U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ___________ to ___________
FIRST NATIONS FINANCIAL SERVICES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
333-1612 76-0481583
(Commission File Number) (IRS Employer Identification Number)
C/O WILLIAM T. JULIANO
CHRISTIANA EXECUTIVE CAMPUS
220 CONTINENTAL DRIVE, SUITE 310
NEWARK, DELAWARE 19713-4314
(Address of principal executive offices)
(800) 790-2474
(Registrant's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X Yes No
-
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable dated: August 14, 1997 -- 1,000
shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes X No
-
FORM 10-QSB
FIRST NATIONS FINANCIAL SERVICES COMPANY
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Accountant's Compilation Report
- ---------------------------------
To the Board of Directors
First Nations Financial Services Company
Newark, Delaware
We have compiled the accompanying balance sheet of First Nations Financial
Services Company (a development stage company) as of June 30, 1997, and the
related statements of operations, changes in stockholders' equity and cash
flows for the period October 16, 1995 (Date of Inception) through June 30,
1997 and the three and nine months ended June 30, 1997 and 1996, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
As more fully discussed in the notes to the financial statements, the Company
has significant transactions with a shareholder and related interests.
/s/Harper & Pearson Company
Houston, Texas
July 12, 1997
Balance Sheet
June 30, 1997
- ---------------
ASSETS
CURRENT ASSETS
Cash $ 30,653
Interest receivable, related parties 620
Notes receivable, related parties 852,413
-----------
TOTAL CURRENT ASSETS 883,686
-----------
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 21,122
Computer equipment 19,000
-----------
40,122
-----------
OTHER ASSETS
Trademarks 1,266
Organization costs 169,006
-----------
170,272
-----------
$1,094,080
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, shareholder $ 3,000
Note payable, other 1,000
Accounts payable 16,612
Accrued payroll taxes payable 935
-----------
TOTAL CURRENT LIABILITIES 21,547
-----------
COMMITMENT
SHAREHOLDERS' EQUITY
6% Series A, cumulative, nonvoting, preferred
shares, $.001 par value, 1,000 shares authorized,
issued and outstanding; liquidation preference
of $1,000,000 1
Common stock, $.001 par value, 2,000 shares
authorized, and 1,000 shares issued and outstanding 1
Additional paid-in capital 1,125,928
Deficit accumulated during the development stage (53,397)
-----------
1,072,533
-----------
$1,094,080
===========
See accountants' compilation report and accompanying notes.
Statements of Operations
October 16, 1995 through June 30, 1997
and the three and six months ended June 30, 1997 and 1996
- --------------------------------------------------------------------
Inception to Three Months Nine Months
June 30, Ended June 30, Ended June 30,
---------------------- ------------------
1997 1997 1996 1997 1996
--------- --------- --------- --------- ---------
INTEREST INCOME,
RELATED PARTIES $131,054 $ 27,416 $ 30,000 $ 61,054 $ 40,000
--------- --------- --------- --------- ---------
EXPENSES
Accounting fees 300 - - - -
Advertising 2,886 2,886 - 2,886 -
Bank charges 1,024 496 - 615 -
Equipment rental 1,331 1,331 - 1,331 -
Insurance expense 1,956 1,756 - 1,956 -
Interest expense 10,000 - - - -
Legal fees 469 - 282 - 282
License and fees 2,863 866 - 2,863 -
Misc. labor 260 260 - 260 -
Office payroll
expense 3,392 3,392 - 3,392 -
Office supplies and
expense 3,116 1,782 2,756 2,356 2,892
Payroll taxes - ER 375 375 - 375 -
Postage 11,592 7,371 - 9,764 -
Printing 14,239 14,003 - 14,003 -
Professional fees 10,996 10,689 - 10,689 -
Recruitment 1,197 1,197 - 1,197 -
Rent, related party 116,132 6,132 30,000 26,132 50,000
Telephone expense 1,000 891 39 943 39
Travel expense 1,323 101 - 246 -
--------- --------- --------- --------- ---------
184,451 53,528 33,077 79,008 53,213
--------- --------- --------- --------- ---------
NET LOSS $(53,397) $(26,112) $ (3,077) $(17,954) $(13,213)
========= ========= ========= ========= =========
LOSS PER COMMON SHARE $ (53.40) $ (26.11) $ (3.08) $ (17.95) $ (13.21)
========= ========= ========= ========= =========
SHARES USED IN COMPUTING
LOSS PER COMMON SHARE 1,000 1,000 1,000 1,000 1,000
========= ========= ========= ========= =========
See accountants' compilation report and accompanying notes.
