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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-15733
SUTTER HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-3111137
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
150 Post Street, Suite 405
(Address of principal executive offices including zip code)
(415) 788-1441
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
The number of shares of common stock, $.0001 par value, outstanding as of August
11, 2003 was 339,837.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to the Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
Certifications 10
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUTTER HOLDING COMPANY, INC.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
As of As of
June 30, December 31,
--------------- ---------------
2003 2002
--------------- ---------------
ASSETS
Current Assets
Cash and cash equivalents $77,392 $625,491
Accounts receivable 13,333 8,528
Note Receivable 100,000 100,000
Prepaid expenses 11,184 5,836
Mortgages held for sale 4,995,700 -
--------------- ---------------
Total Current Assets 5,197,610 739,855
--------------- ---------------
Noncurrent Assets
Investments, at fair value 1,508,618 260,347
Investments, at cost - 964,198
Property and equipment, net 27,748 1,246
Loan origination fees, net 120,938 98,542
Other Assets 15,416 -
--------------- ---------------
Total Noncurrent assets 1,672,719 1,324,333
--------------- ---------------
Goodwill 3,708,567 -
TOTAL ASSETS $10,578,895 $2,064,188
=============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $139,000 $30,141
Mortgage warehouse line of credit 4,940,317 -
Interest payable 57,108 28,232
Income taxes payable 6,703 800
--------------- ---------------
Total Current Liabilities 5,143,127 59,173
--------------- ---------------
Total Long-Term Liabilities 3,873,056 1,008,376
--------------- ---------------
Stockholders' Equity
Common Stock, $0.0001 par value 27 24
Additional Paid-In Capital 3,536,153 3,266,157
Treasury Stock (333,427) (333,427)
Warrants 103,030 103,030
Unrealized Loss on Investments (62,500) (62,500)
Retained Earnings / (Deficit) (1,976,645) (1,976,645)
Net Income 296,073 -
--------------- ---------------
Total Stockholders' Equity 1,562,712 996,639
--------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $10,578,895 $2,064,188
=============== ===============
2
SUTTER HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
ended June 30, ended June 30,
------------------------------------ ------------------------------------
2003 2002 2003 2002
---------------- --------------- ---------------- ----------------
Revenues:
Mortgage sales $15,912,171 $0 $39,547,854 $0
Mortgage commissions 249,810 - 609,018 -
Miscellaneous income 3,146 28,376 56,478 70,594
Interest & dividend income 249 14 1,390 633
Realized gains / (losses) (193) - 699 -
---------------- --------------- ---------------- ----------------
Total revenues 16,165,183 28,390 40,215,439 71,227
---------------- --------------- ---------------- ----------------
Cost of Sales
Cost of mortgage sales 15,661,923 - 38,957,193 -
Interest on warehouse line of credit 34,103 - 82,934 -
Miscellaneous loan fees 24,420 - 52,752 -
---------------- --------------- ---------------- ----------------
Total cost of sales 15,720,446 - 39,092,879 -
---------------- --------------- ---------------- ----------------
Gross profit 444,737 28,390 1,122,561 71,227
Expenses:
General & administrative 302,209 32,611 588,806 740,937
Depreciation & amortization(1) 12,468 249 24,852 249
Interest expense 61,418 7,813 114,660 7,813
Loss from discontinued operations - - - 125,077
Other expenses 44,273 19,931 98,169 118,149
---------------- --------------- ---------------- ----------------
Total expenses 420,368 60,604 826,488 992,226
---------------- --------------- ---------------- ----------------
Net income / (loss) $24,369 ($32,214) $296,073 ($920,999)
================ =============== ================ ================
Net income / (loss) per share(2) $0.10 ($0.13) $1.17 ($3.65)
- ---------------------------------------
(1) Included in general and administrative expenses for the first quarter of fiscal 2002.
(2) Based on 252,313 weighted average common shares outstanding as of June 30, 2003.
