SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 12, 2003
Sutter Holding Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-15733 59-2651232
(State or other (Commission (I.R.S. Employer
jurisdiction of incorporation) File Number) Identification No.)
150 Post Street, Suite 405
San Francisco, California 94108
(Address of principal executive offices) (zip code)
(415) 788-1441
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets
The Registrant today announced it has closed its acquisition of Progressive
Lending, LLC, a mortgage bank with offices in Washington and Arizona.
Progressive is licensed to do business in six other states, including
California, Oregon, Idaho, Colorado, Illinois, and Montana. The purchase
provides for a purchase price in the amount of $1.5 million, consisting of
$500,000 cash, a promissory note for $500,000, and 49,500 shares of the
Registrant's common stock. The purchase price is subject to reduction if
Progressive does not earn at least $500,000 in each of the two years following
closing. Progressive's senior management has agreed to stay with the company and
intends to grow its operations significantly.
Item 5. Other Events and Regulation FD Disclosure
The Registrant has issued a press release relating to the acquisition described
in response to Item 2 above. The full text of the press release is attached to
this report as Exhibit 99.1.
This report contains certain current and forward-looking statements and
information relating to the above transaction that are based on the beliefs of
its management as well as assumptions made by and information currently
available to its management. These statements reflecting management's current
view about the proposed transaction are subject to certain risks, uncertainties
and assumptions. Should any of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, or should information currently
believed to be true prove to be untrue, actual events may vary materially from
those described in this report as anticipated, estimated or expected. Factors
which could cause or contribute to such differences include, but are not limited
to the satisfaction of conditions in the agreement referred to above. The
forward-looking statements contained in this press release speak only as of the
date hereof and the company disclaims any intent or obligation to update these
forward-looking statements.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired
Progressive Lending, LLC
Independent Auditor's Report
Balance Sheet, June 30, 2002; Statement of Income and Member's Equity
for the year ended June 30, 2002; Statement of Cash Flows for the year
ended June 30, 2002; Notes to Financial Statements; Computation of
Adjusted Net Worth
Independent Auditor's Report on Compliance and Internal Control Over
Financial Reporting
Independent Auditor's Report
Balance Sheet, March 31, 2003; Statement of Income and Members' Equity
for the nine months ended March 31, 2003; Statement of Cash Flows for
the nine months ended March 31, 2003; Notes to Financial Statements;
Computation of Adjusted Net Worth
Independent Auditor's Report in Compliance and Internal Control Over
Financial Reporting
Statement of Profit and Loss for the six months ended September 30, 2003
and September 30, 2002 (Unaudited)
(b) Pro forma financial information of
Sutter Holding Co., Inc.
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2003;
Unaudited Pro Forma Consolidated Income Statement for the Nine Months
Ended September 30, 2003; Unaudited Pro Forma Consolidated Income
Statement for the Year Ended December 31, 2002
(c) Exhibits
Item No. Description
2.1 Purchase Agreement *
99.1 Press Release *
* Previously filed
2
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 hereunto duly authorized.
Dated: January 22, 2004 SUTTER HOLDING COMPANY, INC
By: s/ WILLIAM G. KNUFF, III
------------------
William G. Knuff, III,
Co-Chief Executive Officer & Chief
Financial Officer
3
PROGRESSIVE LENDING, LLC FINANCIAL STATEMENTS
CONTENTS
Independent Auditor's Report...................................................1
Balance Sheet, June 30, 2002...........................................2
Statement of Income and Member's Equity
for the year ended June 30, 2002.......................................3
Statement of Cash Flows
for the year ended June 30, 2002.......................................4
Notes to Financial Statements..........................................5
Additional information:
Computation of Adjusted Net Worth......................................7
Independent Auditor's Report on Compliance and
Internal Control Over Financial Reporting..............................8
Independent Auditor's Report..................................................10
Balance Sheet, March 31, 2003.........................................11
Statement of Income and Members' Equity
for the nine months ended March 31, 2003..............................12
Statement of Cash Flows
for the nine months ended March 31, 2003..............................13
Notes to Financial Statements.........................................14
Additional Information:
Computation of Adjusted Net Worth.....................................16
Independent Auditor's Report in Compliance and
Internal Control Over Financial Reporting.............................17
Statement of Profit and Loss for the six months ended September 30, 2003
and September 30, 2002 (Unaudited)....................................18
i
Washington Trust Financial Center
717 W. Sprague, Suite 801
Spokane, Washington 99201
Phone (509)747-6207
Fax (509)468-9803
STADTMUELLER & ASSOCIATES, P.S.
