U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE
30, 2002
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: 333-56848
PRE-SETTLEMENT FUNDING CORPORATION
(Exact name of Company as specified in its charter)
Delaware 54-1965220
(State or jurisdiction of incorporation) (I.R.S. Employer or
organization Identification No.)
927 South Walter Reed Drive, Suite 5, Arlington, VA 22204
(Address of principal executive offices) (Zip Code)
Company's telephone number: (703) 892-4123
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value
Indicate by check mark whether the Company (1) has filed all reports
required 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 Company was required to file such reports),
and (2) been subject to such filing requirements for the past 90
days. Yes X No___
Indicate the number of shares outstanding of each of the issuer's
class of common stock. The Registrant had 5,368,000 shares of its
common stock outstanding as of August 15, 2002.
TABLE OF CONTENTS
Part I Financial Information Page
Item 1.Financial Statements (Unaudited)
Condensed Balance Sheets:
June 30, 2002 And December 31, 2001
Condensed Statements Of Operations:
Three Months and Six Months Ended June 30, 2002 And 2001
For the Period October 14, 1999 (Date of Inception) to June
30, 2002
Condensed Statements Of Cash Flows:
Six Months Ended June 30, 2002 And 2001
For the Period October 14, 1999 (Date of Inception) to June
30, 2002
Notes To Unaudited Condensed Financial Information
Item 2. Management's Discussion And
Analysis Of Financial Condition
Or Plan Of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
PRE-SETTLEMENT FUNDING CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30 2002 December 31 2001
ASSETS
Current assets:
Cash and equivalents $ 1,175 $ 1,003
Loans receivable 1,682 15,099
Claims advances 11,500 5,250
Prepaid expenses and other - 1,038
Total current assets 14,357 22,390
LIABILITIES AND DEFICIENCY IN STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued liabilities 726,549 533,093
Advances from shareholder 23,687 16,225
Total current liabilities 750,236 549,318
Commitments and Contingencies - -
Deficiency in Stockholders' Equity
Preferred stock, par value, $.001 per share;
100,000 shares authorized; none issued and
outstanding at June 30, 2002 and December
31, 2001 - -
Common stock, par value, $.001 per share;
19,900,000 shares authorized ; 5,368,000
shares issued and outstanding
at June 30, 2002 and December 31, 2001 5,368 5,368
Additional paid-in-capital 183,652 183,652
Deficit accumulated during development stage (924,899) (715,948)
Deficiency in stockholder's equity (735,879) (526,928)
$ 14,357 $ 22,390
See accompanying notes to unaudited condensed financial information
PRE-SETTLEMENT FUNDING CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION
For the Period
For The Three Months Ended For The Six Months Ended October 14, 1999
June 30 June 30 (Date of
Inception
To June 30, 2002
2002 2001 2002 2001
Revenues: $ 751 $ 1,000 $ 3,727 $ 1,000 $ 9,776
Costs and Expenses:
Selling, general
and administrative 93,847 87,444 212,690 242,873 937,171
Total Cost and Expense 93,847 87,444 212,690 242,873 937,171
Other Income:
Interest and other 0 1,489 11 2,924 2,496
Loss from operations (93,096) (84,955) (212,691) (238,949) (924,899)
Income (taxes) benefit - - -
Net Loss $ (93,096) $ (84,955) $(208,952) $ (238,949) $ (924,899)
Loss per common share
(basic and assuming dilution) $ (0.02) $ (0.02) $ (0.04) $ (0.04) $ (0.20)
Weighted average
shares outstanding
Basic and Diluted 5,368,000 5,368,000 5,368,000 5,335,000 4,596,044
See accompanying notes to the unaudited condensed financial information
PRE-SETTLEMENT FUNDING CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six Months Ended For the Period
June 30 October 14, 1999
(Date of
Inception) to
June 30
2002 2001 2002
Net cash from operating
Activities $ (7,290) $ (45,189) $ (161,512)
Cash flows from investing
Activities - - -
Net cash from financing
Activities 7,462 27,260 162,687
Net increase (decrease) in
cash and equivalents 172 (17,929) 1,175
Cash and cash equivalents at
beginning of period 1,003 22,207 -
Cash and cash equivalents at
end of period $ 1,175 $ 4,278 $ 1,175
Supplemental Information:
Cash paid during the
period for interest $ - $ - $ -
Cash paid during the
period for taxes $ - $ - $ -
Common Stock issued
in exchange for capital notes $ - $ 87,000 $ 139,000
Common Stock issued
to founders in exchange for
services $ - $ 5,020 $ 5,020
Common Stock issued
in exchange for Services $ - $ 45,000 $ 45,000
See accompanying notes to unaudited condensed financial information
PRE-SETTLEMENT FUNDING CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL INFORMATION
JUNE 30, 2002
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB, and
therefore, do not include all the information necessary for a fair
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June
30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. The unaudited condensed
financial statements should be read in conjunction with the
consolidated December 31, 2001 financial statements and footnotes
thereto included in the Company's SEC Form 10KSB filed with the
Securities and Exchange Commission on April 16, 2002.
