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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(g) of The Securities Exchange Act of 1934
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GENESIS INSURANCE & FINANCIAL
SERVICES, INC.
STATE OF INCORPORATION: NEVADA
IRS EMPLOYER ID NO: 62-1636208
BUSINESS ADDRESS
STREET 1: 735 BROAD STREET
SUITE 1001
CITY: CHATTANOOGA
STATE: TENNESSEE
ZIP: 37402
BUSINESS PHONE: (423) 266-7544
Securities to be registered pursuant to Section 12(g) of the Act: None
- Exchange: N/A
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement on its
behalf by the undersigned, thereunto duly authorized.
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
By: /s/ Mohamed Khairy Mohamed Zayed
----------------------------------------
Mr. Mohamed Khairy Mohamed Zayed, II
President/CEO
Date: 11/19/96
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TABLE OF CONTENTS
I. GENESIS INSURANCE & FINANCIAL SERVICES, INC.
DESCRIPTION OF BUSINESS
- Background
- The Products
- Management
- In-House Management
- Outside Management Support
- Marketing
- Conclusion
COMPANY PROFILES AND INDUSTRY DISCUSSION
- Insurance Industry
- Agency Acquisition Proposal
- Projection of Profits for First Five Years of Operation
- Company Owned Finance Company
- Priscott, Whittley & Rose
(Agency Acquisition and Management Company)
- Congress Re-Insurance Corporation, Inc.
- The Non-Insurance Surety Industry
- MotorSports Travel Centers, Inc.
OTHER LONG RANGE PLANS
- Company Owned Insurance Company
- Expansion into Other States
- Increased Sales of Non-Insurance Sureties
- International Bank and Trade Finance
- Acquisition of a Treasury Listed Carrier
- Natural Gas/Energy Development Program
- Guarantee Settlement Corporation, Inc.
- Longhorn Energy Corporation, Inc.
- Proforma Consolidated Financial Statements, Years 1-5
- Consolidated Proforma Operating Statements, Months 1-24
- Five Year Proforma Annual Consolidated Operating Statements
- International Medical Products, Inc.
- Imagex Services, Inc.
- American Lift
- Miller Mountain Gold Mine
- MotorSports Travel Centers, Inc.
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SUMMARY OF INDUSTRY RISK FACTORS
- Insurance Industry
- Non-Insurance Surety Industry
- Medical Products and Service Industry
- Gold Mining Industry
- Natural Gas Development
- Industrial Life Manufacturing Industry
- Liquidity and Capital Resources
II. MANAGEMENT'S DISCUSSION AND ANALYSIS
- Plan of Operations
- Genesis Insurance & Financial Services, Inc.
III. MANAGEMENT'S DISCUSSION OF OPERATION RESULTS
- Operations
- Balance Sheet
- Cash Flow and Liability
- Results Of Operations For The 12-Months Ended 12/31/95
IV. CONGRESS RE-INSURANCE and its SUBSIDIARIES
- Guarantee Settlement Corporation
- Longhorn Energy Corporation, Inc.
OTHER COMPANIES:
- International Medical Products,Inc.
- Imagex Services, Inc.
- American Lift, Inc.
- Miller Mountain Gold Mine
- Priscott, Whittley & Rose
- MotorSports Travel Centers, Inc.
VI. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- Resumes' of Directors and Executive Officers,
- Promoters and Control Persons
- Executive Compensation
VII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
VIII. LEGAL PROCEEDINGS
</TABLE>
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IX. DESCRIPTION OF PROPERTY
- Genesis Insurance & Financial Services, Inc.
- Priscott, Whitley & Rose
- Congress Re-Insurance Corporation, Inc.
- International Medical Products
- Imagex Services, Inc.
- Longhorn Energy Corporation
- American Lift, Inc.
- MotorSports Travel Centers, Inc.
X. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
- Recent Sales Of Unregistered Securities
- Description Of Registrant's Securities To Be Registered
- Indemnification Of Directors And Officer
- Changes In And Disagreements With Accountants
XI. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- Transfer Agent
- Over-The-Counter Market (OTC)
- Market Price Of and Dividends On the Registrant's Common Equity and
Other Stockholder Matters
- Options, Grants and Exercises and Long Term Incentive Plans
</TABLE>
EXHIBITS
- - Prior Four Year Audited Financial Statements while Operating as Congress
Re-Insurance Corporation, Inc., Academy Insurance & Financial Services,
Inc. and Guardian Insurance & Financial Services, Inc. (Now Genesis)
(ADDITIONAL EXHIBITS MAY FOLLOW IN THE FORM OF AMENDMENTS)
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GENESIS INSURANCE & FINANCIAL SERVICES, INC.
BACKGROUND
DESCRIPTION OF BUSINESS
Created in 1988 as a Nevada Corporation trading under the name BIG BOSS
MINES, then, SPECTRUM MANAGEMENT UNDERWRITERS GROUP, INC. (SMUG), the Company
was later renamed after the acquisition of PAP Finance, Inc. to ACADEMY
INSURANCE & FINANCIAL SERVICES, INC. and structured for the purpose of
acquiring a series of insurance agencies and companies. On July 15, 1995,
Academy Insurance & Financial Services, Inc., trading as AIFS (NASDAQ B.B. -
OTC), acquired CONGRESS RE-INSURANCE CORPORATION, INC. CONGRESS, operating as a
Non-Insurance Surety company, and associated with a group of financial services
companies incorporated since 1987. The CONGRESS group maintains assets valued
at over 130 million dollars, with a value of approximately 90 million dollars
after contingent liabilities. On December 4, 1995, the Company's name was
changed to GUARDIAN INSURANCE & FINANCIAL SERVICES, INC. and, in settlement of
a trademark dispute, to GENESIS INSURANCE & FINANCIAL SERVICES, INC.
CONGRESS started its operations with over 12 million dollars in sales of
Non-Insurance Surety bonding and collateral packages, and has grown to over 35
million dollars in sales in 1995. The average gross profit has historically
been between 1% and 5% of gross sales, with the average cost of sales at forty
percent. CONGRESS Re-Insurance Corporation, Inc., anticipates its bond and
collateral package sales alone to increase by over 60% annually by 1998.
Additionally, with regard to GENESIS' operations, our goal is to increase
consolidated sales to as much as 180 million dollars (subject to the success of
the Company's anticipated public offering), where anticipated profits could
reach 70 million dollars, projected from the combined operations of both
GENESIS Insurance & Financial Services, Inc., and CONGRESS Re-Insurance
Corporation. This projected revenue and sales base is the result of combining
the agency acquisition plans of GENESIS Insurance & Financial Services, Inc.
with the plan for increased bonding and acquisitions of diversified investments
by the Company together with its subsidiary operations, all operating under the
umbrella of GENESIS Insurance & Financial Services, Inc. (The foregoing
expansion, growth and revenue projections are subject to the successful
placement of an anticipated 25 million dollar stock offering).
During November of 1995, when CONGRESS RE-INSURANCE CORPORATION, INC.
acquired its parent, ACADEMY INSURANCE FINANCIAL SERVICES, INC., and Mohamed
Khairy Mohamed Zayed, II, replaced Mr. Stan Cohen as its Chief Executive
Officer. Academy was thereafter renamed GUARDIAN INSURANCE & FINANCIAL SERVICES,
INC. and a comprehensive plan of acquisitions were formulated to combine its
original "insurance agency acquisition plan" with the existing CONGRESS plan for
the strategic acquisition of income-producing properties and investments in the
Hospitality, Agriculture, Petroleum, Banking, Transportation, and Medical
Technology Industries. This plan of diversity in the Company's holdings
creates, we believe, protected value for its shareholders and increases the
value of its Non-Insurance Surety products, which are backed by the value of its
diverse asset base.
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GENESIS Insurance & Financial Services, Inc., through the combined assets
of its wholly-owned subsidiary, CONGRESS Re-Insurance Corporation, Inc.,
together with its existing and future subsidiaries program, believes it is in a
position of financial strength which will allow it both to move into the rated,
regulated insurance industry, as well as to take advantage of the global
opportunities in growth through acquisitions and through the expansion of its
diverse subsidiary and asset base.
BACKGROUND
For many years people have established financial service companies and
insurance companies with excellent operational plans and exciting growth plans
for the future. Unfortunately, because of a lack of attention to diversification
of assets and operations, many failed or became "Turn-Around Targets" which were
acquired by stronger companies in their industry in order to save the newcomers
from imminent demise.
GENESIS Insurance & Financial Services, Inc., being well aware of the
pitfalls associated with changing economic and political conditions, has
designed a comprehensive plan of diversification which has led to the current
success of its wholly-owned subsidiary, CONGRESS Re-Insurance Corporation, and
which management believes will also guarantee GENESIS Insurance Financial
Services, Inc., a position of financial strength well into the future.
GENESIS Insurance & Financial Services, Inc., through its subsidiary
CONGRESS Re-Insurance Corporation will continue marketing its unique brand of
Non-Insurance, corporate indemnification products at competitive rates, while
the GENESIS subsidiary will market a wide range of regulated insurance products
through its agency acquisition program. All operations will offer a high
degree of customer service and risk management. Additionally, profit centers
in GENESIS' plan of growth through acquisitions, together with revenues from
its various existing holdings, we believe will maintain the Company's growth
and will help to ensure its reputation and standing in the global economy as an
established leader in service and product value.
THE PRODUCTS
Performance Guarantee Bonds, Labor and Material Bonds, Financial Guarantee
Bonds, 2% Trade Performance Bonds, and various other structured indemnification
products currently being provided by GENESIS' wholly owned subsidiary, CONGRESS
Re-Insurance Corporation, is the primary source of revenue at present, with its
secondary source being the revenue of its other subsidiaries together with
revenue generated by international financial consulting fees.
GENESIS' subsidiary, CONGRESS Re-Insurance Corporation, Inc., has primarily
focused on the minority-owned construction company market for its performance
bonding activities. The Company services a wide variety of clients for whom it
provides trade- related performance guarantees and financial guarantee products.
There is a considerable niche market in the area of bonding minority-owned
construction firms, and the Company enjoys considerable political support for
its activities in this area, as many regulated "Insurance Sureties" are very
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demanding in their underwriting requirements, which has made it extremely
difficult for many smaller firms to obtain rated bonding.
GENESIS Insurance & Financial Services, Inc., through its subsidiary,
CONGRESS Re-Insurance Corporation, Inc., maintains a high degree of control and
accountability in the area of risk management through the implementation of
"builder disbursement accounts," a very broad "counter-indemnity" agreement and
"power of attorney" over its clients, together with other comprehensive
monitoring programs which ensure top-level risk management while allowing
clients to bid on and obtain quality projects for which they could not obtain
rated sureties elsewhere.
We believe that CONGRESS' unique concept of collateralization and
indemnification programs are on the "cutting edge" of today's global economy,
when the demand for various trade-related indemnification products has never
been higher, through combining CONGRESS Re-Insurance Corporation's Non-Insurance
Surety Bonding activities and acquisition plans with the insurance agency
acquisitions planned by GENESIS Insurance & Financial Services, Inc.
Accordingly, GENESIS will take full advantage of the opportunities available in
today's global economy, giving it an extremely effective marketing and delivery
system which will greatly enhance revenues in all profit centers.
GENESIS Insurance & Financial Services, Inc., and its subsidiaries also
plans to take advantage of the opportunities in the international banking
industry through the strategic acquisition of a small ($7 to $10 million in
assets) internationally chartered bank in 1997, which will increase the
multitude of financial services which the Company is able offer its clients
throughout the world.
GENESIS Insurance & Financial Services, Inc. further plans to acquire
various companies in the Medical Technology industry to further diversify its
holdings, while maintaining the majority of its holdings in Treasuries and
other Securities Portfolios, cash, gold, real estate, gas wells and other
diversified assets.
GENESIS' immediate goals, as set out above, included a small (Rule 504)
stock offering to capitalize the beginning stages of its acquisition and
marketing program. This Offering was successfully completed and placed for
cash and services equal to $1,000,000 on August 8, 1996. Additionally, the
Company plans a Secondary Offering of common stock to raise approximately 25
million dollars during 1996 and second quarter of 1997 in order to facilitate
its acquisition and expansion program. The Company believes that by year-end,
the Company's stock will exceed at least its book value, and therefore
substantial dilution will not occur as less shares will be required to reach 25
million dollars.
GENESIS INSURANCE & FINANCIAL SERVICES, INC.'s long term mission is to
build a strong, diversified and internationally prominent group of companies
supplying quality and value to the Regulated Insurance markets, the
Non-Insurance Surety markets, the medical industry, mechanical lift industry,
mining industry and the International Banking community. With the Company's
previous success and with the implementation of its quality, experienced
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management team, we hope to see GENESIS Insurance & Financial Services, Inc.
grow into a multi-national Fortune 500 corporation in the coming years.
MANAGEMENT
The management and operation team consists of approximately twenty men
and women whose backgrounds consist of Insurance, Non-Insurance Surety,
Banking, Structured Finance, Management, Investment Management, International
Law, Trading and Economics, many of whom have been associated with Fortune 500
Companies in the past. Additionally, our outside Management advisors provide
tremendous support for management decisions and creativity. Comprehensive long
term marketing programs for each of our family of companies are in place and
described more fully in each company's business overview.
IN-HOUSE STAFF AND MANAGEMENT
Mr. Mohamed Khairy Mohamed Zayed, II, President-CEO, Genesis Companies
Mr. Gary Emery, VP, Marketing & Sales, Congress Reinsurance & Genesis
Mr. Darrell Morgan, Sr. VP, Operations, President, Priscott, Whittley &
Rose, Inc.
Mr. Michael Edison, Operations Manager, Priscott, Whittley & Rose, Inc.
Dr. Nayan Shah, President, IMP, Inc. Division
Dr. Andrew Cappoccia, President, Imagex Division
Ms. Lisa Lovell, President, American Lift, Inc. Division
Mr. Michael Rehtorik, Investor Relations (Genesis)
Ms. Deborah T. Evans, Information Services Manager (Staff)
Ms. Janet M. Robert, Paralegal Assistant (Staff)
Ms. Gayle Slaten, Communications Manager (Staff)
Ms. Stephanie Mealer-Zayed, Payroll Assistant (Staff)
Mr. Ken Todd, Investor Relations (Staff)
OUTSIDE MANAGEMENT SUPPORT (HOURLY/PROJECT BASIS)
Mr. Herbert Woll, CPA
Mr. A.C. McKee, CPA
James Pratt, Esq., Attorney
Jack Quarant, Attorney
Aguliar & Sebastianelli, P.C., Attorney
Nelson Rui G. Xavier Aquino, Esq., International Attorney
Mr. Robert Gartzman, Consultant
Hayden Financial Corporation, Consultant
First Equity Corporation, Inc., Consultant
Chase Capital Services, Inc., Consultant
Ferguson Financial Insurance Services, Consultant
Mrs. Donna Maxine Ferguson, Consultant
Morgan Insurance Group, Inc., Consultant
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MARKETING
The market research accumulated by GENESIS Insurance & Financial Services
and its family of companies project a worldwide market for its products and
services to be well over $150 billion dollars by the end of 1998. Conservative
estimates suggest Genesis' market share, with the Company's intensified,
accelerated national marketing plan, product development, and customer service,
the Company hopes to capture an average market share, which could generate as
much as $180 million dollars in gross revenue annually by the end of 1998, in
the agency acquisition program alone, together with a comparable consolidated
profit center from the Company's other subsidiaries as well.
CONCLUSION
Genesis Insurance & Financial Services, Inc. and its family of companies
enjoy an established track-record of excellence and support services for our
customers. Their expressions of satisfaction and encouragement are numerous,
and we plan to continue our advances in the global marketplace with our unique
and instrumental products and services and take advantage of the opportunities
available in today's Global Economy.
COMPANY PROFILES AND INDUSTRY DISCUSSION
INSURANCE INDUSTRY
There are basically two areas of retail sales in the insurance industry:
the standard products sold both direct and through independent agents by
national companies, such as Allstate, State Farm, Prudential, Chubb, Aetna,
etc., and the non-standard higher-risk products offered to those who cannot
qualify for the higher standard insurance products. We plan to market our
products to the non-standard market. The non-standard market is a
higher-premium, more profitable product which represents, in many cases, the
larger segment of the market. Further, the insurance industry has some unique
advantages in the states of Florida, North Carolina, Tennessee and many other
selected states, not necessarily common to other industries.
First, auto insurance is a mandatory purchase based upon the laws of the
State as well as a requirement of banks and leasing companies. Also, commercial
insurance products are required by landlords, general contractors and many other
industries due to legal and moral responsibility that many insureds experience,
thus causing them to purchase coverage. It is probably the only service that
seems to be recession-proof. There is no choice of purchase, they must buy due
to the above noted legal requirements.
The retail agencies have not been hurt by the recent natural disasters
that have caused many of the insurance companies to either go out of business
or greatly reduce their sales. The reasons for this are mostly those noted
above, that is, the purchase of these insurance products is based upon
requirements established by persons other than the insured (state, county,
landlords,
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contractors, etc.). Consequently, we believe that our agency acquisition
program focused on the area of the industry previously discussed will help
guarantee the success of our group of companies well into the future.
Further, it is our intention to explore other avenues for future profit
opportunities due to the large amount of annual premium which we will control.
This includes:
AGENCY ACQUISITION PROPOSAL
"GENESIS" plans to raise $25 million in funding, part of which will be
used to acquire the above-mentioned 50+ automobile insurance sales agency
locations and facilitate the acquisition, renovation and expansion plans of its
other operations. The funds will be acquired through a public offering, which
we anticipate to be complete during the fourth quarter of this year.
THE FOLLOWING IS A PROJECTION OF THE PROFITS FOR THE FIRST FIVE
YEARS OF OPERATIONS.
It is based on the anticipated projected earnings of 50+ agency locations
with adjustments for centralized operations and the addition of products not
sold by the present operations, plus normal expansion thereafter. We shall
utilize the cash we generate each fiscal year to allow for the expansion and
operation of additional units. Further, we project that there will already
exist by that time a solid state-wide management organization to simplify such
expansion.
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AGENCIES: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
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LOCATIONS 58 97 134 220 370
POLICIES 79,575 148,665 265,320 435,600 732,600
PREMIUMS $48,063,300 $89,793,660 $160,253,280 $263,102,400 $442,490,400
REVENUE $ 9,096,522 $18,095,504 $ 32,294,750 $ 53,021,232 $ 89,172,072
EXPENSES $ 5,614,520 $10,178,201 $ 16,566,195 $ 28,193,021 $ 47,021,721
=================================================================================
GROSS $ 3,482,002 $ 7,917,303 $ 15,728,555 $ 24,828,211 $ 42,150,351
PROFIT (PRE-TAX)
</TABLE>
In summary, the foregoing is a general description of the insurance
industry sector involved and followed by an overview of projected performance
and operation forecast, of (Developmental Stage) Priscott, Whitley & Rose, Inc.
and other owned companies (excluding IMP, Inc. and Miller Mountain Gold Mine,
which follow).
COMPANY OWNED FINANCE COMPANY- Based on anticipated annual premiums of
over $50,000,000, we hope to structure and operate our own profitable financial
services company to finance those premiums in the future (during our fourth or
fifth years).
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PRISCOTT, WHITTLEY & ROSE
(AGENCY ACQUISITION AND MANAGEMENT COMPANY)
A WHOLLY OWNED SUBSIDIARY OF GENESIS INSURANCE & FINANCIAL SERVICES, INC.
Priscott, Whittley & Rose, Inc., a wholly owned subsidiary of Genesis
Insurance & Financial Services, Inc. was formed for the specific purpose of
developing and implementing a nationwide agency acquisition program with a
strong focus on the non-standard auto lines agencies. For Priscott, Whittley &
Rose, Inc., the Company has employed Mr. Michael Edison, President of The
Edison Companies, New York, New York and Mr. Darrell Morgan, Sr. Vice President
of Morgan Insurance Group, Atlanta, Georgia, both of whom have decades of
experience in agency acquisition consolidation and management. Mr. Morgan will
operate as the Company's President while Mr. Edison shall serve in the capacity
of Chief Operating Officer. The Company will institute its agency acquisition
program upon the successful placement of the Company's anticipated secondary
offering in which it is expected that the Company will earmark approximately $7
to $12 million in cash which will be used to support the operations of the
acquisition program, initially.
As demonstrated in the proforma operating statements included with this
general background and representation, this particular model is based upon a
50+ agency acquisition program in the short term which may include one or more
large agency groups rather than a large number of smaller independent single
agencies. The company's revenues expectations and growth depends upon the
success of capitalizing the acquisition program through the anticipated public
offering or a private placement as the case may be. Additionally, the
fundamental principles upon which the proforma operating statements were based
are primarily derived from similar programs which were successful in the actual
implementation, one of which was founded by Mr. Edison in the mid-80's by the
name of Wicombe & Keates. The Company also intends to focus upon this
particular acquisition program as its most prominent source of revenue and cash
flow and therefore yields the most detailed proforma operation forecast and
detailed cash flow projections.
Additionally, the Company believes that through the agency acquisition
program developed by Priscott, Whittley & Rose, Inc. officers, Morgan and
Edison, together with the management of Genesis Insurance & Financial Services,
Inc., low cost, high quality, competitive product lines can be delivered to the
national consumer base associated with this particular non-standard auto lines
product based on contenders for the competition which already exists in this
area and the Company also expects that the development of a centralized
processing center and information systems and development facility will also
help the Company maintain higher profits and lower overhead ratios by virtue of
the volume of business and the affect which centralized control management
features provide.
Again, our primary goal is the consolidation of 50+ non-standard auto line
agency locations across the State of Florida, North Carolina and Tennessee
(under one ownership and management) which we believe could place GENESIS
Insurance & Financial Services, Inc.,
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("GENESIS") among the larger independent insurance providers in those states by
the latter part of 1998. Subsequent goals of acquiring 100 or more agencies in
the succeeding years, if achieved, will provide the Company with even more of a
command of the non-standard insurance products. At that level of volume
"GENESIS" would be able to reduce operating costs while providing better service
and increasing revenue. We would enjoy additional volume bonuses from various
insurance companies whom we may represent that are not available to agencies
with lesser volume.
CONGRESS RE-INSURANCE CORPORATION, INC.
A NON-INSURANCE CORPORATE SURETY
THE NON-INSURANCE SURETY INDUSTRY- GENESIS, through its wholly-owned
subsidiary, CONGRESS RE-INSURANCE CORPORATION, INC., offers a vast array of
Non-Insurance Surety products, performance, payment, bid, labor, and
materials, bonds, financial guarantee bonds, trade performance bonds, and other
specially-structured indemnification instruments, all of which emanate from the
statutory authority (both state and federal) which allow for the application
and issuance of non-insurance corporate and individual surety obligations
within the United States, and pursuant to international law as it pertains to
the same. While it is unique by virtue of the fact that CONGRESS, is one of
the few corporations which have capitalized on the statutory authority afforded
under the law, which provide for the unregulated application and right to offer
corporately/individually-guaranteed surety and co-surety (re-insurance)
products throughout the country, without the cost burden of regulatory
oversight which regulated insurance carriers are required to endure.
CONGRESS RE-INSURANCE CORPORATION, INC., and its unique brand of
Non-Insurance Surety products, was born out of the increasing demand for surety
in the minority-owned and disadvantaged business community, where regulated (and
rated) bonding is virtually impossible for small firms, and large firms alike,
to obtain, without posting a near one-for-one cash collateral guarantee to the
insurer. This being a nationwide attitude amongst the regulated insurance
community, CONGRESS devised a mechanism of sophisticated accountability and
control provisions which yields an intense risk management, oversight unit for
each client, and every project under bond issue by CONGRESS in connection with
contracts and performance obligations emanating from the construction industry,
as well as those obligations which reside in the minority-owned or disadvantaged
trading companies.
Some of the features which make our Non-Insurance Surety products as
valuable, if not more valuable than regulated bonding issued by major insurers,
is the fact that we utilize a ratio of 1:1 in our issuance of indemnification
contracts (bonds) versus a 4:1 or more ratio which is used by the regulated
insurance industry. Consequently, guarantees issued by CONGRESS RE-INSURANCE
CORPORATION, INC., are backed by collateral in a 1:1 ratio held by CONGRESS, in
addition to the assets of the client, which are assigned by virtue of a power
of attorney and a very strict indemnity agreement which is operative through
each and every transaction-specific project under bond, which we believe yields
a collateralized guarantee which
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has a value far in excess of many regulated insurance concerns by virtue of the
fact that there is a great disparity in the manner which contingent liabilities
are placed in relation to actual assets on hand. For instance, a regulated
insurance concern may write a bond, or issue an indemnification instrument for
one million dollars, against assets which, in fact, do not yet exist, because
they have written obligation four times actual assets retained by the company.
This is perfectly legitimate, and a well-accepted method of operation which is
based on the theory and calculation of "loss ratios" which are analyzed and set
by management. Consequently, the Department of Commerce and Insurance for
various states which regulate insurance activities will allow an insurance
company to write up obligations far in excess of its actual asset holdings if
their "loss ratios" are low enough to merit such activities based on this method
of calculating contingent liabilities. While this has worked well for some
hundreds of years, it has also backfired many times in the face of natural
disasters or other unforeseen events where an insurance company, utilizing this
method of operations, is faced with multiple calls on bonds outstanding, which
far exceed its available asset base, and the state is required to liquidate its
position, pay those obligations and settle for a value much lower than the
loss(es) involved.
Consequently, many insurance companies have been forced out of business
and many recipients of their guarantees have either been forced to "settle" for
much less than their actual losses, without any recourse whatsoever. Also, the
theory of "layering" regulated re-insurance, who take positions in contingent
liabilities of an insurer, and in turn participate in the premium revenue
obtained through the issuance of such obligations, and because the re-insurance
companies utilize a similar calculation of contingent liabilities in multiples
over and above their available assets, a virtual "house of cards" exists in the
face of a serious disaster or major default under a series of obligations or
even one major obligation in default. Also, another disparity between the
regulated insurance market and the Non-Insurance Surety business (calculating a
one-for-one asset-to-obligation ratio) is that, based on the foregoing
principles, the obligations of CONGRESS RE-INSURANCE CORPORATION and the manner
in which it operates, are, in actual fact, backed by several hundred percent
more actual available assets than that of an opposing company using a loss ratio
principle, issuing bonds in multiples over and above its actual asset holdings.
Further, it is interesting to note another distinct difference between the
regulated insurance bonding industry, utilizing these particular principles, and
that is the fact that "insurance contracts" are considered "unilateral" in
nature, whereas non-insurance corporate and individual sureties and guarantees
are considered "bilateral" in nature, by virtue of the fact that an insurance
contract guarantees the loss value under a bond only, and does not expose itself
to the obligation of actually completing a project under construction, or any
other performance under a third party contractual obligation. In other words,
CONGRESS RE-INSURANCE CORPORATION, in the operation of its bonding, obligates
itself pursuant to caveats in its indemnification agreement, which both allow
and require it to have the right to complete the performance requirements of the
client as set out in the underlying contract performance under bond, as well as
the obligation to pay the loss value emanating therefrom. Consequently, CONGRESS
becomes co-guarantor and participant with the client and has the right to
replace work crews, finish or replace unacceptable work product, effectuate
other performance obligations required under various contracts under bond, in a
timely manner, together with the right and obligation to satisfy any loss value
which may occur pursuant to a default under any particular bond.