INDEPENDENT AUDITOR'S REPORT
The Member
Progressive Lending, LLC
Spokane, WA
We have audited the accompanying balance sheet of Progressive
Lending, LLC, as of June 30, 2002, and the related statement of income and
retained earnings, cash flows and supplemental information for the year ended
June 30, 2002. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion in these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan our audit and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the acocunting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Progressive
Lending, LLC as of June 30, 2002, and the results of it's operations and it's
cash flows for the year ended June 30, 2002 in conformity with generally
accepted accounting principles.
In acccordance with Government Auditing Standards, we have also issued a
report dated September 13, 2002, on our consideration of Progressive
Lending, LLC's internal controls and on it's compliance with laws and
regulations. This report is an integral part of an audit performed in accordance
with Government Auditing Standards and should be read in conjunction with this
report in considering the results of our audit.
STADTMUELLER & ASSOCIATES, P.S.
Spokane, Washington
September 13, 2002
1
PROGRESSIVE LENDING, LLC
BALANCE SHEET, June 30, 2002
ASSETS
Current Assets:
Cash $ 78,483
Accounts receivable 4,878
Employee advances 588
Prepaid expenses 3,182
---------
Total current assets 87,131
Property and equipment:
Equipment 222,915
Furniture and fixtures 58,881
Leasehold improvements 30,074
---------
311,870
Less accumulated depreciation 60,788
---------
251,082
$338,213
=========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable $ 65,785
Commissions payable 2,589
Accrued payroll and taxes payable 36,606
Capital leases payable, current 50,696
---------
Total current liablilites 155,676
---------
Capital leases payable, net of current 18,988
Member's Equity 163,549
---------
$338,213
=========
The accompanying notes are an integral
part of the financial statements
2
PROGRESSIVE LENDING, LLC
STATEMENT OF INCOME AND MEMBER'S EQUITY
for the year ended June 30, 2002
Revenues $1,746,996
Expenses:
Commissions 550,117
Salaries 341,449
Employee benefits 5,842
Payroll taxes 94,847
Loan costs 44,371
Advertising 26,248
Office expense 29,504
Rent 185,415
Telephone 42,843
Equipment rental 12,066
Dues and subscriptions 16,148
Postage expense 17,675
Taxes and licenses 53,910
Professional fees 199,561
Insurance 28,076
Repairs and maintenance 8,072
Utilities 524
Travel 3,268
Meals and entertainment 4,122
Automobile expense 11,762
Contributions 165
Depreciation expense 23,810
---------
1,669,795
---------
Income from operations 47,201
---------
Other income/(expenses):
Interest income 343
Interest expense (7,101)
---------
(6,758)
---------
Net income 40,443
Member's equity,
at beginning of period 106,962
Member's contributions 16,144
---------
Member's equity,
at end of period $ 163,549
=========
The accompanying notes are an integral
part of the financial statements
3
PROGRESSIVE LENDING, LLC
STATEMENT OF CASH FLOWS
for the year ended June 30, 2002
Cash flows provided (used) by operating activities:
Net income $ 40,443
Adjustments to reconcile income to net cash
provided (used) by operating activities:
Depreciation 23,810
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receiveable 39,762
Employee Advances 3,205
Prepaid expenses (3,182)
(Increase) decrease in:
Accounts payable 21,460
Commissions payable 2,589
Accrued payroll and payroll
taxes 8,614
--------
Net cash provided (used) by operating activities 136,701
--------
Cash flows provided (used) by investing activities:
Additions to property equipment (193,184)
--------
Net cash provided (used) by investing activities (193,184)
--------
Cash flows provided (used) by financing activities:
Proceeds from capital leases 69,684
Member's contributions 16,144
--------
Net cash provided (used) by financing activities 85,828
--------
Increase in cash 29,345
Cash at beginning of period 49,138
--------
Cash at end of period $ 78,483
========
The accompanying notes are an integral
part of the financial statements
4
PROGRESSIVE LENDING, LLC
NOTES TO FINANCIAL STATEMENTS
1. The Company and Significant Accounting Policies:
Progressive Lending, LLC (the Company) was incorporated under the laws of the
State of Washington on May 29, 1998. The Company brokers residential mortgages
and is an approved HUD loan correspondent.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilitesm revenues and
expenses during the period. Actual results could differ from those estimates.
