UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1996
----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
------------------- ----------------------
Commission File Number: 33-85864-LA
------------------------------------------------------
CLS Financial Services, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1478196
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4720 200th St. SW Suite 200, Lynnwood, WA 98036
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(206)744-0386
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /x/ Yes / / No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. / / Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
1
CLS Financial Services, Inc
Quarterly Report on Form 10-Q
For the Period Ended September 30, 1996
Part I Page
----
Item 1: Financial Statements...........................................3
Item 2: Managements Discussion & Analysis of
Financial Condition & Result of Operation.....................12
Part II
Item 1: Legal Proceedings.............................................14
Item 2: Change in Securities..........................................14
Item 3: Defaults Upon Senior Securities...............................15
Item 4: Submission of Matters to a Vote of
Security Holders..............................................15
Item 5: Other Information.............................................15
Item 6: Exhibits & Reports on Form 8-K................................15
2
CLS FINANCIAL SERVICES, INC
BALANCE SHEET
UNAUDITED
Sept 30, 1996 AND 1995
ASSETS
1996 1995
------------------- -------------------
CURRENT ASSETS
Cash $30,686 $812,455
Cash-Trust Acct 29,510 20,653
Accrued Comm Receivable 119,278 35,857
Accrued Int. Receivable 21,188 23,855
Loans Receivable-held for sale(Note 4) 980,285 1,187,217
Loans Receivable-held for investment
(Note 4) 457,200 431,700
Loans Receivable-related party(Note 5) 730,439 112,381
Real Estate held for Sale 716,479 618,557
Prepaid Expenses 8,810 5,928
Other Receivables 7,705 4,510
Investments(Note 2) 41,269 16,134
------------------- -------------------
Total Current Assets $3,142,849 $3,269,247
OTHER ASSETS
Office Furniture and equipment $203,076 $199,407
Computer equipment 0 0
Less Accum. Depreciation (105,117) (78,614)
Loans Receivable-held for investment
(Note 4) 795,993 920,200
Less allowance for loan losses & fee
holdback (49,149) (14,106)
------------------- -------------------
Total Other Assets $844,803 $1,026,887
Total Assets $3,987,652 $4,296,134
------------------- -------------------
------------------- -------------------
UNAUDITED
3
CLS FINANCIAL SERVICES, INC
BALANCE SHEET
UNAUDITED
SEPT 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS EQUITY
1996 1995
------------------- -------------------
CURRENT LIABILITIES
Accounts Payable $13,920 $7,827
Accrued Wages and benefits 5,211 17,404
Trust Account Payable 34,549 20,653
Unfunded loan liabilities(Note 5) 0 459,561
Accrued interest payable 32,614 40,338
Accrued federal income tax 18,648 3,091
Current portion of capitalized lease 0 0
Current portion of loan payable 48,315 41,919
Current portion of debentures payable(Note 6) 1,139,484 278,030
Loan payable related party 437,739 739,212
Line of Credit 175,000 0
------------------- -------------------
Total Current Liabilities $1,905,480 $1,608,035
OTHER LIABILITIES
Loans Payable-long term(Note 6) $194,984 $252,067
Debentures payable-long term(Note 6) 1,250,704 1,985,543
Deferred federal income tax 0 511
Deferred Revenue on discounted note 0 0
------------------- -------------------
Total Other Liabilities $1,445,688 $2,238,121
STOCKHOLDERS' EQUITY
Common Stock,no par value,500 shares authorized $10,000 $10,000
Common Stock, no par value, nonvoting 180,467 180,467
Retained Earnings 317,242 224,255
YTD Net Income 128,775 35,256
------------------- -------------------
Total Stockholders Equity 636,484 449,978
------------------- -------------------
Total Liabilities and stockholders' equity $3,987,652 $4,296,134
------------------- -------------------
------------------- -------------------
UNAUDITED
4
CLS FINANCIAL SERVICES, INC
STATEMENT OF INCOME AND RETAINED EARNINGS
UNAUDITED
FOR THE NINE MONTHS ENDING SEPT 30, 1996 AND 1995
1996 1995
--------------- ---------------
REVENUES
Loan fees $610,110 $541,410
Interest on Loans 496,949 540,183
Loan Servicing and application Fees 76,317 56,438
Other Income 44,866 35,807
Gain on sale of property 0 95,000
--------------- ---------------
Total Revenue 1,228,242 1,268,838
--------------- ---------------
OPERATING EXPENSES
Wages and payroll taxes 459,287 583,810
Commissions and referrals 80,691 88,438
