December 31, 1997 from $5,670,276 for the year ended December 31, 1996 primarily
because of an increase in total installment loans financed. Total installment
loans financed increased 21.7% to $103,320,694 from $84,900,735 and the number
of contracts representing these loans decreased 2% to 24,389 from 24,897. The
Company's average receivables for the year ended December 31, 1997 increased 46%
to $40,269,644 from $27,578,317 for the year ended December 31, 1996. Interest
expense for the year ended December 31, 1997 increased 31.3% to $2,530,859 from
$1,927,372 for the year ended December 31, 1996, an increase of $603,487. This
increase in interest expense is due primarily to the increase in average
receivables. Operating and selling expenses increased by 11.22% to $2,529,856 in
the year ended December 31, 1997 from $2,274,630 in the year ended December 31,
1996. This increase was primarily attributable to increases in salaries,
commission, and certain other administrative expenses. Due to the $656,839
increase in finance charge income, compared to only an $603,487 increase in
interest expense, there was a 1% increase in the "spread" to $3,796,256 for the
year ended December 31, 1997 from $3,742,904 for the year ended December 31,
1996.
In 1997, the Company had gross write-offs of $606,801, of which $507,027
represented assigned risk automobile policies and $99,774 represented Commercial
policies. Management feels that with the curtailment of financing assigned risk
business in 1997, we have reduced the likelihood of large assigned risk
write-offs for the future. On a going forward basis, management believes that's
its reserves are sufficient to cover these write-offs.
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<PAGE>
The provision for possible credit losses decreased by 1.9% to $572,297 for
the year ended December 31, 1997 from $583,398 for the year ended December 31,
1996. Past due amounts represent policies that the Company has canceled and is
waiting to receive return premiums, and include policies where the insurance
carrier has credited the return premium to the broker or agent who originated
the policy and who subsequently is required to forward such amount to the
Company. For the year ended December 31, 1997, the percentage of past due
finance receivables to total finance receivables outstanding decreased to 2.8%
from 4.1% for the year ended December 31, 1996.
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 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 years ended December 31, 1997
and 1996, the Company originated installment loans receivable of $103,320,694
and $84,900,735 respectively, compared to installment loans collected for each
period of $93,509,063 and $75,021,501 respectively. The result was an increase
in net outstanding installment loan receivables to $41,843,567 from $31,828,236
respectively, at December 31, 1997 and 1996.
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 years ended December 31, 1997 and 1996,
net cash provided by operating activities was $1,594,716 and $1,701,219
respectively, which amounts were comprised primarily of net earnings, loss
provisions, depreciation and amortization and other changes in assets and
liabilities. For the years ended December 31, 1997 and 1996, net cash provided
by financing activities was $8,388,734 and $7,526,440 respectively, comprised
primarily of proceeds from bank notes and repayment of bank notes, proceeds from
sales and repayments of commercial paper, net proceeds of subordinated debt and
the sale of accounts receivable participation program.
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.
The sources of funds (other than internal generation of funds) that 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 of funding, which
may not be available or, if available, may not be on terms acceptable to the
Company.
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<PAGE>
Lines of Credit. At December 31, 1997, the Company had unsecured
short-term lines of credit aggregating $41,000,000 available through six
commercial banks, under which $26,500,000 was outstanding. Amounts outstanding
under these lines bear interest at prime or a certain percentage over LIBOR. The
Company pays commitment fees to some of these banks in connection with these
lines. These lines expire on various dates through June 30, 1998, although there
can be no assurance that these lines will not be revoked, suspended or reduced
at any time. No bank is contractually obligated to renew any such line. During
the years ended December 31, 1997 and 1996, the maximum aggregate amount
outstanding under these lines at any time was $26,500,000 and $17,600,000,
respectively.
The Company entered into a $45,000,000 line of credit agreement with a
consortium of banks in January 1998. Borrowings under this agreement bears
interest at a rate stipulated in this agreement which is contingent upon
borrowing levels. The borrowings will be unsecured and there are no compensating
balance agreements. This line of credit expires January 2001, although there can
be no assurance that these lines will not be revoked, suspended or reduced at
any time. None of the banks in the consortium is contractually obliged to renew
any such line.
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 December 31,
1997 bore interest at fixed annual rates ranging from 6.2% to 7%. During the
years ended December 31, 1997 and 1996, the maximum outstanding commercial paper
at any month end was $2,481,337 and $2,649,355, respectively. 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.
Subordinated Debt. The Company has obtained unsecured senior subordinated
debt in the amount of $4,100,000 from outside investors. The notes bear interest
at fixed rates from 10.00 to 14.25% and are due from June 27, 1998 to March 31,
2002. 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. The Company does not currently anticipate
prepaying or otherwise refinancing its existing senior subordinated debt prior
to its maturity. In addition, the Company has obtained unsecured junior
subordinated debt from various investors. The interest rates are fixed and vary
in term. The following table indicates amounts, rates and maturity dates as at
December 31, 1997.
Rate Due Date Amount
---- -------- ------
14.25% 06/30/2001 $ 810,000
14.00% 11/01/2000 500,000
14.00% 06/27/1998 400,000
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
10.00% 03/31/2002 90,000
----------
$5,003,000
==========
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.
-9-
<PAGE>
Other Sources. In addition to the sources of funds described above, the
Company has transferred to banks participating interests in certain receivables
under a financing arrangement. The interest in these receivables have been
transferred on a pari passu basis without any recourse to the Company. As of
December 31, 1997 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, both 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.
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 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. All costs associated with this conversion are being expensed
as incurred.
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 systems 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.
The Company will utilize both internal and external resources to
reprogram, or replace, and test its software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project during the third 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 $15,000 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.
Forward-Looking Statements
The statements contained in this annual report that are not historical
facts are forward-looking statements subject to risks and uncertainties that
could cause actual results to differ materially from those set forth or implied.
These risks and uncertainties include the effect of business and economic
conditions, the impact of competitive products and pricing and other risks and
uncertainties.
Item 7. Financial Statements.
The Company's financial statements begin on page F-3. Reference is made to
the Index to Financial Statements on page F-1 herein.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-10-
<PAGE>
PART III
The Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 1998, which, when filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, will be incorporated by reference in this
Annual Report on Form 10-KSB pursuant to General Instruction E(3) of Form
10-KSB, will provide the information required under Part III (Items 9, 10, 11
and 12).
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 By-laws of the Company.
*4.1 Specimen certificate for shares of Common Stock of the Company.
*4.2 Form of Representatives' Warrants.
*4.3 Form of Registration Rights Agreement between the Company and
Bernard G. Palitz.
*10.1 Equity Incentive Plan of the Registrant, as amended.
*10.2 Form of Financial Consulting Agreement between the Registrant and
the Representatives.
*10.3 Promissory Note in the amount of $3,000,000 payable to National
Westminster Bank USA.
*10.4 Grid Promissory Note in the amount of $2,500,000 payable to
Atlantic Bank of New York.
*10.5 Promissory Note in the amount of $3,000,000 payable to the Bank of
New York.
*10.6 Grid Demand Promissory Note in the amount of $3,000,000 payable to
The Chase Manhattan Bank, N.A.
*10.7 Demand Grid Note in the amount of $2,000,000 payable to Marine
Midland Bank, N.A.
*10.8 Fixed Rate Senior Subordinated Note in the amount of $2,000,000
payable to National Westminster Bank USA, together with a Loan
Agreement between the Registrant and National Westminster Bank USA
with respect thereto.
*10.9 Lease for premises at 335 Crossways Park Drive, Woodbury, New
York.
*10.10 Consulting Agreement between the Company and American Credit
Management Inc.
*10.11 Employment Agreement between the Company and Alan J. Karp.