Statement of Changes in Shareholders' Equity
October 16, 1995 through September 30, 1996
and the six months ended June 30, 1997
- ---------------------------------------------
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
---------- -------- ---------- ------------ ----------
SALE OF STOCK $ 1 $ 1 $1,049,998 $ - $1,050,000
NET LOSS - - - (35,443) (35,443)
---------- -------- ---------- ------------ ----------
BALANCE -
SEPTEMBER 30, 1996 1 1 1,049,998 (35,443) 1,014,557
CONTRIBUTION OF
ADDITIONAL PAID-IN
CAPITAL - - 75,930 - 75,930
NET LOSS - - - (17,954) (17,954)
---------- -------- ---------- ------------ ----------
BALANCE - JUNE 30, 1997 $ 1 $ 1 $1,125,928 $ (53,397) $1,072,533
========== ======== ========== ============ ==========
See accountants' compilation report and accompanying notes.
Statements of Cash Flows
October 16, 1995 through June 30, 1997
and the six months ended June 30, 1997 and 1996
- --------------------------------------------------------
Inception to Nine Months
June 30, Ended June 30,
------------------------
1997 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (53,397) $ (17,954) $ (13,213)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash used by operating activities:
Change in operating assets and liabilities:
Interest receivable, related party (620) (620) -
Accounts payable 16,612 16,612 -
Accrued payroll taxes payable 935 935 -
Interest payable, related party - (10,000) -
----------- ----------- -----------
Total Adjustments 16,927 6,927 -
----------- ----------- -----------
Net Cash Used by Operating Activities (36,470) (11,027) (13,213)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures
and equipment (21,122) (21,122) -
Purchase of computer equipment (19,000) (17,010) (1,990)
Payments for organization costs (169,006) (61,083) (93,934)
Payments for trademark (1,266) (1,049) (217)
Sale of mortgage note receivable,
related party 1,000,000 1,000,000 -
Issuance of notes receivable,
related parties (852,413) (852,413) -
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities (62,807) 47,323 (96,141)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable, shareholder 90,503 3,000 60,608
Proceeds from note payable, other 1,000 1,000 -
Payment of note payable, shareholder (87,503) (87,503) -
Proceeds from issuance of stock 50,000 - 50,000
Contribution of additional paid-in capital 75,930 75,930 -
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 129,930 (7,573) 110,608
----------- ----------- -----------
NET INCREASE IN CASH 30,653 28,723 1,254
CASH AT BEGINNING OF PERIOD - 1,930 -
----------- ----------- -----------
CASH AT END OF PERIOD $ 30,653 $ 30,653 $ 1,254
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Note receivable obtained from related
party for paid-in capital $1,000,000 $ - $1,000,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 10,000 $ 10,000 $ -
=========== =========== ===========
See accountants' compilation report and accompanying notes.
Notes to Financial Statements
June 30, 1997
- ---------------
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations - First Nations Financial Services Company (the Company)
- ---------------------
is a Delaware corporation with its principal objective to become a significant
participant in the financial services industry. The Company believes that its
growth will be sustained by its commitment to servicing a segment of the
market, which is not adequately serviced by commercial banks. The Company has
only recently completed its initial capitalization and has not commenced
significant operations. Because the Company has only limited equity capital
with which to operate, there are no assurances that the Company will be
successful unless the offer to sell a significant amount of the $50,000,000 in
subordinated debt is successful.