Business and Basis of Presentation
Pre-Settlement Funding Corporation (the "Company") was formed on
October 14, 1999 under the laws of the state of Delaware. The
Company is a development stage enterprise, as defined by Statement of
Financial Accounting Standards No. 7 ("SFAS No. 7") and is seeking to
provide financing to plaintiffs who are involved in personal injury
claims. From its inception through the date of these financial
statements the Company has recognized limited revenues and has
incurred significant operating expenses.
Reclassification
Certain reclassifications have been made to conform to prior periods'
data to the current presentation. These reclassifications had no
effect on reported losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS.
The following Management Discussion and Analysis should be read in
conjunction with the un-audited financial statements and accompanying
notes included in this Form 10-QSB and in the audited financial
statements for the year ended December 31, 2001 included in our filing
on Form 10-KSB filed with the Securities and Exchange Commission on
April 16, 2002.
The following discussion contains forward-looking statements that are
subject to significant risks and uncertainties about us, our current
and planned products, our current and proposed marketing and sales,
and our projected results of operations. There are several important
factors that could cause actual results to differ materially from
historical results and percentages and results anticipated by the
forward-looking statements. We have sought to identify the most
significant risks to its business, but cannot predict whether or to
what extent any of such risks may be realized nor can there be any
assurance that we have identified all possible risks that might
arise. Investors should carefully consider all of such risks before
making an investment decision with respect to our stock. The
following discussion and analysis should be read in conjunction with
the financial statements of our Company and notes thereto. This
discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that
any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
Plan of Operation
Pre-settlement Funding Corp is still in the development stage and has
earned only a small amount of revenue, approximately $9,700, from
operations. We have funded approximately 33 cases to
date and we anticipate that after receiving an equity infusion, we can
substantially increase the number of cases we fund. During the next
twelve months we intend to develop our business of advancing cash to
plaintiffs involved in personal injury claims, as well as to
plaintiffs involved in other types of claims such as divorce cases.
The further development of this business will include, but not be
limited to, developing marketing materials, renting additional office
space, and interviewing and hiring administrative, marketing and
claims personnel. We may experience fluctuations in operating results
in future periods due to a variety of factors including, but not
limited to, market acceptance of our services, incomplete or
inadequate underwriting of our cases, Our ability to obtain additional
financing in a timely manner and on terms favorable to us, our ability
to successfully integrate prospective asset acquisitions to its
existing business operation, delays or errors in our ability to
upgrade and develop our systems and infrastructure in a timely and
effective manner, technical difficulties, system downtime or utility
brownouts, our ability to attract customers at a steady rate and
maintain customer satisfaction, seasonality of advertising sales, the
amount and timing of operating costs and capital expenditures relating
to the expansion of our business, operations and infrastructure and
the implementation of marketing programs, key agreements and strategic
alliances, the number of products offered by Pre-settlement Funding,
and general economic conditions specific to the personal injury
lawsuit industry.
For the period from our inception through June 30, 2002, we have:
- Formed our company and established our initial structure
- Researched the market for litigation funding services and the
activities of our competitors
- Researched potential legal barriers to implementing our business
plan
- Ran print ads in a local advertisement circular
- Developed our website which was completed in 2001
- Entered into consulting agreements with various service providers
- Reviewed and analyzed the cases of several potential clients
- Issued cash advances to 33 clients
- Settled and received proceeds with respect to 19 cases
Our website has generated minimum potential business activity to date.