*10.12 Employment Agreement between the Company and David E. Fisher.
**10.13 Promissory Note in the amount of $3,000,000 payable to Chemical
Bank.
**10.14 Promissory Note in the amount of $4,000,000 payable to the Bank of
New York.
**10.15 Letter agreement dated May 9, 1995 increasing demand Grid Note
payable to Marine Midland Bank, N.A. previously filed as Exhibit
10.7 herein, to $3,000,000.
**10.16 Note agreement in the amount of $3,000,000 payable to Bernard G.
Palitz, members of Mr. Palitz's family and persons affiliated with
Mr. Palitz, together with form of 14% Senior Subordinated Note due
December 27, 2000 with respect thereto.
**10.17 Form of 12.50% Senior Subordinated Notes due March 31, 2001
payable to various non-affiliated investors in the aggregate
amount of $485,000.
-11-
<PAGE>
**10.18 14% Senior Subordinated Note due November 1, 2000 payable to
Claire Cohn in the amount of $500,000.
**10.19 14.25% Junior Subordinated Notes due June 30, 2001 payable to
David Fisher in the aggregate amount of $490,000.
**10.20 14.25% Junior Subordinated Notes due June 30, 2001 payable to U.S.
Clearing Corp. - Alan Karp -IRA Rollover in the aggregate amount
of $110,000.
**10.21 Form of 14.25% Junior Subordinated Notes due June 30, 2001 payable
to Sharon Goldaber in the amount of $80,000.
**10.22 12% Junior Subordinated Note due February 16, 2001 payable to
J.C.F. Consulting Corp. in the amount of $50,000.
**10.23 14.25% Junior Subordinated Note due June 30, 2001 payable to Herb
and Judi Pitch in the amount of $50,000.
**10.24 Form of 11.25% Junior Subordinated Note due September 30, 2001
payable to Kathleen Belz in the amount of $43,000.
**10.25 Promissory Note in the amount of $6,000,000 payable to European
American Bank.
**10.26 Form of agreement of accounts receivable participation program
with Atlantic Bank of New York.
10.27 Form of agreement of accounts receivable participation program
with Fleet Bank.
10.28 Form of agreement of accounts receivable participation program
with Interbank.
10.29 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Paul & Joyce Rand in the amount of $25,000.
10.30 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Estate of Ferdinand Harms in the amount of $25,000.
10.31 Form of 10% Senior Subordinated Note due March 31, 2002 payable to
Mildred Ebbighausen in the amount of $40,000.
10.32 Letter agreement dated July 16, 1997 increasing promissory note
payable to the Bank of New York previously filed as Exhibit 10.14
herein, to $8,000,000.
10.33 Letter agreement dated May 9, 1995 increasing demand Grid Note
payable to Marine Midland Bank, N.A. previously filed as Exhibit
10.7 herein, to $6,000,000.
10.34 Promissory note in the amount of $10,000,000 payable to Mellon
Bank.
24 Power of attorney (included on signature page).
27 Financial Data Schedules (for electronic submission only)
- ----------
* Filed as same numbered exhibit to the Company's Registration Statement on
Form SB-2 (Reg. No. 33-75130) and incorporated herein by reference.
** Previously filed.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the last quarter of the
period covered in this report.
-12-
<PAGE>
STANDARD FUNDING CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Balance Sheet at December 31, 1997 F-3
Statements of Income for the years ended December 31, 1997 and 1996 F-4
Statements of Shareholders' Equity for the years ended December 31,
1997 and 1996 F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1996 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Standard Funding Corp.
Woodbury, New York
We have audited the accompanying balance sheet of Standard Funding Corp.
(the "Company") as of December 31, 1997 and the related statements of income,
shareholders' equity and cash flows for each of the two years in the period 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects the financial position of Standard Funding Corp. at December 31, 1997
and the results of its operations and its cash flows for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Jericho, New York
February 20, 1998
F-2
<PAGE>
STANDARD FUNDING CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
ASSETS
Cash $ 203,014
------------
Installment loans receivable under premium finance agreements 43,167,571
Less: Unearned interest (1,014,004)
Allowance for possible credit losses (310,000)
------------
Installment loans receivable under premium finance agreements - net (Note 2) 41,843,567
Due from officers (Note 3) 153,933
Property and equipment - net (Note 4) 283,255
Other assets 454,961
------------
Total $ 42,938,730
============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable to financial institutions (Note 5) $ 26,500,000
Commercial paper issued (Note 5) 2,428,398
Amounts due to insurance companies 1,389,346
Accrued expenses and other 313,053
Deferred income taxes (Note 7) 192,027
------------
Total, exclusive of subordinated debt 30,822,824
Subordinated debt (Note 6) 5,003,000
------------
Total Liabilities 35,825,824
------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
SHAREHOLDERS' EQUITY (Note 8):
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
Additional paid-in capital 3,991,501
Retained earnings 3,118,645
------------
Total Shareholders' Equity 7,112,906
------------
Total $ 42,938,730
============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
NET INTEREST INCOME:
Finance charge income and other $6,327,115 $5,670,276
Less: Interest and other expenses on borrowings (Notes 2,
5, and 6) 2,530,859 1,927,372
---------- ----------
Net Interest Income 3,796,256 3,742,904
---------- ----------
OTHER EXPENSES:
Operating expenses (Note 10) 1,809,713 1,709,674
Selling expenses 720,143 564,956
Provision for possible credit losses (Note 2) 572,297 583,398
---------- ----------
Total 3,102,153 2,858,028
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 694,103 884,876
PROVISION FOR INCOME TAXES (Note 7) 309,900 339,800
---------- ----------
NET INCOME $ 384,203 $ 545,076
========== ==========
NET INCOME PER SHARE:
BASIC $ 0.14 $ 0.20
========== ==========
DILUTED $ 0.14 $ 0.20
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,760,000 2,760,000
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ Paid in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 -- -- 2,760,000 $2,760 $3,991,501 $2,189,366
Net Income -- -- -- -- -- 545,076
---- ---- --------- ------- ---------- ----------
Balance, December 31, 1996 -- -- 2,760,000 2,760 3,991,501 2,734,442
---- ---- --------- ------ ---------- ----------
Net Income -- -- -- -- -- 384,203
---- ---- --------- ------- ---------- ----------
Balance, December 31, 1997 -- -- 2,760,000 $2,760 $3,991,501 $3,118,645
==== ==== ========= ====== ========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STANDARD FUNDING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 384,203 $ 545,076
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 572,297 583,398
Deferred income taxes (95,701) 102,000
Depreciation and amortization 112,631 88,767
Changes in assets and liabilities:
Due from officers and other assets (229,610) (54,059)
Accrued expenses and other amounts
due to insurance companies 1,070,877 216,056
Funds due-accounts receivable participation program (219,981) 219,981
------------- -------------
Net cash provided by operating activities 1,594,716 1,701,219
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment loans receivable originated (103,320,694) (84,900,735)
Collections of installment loans receivable 93,509,063 75,021,501
Purchase of equipment (101,368) (155,731)
------------- -------------
Net cash (used in) investing activities (9,912,999) (10,034,965)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from accounts receivable participation program 4,153,656 1,240,044
Payment of accounts receivable participation program (4,929,652) (464,047)
Proceeds from bank notes--net 8,900,000 7,300,000
Proceeds (Repayment) of commercial paper issued--net 174,730 (697,557)
Proceeds of subordinated debt 90,000 148,000
------------- -------------
Net cash provided by financing activities 8,388,734 7,526,440
------------- -------------
INCREASE (DECREASE) IN CASH 70,451 (807,306)
CASH AT BEGINNING OF YEAR 132,563 939,869
------------- -------------
CASH AT END OF YEAR $ 203,014 $ 132,563
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Income taxes paid $ 414,921 $ 413,313
============= =============
Interest paid $ 2,349,788 $ 1,853,680
============= =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1997 and 1996
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 insurance premiums on policies, which are written
through independent insurance agents, and brokers.