The Company recognizes commission income upon closure if a customer's mortgage
loan. Significant expenses associated with brokerage revenues are recongnized
upon closure of a customer's mortgage loan.
The Company, being a single member limited liability company, will not file an
income tax return. As such, the Company will not pay income taxes, as any income
or loss will be included on the return of its single member. Accordingly, no
provision is made for income taxes in the financial statements.
As a limited liability company, the member's liability is limited to the amount
reflected in the member's account.
2. Property and Equipment:
All property and equipment is recorded at cost and depreciated over ten years
using the straight-line method. Upon sale it retirement, the cost and related
accumulated depreciation are eliminated from the respective accounts, and the
resulting gain or loss is included in the results of operations.
Repairs and maintainance charges, which do not increase the useful lives of the
assets, are charged to operations as incurred.
3. Commitments:
The Company leases various office facilities. The Idaho lease was renewed on
February 28, 2002 for 18 months. The monthly lease payments are $4,210. The
Arizona office lease term is five (5) years, ending on November 30, 2006. The
monthly lease payments are $5,957. The Spokane office lease term is five years,
ending August 31, 2005, with an option to renew after three years. Monthly lease
payments are $8,110. Rent expense amounted to $185,415 for the year ended
June 30, 2002.
The total future minimum lease payments are as follows:
June 30, 2003 $218,752
June 30, 2004 $178,013
June 30, 2005 $170,954
June 30, 2006 $ 91,217
June 30, 2007 $ 31,485
--------
$690,421
========
5
PROGRESSIVE LENDING, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
The Company is lessee of office equipment under various capital leases, with
lease terms of three years and less.
Future minimum lease payments under the lease are as follows:
Total minimum lease payments $75,113
Amount representing interest $(5,429)
-------
Present value of minimum lease payments 69,684
Less current portion 50,696
-------
Non-current portion $18,988
=======
4. Warehouse line of Credit:
The Company has entered into an agreement with a lending institution to provide
a warehouse line of credit for the Company;s use. As of June 30, 2002 the
balance owing is zero dollars. The maximum credit limit on the line is
$1,000,000. The line bears interest at prime plus an applicable margin. The line
is secured by the Company's mortgage loans.
6
PROGRESSIVE LENDING, LLC
COMPUTATION OF ADJUSTED NET WORTH
June 30, 2002
Net worth required $ 63,000
--------
Member's equity (net worth) per balance sheet 163,549
Less unacceptable assets -
--------
Adjusted net worth for HUD required purposes 163,549
-------
Adjusted net worth above amount required $100,549
=======
The accompanying notes are an integral
part of the financial statements
7
Washington Trust Financial Center
717 W. Sprague, Suite 801
Spokane, Washington 99201
Phone (509)747-6207
Fax (509)468-9803
STADTMUELLER & ASSOCIATES, P.S.
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL
REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
The Member
Progressive Lending, LLC
Spokane, Washington
We have audited the financial statements of Progressive Lending, LLC
(the Company) as of and for the year ended June 30, 2002, and have issued our
report thereon dated September 13, 2002. We conducted our audit in accordance
with generally accepted auditing standards and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States.
Compliance
As part of obtaining reasonable assurance about whether the Company's
financial statements are free of material misstatements, we performed tests of
it's compliance with certain provisions of laws, regulations, contracts and
grants, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of out audit and,
accordingly, we do not express such an opinion. The results of our tests
dislosed no instances of noncompliance that are required to be reported under
Government Auditing Standards.
Internal Control over Financial Reporting
In planning our audit, we considered the Company's internal control over
financial reporting in order to determine out auditing procedures for the
purpose of expressing our opinion on the financial statements and not to provide
assurance on the internal control over financial reporting. Our consideration of
the the internal control over financial reporting would not necessarily disclose
all matters in the internal control over financial reporting that might be a
material weakness. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not reduce to a
relatively low level, the risk that misstatements in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the internal
control over financial reporting and its operation that we consider to be
material.
8
This report is intended for the information of managememt, federal
awarding agencies and pass-through entities. However, this report is a matter of
public record and its distribution is not limited.
Stadtmueller & Associates, P.S.