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Accordingly, CONGRESS has been able to successfully cure default in many
cases without having to pay losses in cash, but rather, completing "work
product" by subcontracting or taking over general contracts, with the support
of independent consultants and other entities which CONGRESS may engage to
cure a default under a particular performance-related contractual agreement
under bond, rather than simply writing a "blank check" to the loss payee.
This method of operation has been well-received by the client base of CONGRESS
RE-INSURANCE CORPORATION, together with their principals and obligees.
CONGRESS RE-INSURANCE CORPORATION, INC., is also in the process of supporting
the formation of a national association which will yield oversight to the
currently unregulated Non-Insurance Surety market, and is also a supporter of
legislation which shall protect the Non-Insurance Surety markets from unfair
competition and unfair attempts to regulate the market, which has occurred from
time to time in various states, which consider Non-Insurance Surety obligations
to be in direct competition with regulated insurance. CONGRESS believes that
in the next year, a national association will be formed complemented by
legislation and support of protective covenants and other features to be
included with the statutory authority which already exists, both on the federal
and state levels, and which will further complement the operations of
non-insurance sureties throughout the United States.
In conclusion, CONGRESS RE-INSURANCE CORPORATION, together with its parent
company, GENESIS INSURANCE & FINANCIAL SERVICES, expect to enjoy a considerable
increase in the application of Non-Insurance Surety products throughout the
United States and abroad as a result of its asset acquisition program, which
shall allow considerable growth in the number of obligations issued by CONGRESS
RE-INSURANCE CORPORATION. Further, with the implementation of its national
marketing campaign, currently underway, CONGRESS RE-INSURANCE CORPORATION
expects a considerable increase in revenues generated through the application
of Non-Insurance Surety products which guarantee obligations that are suited
for corporate surety guarantees, as opposed to regulated and rated insurance
products. Lastly, a proforma representation of the increase in revenue
associated with the Non-Insurance Surety operations of CONGRESS RE-INSURANCE
CORPORATION may be found in the Consolidated Operation Statements and Balance
Sheets which are a part of this comprehensive business plan. This information
and the results of the increased marketing efforts of CONGRESS RE-INSURANCE
CORPORATION, will be reported quarterly to its shareholder base and integrated
into the public filings of its parent company, GENESIS INSURANCE & FINANCIAL
SERVICES, INC.
OTHER LONG RANGE PLANS
COMPANY OWNED INSURANCE COMPANY- We may also have the opportunity to
selectively insure a portion or all of our own policies if expected revenue
levels are achieved. At that point, we will be able to select the least-risk
products and Insureds, as well as the maximum profits available. Further,
there are many good carriers that we would be able to acquire in the future if
it proves to be more advantageous than operating a company owned Direct
Insurance Division.
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EXPANSION INTO OTHER STATES- Based on our experiences and research in
Florida, North Carolina and Tennessee, we should enjoy greater productivity
offering an opportunity to expand these programs into other states which share
comparable laws and retail systems.
INCREASED SALES OF NON-INSURANCE SURETIES-Through CONGRESS Re-Insurance
Corporation we shall increase Non-Insurance Surety sales considerably due to
the increase in asset value and revenue of the parent company [GENESIS],
together with its increased national marketing efforts and diversification
plan.
INTERNATIONAL BANK AND TRADE FINANCE CO.-GENESIS plans to acquire (during
the next year) an internationally chartered banking institution to take
advantage of the opportunities in global trade finance and investment
management. It is anticipated that approximately 7 to 12 million dollars would
be required to facilitate such an acquisition.
ACQUISITION OF A TREASURY LISTED CARRIER- The acquisition of and/or
establishment of a small Treasury listed carrier would greatly enhance our
profit margins and increase revenues. Consequently, the Company plans to
acquire or establish such an operation during the next two years.
NATURAL GAS/ENERGY DEVELOPMENT PROGRAM- GENESIS, through its wholly-owned
subsidiary, LONGHORN ENERGY CORPORATION, INC., plans to develop its recently
acquired natural gas wells which consist of five (5) capped wells located in
northwest Tennessee (Morgan County) by engaging them on-line within the second
quarter of this year. Well revenue will be used to acquire and develop up to
10,000 acres of additional properties in the area whereby the energy units may
be marketed and sold off during the next 3-5 years. Funds from liquidation
would be utilized to capitalize Genesis' related operations.
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GUARANTEE SETTLEMENT CORPORATION, INC.
GUARANTEE SETTLEMENT CORPORATION, INC., a Delaware Corporation and wholly
owned subsidiary of Genesis Insurance & Financial Services, Inc. was originally
established to become a division of CONGRESS RE-INSURANCE CORPORATION as a
small independent surety Company and is currently in the developmental stage
whereby its primary investment is a 620 acre real estate property deeded to the
Company which exists an operating agriculture business (cattle ranch); whereby
the operating income and revenue is not expected to exceed 15% of the revenue
base of Genesis Insurance & Financial Services, its parent Company, and
consequently, only the proforma operating statements and projections are
included with a general summary of its assets which include approximately 270
head of Longhorn Cattle, a poultry breeding operation, which consists of
approximately 40,000 chickens under a contract with a local poultry processing
Company by the name of BENNETT POULTRY CORPORATION, INC., two small houses and
trailer all of which house employees (5 including contract employees), general
farming equipment (tractors, haybailers, feeding equipment, feed stock,
medication, and other operating equipment). Guarantee Settlement Corporation
through its parent Company, Genesis Insurance & Financial Services, Inc.,
acquired the property as an investment but plans to develop and sell the
property in the future or by the original purchase price of 1.2 million dollars
in a stock and cash transaction whereby 406,626 shares of 144 restricted stock
in Genesis Insurance & Financial Services in exchange for all titles and deeds
to the property and its equipment and operations including all contracts and
revenue screen. The operation currently makes approximately $320,000 a year
and is currently operating at a "break even" level. The unaudited financial
projections are as follows:
LONGHORN ENERGY CORPORATION, INC.
LONGHORN ENERGY CORPORATION, INC. was formed as a wholly owned subsidiary
of Genesis Insurance & Financial Services whereby all of the natural gas
properties, mineral rights, leases and other liberty interests, was conveyed
and deeded to the Company as part of the transaction with "Serenity Acres"
property to Guarantee Settlement Corporation as described above. However,
these assets were deeded separately and it is the intention of the Company to
exploit the natural gas resources which exists in five (5) drilled and capped
natural gas wells on the properties deeded to Longhorn Energy Corporation, Inc.
Based on geology and "well-head blow off tests", the consolidated value of
the natural gas wells are approximately 5 million dollars over an estimated 10
year life for an expected annual revenue of $500,000 per annum after the wells
are tied into a collection and delivery system. It is expected that
approximately $150,000 - $200,000 will be required to accomplish this goal and
make the natural gas well investment a revenue producing investment. As
currently the operation of the Longhorn Energy Corporation produce no revenue
and exist in the developmental stage, with future goals which include tying in
the natural gas well to a collection of delivery systems enabling the sale of
natural gas at current market rate. Based upon the fact that the expected
revenue from operations will be less than 15% of the revenue of Genesis
Insurance & Financial Services, Inc. management has included only proforma
financial projections based upon expected revenue upon development, as
previously described.
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INTERNATIONAL MEDICAL PRODUCTS, INC.
A WHOLLY OWNED SUBSIDIARY OF GENESIS INSURANCE & FINANCIAL SERVICES, INC.
GENERAL BUSINESS PLAN AND SUMMARY OF OPERATIONS
I. COMPANY DESCRIPTION
International Medical Products, Inc. (the Company), a wholly owned
subsidiary of Genesis Insurance & Financial Services, Inc., is a company formed
to design, develop, assemble and market primarily, a pocket-sized endotracheal
and tracheostomy tube "cuff pressure monitoring device" ("Digital P-V Gauge").
This pocket-sized instrument allows the health care personnel as well as
patients at home to maintain proper cuff pressure. The company is a new
enterprise (2 years of actual sales) in the early stage of growth and
expansion.
II. PRODUCT DESCRIPTION
The Company's product is called the "Digital P-V Gauge" which is a
pocket-sized instrument. When attached to the one-way valve of either the
endotracheal tube or the tracheostomy tube, it allows the user to inflate,
deflate and measure the cuff pressure. Hospital personnel such as respiratory
therapists, nurse anesthetists, or anesthesiologists, can use the instrument
during the tube incubation and during tube maintenance.
The instrument allows the user to maintain safe cuff pressure and to
minimize possible irreversible necrosis development in the mucosal wall of the
trachea due to uncontrolled high cuff pressure.
Significant product features are that it is pocket-sized, accurate,
requires no maintenance and it is easy to use. It is capable of long term use
because there are no moving parts such as dials, springs, or mechanical gears.
III. ADDITIONAL CAPITAL REQUIREMENTS
Now that the DIGITAL P-V GAUGE has been successfully developed and
currently enjoys some sales, both domestically as well as internationally,
additional funds are required to complete the development of the corporations
other various intellectual property and begin production of those various
items, which consist of a cholesterol inhibiting drug, impotence management
drug and other products, together with expanding our current initial stage
marketing activities which primarily consist of several independent contracts
or sale with various vendors and our primary international marketing contract
with Mallinkrodt Corporation which without management's supervision, has
produced initial annual income (together with other sources) of over $250,000
before taxes during the past two years. It is projected that $1,500,000 -
$2,000,000 USD will be needed to complete the objectives of our Second Stage
Marketing and Development Plans. The company plans to raise these funds
through participating in a
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contemplated private placement issue of stock issued by its parent company,
Genesis Insurance & Financial Services, Inc. During the third and fourth
quarter of 1996.
Shortly after the conclusion of this offering, assuming it is successful,
International Medical Products, Inc. will implement its expanded marketing
plan, which is generally summarized below:
IV. CHARACTERIZATION OF MARKET POTENTIAL
There are approximately 2.5 million operations performed in this country
per year. Most of these are performed in surgery rooms with the patient
incubated with an endotracheal tube. Most of these tubes are properly inflated
by the anesthesiologist; "however the procedure is done by feel, touch and/or
experience."
A majority of the patients do not need endotracheal tubes post surgically
and the tubes are removed immediately after surgery. Even if the cuff pressure
is excessive, generally in these cases, the patients would not develop any
post-surgical complications. However, in patients who have longer surgical
procedures and those who have endotracheal tubes in intensive care units or
those patients who have a tracheostomy tube in them at home, it becomes
important that the cuff pressure is in the safe range.
Hospital personnel who care for the endotracheal tubes are respiratory
therapists or nurse anesthetists. The tube incubation is generally done by an
anesthesiologist. The long-term care, the maintenance of the tube and the cuff
pressure check are done by respiratory therapist and/or nurse in the intensive
care unit of the hospitals.
V. COMPETITION
Posey & Company is distributing an aneroid pressure gauge imported from
Germany. The retail price is $245 per unit. Initially, the "cuffalator" as it
is called is quite accurate. However, after it has been in use for a while it
loses accuracy. This is apparently due to its mechanical operation such as
gears, springs, etc., which could go out of alignment. The device is bulky and
not practical enough to carry around in your pocket and therefore, users do not
have it with them when they need it.
The Portax Corporation markets a hand-held device, which is electrical in
nature and it allows the user to tell whether or not a cuff pressure is higher
or lower than the safe rage. The safe range is decided by the company
producing it, and it is SET at the factory.
This product does address the issue of providing an accurate reading of
the cuff pressure; however, it does NOT offer the freedom to the user to make a
decision regarding the pressure at which he/she would like to incubate the
patient. This is particularly true when the patient may have clinical reasons
to maintain the cuff at a higher pressure temporarily.
OUR DEVICE ADDRESSES ALL OF THESE ISSUES:
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* ACCURACY,
* FLEXIBILITY,
* PORTABILITY.
WE BELIEVE THE DIGITAL P-V GAUGE TRULY FILLS THE MARKET NEED FOR THE
PRODUCT.
VI. MARKETING AND DISTRIBUTION
The marketing and distribution strategies are based on keeping the
expenses low in the early stages of the venture. Therefore, a major national
medical distributor has been selected {Mallinkrodt Corporation}, this provides
immediate, nationwide product introduction, credibility with customers,
inventory management and "one account" invoicing for the Company. It also
frees up management to perform other tasks involving research and development
of our other product projects.
VII. PRODUCT DEVELOPMENT MILESTONE
Research and development efforts have been under way for a few years and
have resulted in two U.S. patents. From which Product prototypes have been
prepared. Design changes and modifications have been made as a result of
consulting with eighteen institutions throughout the country. These new
products which consist of Impotence Management Formulations, Cholesterol
Inhibiting drugs and other products will add to the product base of
International Medical Products, Inc. in the future.
The P-V gauge product is FDA Approved as a Class II Medical Device
pursuant to acceptance of data representations made on companies filed 510(k)
applications, and is currently being marketed as an FDA Approved medical
device, and other products which are currently still in the R & D phase the
company applications (NDA - Medical Device, etc.) will be made as they are
successfully developed.
VIII. MANAGEMENT
NAYAN SHAH, age 43, serves as President, Director and Chief Executive
Officer of the Company. After receiving a Ph. D. in Medical Engineering from
University of London, Dr. Shah was a post-doctoral fellow at the University of
Chicago in the Department of OB-Gyn during 1971 through 1972.
From 1972 through 1978, he was a senior research scientist and group
leader for the development of urological and respiratory care products for the
Kendall Company, Division of the Colgate-Palmolive, Bernington, Illinois.
Candle is a leader in the medical device manufacturing.
From 1978 through 1982, he was a manager of technical planning for Medical
Venture Corp. for Sherwood Medical Industries, Division of American Home
Products, St. Louis, Missouri. Sherwood is a successful disposable medical
products company. This company
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successfully developed respiratory care and OB-Gyn products. He was also
involved in acquiring a major multi-million-dollar medical firm for Sherwood
Medical Industries.
From 1982 through 1983, he was a project manager for all operating room
(OR) products for Desert Medical Inc. a division of Warner-Lambert which
successfully introduced four new OR products for the Company.
From 1984 through 1987, he was a business manager for Medical Venture
Group, Fasson Industrial Division.
From 1987 to present, he has served as Director of Technology Transfer at
the world renown Cleveland Clinic, sat on the Board and acted as Executive
Officer in several public and private companies while continuing to operate
International Medical Products, Inc. as its President to present where he is
still active. Dr. Shah also holds a Board seat on the Parent Company Board of
Genesis Insurance & Financial Services, Inc. and its family of companies.
Also, Dr. Shah was responsible for the start-up of a venture and
successfully negotiated joint-venture contracts with major pharmaceutical
corporations within the U.S. and Europe. He left Fasson in 1987 to start.
Dr. Shah attended the University of Bombay, India and received both his
B.S. (chemistry and physics) and M.S. (organic biochemistry). He also attended
medical and graduate school at the University of London, England and received
his Doctor of Philosophy in medical engineering. Dr. Shah also has learned an
M.B.A. through the executive program at Southern Illinois University,
Edwardsville, Illinois, St. Louis campus.
Dr. Shah holds eight U.S. patents. Four patents belong to previous
corporations. He has successfully sold patent rights to two of his patents and
receives royalty payments. The other two are on cuff gauge products.
He has four other patent applications pending with the U.S. Patent Office
for Fasson and Desert Medical, Inc.
IX. PARTS, SUPPLIES, FABRICATIONS, AND MANUFACTURING STRATEGY
The product consists of a total of 13 parts. Seven parts are precision
injection molded. Four local area molders are contracted for these parts.
The other six parts are purchased parts and are always readily available.
Assembly is also currently contracted out to local contract manufacturing
companies which manufacture FDA Approved components and devices.
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IMAGEX SERVICES, INC.
A WHOLLY OWNED SUBSIDIARY OF GENESIS INSURANCE & FINANCIAL SERVICES, INC.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Imagex , Services, Inc. ("Imagex" or the "Company") was incorporated under the
laws of the State of Nevada on July 23, 1986 as Balloonies, Inc. ("BI"). BI
acquired its present operating subsidiary, Unicare Services Inc., in a reverse
acquisition on June 28, 1993 and BI changed its name to Imagex Services, Inc.
upon such acquisition. Unicare was formed to begin the present medical
diagnostic service business of the Company and had no material pre-acquisition
activities. Imagex' wholly owned subsidiaries, Unicare Services, Inc. and Rome
Magnetic Associates, Inc. which conduct business as Unicare and Rome, are
herein referred to as "Unicare and Rome"; Imagex, Unicare and Rome are herein
referred to individually or collectively as the "Company". Unicare and Rome
were incorporated under the laws of the State of New York on April 16, 1993 and
August 3, 1993, respectively. On August 9, 1996, Genesis Insurance & Financial
Services, Inc. (GIFS), a Nevada corporation, purchased over 51% control of
Imagex Services, Inc. Whereby Imagex Services, Inc. became a subsidiary of
Genesis Insurance & Financial Services, Inc.
OPERATIONS
The Company provides medical diagnostic services to patients through
contracting physicians, health maintenance organizations, preferred provider
organizations, trade unions, physician groups, clinics, as well as other forms
of group health plan providers (individually or collectively "Group Plans").
The Company enters into agreements with local Group Plans for the development
and operation of individual medical diagnostic centers ("Centers") in specific
geographical areas; currently the Company is negotiating with several Group
Plans for the development and operation of Centers in New York State and the
Carolinas.
The Centers are designed to provide diagnostic services at reduced cost for the
insured member patients. Prices are generally below the existing respective
regional market prices for similar diagnostic services offered by others.
The Company's operations had been severely limited due to the effect of a
judgment obtained by General Electric Company against the Company. The Company
and General Electric negotiated a settlement whereby the Company returned the
1.5 Vectra Tesla MRI unit for the Slocum Dixon site and received a $700,000
credit against the judgment and agreed to pay the balance of $700,000 over a
2-year period which sum the Company's president has personally guaranteed and
the Company provided to General Electric a mortgage on the Greenville Center.
The Judgment against the Company was vacated in April, 1996. The Company has
retained the Rome MRI unit and shall continue to meet its monthly obligations
under the lease for the 0.5 Tesla MRI unit located at Rome pursuant to the
settlement.
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ADMINISTRATION OF GROUP PLAN CENTERS
In the event the Company terminates any Group Plan agreements for specific
defaults, the Company is expected to generally retain the right to contract
with other Group Plans to utilize the Centers. The Company is dependent upon
maintaining and developing affiliations with Group Plans for referrals. The
Company is dependent upon a continuing public need for the services offered by
the Medical Diagnostic Centers in the locations as situated, proposed or to be
proposed.
The Company does and will concentrate its efforts on development, operation and
administration of the Company Centers. Continued research on methods to
improve operations, services, and equipment packages are anticipated to be
accomplished through monitoring of existing operations.
(1) Services
The Company devotes its principal resources to developing, operating and
administering the use of its equipment in Centers which provide medical
diagnostic services for outpatients through practicing radiologists contracting
for the use of the Company's imaging equipment. The Company contracts with and
supports the medical practices of attending radiologist-physicians who operate
medical practices at the Centers. The Company provides equipment and
facilities and derives revenue from the use of its equipment and facilities.
The type and quantity of medical examinations performed by the
radiologist-physician results in the equipment and facilities usage fees
derived by the Company. The Company provides administrative support to the
physician-radiologists, as necessary, but the Company has no authority to
direct the conduct or operation of the physician-radiologists' practices.
There are currently two Centers in operation, with a number in the planning and
development stage. Centers are usually constructed or rehabilitated and
operated to provide a full complement of diagnostic services for a particular
institutional client or a particular physician group.
MARKETING AND PROMOTION
The Company relies primarily upon its staff's efforts in promoting the Centers
to physicians located within the geographical service range of the Center and
upon its president and its marketing consultant to develop Centers to service
potential Group Plans. The Company also relies upon the efforts of the
contracting radiologist-physicians, and, in the case of the Rome Center, the
efforts of the Rome Hospital to build its patient base referrals to promote and
market the Company's local Center; the Company generally also relies upon
referrals from unaffiliated physicians located within the geographical service
range of the Center. The patients are referred by physician groups or Group
Plans with which the Company has a service contract; the referrals are made
directly to the radiologists with whom the Company has a contract for services
and use of the Center equipment- Other referrals are attributed to unaffiliated
physicians located within the geographical service range of the Center.
Currently, the Company has a long term agreement for the services of two
radiologists to read the MRI produced films for the Rome Center.
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MEDICAL DIAGNOSTIC SERVICES
The following "diagnostic services" are proposed to be offered at most Centers:
MAGNETIC RESONANCE IMAGING ("MRI") is a technology utilizing a magnetic field,
which is generated by either superconductive or permanent magnets (0.35 Tesla
measurement level permanently induced) that produce energy in the radio
frequency range. The resultant waves are processed through a computer to
produce cross-sectional images of the internal human anatomy for clinical
review of soft tissue.
MAMMOGRAPHY is an anatomical view of breast anatomy to determine the physical
state of the breast and surrounding wall and/or glandular areas. These studies
are done using a new method, called "screened x-ray", which can reduce the
radiation levels by up to 50%. This examination is used in the detection of
breast cancer.
ULTRASOUND uses high level ultrasonic waves that are beamed into the body, and
the level of the wave form is measured on the return echo. The strength of the
echo is computerized into 256 levels of gray to effect a pictorial
representation of the area under review.
CAT SCANNING ("CT"), technically referred to as Computerized Axial Tomography
scanning, is a diagnostic imaging technology utilizing x-ray coupled to a
computer to produce cross-sectional images of the internal human anatomy.
X-RAY is based upon the ability of energy waves to penetrate human tissue and
to be detected by either photographic film or electronic devices for the
presentation of an image of the internal human anatomy for the purpose of
determining the functional or physiological state of the particular portion of
the anatomy being imaged. Two different kinds of energy waves are associated
with this method of imaging, x-ray and gamma.
COMPANY OPERATED CENTERS
Each Center provides diagnostic services for medical patients. Each patient's
referring physician receives a report as to the diagnostic services performed
and the results of the tests, and additionally, preventative maintenance steps
may be identified. Each Center is or is expected to be capable of internally
completing the diagnostic testing specified herein.
ROME, NEW YORK CENTER
The Company entered into a marketing and administrative agreement in May, 1993
with the Rome Hospital and Murphy Memorial Hospital (collectively "Rome
Hospital") for one Center in Rome, New York (the "Rome Center"). The Agreement
was for a term of five years; however, the Rome Hospital was able to terminate
the Agreement annually, provided the Rome Hospital retained the status of a
part of the municipality. The Agreement was, in effect, terminated during
1995.
The Company has contracted with a radiology group whereby the group provides
the radiological services and bills patients and pays the Company a fee for
each procedure.
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The Rome Center provides diagnostic services utilizing magnetic resonance
imaging technology. The 0.5 Tesla MRI at the Center had been subject to a
judgment in favor of General Electric Company; the Company settled the General
Electric matter (see item 3), and continues its monthly obligations under the
lease for the 0.5 Tesla MRI unit located at Rome pursuant to the settlement.
GREENVILLE, NEW YORK CENTER
The Company opened a 9,600 square foot Center in Greenville, New York (the
"Greenville Center") in 1995. The Greenville Center limits its services to
providing x-ray, ultrasound and mammography diagnostic services. It is
anticipated that Greenville will offer MRI and CT in the fourth quarter of
1996. It provides the rural county populace with a comprehensive multi-modality
imaging center. Located at the same site will be an independent full-service
general medical practice and turnkey offices for satellite specialty practices
to provide direct patient referrals. The Company believes this market has the
potential to support a Center to service the population base. The equipment
manufacturers have agreed in principal to install the equipment on a
lease-financed basis. This Center was designed and constructed by the third
party developer/landlord pursuant to specifications provided by the Company.
DOMESTIC OPPORTUNITIES
The Company's most active growth currently rests in the northeast corridor and
New York State. The Company continues to seek acquisition opportunities and
several negotiations are underway to establish Centers in Upstate New York
communities in Queensbury, Plattsburgh, Glens Falls, and Gloversville, which
will serve a number of surrounding rural communities.
The Company has signed an agreement with Silk Road Health Care Corporation to
jointly develop a network of ten (10) diagnostic imaging centers throughout
North Carolina and South Carolina. Once funding is approved by Silk Road
Investment Co. Ltd., an investment company will be organized by Silk Road
Health Care to fund such projects. There is no set opening day for the start
of this project. Each Center planned with Silk Road will offer a full range of
diagnostic imaging procedures, including MRI through mobile units and sharing
of equipment, with an emphasis on women's health care.
INTERNATIONAL OPPORTUNITIES
The Company is planning to develop three Centers in Bolivia; these Centers are
expected to pioneer one of the first MRI diagnostic services to the South
American country of Bolivia. Centers are currently being planned in Los Pas
(the country's capital), Santa Cruz and Cochabamba.
TELERADIOLOGY
Through a teleradiology venture the Company shall provide electronic linkup
through American Telemedicine International to all of its Centers, both in the
United States and abroad, having the diagnostic images read via teleradiology
directly at Massachusetts General Hospital under the auspices of the Company's
consulting radiologist-physician and Harvard Medical School professor, Dr.
Kenneth Davis.
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MEDICAL DIAGNOSTIC SERVICES
<TABLE>
<CAPTION>
Centers MRI Mammography Ultrasound CT X-Ray
<S> <C> <C> <C> <C> <C>
Rome, New York !(1) (!) (!) x (!)
Greenville, New York !(1) (!) (!) (!) !
Proposed Centers (Proposed Services)
Plattsburgh, New York (!) (!) (!) (!) (!)
Glens Falls, New York (!) (!) (!) (!) (!)
Johnstown, New York (!) (!) (!) (!) (!)
Schoharie, New York x (!) (!) x (!)
North Carolina (!) (!) (!) (!) (!)
South Carolina (!) (!) (!) (!) (!)
Bolivia, South America (!) (!) (!) (!) (!)
</TABLE>
<TABLE>
<S> <C> <C>
! = Installed
x = Not Available
(!) = Proposed to be Installed
</TABLE>
(1) See Item 3 with respect to litigation and settlement negotiations
affecting the Company's MRI units.
EMPIRE IMAGING
Empire Imaging Technologies, Ltd., a medical equipment sales, service and
supply company, may be acquired pending formal documentation to memorialize the
working relationship and transfer of consideration to the Empire Imaging
shareholders to legally bind the acquisition. Empire Imaging will principally
devote its services and resources to supplying and servicing the Company's
Centers. The Centers will also continue to rely upon the equipment
manufacturer warranties and service contracts for maintenance and support.