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, on a non-recourse
basis, interests in its installment loans receivable under premium finance
agreements to financial institutions. The differential of stated interest
to be recorded over the course of the finance period and interest to be
paid to the financial institution is recognized as interest expense over
the course of the outstanding transfer.
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 are 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, as of
December 31, 1997, substantially all of the Company's installment loans
outstanding were from this geographic region.
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").
F-7
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments - The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments:
a. Cash and Notes Payable to Financial Institutions - The carrying
amount approximates fair value because of the short maturity of
these instruments.
b. Installment Loans Receivable Under Premium Finance Agreements and
Commercial Paper - It is management's belief that it is not
practicable to estimate the fair value for these instruments for
which there are no quoted market prices. A reasonable estimate of
fair value could not be made without incurring excessive costs.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Impairment of Long-Lived Assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting For the Impairment of
Long-Lived Assets and For 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 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 statements.
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. The effect
of common stock equivalents was antidilutive for 1997, and accordingly,
such common stock equivalents were excluded from the weighted average
number of common shares for 1997. There were no common stock equivalents
outstanding prior to 1996. Therefore, weighted average number of shares
for 1996 was based solely upon common stock shares outstanding for the
period.
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 underlining insurance
policy financed and receive a refund for the unused term of such policy
from the insurance carrier.
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 agreement was extended to a limit of
$2,000,000 in April 1997. The Company entered into similar financing
agreements with two additional financial institutions. The aggregate
borrowing limit for these agreements was $4,000,000 during 1997. Under
terms of these agreements, the Company remitted the financial
institution's share in monthly installment loans receivable collections.
Interest was payable monthly based upon the average outstanding balance
under this agreement at LIBOR (at the time of purchase) plus 200 or 225
basis points as stipulated in these agreements. Installment loans
receivable transferred under this agreement were approximately $4,154,000
for the year ended December 31, 1997.
F-8
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 receivable under this agreement were classified as
securitized loan payable. As of December 31, 1997 the Company had no
outstanding borrowings under these agreements. One of these agreements
with aggregate maximum borrowings of $2,000,000 expires on October 1998.
The agreements with the other financial institutions do not stipulate a
termination date.
A summary of activity in the allowance for possible credit losses is as
follows:
December 31,
-----------------------
1997 1996
---- ----
Balance, beginning of period $ 300,000 $ 208,000
Provision 572,297 583,398
Charge-offs--net of recoveries of $44,504
and $47,913, respectively (562,297) (491,398)
--------- ---------
Balance, end of period $ 310,000 $ 300,000
========= =========
3. DUE FROM OFFICERS
Amounts due from officers bear interest at the prime lending rate (8.50%
at December 31, 1997) and have no specified maturity dates.
4. PROPERTY AND EQUIPMENT - net
Property and equipment - net consisted of the following:
December 31, 1997
-----------------
Equipment including computer hardware and software $ 482,754
Office furniture and fixtures 159,503
Leasehold improvements 43,281
----------
685,538
Less accumulated depreciation and amortization (402,283)
----------
Property and equipment--net $ 283,255
==========
5. LIABILITIES
Included in liabilities is the following short-term debt at December 31,
1997:
Notes Payable to Financial Institutions - At December 31, 1997, the
Company had line of credit agreements with several banks which aggregated
$41,000,000. Borrowings under the agreements bear interest at prime or the
LIBOR rate (5.81% at December 31, 1997) plus 1.15 to 1.50% points above
such rate and may contain certain commitment fees. The outstanding
borrowings are unsecured and there are no compensating balance
arrangements. These lines of credit expire over various dates through June
1998.
The Company entered into a $45,000,000 line of credit agreement with a
consortium of banks in January 1998. Borrowings under this agreement bears
interest at a rate stipulated in this agreement which is contingent upon
borrowing levels. The borrowings will be unsecured and there are no
compensating balance agreements. This line of credit expires January 2001.
F-9
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Commercial Paper Issued - The Commercial paper issued is privately placed
by the Company. The weighted average interest rate in effect for
outstanding obligations at December 31, 1997 was 6.76%. At December 31,
1997, commercial paper outstanding held by the principals of the Company
and other related parties aggregated approximately $1,821,613.
6. SUBORDINATED DEBT
Subordinated debt consists of the following:
December 31, 1997
-----------------
14% senior subordinated note (1) $ 3,000,000
14.25% junior subordinated note (2) 810,000
12.50% senior subordinated note (3) 510,000
14% senior subordinated note (3) 500,000
10% senior subordinated note (3) 90,000
12% junior subordinated note (3) 50,000
11.25% junior subordinated note (3) 43,000
------------
$ 5,003,000
============
(1) The 14% senior subordinated note payable in semi-annual installments
through December 27, 2000 contains certain covenants which 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. In the event the prime rate as defined increases
to over 11%, the interest rate will increase on a pari passu basis.
The underlying agreement also contains various covenants requiring
the Company to meet certain financial ratios. Interest on this note
is due monthly.
(2) At December 31, 1997, subordinated debt with an aggregate principal
amount of $600,000 was held by the principal shareholders of the
Company. Interest on these notes is due semi-annually.
(3) Interest on these subordinated notes is payable either monthly, or
semi-annually, as designated under the terms of each specific note.
Subordinated debt outstanding at December 31, 1997 matures as follows:
Year Ending December 31, Amount
------------------------ ------
1998 $ 800,000
1999 800,000
2000 1,900,000
2001 1,413,000
2002 90,000
----------
Total $5,003,000
==========
F-10
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. INCOME TAXES
The provision for income taxes consisted of the following components:
Years Ended December 31,
------------------------
1997 1996
---- ----
Federal:
Current $282,000 $216,900
Deferred (69,800) 71,000
--------- --------
212,200 287,900
--------- --------
State:
Current 123,600 20,900
Deferred (25,900) 31,000
--------- --------
97,700 51,900
--------- --------
Total $309,900 $339,800
========= ========
Deferred income taxes substantially consists of differences in the methods
in which the Company accounts for unearned interest and the allowance for
possible credit losses for income tax purposes compared with financial
reporting purposes.
The deferred tax assets and liabilities at December 31, 1997 consisted of
the following:
Assets:
Allowance for possible credit losses $ 126,900
---------
Liabilities:
Unearned interest (289,300)
Other (29,627)
---------
Total deferred tax liabilities (318,927)
---------
Net deferred income tax liability $(192,027)
=========
A reconciliation of the differences between the federal statutory tax rate
of 34% and the Company's effective tax rate is as follows:
Years Ended December 31,
------------------------
1997 1996
---- ----
Federal statutory income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 6.8 7.8
Permanent differences 12.8 6.9
Prior year income tax return reconciliation (9.0) (10.3)
----- -----
Effective income tax rate 44.6% 38.4%
===== =====
8. SHAREHOLDERS' EQUITY
(a) Initial Public Offering
During August and September 1994, the Company consummated an initial
public offering of its common stock by selling 1,060,000 shares at $4.25
per share. Cash proceeds to the Company from this offering aggregated
approximately $3,593,000, net of aggregate issuance costs of approximately
$912,000. In addition, the Company issued 100,000 warrants at a purchase
price of $.001 per warrant to purchase common stock at $6.17 per share to
the underwriters' representatives. These warrants are exercisable for a
period of four years, commencing on August 8, 1995. No warrants have been
exercised as of December 31, 1997.