September 13, 2002
9
North Spokane Financial Center
7307 N. Division, Suite 309
Spokane, Washington 99208
Phone (509)747-6207
Fax (509)455-7836
STADTMUELLER & ASSOCIATES, P.S.
Independent Auditor's Report
The Members'
Progressive Lending, LLC
Spokane, WA
We have audited the accompanying balance sheet of Progressive Lending,
LLC, as of March 31, 2003, and the related statements of income and members'
equity, cash flows and supplemental information for the nine months 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 ou audit.
We conducted out audit in accordance with auditing standards generally
accepted in the United States of America and Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require
that we plan out audit and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in al material aspects, the financial position of Progressive
Lending, LLC as of March 31, 2003, and the results of it's operations and it's
cash flows for the nine months then ended in conformity with accounting
principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued
a report dated April 3, 2003, on our consideration of Progressive Lending, LLC's
internal controls and on it's compliance with laws and regulations. This report
is an integral part of an audit performed in accordance with "Government
Auditing Standards" and should be read in conjuc\nction with this report in
considering the results of our audit.
Stadtmueller & Associates, P.S.
Spokane, Washington
April 3, 2003
10
PROGRESSIVE LENDING, LLC
BALANCE SHEET, March 31, 2003
ASSETS
Current Assets:
Cash $123,862
Employees advances 375
---------
Total current assets 124,237
---------
Property and equipment:
Equipment 231,200
Furniture and fixtures 59,949
Leasehold improvements 30,074
---------
321,223
Less accumulated depreciation 84,376
---------
236,847
---------
Other assets:
Clients trust account 1,719
$362,803
=========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 22,440
Accrued payroll and business taxes 34,277
Clients trust account payable 1,719
Capital leases payable, current 25,192
---------
Total current liabilities 83,628
---------
Capital leases payable, net of current 1,848
Members' Equity 277,327
---------
$362,803
=========
The accompanying notes are an integral
part of the financial statements
11
PROGRESSIVE LENDING, LLC
STATEMENT OF INCOME AND MEMBERS' EQUITY
for the nine months ended March 31, 2003
Revenues $2,465,651
Expenses:
Commissions 976,291
Salaries 355,898
Employee benefits 9,324
Payroll taxes 157,245
Appraisals 36,246
Credit Reports 27,574
Filing fees 70,412
Loan Costs 21,933
Advertising 23,352
Consulting fees 35,040
Rent 152,906
Office expense 64,338
Dues and subscriptions 26,464
Postage expense 26,272
Taxes and licenses 19,725
Professional fees 32,282
Insurance 3,938
Repairs and maintenance 4,876
Telephone 55,476
Utilities 1,949
Travel 2,669
Meals and entertainment 2,196
Automobile 10,018
Depreciation 23,590
----------
2,140,014
----------
Income from operations 325,637
----------
Other income/(expenses):
Interest income 7
Interest expense (9,231)
----------
(9,224)
----------
Net income 316,413
Member's equity,
at beginning of period 163,549
Members' distributions 202,635
---------
Member's equity,
at end of period $ 277,327
==========
The accompanying notes are an integral
part of the financial statements
12
PROGRESSIVE LENDING, LLC
STATEMENT OF CASH FLOWS
for the nine months ended March 31, 2003
Casf flows provided (used) by operating activities:
Net income $ 316,413
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 23,590
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 4,878
Employee advances 213
Prepaid expenses 3,182
Clients trust account (1,719)
Increase (decrease) in:
Accounts payable (43,346)
Commissions payable (2,589)
Clients trust account payable 1,719
Accrued payroll and taxes (2,329)
----------
Net cash provided (used) by operating activities 300,012
----------
Cash flows provided (used) by investing activities:
Additions to property and equipment (9,353)
----------
Net cash provided (used) by investing activities (9,353)
----------
Cash flow provided (used) by financing activities:
Payments on capital leases (42,645)
Members' distributions (202,635)
----------
Net cash provided (used) by financing activities (245,280)
----------
Increase (decrease) in cash 45,379
Cash, at beginning of period 78,483
----------
Cash, at end of period $ 123,862
The accompanying notes are an integral
part of the finanical statements
13
PROGRESSIVE LENDING, LLC
NOTES TO FINANCIAL STATEMENTS
1. The Company and Significant Accounting Policies:
Progressive Lending, LLC (the Company) was incorporated under the laws
of the State of Washington on May 29, 1998. The Company brokers
residential mortgages is an approved HUD loan correspondent.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets, liabilities, revenues and expenses during the period.