Empire is anticipated to reduce costs of miscellaneous supplies and non-
warranted service needs of the Centers through the in-house centralized supply
and service system created through the acquisition. The acquisition will
not be consummated until the purchase monies have been raised and adequate
capital has been raised to fund its operations.
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PER USE EXAMINATION FEE
The Company's technicians provide diagnostic imaging scans of the referred
patients in accordance with the protocols and specifications required by the
attending radiologist-physicians. The protocols and specifications for the
scan relate to the angle of the scan, the degree that the hydrogen protons are
magnetized and the data collection time period. The Company's technician
processes the image and delivers the film to the radiologist-physician for
review and diagnosis. The radiologist physician is charged an equipment user
fee on the basis of a fee for each diagnostic examination (a "per use fee");
the per use fee includes an additional charge to recover the reimbursement of
the estimated PRO RATA overhead costs including financing costs, service,
warranty service, parts, tubes, cryogen and property damage insurance coverage
paid to the manufacturer through the monthly fixed lease payment.
INSTALLATION
The original equipment manufacturer installs the equipment to the required
installation specifications such that the services may be accurately performed
with the equipment. The manufacturer leases the equipment to the Company on
the basis of a fixed monthly rental fee which covers the manufacturer's
overhead costs including financing costs, service, warranty service, parts,
tubes, cryogens and property damage insurance coverage- The Company, through
the manufacturer, is the sole supplier of this package to the Centers. The use
of the Equipment package is restricted to only those uses authorized by the
Company and the manufacturer.
SITE SELECTION
Selection of development sites is determined based upon, but not limited to the
following considerations: (a) estimated residential or commercial population
density, (b) proximity to and interconnection of primary or secondary
thoroughfares, (c) estimated number of trade union patients in the territory,
(d) the number of trade unions registered within the territory, and (e)
estimated sales forecasts based upon the above considerations. Selected
territories for Centers are generally designated in both urban and rural
population areas, which either contain too low of a volume of diagnostic
service facilities, or in markets with higher than average health care costs.
(2) Distribution Methods Inapplicable.
(3) New Products Status Inapplicable.
(4) Competition
The Company has encountered intense competition in the medical diagnostic
services business from numerous competitors, almost all of which are
substantially larger, have more substantial histories, backgrounds, experience
and records of successful operations, greater financial and other resources,
more employees and more extensive facilities than the Company now has or will
have in the foreseeable future. Accordingly, such competitors are in a better
position to finance operating diagnostic centers and/or offer incentives to
management to run and/or supervise the
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operating diagnostic centers. The Company is not a significant factor in the
field in which it is engaged and is at a very serious disadvantage against more
established competitors.
Although the Company believes the diagnostic services are competitive in most
circumstances based on convenience, uniqueness of service, cost and efficiency,
many of the Company's diagnostic services are offered by competitors, who are
larger, longer established and possess substantially greater financial
resources and substantially larger administrative, technical and marketing
staffs than of the Company.
The Company encounters direct competition from private medical groups and
hospitals. A number of health care entities have indicated an intention to
enter or have entered the medical diagnostic services business. Further, the
United States Food and Drug Administration ("FDA") is currently investigating
ways to reduce health care costs throughout the United States. Implementation
of industry, insurance or government strategies or programs to reduce health
care costs may have an unduly harsh result on the Company's business.
(5) Raw Materials - Inapplicable.
(6) Dependence on Single or Few Major Customers
The Company is dependent upon maintaining and developing affiliations with
Group Plans for patient referrals. The Company is dependent upon a continuing
public need for and use of the services offered by the Centers in the selected
locations. The Company is dependent upon the substantial, continuing support
of the equipment manufacturers for the development and implementation of
operations at each new Center.
(7) Patent, Trademarks, Licenses, Franchises and Concessions
The Company believes that its registered U.S. service mark "Imagex is of
material importance to its business. The Company has consented to a Los
Angeles, California company to use the mark "Image" with respect to their
private labeling of mammolabels; the U.S. Trademark Office has unofficially
approved the consent. The Company does not anticipate any trade difficulties to
arise due to such consent, and does not anticipate consenting to any other
organization utilizing a similar derivation of its mark.
(8) Governmental Approval
The Equipment manufacturer files all required state and federal
reports relating to the manufacturer's installation activities.
The Company is responsible for obtaining all local site approvals
and site planning approvals for the Equipment installation in
strict accordance with the manufacturer's site planning
specifications, and for mobile Equipment the Company also obtains
site approval within the specifications of the trailer
manufacturer. The Company provides all architectural or seismic
preparations, calculations or submittals for local and state
approval as required.
(9) Effect of Governmental Regulations
23
<PAGE> 28
The Company is subject to, and devotes substantial efforts to its
compliance with, a variety of federal and state laws governing
medical diagnostic service practices. State laws and regulations
vary from state to state and impose some restrictions. The
regulations may also require the licensing of the Centers and
personnel. The Company seeks in good faith to comply with
regulatory requirements. Given the scope of the Company's
business, however, and the nature of medical health care
regulation, compliance problems could be encountered from time to
time. A significant modification of health care laws could
significantly increase the cost of operation of the Medical
Diagnostic Centers.
SELF-REFERRAL REGULATIONS. As no physicians have, will have
or be permitted to have an ownership interest in the Company's
Centers, no future impact on Company operations is anticipated
because of state and federal physician self-referral laws and
other restrictions on physicians' interests in medical diagnostic
centers. The radiologists-physicians, under contract with the
Company to provide the medical diagnostic services through the
radiologists-physicians' use of the equipment at the Centers, own
their medical practices independent of the Company. Equipment use
fees charged by the Company arise due to the use of the equipment
separate from the medical fees charged by the independent
radiologist-physicians.
ANTI-KICKBACK LAW. The Company seeks to comply with federal
anti-kickback provisions prohibiting the inducement or referrals
of Medicare and Medicaid patients. However, given the scope of
these provisions and their lack of specificity, compliance
problems could be encountered. A compliance problem in this area
could have a negative impact on the Company's business.
(10) Research and Development - The Company presently does not devote any
significant resources to research and development beyond that
currently conducted for marketing and expansion purposes.
(11) Effect of Environmental Laws - Inapplicable.
(12) Employees - At December 31, 1995, the Company had 7 salaried
employees and no employees compensated on an hourly basis.
ITEM 2. PROPERTIES
(a) The Company presently maintains its executive office at 80 Wolf Road, Suite
503, Albany, New York 12205, consisting of approximately 5,000 square feet at a
monthly rental at or about market rates. The Company maintains its Rome Center
at 8218 Turin Road, Rome, New York, 13440 at a monthly rental fee at or about
market rate. The Company has a third-party lease for
24
<PAGE> 29
the Rome Center. The Rome lease is for 3 years expiring in 1996 for 1,008
square feet with an annual rental of $25,680.
The Company has completed purchase and construction of its Center in
Greenville, New York. The Company owns the diagnostic imaging portion of the
Greenville facility consisting of 2,000 square feet which houses the
administrative and diagnostic imaging platforms. Construction of the second
stage of the facility will be completed in 1996. The second stage of the
Greenville facility consists of 8,000 square feet to house independent primary
care and pharmacy businesses to be subleased from the Company to independent
parties. The third stage of the Greenville facility will be rented from a
third party and will have a monthly lease expense of $16,720 for a five year
period beginning January 1, 1996 with an option to renew.
The Company is negotiating for leases for the other anticipated Centers, but as
of yet, no agreements have been entered into.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION WITH - GENERAL ELECTRIC COMPANY - On March 17, 1995 General Electric
Company (General Electric) filed suit against the Company in the Supreme Court
of the State of New York in the County of Nassau; Index no. 95-007721. The
suit alleged the Company defaulted on its leases of MRI imaging machines and
demanded payment in full, approximately $1.5 million. A Stipulated Settlement
of $1.3 million was reached on April 28, 1995. The Company is currently in
monetary default under the terms of the Settlement, which obligation the
Company's president has personally guaranteed. on September 13, 1995 General
Electric obtained a money judgment in the amount of $3,699,341.10 and an order
allowing General Electric to repossess the leased 1.5 Vectra/Tesla MRI located
at the Slocum-Dixon Center and the leased 0.5 Tesla MRI located at the Rome
Center.
The Company's operations had been severely limited due to the effect of the
judgment obtained by General Electric against the Company. The Company and
General Electric negotiated a settlement whereby the Company returned the 1.5
Vectra Tesla MRI unit for the Slocum Dixon site and received a $700,000 credit
against the judgment and agreed to pay the balance of $700,000 over a 2- year
period which sum the Company's president has personally guaranteed and the
Company provided to General Electric a mortgage on the Greenville center. The
judgment against the Company was vacated in April, 1996. The Company has
retained the Rome MRI unit and shall continue to meet its monthly obligations
under the lease for the 0.5 Tesla MRI unit located at Rome pursuant to the
settlement.
Litigation with - Center Green, Inc. - On May 10, 1995, Center Green, Inc.
filed a complaint against the Company in the Supreme court of the State of New
York in the county of Oneida. The complaint alleges that the Company breached
a building lease agreement and seeks specific performance under the lease, or
in the alternative, back rent and legal costs. The Company denies such claims
and believes it has no obligations thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders for a vote in fiscal year 1995.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
25
<PAGE> 30
(a) The Company's common stock is quoted and traded in the over-the-counter
market on the NASDAQ Bulletin Board under the symbol "IMXS". The
following table indicates high and low bid and asked quotations for the
Company's common stock for the periods indicated based upon information
supplied by the National Quotation Bureau, Inc. (IINQBII). The prices
represent prices between dealers, do not include retail markups, markdowns
or commissions and do not represent actual transactions. The prices are
not adjusted on a comparative basis to reflect stock dividends occurring
in the reported periods. The Company's June 28, 1993 stock split was
accounted for in NQB's report.
<TABLE>
<CAPTION>
Bid Prices Asked Prices
---------- ------------
Quarter Ended High Low High Low
- ------------- ---------- ------------
<S> <C> <C>
1992-1993
July 1, 1992 through Not Available Not Available
September 20, 1993
September 30, 1993 2 1/2 2 1/4 3 1/4 2
December 31, 1993 2 1/2 1 1/4 3 1/2 2 3/4
1994
March 31, 1994 2 3/4 2 3 3/4 2 3/4
June 30, 1994 3 2 3 3/4 3
September 30, 1994 5 1/8 2 1/4 5 1/2 3 1/4
December 30, 1994 5 1/2 5 6 5 1/2
1995
March 31, 1995 6 5 1/4 6 3/4 5 3/4
June 30, 1995 5 3/4 7 1/4 6 1/2 6 1/2
September 30, 1995 7 1/4 4 1/4 7 1/2 6
December 30, 1995 5 1/4 1/8 6 1/2 7/8
1996
March 31, 1996 31/32 1/16 1 1/16 3/8
</TABLE>
Although a public trading market for the common stock of the Company has
developed, it is on the NASDAQ Bulletin Board System and not on an established
trading exchange; thus trading may be limited.
26
<PAGE> 31
(b) At December 31, 1995, the number of holders of the Company's common stock
was one hundred ninety-one (191), based upon the number of record holders.
(c) The Company has not paid any dividends on the common stock since
inception and does not expect to pay any dividends in the foreseeable
future. Therefore, except to the extent dividends must be declared and
paid on preferred stock, none of which is outstanding, it is unlikely that
any dividends will be declared by the Company in the foreseeable future.
Dividends on the common stock may not be paid if the Company is in arrears
in the payment of dividends on its preferred stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
YEAR ENDING DECEMBER 31, 1995
The Company incurred a loss of $2,045,125 for the year ended December 31, 1995
on two medical diagnostic service centers which have been owned and operated
since 1993. The loss is primarily attributable to a substantial reduction in
the usage of the Company's equipment due to fewer patients seeking diagnostic
services at the Company's centers as well as delays in opening the
Company's newest center in Greenville, New York. The Company intends to
provide diagnostic services that are competitive due to the convenience, cost,
efficiency and uniqueness of service.
1995 COMPARED TO 1994
Net revenues for the year ended December 31, 1995 were $205,498 as compared to
$920,118 for the period ended December 31, 1994, a decrease over the prior year
of $714,620.
Direct operating costs were $1,239,340 or 603% of net revenues for the year
ended December 31, 1995 as compared to $1,119,764 or 122% of net revenues for
the period ended December 31, 1994, an increase of $ 119,576. This increase
was primarily due to additional payroll, physician staffing and the cost of
equipment leases.
Selling, general and administrative expenses were $1,003,141 or 488% of net
revenues for the year ended December 31, 1995 as compared to $320,043 or 35% of
net revenues for the period ended December 31, 1994, an increase of $ 683,098.
The increase is primarily due to a full year of operations and the opening of
the corporate offices in Albany, New York.
The Company's financial condition at December 31, 199S reflects a $210,236
decrease in its accounts receivable balance as compared to December 31, 1994.
This decrease is due to the lack of revenue generated at the Slocum-Dixon
center and a significant decline in the number of patients at the Rome Center.
27
<PAGE> 32
YEAR ENDING DECEMBER 31, 1994
The Company operated two medical diagnostic service centers that it opened in
1993, and incurred a loss of $523,188 for the year ended December 31, 1994.
The loss is primarily attributable to a substantial reduction in the usage of
the Company's equipment due to fewer patients seeking diagnostic services at
the Company's Centers.
LIQUIDITY AND CAPITAL RESOURCES -
1995 COMPARED TO 1994
During the year ended December 31, 1995, cash decreased minimally. By
obtaining extended payment terms with vendors and increasing its accrued
expenses, cash used in operating activities totaled $1,087,544. This compares
to cash provided by operations of $126,031 during the year ended December 31,
1994; a difference of $1,213,575. Cash was also used for the acquisition and
construction of the Company's new facility in Greenville, New York which
amounted to a cash outflow of $498,182. Cash flows provided by financing
activities were $1,568,427, and were provided primarily from the sale of common
stock and the proceeds from a note payable.
1994 COMPARED TO 1993
During the year ended December 31, 1994, cash increased minimally. By
obtaining extended payment terms with vendors and increasing its accrued
expenses, cash provided in operating activities totaled $126,031 an increase of
$314,106 over the period ended December 31, 1993. Cash was primarily used for
the acquisition and construction of the Company's new facility in Greenville,
New York which amounted to a cash outflow of $236,298. Cash flows provided by
financing activities were $110,415, and were provided primarily by loans from
stockholders/directors of $135,963.
RECENT EVENTS
In April, 1996, the Company finalized its settlement of the General Electric
litigation. The judgment against the Company was vacated in April, 1996. The
settlement agreement calls for the Company to pay General Electric $700,000
over a two year period which sum the Company's president has personally
guaranteed and placed a first mortgage to the benefit of General Electric on
the Greenville facility. The Company has returned the GE 1.5 Vectra/Tesla MRI
to General Electric and closed its Slocum Dixon Center.
In 1995 the Company sold 400,000 shares of stock pursuant to warrants at a
price of $3.00/share to an independent consulting firm. The Company received
other capital through private placement and loans.
Common stock subscriptions receivable for 1,500,000 shares were outstanding as
of December 31, 1995 valued at average market price when issued aggregating
@1,125,000. Such amounts exclude 2,050,000 shares that were outstanding as
subscriptions receivable as of December 31, 1995, which were returned to the
Company subsequent to that date.
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<PAGE> 33
The Company has developed a plan to maximize revenues at the two existing
Centers by contracting with a marketing consultant to increase patient
referrals and by contracting with a world renowned physician, Dr. Kenneth
Davis, to perform radiology services. In addition, the plan contemplates
reduced operating costs through the consolidation of duplicative administrative
functions and the streamlining of Company operations. The plan also anticipates
having the new Greenville Center "on-line" and in full operation in 1996 and
that additional centers will be developed as future opportunities arise. No
assurance can be given that the Company will be successful in implementing such
plan.
The Company's plans to overcome its current financial difficulties are largely
based upon its ability to raise capital through the private placement of equity
with potential investors. The Company anticipates obtaining working capital to
enable the Company to develop a network of revenue producing Centers. The
network of revenue producing Centers may take longer that one year to establish.
No assurance can be given that the Company will be successful in raising such
capital, or in developing a network or any Centers, or that any of its Centers
will be profitable.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached following Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 28, 1993, the Company dismissed its principal accountant, Schiemann &
Machen of Reno, Nevada. On November 30, 1993 Schiemann & Machen sold its
assets and practice; by March 31, 1994 it had completed all work then in
process thus Completely discontinuing its audit and accounting services by
March 31, 1994. The ability to recover in litigation against the former
accountants may be limited as the firm had sold its assets and practice on
November 30, 1993. Thus, the Company and/or the investors may be unable to
recover against the Company's former accountants as they may not have any
assets. The former accountant's reports on the Company's financial statements
the year prior thereto did not contain an adverse opinion or a disclaimer of
opinion, however, such report was qualified due to a going concern uncertainty,
but not as to audit scope, or accounting principles. The decision to change
accountants was approved by the Company's board of directors. During the
Company's fiscal year ending December 31, 1993, and during the period from
January 1, 1993 through and including June 28, 1993, there were no
disagreements between the Company and the former accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. During the Company's fiscal year ending December 31, 1992,
and during the period from January 1, 1993 through and including June 28, 1993,
the former accountants did not advise the Company that: (a) internal controls
necessary for the Company to develop reliable financial statements did not
exist; (b) information had come to the former accountant's attention that led it
to no longer be able to rely on management's representation or that made it
unwilling to be associated with the financial statements prepared by management;
(c) the former accountant needed to expand significantly the scope of its audit,
or that information had come to the former accountant's attention that, if
further investigated might have (i) materially impacted the fairness or
reliability of a previously issued audit report or the underlying financial
statements, or the financial statements issued or to
30
<PAGE> 34
be issued covering the fiscal period subsequent to the date of the most recent
financial statements covered by an audit report or (ii) caused it to be
unwilling to rely on management's representations or be associated with the
Company's financial statements, and due to the dismissal of the former
accountant, or for any other reason, the accountant did not so expand the scope
of its audit or conduct such further investigation; or (d) information had come
to the former accountants attention that the former accountant has concluded
materially impact the fairness or reliability of either (I) a previously issued
audit report or the underlying financial statements, or (ii) the financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report, and due
to the dismissal of the former accountant, or for any other reason, the issue
was not resolved to the former accountant's satisfaction prior to its dismissal.
During 1993 the Company hired DiSanto Bertoline & Company, P.C., 628 Hebron
Avenue, Glastonbury, Connecticut 06033 to be its principal accountant. Prior
to hiring DiSanto Bertoline & Company, P.C., the Company had not consulted the
newly engaged accountant regarding: (a) either the application of accounting
principles to a modified transaction, completed or proposed, or the type of
audit opinion that might be rendered on the Company's financial statements, and
no written report or oral advice was provided that the new accountant concluded
was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; or (b) any matter that
was either the subject of a disagreement with the former accountant or a
reportable event. There have been no disagreements between the Company and its
current accountants on any matter of accounting or financial disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
(a)-(b) The Executive officers and directors of the Company are:
<TABLE>
Position Position
Name Age Held Since with Company
------ --- ---------- ------------
<S> <C> <C> <C>
Andrew F. Capoccia 53 1993 President, Treasurer
and Director
</TABLE>
The following is a brief account of the business experience of each director
and executive officer of the Company during the past five years.
ANDREW F. CAPOCCIA, age 53, has been President, Chief Executive Officer and
a director of the Company since its acquisition of Unicare Services Inc. in
June, 1993, and in March, 1994 was elected Treasurer. Prior to joining the
Company, Mr. Capoccia engaged in the private practice of law in Albany, New
York from 1975 to 1992. Mr. Capoccia was the President of four law centers
incorporated as professional corporations in Albany, Binghamton, Rochester
and Syracuse, New York consisting of approximately forty employees. From
1990 through January, 1993 Mr. Capoccia was the Treasurer and a director of
Magar Inc., a private investment firm which specializes in the commercial
development of
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<PAGE> 35
early-stage companies and provides management consulting services to
companies in which it has invested. In 1988 he was a co-founder of Life
Medical Sciences, Inc. a publicly traded biomedical company. From 1986 to
1988, Mr. Capoccia was a co-founder and legal counsel of Marrow Tech, Inc., a
publicly traded company engaged in research and development of tissue
engineering technology; Marrow Tech changed its name to Advanced Tissues
Sciences, Inc. in 1992. Mr. Capoccia holds the degrees of Bachelor of Arts
in Psychology, Utica College of Syracuse University, 1968; Masters of Arts in
Psychology, University of Akron, 1970; and a Juris Doctorate from Albany Law
School, 1973. Mr. Capoccia retains his principal shareholdings in Magar
Inc., Life Medical Sciences, and Advanced Tissues Sciences, Inc.
(c) Family Relationships between Directors and officers - None.
ITEM 10. EXECUTIVE COMPENSATION AND TRANSACTIONS
(a) SUMMARY OF COMPENSATION. The following table sets forth on an
accrual basis for the years ended December 31, 1995, 1994, and 1993 the
remuneration of each of the Company's officers whose remuneration
exceeded $60,000 and for all officers of the Company as a group.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
Annual
Compensation Awards Payouts Other
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Name/Position Year Salary Bonus Options Payouts 401(k)
<S> <C> <C> <C> <C> <C> <C>
Andrew F. Capoccia 1995 $24,000 $0 N/A N/A N/A
President 1994 $24,000 $0 N/A N/A N/A
Treasurer, Director 1993 $ 3,000 $0 N/A N/A N/A
</TABLE>
(1) N/R expresses that such form of compensation is "Not Available" at
this time.
(b) REMUNERATION. For the fiscal year ending December 31, 1995, the Company
anticipates paying aggregate direct remuneration (based on current
salaries and anticipated bonuses) of approximately zero ($0.00) dollars to
all officers as a group (one person) of which Mr.
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<PAGE> 36
Capoccia will not be paid any monies. The Company entered into an
employment contract with Mr. Capoccia effective January 1, 1996.
(c) STOCK OPTION PLANS. No stock option or incentive plans have been put into
effect. The Board anticipates proposing a stock incentive plan at the next
shareholders' meeting.
(d) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR
VALUES.--Not applicable.
(e) LTIP.--Not applicable.
(f) DIRECTORS' FEES. During the fiscal year ended December 31, 1995, no
directors' fees were paid in cash to the Company's director. It is
anticipated that the director will not be paid any directors' fees in the
fiscal year ending December 31, 1996.
At December 31, 1995, and at the date hereof, the company had one (1)
officer/director who presently devotes all of his business time to the
operations of the Company.
(g) OTHER PLANS AND EMPLOYMENT CONTRACTS. The Company entered into a five
(5) year employment contract with the President wherein the President
would be compensated at $175,000 the first year, the remaining years of
the contract the compensation will be $350,000 per year unless sufficient
funds are not readily available. The contract calls for a bonus of 5% of
the net increase in current revenues over prior year revenues. The
Company also granted an option to purchase 1 million shares at $.25 per
share. As of May 31, 1996, the President has received no compensation
from the Company. The Company does not have any other pension or similar
plan. The Company currently does not have stock purchase, profit sharing,
401(k), thrift or similar plans. However, it does intend to propose a
number of stock incentive plans to compensate its officers and directors
and any key employees for beneficial service to the Company; the director
of the Company has expressed an intention to vote in favor of such plans.
(h) REPORT ON REPRICING OF OPTIONS/SARS.--Not applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1996, the number of shares of
the Company's Common Stock owned beneficially to the knowledge of the
Company, by each beneficial owner of more than five percent (5%) of such
Common Stock, by each director and by all officers and directors of the
Company as a group. The percentages have been calculated on the basis of
treating as outstanding for purposes of computing the percentage ownership
of a particular individual, all shares of the Company's Common Stock
outstanding as of such date and all such shares issuable to such individual
in the event of exercise of his outstanding options.
32
<PAGE> 37
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Class Owned
------------------- ----------------------- -----------
<S> <C> <C>
DIRECTORS AND OFFICERS
Andrew F. Capoccia 1,620,000 shs (2) 14%
All Officers and 1,620,000 shs (2) 14%
Directors as a group
----------------------
</TABLE>
(1) The address of all directors listed in this table is c/o the
Company, 80 Wolf Road, Suite 503, Albany, New York 12205. All of the
stock indicated as owned is owned beneficially and solely by the
individual named without any shared investment or voting power.
(2) Includes 600,000 (5%) held by the wife of Mr. Capoccia in her own
account.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b) TRANSACTIONS WITH MANAGEMENT AND OTHERS AND CERTAIN
BUSINESS RELATIONSHIPS--During the fiscal year ended December 31, 1995,
the Company engaged in a number of transactions with certain officers,
directors, beneficial holders of more than five percent (5%) of its
outstanding voting securities and entities with which they were
affiliated. The following are the various affiliations and
transactions. one former director of the Company is currently engaged
in businesses competitive to the business of the Company. The Company
' 's transactions with these individuals and entities in the last two
(2) fiscal years just ended are described below.
WITH NANCY B. INSERRA
Advances from the Company to the spouse of Mrs. Inserra were made in the
amount of thirty-six thousand dollars ($36,000) during fiscal year 1993.
Such demand advances bear interest at the rate of 8% and are payable on
demand. No interest payments have been made as the obligation is a demand
obligation; and no demand for payment has yet been made. The Company has no
immediate plans to demand repayment.
During 1994, the spouse of Mrs. Inserra was engaged as a management and
start-up operations consultant to the Company for four months at a rate of
$6,000 per month. Through December 31, 1994 an aggregate of $24,000 in
consulting fees were paid. Management believes that the services were
offered at a rate comparable to that which could have been secured through
an independent third party. The Company does not anticipate incurring any
further consulting obligations to such consultant in 1994 or in the
foreseeable future.
Mrs. Inserra resigned from her positions as Vice President and Secretary and
a Director of the Company on September 15, 1995.
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<PAGE> 38
With Jeffrey F. DeSantis and Medical Equipment Development, Inc.
Mr. DeSantis, a director and principal shareholder of the Company, is also
the sole shareholder and the President of Medical Equipment Development,
Inc. ("MED"), and is presently engaged in other business activities relating
to the medical field; thus the opportunity for actual conflicts of interest
exists. The Company had substantial financial obligations to MED as it had
leased Equipment from MED, and had entered into contracts and issued
promissory notes to MED to reflect its agreement to repay MED.
The Company contracted with Medical Equipment Development, Inc. ("MED"), an
entity related through common ownership for the medical diagnostic equipment
installed at the Rome and the Slocum-Dixon Centers under the terms of two
separate operating leases. The initial terms of both leases are five years,
expiring in 1998, and renewable annually thereafter, which MED had retained
the option to purchase at the end of each lease. Other terms and conditions
of each lease provide for monthly lease payments, maintenance service and
warranty coverage. Due to MED's relationship with various original
diagnostic equipment manufacturers, MED contracted with the original
manufacturers for the use of the equipment.