F-11
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(b) Stock Option Plan
The Company has an Equity Incentive Plan (the "Plan") that provides for
the grant of up to 250,000 shares of Common Stock in the form of stock
options (incentive and nonstatutory), stock appreciation rights,
performance shares, restricted stock, stock units and other stock-based
awards. Awards under the Plan can be granted to employees, consultants and
non-employee directors as determined by the Board of Directors. The
exercise price of all "incentive stock options" granted under the Plan
must be at least equal to the fair market value of the option shares on
the date of grant. The term of any incentive stock option granted under
the Plan may not exceed ten years.
During 1997, 58,525 options were granted to various officers, directors
and employees of the Company. These options are exercisable from the date
of grant and expire five years from the date of grant. No options were
granted under the Plan prior to 1997.
The weighted average remaining contractual life remaining on options
granted under the plan is 4.2 years. The weighted average exercise price
is $4.38. At December 31, 1997, 58,525 options are exercisable.
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with APB
25 and its related interpretations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires the disclosure of pro
forma net income and earnings per share had the Company adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with
the following weighted average assumptions for 1997 and 1996: expected
life, 5 years following vesting, stock volatility 76 percent, risk free
interest rate of 6 percent and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach
and forfeitures are recognized as they occur. If the computed fair values
of the 1997 awards had been amortized to expense over the vesting period
of the awards, pro forma net income would have been approximately $312,348
($.11 per share). The impact of SFAS No. 123 on pro forma net income for
1996 was zero as there were no stock options, or any other stock-based
awards granted prior to 1997.
(c) Capital Requirements
The Company is subject to minimum capital requirements imposed by certain
of the states in which it is licensed. The Commonwealth of Pennsylvania
requires an insurance premium finance company to have and maintain a
minimum net worth of $50,000. The State of New York requires that
insurance premium finance companies have and maintain equity capital equal
to at least 10% of outstanding receivables and, in any event, not less
than $1,500. 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 a subordinated debt
arrangement.
F-12
<PAGE>
STANDARD FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. PENSION PLANS
The Company has a voluntary contribution pension plan which complies with
Section 401(k) of the Internal Revenue Code. The Plan permits employees to
make contributions to a pension trust, with a matching contribution by the
Company, at the rate of 20% for every dollar contributed up to 6% of the
employee's salary. For the years ended December 31, 1997 and 1996, the
Company contributed $44,000 and $37,000, respectively to the plan.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments - The Company is obligated under operating lease
commitments for its office facility and automobiles. Future minimum lease
payments and other lease related costs are as follows:
Year Ending December 31, Amount
------------------------ ------
1998 $158,484
1999 138,878
2000 107,604
2001 44,835
--------
Total $449,801
========
The facility lease requires payment of real estate taxes, insurance and
other related costs. Rent expense for the years ended December 31, 1997
and 1996 aggregated approximately $107,799 and $97,000, respectively.
Employment Agreements - The Company has employment agreements with two
officers/shareholders of the Company. Such agreements, as renewed in July
1997, provide for full-time employment to the Company from the officers in
return for aggregate officers' salary of $381,100 per year plus bonus and
other benefits. These contracts may be renewed on their anniversary date
for successive one-year terms. These agreements also contain clauses on
termination, severance and covenants not to compete after the date of
termination.
Consulting Agreement - As part of the underwriting arrangements for the
Company's initial public offering, the Company has retained the
underwriters' representatives as financial consultants to the Company for
a three-year period ended July 1997. Fees payable under these arrangements
aggregate $19,600 for the year ending December 31, 1997.
* * * * *
F-13
<PAGE>
STANDARD FUNDING CORP.
SIGNATURES
In Accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 27th day of March,
1998.
STANDARD FUNDING CORP.
/s/ Alan J. Karp
----------------
By: Alan J. Karp
Its: President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alan J. Karp and David E. Fisher, and each
of them, his true and lawful proxies, attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to (i) act on, sign and file with the
Securities and Exchange Commission any and all amendments to this Annual Report
on Form 10-KSB, together with all exhibits thereto, (ii) act, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, and (iii) take any and all actions which
may be necessary or appropriate in connection therewith, granting unto such
agents, proxies and attorneys-in-fact, and each of them and his and their
substitute or substitutes, full power and authority to do and perform each and
every act and thing necessary or appropriate to be done in connection therewith,
as fully for all intents and purposes as he might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Alan J. Karp President, Chief Executive Officer March 27, 1998
- ------------------------ and Director (principal executive
Alan J. Karp officer)
/s/ David E. Fisher Director, Treasurer and Chief Financial March 27, 1998
- ------------------------ Officer (principal financial and
David E. Fisher accounting officer)
/s/ James Faust Director March 27, 1998
- ------------------------
James Faust
/s/ Joyce Karp Director March 27, 1998
- ------------------------
Joyce Karp
/s/ Richard Belz Director March 27, 1998
- ------------------------
Richard Belz
Exhibit 10.27
<PAGE>
STANDARD FUNDING CORP.
335 Crossways Park Drive
Woodbury, New York 11797
(516)364-0200 Fax (516)364-8497
August 5, 1997
Ms. Christine Montagna
Vice President
Fleet Bank
592 Fifth Avenue
New York, NY 10036
Re: Participation Program
Dear Ms. Montagna:
Pursuant to our discussion, we are hereby offering to sell to you and you are
hereby purchasing from us, without recourse to us, an undivided fractional 50%
participation interest (hereinafter called the "participation percentage") in:
(i) our premium finance receivables listed on Schedule A (herein
called the "transaction") for a participation purchase price of $319.272.29,
which is an amount equal to the participation percentage of the present unpaid
balance on the transaction(s) which we warrant and represent to you are, to the
best of our knowledge and belief, a bona fide and enforceable obligation to pay;
and
(ii) all documents evidencing or securing such transaction(s)
including, without limitation, the Underlying Agreements (as defined below); and
(iii) the right to receive the participation percentage of the
proceeds of any collateral (including without limitation unearned premium
refunds) securing the transaction(s).
As long as the transaction(s) are not in default, and we receive payments
thereon in good funds, as shown in Schedule B, we will remit to you once each
month, to be applied against the net cash balance of your participation purchase
price, the participation percentage of each of the payments received by us
during the preceding month on the transaction(s), and will pay you, on or before
the 15th of each month, interest at the rate of
<PAGE>
7.65625% simple interest per annum, (based on a 6 month Libor + 2.25%) 365 day
year, (hereinafter called the "participation rate") on the average net cash
balance of your participation purchase price outstanding during the preceding
month in respect of the transaction(s). In the event that the transaction(s) or
any guarantors thereon are in default in any of their obligations to us with
respect to the transaction(s) and/or we proceed to cancel the policy or take any
other action that we may deem, in our sole discretion, necessary, proper or
advisable to protect our and your interest, and receive monies on the account of
the transaction(s), such monies will be disbursed in the following order:
1. All out-of-pocket expenses, including but not limited to
reasonable attorney's fees, costs of repossession, collection,
etc., incurred and/or anticipated shall be paid/reimbursed to
Standard Funding Corp.; then
2. The participation percentage of the remainder will be promptly
remitted to you as collected until you have received an
aggregate amount equal to the net outstanding cash balance of
the above-mentioned participation purchase price plus interest
thereon at the participation rate to the date of payment. As
soon as you have received the foregoing sum, you will have no
further interest in the transaction(s).
We shall endeavor to keep you fully advised as to any actions we are taking
and/or anticipate taking with respect to the transaction(s), including the
exercise of any remedial action/procedures.