Our activities will continue to be limited unless and until
we receive further financing, either through equity or debt financing.
Without these proceeds, we will not have the capital resources or
liquidity to:
- Implement the business plan;
- Commence operations through the advancement of cash to qualified
customers; or
- Hire any additional employees.
Operating Data
The table below provides a summary of the key operating metrics
we use to assess our operational performance
Six Months Ending June 30 % Year Ended Dec. 31 Annualized %
2002 2001 Change 2001 Change
Operating data
Cases outstanding 14 4 250% 10 40%
Cases settled in period 10 1 900% 9 122%
Advances in period 14 5 180% 19 47%
Value of advances 11,000 3,700 197% 11,950 84%
Value of settlements 8,476 2,000 324% 12,750 33%
Value of advances for
cases settled 4,750 1,000 375% 6,700 41%
Margin on cases settled (a) 3,726 1,000 273% 6,050 23%
% Margin on cases settled 44.0% 50% (6)% 47.5% (3.5)%
Average revenue per customer (b) 373 1,000 (627)% 318 17.0%
Employees 2 2 0% 2 0%
We define certain business metrics used above as follows:
(a) Margin on cases settled is equivalent to the revenue reported
on the income statement
(b Average revenue per customer is defined as net revenue per
income statement divided by the number of cases settled in period
Comparison of Financial Results
Three Months and Six Months Ended June 30, 2002 versus Three Months
and Six Months Ended June 30, 2001
Revenues
Revenue represents the net proceeds to Pre-settlement Funding from the
settlement of cases. We have generated modest revenues from operations
from inception of our business. During the quarter ended June 30,
2002, we have generated $751 in revenues from monetary settlements, as
compared to $1,000 in revenues for the quarter ended June 30, 2001.
For the six months ended June 30, 2002, we generated $3,726 in
revenues relative to $1,000 for the six months ended June 30, 2001. We
began advancing funds to personal injury plaintiffs in February 2001.
We recognized revenue from the settlement of our first case advance,
in the second quarter of 2001. In the quarter ended June 30, 2002, we
advanced $500, bringing the total advanced to June 30, 2002 to $11,000
with regard to 14 new cases. We have settled 10 cases with a value of
$8,476. In the first six months of 2001, we had advanced 5 cases at a
value of $3,700 with settlements valuing a total of $2,000. The margin
achieved on net settlements has deteriorated slightly from that
achieved for the year ended December 31, 2001, falling from 47.5% to
44.0% and significantly from the 50% margin achieved on our first case
settlement in 2001. However, the volume of cases settled has increased
by 900% over the first 6 months of 2001, and on a pro-rata basis by
122% over the year ended December 31, 2001.
Our ability to increase the rate of advances in future periods, and
hence the growth in our revenue may be limited by the availability of
funding. If we are funded with proceeds from our offering of equity,
we believe Pre-settlement Funding will begin earning additional
revenues from operations within the next twelve months as it
transitions from a development stage company to that of an active
growth stage company.
Costs and Expenses
From our inception through June 30, 2002, we have incurred expenses of
$937,171 during this period. These expenses were associated
principally with stock issuances to our founders, legal, consulting
and accounting fees and costs in connection with the development of
our business plan, market research, and the preparation of our
registration statement. Expenses in the quarter ended June 30, 2002
were $93,848, compared to $87,444 in the quarter ended June 30, 2001.
Expenses for the six months ended June 30, 2002 were $212,690 compared
to $242,873 for the six months ended June 30, 2001. Based on our
review of costs, 15% of the costs incurred in the six months ended
June 30, 2002 were related to our stock issuance, funding and
development of business plan expenses, compared to 28% in the six
months ended June 30, 2002. Cost were over 12% higher in the six
months ended June, 2001, compared to the current six months, primarily
due to $25,000 in consulting fees associated with developing the
business plan, and higher costs for accounting fees associated with
the issuance of equity, cancellation of notes and registration
statement preparation.