As of April 1, 1994 MED terminated its marketing fee which the Company had
owed to MED with respect to the equipment leases for the Company's Rome and
Slocum-Dixon Centers; as of May 24, 1994 MED assigned all of its rights and
obligations under the two Equipment contracts with GE to the Company,
including the $160,000 note payable to GE ("GE Note") issued to finance the
leasehold improvements at the Rome Center. Thus, the Company is currently
primarily and solely responsible under the two equipment contracts to only
GE. MED has no rights, responsibilities and/or privileges with respect to
the two equipment contracts. Further, the Company is the substituted
obligor on the $160,000 note payable to GE (the "GE Note") for the
improvements at the Rome Center; the corresponding note payable by the
Company to MED has been canceled. As of April 1, 1994 MED agreed that it
would no longer act as an intermediary between the Company and the original
equipment manufacturers for the lease of any equipment or for any other
purpose. The Company will continue to account for its equipment lease as
operating lease as there has been no change in the terms or conditions of
the lease as a result of the assignment.
Mr. DeSantis advanced twenty-five thousand dollars ($25,000) to the Company
in fiscal year ended December 31, 1995 bearing interest at the rate of 8% and
is payable within thirty (30) days of demand.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS --------------------
Report of Independent Auditors on Consolidated Financial Statements and
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<PAGE> 39
Financial Statement Schedules for the Years Ended December 31, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1995 and December 31, 1994.
Consolidated Statements of Operations - For The Years Ended December 31, 1995
and December 31, 1994.
Consolidated Statements of Changes in Stockholders' Deficiency - For The Years
Ended December 31, 1995 and December 31, 1994.
Consolidated Statements of Cash Flows - For The Years Ended December 31, 1995
and December 31, 1994.
Notes to Consolidated Financial Statements December 31, 1995 and December 31,
1994.
(B) REPORTS ON FORM 8-K -------------------
The Company has not filed any reports on Form 8-K with respect to or during the
year ended December 31, 1995.
(C) EXHIBITS
(21) Subsidiaries - The following table indicates the wholly
owned subsidiaries of Imagex Services, Inc. and their respective
states and years of incorporation.
<TABLE>
Name State of Incorporation Year of Incorporation
<S> <C> <C>
Unicare Services Inc. New York 1993
Rome Magnetic Associates, Inc. New York 1993
</TABLE>
Incorporated by Reference to:
(a) Exhibit 3.1 and 3.2 to Registration Statement on Form SB-2 (File
No.33-82180)
(b) Exhibit 3.3 to Registration Statement on Form SB-2 (File No. 33-82180)
(c) Exhibit 4.1 to Registration Statement on Form SB-2 (File No. 33-82180)
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF IMAGEX SERVICES, INC.
We have audited the consolidated balance sheets of Imagex Services, Inc. and
subsidiaries (Company) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
35
<PAGE> 40
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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Imagex Services,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $2,045,125 and $523,188
for the years ended December 31, 1995 and 1994, respectively, had a
stockholders' deficiency of $899,916 as of December 31, 1995 and it is our
understanding that losses are continuing subsequent to December 31, 1995.
Further, the Company is in arrears on certain trade payables and notes
outstanding as of December 31, 1995. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
ability to successfully implement elements of its business plan including the
achievement of profitable future operations and obtaining adequate working
capital to be able to meet its financial obligations when due, as described more
fully in Note 16, and thereby permit the realization of assets and liquidation
of liabilities in the ordinary course of business, is uncertain. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/DiSanto Bertoline & Company, P.C.
GLASTONBURY, CONNECTICUT
May 17, 1996
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
CASH $ 3,061 $ 20,360
ACCOUNTS RECEIVABLE, less allowance for doubtful
accounts of $32,000 and $147,500 for 1995 and 1994 31,689 241,925
PREPAID EXPENSES AND OTHER ASSETS 84,266 178,185
DEFERRED OFFERING COSTS -- 87,624
</TABLE>
36
<PAGE> 41
<TABLE>
<S> <C> <C>
DUE FROM RELATED PARTY 39,458 39,458
CONSTRUCTION IN PROGRESS 225,818 226,300
PROPERTY AND EQUIPMENT, net 614,695 206,943
----------- ----------
Total assets $ 998,907
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
ACCOUNTS PAYABLE (Note 14) $ 1,062,143 $ 668,060
ACCRUED EXPENSES PAYABLE 65,093 83,339
NOTES PAYABLE 602,527 148,991
DUE TO STOCKHOLDERS/DIRECTORS 145,963 135,963
OBLIGATIONS UNDER CAPITAL LEASE 23,177 17,772
----------- ----------
Total liabilities 1,898,903 1,054,125
STOCKHOLDERS' DEFICIENCY
Common stock, par value $.001 per share,
authorized 25,000,000 shares, issued and
outstanding 11,649,468 shares and
9,649,468 shares in 1995 and 1994,
respectively 11,649 9,649
Additional paid-in-capital 2,706,418 384,879
Deficit (2,492,963) (447,658)
Subscriptions receivable (1,125,000)
---------- ----------
Total stockholders' deficiency (899,916) (53,330)
---------- ----------
Total liabilities and stockholders' deficiency $ 998,987 $1,000,795
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 42
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET REVENUES $ 205,498 $ 920,118
EXPENSES
Direct operating 1,239,340 1,119,764
Selling, general, and administrative 1,003,141 320,043
Interest 8,142 24,499
----------- -----------
2,250,623 1,464,306
----------- -----------
Loss before income taxes (2,045,125) (544,188)
PROVISION FOR (BENEFIT FROM) INCOME TAXES (21,000)
----------- -----------
Net loss $(2,045,125) $ (523,188)
NET LOSS PER SHARE $ (0.20) (0.05)
WEIGHTED AVERAGE NUMBER OF SHARES 10,103,020 9,753,965
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 43
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (2,045,125) (523,186)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization expense 90,965 47,052
Legal expense pursuant to stock issuance 75,000 48,932
Compensation expense contributed to capital 24,000 24,000
Changes in operating assets and liabilities:
Increase in accounts payable 394,083 586,814
Decrease in accounts receivable 210,236
Decrease (increase) in prepaid expenses
and other assets 93,919 (125,189)
Decrease (increase) in deferred offering costs 87,624 (37,624)
Decrease (increase) in due from related party (3,45B)
(Decrease) increase in accrued expenses payable (18,246) 38,674
---------- ---------
Net cash provided by (used in) operating activities (1,087,544) 126,031
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for land purchase 0
Construction in progress outlays (119,428) (226,300))
Acquisition of property and equipment (284,754) (9,998)
---------- ---------
Net cash used in investing activities (498,102) (236,299)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net of
offering costs 1,099,539 5,000
Proceeds from notes payable 500,000 -
Increase in due to stockholders/directors 10,000 135,963
Receipt of subscriptions receivable - 3,400
Repayment of notes payable and obligations
under capital lease (41,112) (33,948)
---------- ----------
Net cash provided by financing activities 1,568,427 110,415
</TABLE>
39
<PAGE> 44
<TABLE>
<S> <C> <C>
---------- ----------
NET INCREASE (DECREASE) IN CASH (17,299) 148
CASH, beginning of year 20,360 20,212
---------- ----------
CASH, end of year 3,061 20,360
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 7,174 $ 21,838
Income taxes 1,774 -
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment through
obligations under capital lease 16,670
Issuance of stock in exchange for legal fees 75,000 98,932
C) salary contributed as capital 24,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE> 45
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Imagex Services, Inc. and subsidiaries ("the Company") devotes its resources to
developing, operating and administering the use of magnetic resonance imaging
("MRI") equipment in medical diagnostic centers which provide medical
diagnostic services to health maintenance organizations, preferred provider
organizations, trade unions, clinics and other health care providers. These
services are provided in order to minimize health care costs payable by the
Company's customers. The Company currently operates centers in Rome and
Greenville, New York.
BASIS OF PRESENTATION/CONSOLIDATION
The consolidated financial statements include the accounts of Imagex Services,
Inc., formerly Balloonies, Inc., a Nevada corporation, and its wholly-owned
subsidiaries, Unicare Services, Inc., ("Unicare") and Rome Magnetic Associates,
Inc. ("Rome"), each a New York corporation. Unicare was incorporated on April
16, 1993 and was acquired by the Company on June 28, 1993 through an exchange
of shares accounted for by recording at historical cost the assets and
liabilities of Unicare. Rome was acquired by the Company on April 6, 1994 for
nominal consideration (see Note 3). All material intercompany balances and
transactions have been eliminated in consolidation.
USE OF 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 the disclosure
of contingent assets and liabilities as of the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the useful lives of the related
assets, or, in the case of leasehold improvements and leased property under
capital lease, over the remaining term of the related lease or useful life of
the related asset, whichever is shorter. Expenditures which substantially
increase the useful lives of the related assets are capitalized. Maintenance,
repairs and minor renewals on property and equipment are charged to operations
as incurred. Maintenance expense related to magnetic resonance imaging
equipment leased under operating leases (see Note 8) is charged to operations
when incurred, to the extent not covered under warranty.
41
<PAGE> 46
DEFERRED MAINTENANCE COSTS
Certain monthly maintenance fees paid by the Company in connection with its
lease contracts were deferred to the extent that such amounts related to the
manufacturer's initial one year warranty period. Upon expiration of the
warranty period, such deferred maintenance costs are amortized on a
straight-line basis over the remaining 48 month term of the lease contracts.
During 1995, one of the Company's MRI machines was repossessed by the lessor
(see Notes 10 and 14). The deferred maintenance costs associated with this
machine were expensed in full during 1995. Deferred maintenance costs total
$37,801 and $128,871 as of December 31, 1995 and 1994, respectively, and are
included in prepaid expenses and other assets in the accompanying consolidated
balance sheets.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
shares outstanding. Weighted average number of shares outstanding includes
common stock equivalents when they have a dilutive effect. There are no
material differences between primary and fully diluted income per common share.
NOTE 2 - FINANCIAL INSTRUMENTS
CREDIT RISK/REVENUE RECOGNITION
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable. The Company
places its cash and temporary cash investments with high quality credit
institutions. At times such investments may be in excess of applicable federal
insurance limits.
Under the terms of agreements with its customers, the Company provides MRI
equipment and derives revenue based on a fee schedule which gives consideration
to the type and the quantity of examinations performed. The Company reviews a
customer's credit history before extending credit and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information. Such allowances
have been within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFA-S) No. 107, Fair Value Of
Financial Instruments, requires disclosure of the fair value of financial
instruments for which the determination of fair value is practicable. SFAS No.
107 defines the fair value of a financial
42
<PAGE> 47
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying amounts of the Company's financial instruments approximate their
fair values as outlined below:
Cash, accounts receivables, trade payables, due to stockholder/ director,
and capital leases - The carrying amounts approximate their fair value
because of the short maturity of those instruments.
Notes payable - The carrying amount approximates fair value because the
interest rate on the notes approximates the Company's estimated current
borrowing rate.
Management has determined that it is not practicable to estimate the fair value
of amounts due from related party and due to stockholders/directors since these
related party advances have no scheduled repayment terms and the availability
of similar financing from unrelated lenders is uncertain.
The Company's financial instruments are held for other than trading purposes.
NOTE 3 - ACQUISITION
ROME MAGNETIC ASSOCIATES, INC.
On April 6, 1994 the Company acquired for nominal consideration all of the
issued and outstanding stock of Rome Magnetic Associates, Inc., an inactive
entity. The acquisition has been accounted for using the purchase method and
WAS consummated through the payment of $4,825 which did not exceed the fair
value of the assets acquired. The operating results of this acquisition are
included in the Company's consolidated statement of operations from the date of
acquisition.
NOTE 4 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Land $101,000 $
Building 112,909
Leasehold improvements 282,538 174,579
Office furniture and equipment 206,989 41,518
Vehicle 25,488 25,488
Leased property under capital lease 36,150 24,033
------- --------
765,074 265,618
Less: accumulated depreciation and amortization 150,379 58,675
-------- --------
</TABLE> $614,695 $206,943
43
<PAGE> 48
Depreciation and amortization expense for the years ended December 31, 1995
and 1994 amounted to $90,965 and $47,052, respectively.
NOTE 5 - NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASE
NOTES PAYABLE
<TABLE>
<CAPTION>
A summary of notes payable is as follows: 1995 1994
----- -----
<S> <C> <C>
Promissory note payable to a finance company, fixed rate of
7.0%, discounted at 1-3% effective interest rates, payable
sixty (60) days after demand, the holder of the note will
waive all accrued interest if repaid by August 30, 1996,
unsecured. (Face value of the note is $500,000 less
amortized discount of $18,515). 481,485
Term note payable to General Electric, (see Note 8) fixed
rate of 10.5%, monthly principal and interest payments of
$3,409 through November, 1998,
secured by leasehold improvements 110,933 134,065
Term note payable to a finance company, fixed rate of 9.5%,
monthly principal and interest payments of
$502 through September, 1997, secured by vehicle 10,109 14,926
602,527 146,991
Less current portion 529,852 -
-------- --------
$ 72,675 $148,991
</TABLE>
Aggregate principal maturities of notes payable at fair value in subsequent
years are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $548,367
1997 38,256
1998 34,419
--------
$621,042
Less: discount (18,515)
--------
$602,527
</TABLE>
44
<PAGE> 49
OBLIGATIONS UNDER CAPITAL LEASE
The following is an analysis of leased property under capital leases by major
class:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
Office equipment $40,033 $24,033
Less: accumulated amortization 7,456 3,054
------- -------
$32,577 $20,979
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments at December 31, 1995.
<TABLE>
Year ending December 31:
<S> <C>
1996 $11,112
1997 11,112
1998 2,579
1999 430
</TABLE>
<TABLE>
<S> <C>
Total minimum lease payments 25,233
Less: amount representing interest 2,056
Present value of the net minimum lease payments 23,177
Less: current portion 9,613
Noncurrent portion $13,564
</TABLE>
Amortization expense related to leased property under capital leases totaled
$4,402 and $2,563 for the years ended December 31, 1995 and 1994, respectively,
and is included in depreciation and amortization expense in the accompanying
consolidated financial statements.
NOTE 6 - STOCKHOLDERS' EQUITY
WARRANTS
On June 28, 1993, the Company issued warrants to purchase 400,000 shares of
company common stock at $.50 per share ("Class A warrants") and warrants to
purchase an additional 400,000 shares of Company common stock at $3.00 per
share ("Class B warrants"). The Class A warrants were to expire on October
28, 1993, but were extended to April 30, 1994
45
<PAGE> 50
and as of December 31, 1994 all Class A warrants had been exercised. The
Class B warrants were to expire on June 28, 1995 and all Class B warrants
were exercised by that date.
NONMONETARY TRANSACTIONS
During 1994, the Company issued 49,466 shares of its $.001 par value common
stock in exchange for legal services at a price of $2.00 per share which
represented fair market value at the time the shares were issued based on
reported bid prices available. Certain of these legal fees totaling $50,000
were capitalized as deferred offering costs and were charged against the
gross proceeds of the offering related to the Class B Warrants during the
year ended December 31, 1995. Additional offering costs of $50,461 were
also charged against those proceeds during the year ended December 31, 1995.
In 1995, the Company issued 100,000 shares of its common stock in exchange
for legal services at a price of $.75 per share which represented the fair
market value at the time the shares were issued based on reported bid prices
available.
An officer's salary amounting to $24,000 was contributed to additional
paid-in-capital for each of the years ended December 31, 1995 and 1994.
NOTE 7 - INCOME TAXES
The provision for (benefit from) income taxes consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Current
Federal $ 0 $ (25,800)
State 0 4,800
--------- ---------
$ (21,000)
DEFERRED
$ (21,000)
The significant components of the deferred tax provision
are as follows:
1995 1994
--------- ---------
<S> <C> <C>
Net operating loss $(969,000) $(161,700)
Property and equipment, net (28,100) (9,600)
Allowance for doubtful accounts 46,100 (52,700)
Valuation allowance 951,000 224,000
--------- ---------
</TABLE>
46
<PAGE> 51
The components of the net deferred tax liability as of December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Allowance for doubtful accounts $ (12,800) $(58,900)
Net operating loss (1,130,700) (161,700)
Property and equipment, net (31,500) (3,400)
Valuation allowance 1,175,000 224,000
----------- ---------
Net deferred tax liability $ - $ -
</TABLE>
The company has federal net operating loss carryforwards available to reduce
taxable income of approximately $2,300,000 which will expire through 2009.
Federal net operating loss carryforwards of Balloonies approximating $95,000
may not be utilized by the merged companies due to limitations on their use
resulting from the change of ownership.
NOTE 8 - RELATED PARTY TRANSACTIONS
EQUIPMENT CONTRACTS
As of May 24, 1994 Medical Equipment Development, Inc. ("MED"), an entity
related through common ownership, assigned all of its rights and obligations
under two equipment contracts with General Electric ("GE") to the Company,
including the $160,000 note payable to GE issued to finance the leasehold
improvements at the Rome Center (see Note 5). As a result, the Company is
primarily and solely responsible under the two equipment contracts to only GE.
MED has no rights, responsibilities and/or privileges with respect to the two
equipment contracts. The Company accounts for its equipment leases as
operating leases as there was no change in the terms or conditions of the
leases as a result of the assignment. Further, the Company is the substituted
obligator on the $160,000 note payable to GE; the corresponding note payable by
the Company to MED has been canceled. During 1995 one of the GE MRI machines
was repossessed and the equipment contract was canceled (see Notes 10 and 14).
The initial lease term of each contract is five years, expiring September,
1998, and renewable on a yearly basis thereafter. Rent expense and maintenance
expense charged to operations under these lease agreements totaled $68,045 and
$591,348 and $16,621 and $121,000, respectively for the years ended December
31, 1995 and 1994. The following is a schedule by years of future minimum
lease payments, including maintenance charges, due under these agreements.
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 $ 875,184
1997 875,184
1998 656,388
----------
$2,406,756
</TABLE>
47
<PAGE> 52
DUE FROM RELATED PARTY
Amounts due from related party represent demand advances, including accrued
interest at 8%, made to an individual related to one of the Company's
officers/stockholders/directors.
DUE TO STOCKHOLDERS/DIRECTORS
certain stockholders who are also directors of the Company have advanced
funds to the Company. Such advances bear interest at 8% and have no
scheduled repayment terms.
OFFICE FURNITURE AND DESIGN SERVICES
During 1995 the Company purchased office furniture and office design
services from a related party. Total cost for the office furniture and
design services amounted to $108,466.
NOTE 9 - COMMITMENTS
OPERATING LEASES
The Company is leasing one of its centers under the terms of a three year
lease agreement which requires annual payments of $25,680 and expires July
31, 1996. Additionally, the Company is leasing its corporate offices under
the terms of a three year lease agreement which requires annual payments of
$43,425 and expires November 30, 1997. Rent expense under these leases for
the years ended December 31, 1995 and 1994 totaled $69,105 and $29,299,
respectively.
The schedule of future minimum rental payments required under these
operating leases in succeeding years is as follows:
<TABLE>
Year ending December 31:
<S> <C>
1996 $58,405
1997 39,806
-------
$98,211
</TABLE>
LEASE AGREEMENT
At one of its centers, the Company has contracted with a physician group to
provide imaging services at a fixed rate per exam under a one year contract
expiring October 19, 1996.
CONSTRUCTION IN PROGRESS
During 1995 the Company was committed to two contracts for the construction
of a new diagnostic center in Greenville, New York. The first contract
covered the construction of the main facility, and was completed during
1995. The second contract is for the construction of an addition to the
facility. Total contract cost under the second contract is $67,548, with an
outstanding balance of $30,396 at December 31, 1995. The Company has
recorded construction in progress of $30,396 in connection with this project
as of December 31, 1995.
48
<PAGE> 53
NOTE 10- LITIGATION
General Electric Company filed suit on March 17, 1995 against the Company in
the Supreme Court of the State of New York. The suit alleged that the
Company defaulted on its leases of MRI imaging machines and demanded payment
in full of approximately $1.4 million. A Stipulation of Settlement of $1.4
million was reached on April 28, 1995. The Company is currently in monetary
default under the terms of the Settlement and the Company's president has
personally guaranteed the obligation. On September 13, 1995 General
Electric Company obtained a monetary judgment in the amount of approximately
$3.7 million and an order allowing it to repossess the two MRT machines the
Company was leasing. The suit was settled subsequent to year end (see Note
14).
The Company is involved in certain other legal proceedings and claims which
have arisen in the ordinary course of its business. While the ultimate
outcome of these legal proceedings cannot at this time be predicted with
certainty, management intends to vigorously defend the claims. Management
does not expect that these matters will have a material adverse effect of
the consolidated financial position or consolidated results of operations of
the Company.
NOTE 11- OPENING OF CENTER
The Company is in the process of constructing an imaging center in
Greenville, New York featuring state-of-the-art diagnostic equipment (see
Note 9). This center furthers the Company's philosophy of bringing
state-of-the-art, high quality, reduced cost medical care to rural
underserved areas. It is anticipated that construction will be completed in
July 1996.
NOTE 12- CLOSING OF CENTER
On June 26, 1995, the Company was notified that a physician group to whom
the Company was providing imaging equipment was terminating their contract
with the Company. As a result of this notice of termination, the Company
closed its center in Utica, New York.
NOTE 13- STOCK-BASED COMPENSATION
In October, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS123). This
statement addresses alternative accounting treatments for stock-based
compensation, such as stock options and restricted stock. FAS 123 permits
either expensing the value of stock-based compensation over the period
earned or disclosing in the financial statement footnotes the pro forma
impact to net income as if the value of stock-based compensation awards had
been expensed. The value of awards would be measured at the grant date
based upon estimated fair value, using option pricing models. The
requirements of this statement will be effective for 1996 financial
statements, although earlier adoption is permissible if an entity elects to
expense the cost of stock-based compensation. The Company is currently
evaluating the disclosure requirements and expense recognition alternatives
addressed by this statement. However, the Company expects to adopt the
alternative which would provide for proforma disclosure in the footnotes to
the consolidated financial statements.
49
<PAGE> 54
NOTE 14- SUBSEQUENT EVENTS
PROFESSIONAL SERVICES
On January 1, 1996 the Company entered into a lease agreement to rent a
building next to their Greenville, New York property.
EMPLOYMENT AGREEMENT
On January 1, 1996, the Company entered into a five year employment
agreement, with its President, which expires December 31, 2001. After the
initial term, the agreement is subject to an automatic annual renewal,
unless a sixty day notice is given by the president or the Company not to
renew the agreement. Under the agreement, the president is to receive a
base annual salary of $175,000 for 1996 and $350,000 for the remainder of
the term. The agreement also contains provisions for incentive compensation
payments and stock options.
Under the incentive compensation plan, the president is to receive a bonus
equal to five percent (S%) of the net increase in the Company's revenues
over the prior year's revenues, for each year of employment. Under the
stock option provisions, the President has been granted an option to
purchase 1,000,000 unregistered shares of common stock for $.25 per share.
The president may exercise this option at any time within ten (10) years
(January 1, 2006).
COMMITMENT
On February 14, 1996, the Company entered into an agreement with Silk Road
Health Care Corporation to form a new corporation in which Imagex will
invest $1,470,000 to develop and initially fund ten women's diagnostic
centers ($147,000 for each center) in North and South Carolina over the next
three years.
MECHANIC'S LIEN
On February 20, 1996 the Company's general contractor for the Greenville,
New York property filed and received a mechanic's lien against this
property. The lien was filed due to the Company's slow payment of invoices
to the General Contractor.
MANAGEMENT CONSULTING AGREEMENT
On March 11, 1996 the Company entered into a management consulting agreement
with Blue Water Consulting, Inc. (Consultant). Under the agreement the
Consultant was issued options to purchase 500,000 shares of common stock of
the Company for consideration of cash plus services. Under the agreement
the option price per share shall be equal to the average closing bid price
of the Company's common stock for the last ten (10) trading days prior to
exercise less a discount of sixty percent (60%) representing the value of
services rendered. The options may be exercised in part or in whole and
expire twenty-four (24) months following the date of issuance.
50
<PAGE> 55
MARKETING CONSULTING AGREEMENT
On March 11, 1996 the Company entered into a marketing consulting agreement
with Brad Street Marketing, Inc. (Consultant). Under the agreement the
Consultant was issued options to purchase 500,000 shares of common stock of
the Company, for consideration of cash plus services. Under the agreement
the option price per share shall be equal to the average closing bid price
of the common stock for the last ten (10) trading days prior to exercise
less a discount of sixty percent (60%) representing the value of services
rendered. The options may be exercised in part or in whole, and expire
twenty-four (24) months following the date of issuance.
GENERAL ELECTRIC SETTLEMENT AGREEMENT
On April 19, 1996 the Court vacated its September 13, 1995 order (see Note 10)
based on a March 29, 1996 "Settlement Agreement" between the Company and GE.
Under the agreement, the Company was given a $700,000 credit for the repossessed
equipment against the $1,400,000 judgment. The balance of $700,000 was
converted from an accounts payable into a promissory note payable to General
Electric, fixed rate of 10%, payable as follows: $10,000 per month through June,
1996; $110,000 in July, 1996; $15,000 per month August through December, 1996;
$115,000 in January, 1997; $20,000 per month February through June, 1997;
$120,000 in July, 1997; $25,000 per month August through November, 1997 and
$117,221 in December, 1997. The note is secured by equipment financed and a
first mortgage lien on the Greenville real property as well as a personal
guarantee by the Company's president.
NOTE 15- SUBSCRIPTIONS RECEIVABLE
Common stock subscriptions receivable for 1,500,000 shares were outstanding
AS of December 31, 1995, valued at average market price when issued
aggregating $1,125,000. Such amounts exclude 2,050,000 shares that were
outstanding as subscriptions receivable as of December 31, 1995, which were
returned to the Company subsequent to that date.
NOTE 16- GOING CONCERN
The Company incurred losses of $2,045,125 and $523,188 for the years ended
December 31, 1995 and 1994, respectively, has a stockholders' deficiency of
$899,916 as of December 31, 1995 and it is our understanding that losses are
continuing subsequent to year end. The deterioration in the Company's
earnings during 1995 is primarily attributable to a substantial reduction in
the usage of the Company's equipment due to fewer patients seeking
diagnostic services at one of the Company's existing centers and the closing
of another center, as well as delays in opening the Company's newest center
in Greenville, New York. In addition, the Company is in arrears on certain
trade payables and other obligations. As discussed in Note 10, the lessor
has filed suit demanding payment and the Company is in monetary default
under terms of the settlement, resulting in the lessor obtaining a monetary
judgment of approximately $3.7 million and an order allowing it to repossess
the equipment. As further discussed in Note 14, that suit was settled
subsequent to December 31, 1995, at which time the aforementioned judgment
was vacated. Such settlement included the refinancing of a portion of the
obligation with the same lessor and the lessor's repossession of one of the
Company's MRI imaging machines. Further, as discussed in Note 12, a
physician group to
51
<PAGE> 56
whom the company was providing imaging services has terminated its contract
with the Company. The Company is also experiencing delays in the opening of
the final phase of its newest center in Greenville, New York. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern.