Actual results could differ from those estimates.
The Company recognizes the commission income upon closure of a
customer's mortgage loan. Significant expenses associated with brokerage
revenues are recognized upon closure of a customer's mortgage loan.
The financial statements are prepared using the accrual basis of
accounting whereas revenues are recognized when earned and expenses are
recognized when incurred. This basis of accounting conforms to
accounting principles generally accepted in the United States of
America.
Certaina amounts previously reported have been reclassified to conform
to the current year presentation.
The Company, with the consent of its members, has elected under the
Internal Revenue Code to be taxed as an S Corporation whereby the income
or loss of the Company is reflected in the tax returns of its members.
As a limited liablility company, the member's liablility is limited to
the amount reflected in the member's account.
2. Property and Equipment:
All property and equipment is recorded at cost and depreciated over ten
years using the straight-line method. Upon sale or retirement, the cost
and related accumulated depreciation are eliminated from the respective
accounts, and the resulting gain or loss is in the results of
operations.
Repairs and maintenance charges, which do not increase the useful lives
of the assets, are charged to operations as incurred.
Depreciation for the nine months ended March 31, 2003 totaled $23,590.
3. Warehouse Line of Credit:
The Company has an agreement with a lending institution to provide a
warehouse line of credit for the Company's use. As of March 31, 2003
there is no balance owing. The maximum credit limit on the line is
$1,000,000. The line bears interest at prime plus an applicable margin.
The line is secured by the Company's mortgage loans.
14
PROGRESSIVE LENDING, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
4. Commitments:
The Company leases office facilities with carious lease terms from 18
months to five years. Rent expense totaled $152,906 for the nine months
ended March 31, 2003.
Total future minimum lease payments are as follows:
March 31, 2004 $178,013
March 31, 2005 170,954
March 31, 2006 91,217
March 31, 2007 31,485
---------
$471,669
The Company is lessee of office equipment under various capital leases,
with lease terms of three years and less.
Future minimum lease payments under the lease are as follows:
Total minimum lease payments $31,335
Amount representing interest (4,295)
--------
Present value of minimum lease payments 27,040
Less current portion 25,192
--------
Non-current portion $ 1,848
========
15
PROGRESSIVE LENDING, LLC
COMPUTATION OF ADJUSTED NET WORTH
March 31, 2003
Net worth required $113,000
---------
Members' equity (net worth) per balance sheet 277,327
Less unacceptable assets: -
---------
Adjusted net worth for HUD required purposes 277,327
---------
Adjusted net worth above (below) amount required $164,324
The accompanying notes are an intergal
part of the financial statements
16
North Spokane Financial Center
7307 N. Division, Suite 309
Spokane, Washington 99208
Phone (509)747-6207
Fax (509) 455-7836
STADTMUELLER & ASSOCIATES, P.S.
REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL
REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
The Members'
Progressive Lending, LLC
Spokane, Washington
We have audited the financial statements of Progressive Lending, LLC
(the Company) as of and for the nine months ended March 31, 2003, and have
issued our report thereon dated April 3, 2003. We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller of the United States.
Compliance
As part of obtaining reasonable assurance about whether the Company's
financial statements are free of material misstatements, we performed tests of
it's compliance with certain provisions of laws, regulations, contracts and
grants, noncompliance with which could have a direct and material effect on the
determination of financial statement accounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance that are required to be reported under
Government Auditing Standards.
Internal Control over Financial Reporting
In planning our audit, we considered the Company's internal control over
financial reporting in order to determine our auditing procedures for the
purpose of expresing our opinion on the financial statements and not to provide
assurance on the internal control over financial reporting. Our consideration of
the internal control over financial reporting would not necessarily disclose all
matters in the internal control over financial reporting that might be a
material weakness. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not reduce to a
relatively low level, the risk that misstatements in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the internal
control over financial reporting and its operation that we consider to be
material.
This report is intended for the information of management, federal
awarding agencies and pass-through entities. However, this report is a matter of
public record and its distribution is not limited.
Stadtmueller & Associates, P.S.