Interest Expense 286,477 291,642
Warehouse Lending Fee 11,290 0
Advertising 36,852 27,327
Rent 55,702 50,542
Telephone and Utilities 12,894 17,377
Office Expense 23,278 20,796
License and Taxes 3,991 3,770
Postage 3,541 4,790
Printing 3,191 2,660
Credit and title fees 13,837 21,068
Professional fees 23,372 35,754
Travel, entertainment, promotion 3,473 3,570
Janitorial and maintenance 3,919 5,294
Fringe Benefits 51,408 43,875
Depreciation and Amortization 18,000 18,000
Training and other operating costs 2,464 2,769
--------------- ---------------
Total operating costs 1,093,667 1,221,482
--------------- ---------------
INCOME FROM OPERATIONS 134,575 47,356
OTHER INCOME (EXPENSE)-NET 0 0
--------------- ---------------
NET INCOME BEFORE PROVISION FOR
FEDERAL INCOME TAX 134,575 47,356
PROVISION FOR FEDERAL INCOME TAX
Current 5,800 12,100
Deferred
--------------- ---------------
Net Income Tax 5,800 12,100
NET INCOME 128,775 35,256
RETAINED EARNINGS, beginning of year 317,242 224,255
--------------- ---------------
RETAINED EARNINGS, end of year $ 446,017 $ 259,511
--------------- ---------------
--------------- ---------------
UNAUDITED
5
CLS FINANCIAL SERVICES, INC
COMPARATIVE STATEMENT OF CASH FLOWS
UNAUDITED
FOR THE NINE MONTHS ENDING SEPT 30, 1996 AND 1995
1996 1995
------------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $128,775 $35,256
Adjustments to reconcile net income to net cash from operations:
Depreciation and amortization 18,000 18,000
Allowance for loan losses 30,675 0
Deferred Income Taxes 0 0
Decrease(increase) in accounts receivable (94,458) (18,406)
Decrease(increase) in interest receivable 4,317 (6,969)
Decrease(increase) in prepaid expenses (3,352) (823)
Increase(Decrease) in accounts payable (15,120) (479)
Increase(Decrease) in accrued wages and benefits 1,280 (9,387)
Increase(Decrease) in interest payable (8,388) 12,189
Increase(Decrease) in other payables 0 (8,609)
Decrease(Increase) in other receivables (7,705) (4,510)
Decrease(increase) in Related Party Receivable (580,439) (112,381)
------------------- -------------------
NET CASH PROVIDED(USED) BY OPERATIONS (526,415) (96,119)
------------------- -------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,562) (14,419)
Increase(decrease) in related party loans (317,421) 342,643
Decrease(Increase) in loans receivable 1,330,059 6,719
Decrease(Increase) in real estate held for sale (46,151) (1,739,590)
Increase(decrease) in loans payable 26,479 (4,495)
Increase(decrease) in debentures payable (8,192) 144,965
Increase(decrease) in unfunded loan liabilities (531,337) (22,861)
Purchase of investments (20,096) (10,744)
Increase(decrease) in Line of Credit 95,000 0
Increase(Decrease) in Deferred Revenue 0 0
Increase(decrease) in Retained Earnings 0 0
Increase(Decrease) in Stock Issued 0 1,556,500
------------------- -------------------
NET CASH PROVIDED(USED) IN INVESTING ACTIVITIES 523,779 258,718
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital leases 0 0
------------------- -------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 0 0
------------------- -------------------
NET INCREASE(DECREASE) IN CASH (2,636) 162,599
CASH BALANCE-BEGINNING OF PERIOD 33,322 649,856
------------------- -------------------
CASH BALANCE-END OF PERIOD $30,686 $812,455
------------------- -------------------
------------------- -------------------
UNAUDITED
6
CLS FINANCIAL SERVICES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
September 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
C.L.S. FINANCIAL SERVICES, INC. is incorporated under the laws of the State of
Washington. The Company's primary business purpose is to engage in the
brokerage of loans and the purchase and sale of real estate contracts,
mortgages and deeds of trust. The company is also registered with the State of
Washington to sell securities involving mortgages, trust deeds and real estate
contracts.
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
The Company utilizes the allowance method of providing for losses on
uncollectible loans on overvalued real estate. Specific valuation of
allowances are provided for loans receivable when repayment becomes doubtful
and the amounts expected to be received in settlement of the loan are less than
the amount due.
Loans are placed in a nonaccrual status when loans become ninety days
delinquent. Thereafter, no interest is taken into income unless received in
cash or until such time as the borrower demonstrates the ability to resume
payments to principal and interest. Interest previously accrued but not
collected is charged against income at the time the loan is placed on
nonaccrual status.