In view of these matters, the Company has developed a business plan which
included the subsequent completed renegotiations with General Electric, as
well as working with potential investors to raise additional working
capital. The plan also considers maximizing revenues at existing Company
centers by contracting with a marketing consultant to increase patient
referrals. In addition, the plan contemplates reduced operating costs
through the consolidation of duplicative administrative functions and the
streamlining of Company operations. The plan also anticipates that the new
Greenville center is expected to be profitable during 1996 and that
additional centers will be developed as future opportunities arise. The
Company's ability to successfully implement the foregoing elements of its
business plan, which may be necessary to permit the realization of assets
and liquidation of liabilities in the ordinary course of business, is
uncertain. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Company Disclaimer:
Currently (11/15/96), Imagex Services, Inc. is not a going concern, has no
revenue at current and is being treated as a "turn around" situation by Genesis
(the Company) which will include possible Chapter 11 protection allowing for a
"Reorganization Plan" to be filed, approved and administered by the Court and
the Parent Company. The Company intends to continue limited funds disbursement
to creditors of Imagex in the interim and intends to continue to support Imagex
financially until it again becomes a profitable going concern with potential
for continued growth.
52
<PAGE> 57
AMERICAN LIFT
A WHOLLY OWNED SUBSIDIARY OF GENESIS INSURANCE & FINANCIAL SERVICES, INC.
EXECUTIVE SUMMARY
For many years, the physically challenged individuals have had to rely on
unrealistic and unacceptable access to public.
An innovative group of professional businessmen and business women have formed
a new corporation to market, manufacture, and distribute elevators and lifts
within the Southeaster United States. The corporation is based in the
tri-cities are of East Tennessee and plans to open satellite sales offices in
Atlanta and Tampa within the next twelve to eighteen months. The manufacturing
facility is located in Johnson City, Tennessee.
American Lift, Inc. is designed to be a marketing and manufacturing company
with base representation in major metropolitan areas of the Southeast. The
corporate office is the "hub" with several spokes extended approximately two to
three hours driving time from this point. With three to four hubs within the
Southeast, it is expected that American Lift, Inc. will be able to effectively
exploit the market potential for the growing segment of the elevator market...
residential and light commercial applications. The target cities currently in
the expansion plan are Atlanta, Tampa and Richmond. It is expected that within
twelve to fifteen months, an estimated ten to twenty sales representatives for
American Lift, Inc. will be strategically placed within the above mentioned
markets, as well as, the peripheral markets within the hub's geographical
areas.
The sales personnel will be trained by American Lift, Inc. to service
individuals, churches and light commercial building owners within their
assigned territories, Each account representative will be enrolled in a
rigorous indoctrination program encompassing sales, territory management,
budgeting and product management.
BACKGROUND
Jesse Lovell, a business owner with more than 30 years experience in
management, sales and manufacturing is assuming a major role in American Lift,
Inc. because of his knowledge of sales, sales training and motivation. Mr.
Lovell holds the majority of the stock in American Lift, Inc. with other
shareholders holding the remainder.
Elite Elevator, the previous company, generated nearly $200,000 in sales
revenue during 1993-94; lost money. During the next year of the recovery plan,
1994-95, the new company is "on line" to sell a projected $.7 million... a
major increase in a very small market and is expected to be profitable.
53
<PAGE> 58
CONCEPT
The strategy is to develop a professional sales team who work to maximize sales
by actively seeking to generate a core of potential and qualified leads within
the Southeast region's urban markets. American Lift, Inc. will provide
information, drawings and overall project management assistance to the
contractor, architect or developer. Training for these sales and account
representatives will be intense and each representative will have to pass
certain "milestones" in the program to continue.
Management's objectives are to propel American Lift, Inc. into a prominent
position within the Southeastern United States market. It is felt that
American Lift, Inc. Must:
Maximize sales with an extensive campaign UTILIZING a regional account
representative program which develops and cultivates "relationship" with
architects, developers and contractors.
Increase product offerings through an alliance with other future product
developments,
Provide that "extra" support and assistance to the customer base. In
other words, position American Lift, Inc. to be the "Midas" of the
residential and light commercial elevator industry. American Lift, Inc.
must become the "best" facilitator WITHIN a very small period of time.
FINANCE
It is expected that within three to five years, American Lift, Inc. will have
achieved consistent profitability with the capability to generate dividend
income for its shareholders provide for extended growth outside of the Southern
United States. Management expects to generate revenues of approximately $ 1.0
million within the first twelve months of the parent company's successful stock
offering to raise the required expansion capital and by the next year,
approximately $2.0 million with after-tax profits approaching 20%. In order to
do this, it is felt that approximately $250,000 is needed in funds to hire,
train, and develop the personnel needed to compete in the urban markets of the
Southeast, as well as, strengthen the manufacturing elements of the company.
The principals of American Lift, Inc. have provided portions of these
requirements in the past and Genesis Insurance & Financial Services, Inc. Will
provide the remainder. (Genesis acquired American Lift on June 6, 1996
whereby American Lift became a wholly owned subsidiary of Genesis Insurance &
Financial Services, Inc.) The full program will provide a significant growth
potential for American Lift, Inc. if the plan is fully implemented as currently
planned.
Please see the Financial Pro-Forma for specific monthly budgets , projected
income and profitability.
54
<PAGE> 59
MANAGEMENT
HOW WE STARTED
American Lift, Inc. was founded in July 1995 by Jesse Lovell and other
investors who have worked successfully together on past investments.
The legal form of American Lift, Inc. is a Sub-Chapter S Corporation and is
incorporated in Johnson City, Tennessee, with the corporate headquarters there,
as well.
MANAGEMENT TEAM
Of the people who make up the management staff, there are the founders and
other individuals who have been placed in the following positions:
Jesse Lovell, President* (Now, Lisa Lovell)
Dan Carroll, Vice President of Manufacturing
Lisa Lovell, Vice President of Marketing and Sales*
Harold Carroll, Customer Service Manager
D. C. McQueen, Installation Manager
Vicki Culbertson, Operational Support and Administrative Services
Manager
The founders and key managers of American Lift, Inc. have combined experiences
exceeding 80 years on both the consumer marketing and hydraulic lift
industries. The strength of the American Lift, Inc. management team stems from
the combined expertise in both management and technical areas. The leadership
and alignment characteristics or American Lift, Inc.'s management team have
resulted in broad and flexible goal setting-to meet the ever changing demands
of the quickly moving marketplace requiring our products. This is evident when
the team responds to situations requiring new and innovative capabilities.
RESPONSIBILITIES OF AMERICAN LIFT'S MANAGEMENT
Manage market planning, advertising, public relations, sales promotion,
merchandising and facilitating staff services; Identify new markets and
corporate scope through market research; Identify new products and devices;
Manage field sales organization, territories and quotas; Manage sales office
activities including customer/product support/ service. Oversee product
development including blue print quality control, physical distribution of the
planned product, the new product, new product development improvement, and
improvements on existing products; Research and development; Production
advancements through cost effective logistics planning and quality control.
55
<PAGE> 60
American Lift, Inc.
Income Statement
Years Ending December 31
Years Ending December 31
<TABLE>
<CAPTION>
Jan 96 Feb 96 Mar 96 Apr 96 May 96 Jun 96
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 45,000 45,000 60,300 96,480 96,480 96,480
Total Cost of sales 43,411 24,751 33,165 53,064 53,064 53,064
-------------------------------------------------------------------------
Gross margin 1,589 20,249 27,135 43,416 43,416 43,416
Operating expenses:
General & Administrative:
Commissions 2,250 2,250 3,015 4,824 4,824 4,824
Rent 2,000 2,000 2,000 2,000 2,000 2,000
Insurance 450 450 603 965 965 965
Maintenance 225 225 302 482 482 482
Utilities 900 900 900 700 700 700
Telephone 1,200 1,200 1,200 1,400 1,400 1,351
Freight 562 562 754 1,206 1,206 1,206
Office 225 225 302 482 482 482
Supplies 180 180 241 386 386 386
Travel 1,287 1,287 1,725 2,759 2,759 2,759
Advertising 1,000 1,000 1,000 1,000 1,000 1,000
Professional services 250 250 250 250 250 250
Property tax 90 90 121 193 193 193
Depreciation 2,827 2,834 2,839 2,847 2,832 2,859
Total General & Administrative 13,446 13,453 15,252 19,494 19,499 19,457
-------------------------------------------------------------------------
Total Operating expenses 13,446 13,453 15,252 19,494 19,499 19,457
-------------------------------------------------------------------------
Income from operations (11,857) 6,796 11,883 23,922 23,917 23,959
Other Income:
Total Other income 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0
Earnings before interest and taxes (11,857) 6,796 11,883 23,922 23,917 23,959
Net Interest expense (income) 522 522 522 522 522 522
Net income before taxes (12,379) 6,274 11,361 23,400 23,395 23,437
Taxes:
Total Taxes 0 0 0 0 0 0
Net Income $(12,379) $6,274 $11,361 $23,400 $23,395 $23,437
=========================================================================
<CAPTION>
Jul 96 Aug 96 Sep 96 Oct 96 Nov 96 Dec 96 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 192,960 132,660 132,660 132,660 132,660 72,360 1,235,700
Total Cost of sales 106,128 72,963 72,963 72,963 72,963 39,798 698,297
--------------------------------------------------------------------------------------
Gross margin 86,832 59,697 56,697 59,697 59,697 32,562 537,403
Operating expenses:
General & Administrative:
Commissions 9,648 6,633 6,633 6,633 6,633 3,618 61,785
Rent 2,000 2,000 2,000 2,000 2,000 2,000 24,000
Insurance 1,930 1,327 1,327 1,327 1,327 724 12,360
Maintenance 963 663 663 663 663 362 6,177
Utilities 700 700 700 700 900 900 9,400
Telephone 1,857 1,857 1,857 1,857 1,857 1,013 18,049
Freight 2,412 1,658 1,658 1,658 1,658 904 15,444
Office 965 663 663 663 663 362 6,177
Supplies 772 531 531 531 531 289 4,944
Travel 5,519 3,794 3,794 3,794 3,794 2,069 35,340
Advertising 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Professional services 250 250 250 250 250 250 3,000
Property tax 386 265 265 265 265 145 2,471
Depreciation 2,864 2,872 2,877 2,884 2,889 2,897 34,341
Total General & Administrative 31,268 24,213 24,218 24,225 24,430 16,533 245,488
--------------------------------------------------------------------------------------
Total Operating expenses 31,268 24,213 24,218 24,225 24,430 16,533 245,488
--------------------------------------------------------------------------------------
Income from operations 55,564 35,484 35,479 35,472 35,267 16,029 291,915
Other Income:
Total Other income 0 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0 0
Earnings before interest and taxes 55,564 35,484 35,479 35,472 35,267 16,029 291,915
Net Interest expense (income) 522 522 522 522 522 522 6,264
Net income before taxes 55,042 34,962 34,957 34,950 34,745 15,507 285,651
Taxes:
Total Taxes 0 0 0 0 0 0 0
Net Income $55,042 $34,962 $34,957 $34,950 $34,745 $15,507 $ 285,651
======================================================================================
</TABLE>
* All figures provided by American Lift Management
56
<PAGE> 61
American Lift, Inc.
Income Statement
Years Ending December 31
Years Ending December 31
<TABLE>
<CAPTION>
Jan 97 Feb 97 Mar 97 Apr 97 May 97 Jun 97
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 75,000 75,000 75,000 120,000 120,000 120,000
Total Cost of sales 41,231 41,251 41,251 66,000 66,000 66,000
------------------------------------------------------------------------
Gross margin 33,749 33,749 33,749 54,000 54,000 54,000
Operating expenses:
General & Administrative:
Commissions 3,750 3,750 3,750 6,000 6,000 6,000
Rent 2,667 2,667 2,667 2,667 2,667 2,667
Insurance 750 750 750 1,200 1,200 1,200
Maintenance 375 375 375 600 600 600
Utilities 900 900 900 900 700 700
Telephone 1,050 1,050 1,050 1,680 1,680 1,680
Freight 938 938 938 1,500 1,500 1,500
Office 375 375 375 600 600 600
Supplies 300 300 300 480 480 480
Travel 2,145 2,145 2,145 3,432 3,432 3,432
Advertising 1,500 1,500 1,500 2,400 2,400 2,400
Professional services 250 250 250 250 250 250
Property tax 150 150 150 240 240 240
Depreciation 2,908 2,922 2,933 2,947 2,958 2,972
Total General & Administrative 18,058 18,072 18,083 24,896 24,707 24,721
------------------------------------------------------------------------
Total Operating expenses 18,058 18,072 18,083 24,896 24,707 24,721
------------------------------------------------------------------------
Income from operations 15,691 15,677 15,666 29,104 29,293 29,279
Other income:
Total Other income 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0
Earnings before interest and taxes 15,691 15,677 15,666 29,104 29,293 29,279
Net Interest expense (income) 508 508 508 508 508 508
Net income before taxes 15,183 15,169 15,158 28,596 28,785 28,771
Taxes:
Total Taxes 0 0 0 0 0 0
Net Income $15,183 $15,169 $15,158 $28,596 $28,785 $28,771
========================================================================
<CAPTION>
Jul 97 Aug 97 Sep 97 Oct 97 Nov 97 Dec 97 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 165,000 165,000 165,000 165,000 165,000 90,000 1,500,000
Total Cost of sales 90,751 90,751 90,751 90,751 90,751 49,500 825,008
--------------------------------------------------------------------------------------
Gross margin 74,249 74,249 74,249 74,249 74,249 40,500 674,992
Operating expenses:
General & Administrative:
Commissions 8,250 8,250 8,250 8,250 8,250 4,500 75,000
Rent 2,667 2,667 2,667 2,667 2,667 2,667 32,004
Insurance 1,650 1,650 1,650 1,650 1,650 900 15,000
Maintenance 825 825 825 825 825 450 7,500
Utilities 700 700 700 700 900 900 9,600
Telephone 2,310 2,310 2,310 2,310 2,310 1,260 21,000
Freight 2,062 2,062 2,062 2,062 2,062 1,125 18,749
Office 825 825 825 825 825 450 7,500
Supplies 660 660 660 660 660 360 6,000
Travel 4,719 4,719 4,719 4,719 4,719 2,574 42,900
Advertising 3,300 3,300 3,300 3,300 3,300 1,800 30,000
Professional services 250 250 250 250 250 250 3,000
Property tax 330 330 330 330 330 180 3,000
Depreciation 2,983 2,997 3,008 3,022 3,033 3,047 35,730
Total General & Administrative 31,531 31,543 31,556 31,570 31,781 20,463 306,983
--------------------------------------------------------------------------------------
Total Operating expenses 31,531 31,543 31,556 31,570 31,781 20,463 306,983
--------------------------------------------------------------------------------------
Income from operations 42,718 42,704 42,693 42,679 42,468 20,037 368,009
Other income:
Total Other income 0 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0 0
Earnings before interest and taxes 42,718 42,704 42,693 42,679 42,468 20,037 368,009
Net Interest expense (income) 508 508 508 508 508 508 6,096
Net income before taxes 42,210 42,196 42,185 42,171 41,960 19,529 361,913
Taxes:
Total Taxes 0 0 0 0 0 0 0
Net Income $42,210 $42,196 $42,185 $42,171 $41,960 $19,529 $ 361,913
======================================================================================
</TABLE>
* All figures provided by American Lift Management
57
<PAGE> 62
American Lift, Inc.
Income Statement
Years Ending December 31
Years Ending December 31
<TABLE>
<CAPTION>
Jan 98 Feb 98 Mar 98 Apr 98 May 98 Jun 98
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 90,000 90,000 90,000 144,000 144,000 144,000
Total Cost of sales 49,500 49,500 49,500 79,200 79,200 79,200
------------------------------------------------------------------------
Gross margin 40,500 40,500 40,500 64,800 64,800 64,800
Operating expenses:
General & Administrative:
Commissions 4,500 4,500 4,500 7,200 7,200 7,200
Rent 3,333 3,333 3,333 3,333 3,333 3,333
Insurance 900 900 900 1,440 1,440 1,440
Maintenance 450 450 450 720 720 720
Utilities 900 900 900 900 700 700
Telephone 1,260 1,260 1,260 2,016 2,016 2,016
Freight 1,125 1,125 1,125 1,800 1,800 1,800
Office 450 450 450 720 720 720
Supplies 360 360 360 576 576 576
Travel 2,340 2,340 2,340 3,744 3,744 3,744
Advertising 1,800 1,800 1,800 2,880 2,880 2,880
Professional services 250 250 250 250 250 250
Property tax 180 180 180 288 288 288
Depreciation 3,071 3,097 3,121 3,147 3,171 3,197
Total General & Administrative 20,919 20,945 20,969 29,014 28,838 28,864
------------------------------------------------------------------------
Total Operating expenses 20,919 20,945 20,969 29,014 28,838 28,864
------------------------------------------------------------------------
Income from operations 19,581 19,555 19,531 35,786 35,962 35,936
Other income:
Total Other income 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0
Earnings before interest and taxes 19,581 19,555 19,531 35,786 35,962 35,936
Net Interest expense (income) 493 493 493 493 493 493
Net income before taxes 19,088 19,062 19,038 35,293 35,469 35,443
Taxes:
Total Taxes 0 0 0 0 0 0
Net Income $19,088 $19,062 $19,038 $35,293 $35,469 $35,443
========================================================================
<CAPTION>
Jul 98 Aug 98 Sep 98 Oct 98 Nov 98 Dec 98 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 198,000 198,000 198,000 198,000 198,000 108,000 1,800,000
Total Cost of sales 108,900 108,900 108,900 108,900 108,900 59,400 990,000
--------------------------------------------------------------------------------------
Gross margin 89,100 89,100 89,100 89,100 89,100 48,600 810,000
Operating expenses:
General & Administrative:
Commissions 9,900 9,900 9,900 9,900 9,900 5,400 90,000
Rent 3,333 3,333 3,333 3,333 3,333 3,333 39,996
Insurance 1,980 1,980 1,980 1,980 1,980 1,080 18,000
Maintenance 990 990 990 990 990 540 9,000
Utilities 700 700 700 700 900 900 9,600
Telephone 2,772 2,772 2,772 2,772 2,772 1,512 25,200
Freight 2,475 2,475 2,475 2,475 2,475 1,350 22,500
Office 990 990 990 990 990 540 9,000
Supplies 792 792 792 792 792 432 7,200
Travel 5,148 5,148 5,148 5,148 5,148 2,808 46,800
Advertising 3,960 3,960 3,960 3,960 3,960 2,160 26,000
Professional services 250 250 250 250 250 250 3,000
Property tax 396 396 396 396 396 216 3,600
Depreciation 3,221 3,247 3,271 3,297 3,321 3,347 38,508
Total General & Administrative 36,907 36,933 36,957 36,983 37,207 23,868 358,404
--------------------------------------------------------------------------------------
Total Operating expenses 36,907 36,933 36,957 36,983 37,207 23,868 358,404
--------------------------------------------------------------------------------------
Income from operations 52,193 52,167 52,143 52,117 51,893 24,732 451,596
Other income:
Total Other income 0 0 0 0 0 0 0
Other expenses:
Total Other expenses 0 0 0 0 0 0 0
Earnings before interest and taxes 52,193 52,167 52,143 52,117 51,893 24,732 451,596
Net Interest expense (income) 493 493 493 493 493 493 5,916
Net income before taxes 51,700 51,674 51,650 51,624 51,400 24,239 445,680
Taxes:
Total Taxes 0 0 0 0 0 0 0
Net Income $51,700 $51,674 $51,650 $51,624 $51,400 $24,239 $ 445,680
======================================================================================
</TABLE>
* All figures provided by American Lift Management
58
<PAGE> 63
MOTORSPORTS TRAVEL CENTERS, INC.
PROFILE
MotorSports Travel Centers, Inc. (MTC) is a new concept in providing services
for the traveling public and the trucking industry. Each plaza consists of
four different businesses within one complex. The plazas include a convenience
store with fuels service, motorsports souvenir and gift shop, fast food
restaurant and motel. Every location features an exclusive auto racing theme,
creating an atmosphere similar to attending an actual major league motorsports
event. The basic layout design of every plaza is identical with exception of
the theme emphasis which will vary, depending on the geographical location.
Each plaza requires a minimum of 3.5 acres of land and consists of two separate
structures. The convenience store, souvenir and gift shop and restaurant will
be consolidated in a 9,000 square feet building adjacent to the motel. Most of
the locations feature a 75 unit motel. However, some of the sites will exceed
75 room facilities due to acquisitions of property with existing motels. The
average cost of each MTC is estimated to be $3.2 million, including the land.
MARKET PENETRATION
Although the MTC is designed to target the vast population of racing
enthusiasts, they serve a dual purpose of providing convenient services for the
general public, as well. Food orders can be placed from a menu board while
refueling your vehicle. A twenty four hour fax service and an overnight parcel
delivery service is available for the business traveler. As for the leisure
traveler, the MTC offers a fun and relaxing place to spend a few hours or the
night. Visitors can view replicas of real race cars displayed at each plaza
and browse through the souvenir and gift shop. They can also enjoy a quiet
meal in the racing oriented restaurant and later, retire to a comfortable room
displaying the theme of their favorite race driver. The true race fan can even
rent racing videos from the library located in the motel lobby.
The plaza located at exit 68 and Interstate 75 which is the primary interchange
for Atlanta Motor Speedway is to feature a heavy emphasis on NASCAR Winston Cup
racing. A second Atlanta location at U.S. Highway 441 and Interstate 85 will
place a greater emphasis on the International Motor Sports Association and the
National Hot Rod Association. This site within close proximity of Road Atlanta
and Atlanta International Dragway where major national events are held for
each sanctioning body. The Indianapolis location will highlight the
Indianapolis 500 and the NASCAR Winston Cup, Brickyard 400.
GROWTH
The development plans over the next 5 years are structured into three separate
phases. The first phase is to include the construction of twenty-five plaza's
at strategic locations across the country. Every site will be near a racing
facility where major events are held. Of these locations, three are
wholly-owned by MTC. The remaining twenty-two sites will be developing through
joint venture between and MTC other investment groups.
MTC plans to start Phase II of the development program by early winter of this
year. This stage includes the selection of additional sites for the MTC and
the introduction of the miniversion of the travel plaza. These units will be
of the basic convenience store design featuring limited menu fast food service
for take-out only. Each store will also include a souvenir section
consolidated with the convenience store. These offer a more limited selection
than the larger plaza shops. The smaller stores will be known as MOTORSPORTS
FUEL AND FOOD CENTERS, that target high traffic commuter locations and highly
populated rural markets.
By late 1997, Phase III is scheduled to be implemented. During the third phase
MTC plans to introduce a public stock offering and a franchise program for the
MOTORSPORTS FUEL AND FOOD CENTERS. Projections through 1999 include a total of
200 MTC and 1,000 MOTORSPORTS FUEL AND FOOD CENTERS. These projections could
increase as the results of any future acquisitions and joint ventures with
existing companies.
Over the next five years MTC will take the traveling public into the
twenty-first century. Along the way, MTC will also cross international
borders, introducing American motorsports and ultimate convenience to our
friends abroad.
MTC is the new way of the future in travel convenience.
ORGANIZATIONAL STRUCTURE
Geoffrey R. Crabbe, President/CEO
Directs and supervises all aspects of development and operations; provides
general direction to executive staff and major projects, analyzes business
opportunities and develops negotiating strategies on a case by case basis.
Advises on contractual, legal, accounting and insurance requirements. Provides
guidance day by day on all matters and interfaces with government, civic and
business organizations. Provides expertise for establishment and maintenance
of company policy procedure, standards and accounting. Prior Experience, 17
years, President EBBARC International, Inc., a Georgia development and
consulting firm specializing in all areas of heavy commercial real estate and
projects up to 200m, consultant to IFC World Bank. Plus 15 years in Senior
Management positions with Bechtel and Trammell Crow organizations.
Jerry D. Dorminey, Executive Vice President - Development Sales & Marketing
Founder and owner of Dean Power Oil Company (1959-1983) located in Moultrie,
Georgia. Dean Oil Company reserved it's gasoline allocation during the 1974
energy crisis to provide fuel for race fans attending Speedweeks at the Daytona
International Speedway. The company grew to 116 locations throughout the
southeast prior to being sold in 1983. Dorminey also developed the Florida
based Seminole Sammie convenience store change in 1984, selling the company two
years later to devote more time to family interests. He was a Winston cup owner
during the early to mid-seventies and was an active short track drive for 18
years.
Jimmy Hathcock, Senior Vice President - Operations.
After graduation from Abraham Baldwin College in 1958, joined John Deere
Company in sales and service for five years. In 1963 became Vice President of
Wholesale Accounts for Deal Oil Company. Duties also included supervising
construction of company owned stations auditing weekly sales. Later, was
founder and owner of Dean Oil Transport which transported gasoline to company
owned stations and wholesale accounts. Served as Vice President of Operations
for five years prior to the sale of Dean Oil Company. For the past eleven
years has been in the group Insurance sales business.
Richard W. Larson, Vice President - Site Acquisition & Construction
Partner and Vice President of Great South Realty Development Company.
Responsible for construction budgeting, preplanning, city and architectural
liaison and Construction Management of two major triple A office projects in
the exclusive Buckhead district of Atlanta, Georgia. Partner in the Buckhead
Companies responsible for construction management and daily operations.
Private consultant on the Daufuskie Inn, Daufuskie Island, South Carolina and a
90,000 square foot office building in the downtown district of historic
Charleston, South Carolina.
MILLER MOUNTAIN GOLD MINE
The Company, Genesis Insurance & Financial Services, Inc., through its
wholly owned subsidiary, Congress Re-Insurance Corporation, Inc., holds seventy
seven (77) mining claims and a fully enforceable and valid gold mining lease
and royalty agreement on the claims property known as the Miller Mountain Mine
located in Boise, Idaho. The Company acquired the gold mining rights, claims
and leases under an irrevocable power of attorney collateral transfer and
assignment agreement and joint venture contract with Solomon of Nu, Inc. and
its present President, Mr. Theodore Collins of Lexington, Kentucky. The
Company intends to exploit these leases by reopening the Miller Mountain Mine
during this year or by early spring, 1997, depending upon weather conditions in
the area and the success of the Company's anticipated public stock offering or
private placement whereby if successful, the Company would apply approximately
$1.5 million for the refurbishment of the existing roadway into the mining site
as well as start-up capital in order to begin re-excavation of the site and
establishing contract refining agreements in order to enable the company to
fully exploit the previous metal reserves at the Miller Mountain Mine site.