April 3, 2003
17
Progressive Lending LLC
Profit & Loss
(unaudited)
Apr - Sep 03 Apr - Sep 02
----------------- -----------------
Ordinary Income/Expense
Income
Processing Fees 0.00 -1,411.63
Bonus Funds 92,806.94 17,245.49
Credit Report Fees 182.49 0.00
Origination Fees 1,058,419.63 820,459.57
Warehouse Loans -16,514.21 0.00
Yield Spread Premiun Fees 997,658.72 284,019.48
----------------- -----------------
Total Income 2,132,553.57 1,120,312.91
Cost of Goods Sold:
Appraisal Fees Paid Direct 2,175.00 700.00
Commission Fee 761,133.79 456,199.98
Warehouse Loans Funded 15,487.31 0.00
----------------- -----------------
Total COGS 778,796.10 456,899.98
----------------- -----------------
Gross profit 1,353,757.47 663,412.93
Expenses:
Borrower Refunds 14,165.28 0.00
Loan Documents 20,131.45 9,060.00
Reimbursed Expenses 0.00 121.69
Gifts 1,745.40 1,598.59
Advertising 30,596.97 6,049.31
Automobile Expense 19,144.53 4,466.25
Bank Service Charges 933.81 575.35
Contributions 1,400.00 50.00
Depreciation Expense 1,000.00 0.00
Dues and Subscriptions 26,219.26 9,409.11
Equipment Rental 3,448.20 -2,454.73
Filing Fees 17,156.87 6,617.90
Insurance 22,376.84 30,601.99
Interest Expense 911.42 7,188.39
Licenses and Permits 11,382.08 7,922.50
Miscellaneous 2,200.00 2,149.00
Payroll Expenses 373,772.17 249,543.80
Postage and Delivery 23,097.42 11,083.01
Professional Fees 157,829.72 97,625.91
Rent 90,664.67 115,756.78
Repairs 8,015.97 16,354.32
Supplies 21,337.26 27,986.89
Taxes 10,702.61 6,818.53
Telephone 23,884.37 36,741.08
Travel & Ent 9,570.34 3,180.86
Uncategorized Expenses 130.00 1,197.40
Utilities 1,424.97 1,080.17
----------------- -----------------
Total Expense 893,240.61 650,924.08
----------------- -----------------
Net Ordinary Income 460,516.86 12,488.85
Other Income/Expense
Other Income
Other Income 0.00 165.03
----------------- -----------------
Total Other Income 0.00 165.03
Other Expense
Other Losses 35.96 0.00
Other Expenses 723.66 0.00
----------------- -----------------
Total Other Expenses 759.64 0.00
----------------- -----------------
Net Other Income -759.64 165.03
Net Income 459,757.22 12,653.88
================= =================
Page 1
18
PRO FORMA FINANCIAL INFORMATION OF
SUTTER HOLDING CO., INC.
i
On December 11, 2003 Sutter Holding Company, Inc. ("Sutter"), a Delaware
corporation, pursuant to a Purchase and Exchange Agreement dated September 30,
2003 ("Purchase Agreement"), acquired 100% of the membership interests in
Progressive Lending, LLC ("Progressive"), a Washington limited liability
company. Progressive is a mortgage bank with offices in Arizona and Washington,
and is licensed to conduct business in eight states. The acquisition of
Progressive significantly expands Sutter's mortgage banking operations in both
product offerings and accessible markets, and contributes meaningfully to
overall loan volume.
The purchase price was $1.5 million. Under the terms of the Purchase Agreement,
49,505 shares of Sutter common stock, $500,000 in the form of a promissory note,
and $500,000 in cash were exchanged for all of the outstanding membership
interests in Progressive. The purchase price is subject to reduction if
Progressive does not earn at least $500,000 in each of the two years following
closing. Progressive's senior management has agreed to stay with the company and
intends to grow its operations significantly. As a result of the transaction,
Progressive became a wholly owned subsidiary of Sutter.