3
SUTTER HOLDING COMPANY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30,
-------------------------------------
2003 2002
--------------- ----------------
OPERATING ACTIVITIES
Net income / (loss) $296,073 ($920,999)
Depreciation & amortization 24,852 249
Adjustments to reconcile net
income / (loss) to net cash
provided by operating
activities:
Accounts receivable 15,003 (4,518)
Note Receivable - 8,750
Prepaid expenses (659) (5,205)
Mortgages held for sale (1,179,200) -
Accounts payable 89,339 3,831
Accrued expenses (62,745) 630,988
Mortgage warehouse line of credit 1,174,959 -
Income taxes payable (3,773) -
Interest payable 28,876 7,813
--------------- ----------------
Net cash provided by (used in) operating
activities $382,726 ($279,091)
INVESTING ACTIVITIES
Capital expenditures (4,655) (1,994)
Purchases of securities,
subsidiaries & other investments (4,020,849) (1,595,703)
Other (40,000) -
--------------- ----------------
Net cash used in investing activities ($4,065,504) ($1,597,696)
FINANCING ACTIVITIES
Proceeds from issuance of notes
payable 3,145,000 462,023
Repayment of notes payable (280,320) -
Purchases of stock for treasury - (247,177)
Issuance of stock 270,000 558,500
--------------- ----------------
Net cash provided by financing activities $3,134,680 $773,346
Net change in cash for the period (548,099) (1,103,441)
Cash, beginning of period 625,491 1,234,573
--------------- ----------------
Cash, end of period $77,392 $131,132
=============== ================
4
SUTTER HOLDING COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. Significant Accounting Policies
The interim financial statements have been prepared by Sutter Holding Company,
Inc. ("the Company") pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q. 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 management
believes that the disclosures are adequate to make the information presented not
misleading. These interim financial statements should be read in conjunction
with the audited financial statements and related notes and schedules included
in the Company's 2002 Annual Report filed on Form 10-K and dated December 31,
2002.
The results of operations for any interim period are not necessarily indicative
of the results of operations for the full year. In the Company's opinion, all
adjustments necessary for a fair presentation of these interim statements have
been included and are of a normal and recurring nature.
2. Forward Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
and information relating to Sutter Holding Company, Inc., formerly known as
Shochet Holdings, Inc. ("we", "us" or the "Company") that are based on the
beliefs of its management as well as assumptions made by and information
currently available to its management. When used in this Quarterly Report, the
words "anticipate," "believe", estimate", expect", "intend", "plan" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. These statements reflect management's
current view about our proposed business operations are subject to certain
risks, uncertainties and assumptions, including among others: (i) a general
economic downturn; (ii) a general lack of interest in engaging in a transaction
with a public registered company, (iii) federal or state securities laws or
regulations that have an adverse effect on trading in "penny stocks" and other
risks and uncertainties. Should any of these risks of uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described in this Quarterly Report as anticipated,
estimated or expected.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On June 10, 2003, the Company's investment in Niman Ranch, Inc., an Oakland
California based producer and supplier of natural beef, lamb and pork to top
restaurants throughout the US, increased by $250,000. This investment was
effected through an exchange of common stock and therefore did not consume any
cash of the Company. Management continues to be pleased with its investment in
Niman Ranch, and supports the growth and future prospects of this high quality,
hormone and antibiotic free meat producer.
The quarter ended June 30, 2003 is the second quarter to contain operating
results from our Easton Mortgage Corporation subsidiary which the Company
acquired effective January 1, 2003. Prior to this acquisition and as far back as
August 2001, the Company had no operating business and had existed essentially
as a public shell. SEC disclosure rules dictate that we compare comparable
periods for financial reporting and analysis purposes. Below we have attempted
to compare the most recently completed fiscal quarter including Easton's
operations with the same period from the prior year. As you will notice, the
5
financial performance and operating results of the Company improved dramatically
from the second quarter last year to the second quarter this year. However, a
direct period-to-prior year period comparison is difficult, if not somewhat
meaningless, given that the Company owned a profitable operating business during
the most recent quarter and did not own any operating business during the same
quarter last year. Moreover, the Company changed its fiscal year end from
January 31 to December 31 which can add to the difficulty of trying to compare
period-to-prior year period financial performance and operating results.