Valuation allowances are provided for real estate loans held for sale when the
net realizable value of the property is less than its costs. Foreclosed assets
that are held for sale are carried at the lower of cost (recorded amount at the
date of foreclosure) or fair value less disposition costs. Additions to the
allowance are charged to expense.
SALES OF REAL ESTATE
Sales of real estate generally are accounted for under the full accrual method.
Under that method, gain is not recognized until the collectibility of the sales
price is reasonably assured and the earnings process is virtually complete.
When a sale does not meet the requirements for income recognition, gain is
deferred until those requirements are met.
LOAN ORIGINATION AND SERVICING FEES
Loan origination fees and direct loan origination costs are accounted for under
two methods. For loans held as investment the loan fees and direct costs are
amortized over the life of the loan. For loans which are held for sale loan
fees and direct costs are not recorded until the loans are sold by the company.
Loan servicing fees are charged at a flat rate of $250 per loan and $20 per
month over the servicing of the loan. Loan fees are paid by the borrower.
Loan fees vary from two up to eight percent depending upon collateral and the
credit history of the borrower.
7
CLS FINANCIAL SERVICES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
September 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D.
TRUST ACCOUNT
The Company holds money in trust for real estate transactions in process. The
amount held is shown as a current asset and current liability on the balance
sheet. $29,510 and $20,653 were held in trust at September 30, 1996 and
September 30, 1995.
CASH
For purposes of the statement of cash flow, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
DEPRECIATION
Furniture and equipment is stated at cost and is depreciated using the straight
line method for financial reporting purposes. Estimated useful lives are as
follows:
Office Equipment 7 years
Computer Equipment 5 years
Expenditures for major renewals, additions and betterments which extend useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
FEDERAL INCOME TAX
The Company provides for income taxes based on its income for financial
reporting purposes, which is accounted for using the accrual method. For
federal income tax purposes, the Company uses the cash method of accounting.
The Company also records depreciation under two separate methods for financial
reporting and federal tax purposes. Deferred income taxes are provided for
timing differences created by these two reporting methods.
NOTE 2 - INVESTMENTS
Short term investments consist of marketable securities and are at the lower of
cost or market value.
NOTE 3 - COMMITMENTS
The Company leases office space under terms of an operating lease. Future
years lease payments under the lease are as follows:
September 30, 1997 $113,820
September 30, 1998 113,820
September 30, 1999 45,877
--------
$273,517
--------
--------
8
CLS FINANCIAL SERVICES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
September 30, 1996
NOTE 4 - LOANS RECEIVABLE
Loans receivable - held for investment are classified as short term or long
term based upon their maturity date. Loans receivable - held for sale are
classified as short term. Principal payments over the next five years are as
follows:
September 30, 1997 $1,150,177
September 30, 1998 559,018
September 30, 1999 156,656
September 30, 2000 0
September 30, 2001 367,625
---------
2,233,477
---------
---------
Types of real and other property securing loan receivable at September 30, 1996
and 1995 are as follows:
1996 1995
Single Family Residential $ 890,747 $ 915,684
Multi-Family Residential 36,407 57,200
Commercial Property 164,088 593,162
Undeveloped Land 1,133,483 961,582
Automobile 7,868 11,489
Unsecured 884 0
--------- ---------
2,233,477 2,539,117
--------- ---------
--------- ---------
Security positions on loans receivable are as follows:
First lien position $2,080,299 $2,496,195
Second lien position 152,294 42,922
Other 0
Unsecured 884
--------- ---------
2,233,477 $2,539,117
------------------------
------------------------
A concentration of credit exists as substantially all of the loans are secured
by real property in the State of Washington.
NOTE 5 - UNFUNDED LOAN LIABILITIES
The unfunded loan liabilities account represents the unfunded portion of loans
which are generally payable to a third party contractor upon certification of
completion of construction or other condition.
Upon completion of the condition the Company funds the remaining portion of the
loans from its line of credit or funds available from the sale of debt
securities. At September 30, 1996 and 1995 the balance of unfunded loan
liabilities were $0 and $459,561 respectively.
9
CLS FINANCIAL SERVICES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
September 30, 1996
NOTE 6 - LOANS PAYABLE AND DEBENTURES PAYABLE
Loans payable and debenture payable are made up of amounts due to investors
with varying terms. Obligations on these loans and debentures are classified
as short or long term based upon their maturity dates.
Principal payments on loans and debenture payable are as follows:
September 30, 1997 $1,187,799
September 30, 1998 759,650
September 30, 1999 534,038
September 30, 2000 152,000
---------
2,633,487
---------
---------
The company is registered as a securities broker dealer with the State of
Washington. As of September 30, 1996 the Company has issued $2,594,609 in
debenture certificates under this program. Of this total $2,390,188 in
debenture certificates are outstanding at September 30, 1996.