Basis of Presentation - The interim financial data is unaudited; however, in
- -----------------------
the opinion of management, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of the results for the interim periods. The financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's Registration Statement
Form SB-2. This report should be read in conjunction with such registration
statement.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments - Management is of the opinion that the
- --------------------------------------
carrying value of all financial instruments is substantially equal to fair
- --
value at June 30, 1997.
- --
Property and Equipment - Property and equipment are stated at cost.
- ------------------------
Depreciation is calculated considering the estimated useful lives of the
- ----------
respective assets on the straight-line method. Property and equipment will be
- -----
depreciated over a three to five year period. No depreciation was recorded
during the periods, as it would be immaterial.
Expenditures for additions are capitalized and expenditures for maintenance
and repairs are charged to earnings as incurred.
When properties are retired or otherwise disposed of, the cost thereof and the
applicable accumulated depreciation and amortization are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.
Organization Costs - Organization costs include filing fees with the
- -------------------
Securities and Exchange Commission ($17,991), the National Association of
- ---------
Securities Dealers, Inc. ($5,750), Blue Sky registration fees in several
- ----
states ($15,475), legal ($94,102), accounting ($23,508) and other costs
- ----
($12,180) associated with the organization of the Company.
- ----
Of these costs, approximately $106,000 will be charged against the proceeds,
if any, of the subordinated debt discussed in Note E. Remaining capitalized
costs will be amortized over a five year period.
Income Taxes - Since inception, the Company has incurred net operating losses
- -------------
amounting to $53,397. This net operating loss carryforward will expire in the
year 2011, if not previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $18,000 resulting
from the utilization of the loss carryforward has been offset by a valuation
allowance of the same amount.
Statement of Cash Flows - For purposes of reporting cash flows, cash, and cash
- -----------------------
equivalents includes only cash on hand and in demand deposit accounts with a
bank.
Loss Per Common Share - Loss per common share is computed using the weighted
- -----------------------
average number of shares of common stock outstanding during the period.
NOTE B MORTGAGE NOTE RECEIVABLE, RELATED PARTY
The 12% $1,000,000 mortgage note receivable assigned to the Company by Mr.
William T. Juliano in exchange for 1,000 shares of preferred stock was
receivable from Plaza Investment Corporation (Plaza), a New Jersey corporation
and was payable to Mr. William T. Juliano. Mr. Juliano is an officer and
stockholder of both the Company and Plaza. Mr. Juliano acquired the mortgage
note during December 1992 in exchange for $1,000,000 cash advanced to the then
unrelated company, Plaza.
On October 8, 1996, the Company sold, for $1,000,000 cash, the $1,000,000 note
receivable from Plaza Investment Corporation to Mr. Juliano.
NOTE C NOTE PAYABLE, SHAREHOLDER
Note payable, shareholder amounting to $87,503 plus accrued interest of
$10,000 was fully paid on October 9, 1996. During 1997, an additional $3,000
was loaned to the Company.
NOTE D LEASE COMMITMENT, RELATED PARTY
The Company formerly leased, from a company owned by Mr. William T. Juliano,
office space for its executive offices as well as furniture, fixtures and
equipment at 560 Fellowship Road, Mount Laurel, New Jersey 08054. Effective
October 1, 1996, the lease commitment was renegotiated for a period commencing
on that date and expiring January 31, 1998 at a minimum annual rental of
$60,000. This agreement was not the result of arm's length negotiation. Prior
to its cancellation, the aggregate lease commitment for the remaining lease
term was approximately $65,000. During 1997, this lease was cancelled with the
understanding that Mr. Juliano would provide substitute space, and furniture,
fixtures and equipment for the Company without cost to the Company until cash
flow from operations covers these costs.