The Company also expects to receive matching funds in the Joint Venture
Agreement with Solomon of Nu, Inc. and expects the initial start-up
capitalization to require approximately $3 million over an initial period of
approximately eight to ten months. The mine was originally operating up until
the late 1950's whereby it became more expensive to extract the gold from its
complex ore composites than the mine operators would receive in revenue from
selling the resulting gold. As during that period, gold brought less than $50
an ounce as it did even during the early 70's when gold was only $35 an ounce,
during one period. Consequently, the cost of operating a complex ore extraction
operation far exceeded the revenue generated from the resulting gold primarily
based upon the fact that process technology had not yet reached the levels of
sophistication which it has today or cost effectiveness. Consequently, many of
these mining operations were shut down and some simply abandoned. Now, over
the past 35 years with the increase in technology and the lower costs of
refining gold and specifically more "complex ore" composites, more and more
mining sites and abandoned claims are being acquired by large and small
corporations alike all across the United States and in some cases by foreign
corporations to take advantage of the best opportunities which may exist in
reopening some of these more productive sites which maintain proven gold
reserves and large probable reserves.
The Miller Mountain gold mining claims have had hundreds of thousands of
dollars of geology and engineering work done on them as recently as the mid
80's and then once again on a test basis, proven reserves will once again
ascertain by our firm when we send Mr. Collins of Solomon of Nu to collect
additional test samples from various areas at the site during the first of this
year. Consequently, the proven reserves based on certified geologist's reports
exceeds $50 million in totality and probable reserves exceed the $180 million
level based upon a 5-year operating span.
Additionally, the Company states that because this particular project is
in the developmental stage, only this general description of the investment and
its potential value is represented whereby a more comprehensive disclosure will
be made at the time the Company
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<PAGE> 64
decides to reopen the Miller Mountain Mine and write the project into any
anticipated public or private offering prospectus or other document within which
a comprehensive and detailed representation of operations together with
projected operations and cash flow will be provided for analysis and
consideration.
ASSOCIATED RISK FACTORS
INSURANCE INDUSTRY RISK FACTORS
As with any highly regulated industry, the insurance industry in particular
harbors a considerable degree of risk due to the fact that changes in
regulations could directly affect the projections of Genesis Insurance &
Financial Services, Inc., could restrict or prohibit entirely the contemplated
business activities calculated by the various commissioners of insurance and the
state or states within the jurisdiction. As with any highly regulated industry,
specifically with the insurance industry in general, there are liabilities
associated with the day to day operations including the operation of a product
provider (carrier) or as an agency operation, representing products of other
issuers of regulated insurance products. Claims may be filed against policies
resulting in large settlements, litigation or damages or the cancellations of
premiums could directly affect the cash flow position, asset base and/or
projections of the firm adversely. Also, previous performance is not an
indication of future performance and therefore fundamentals used as a basis for
projections and analysis does not necessarily reflect any guarantee of future
performance as is the case of any industry, especially those volatile industries
which include the financial service industry as well as the insurance industry
as a whole.
NON-INSURANCE SURETY INDUSTRY RISKS
The risks associated with the Non-Insurance Surety Industry (and regulated
surety activities offered and conducted pursuant to the Federal Miller Act,
McAron-Ferguson Act, and various state laws which pertain to
corporately/individually issued indemnification, and surety and other commercial
guarantee agreements). In addition to those risks associated with the regulated
insurance industry, the "non-insurance surety industry" and the market target
segments therein have an additional degree or risks as it pertains to the fact
that some states maintain their position on allowing such activities to remain
unregulated within their state jurisdiction or may already prohibit such
activities within the state which do not conform to activities under federal
jurisdiction and in these states, the firm could be prohibited from conducting
its business and therefore an extremely adverse impact on cash flow projections
and growth could result.
Additionally, while the firm does not use multiples as do regulated
insurance companies (a practice of writing surety and accumulating contingent
liabilities in excess of actual assets available based on "loss rations"). If
the Company encounters difficulty, delays or fails to efficiently liquidate any
part or all of its investments, contingent liabilities could exceed the
available asset base of the Company and should off the book assets (assets held
under power of attorney through indemnity agreements with clients), the firm's
non-insurance bonding division
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(Congress Re-Insurance Corporation, Inc.) could be deemed insolvent without
additional capitalization from the fundamentals which exist in the
non-insurance surety package. Additionally, the client base targeted by the
non-insurance surety industry historically has been highly volatile on a
subject of a higher default rate (all the minority-owned and disadvantaged
businesses) within the regulated insurance market's primary market segment
which has a lower default failure rate. Consequently, a higher degree of risk
exists within the non-insurance surety market and extra due diligence is
required in order to protect the firm from the result claims loss and potential
loss associated therewith.
THE MEDICAL PRODUCTS AND SERVICE INDUSTRY ASSOCIATED RISKS
The risks associated with the medical products industry are broad in scope
but are primarily associated with the possibility that projected sales or
revenue from sales may not meet annualized projected sales and revenues by
management due to various factors such as the possibility of product liability
litigation, changes in governmental (both federal and state) regulations which
pertain to the use, sale and implementation of various medical devices,
products, services, treatments and facilities which may negatively impact the
cash flow (projected or annual) of the Company and with regards to research and
development for products which do not already have patents, licensing and
approval, there is no assurance that patents will be granted, licensing will be
available to secure or other approvals necessary to bring products in the
research and development stage to market and accordingly with regard to
valuation of intellectual property rights as an asset of the Company which
value may be down-graded due to the negative impact of changes in the market
for such products and/or services or other economic changes or fluctuations.
With regard to medical health care provider services (psychiatric care
providers and other medical health care provider groups acquired or
contemplated for acquisition by the Company) current and/or future projections
for revenue, cash flow and growth could be adversely affected, changes in state
and/or federal government regulations which pertain to the payment procedure or
acceptance protocol with regards to payment procedure or changes in the
criterion set out by the insurance industry including but not limited to
corporate health care plans, Medicare and Medicaid, other state, federal and
private subsidy programs. Additionally, malpractice claims or claims for
negligence related to provider patient incidents could increase insurance costs
associated with service provider operations which could negatively impact both
current and future projections for cash flow revenue and growth of the firm's
divisions.
Also, with regard to diagnostic imaging services and diagnostic clinic
facility operations, the same risk factors apply as well as risk factors
associated with changing market conditions and demand for such services or
changes in technology rendering currently operative technology obsolete or
diminishing its demand creating a negative impact on anticipatory cash flow
revenue and/or gross projections both current and future of diagnostic imaging
or other diagnostic service clinic operations either acquired or contemplated
for acquisition as associated with the Company's overall business plan.
Additionally, should the Company fail to accumulate funds through a contemplated
secondary offering required to facilitate the acquisition and/or expansion plans
of
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the medical products and service industry current projections for revenue, cash
flow and growth may be substantially reduced or obviated completely.
GOLD MINING INDUSTRY RISK FACTORS
The Company's ownership and operating rights in the various 77 mining
claims of the Miller Mountain Mine in Boise, Idaho and the contemplated future
plans for exploitation of the proven reserves and reopening of the mining
facility to operative goal protection and refining are accompanied by various
and diverse risks associated with but not limited to changes in weather and
geological formations due to natural events, actual proven reserve estimates by
geologists falling short of geological analysis and representations, the
failure of the Company to accumulate funds through the contemplated secondary
offering required to facilitate the reopening and expansion plans together with
changes in market price of gold and other previous metals or changes in
governmental regulations, both state and federal, which pertain to the
excavation, mining, refining, marketing and sales of precious metals, all of
which could negatively affect the projected revenue cash flow and gross
associated with the Miller Mountain Mine's contemplated project and may
substantially reduce such assumed value or obviated completely.
NATURAL GAS DEVELOPMENT RISK FACTORS
The Company (Genesis Insurance & Financial Services, Inc.) through a
wholly owned subsidiary, Longhorn Energy Corporation (a Delaware corporation)
purchased a parcel of land which include five (5) drilled and capped natural
gas wells which have been analyzed and tested for proven reserves which the
Company intends to develop and market commercially. There exists certain risks
associated with such contemplated development plans which could negatively
impact projected annual revenue and cash flow from contemplated "developed
well" operations and natural gas sales; geological changes in natural gas
formation which inhibit or prohibit entirely the flow of natural gas from
seem-deposit to well-head; lack of working capital or required developmental
capital due to a failed secondary public offering or private placement which is
the currently contemplated revenue source with the exception of the possibility
for exploitation through joint ventures with unassociated companies.
Additionally, future performance based upon a comparison of past geological
analysis does not insure or guarantee, future performance will necessarily
reflect the same or a similar number million cubic feet of natural gas produced
per year or projected over a period of years. Additionally, should the Company
fail to accumulate funds through a contemplated secondary offering required to
facilitate the acquisition and/or expansion plans of the natural gas industry,
current projections for revenue, cash flow and growth may be substantially
reduced or obviated completely.
INDUSTRIAL LIFT MANUFACTURING INDUSTRY
ASSOCIATED RISK FACTORS
The Company (Genesis Insurance & Financial Services, Inc.) through its
wholly owned subsidiary, American Lift Corporation, Inc., a Tennessee based
manufacturer of industrial lift devises and related hydraulic equipment
maintaining a centralized manufacturing sales and distribution facility at its
Tennessee headquarters. The operations of which maintain certain
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inherent risks associated with the industrial lift manufacturing industry in
general and consequently, risks associated with the manufacturing process,
sales, marketing and distribution exists at various levels including but not
limited to equipment designs and technology becoming obsolete or cost
prohibitive, product liability suits arising from injury sustained as a result
of the use of various hydraulic lift devises and/or equipment operating in
commerce as well as those risks associated with future performance falling short
of past revenues affecting the anticipated gross revenue and expansion of the
Company's operations. Additionally, should the Company fail to accumulate funds
through the contemplated secondary offering required to facilitate the expansion
and operation plans of the Company, current projections of revenue and cash flow
and gross may be substantially reduced or obviated completely.
LIQUIDITY AND CAPITAL RESOURCES
Based upon calculations of management as of July 31, 1996 the Company had
total liabilities including consolidated contingent liabilities of approximately
$35,000,000 which include those contingent liabilities associated with the
issuance of surety products from its wholly-owned subsidiary Congress
Re-Insurance Corporation as compared with contingent liabilities of
approximately $20,000,000 during the same period last year indicating
approximately a 70% increase in contingent liabilities based on increase sales
of non-insurance surety products issued by Congress Re-Insurance Corporation
together with the liability aspect associated with acquisitions of its
wholly-owned subsidiary division. Contingent liabilities will reduce
dramatically as consolidated revenues booked on the companies' balance sheets
emanating from previous and newly acquired operating subsidiaries offset the
companies' contingent liabilities. Also the companies primary capitol resources
are derived from its operating subsidiaries and additional liquidity exists in
the considerable asset base of the companies diverse holdings which could be
leveraged or borrowed against if necessary to raise capitol for operations
and/or expansions however, the companies focus is to increase share holder value
and growth through strategic acquisitions primarily financed through public and
private placement of securities in the initial range of 25 million dollars.
In the companies effort to facilitate its capital formation process, which
will be applied to the implementation of the various operating subsidiary plans
for growth and expansion, the company is applying for a NASDAQ/NMS listing and
plans to execute its public and/or private offering thereafter to enable the
company to meet its on-going funding requirements. The Company has received
letters of interest and intent which, in the opinion of management, show a
reasonable assurance that the Company will be successful in raising the capital
required to implement the growth, expansion and revenue plans set out in this
report.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATIONS
The following discussion and analysis in relation to the Company should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Form 10SB(12g) Report.
GENESIS INSURANCE & FINANCIAL SERVICES, INC. is a multi-faceted Company
with a focus on strategic diversification of its consolidated asset base and
investment in various companies. Its family of operating subsidiaries have a
primary focus on financial services and asset backed surety products through
our wholly owned subsidiary Congress Re-Insurance Corporation, Inc. in the
non-insurance commercial guarantee industry while maintaining operations in
strategically diversified industries with a particular focus on the medical
industry, through its wholly owned subsidiary International Medical Products,
Inc., Lonestar Healthcare, Inc. and Imagex Services, Inc. with ancillary
operations in the gold mining industry through its holdings in the Miller
Mountain Mine, Natural Gas development, through wholly owned subsidiary
Longhorn Energy Corporation, Inc., agricultural operations, through investments
in Serenity Acres, (an operating cattle ranch deeded to wholly owned subsidiary
Guarantee Settlement Corporation, Inc.) and industrial manufacturing operations
through its wholly owned subsidiary American Lift Corporation, Inc., a
manufacturer of elevators and other industrial lift devices together with
various diversified investments which capitalize its asset backed financial
service products, as well as the Company's contemplated plans for a
considerable acquisition program whereby the Company will acquire and manage
insurance agencies groups with a focus on the non-standard insurance lines
through our wholly owned subsidiary, Priscott, Whitley & Rose. The Company
believes that the Agency Acquisition Program will generate a major portion of
the Company's consolidated revenue.
Management believes that through a controlled, strategic program of growth
through acquisitions, Genesis will maintain an organization which is better
equipped to fend off the volatile and diverse economic and political changes
which are prevalent in today's economy. Genesis Insurance & Financial
Services, Inc. plans to take advantage of the vast opportunities which exist in
the financial service industry as it relates to the new global economy.
While we intend to take a limited position in the financial service
industry, we plan to position ourselves to take advantage of the opportunities
which exist in areas such as "international trade related finance and
guarantees", "premium finance" and other forms of diversified and financial
services which will enable us to reinvest our revenues to achieve even greater
gains while enabling us to maintain a position of risk management and strength,
in the regulated insurance industry as well as the private sector surety
(non-insurance corporate surety) markets whereby we will continue to build an
organization founded upon strength and diversity while increasing shareholder
value, by supplying valuable low cost products and services to our diverse
customer base.
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Genesis Insurance & Financial Services, Inc. and its family of companies
expect to derive its primary revenues from its existing non-insurance surety
operations (asset backed commercial guarantees), commission revenue generated
from the agency acquisition program once instituted, and revenue from the
operation of the various wholly owned subsidiaries through the sale of medical
products owned and distributed through International Medical Products, Inc.,
revenue from the operations of Healthcare provider services through diagnostic
clinic services provided by a wholly owned subsidiary, Lonestar Healthcare,
Inc., once developed and also, diagnostic imaging clinic revenue produced
through its Imagex Services, Inc. subsidiary.
The Company will also derive agricultural operations revenue through its
wholly owned subsidiary Guarantee Settlement Corporation and its Serenity Acres
Ranch, and the Company hopes to derive considerable revenue from the reopening
of the Miller Mountain Gold Mine and its anticipated gold mining revenue
together with the anticipated revenues from the development of the Company's
holdings in natural gas wells through the proven natural gas reserves owned by
its Longhorn Energy Corporation division. Revenues derived from its industrial
products manufacturing operations through its corporate subsidiary, American
Lift, Inc., as well as future contemplated revenue derived through the
development of international operations and projects associated with its
subsidiary companies. The companies fiscal year end is December 31.
MANAGEMENT'S DISCUSSION OF OPERATION RESULTS
OPERATIONS
<TABLE>
<CAPTION>
SEPT. 30, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
(AUDITED)* (AUDITED)* (AUDITED)** (AUDITED)**
<S> <C> <C> <C> <C>
GROSS REVENUE 1,668,805 681,964 288,175 238,556
EXPENSES 641,086 354,051 175,524 178,637
DEPRECIATION 22,450 1,489 12,010 1,250
DIVIDENDS 0 0 *** 0
PROFIT BEFORE
INCOME TAX 1,005,269 326,474 100,641 58,661
</TABLE>
* As Academy Insurance & Financial Services, Inc./Genesis Insurance &
Financial Services, Inc.
** As Congress Re-Insurance Corporation, Inc. and Subsidiaries
*** The Company issued a 10% stock dividend to shareholders of record.
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BALANCE SHEET
<TABLE>
<CAPTION>
SEPT. 30, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
3RD Q* Y/E* Y/E** Y/E**
<S> <C> <C> <C> <C>
CURRENT ASSETS 1,080,045 604,776 233,110 153,844
INVESTMENTS 133,162,000 139,462,000 138,304,000 83,618,762
PROPERTY & EQUIPMENT 2,744,943 50,938 8,039 10,049
OTHER ASSETS 3,202,412 7,805 105,000 105,000
TOTAL ASSETS 140,189,400 140,125,519 138,650,149 83,887,655
</TABLE>
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPT. 30, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
3RD Q* Y/E* Y/E** Y/E**
<S> <C> <C> <C> <C>
CURRENT LIABILITIES 59,696 6,579 15,407 7,555
OTHER LIABILITIES - NOTES 135,500 1,683,573 1,445,000 -0-
PAYABLE
STOCKHOLDERS' EQUITY 143,994,204 138,435,367 137,189,742 83,880,100
EARNED SURPLUS -0- -0- -0- 30,100
TOTAL LIABILITIES & 144,189,400 140,125,519 138,650,149 83,887,655
STOCKHOLDERS' EQUITY
</TABLE>
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RESULTS OF OPERATIONS FOR THE 12 MONTHS ENDED
DECEMBER 31, 1995
The Company made a consolidated net profit of $326,474 for the 12-month
period ending December 31, 1995 as compared with a net profit of $100,641 for
the 12-month period ending December 30, 1994 which equates to an improvement of
approximately 324% on an annualized basis reflecting the steady growth of the
primary profit center and origin of revenue emanating from the operations of
Congress Re-Insurance Corporation's sale of surety products and services, both
nationally and internationally and while the asset base of the Company is
considerably large in relation to its revenue, this is attributed primarily to
the fact that the wholly owned operating subsidiary of Congress Re-Insurance
Corporation, Inc. Characteristically charges between 1% to 3% of its contingent
liabilities offered in the form of a commercial guarantee or surety agreement.
(Therefore, for instance, on sales of $35,000,000 in surety products, where the
Company charged for instance, 2% of the contingent liability or surety revenue
would only be $700,000 while net operating revenue at approximately 40% would
yield approximately $300,000 in net revenue.) Additionally, the Company
expects to realize consolidated revenue from all of its operating subsidiaries
which now include in its family of companies: International Medical Products,
Inc., Guarantee Settlement Corporation, Longhorn Energy Corporation, Imagex
Services, Inc., Lonestar Healthcare, Inc., American Lift Corporation, Inc. and
the other ancillary operations of Priscott, Whitley & Rose, Inc. whereby the
Company anticipates a net revenue increase of approximately 100% compared to
the first quarter of 1996 and the second quarter ending June 30, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following is a list of current shareholders holding an excess of five
percent (5%) of the outstanding shares of Genesis Insurance & Financial
Services, Inc. including management shareholder positions:
1. Mohamed Khairy Mohamed Zayed President-CEO 8,800,000 shares (144
Restricted Stock) 47%
2. Gary Emery Sec/Treas 5,000,000 shares (144 Restricted Stock) 26%
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RESUMES' OF DIRECTORS AND EXECUTIVE OFFICERS
AND PROMOTERS AND CONTROL PERSONS
MOHAMED KHAIRY MOHAMED ZAYED, II.
EXPERIENCE:
Mr. Zayed, during the past fifteen years, has founded and operated various
companies in various financial service industries and manufacturing and has
been involved as a financial consultant focusing on international transactions
in which Mr. Zayed has negotiated, syndicated, and developed multi-million
dollar transactions as high as $100,000,000 in value.
From 1982 - 1985, Mr. Zayed founded and operated Cairo Corporation located
in High Point, North Carolina as a FDA Registered drug manufacturing
establishment producing over the counter cosmetics and pharmaceutical products
on contract and under private label. In 1987, Mr. Zayed formed Intertech
Investment Group an international consulting company with a primary focus on
structured finance and assisting clients with developing various collateral or
surety obligations to aid in concluding various financial transactions in the
multi-million dollar range.
Also, during 1991 Mr. Zayed founded Congress Re-Insurance Corporation and
Surety Subdivision Financial Guarantee Indemnity Corporation, Inc. by
syndicating various investor groups and participants resulting in a combined
asset base and withholding company structure of Congress Re-Insurance
Corporation exceeding $83,000,000 at that time and currently reflects
consolidated assets in excess of $140,000,000 less contingent liabilities.
During the past five years Mr. Zayed has developed an international
network of financial associates and business relationships which have increased
revenues of Congress Re-Insurance Corporation by nearly 300% since its
inception and revenues continue to grow quarterly.
In mid 1995, Mr. Zayed sold Congress Re-Insurance Corporation to a
publicly traded company, Academy Insurance & Financial Services. Mr. Zayed
later bought out the publicly traded vehicle and in the succeeding twelve
months through acquisitions of other companies and investments has increased
the collective asset base of the company by over $10,000,000 and is currently
President and Chief Executive Officer of Genesis Insurance & Financial
Services, Inc. and its family of companies (Academy changed its name to Genesis
during early 1996).
EDUCATION:
Mr. Zayed holds certificates in computer programming and operation from the
University of North Carolina, Chapel Hill, technical program. Additionally, Mr.
Zayed has studied both business and law independently over the past fifteen
years which has been one of the key factors to his success.
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AFFILIATIONS:
Mr. Zayed is listed in "Who's Who" in American Business and is a financial
supporter of both local and regional politicians who have a pro-minority
platform (Mr. Zayed is an Egyptian-American) and has been nominated for a
membership in the Walden Club, of Chattanooga, Tennessee.
* * * * *
MR. GARY EMERY
RESUME'
EXPERIENCE:
1976 - 1980 Mr. Emery founded Peoples Bank of Crossville on April 6, 1976
at the age of 26 years old. In mid 1977 Mr. Emery opened four franchised steak
houses and a small trucking and produce company, packing and shipping produce
throughout the United States and during 1978 while operating the former
activities as well, Mr. Emery developed considerable housing units and
subdivisions throughout Central Tennessee.
1980 - 1992 During mid 1980 Mr. Emery began to liquidate most of his
previous holdings including Peoples Bank of Crossville and other auxiliary
subdivisions primarily based on substantial increases in interest rates and
other economic fundamentals and converted his investments and companies into
the construction industry which he operated for twelve years in the Atlanta
area averaging $500,000 - $12,000,000 per job.
1992-Present Mr. Emery has remained active from 1992 to date in the
Corporate Surety Bonding Industry and agriculture development and operation
through American Management Corporation which he founded in the early 90's and
EE Land and Cattle Corporation as well as his investments in Congress
Re-Insurance Corporation which is a wholly-owned subsidiary of Genesis
Insurance & Financial Services, a publicly traded company with international
operations and holdings in diverse investments and industries. Mr. Emery is
also a Director and Sr. Vice President of Genesis Insurance & Financial
Services.
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DARRELL MORGAN
RESUME'
EXPERIENCE:
<TABLE>
<S> <C>
1986 - Present Senior Vice President
Morgan Insurance Group, Inc.
Atlanta, Georgia
1985 - 1986 Personal Financial Planner
IDS/American Express
Atlanta, Georgia
1984 - 1985 Vice President
Morgan Insurance Group, Inc.
Atlanta, Georgia
1980 - 1984 Account Executive
Interstate Insurance Services, Inc.
Atlanta, Georgia
1978 - 1980 Bond Underwriter
Aetna Life & Casualty Insurance Company
Jackson, Mississippi
EDUCATION:
University of Georgia, Athens, Georgia
B.B.A., Accounting
Post Graduate: Aetna Life & Casualty Bond School
Hartford, Connecticut Bond Underwriter Training
IDA/American Express Home Office Sales School
Financial Planner Training, Atlanta, Georgia
National Association of Securities Dealers,
Washington, D.C.
</TABLE>
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LISA A. LOVELL
RESUME'
Lisa is a graduate of Tennessee Technological University, in Cookeville,
Tennessee where she received her Bachelor of Science degree in Marketing and
Business Management. She graduated Cum Laude from the American College of the
Applied Arts in Atlanta, Georgia receiving a Bachelor of Arts degree in
Merchandising. While attending school, Lisa worked for LHFC, Inc., a large
equipment company, as a sales and merchandise coordinator.
Ms. Lovell brings over ten (10) years of sales, marketing and management
experience to her position of President of American Lift, Inc. Before joining
the American Lift team, she worked as a Regional Sales Manager for Elite
Elevator Company, a multi-million dollar manufacturer of elevators and lift
products. As a sales manager for Parisian, in Atlanta, Georgia, she handled a
$4 million inventory and coordinated the sales efforts of fifteen associates.
Ms. Lovell also serves on the Board of Directors of ISDARK, Inc.
Lisa is a member of Associated General Contractors of America, the
American Marketing Association and Alpha Kappa Psi. She is active in community
affairs, having coordinated charity events for such organizations as the
American Cancer Society, March of Dimes, and American Heart Association. She
has also done extensive volunteer work for several United Way organizations in
the metro-Atlanta area.
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DONNA TODD-FERGUSON
RESUME'
QUALIFICATIONS:
- - Successful 29 years experience in Sales and Support within the Insurance
industry
- - Expertise in all aspects of insurance including underwriting, estimating
and negotiating with heavy emphasis on bonding, liability and property
- - Sales experience includes Marketing, Inside/Outside Sales and establishing
a client base
- - Personnel Management includes selecting, training, supervising and
motivating staff
- - Proven Customer Service ability assisting clients in their insurance needs
- - Excellent communication skills both written and verbal
- - Licensed CA and Nevada Insurance Agent/Broker and Life & Disability
Insurance Broker
EXPERIENCE:
FERGUSON FINANCIAL
PRESIDENT
Supervise, monitor and manage all aspects of the agency from purchase in 1980.
Requires expensive marketing, advertising and sales designed to strategically
increase the client base. Perform accounting, underwriting, estimating,
purchasing, personnel management, and both inside and outside sales.
Supervised staff of up to 50 personnel.
EDUCATION:
LICENSES
- - Insurance Agent and Broker (States of California and Nevada)
- - Life & Disability Insurance (States of California and Nevada)
UNIVERSITY OF SOUTH CAROLINA
- - Bachelor of Arts in Business Administration
MEMBERSHIPS:
- - Professional Insurance Agents 1975 - Present
- - California Independent Agents Association 1979 - Present
President (1989 - 1990)
Board Member (1980 - 1989)
- - Served on Producer Councils of several insurance companies
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T. WILSON FERGUSON
RESUME'
DATE OF BIRTH: October 16, 1931
- -------------
EDUCATION: Educated in the United Kingdom and the United States
- ---------
Bachelor of Arts - Economics
UNITED STATES
- -------------
ARMED FORCES: 1951 - 1954
- ------------
EXPERIENCE: Entered insurance training program in 1954 at Hartford,
- ---------- Connecticut. Career encompassed most of the various fields
within an insurance company's operations, with emphasis placed
on underwriting, marketing, administration and management. Home
Office, Branch Office and Regional Office responsibilities.
Agency/Brokerage - 1980 to present
LICENSES: California and Nevada
73
<PAGE> 78
NAYAN SHAH
RESUME'
NAYAN SHAH, age 43, serves as President, Director and Chief Executive
Officer of the Company. After receiving a Ph. D. in Medical Engineering from
University of London, Dr. Shah was a post-doctoral fellow at the University of
Chicago in the Department of OB-Gyn during 1971 through 1972.