NOTE 7 - DEBENTURE INTEREST EARNED
The company's interest profits on loans funded by the pool of debenture
investments are as follows:
December 31, 1992 $ (3,989)
December 31, 1993 (45,999)
December 31, 1994 30,781
December 31, 1995 106,236
September 30, 1996 38,035
--------
$125,064
--------
--------
NOTE 8 - LINE OF CREDIT
The Company has a $400,000 line of credit. The Company pays $1,800 per month
in addition to 12% interest on funds borrowed. At September 30, 1996 the
amount owing on this line of credit is $75,000. The Company also has a
$100,000 line of credit with US Bank. The interest rate is prime plus 2% on
borrowed. At September 30, 1996 the amount due on this line is $100,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Stockholders of the Company also own 100% of the stock in Puget Sound
Investment Group, Inc. (PSIG), Puget Sound Appraisal Group, Inc. (PSAG), Puget
Sound Real Estate Services Group, Inc. (PSREG), and Puget Sound Construction of
Washington, Inc. (PSCW). The Stockholders and PSIG also own 100% partnership
units of PSIG - ONE LP.
10
CLS FINANCIAL SERVICES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
September 30, 1996
NOTE 9 - RELATED PARTY TRANSACTIONS CONT'D.
PSIG assumes the payment obligations on real estate loans which have gone into
foreclosure. Once a loan has gone into foreclosure the loan interest escalates
and PSIG will collect the higher interest upon disposition of the property.
These loans are retained by the Company and no revenues are recorded until the
loan balance has been paid.
The Company and PSIG lends funds to each other to meet short term working
capital needs. At September 30, 1996 the Company owes PSIG $0. PSIG is charged
rent by the Company for office space. For the nine months ended September 30,
1996 the Company has charged PSIG $5,512.50 for rent.
PSAG provides appraisal services for loans originated by the Company. PSAG is
charged rent by the Company for office space. For the nine months ended
September 30, 1996 the Company has charged PSAG $4,950 for rent.
PSREG provides real estate closing services for loans originated by the
Company. For the nine months ending September 30, 1996 the Company has charged
PSREG $17,325 for rent.
PSCW provides residential repair on properties owned by the affiliate PSIG.
For the nine months ending September 30, 1995 the Company has charged PSCW
$2,475 for rent.
NOTE 10 - COMMON STOCK
As of September 30, 1996 Common Stock consists of the following:
Class One - Common Stock
No Par Value, 500 shares
Authorized and outstanding $ 10,000
Class Two - Common Stock
$1,000 Par Value, 2,500 shares
authorized and outstanding 180 1/2 shares $180,500
--------
Total Common Stock issued and outstanding $190,500
--------
--------
Class One common stock has non cumulative voting rights.
Class Two common stock has no voting rights or conversion privileges. Class
Two shares have preference as to dividend distributions to the extent of 80% of
dividend distributions paid and preference upon dissolution to the extent of
book value attributable to Class Two capital contributions.
11
PART I
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
PLAN OF OPERATION AND LIQUIDITY
The sale of debenture investments combined with principal payments on loan
receivable provide the source of funds to invest in loans receivable. For the
nine months ended September 30, 1996 sale of debenture under the SB-2
registration approved May 3, 1996 were $152,000.00 and in the prior
registration $2,238,188 were outstanding. The Company has no nonearning assets
at this time primarily due to the a major emphasis on collection policies by
management. Available liquidity will dictate the volume of loan purchases that
may be acquired by the Company.
The interest received on loans and funding fees provide the funds necessary to
pay the expenses and the interest due to investors on debenture purchases. The
Company manages it's cash by reselling the loans to other investors in order to
recapture the original debenture investment which will then in turn be used
again to fund other loans. The Company expects to continue the present cash
management procedures for the foreseeable future.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company has remained profitable. As of September 30, 1996 the Company
reports net income in the amount of $128,775.00 versus September 30, 1995 of
$35,256.00. Set forth below are the key results from operation for quarter
ending September 30, 1996 and September 30, 1995.
1. THE COMPANY MET IT'S OBLIGATIONS TO THE INVESTORS FOR QUARTER ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995.
The Company met it's obligation to the investor for quarters ended September
30, 1995 and September 30, 1996. The Company's principle performance objective
is to provide a annual increase in net income.
2. THE SALE OF DEBENTURE INVESTMENTS AND LOAN RECEIVABLE TO
INVESTORS PROVIDED THE FUNDS NECESSARY TO FUND MORE LOANS.