NOTE E SUBORDINATED DEBT
The Company intends to offer for sale up to $50,000,000 in unsecured senior
subordinated notes with varying interest rates on a best-efforts basis with
maturities ranging from three months to ten years. The notes may be extended,
at the option of the Company, for a term equal to the original term unless the
holder requests repayment within seven days prior to the original maturity
date. There is no minimum amount of the notes that must be sold. The Company
may pay commissions of up to an approximate amount of 6% of the principal
amount of each note sold plus any out-of-pocket expenses incurred in
connection with the offer and sale of the notes up to 1% of the principal
amount of each note sold.
The Company will utilize the net proceeds from the sale of the notes for its
general corporate purposes. Corporate general purposes may include financing
of future growth, origination or acquisition of a business loan portfolio,
origination or acquisition of loans secured by equipment, such as automobiles,
trucks, golf carts, boats and other vehicles; origination or acquisition of a
portfolio of home equity loans as well as other finance related activities;
and possible future acquisition of related businesses or assets. The precise
amounts and timing of the application of such proceeds will depend upon many
factors, including, but not limited to, the amount of any such proceeds,
actual funding requirements and the availability of other sources of funding.
Until such time as the proceeds are utilized, they may be invested in short
and long-term investments, including treasury bills, commercial paper,
certificates of deposit, securities issued by U.S. government agencies, money
market funds and repurchase agreements, depending on the Company's cash flow
requirements. The Company's investment policies permit significant flexibility
as to the types of such investments that may be made by the Company. The
Company may also maintain daily unsettled balances with certain
broker-dealers. While the Company may from time to time consider potential
acquisitions, the Company as of the date of this report had no commitments or
agreements with respect to any material acquisitions.
NOTE F NOTES RECEIVABLE, RELATED PARTIES
The Company entered into demand notes receivable amounting to $852,413 with
entities related to Mr. Juliano. These notes bear interest at 12.5% per annum.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
(a) Plan of Operation - Overview. The Company was organized November
----------------------------
16, 1995 and has limited operating history. Neither the Company nor its
management have any experience in raising or investing funds. However, the
Company's objective is to become a significance participant in three
interrelated segments of the financial services industry. The Company
believes that it can achieve its objective by its commitment to servicing a
market niche which is not adequately serviced by commercial banks or
traditional lending sources. In servicing its market, the Company will stress
the importance of identifying profitable lending opportunities and quick
closing.
The income generated from the Company's loan portfolio will be used to
pay principal and interest on the Notes, related operating costs and expenses
of the Company. The earnings on the loans and other assets owned by the
Company and the interest cost of the Notes will determine the Company's
results of operations in the future. The Company believes there are no
changes, trends or anomalies which will materially adversely affect the
anticipated delinquency and loss experience of the loans.
Initial Primary Business. The Company's present focus is limited to
--------------------------
loans where the Company is presently licensed. The Company is licensed as a
mortgage lender and an issuer/dealer in the State of Florida. Some types of
lending; as an example, lease financing or equipment loans, do not require
licenses in certain states where the company may choose to operate.
Management has applications pending in other states. Management does not
believe that the pending license applications will materially adversely affect
the Company's ability to do business and does not know of any disqualification
for the issuance of any license which the Company may apply for in the future.
William T. Juliano, the Company's Chief Executive Officer, has been
active for many years in buying, selling, financing and developing many kinds
of real estate. Because of his background, the Company has received
preliminary expressions of interest to finance approximately $10 Million of
projects ranging from $500,000 and up.
Until the Company's cash flow is adequate, the executive officers of the
Company will devote substantially all their time to operations without any
compensation. The monthly rental cost for the office space, furniture and
equipment is furnished by William T. Juliano to the Company without cost for
the 12 months ending February 12, 1998. In addition, bookkeepers,
secretaries, administrative assistants and support staff are presently
employed by William T. Juliano, or one of his affiliates, and he will make
their services available without cost to the Company until cash flow from
operations will cover their costs.