Liquidity and Capital Resources
As of June 30, 2002, we had a working capital deficit of $735,879. As
a result of our operating losses from our inception through June 30,
2002, we generated a cash flow deficit of $161,512 from operating
activities. We met our cash requirements during the six months ended
June 30, 2002 through $20,879 advances and loan repayments from our
principal shareholders. Our accounts payable and accrued liabilities,
which is composed predominantly of liabilities to our accountants and
lawyers in connection with our registration statement, stands at
$206,454 at June 30, 2002. Accrued payroll, representing liabilities
to our two employees, stands at $520,095 at June 30, 2002.
While we have raised the capital necessary to meet our working capital
and financing needs in the past, additional financing is required in
order to meet our current and projected cash flow deficits from
operations and development. We are seeking financing in the form of
equity in order to provide the necessary working capital. Current
market conditions, however, make it more difficult to raise equity
through a public offering. The current focus of our efforts is to seek
an equity infusion form a private investor that will meet our
requirements. We currently do not have any commitments for financing.
There are no assurances we will be successful in raising the funds required.
We believe that it may be necessary to raise up to One Million Dollars
to implement our business plan over the course of the next twelve
months, though we plan to use our existing capital resources and these
resources may be sufficient to fund our current level of operating
activities, capital expenditures, debt and other obligations through
the next 12 months.
If during that period or thereafter, we are not successful in
generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could
have a material adverse effect on our business, results of operations
liquidity and financial condition.
We believe that if the minimum proceeds are raised from a private
equity or debt source, sufficient capital will exist to fund our
operations, capital expenditures, debt, and other obligations for the
next twelve months. Operations will be adjusted to this level of
capitalization. Although we are dependent upon our success in
securing a private investor to carry out our business plan, if we are
unsuccessful, we will seek to obtain financing through other sources.
Our independent certified public accountants have stated in their
report included in our December 31, 2001 Form 10-KSB, that we have
incurred operating losses since its inception, and that we are
dependent upon management's ability to develop profitable operations.
These factors among others may raise substantial doubt about our
ability to continue as a going concern.
Product Research and Development
We do not anticipate performing research and development for any
products during the next twelve months.
Acquisition or Disposition of Plant and Equipment
We do not anticipate the sale of any significant property, plant or
equipment during the next twelve months. We do not anticipate the
acquisition of any significant property, plant or equipment during the
next 12 months, other than computer equipment and peripherals used in
our day-to-day operations. We believe we have sufficient resources
available to meet these acquisition needs.
Number of Employees
As of June 30, 2002, we have two employees. In order for us to
attract and retain quality personnel, we anticipate we will have to
offer competitive salaries to future employees. We anticipate
increasing our employment base to four (4) to six (6) full and/or
part-time employees during the next 12 months. This projected
increase in personnel is dependent upon the generating revenues and
obtaining sources of financing. As we continue to expand, we will
incur additional costs for personnel. There are no assurances we will
be successful in raising the funds required or generating revenues
sufficient to fund the projected increase in the number of employees.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant
risks to its business as discussed in "Risk Factors" above, but cannot
predict whether or to what extent any of such risks may be realized
nor can there be any assurances that we have identified all possible
risks that might arise. Investors should carefully consider all of
such risk factors before making an investment decision with respect to
our stock.
Limited operating history; anticipated losses; uncertainly of future
results
We have only a limited operating history upon which an evaluation of
our business and its prospects can be based. Our prospects must be
evaluated with a view to the risks encountered by a company in an
early stage of development, particularly in light of the uncertainties
relating to the litigation funding which we intend to market and the
acceptance of our business model. We will be incurring costs to
develop, introduce and enhance our litigation funding services and
products, to develop and market an interactive website, to establish
marketing relationships, to acquire and develop products that will
complement each other, and to build an administrative organization. To
the extent that such expenses are not subsequently followed by
commensurate revenues, our business, results of operations and
financial condition will be materially adversely affected. There can
be no assurance that we will be able to generate sufficient revenues
from the sale of our services and other product candidates. We expect
negative cash flow from operations to continue for the next 12 months
as we continue to develop and market our products. If cash generated
by operations is insufficient to satisfy our liquidity requirements,
we may be required to sell additional equity or debt securities. The
sale of additional equity or convertible debt securities would result
in additional dilution to our shareholders.