We shall not have any liability to you for the repayment of the participation
purchase price, your participating interest, or any other charges, or sums
except for the above-mentioned monthly payment to you out of monies actually
received by us with respect to the transaction(s). We will exercise such care in
the handling of the transaction(s) as we would exercise in the case of
transactions in which we are alone interested, and we will take such action as
may be necessary to the end that you and we shall have a valid security interest
in the return premium with respect to which you are participating. Except as
stated herein, we will have no liability with respect to the transaction(s) as
long as we have acted in good faith and without gross negligence or willful
misconduct. At any time during the term of this Agreement we will have the
option, but not the obligation, of paying to you the then outstanding cash
balance of your participation purchase price in the transaction, plus interest
thereon to date as provided herein and immediately upon such payment you will
thereupon cease to have any interest whatsoever in the transaction and shall
immediately return all of original documents, if any, to us.
At any time during business hours, we will permit such agents, as you may
designate to us in writing, to examine our books, records and accounts relating
to the transactions. The transactions and any security interest arising
thereunder shall be retained by us in our own name but, to the extent of your
interest therein, as agent of and for you and subject to your rights with
respect thereto as herein set forth.
<PAGE>
We will keep a record of the transaction appropriately marked as to show your
interest therein and in showing the ownership thereof on our books and in any
statement and reports as to our condition, we will include only such portion of
the transaction as shall equal our own pro rata interest therein. All costs and
expenses of routine collection efforts shall be borne by us, except that any
out-of-pocket costs and expenses of collection by outside agencies or attorneys,
including their reasonable fees and disbursements, court cost and the like,
shall be borne by you to the extent of the participation percentage of any such
amounts.
We represent and warrant, which representations and warranties shall survive the
execution hereof, that:
(i) attached hereto as Schedule C is an accurate and complete list
of all the Premium Finance Agreements and any other material documents, as
amended through the date hereof, entered into with respect to the transaction(s)
(collectively, the "Underlying Agreements");
(ii) we have provided to you a true, complete and correct sample of
our current form of Premium Finance Agreement (the "Premium Finance Agreement")
and there are no other documents or instruments which could materially or
adversely affect the transaction(s) or your participation therein;
(iii) no event of default under the Underlying Agreements has
occurred or is presently continuing;
(iv) we have full power, authority and legal right under applicable
law to execute and deliver this Participation Agreement, and to perform in
accordance with the provisions of this Participation Agreement those things on
our part to be performed; and
(v) this Participation Agreement is enforceable in accordance with
its terms; and
(vi) we are the legal and beneficial owner of the transaction(s)
subject to this Participation Agreement.
We agree to provide you with prompt written notice of any event of default under
any Underlying Agreements at settlement date on Schedule B. We will also notify
you of each request for any amendment, waiver or consent in connection with the
Underlying Agreements and our exercise of any rights or remedies pursuant
thereto.
We will not, without your prior written consent, agree to any waiver or
amendment to the terms of the transactions or the Underlying Documents which
would reduce, forgive or extend the maturity of any portion of the principal
amount of any transaction(s), reduce the interest rate on any transaction(s)
below that to which we are entitled to under this Participation Agreement,
release any of the collateral under the Underlying Agreements, or extend any
stated payment date for principal or interest.
<PAGE>
If an insured/obligor under any existing Underlying Agreement in which you have
a participation interest, requests that we finance an additional premium(s) of
an existing policy and the amount of the additional premium(s) is less than or
equal to 25% of the original premium(s) for such Policy, then without your prior
written consent, we may increase the insured/obligor's outstanding balance by
issuing a check, net of the downpayment, for the monies due to the insurance
carrier or producer to fund the additional premium(s). You shall have an
undivided 50% interest in the increased Underlying Agreements and additional
premium(s) transaction and you shall remit to us, as indicated on the Schedule
"A", 50% of the additional premiums funded. We shall provide you with evidence
of the additional sums funded and the Underlying Agreement for such increased
transaction. If the request to fund an additional premium(s) is more than 25% of
the amount of the original premium(s) of a policy on an Underlying Agreement in
which you have an interest, then we must request your prior written consent to
fund the increase. If you do not consent to funding the increase, then we may,
at our option, finance the additional premium(s) on our own account, in which
event you shall maintain your 50% interest in the original premium.
Upon prior written notice to us, you may sub-participate your participation
hereunder to any bank or financial institution which is an affiliate of yours,
so long as there are no other modifications to this agreement resulting
therefrom.
You represent to, and agree with, us that you have made your own credit analysis
of the transaction(s) for the purpose of acquiring the participation herein
based on (and having had access to) such documents and information as you have
deemed to be appropriate and sufficient for such purpose and for entering into
this Participation Agreement.
You and we acknowledge that the Underlying Documents, this Participation
Agreement and the participation hereunder represent commercial transactions, not
investments, and are not being acquired for resale or with a view for resale and
are not intended to constitute a security for purposes of any applicable
securities law.
This Participation Agreement shall be governed by, and construed and
enforced with, the laws of the State of New York.
We represent and warrant, which representations and warranties shall
survive the execution hereof, that each transaction which is subject to this
Participation Agreement shall at the date of submission of the contract(s) for
this Participation, satisfy each of the following conditions:'
(i) the insurance provider for each transaction must have a rating by A.
M. Best & Company of not less than "A-";
(ii) the policy premium for each transaction shall not be less than
$80,000, such that the minimum amount of your participation in any single
transaction is $40,000;
<PAGE>
(iii) for each transaction we have provided to you written evidence to
your satisfaction that that we have confirmed the existence of the underlying
insurance policy with the insurance carrier; and
(iv) prior to your entering into the participation with respect to each
transaction, the insured with respect thereto has already made its
non-refundable down payment on the contract in an amount not less than 10% of
the premium.
Each request by us to sell to you a participation in a transaction shall
constitute a representation and warranty by us that the conditions set forth
above have been satisfied as of the date of such request.
The determination, subsequent to the date of this agreement, that any provision
hereof is invalid and/or unenforceable, shall not affect the enforceability of
any other provision.
It is hereby agreed that we shall have the right without prior notice or
responsibility to you to exercise and enforce all privileges and rights granted
to us thereunder, without limitation, as we may in our sole discretion desire,
subject of course to the terms and condition of this Letter Agreement. Upon the
payment in full of the transaction you shall immediately return all of the
original documents to us.
If the foregoing is acceptable to you please so indicate in the space provided
below and return a copy hereof to the undersigned.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
----------------
Name: Alan J. Karp
----------------
Title: President
----------------
FLEET BANK ACCEPTED
AND AGREED TO:
By: /s/ Christine Montagna
-----------------------
Name: Christine Montagna
-----------------------
Title: Vice President
-----------------------
Exhibit 10.28
<PAGE>
Standard
Funding Corp.
385 Crossways Park Drive
Woodbury, New York 11797
March 4, 1997 (516) 364-0200
1-800-526-2470
Fax (516) 364-0205
Mr. Luis Rebatta
Senior Vice President
Interbank of New York
420 Park Avenue South
New York, New York 10016
Re: Schedule A - Interbank 50% Participation
Interest in Paper
Gentlemen:
Pursuant to our discussion, we are hereby offering to sell to you and you are
hereby purchasing from us, without recourse to us, an undivided fractional 50%
participation interest (hereinafter called the "participation percentage") in
the above-captioned Schedule A (hereinafter called the "transaction") for a
participation purchase price of $ 506,480.90, which is an amount equal to the
participation percentage of the present unpaid balance on the transaction which
we warrant and represent to you is, to the best of our knowledge and belief, a
bona fide and enforceable obligation to pay and Security Agreement. As long as
the transaction is not in default, and we receive payments thereon in good
funds, we will remit to you once each month, to be applied against the net cash
balance of your participation purchase price, the participation percentage of
each of the payments received by us during the preceding month on the
transaction, and will pay you, on or before the 15th of each month, interest at
the rate of 7.95 simple interest per annum, 365 day year, (hereinafter called
the "participation rate") on the average net cash balance of your participation
purchase price outstanding during the preceding month in respect of the
transaction. In the event that the transaction or any guarantors thereon are in
default in any of their obligations to us with respect to the transaction and/or
we proceed to cancel the policy or take any other action that we may deem, in
our sole discretion, necessary, proper or advisable to protect our and your
interest, and receive monies on the account of the transaction, such monies will
be disbursed in the following order.