From 1972 through 1978, he was a senior research scientist and group
leader for the development of urological and respiratory care products for the
Kendall Company, Division of the Colgate-Palmolive, Bernington, Illinois.
Candle is a leader in the medical device manufacturing.
From 1978 through 1982, he was a manager of technical planning for Medical
Venture Corp. for Sherwood Medical Industries, Division of American Home
Products, St. Louis, Missouri. Sherwood is a successful disposable medical
products company. This company successfully developed respiratory care and
OB-Gyn products. He was also involved in acquiring a major
multi-million-dollar medical firm for Sherwood Medical Industries.
From 1982 through 1983, he was a project manager for all operating room
(OR) products for Desert Medical Inc. a division of Warner-Lambert which
successfully introduced four new OR products for the Company.
From 1984 through 1987, he was a business manager for Medical Venture
Group, Fasson Industrial Division.
From 1987 to present, he has served as Director of Technology Transfer at
the world renown Cleveland Clinic, sat on the Board and acted as Executive
Officer in several public and private companies while continuing to operate
International Medical Products, Inc. as its President to present where he is
still active. Dr. Shah also holds a Board seat on the Parent Company Board of
Genesis Insurance & Financial Services, Inc. and its family of companies.
Also, Dr. Shah was responsible for the start-up of a venture and
successfully negotiated joint-venture contracts with major pharmaceutical
corporations within the U.S. and Europe. He left Fasson in 1987 to start.
Dr. Shah attended the University of Bombay, India and received both his
B.S. (chemistry and physics) and M.S. (organic biochemistry). He also attended
medical and graduate school at the University of London, England and received
his Doctor of Philosophy in medical engineering. Dr. Shah also has learned an
M.B.A. through the executive program at Southern Illinois University,
Edwardsville, Illinois, St. Louis campus.
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<PAGE> 79
Dr. Shah holds eight U.S. patents. Four patents belong to previous
corporations. He has successfully sold patent rights to two of his patents and
receives royalty payments. The other two are on cuff gauge products.
EXECUTIVE COMPENSATION
<TABLE>
<S> <C> <C> <C>
1. Mohamed Khairy Mohamed Zayed President/CEO: $ 85,000
2. Gary Emery Secretary/Treasurer 85,000
3. Darrell Morgan Director/President 75,000
Priscott, Whitley & Rose
4. Michael Edison Director/Sr. Vice President 65,000
Priscott, Whitley & Rose
5. Dr. Nayan Shah Advisory Board Nominee/ 150,000*
President IMP, Inc.
6. Lisa Lovell Director/President 40,000
American Lift, Inc.
7. Donna Ferguson Director 15,000
8. Tom Ferguson Director 25,000
9. Andrew Capaccia President, Imagex Services 80,000
</TABLE>
* $50,000 from IMP, Inc. Operating Payroll Account.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Double "E" Land & Cattle Company, Route 2, Box 139, Crossville, Tennessee
38555 entered into a Lease Agreement with the Company's subsidiary, Guarantee
Settlement Corporation, Inc. with respect to the "Serenity Acres" Farm
operation wherein Mr. Gary Emery, President of Double "E" Land & Cattle
Company, leased the farming operation on an annual basis whereby such payments
in the amount of $320,000 which shall be due and payable annually, in arrears,
beginning at the origination date which was January 1, 1996 and continuing
unless canceled by unanimous consent of the Board of Directors of Genesis
Insurance & Financial Services, Inc. for a period of five (5) years. Also, a
Loan/Credit Facility was extended to Mr. Mohamed Khairy Mohamed Zayed in the
amount of $100,000 of which $85,000 has been drawn
75
<PAGE> 80
down. The Loan Note is for a period of one (1) year with annual interest
of 10% payable annually in the form of a balloon payment. The Company also
maintains a Lease Agreement on two Company owned vehicles with quarterly
payments of $6,000, including interest.
LEGAL PROCEEDINGS
Genesis Insurance & Financial Services, Inc. is not subject to any legal
proceeding at this time nor are any of its subsidiaries subject to any legal
proceeding other than ordinary routine litigation incidental to the business
which management believes has no financial impact or anticipated financial
impact on the Company's subsidiaries or parent Company (Note: Congress
Re-Insurance Corporation, Inc. is the subject of a Cease and Desist Order not
to conduct regulated insurance business in the States of Delaware, Tennessee or
Florida. However, in the opinion of management, this does not impact its
unregulated non-insurance surety business, which is the primary revenue source
of Congress Re-Insurance Corporation, Inc. which is, in fact, not an insurance
Company. Management believes that the administrative Cease and Desist Orders
will be removed or amended to reflect that Congress Re-Insurance Corporation,
Inc. Does not have to abide by the covenants of such Orders due to the fact
that it is not an insurance Company). Management also believes that an inquiry
with regard to an investment of its Congress Re-Insurance subsidiary with
respect to a Japanese government issued bond, number 1444A, will be resolved
without any negative effect on the Company, its subsidiaries, its financial
condition (actual or projected). Additionally, no proceeding with regards to
any director, officer or affiliate of the Registrant or any owner of record or
beneficial owner of more than five percent (5%) of any class of voting
securities of the Registrant or an associate of any such Director or Officer or
Affiliate of the Registrant or securities holder is a party adverse to the
Registrant or any of its subsidiaries or has a material interest adverse to the
Registrant or any of its subsidiaries and are not the subject to any litigation
which in the opinion of Management would have any impact on the operations or
financial conditions of the Registrant, Genesis Insurance & Financial Services,
Inc. (This opinion includes General Electric litigation with the newly
acquired Imagex Services, Inc.)
*****
DESCRIPTION OF PROPERTY
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
GENESIS INSURANCE & FINANCIAL SERVICES, INC. currently leases a 13-unit
office space consisting of a total of 5,000 square feet at 735 Broad Street,
Suite 1001, Tenth Floor in the James Building, Chattanooga, Tennessee, 37402.
The Company maintains a three (3) year lease with monthly payments of
$2,850 per month and the Company also maintains a monthly contract office
facility for receiving communications and conducting business in the New York
area at 1317 Third Avenue, Suite 100, New York, New York, 10021, under a
contract with Messages Plus Corporation, at a cost of approximately $500 per
month depending on the amount of services provided.
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<PAGE> 81
PRISCOTT, WHITTLEY & ROSE
Priscott, Whitley & Rose, Inc. maintains its offices at the Genesis
Insurance & Financial Services, Inc. head office at 735 Broad Street,
Chattanooga, Tennessee 37402 and at The Edison Companies at 1317 Third Avenue,
Suite 100, New York, New York 10021 under a rent free agreement with the
Company.
CONGRESS RE-INSURANCE CORPORATION, INC.
CONGRESS RE-INSURANCE CORPORATION, INC. owns a diversified group of
investments in various securities, cash, gold, precious gemstones, real estate
and 77 gold mining claims in the Miller Mountain Gold Mine, and other assets
which are more clearly described and specifically represented in the audited
financial statements of Congress Re-Insurance Corporation, Inc. included
herewith in the financial exhibit section. The consolidated value of these
properties without considering contingent liabilities are approximately
$142,000,000.
INTERNATIONAL MEDICAL PRODUCTS
INTERNATIONAL MEDICAL PRODUCTS maintains office facilities at 6821
Southerland Court, Mentor, Ohio 44060 under a rent-free agreement with its
President, Dr. Nayan Shah. Other properties of International Medical Products
include the patents and intellectual property rights of the Company for the
digital PV Gauge and various other products which are valued on a 5-year life
span at approximately $3.1 million.
IMAGEX SERVICES, INC.
IMAGEX SERVICES, INC. maintains office facilities located at 80 Wolf Road,
Suite 503, Albany, New York 12205 consisting of approximately 5,000 square feet
at a monthly lease cost of $3600.00. Additional properties include its
currently operational clinic facility located at Greenville, New York and
include a diagnostic unit valued at approximately $500,000.00 under a lease
agreement from General Electric Capital Corporation on a monthly lease fee of
$16,500.00 as well as other rudimentary support equipment supplied to support
the diagnostic imaging clinic facility. Holdings in Imagex are valued at
$6,000,000. Based upon its earnings, contract value (service contracts)
current share holdings value at $.20 per share together with real property.
77
<PAGE> 82
Other properties include holdings of the wholly owned subsidiary:
GUARANTEED SETTLEMENT CORPORATION which includes a 620-acre parcel of land
including an operating Longhorn Cattle Ranch maintaining an inventory of
approximately 270 head of Longhorn cattle including miscellaneous breeding
stock, two small houses, one trailer for on-site employees, barns, farming
equipment, a poultry breeding operation which consists of two buildings
processing approximately 40,000 chickens each 60-day period under long term
contract with a local poultry processing Company, Bennett Poultry Corporation,
Inc. Farming operations, including the value of the land, is approximately
$1.2 million.
LONGHORN ENERGY CORPORATION consists of five (5) natural gas wells drilled
and capped deeded to the Company which contain proven reserves valued at
approximately $5,000,000 over a 10-year life span based on certified geology
results and testings at the well heads.
AMERICAN LIFT, INC.
AMERICAN LIFT, INC., an industrial lift manufacturing Company and wholly
owned subsidiary of Genesis Insurance & Financial Services, Inc., maintains
office facilities at 388 Highway 91, Suite B, Elizabethtown, Tennessee, 37643,
with a monthly lease cost basis of $2700.00 per month. This includes the
manufacturing facility area which consists of approximately 43,000 square feet
and includes manufacturing equipment, supplies, tools and other equipment
necessary for the manufacture of industrial and residential lift units
(elevators).
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On December 15, 1995 Genesis Insurance & Financial Services, Inc.
(formerly "Academy Insurance & Financial Services, Inc." before its name
change) granted a ten percent (10%) stock dividend payable in common stock
issued from Treasury to all shareholders of record on the date of the
announcement. On the date of the dividend announcement, approximately
10,316,450 shares were outstanding representing approximately 613 shareholders
and the estimated market value per share on the date of issuance was
approximately $.875 and the consolidated value upon issuance was approximately
8,750,000 to shareholders of record.
RECENT SALES OF UNREGISTERED SECURITIES
On December 8, 1995, 460,000 shares of common stock were issued in the
following manner: to Mr. Frank Calmes (250,000 shares) 13760 Highway 190,
Covington, Louisiana 70433 and Jim Pratt, Esq. (210,000 shares) 195 Kildare
Road, Garden City, New York 11530 under a consulting contract agreement
pursuant to an exemption under Rule 701 of the United States Securities &
Exchange Corporation Act.
Additionally, unregistered security sales in an amount of 700,000 shares
total, at a price of $1.00 and $2.00 per share were sold pursuant to an
exemption afforded pursuant to Rule 504 of the United States Securities &
Exchange Corporation Act to approximately fifteen (15) qualified
78
<PAGE> 83
investors which resulted in $985,000 in cash and services rendered after cost of
sale which were approximately $15,000. The last shares issued pursuant to the
exemption afforded to Rule 504 were issued on August 8, 1996 whereby the
offering was closed.
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
There are no additional securities to be registered. Registrant's common
stock is currently trading in the Over-the-Counter Market on the electronic
bulletin board. Registrant is filing this registration statement to become a
reporting company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Corporation may
indemnify directors, officers, employees, fiduciaries or agents of the
Corporation to the full extent permitted by the Nevada state corporation law as
in effect at the time of the conduct by such persons.
The bylaws of the Company provide for indemnification of the officers and
directors. The specific provisions of the bylaws related to such
indemnification are set out clearly in the articles and bylaws attached as an
exhibit to this registration.
8.07 Indemnification.
(a) The Corporation shall have the right to indemnify, to purchase
indemnity insurance for, and to pay and advance expenses to,
Directors, Officers and other persons who are eligible for, or
entitled to, such indemnification, payments or advances, in
accordance with and subject to the provisions of Nevada Revised
Statutes 78.751 and any amendments thereto, to the extent such
indemnification, payments or advances are either expressly required
by such provisions or are expressly authorized by the Board of
Directors within the scope of such provisions. The right of the
Corporation to indemnify such persons shall include, but not be
limited to, the authority of the Corporation to enter into written
agreements for indemnification with such persons.
(b) Subject to the provisions of Nevada Revised Statutes 78.751 and
any amendments thereto, a Director of the Corporation shall not be
liable to the Corporation or its shareholders for monetary damages
for an act or omission in the Director's capacity as a Director,
except that this provision does not eliminate or limit the
liability of a Director to the extent the Director is found liable
for: (1) a breach of the Director's duty of loyalty to the
Corporation or its shareholders; (2) an act or omission not in
good faith that constitutes a breach of duty of the Director to the
Corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (3) a transaction
from which the Director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of
the Director's office; or (4) an act or omission for which the
liability of a Director is expressly provided by an applicable
statute.
79
<PAGE> 84
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Genesis Insurance & Financial Services, Inc., together with all of its
subsidiary operations have had no changes in or disagreements with accountants
on the accounting and financial disclosure elements of the Company or its
subsidiaries and has maintained Mr. Herbert Woll, CPA, as an independent
auditor over the past four (4) years. Consequently, all of the representations
by the independent auditor who represents the professional qualified opinion of
the independent auditor based upon his investigation of the same as they may
relate to such representations and opinions.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Genesis Insurance & Financial
Services, Inc. and its subsidiaries, together with all exhibits thereto and
proforma financial statements and projections and operating subsidiaries are
attached as Exhibits hereto and should be read carefully.
TRANSFER AGENT
The Transfer Agent for Genesis Insurance & Financial Services, Inc. is
Florida Atlantic Stock Transfer, Inc., Attention: Mr. Rene' Garcia, President,
5701 North Pine Island Road, Suite 310A, Tamarac, Florida 33321.
OVER-THE-COUNTER MARKET (OTC)
The shares of common stock of the Company (Genesis Insurance & Financial
Services, Inc.) are traded in the over-the-counter market on the NASD Bulletin
Board under the symbol "GIFS". It is anticipated the Company will subsequently
apply for inclusion of the common stock on the NASDAQ system, but no assurances
can be given that such securities will be accepted for inclusion in the NASDAQ
system. If, for any reason, the common stock is not qualified, does not or
remain qualified for trading on the NASDAQ system, then in such case the
Company's common stock is expected to be traded on the over-the-counter markets
through the NASD's OTC Bulletin Board until the Company is able to meet such
prerequisite qualifications. However, in the opinion of Management, the
Company does, in fact, meet the minimum requirements for quotations and listing
within the NASDAQ system and more specifically, the NASDAQ/MNS (National
Marketing System).
However, the Company states that in the event the common stock is not
ultimately accepted for inclusion in the NASDAQ/NMS system, the Company's
securities would be covered by the Securities & Exchange Commission Rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse) or for issuers that meet certain numerical
criteria as to revenues or assets. For transactions covered by these rules,
broker/dealer must make a special
80
<PAGE> 85
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to sale as well as to provide certain
customers with expensive documentation and disclosures. Consequently, these
rules may affect the ability of broker/dealers to sell the Company's securities
and may also affect the ability of stockholders to sell their shares in the
secondary market. The ability of the Company to secure a symbol on the
NASDAQ/NMS system does not imply that a considerable trading market in the
common stock will ever develop in excess of its current volume price and trading
market which it now maintains on the NASD Bulletin Board System.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
The Company's common stock is traded in the Over-the-Counter Market on the
NASD Bulletin Board under the symbol "GIFS". The following table sets forth
the high and low bid quotations for the common stock during the periods
indicated. These quotations reflect prices between dealers, do not include
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
===============================================================================
HIGH LOW
_______________________________________________________________________________
<S> <C> <C>
(Last 7 months)
January 24, 1996 -
November 15, 1996 7 1/4 1 1/16
_____________________________________________________________________________
October 2, 1995 -
December 29, 1995 6 1/2 17/32
______________________________________________________________________________
July 5, 1995 -
September 9, 1995 3 5/8 1
______________________________________________________________________________
November 9, 1994 -
January 30, 1995 7 7/8
______________________________________________________________________________
</TABLE>
Effective August 30, 1994, the Company effectuated a One (1) for Ten (10)
reverse split of its outstanding common stock.
Effective June 27, 1995, the Company effectuated a One (1) for Twenty (20)
reverse split of its outstanding common stock.
On July 25, 1996, the closing bid price for the common stock of the Company
was 1 1/16. As of December 31, 1995, the number of shareholders of record of
the Company's common stock was 613. Currently, the total number of outstanding
shares of the Company are
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<PAGE> 86
approximately 20,328,043 which includes approximately 1,000,000 shares in the
free-trading float.
While the Company has paid stockholders dividends equal to 10% of
shareholder's holdings on December 15, 1995 valued at over $8,000,000 at the
time of issuance, the Company has never paid "cash" dividends for its common
stock. The Company presently, intends to retain future earnings, if any, to
finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition, and other relevant factors.
OPTIONS, GRANTS AND EXERCISES AND LONG TERM
INCENTIVE PLANS
OPTIONS, GRANTS IN LAST FISCAL YEAR:
The following table sets forth information with respect to the grant of
options to purchasers of common stock during the fiscal year ended December 31,
1995.
To each person named in the summary compensation table:
<TABLE>
<CAPTION>
Name # Securities Underlying Options % of Total Options Exercise Price Expiration Date Options Currently
---- ------------ Granted Granted to Contract ($/share) --------------- Unexercised
------- Employees in Fiscal --------- -----------
Year
----
<S> <C> <C> <C> <C> <C> <C>
The Hayden Group 300,000 300,000 48% 100K @2.50 12/31/96 300,000
100K @3.00
100K @4.00
Paige & Associates 325,000 325,000 52% 100K @3.0 1/01/99 325,000*
100K @5.0
100K @7.0
</TABLE>
STOCK OPTIONS
Other than the stock options represented above which are currently
unexercised at the date of this writing, and granted pursuant to various
consulting contracts entered into by the Company with the Grantee, the Company
at this time has not granted any additional stock options or created any stock
option or employee stock option plan but intends to do so during the Company's
next quarter of operations.
* Pursuant to Board resolution, Paige & Assoc. options have been cancelled and
Hayden Group options expire December 31, 1996 and may be cancelled due to breach
of contract.
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<PAGE> 87
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
83
<PAGE> 88
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountant 85
Balance Sheet 86
Liabilities & Stockholders' Equity 87
Stockholders' Equity 88
Statement of Operations 89
Notes To Financial Statements 90
</TABLE>
84
<PAGE> 89
HERBERT WOLL
CERTIFIED PUBLIC ACCOUNTANT
2891 GANT QUARTERS DRIVE 23611 CHAGRIN BLVD. STE 101
MARIETTA, GA 30068 BEECHWOOD, OH 44122
(770) 565-7299 (216) 292-7505
FAX (770) 977-5622 FAX (216) 464-1802
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Genesis Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Genesis Insurance
& Financial Services, Inc. and its wholly owned subsidiaries, as of September
30, 1996, and the related consolidated statement of operations for the period
then ended. These consolidated financial statements are the responsibility of
the company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Genesis Insurance & Financial Services, Inc. and its subsidiaries as of
September 30, 1996 and the results of their consolidated operations for the
period then ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
September 30, 1996
85
<PAGE> 90
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash in Banks (Note C) 210,273
Gold Coins (Note D) 362,890
Accounts Receivable 329,192
Inventory 177,690
-----------
TOTAL CURRENT ASSETS 1,080,045
INVESTMENTS
Certificates of Deposit (Note E) 100,000,000
Corundum (Note F) 2,304,000
Gold Dore' Bars (Note G) 8,500,000
Gold Mining Lease (Note H) 18,000,000
Real Estate (Note L) 1,158,000
Gas Wells (Note M) 3,200,000
-----------
TOTAL INVESTMENTS 133,162,000
PROPERTY & EQUIPMENT
MRI Machines & Equipment 2,000,000
Machinery & Equipment 696,222
Office Furniture & Equipment 48,721
-----------
TOTAL PROPERTY & EQUIPMENT 2,744,943
OTHER ASSETS
Notes Rec - Stockholder 100,000
Patents (Note N) 3,100,000
Licenses & Permits 2,412
-----------
TOTAL OTHER ASSETS 3,202,412
TOTAL ASSETS 140,189,400
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
<PAGE> 91
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
LIABILITIES & STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES 59,696
OTHER LIABILITIES - Notes Payable 135,500
STOCKHOLDERS EQUITY 143,994,204
-------------
TOTAL LIABILITIES $ 144,189,400
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE> 92
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1996
STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
Common Stock - $.001 Par Value $ 31,956
Authorized 31,955,555
Issued and Outstanding 21,348,356
Paid in Surplus (Notes L,M,N,O) 141,746,195
Earned Surplus 2,216,053
-------------
TOTAL STOCKHOLDERS EQUITY $ 143,994,204
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE> 93
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C>
SALES 6,505,866
LESS: COST OF SALES 4,837,061
---------
GROSS PROFIT 1,668,805
COST OF OPERATIONS
Advertising & Printing 22,485
Automobile Expenses 17,044
Commissions 104,673
Executive Salaries 108,922
Interest & Insurance 12,340
License & Fees 4,180
Miscellaneous 1,484
Office Expenses 15,283
Payroll & Payroll Taxes 62,213
Postage & Delivery 6,806
Professional Services 168,776
Rent & Leases 25,421
Telephone 17,706
Travel 73,753
TOTAL COST OF OPERATIONS 641,086
---------
PROFIT BEFORE DEPRECIATION 1,027,719
DEPRECIATION 22,450
---------
PROFIT BEFORE CORPORATE INCOME TAX 1,055,269
CORPORATE INCOME TAX -0-
---------
CORPORATE PROFIT AFTER TAX 1,005,269
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE> 94
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
NOTE A. HISTORY OF COMPANY
Academy Insurance & Financial Services, Inc. was incorporated February 8, 1988,
in the state of Nevada, with the intent to locate suitable business ventures to
acquire. In October, 1994, the company acquired P.A.P. Financial, Inc. in a
tax free stock transaction, whereby P.A.P. became a wholly owned subsidiary.
P.A.P. Financial, Inc. operates as a network of insurance agencies with three
offices located in Florida. Its principal activity is the performance of
retail insurance services which involves placing property and casualty
insurance with insurers on behalf of commercial and individual clients in a
variety of industries.
Congress Reinsurance Corporation, Inc. and its wholly owned subsidiaries, is a
non-regulated surety company operating pursuant to the Federal Miller Act
U.S.C. Title 40 Section 270(b) as it pertains to corporate and individual
surety and state regulations which pertain to the same. The Miller Act
authorizes the issuance of corporate surety bonds, performance bonds, bid
bonds, and various forms and types of financial guaranty bonds and other
similar obligations.
In July, 1995, an agreement and plan of reorganization was entered into between
Academy Insurance and Financial Services, Inc. (NASDAQ - BB - OTC - AIFS)
whereby Academy acquired Congress Reinsurance, as a wholly owned subsidiary, in
a tax free stock transaction.
In November 1995, Mr. Stan Cohen resigned as CEO of Academy, a tax free
exchange ensued, whereby P.A.P. was spun off. The management of Congress
Reinsurance, with Mr. Mohamed Zayed as CEO remains the same. Congress
Reinsurance is the only operating subsidiary of Academy Insurance. Mr. Zayed
is also CEO of Academy. After the reorganization Academy had 31,955,555 shares
of common stock authorized, all of which were issued and outstanding at that
time and of which 434,350 shares were free trading. Currently, however, issued
and outstanding shares are 19,750,121, of which 1,189,969 shares are currently
free trading. On June 6, 1996, the name of the corporation was changed to
Genesis Insurance & Financial Services, Inc.
NOTE B. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements contain the accounts of Congress
Reinsurance and its wholly owned subsidiaries, Financial Guaranty Indemnity
Corporation, Inc., Intertech Investment Corporation and Guarantee Settlement
Corporation, Inc. after elimination of intercompany balances and transactions.
Some of the assets of the corporation have been transferred to other wholly
owned subsidiaries for ease of handling the specific asset. In accordance with
this polity farm acreage has been transferred into Serenity Farms, Inc., and
gas wells have been transferred into Longhorn Energy Corporation.
90
<PAGE> 95
NOTE C. CASH IN BANKS
Each corporation has an independent bank account. Intertech Investment Group,
Inc. banks with First Union National Bank. Bank statements indicate a balance
of $229,010.00 as of September 30, 1996. The balance was the same as of
December 31, 1994. In addition to its commercial bank account, Congress
Reinsurance maintains a trading account of Merrill Lynch Company.
NOTE D. GOLD COINS
Corporate policy has been to invest all surplus funds into gold coins which are
readily converted to cash.
NOTE E. INVESTMENTS - CERTIFICATES OF DEPOSIT
The corporation has entered into a joint venture and collateral transfer
agreement for the purpose of having possession and usage of certain
Certificates of Deposit bearing the face amount of One Hundred Million United
States Dollar Value ($100,000,000) backed by the full faith and credit of the
issuing corporations and/or Mexican Government agencies.
NOTE F. INVESTMENTS - CORUNDUM
The corporation has entered into an agreement with M.I.G., Inc., Miami,
Florida, for the possession of 192,000 carats of corundum, to be used for
hypothecation in surety contracts. Appraisal value of said corundum at $
2,304,000. The corporation paid a fee of $100,000 for the perpetual use of
these assets.
NOTE G. INVESTMENTS - GOLD DORE' BARS
The corporation has acquired a first security agreement and a UCC-1 filing on
Dore' Bars (semi-refined gold bars) from First American Company. Said bars are
located in the vault of Bank of America. The net value, fully refined, is
$8,500,000.00.
NOTE H. INVESTMENTS - GOLD MINING LEASE
The corporation received an assignment of all rights under a certain gold mine
lease held by Solomon of Nu, Inc., for use as a collateral security in Surety
Bond transactions. Such assignment and all of its accompanying certificates
has been determined to be worth $18,000,000.00.
NOTE I. FIXED ASSETS
Office Furniture and Office Equipment are stated at acquisition cost.
Depreciation is provided on a straight line method over the estimated useful
like of the asset.
91
<PAGE> 96
NOTE J. INCOME TAX
The books and records of all subsidiaries are kept on the accrual basis for
financial purposes. For income tax purposes Reserves for Contingent liabilities
are reported. Indications are that there is no corporate income tax due.
NOTE L. PAID IN SURPLUS
As of June 6, 1996, the Company acquired all of the outstanding stock of
American Lift, Inc., a manufacturer of specialty elevators, for 300,000 shares
of common stock of GIFS. The acquisition was accounted for as a purchase.
Accordingly, the results of operations of the acquired business and the fair
market values of the acquired assets and liabilities were included in the
company's financial statements.
NOTE M. PAID IN SURPLUS
On December 24, 1995, the corporation acquired Serenity acres, a 622-acre farm
and 5 capped gas wells. The corporation assumed a liability of a first
mortgagee of $206,000 and issued 406,626 shares of 144 treasury stock. At the
time of sale, the Seller was asking $1,158,000 for the property. This was the
appraised value of the property.