The Second Quarter ended June 30, 2003 compared to the Second Quarter ended
June 30, 2002
Revenues
Revenues were $16,165,183 for the quarter ended June 30, 2003 compared to
$28,390 for the quarter ended June 30, 2002, an increase of 56,840%. Gross
profit or net revenues (i.e. netting mortgage revenue and mortgage cost of
goods) amounted to $444,737 this quarter compared to the same $28,390 for the
same quarter last year, an increase of 1,467%. These significant increases were
almost exclusively attributable to the presence of the Easton Mortgage operating
business whereas no operating business was owned by the Company at any time
during the comparable quarter last year. Revenues from investments and related
activities represented less than 1% of all revenues for the quarter. For the
remainder of fiscal 2003, the Company anticipates that the majority of its
near-term revenues will come from its mortgage banking business.
Cost of Goods Sold
Cost of mortgage sales for the quarter was $15,720,446 compared to zero for the
comparable quarter last year. Again, this significant positive change was due to
the Company's acquisition of the Easton Mortgage business which the Company did
not own during the comparable quarter last year.
Operating Expenses
Operating expenses were $420,368 for the quarter ended June 30, 2003 compared to
$60,604 for the same quarter last year, an increase of 594%. This increase is
due primarily to the presence of our Easton Mortgage business operations which
the Company did not own during the comparable quarter last year. Operating
expenses associated with the day-to-day functioning of Sutter were less than 5%
of total operating expenses for the period.
Net Income
The Company reported earnings of $24,369 for the quarter ended June 30, 2003
compared to a loss of $32,214 for the same quarter last year. Earnings for the
current period were bolstered by the Company's mortgage business while the loss
incurred during the same quarter last year was exacerbated by the Company's lack
of any operating business at that time.
6
No additional meaningful comparisons can be made for the quarter ended June 30,
2003 compared to the quarter ended June 30, 2002.
Earnings Per Share
The Company earned $0.10 per share for the quarter ended June 30, 2003 compared
to a loss of $0.13 per share for the quarter ended June 30, 2002.
The six months ended June 30, 2003 compared to the six months ended
June 30, 2002
Revenues
Revenues were $39,547,854 for the six months ended June 30, 2003 compared to
$71,227 for the six months ended June 30, 2002, an increase of 55,424%. Gross
profit or net revenues (i.e. netting mortgage revenue and mortgage cost of
goods) for the six month period amounted to $1,122,561 compared to $71,227 for
the same period last year, an increase of 1,476%. These significant increases
were almost exclusively attributable to the presence of the Easton Mortgage
operating business whereas no operating business was owned by the Company at any
time during the comparable period last year. Revenues from investments and
related activities represented less than 1% of all revenues for the most recent
six month period. For the remainder of fiscal 2003, the Company anticipates that
the majority of its near-term revenues will come from its mortgage banking
business.
Cost of Goods Sold
Cost of mortgage sales for the six months ended June 30, 2003 was $39,092,879
compared to zero for the comparable period last year. Again, this significant
positive change was due to the Company's acquisition of the Easton Mortgage
business which the Company did not own during the comparable period last year.
Operating Expenses
Operating expenses were $826,488 for the six months ended June 30, 2003 compared
to $992,226 for the same period last year, a decrease of 17%. This decrease is
due primarily to the difference between the operating expenses of our Easton
Mortgage business, which the Company did not own during the comparable period
last year, and the complete lack of operations existing within the Company for
the comparable six month period last year. Operating expenses associated with
the day-to-day functioning of Sutter were less than 5% of total operating
expenses for the period.
Net Income
The Company reported earnings of $296,073 for the six months ended June 30, 2003
compared to a loss of $920,999 for the same period last year. Earnings for the
current period were bolstered by the Company's mortgage business while the loss
incurred during the same period last year was exacerbated by the Company's lack
of any operating business at that time.
No additional meaningful comparisons can be made for the six month period ended
June 30, 2003 compared to the six month period ended June 30, 2002.
7
Earnings Per Share
The Company earned $1.17 per share for the six month period ended June 30, 2003
compared to a loss of $3.65 per share for the six month period ended June 30,
2002.