<PAGE>
1. All out-of-pocket expenses, including but not limited to attorneys'
fees, costs of repossession, collection, etc., incurred and/or
anticipated; then
2. The participation percentage of the reminder will be promptly
remitted to you as collected until you have received an aggregate
amount equal to the net outstanding cash balance of the
above-mentioned participation purchase price plus interest thereon
at the participation rate to the date of payment. As soon as you
have received the foregoing sum, you will have no further interest
in the transaction.
We shall endeavor to keep you fully advised as to any action we are taking and/
or anticipate taking with respect to the transaction; however, in the event you
desire any other action to be taken with respect to the transaction, we will
upon receipt of written notice from you to that effect, turn over to you the
liquidation of the transaction and you shall disburse any monies received by you
as provided in number "1" above and as to the remainder, you shall retain your
participation percentage thereof and promptly remit to us the balance. Any
interest payable to you under this agreement will be computed on the net
outstanding cash balance of your participation purchase price herein.
We shall not have any liability to you for the repayment of the participation
purchase price, your participating interest or any other charges or sums except
for the above-mentioned monthly payment to you out of monies actually received
by us with respect to the transaction. We will exercise such care in the
handling of the transaction as we would exercise in the case of transactions in
which we alone are interested, and we will take such action as may be necessary
to the end that you shall have a valid security interest in the return premium
with respect to which you are participating. Except as stated herein, we will
have no liability with respect to the transaction as long as we have acted in
good faith. At any time during the term of this Agreement we will have the
option of paying to you the then outstanding cash balance of your participation
purchase price in the transaction, plus interest thereon to date as provided
herein and immediately upon such payment you will thereupon cease to have any
interest whatsoever in the transaction and shall immediately return all of the
original documents to us.
At any time during business hours, we will permit such agents as you may
designate to us in writing to examine our books, records and accounts relating
to the transaction. The transaction and any security interest arising thereunder
shall be retained by us in our own name, but, to the extent of your interest
therein, as agent of and for you and subject to your rights with respect thereto
as herein set forth.
<PAGE>
We will keep a record of the transaction appropriately marked as to show your
interest therein and in showing the ownership thereof on our books and in any
statement and reports as to our condition, we will include only such portion of
the transaction as shall equal our own pro rata interest therein. All costs and
expenses of routine collection efforts shall be borne by us, except that any
out-of-pocket costs and expenses of collection by outside agencies or attorneys,
including their fees and disbursements, court costs and the like, shall be borne
by you to the extent of the participation percentage of any such amounts.
Enclosed please find the original of the above-captioned document which we give
to you to hold in trust for our joint account subject to the terms of this
letter agreement and it is hereby agreed that we shall have the right without
prior notice or responsibility to you to exercise and enforce all privileges and
rights granted to us thereunder, without limitation, as we may in our sole
discretion desire, subject of course to the terms and condition of this Letter
Agreement. Upon the payment in full of the transaction you shall immediately
return all of the original documents to us.
If the foregoing is acceptable to you please so indicate in the space provided
below and return a copy of to the undersigned.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
----------------
Name: Alan J. Karp
----------------
Title: President
----------------
INTERBANK OF NEW YORK
ACCEPTED AND AGREED TO:
By: /s/ Luis A. Rebatta
-----------------------
Name: Luis A. Rebatta
-----------------------
Title: Sr. V.P.
-----------------------
Exhibit 10.29
<PAGE>
Exhibit "A"
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"),OR THE SECURITIES LAWS OF ANY STATE, AND THEY MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY HAVE BEEN SO REGISTERED OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL WHICH IS IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION THEREOF
FOR PURPOSES OF TRANSFER IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF
ANY STATE.
STANDARD FUNDING CORP.
10% SENIOR SUBORDINATED NOTE DUE MARCH 31, 2002
No. 555-01 $ 25,000.00
------ ---------
Standard Funding Corp., a New York corporation (herein called the
"Company," which terms includes any successor corporation or other entity under
this Note), for value received, hereby promises to pay to PAUL RAND & JOYCE RAND
(SS# ###-##-####), or registered assigns, the principal sum of TWENTY-FIVE
THOUSAND DOLLARS ($25,000.00) on March 31, 2002, and to pay interest thereon
from the date of original issuance hereof, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, based on a
365-day year, semi-annually on March 31 and September 30, in each year
commencing September 30, 1997, at the rate of 10% per annum, until the principal
hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or in part, without penalty, charge or notice.
The payment of the principal on this Note is expressly subordinated in the
right if payment, subject and junior to any and all of the Company's obligations
and liabilities for money borrowed which is not by its terms expressly
subordinate and junior in right of payment to any other debt of the Company
("Superior Indebtedness"). Upon any receivership, insolvency proceedings,
bankruptcy, assignment for the benefit of creditors, reorganization, dissolution
or liquidation, no amount shall be paid in respect to this Note unless and until
the Superior Indebtedness shall have been paid in full, together with interest
thereon and all other amounts in respect of such Superior Indebtedness.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with
<PAGE>
respect to maturity and rate of interest of such Senior Subordinated Notes. The
holder of this Note by accepting the same, agrees that while any Senior and/or
Superior Indebtedness, including Senior Subordinated Notes is outstanding, he
will not make any demands for payment of the principal of the debt evidenced
hereby, or bring or maintain any action to enforce payment of the principal of
this Note. However, nothing contained herein shall prevent the Company from
paying the principal on the Note at maturity hereof, provided the Company is not
in default in payment of Superior Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
-----------------
Exhibit 10.30
<PAGE>
Exhibit "A"
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"),OR THE SECURITIES LAWS OF ANY STATE, AND THEY MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY HAVE BEEN SO REGISTERED OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL WHICH IS IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION THEREOF
FOR PURPOSES OF TRANSFER IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF
ANY STATE.
STANDARD FUNDING CORP.
10% SENIOR SUBORDINATED NOTE DUE MARCH 31, 2002
No. 002-02 $ 25,000.00
------ ---------
Standard Funding Corp., a New York corporation (herein called the
"Company," which terms includes any successor corporation or other entity under
this Note), for value received, hereby promises to pay to ESTATE OF FERDINAND
HARMS 54 Wilson Lane, Bethpage N.Y. 11714 IRS NO 11-1684588, or registered
assigns, the principal sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) on March
31, 2002, and to pay interest thereon from the date of original issuance hereof,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, based on a 365-day year, semi-annually on March 31 and
September 30, in each year commencing September 30, 1997, at the rate of 10% per
annum, until the principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or in part, without penalty, charge or notice.
The payment of the principal on this Note is expressly subordinated in the
right if payment, subject and junior to any and all of the Company's obligations
and liabilities for money borrowed which is not by its terms expressly
subordinate and junior in right of payment to any other debt of the Company
("Superior Indebtedness"). Upon any receivership, insolvency proceedings,
bankruptcy, assignment for the benefit of creditors, reorganization, dissolution
or liquidation, no amount shall be paid in respect to this Note unless and until
the Superior Indebtedness shall have been paid in full, together with interest
thereon and all other amounts in respect of such Superior Indebtedness.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with
<PAGE>
respect to maturity and rate of interest of such Senior Subordinated Notes. The
holder of this Note by accepting the same, agrees that while any Senior and/or
Superior Indebtedness, including Senior Subordinated Notes is outstanding, he
will not make any demands for payment of the principal of the debt evidenced
hereby, or bring or maintain any action to enforce payment of the principal of
this Note. However, nothing contained herein shall prevent the Company from
paying the principal on the Note at maturity hereof, provided the Company is not
in default in payment of Superior Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
-----------------
Exhibit 10.31
<PAGE>
Exhibit "A"
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"),OR THE SECURITIES LAWS OF ANY STATE, AND THEY MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY HAVE BEEN SO REGISTERED OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL WHICH IS IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION THEREOF
FOR PURPOSES OF TRANSFER IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF
ANY STATE.