The following unaudited pro forma consolidated financial statements illustrate
the effect of the acquisition of Progressive on Sutter's financial position and
results of operations. The unaudited pro forma consolidated balance sheet as of
September 30, 2003 is based on the historical balance sheets of Sutter and
Progressive, and assumes that Sutter's acquisition of Progressive occurred on
that date. The unaudited pro forma consolidated income statements for the nine
months ended September 30, 2003 and the year ended December 31, 2002 are based
on the historical statements of operations of Sutter and Progressive, and assume
that Sutter's acquisition of Progressive occurred on January 1, 2002. Sutter's
results of operations included in the pro forma consolidated income statement
for the nine months ended September 30, 2003 also reflect the acquisition of
Easton Mortgage Corporation effective on January 1, 2003.
ii
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in US dollars)
Pro Forma
------------------------------------
SRHI SRHI
As of September 30, 2003 Consolidated Progressive Adjustments (1) Consolidated
----------------- ----------------- ----------------- -----------------
ASSETS
Cash & cash equivalents $89,976 $351,414 ($301,962)(2) $139,428
Accounts receivable 27,816 4,009 31,825
Note receivable, net 100,000 - 100,000
Mortgages held for sale 1,595,900 1,754,180 3,350,080
Other current assets - 1,060 1,060
----------------- ----------------- ----------------- -----------------
Total current assets $1,813,692 $2,110,662 ($301,962) $3,622,393
Investments, at cost $2,409,465 - $2,409,465
Property & equipment, net 24,498 108,061 132,559
Loan origination fees, net 111,719 - 111,719
Other assets 15,416 - 210,186 (3) 225,602
Goodwill 3,708,567 - 1,139,375 (4) 4,847,942
----------------- ----------------- ----------------- -----------------
TOTAL ASSETS $8,083,357 $2,218,723 $1,047,599 $11,349,679
================= ================= ================= =================
LIABILITIES & EQUITY:
LIABILITIES
Accounts payable & accrued expenses $231,073 $28,586 $39,452 (5) $299,111
Mortgage warehouse line of credit 1,575,649 1,728,284 3,303,933
Interest payable 72,909 - 72,909
----------------- ----------------- ----------------- -----------------
Total current liabilities $1,879,631 $1,756,870 $39,452 $3,675,953
Long-term debt 3,813,920 - 970,000 (6) 4,783,920
----------------- ----------------- ----------------- -----------------
TOTAL LIABILITIES $5,693,551 $1,756,870 $1,009,452 $8,459,873
----------------- ----------------- ----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, ($0.0001 par value) $34 - $5 (7) $39
Additional paid-in capital 4,336,154 - 499,995 (7) 4,836,149
Treasury stock (333,427) - (333,427)
Warrants 103,030 - 103,030
Unrealized investment loss reserve (62,500) - (62,500)
Retained earnings / (Accum. deficit) (1,653,485) 461,854 (461,854) (1,653,485)
----------------- ----------------- ----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY $2,389,806 $461,854 $38,146 $2,889,806
----------------- ----------------- ----------------- -----------------
TOTAL LIABILITIES & EQUITY $8,083,357 $2,218,723 $1,047,599 $11,349,679
================= ================= ================= =================
- -------------------------------------
Notes:
<FN>
Assumes the acquisition of Progressive was effective September 30, 2003.
(1) Adjustments to reflect Sutter's acquisition of Progressive, with the assets acquired and liabilities assumed at their
estimated fair values, as follows:
Preliminary estimate of fair value of tangible assets acquired $1,907,309
Acquired intangible assets 210,186
Goodwill 1,139,375
Transaction costs (legal, accounting and other expenses) 39,452
Preliminary fair value of liabilities assumed (1,756,870)
---------------
Total purchase price $1,539,452
(2) Reflects adjustments to cash in connection with the acquisition of Progressive.
(3) Reflects values assigned to intangible assets acquired.
(4) Reflects amount of goodwill arising from the acquisition of Progressive.
(5) Reflects estimated total transaction costs.
(6) Reflects the issuance of notes payable in connection with the acquisition of Progressive.
(7) Reflects the issuance of 49,505 shares of common stock in connection with the acquisition of Progressive.