The Company does not intend to pursue its other intended lines of
business until the commercial lending activity has been established and
$5,000,000 of the net proceeds of the sale of Notes has been invested.
Plan of Operation for Next 12 Months. Until the Company receives
------------------------------------------
proceeds from the sale of Notes, invests the proceeds and receives a return on
--
the investment, the Company's only source of funds for advertising, marketing
and promotion will be its limited equity capital and the income derived from
its investment. Therefore, the Company may expend significant cash in the
early months of operation to cover its cost of developing the business.
The Company will initially sell Notes only through its employees.
However, the Company is likely to engage the services of one or more
broker-dealers during the first year of operations. In order to arrive at its
forecasted Note sales for the first 12 months, management had preliminary
discussions with several small broker-dealers and examined the amount of
similar debt instruments sold by two comparable issuers. Management believes
its estimates are realistic and conservative. A part of the Company's plan to
sell the Notes is direct personal contact with selected broker-dealers in the
states where the offering is registered. The broker-dealers will be selected
based upon their number of registered representatives and access to financial
products comparable to the Notes offered by the Company. Management believes
that it will fill a need for broker-dealers identified by its selection
process because each have a few clients for whom the Notes are suitable
investments and do not otherwise have the ability to participate in a similar
primary offering.
(b) Management's Discussion and Analysis of Interim Financial
------------------------------------------------------------
Information. The Company's activities during the period from the effective
----
date of its Registration Statement until the date of this Report have been
limited to:
1. Qualification to do business in the State of Florida.
2. Licensed as a Mortgage Lender in the State of Florida.
3. Licensed as a Securities Issuer/Dealer in the State of Florida.
4. Formulating plans for the marketing of the Senior Subordinated Fixed
Rate Term Notes covered by the Company's Registration Statement.
5. Opened its Delaware office, commenced advertising and mailed Prospectus
to interested parties.
In order to generate a limited amount of investing income the Company has
made demand loans to related entities in the aggregate amount of $852,413.
As of the date of this Report the Company has not issued any Notes and,
therefore, has not commenced significant operations.
The Company's operating expenses have declined because the monthly rent
expense of $5,000 was terminated effective February 13, 1997 and the legal and
accounting services related to the offering of Notes was substantially
complete as of the effective date of the Registration Statement, February 19,
1997.
Therefore, as of the date of this Report interest income is generally
sufficient to cover the present expenses of the limited operations. As the
Company intensifies its selling and marketing of the Notes, expenses will
increase significantly.
The Company's principal source of external liquidity is proceeds from the
sale of Notes. The principal source of internal liquidity is interest income
from investments of the Company's limited capital and proceed from the sale of
Notes. In addition, this Company's only other source of external liquidity is
equity investment by the shareholders.
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995: The information included in the Management's Discussion and Analysis
section is forward-looking and involves risks and uncertainties that could
significantly impact expected results. While it is impossible to itemize the
many factors and specific events that could effect the outlook of any company
operating in the financial services industry, the Company's outlook for 1997
is predominantly based on its interpretation of what it considers key future
assumptions. These include, but are not limited to, the amount of proceeds
received from the sale of Notes, the blended maturity of all Notes sold, the
blended interest rate payable by the Company in connection with its Notes and
the quantity, quality, yield and category of available loans and other
investments, which cannot be accurately predicted, and changes with general
economic conditions and interest rates.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST NATIONS FINANCIAL SERVICES COMPANY
Date: August 14, 1997 By: /s/William T. Juliano
----------------------
William T. Juliano, President &
Chief Executive Officer
Date: August 14, 1997 By: /s/Thomas E. Juliano
---------------------
Thomas E. Juliano, Treasurer, Chief
Financial Officer and Secretary