STANDARD FUNDING CORP.
10% SENIOR SUBORDINATED NOTE DUE MARCH 31, 2002
No. 002-03 $ 40,000.00
------ ---------
Standard Funding Corp., a New York corporation (herein called the
"Company," which terms includes any successor corporation or other entity under
this Note), for value received, hereby promises to pay to MILDRED EBBIGHAUSEN 80
Ralph Ave Babylon N.Y. 11702 S.S. ###-##-####, or registered assigns, the
principal sum of Forty Thousand ($40,000.00) on March 31, 2002, and to pay
interest thereon from the date of original issuance hereof, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, based on a 365-day year, semi-annually on March 31 and September 30, in
each year commencing September 30, 1997, at the rate of 10% per annum, until the
principal hereof is paid or made available for payment.
The Company shall have the right to prepay the indebtedness evidenced by
this Note, in whole or in part, without penalty, charge or notice.
The payment of the principal on this Note is expressly subordinated in the
right if payment, subject and junior to any and all of the Company's obligations
and liabilities for money borrowed which is not by its terms expressly
subordinate and junior in right of payment to any other debt of the Company
("Superior Indebtedness"). Upon any receivership, insolvency proceedings,
bankruptcy, assignment for the benefit of creditors, reorganization, dissolution
or liquidation, no amount shall be paid in respect to this Note unless and until
the Superior Indebtedness shall have been paid in full, together with interest
thereon and all other amounts in respect of such Superior Indebtedness.
This Senior Subordinated Note has been issued by the Company and is on a
parity and equality in all respects with other Senior Subordinated Notes issued
and hereafter issued, except with
<PAGE>
respect to maturity and rate of interest of such Senior Subordinated Notes. The
holder of this Note by accepting the same, agrees that while any Senior and/or
Superior Indebtedness, including Senior Subordinated Notes is outstanding, he
will not make any demands for payment of the principal of the debt evidenced
hereby, or bring or maintain any action to enforce payment of the principal of
this Note. However, nothing contained herein shall prevent the Company from
paying the principal on the Note at maturity hereof, provided the Company is not
in default in payment of Superior Indebtedness.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
STANDARD FUNDING CORP.
By: /s/ Alan J. Karp
-----------------
Exhibit 10.32
<PAGE>
[THE BANK OF NEW YORK LETTERHEAD]
July 16, 1997
Standard Funding Corporation
335 Crossways Park Drive
Woodbury, New York 11791
Attention: Alan J. Karp
President
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it holds
available to Standard Funding Corporation (the "Company") an $8,000,000
unsecured line of credit.
All advances under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in, a
promissory note of the Company in the form included with this letter.
In connection with this line of credit, the Company shall pay to the
Bank a fee of three-eights of one percent (3/8%) per annum on the average daily
unused amount of this line of credit. This fee shall be calculated on the basis
of a 360 day year for the actual number of days elapsed and shall be payable
monthly in arrears.
For so long as this line of credit is held available or the Company
shall have any obligations to the Bank in respect of this line of credit, the
Company shall deliver to the Bank, at the same time as the same is delivered
pursuant to the Note Agreement dated December 27, 1995 between the Company and
Bernard G. Palitz (the "Note Agreement"), a copy of each certificate which is
delivered pursuant to Section 8.2(a) or 8.2(b) of the Note Agreement.
As you know, lines of credit may be cancelled by either party at any
time, and the making by the Bank of any advance under this line of credit is
subject to the Bank's satisfaction, at the time of such advance, with the
condition (financial and otherwise), business, prospects, properties and
operations of the Company. Unless cancelled earlier as provided in the
immediately preceding sentence, this line of credit shall be held available
until May 31, 1998.
Very truly yours,
THE BANK OF NEW YORK
By: [illegible]
--------------------------------
Title: Assistant Vice President
-------------------------
Exhibit 10.33
<PAGE>
[LETTERHEAD OF Marine Midland Bank]
Commercial Finance Department
April 30, 1997
Alan J. Karp, President
Standard Funding Corp. Inc.
335 Crossway Park Drive
Woodbury, NY 11797
Dear Alan,
We are pleased to advise you that Marine Midland Bank, ("the Bank") has approved
for Standard Funding Corp. ("the Company") a one year $6,000,000.00 unsecured
credit facility to provide working capital which will be utilized to support the
financing of installment loans receivable under premium financing agreements.
This facility will be priced as follows:
Interest Rate: LIBOR plus 140 basis points
Unused Line Fee: .50 of unused line, and payable quarterly.
Financial Reporting:
1. Receipt of year end financial statements prepared on an audited basis
within 90 days of fiscal year end, with quarterly financial statements to
be received prior to 45 days from each quarter end.
2. Quarterly list of Bank lines of credit detailing available lines,
outstandings and expiration dates.
3. Evidence of no prior waivers or evidences of default on existing lines of
credit.
Other Conditions:
- - A default in any other Bank obligations to include senior debt,
subordinated debt, commercial paper and/or junior subordinated debt,
will trigger a default on our credit accommodation.
- - Approval subject to a pre--funding procedures review.
<PAGE>
Standard Funding Corp.
Page 2
Advances under the line will be made at our discretion from time to time and all
advances are repayable under the terms of the note executed at the time of each
advance. It is understood that the line of credit is uncommitted and that
availability under the line shall remain subject to our evaluation of the
borrower as an acceptable credit risk.
If these terms are acceptable to you, please acknowledge and forward the
enclosed copy of this letter to me.
Sincerely,
/s/ John S. Wamboldt
--------------------
John S. Wamboldt
Vice President
JSW/1k
Agreed and Accepted: Standard Funding Corp.
/s/ Alan J. Karp 5/5/97
- ---------------- ------
Alan J. Karp, President Date
/s/ David E. Fisher 5/5/97
- ------------------- ------
David E. Fisher, Treasurer Date
Exhibit 10.34
<PAGE>
DEMAND PROMISSORY NOTE
$10,000,000 December 3, 1997
For value received, the undersigned unconditionally promises to pay ON
DEMAND, regardless of any other provision of this Note (including the
determination of any Interest Periods), to the order of MELLON BANK, N.A., (the
"Bank") at its office located at 701 Market Street, Philadelphia, PA 19101-7899
or to such other address as the Bank may notify the undersigned, the sum of TEN
MILLION DOLLARS ($10,000,000) or such lesser unpaid principal amount of the
loans made to the undersigned by the Bank and outstanding under this Note.
This Note includes any Addendum, Schedule or Rider attached hereto.
Interest. The undersigned promise(s) to pay interest on the unpaid balance
of the principal amount of each such loan made hereunder from and including the
date of each such loan to but excluding the date such loan shall be paid in full
at the rates set forth in the Addendum annexed hereto.
Payments. All payments under this Note shall be made in lawful money of
the United States of America and in immediately available funds at the Bank's
office specified above. The Bank may demand payment of this Note at any time in
whole or in part. The Bank may (but shall not be obligated to) debit the amount
of any payment (principal or interest) under this Note when due to any deposit
account of (any of) the undersigned with the Bank. The Bank may apply any money
received or collected for payment of this Note to the principal of, interest on
or any other amount payable under, this Note in any order that the Bank may
elect.