Weighted Average Common Shares Outstanding
The weighted average number of common shares and common stock equivalents
outstanding used in the computation of basic and diluted earnings (and losses)
per common share was 252,313 for the quarter ended June 30, 2003 compared to
2,145,000 (107,250 split adjusted) for the quarter ended June 30, 2002. The
Company implemented a 1:20 reverse stock split on June 13, 2002.
Liquidity and Capital Resources
As of June 30, 2003, the Company had cash and cash equivalents in the amount of
$77,392.
During the six months ended June 30, 2003, net cash provided by operating
activities was $382,726 compared to net cash used in operating and discontinued
activities of $279,091 during the six months ended June 30, 2002. This
significant increase in cash provided by operating activities was due to the
positive cash flow generated by the Company's mortgage business.
During the six months ended June 30, 2003, net cash used in investing activities
was $4,065,504 compared to net cash used in investing activities of $1,597,696
during the six months ended June 30, 2002. The increase in cash used in
investing activities was primarily due to the Company's acquisition of Easton
Mortgage Corporation effective January 1, 2003.
During the six months ended June 30, 2003 net cash provided by financing
activities was $3,134,680 compared to net cash provided by financing activities
of $773,346 for the six months ended June 30, 2002. Cash provided by financing
activities for the period included an increase in notes payable of $2,984,840.
We expect to continue seeking strategic acquisitions where acceptable
consideration consists of a combination of cash, notes and/or common stock, and
believe that we have adequately anticipated any future capital funding needs for
such acquisitions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2003, approximately 84% of the Company's total assets were
invested in the mortgage banking industry. The mortgage banking industry is
highly competitive, and most of our competitors have significantly greater
financial resources and significantly greater infrastructure than we do. The
mortgage banking industry is highly cyclical, and we could experience a material
adverse change in our business if the economy continues to perform poorly. The
mortgage banking industry is also highly sensitive to changes in interest rates,
with a high negative correlation between interest rates and the level of
refinancing business. If interest rates increase significantly, we could
experience a material adverse change in our business.
Also as of June 30, 2003, approximately 5% and 7% of the Company's total assets
were invested in the gold mining industry and the natural meat industry,
respectively. Therefore, the Company is currently exposed to risks associated
with the market prices for commodities such as gold, beef, pork, lamb and
certain natural grains comprising livestock feed. The particular risks
associated with the Company's investments in these industries are somewhat
mitigated by the fact that the Company's investments are indirect, and so it has
no direct market exposure to commodity price fluctuations, and, in the case of
the meat industry, by the meat company's own active risk management activities
as part of their normal business operations. At this time, the Company does not
anticipate that its long term future business, or any significant part of its
future assets, will be related to these industries.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
32.1 Certification by Robert E. Dixon as Chief Executive Officer.
32.2 Certification by William G. Knuff, III as Chief Financial Officer.
b. Reports on Form 8-K
On August 6, 2003, a report on Form 8-K was filed with the SEC disclosing an
investment in American Residential Funding, Inc., a subsidiary of Anza Capital,
through a securities exchange agreement. This report is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUTTER HOLDING COMPANY, INC.
Date: August 13, 2003 By: /s/ ROBERT E. DIXON
Robert E. Dixon
Co-Chairman of the Board and
Co-Chief Executive Officer
and President
Date: August 13, 2003 By: /s/ WILLIAM G. KNUFF, III
William G. Knuff, III
Co-Chairman of the Board and
Co-Chief Executive Officer
and Chief Financial Officer
9
CERTIFICATIONS
I, Robert E. Dixon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SUTTER
HOLDING COMPANY, INC.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: August 13, 2003 By: /s/ ROBERT E. DIXON
Robert E. Dixon
Co-Chairman of the Board and
Chief Executive Officer
10
I, William G. Knuff, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SUTTER
HOLDING COMPANY, INC.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: August 13, 2003 By: /s/ WILLIAM G. KNUFF, III
William G. Knuff, III
Co-Chairman of the Board and
Chief Financial Officer
11