</FN>
1
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(in US dollars)
Pro Forma
------------------------------------
SRHI SRHI
For the nine months ended September 30, 2003 Consolidated Progressive Adjustments Consolidated
----------------- ----------------- ----------------- -----------------
Revenue:
Mortgage sales $56,240,164 $166,951,434 $223,191,598
Mortgage commissions 933,171 1,287,017 2,220,188
Miscellaneous income 95,516 123,490 219,006
Interest & dividend income 1,518 6 1,524
Realized gains / (losses) 699 - 699
----------------- ----------------- ----------------- -----------------
Total revenue $57,271,068 $168,361,947 $0 $225,633,015
Cost of sales:
Cost of mortgage sales 55,525,488 166,368,221 221,893,709
Interest on warehouse line of credit 116,275 - 116,275
Miscellaneous loan fees 73,590 2,800 76,390
----------------- ----------------- ----------------- -----------------
Total cost of sales $55,715,353 $166,371,021 $0 $222,086,374
----------------- ----------------- ----------------- -----------------
Gross profit $1,555,715 $1,990,926 $0 $3,546,641
Expenses:
Selling, general & administrative 885,350 1,260,861 2,146,211
Depreciation & amortization 37,320 35,295 7,882 (1) 80,497
Interest expense 168,151 1,389 43,650 (2) 213,190
Other expenses 141,734 56,859 198,593
----------------- ----------------- ----------------- -----------------
Total expenses $1,232,555 $1,354,404 $51,532 $2,638,491
Earnings before taxes $323,160 $636,522 ($51,532) $908,150
Income taxes(3) - - -
----------------- ----------------- ----------------- -----------------
Net income (Loss) $323,160 $636,522 ($51,532) $908,150
================= ================= ================= =================
Net income (Loss) per share(4) $0.95 $2.33
Basic and diluted shares outstanding 339,837 389,342
- ----------------------------------------
Notes:
<FN>
Excludes all one-time expenses incurred due to the acquisitions of both Easton and Progressive. Both companies are assumed to
have been acquired effective January 1, 2003.
(1) Additional amortization expense incurred due to intangible assets obtained through the acquisition of Progressive.
(2) Additional interest expense incurred in connection with the acquisition of Progressive.
(3) Application of accumulated net operating losses ("NOLs") at SRHI in accordance with IRS Code 382 Limitations results in
no income taxes due for the period on a consolidated basis.
(4) Based on basic and diluted common shares outstanding as of September 30, 2003.
</FN>
2
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(in US dollars)
Pro Forma
------------------------------------
SRHI SRHI
For the year ended December 31, 2002 Consolidated(1) Progressive Adjustments Consolidated
----------------- ----------------- ----------------- -----------------
Revenue:
Mortgage sales - $124,770,001 $124,770,001
Mortgage commissions - 524,073 524,073
Commission income 2,894 - 2,894
Interest & dividend income 799 - 799
Other income 4,295 33,386 37,681
----------------- ----------------- ----------------- -----------------
Total Revenue $7,988 $125,327,461 $0 $125,335,448
Cost of sales:
Cost of mortgage sales - 123,797,276 123,797,276
Miscellaneous loan fees - 10,425 10,425
----------------- ----------------- ----------------- -----------------
Total cost of sales - 123,807,701 $0 123,807,701
----------------- ----------------- ----------------- -----------------
Gross profit 7,988 1,519,760 - 1,527,748
Expenses:
Selling, general & administrative 184,161 1,237,015 1,421,176
Depreciation & amortization 748 76,136 9,634 (2) 86,518
Interest expense 53,190 15,458 30,000 (3) 98,648
Professional fees 58,095 - 58,095
Other expenses 22,039 28,275 50,314
----------------- ----------------- ----------------- -----------------
Total Expenses $318,233 $1,356,884 $39,634 $1,714,751
Earnings before taxes ($310,245) $162,876 ($39,634) ($187,004)
Income taxes(4) - - -
----------------- ----------------- ----------------- -----------------
Net income (Loss) ($310,245) $162,876 ($39,634) ($187,004)
================= ================= ================= =================
Net income (loss) per share(5) ($1.25) ($0.63)
Basic and diluted shares outstanding 247,786 297,291
- ----------------------------------------
Notes:
<FN>
Excludes all one-time expenses associated with the disposition of SSI Securities, which was a wholly owned subsidiary of
SRHI, and the acquisition of Progressive Lending LLC assuming it was acquired effective January 1, 2002.
(1) Excludes Easton subsidiary which was acquired effective January 1, 2003.
(2) Additional amortization expense incurred due to intangible assets obtained through the acquisition of Progressive.
(3) Additional interest expense incurred in connection with the acquisition of Progressive.
(4) Application of accumulated net operating losses ("NOLs") at SRHI in accordance with IRS Code 382 Limitations results in
no income taxes due for the fiscal year on a consolidated basis.
(5) Based on basic and diluted shares outstanding as of December 31, 2002.
</FN>
3