Whenever any payment to be made hereunder (including principal and
interest) shall be stated to be due on a day on which the Bank's head office is
not open for business, that payment will be due on the next following banking
day, and any extension of time shall in each case be included in the computation
of interest payable on this Note.
If any payment (principal or interest) shall not be paid when due other
than a payment of the entire principal balance of the Note upon demand, the
undersigned shall pay a late payment charge equal to five percent (5%) of the
amount of such delinquent payment, provided that the amount of such late payment
charge shall be not less than $25 nor more than $500.
Authorization. The undersigned hereby authorizes the Bank to make loans
and disburse the proceeds thereof to the account listed below and to make
repayments of such loans by debiting such account upon oral, telephonic or
telecopied instructions made by any person purporting to be an officer or agent
of the undersigned who is empowered to make such requests and give such
instructions. The undersigned may amend these instructions, from time to time,
effective upon actual receipt of the amendment by the Bank. The Bank shall not
be responsible for the authority,
<PAGE>
or lack of authority, of any person giving such telephonic instructions to the
Bank pursuant to these provisions. By executing this Note, the undersigned
agrees to be bound to repay any loan obtained hereunder as reflected on the
Bank's books and records and made in accordance with these authorizations,
regardless of the actual receipt of the proceeds thereof.
Records. The date, amount and interest period (if applicable) of each loan
under this Note and each payment of principal, loan(s) to which such principal
is applied (which shall be at the discretion of the Bank) and the outstanding
principal balance of loans, shall be recorded by the Bank on its books and prior
to any transfer of this Note (or, at the discretion of the Bank at any other
time) endorsed by the Bank on the schedule attached or any continuation of the
schedule. Any such endorsement shall be conclusive absent manifest error.
Representations and Warranties. The undersigned represents and warrants
upon the execution and delivery of this Note and upon each loan request
hereunder, that: (a) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation; (b) it has the power to
execute and deliver this Note and to perform its obligations hereunder and has
taken all necessary action to authorize such execution, delivery and
performance; (c) such execution, delivery and performance do not violate or
conflict with any law applicable to it, any provision of its organizational
documents, any order or judgment of any court or other agency of government
applicable to it or any of its assets or any material contractual restriction
binding on or materially affecting it or any of its assets; (d) to the best of
undersigned's knowledge, all governmental and other consents that are required
to have been obtained by it with respect to this Note have been obtained and are
in full force and effect and all conditions of any such consents have been
complied with; (e) its obligations under this Note constitute its legal, valid
and binding obligations, enforceable in accordance with its terms except to the
extent that such enforcement may be limited by applicable bankruptcy, insolvency
or other similar laws affecting creditors' rights generally; (f) all financial
statements and related information furnished and to be furnished to the Bank
from time to time by the undersigned are true and complete and fairly present
the financial or other information stated therein as at such dates or for the
periods covered thereby; (g) there are no actions, suits, proceedings or
investigations pending or, to the knowledge of the undersigned, threatened
against or affecting the undersigned before any court, governmental agency or
arbitrator, which involve forfeiture of any assets of the undersigned or which
may materially adversely affect the financial condition, operations, properties
or business of the undersigned or the ability of the undersigned to perform its
obligation under this Note; and (h) there has been no material adverse change in
the financial condition of the undersigned since the last such financial
statements or information.
No Commitment. This Note does not create and shall not be deemed or
construed to create any contractual commitment to lend by the Bank. Any such
commitment in respect of this Note can only be made by and shall only be
effective to the extent set forth in a separate writing expressly designated for
that purpose and subscribed by a duly authorized officer of the Bank.
Security. As collateral security for the payment of this Note and of any
and all other obligations and liabilities of the undersigned to the Bank, now
existing or hereafter arising, the undersigned grants to the Bank a security
interest in and a lien upon and right of offset against all
2
<PAGE>
moneys, deposit balances, securities or other property or interest therein of
the undersigned now or at any time hereafter held or received by or for or left
in the possession or control of the Bank or any of its affiliates, including
subsidiaries, whether for safekeeping, custody, transmission, collection, pledge
or for any other or different purpose.
Certain Waivers. The undersigned waives presentment, notice of dishonor,
protest and any other notice or formality with respect to this Note.
Costs. The undersigned agree(s) to reimburse the Bank on demand for all
costs, expenses and charges (including, without limitation, fees and charges of
external legal counsel for the Bank and costs allocated by its internal legal
department) in connection with the preparation, interpretation, performance or
enforcement of this Note.
Notices. All notices, requests, demands or other communications to or upon
the undersigned or the Bank shall be in writing and shall be deemed to be
delivered upon receipt if delivered by hand or overnight courier or five days
after mailing to the address (a) of the undersigned as set forth next to the
undersigned's execution of this Note, (b) of the Bank as first set forth above,
or (c) of the undersigned or the Bank at such other address as the undersigned
or the Bank shall specify to the other in writing.
Assignment. This Note shall be binding upon the undersigned and its or
their successors and shall inure to the benefit of the Bank and its successors
and assigns.
Amendment and Waiver. This Note may be amended only by a writing signed on
behalf of each party and shall be effective only to the extent set forth in that
writing. No delay by the Bank in exercising any power or right hereunder shall
operate as a waiver thereof or of any other power or right; nor shall any single
or partial exercise of any power or right preclude other or future exercise
thereof, or the exercise of any other power or right hereunder.
Governing Law; Jurisdiction. This Note shall be governed by and construed
in accordance with the laws of the State of New York. The undersigned consent(s)
to the nonexclusive jurisdiction and venue of the state or federal courts
located in such state. In the event of a dispute hereunder, suit may be brought
against the undersigned in such courts or in any jurisdiction where the
undersigned or any of its assets may be located. Service of process by the Bank
in connection with any dispute shall be binding on the undersigned if sent to
the undersigned by registered mail at the address specified below or to such
further address as the undersigned may specify to the Bank in writing.
Maximum Interest. Notwithstanding any other provision of this Note, the
undersigned shall not be required to pay any amount pursuant to this Note which
is in excess of the maximum amount permitted to be charged by national banks
under applicable law and any such excess interest paid shall be refunded to the
undersigned or applied to the principal owing hereunder.
Borrower Waivers. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY
3
<PAGE>
APPLICABLE LAW) ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS NOTE, AND AGREES THAT ANY SUCH DISPUTE SHALL, AT THE BANK'S
OPTION, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN ADDITION, THE UNDERSIGNED WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE
BASED UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF DELAY BY THE BANK AND ANY
SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.
Address for notices: STANDARD FUNDING CORP.
335 Crossways Park Drive By: /s/ Alan J. Karp
Woodbury, NY 11797 ----------------------
Telecopier No. (516) 364-0205 Print Name: Alan J. Karp
--------------
Title: President
-------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 12-31-97 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 203,104
<SECURITIES> 0
<RECEIVABLES> 41,843,567
<ALLOWANCES> (310,000)
<INVENTORY> 0
<CURRENT-ASSETS> 42,938,730
<PP&E> 685,538
<DEPRECIATION> 402,283
<TOTAL-ASSETS> 42,938,730
<CURRENT-LIABILITIES> 35,825,824
<BONDS> 0
0
0
<COMMON> 2,760
<OTHER-SE> 7,110,146
<TOTAL-LIABILITY-AND-EQUITY> 42,938,730
<SALES> 0
<TOTAL-REVENUES> 6,327,115
<CGS> 0
<TOTAL-COSTS> 720,143
<OTHER-EXPENSES> 1,809,713
<LOSS-PROVISION> 572,297
<INTEREST-EXPENSE> 2,530,859
<INCOME-PRETAX> 694,103
<INCOME-TAX> 309,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,203
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
</TABLE>