Total loans receivable (including related party) increased by 10%, as a direct
result of the sale of debenture investments and loans receivable. Management
expects this trend to continue with the new debenture offering now open, as
well as a large investor base purchasing loans receivable. Management projects
loan growth will be 10% to 15% throughout the year.
3. REVENUES INCREASE.
Total Revenues for the quarter ended September 30, 1996 were $1,228,242.00 and
increase of 4% over quarter ended September 30, 1995 (excluding the gain on
sale of property of $95,000. in 1995). Management expects this trend to
continue throughout 1996.
12
4. TYPE OF PROPERTY SECURING LOANS RECEIVABLE HAVE CHANGED.
As of September 30, 1996 and September 30, 1995, 92% and 99% respectively, of
the loans in the portfolio were secured by first liens on real property.
Management projects that a continued high percentage of loans will be secured
by a first lien on real property.
5. ALLOWANCE FOR LOAN LOSSES INCREASED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Actual losses charged against the allowance for periods September 30, 1996 and
September 30, 1995 were 0 and 0 respectively. Management reviews each
delinquent loan receivable and real estate property held for sale to determine
if a specific provision in the allowance for losses is needed. Management uses
a systematic approach to evaluate the need for general allowances based upon
portfolio performance, industry trends, economic conditions, and historical
trends.
6. TOTAL EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996 AS
COMPARED TO SEPTEMBER 30, 1995.
Total expenses ending September 30, 1996 decreased by $127,815.00 from
September 30, 1995. This was largely due to a decrease in salaries payable and
the Company policy to adhere to budget guidelines preset at the beginning of
the year.
RETURN ON ASSETS, EQUITY, AND EQUITY TO ASSETS RATIO
The following net returns were realized during the nine months ended September
30, 1996 and September 30, 1995.
Nine Months Ended
September 30
1996 1995
-----------------
Return on Assets
(net income divided by average total assets) 3.11% .56%
Return on Equity
(net income divided by average equity) 23.70% 9.84%
Equity to Assets
(Average equity divided by average assets) 13.12% 6.04%
PLAN OF OPERATION THROUGHOUT THE YEAR.
The Company is committed to continue to offer debentures and loan receivable
for sale to the public for the foreseeable future. Management expects loan
growth through the sale of these items to increase by 15%.
The Company expects to repay the debenture investments as they mature with
maturing loans receivable that are tied to these debenture offering notes.
The Company has been able to invest primarily all available funds through loan
receivable. The Company expects to be able to continue to acquire similar
loans in the future. Loan purchases will be limited by available liquidity as
discussed in "Plan of Operation and Liquidity".
13
Because the Company actively pursues delinquent accounts and sells all
foreclosed property, nonearning loans receivable are minimal.
The Company forecasts a stable demand for it's services in the foreseeable
future, evidenced by the daily loan inquiries, portfolio performance and
subsequent loans booked after September 30, 1996.
Management expects revenues to increase further during 1996. This increase is
expected because of subsequent loans booked after September 30, 1996 and loans
receivable in process.
Managements strategy and policy has been to retain loans with a loan to value
ratio of no more than 65%. Every effort is made to assure profitability even
in the event of a foreclosure sale.
UNCERTAINTIES
The principle competition for investors' funds due to change in market rates
may result in investors choosing to change their portfolios when it comes to
loan receivable purchases. This does not affect the debenture securities
because they are a preset period of time.
The loan portfolio consists of loans with maturities of one to three years. As
loans mature and balloon payments are paid, new loans are expected to be funded
at present market rates. It is possible that a one to three year lag could
occur before the overall average of the portfolios interest rate increased
after a rise in market rates.
PART II
ITEM 1 LEGAL PROCEEDINGS
The Company is not presently involved nor does it expect to be involved in any
legal proceeding, excepting collection action on loans that are in default.
Since the Company is involved in purchasing loans secured by real property, it
will, by its nature, always be involved in collection activities to enforce
collection on past due accounts, including but not limited to judicial and
nonjudicial foreclosure on deeds of trust, and mortgage foreclosures. Counsel
for the Company is of the opinion that collection actions on delinquent
accounts does not constitute pending or threatening litigation under Financial
Accounting Standard Board Opinion Number 5 (FASB 5) and is properly categorized
as routine litigation incidental to its business.
ITEM 2 CHANGES IN SECURITIES
None
14
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) There are no exhibits attached to this report, no prior exhibits were filed.
b) The Company did not file any reports on Form 8-K in the third quarter of
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLS FINANCIAL SERVICES, INC
Registrant
/s/ Gerald C. Vanhook
- ------------------------------ ---------------------------------
Gerald C. Vanhook, President Date
15