Potential fluctuations in quarterly operating results
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside
our control, including: the level of public acceptance of our
litigation support services and products, the demand for our
litigation support services and products; seasonal trends in demand;
the amount and timing of capital expenditures and other costs relating
to the expansion of our operations; the introduction of new services
and products by Pre-settlement Funding or its competitors; price
competition or pricing changes in the industry; technical
difficulties; general economic conditions, and economic conditions
specific to the litigation funding market. Our quarterly results may
also be significantly affected by the impact of the accounting
treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting
treatment can have a material impact on the results for any quarter.
Due to the foregoing factors, among others, it is likely that our
operating results will fall below our expectations or investors'
expectations in some future quarter.
Management of Growth
We expect to experience significant growth in the number of employees
relative to its current levels of employment and the scope of its
operations. In particular, we intend to hire claims adjustors, sales,
marketing, and administrative personnel. Additionally, acquisitions
could result in an increase in employee headcount and business
activity. Such activities could result in increased responsibilities
for management. We believe that our ability to increase our customer
support capability and to attract, train, and retain qualified
technical, sales, marketing, and management personnel, will be a
critical factor to our future success. In particular, the availability
of qualified sales, insurance claims, and management personnel is
quite limited, and competition among companies to attract and retain
such personnel is intense. During strong business cycles, we expects
to experience difficulty in filling its needs for qualified sales,
claims adjustors, and other personnel.
Our future success will be highly dependent upon our ability to
successfully manage the expansion of our operations. Our ability to
manage and support our growth effectively will be substantially
dependent on our ability to implement adequate financial and
management controls, reporting systems, and other procedures and hire
sufficient numbers of financial, accounting, administrative, and
management personnel. We are in the process of establishing and
upgrading its financial accounting and procedures. There can be no
assurance that we will be able to identify, attract, and retain
experienced accounting and financial personnel. Our future operating
results will depend on the ability of our management and other key
employees to implement and improve our systems for operations,
financial control, and information management, and to recruit, train,
and manage its employee base. There can be no assurance that we will
be able to achieve or manage any such growth successfully or to
implement and maintain adequate financial and management controls and
procedures, and any inability to do so would have a material adverse
effect on our business, results of operations, and financial condition.
Our future success depends upon our ability to address potential
market opportunities while managing our expenses to match our ability
to finance our operations. This need to manage our expenses will
place a significant strain on our management and operational
resources. If we are unable to manage our expenses effectively, our
business, results of operations, and financial condition will be
materially adversely affected.
Risks associated with acquisitions
Although we are do not presently intend to do so, as part of our
business strategy in the future, we could acquire assets and
businesses relating to or complementary to our operations. Any
acquisitions by Pre-settlement Funding would involve risks commonly
encountered in acquisitions of companies. These risks would include,
among other things, the following: we could be exposed to unknown
liabilities of the acquired companies; we could incur acquisition
costs and expenses higher than it anticipated; fluctuations in our
quarterly and annual operating results could occur due to the costs
and expenses of acquiring and integrating new businesses or
technologies; we could experience difficulties and expenses in
assimilating the operations and personnel of the acquired businesses;
our ongoing business could be disrupted and its management's time and
attention diverted; we could be unable to integrate successfully.
PART II.
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Company is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Company has been threatened.
The Company is subject to other legal proceedings and claims that
arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, the Company believes that
the final disposition of such matters will not have material adverse
effect on its financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES.
Sales of Unregistered Securities.
The Registrant had no sales of unregistered securities during the six-
month period ending June 30, 2002.
Use of Proceeds.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were not any matters submitted requiring a vote of security
holders during the six- month period ending June 30, 2002.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. No reports on Form 8-K were filed
during the three-month period covered in this Form 10-QSB.
(b) Exhibits.
No. Description
99.1 Certification of Darryl Reed pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certification of Joel Sens pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Pre-Settlement Funding Corp.
Dated: August 20, 2002 By: /s/ Darryl Reed
Darryl Reed, President