NOTE N. PAID IN SURPLUS
In January, 1996, the company acquired International Medical Products, Inc. A
medical patent holder and manufacturer of specialty medical products. Genesis
issued 650,000 shares of common stock of Genesis for 10% of the outstanding
shares of IMP. The purchase was accounted for as a purchase. Accordingly, the
results of operations of the acquired business and the fair market value of the
assets acquired and liabilities assumed were included in the Company's
financial statements. The amount allocated to patents were determined through
known valuation techniques used in the medical industry.
NOTE O. PAID IN SURPLUS
In June, 1996, Genesis entered into an agreement with IMAGEX SERVICES, INC. to
exchange 1,707,040 shares of common stock of Genesis for 10,669,000 of Imagex
Services, Inc. The transaction is included in the financial statements of the
company.
NOTE P. LEASING ARRANGEMENTS
The corporation conducts its operations from facilities that are leased under a
five (5) year operating lease expiring December 31, 2000.
The following is a schedule of minimum rental payments required under the above
operating lease;
1996 $ 33,660 1997 33,660 1998 33,660 TOTAL $100,980
92
<PAGE> 97
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
JUNE 30, 1996
93
<PAGE> 98
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountant 95
Balance Sheet 96
Liabilities & Stockholders' Equity 97
Stockholders' Equity 98
Statement of Operations 99
Notes To Financial Statements 100
</TABLE>
94
<PAGE> 99
HERBERT WOLL
CERTIFIED PUBLIC ACCOUNTANT
2891 GANT QUARTERS DRIVE 23611 CHAGRIN BLVD. STE 101
MARIETTA, GA 30068 BEECHWOOD, OH 44122
(770) 565-7299 (216) 292-7505
FAX (770) 977-5622 FAX (216) 464-1802
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Genesis Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Genesis Insurance
& Financial Services, Inc. and its wholly owned subsidiaries, as of June 30,
1996, and the related consolidated statement of operations for the period then
ended. These consolidated financial statements are the responsibility of the
company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Genesis Insurance & Financial Services, Inc. and its subsidiaries as of June
30, 1996 and the results of their consolidated operations for the period then
ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
June 30, 1996
95
<PAGE> 100
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
BALANCE SHEET
AS OF JUNE 30, 1996
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash in Banks (Note C) 229,010
Gold Coins (Note D) 300,500
Accounts Receivable 355,227
Inventory 200,000
-----------
TOTAL CURRENT ASSETS 1,084,737
INVESTMENTS
Certificates of Deposit (Note E) 100,000,000
Corundum (Note F) 2,304,000
Gold Dore' Bars (Note G) 8,500,000
Gold Mining Lease (Note H) 18,000,000
Real Estate (Note M) 1,158,000
Gas Wells (Note M) 3,200,000
-----------
TOTAL INVESTMENTS 133,162,000
PROPERTY & EQUIPMENT
Machinery & Equipment 703,381
Office Furniture & Equipment 53,116
-----------
TOTAL PROPERTY & EQUIPMENT 756,497
OTHER ASSETS
Notes Rec - Stockholder 100,000
Patents (Note N) 3,100,000
Licenses & Permits 2,925
-----------
TOTAL OTHER ASSETS 3,202,925
TOTAL ASSETS 138,206,159
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE> 101
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
BALANCE SHEET
AS OF JUNE 30, 1996
LIABILITIES & STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES 65,724
OTHER LIABILITIES - Notes Payable 1,135,500
STOCKHOLDERS EQUITY 142,988,935
-------------
TOTAL LIABILITIES $ 144,190,159
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
97
<PAGE> 102
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
STOCKHOLDERS EQUITY
AS OF JUNE 30, 1996
STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
Common Stock - $.001 Par Value $ 31,956
Authorized 31,955,555
Issued and Outstanding 20,548,155
Paid in Surplus (Notes L, M, N) 141,746,195
Earned Surplus 1,210,784
-------------
TOTAL STOCKHOLDERS EQUITY $ 142,988,935
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE> 103
GENESIS INSURANCE AND FINANCIAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
SALES 5,142,610
LESS: COST OF SALES 3,927,421
GROSS PROFIT 1,215,189
---------
COST OF OPERATIONS
Advertising 18,264
Automobile Expenses 8,091
Commissions 87,473
Executive Salary 56,503
Interest 1,655
License & Fees 2,338
Miscellaneous 1,174
Office Expenses 12,210
Payroll & Payroll Services 39,620
Postage & Delivery 3,392
Professional Services 132,669
Rent & Leases 13,345
Telephone 9,687
Travel 57,227
TOTAL COST OF OPERATIONS 443,648
---------
PROFIT BEFORE DEPRECIATION 771,541
DEPRECIATION 12,119
---------
PROFIT BEFORE CORPORATE INCOME TAX 759,422
CORPORATE INCOME TAX -0-
---------
CORPORATE PROFIT AFTER TAX 759,422
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
99
<PAGE> 104
GENESIS INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
NOTE A. HISTORY OF COMPANY
Academy Insurance & Financial Services, Inc. was incorporated February 8, 1988,
in the State of Nevada, with the intent to locate suitable business ventures to
acquire. In October, 1994, the company acquired P.A.P. Financial, Inc. in a
tax free stock transaction, whereby P.A.P. became a wholly owned subsidiary.
P.A.P. Financial, Inc. operates as a network of insurance agencies with three
offices located in Florida. Its principal activity is the performance of
retail insurance services which involves placing property and casualty
insurance with insurers on behalf of commercial and individual clients in a
variety of industries.
Congress Reinsurance Corporation, Inc. and its wholly owned subsidiaries, is a
non-regulated surety company operating pursuant to the Federal Miller Act
U.S.C. Title 40 Section 270(b) as it pertains to corporate and individual
surety and state regulations which pertain to the same. The Miller Act
authorizes the issuance of corporate surety bonds, performance bonds, bid
bonds, and various forms and types of financial guaranty bonds and other
similar obligations.
In July, 1995, an agreement and plan of reorganization was entered into between
Academy Insurance and Financial Services, Inc. (NASDAQ - BB - OTC - AIFS)
whereby Academy acquired Congress Reinsurance, as a wholly owned subsidiary, in
a tax free stock transaction.
In November 1995, Mr. Stan Cohen resigned as CEO of Academy, a tax free
exchange ensued, whereby P.A.P. was spun off. The management of Congress
Reinsurance, with Mr. Mohamed Zayed as CEO remains the same. Congress
Reinsurance is the only operating subsidiary of Academy Insurance. Mr. Zayed
is also CEO of Academy. After the reorganization Academy had 31,955,555 shares
of common stock authorized, all of which were issued and outstanding at that
time and of which 434,350 shares were free trading. Currently, however, issued
and outstanding shares are 20,548,155 of which 1,089,969 shares are currently
free trading. On June 6, 1996, the name of the corporation was changed to
Genesis Insurance & Financial Services, Inc.
NOTE B. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements contain the accounts of Congress
Reinsurance and its wholly owned subsidiaries, Financial Guaranty Indemnity
Corporation, Inc., Intertech Investment Corporation and Guarantee Settlement
Corporation, Inc. after elimination of intercompany balances and transactions.
Some of the assets of the corporation have been transferred to other wholly
owned subsidiaries for ease of handling the specific asset. In accordance with
this policy, farm acreage has been transferred into Serenity Farms, Inc. and
gas wells have been transferred into Longhorn Energy Corporation.
100
<PAGE> 105
NOTE C. CASH IN BANKS
Each corporation has an independent bank account. Intertech Investment Group,
Inc. banks with First Union National Bank. Bank statements indicate a balance
of $229,010.00 as of June 30, 1996. The balance was the same as of December
31, 1994. In addition to its commercial bank account, Congress Reinsurance
maintains a trading account of Merrill Lynch Company.
NOTE D. GOLD COINS
Corporate policy has been to invest all surplus funds into gold coins which are
readily converted to cash.
NOTE E. INVESTMENTS - CERTIFICATES OF DEPOSIT
The corporation has entered into a joint venture and collateral transfer
agreement for the purpose of having possession and usage of certain
Certificates of Deposit bearing the face amount of One Hundred Million United
States Dollar Value ($100,000,000) backed by the full faith and credit of the
issuing corporations and/or Mexican Government agencies who license them.
NOTE F. INVESTMENTS - CORUNDUM
The corporation has entered into an agreement with M.I.G., Inc., Miami,
Florida, for the possession of 192,000 carats of corundum, to be used for
hypothecation in surety contracts. Appraisal value of said corundum at
$2,304,000. The corporation paid a fee of $100,000 for the perpetual use of
these assets.
NOTE G. INVESTMENTS - GOLD DORE BARS
The corporation has acquired a first security agreement and a UCC-1 filing on
Dore' Bars (semi-refined gold bars) from First American Company. Said bars are
located in the vault of Bank of America. The net value, fully refined, is
$8,500,000.00.
NOTE H. INVESTMENTS - GOLD MINING LEASE
The corporation received an assignment of all rights under a certain gold mine
lease held by Solomon of Nu, Inc., for use as a collateral security in Surety
Bond transactions. Such assignment and all of its accompanying certificates
has been determined to be worth $18,000,000.00.
NOTE I. FIXED ASSETS
Office Furniture and Office Equipment are stated at acquisition cost.
Depreciation is provided on a straight line method over the estimated useful
like of the asset.
101
<PAGE> 106
NOTE J. INCOME TAX
The books and records of all subsidiaries are kept on the accrual basis for
financial purposes. For income tax purposes Reserves for Contingent liabilities
are reported. Indications are that there is no corporate income tax due.
NOTE L. PAID IN SURPLUS - MACHINERY & EQUIPMENT
As of June 6, 1996, the Company acquired all of the outstanding stock of
American Lift, Inc., a manufacturer of specialty elevators, for 300,000 shares
of common stock of GIFS. The acquisition was accounted for as a purchase.
Accordingly, the results of operations of the acquired business and the fair
market values of the acquired assets and liabilities were included in the
company's financial statements.
NOTE M. PAID IN SURPLUS - REAL ESTATE & GAS WELLS
On December 24, 1995, the corporation acquired Serenity acres, a 622-acre farm
and 5 capped gas wells. The corporation assumed a liability of a first
mortgagee of $206,000 and issued 406,626 shares of 144 treasury stock. At the
time of sale, the Seller was asking $1,158,000 for the property. This was the
appraised value of the property.
NOTE N. PAID IN SURPLUS - PATENTS
In January, 1996, the company acquired International Medical Products, Inc. A
medical patent holder and manufacturer of specialty medical products. Genesis
issued 650,000 shares of common stock of Genesis for 10% of the outstanding
shares of IMP. The purchase was accounted for as a purchase. Accordingly, the
results of operations of the acquired business and the fair market value of the
assets acquired and liabilities assumed were included in the Company's
financial statements. The amount allocated to patents were determined through
known valuation techniques used in the medical industry.
NOTE O. LEASING ARRANGEMENTS
The corporation conducts its operations from facilities that are leased under a
five (5) year operating lease expiring December 31, 2000.
The following is a schedule of minimum rental payments required under the above
operating lease;
1996 $ 33,660 1997 33,660 1998 33,660 TOTAL $100,980
102
<PAGE> 107
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
MARCH 31, 1996
103
<PAGE> 108
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Report of Independent Accountant 105
Balance Sheet 106
Liabilities & Stockholders' Equity 107
Stockholders' Equity 108
Statement of Operations 109
Analysis of Revenue 110
Analysis of Outstanding Bonds 111
Contingent Liability on Performance Bonds 112
Additional Collateral 113
Notes to Financial Statements 114
</TABLE>
104
<PAGE> 109
HERBERT WOLL
CERTIFIED PUBLIC ACCOUNTANT
<TABLE>
<S> <C>
2891 GANT QUARTERS DRIVE 23611 CHAGRIN BLVD. STE 101
MARIETTA, GA 30068 BEECHWOOD, OH 44122
(770) 565-7299 (216) 292-7505
FAX (770) 977-5622 FAX (216) 464-1802
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Guardian Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Guardian Insurance
& Financial Services, Inc. and its wholly owned subsidiaries, as of March 31,
1996, and the related consolidated statement of operations for the period then
ended. These consolidated financial statements are the responsibility of the
company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Guardian Insurance & Financial Services, Inc. and its subsidiaries as of March
31, 1996 and the results of their consolidated operations for the period then
ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
March 31, 1996
105
<PAGE> 110
GUARDIAN INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
BALANCE SHEET
AS OF MARCH 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash in Banks (Note C) $ 281,276
Gold Coins (Note D) 425,241
Merrill-Lynch (Note C) 622
------------
TOTAL CURRENT ASSETS $ 687,139
INVESTMENTS
Yen Bonds (Note E) $ 80,000,000
Corundum (Note F) 2,304,000
Matsui Bonds (Note G) 29,500,000
Gold Dore' Bars (Note H) 8,500,000
Gold Mining Lease (Note I) 18,000,000
Real Estate (Note L) 1,158,000
TOTAL INVESTMENTS $139,462,000
FURNITURE & OFFICE EQUIPMENT
Office Furniture - Net $ 46,605
Office Equipment - Net 6,511
------------
TOTAL FURNITURE & EQUIPMENT $ 53,116
OTHER ASSETS - LICENSES & PERMITS $ 5,854
TOTAL ASSETS $140,202,255
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
106
<PAGE> 111
LIABILITIES & STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES - Accounts Payable $ 6,438
OTHER LIABILITIES - Notes Payable 1,676,073
STOCKHOLDERS EQUITY 138,519,744
------------
TOTAL LIABILITIES $140,202,255
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
107
<PAGE> 112
GUARDIAN INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
STOCKHOLDERS' EQUITY
AS OF MARCH 31, 1996
STOCKHOLDERS EQUITY
<TABLE>
<S> <C>
Common Stock - $.001 Par Value $ 31,958
Authorized 31,955,555 Issued and Outstanding 19,750,121
Paid in Surplus (Notes L & M) 137,946,195
Earned Surplus 541,593
TOTAL STOCKHOLDERS EQUITY $138,519,744
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
108
<PAGE> 113
GUARDIAN INSURANCE AND FINANCIAL SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1996
<TABLE>
<S> <C> <C>
Commission Income $378,328
Cost of Operations
Commissions 51,284
Executive Salary 34,777
Rent & Leases 6,752
Professional Services 106,000
Travel 23,440
Telephone 3,258
Payroll & Payroll Services 24,555
Office Expenses 7,596
Automobile Expenses 6,752
Interest 742
Miscellaneous 437
Advertising 18,026
Postage & Delivery 553
License & Fees 2,536
Total Administration 286,708
--------
Profit before Depreciation 91,620
Depreciation 1,389
--------
Profit before Corporate Income Tax 90,231
Corporate Income Tax 0
--------
Corporate Profit after Tax 90,231
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
109
<PAGE> 114
GUARDIAN INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
ANALYSIS OF REVENUE
AS OF MARCH 31, 1996
GROSS REVENUE
<TABLE>
<S> <C>
COMPLETION PERFORMANCE BONDS $377,128
BID BONDS 1,200
TOTAL GROSS REVENUE $378,328
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
110
<PAGE> 115
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
AS OF MARCH 31, 1996
ANALYSIS OF OUTSTANDING BONDS
<TABLE>
<S> <C> <C>
5/04/95 Supersedeas Bond $20,000,000 C. Elvin Feltner
Liability $20,000,000
9/02/95 Performance Bond $ 4,241,142 R.A. Banks
$ 1,000,000
10/06/95 Performance Bond $ 1,150,000 Solomon of Nu
$ 500,000
10/04/95 Completion Bond $ 957,000 B. Wall Const.
$ 400,000
1/23/96 Performance Bond $ 955,000 Solomon of Nu
$ 155,000
2/07/96 Performance Bond $ 227,000 Specialty Waste Sys
$ 150,000
2/09/96 Performance Bond $ 1,401,788 General Waste Sys
$ 1,401,788
TOTAL BONDS OUTSTANDING $28,931,930
===========
TOTAL LIABILITY $22,205,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
111
<PAGE> 116
GUARDIAN INSURANCE & FINANCIAL SERVICES
AND WHOLLY OWNED SUBSIDIARIES
CONTINGENT ON PERFORMANCE BONDS
AS OF MARCH 31, 1996
CONTINGENT LIABILITY ON PERFORMANCE BONDS
<TABLE>
<S> <C>
As of December 31, 1995 $21,459,000
As of March 31, 1996 1,706,778
TOTAL CONTINGENT LIABILITY $23,165,778
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
112
<PAGE> 117
GUARDIAN INSURANCE AND FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
ANALYSIS OF ADDITIONAL COLLATERAL
AS OF MARCH 31, 1996
ADDITIONAL COLLATERAL
<TABLE>
<S> <C> <C>
9/29/95 ELVIN FELTNER 172,000,000
Feltner Film Library
10/04/95 R. A. BANKS CONSTRUCTION 7,000,000
Real Estate
10/04/95 B. WALL CONSTRUCTION 500,000
10/06/95 SOLOMON OF NU, INC. 200,000,000
Mining Claim
TOTAL ADDITIONAL COLLATERAL $379,500,000*
============
</TABLE>
* Collateral (off balance sheet) above and its value have not been audited by
Herbert Woll, CPA and valuations have been supplied by client's CPA's,
attorneys or by their management and have not been audited.
The accompanying notes are an integral part of these financial statements.
113
<PAGE> 118
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
AS OF MARCH 31, 1996
NOTE A. HISTORY OF COMPANY
Academy Insurance & Financial Services, Inc. was incorporated February 8, 1988,
in the state of Nevada, with the intent to locate suitable business ventures to
acquire. In October, 1994, the company acquired P.A.P. Financial, Inc. in a
tax free stock transaction, whereby P.A.P. became a wholly owned subsidiary.
P.A.P. Financial, Inc. operates as a network of insurance agencies with three
offices located in Florida. Its principal activity is the performance of
retail insurance services which involves placing property and casualty
insurance with insurers on behalf of commercial and individual clients in a
variety of industries.
Congress Reinsurance Corporation, Inc. and its wholly owned subsidiaries, is a
non-regulated surety company operating pursuant to the Federal Miller Act
U.S.C. Title 40 Section 270(b) as it pertains to corporate and individual
surety and state regulations which pertain to the same. The Miller Act
authorizes the issuance of corporate surety bonds, performance bonds, bid
bonds, and various forms and types of financial guaranty bonds and other
similar obligations.
In July, 1995, an agreement and plan of reorganization was entered into between
Academy Insurance and Financial Services, Inc. (NASDQ-B.B. - OTC - AIFS)
whereby Academy acquired Congress Reinsurance, as a wholly owned subsidiary, in
a tax free stock transaction.
In November 1995, Mr. Stan Cohen resigned as CEO of Academy, a tax free
exchange insued, whereby P.A.P. was spun off. The management of Congress
Reinsurance, with Mr. Mohamed Zayed as CEO remains the same. Congress
Reinsurance is the only operating subsidiary of Academy Insurance. Mr. Zayed
is also CEO of Academy. After the reorganization Academy had 31,955,555 shares
of common stock authorized, all of which were issued and outstanding at that
time and of which 434,350 shares were free trading. Currently, however, issued
and outstanding shares are 19,750,121, of which 1,189,969 shares are currently
free trading. On January 4, 1996 the name of the corporation was changed to
Guardian Insurance & Financial Services, Inc.
NOTE B. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements contain the accounts of Congress
Reinsurance and its wholly owned subsidiaries, Financial Guaranty Indemnity
Corporation, Inc., Intertech Investment Corporation and Guarantee Settlement
Corporation, Inc. after elimination of intercompany balances and transactions.
Some of the assets of the corporation have been transferred to other wholly
owned subsidiaries for ease of handling the specific asset. In accordance with
this polity farm acreage has been transferred into Serenity Farms, Inc., and gas
wells have been transferred into Longhorn Energy Corporation.
114
<PAGE> 119
NOTE C. CASH IN BANKS
Each corporation has an independent bank account. Intertech Investment Group,
Inc.banks with First Union National Bank. Bank statements indicate a balance
of $143,009.09 as of March 31, 1996. The balance was the same as of December
31, 1994. In addition to its commercial bank account, Congress Reinsurance
maintains a trading account of Merrill Lynch Company. The cash balance as of
March 31, 1996 was $622.
NOTE D. GOLD COINS
Corporate policy has been to invest all surplus funds into gold coins which are
readily converted to cash.
NOTE E. INVESTMENTS - YEN BONDS
The corporation through Intertech Investment Group, Inc., has entered into a
joint venture and collateral transfer agreement with Southeast Financial
Acceptance Corporation, Crossville, Tennessee, whereby one certain Japanese
government issued Yen Bond, bearing the face value equivalent of Eighty Million
Dollars (80,000,000.00) shall be made available for the purpose of using said
Yen Bond to apply for transaction specific encumbrance as a collateral security
instrument for specific surety bond purposes.
NOTE F. INVESTMENTS - CORUNDUM
The corporation has entered into an agreement with M.I.G., Inc., Miami,
Florida, for the possession of 192,000 carats of corundum, to be used for
hypothecation in surety contracts. Appraisal value of said corundum at $
2,304,000. The corporation paid a fee of $100,000 for the perpetual use of
these assets.
NOTE G. INVESTMENTS - MATSUI BONDS
The corporation acquired the right to use, for bonding purposes, a portfolio of
Japanese corporate bonds issued by Matsui First Merchant (Overseas) Ltd. The
marketability of said bonds through any NASDAQ broker. Orderly liquidation of
said bonds will generate in excess of $29,500,000.00.
NOTE H. INVESTMENTS - GOLD DORE' BARS
The corporation has acquired a first security agreement and a UCC-1 filing on
Dore' Bars (semi-refined gold bars) from First American Company. Said bars are
located in the vault of Bank of America. The net value, fully refined, is
$8,500,000.00.
115
<PAGE> 120
NOTE I. INVESTMENTS - GOLD LEASE MINE
The corporation received an assignment of all rights under a certain gold mine
lease held by Solomon of Nu, Inc., for use as a collateral security in Surety
Bond transactions. Such assignment and all of its accompanying certificates
has been determined to be worth $18,000,000.00. This constitutes (1) claim.
NOTE J. FIXED ASSETS
Office Furniture and Office Equipment are stated at acquisition cost.
Depreciation is provided on a straight line method over the estimated useful
like of the asset.
NOTE K. INCOME TAX
The books and records of all subsidiaries are kept on the accrual basis for
financial purposes For income tax purposes Reserves for Contingent liabilities
are reported. Indications are that there is no corporate income tax due.
NOTE L. PAID IN SURPLUS
On December 24, 1995 the corporation acquired Serenity Acres, a 622 ,acre farm
and 5 capped gas wells. The corporation assumed a liability of a first
mortgage of $206,000 and issued 406,626 shares of 144 treasury stock. At the
time of sale the seller was asking $1,158,000 for the property. This was the
appraised value of the property.
NOTE M. PAID IN SURPLUS
The corporation has no obligation to return any of the assets listed as
investments, and has the unrestricted use of these assets for surety purposes.
Consequently, these assets are being treated as Paid-In-Surplus on February
23,1996 the corporation acquired all the outstanding stock of International
Products, Inc., Mentor Ohio for 650,000 shares of 144 stock. The assets,
patents, contract and other rights have been appraised at $ 3,000,000.
NOTE N. CONTINGENCIES
The corporation is party to certain law suits arising in the course of
business. In the opinion of management and its legal counsel, the potential
effect of these suits is not significant. As of March 31, 1996 these are
various bonds and sureties in effect with a face value of $23,165,778.00.
NOTE O. SUBSEQUENT EVENTS
During the second quarter of 1996 the corporation entered into discussions for
the acquisition of American Lift Inc., Elizabethton, Tennessee. The corporation
manufactures and installs specialty elevators. The acquisition was completed in
June 1996. The company acquired all of the
116
<PAGE> 121
outstanding shares of American Lift, Inc. in exchange for 300,000 shares of
GIFS. The value of American Lift has been appraised by management.
NOTE P. LEASING ARRANGEMENTS
The corporation conducts its operations from facilities that are leased under a
five (5) year operating lease expiring December 31,2000.
The following is a schedule of minimum rental payments required under the above
operating lease;
<TABLE>
<S> <C>
1996 $33,660
1997 33,660
1998 33,660
-------
Total $100,980
</TABLE>
117
<PAGE> 122
ACADEMY INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
DECEMBER 31, 1995
118
<PAGE> 123
ACADEMY INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Report of Independent Accountant 120
Balance Sheet 121
Stockholder's Equity 122
Statement of Operations 123
Analysis of Revenue 124
Analysis of Contingent Liability 125
Additional Collateral 126
Notes to Financial Statements 127
</TABLE>
119
<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Academy Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Academy Insurance
& Financial Services, Inc. and its wholly owned subsidiary, Congress Reinsurance
Corporation, Inc., and its subsidiaries, Financial Guaranty Indemnity
Corporation, and Intertech Investment Group, Inc., as of December 31, 1995, and
the related consolidated statement of operations for the period then ended.
These consolidated financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Academy Insurance & Financial Services Inc. and its subsidiaries as of December
31, 1995 and the results of their consolidated operations for the period then
ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
December 31, 1995
120
<PAGE> 125
ACADEMY INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
AS OF DECEMBER 31,1995
ASSETS
<TABLE>
<S> <C> <C> <C>
CURRENT ASSETS
Cash in Banks (Note C) $ 144,054
Gold Coins (Note D) 441,944
Merrill-Lynch (Note D) 18,778
TOTAL CURRENT ASSETS $ 604,776
INVESTMENTS
Yen Bonds (Note E) $ 80,000,000
Corundum (Note F) 2,304,000
Matsui Bonds (Note G) 29,500,000
Gold Dore' Bonds (Note H) 8,500,000
Gold Mining Lease (Note I) 18,000,000
Real Estate (Note L) 1,158,000
TOTAL INVESTMENTS $139,462,000
FURNITURE & OFFICE EQUIPMENT
Office Furniture - Net $ 44,089
Office Equipment - Net 6,849
TOTAL FURNITURE & EQUIPMENT $ 50,938
OTHER ASSETS - LICENSES & PERMITS $ 7,805
TOTAL ASSETS $140,125,519
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Accounts Payable 6,579
OTHER LIABILITIES - Notes Payable 1,683,573
STOCKHOLDERS' EQUITY 138,435,367
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $140,125,519
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
121
<PAGE> 126
ACADEMY INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
AS OF DECEMBER 31,1995
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Common Stock - $.001 Par Value $ 31,956
Authorized 31,955,555 issued and outstanding 8,840,976
Treasury stock 23,114,579
Paid in Surplus (Note M) 137,946,195
Earned Surplus 457,216
TOTAL STOCKHOLDERS' EQUITY 138,435,367
- --------------------------
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
122
<PAGE> 127
CONGRESS REINSURANCE CORPORATION
STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED DECEMBER 31,1995
<TABLE>
<S> <C> <C> <C>
Commission Income $681,964
Cost of Operations
Advertising 3,091
Automobile Expenses 9,662
Commissions $112,469
Executive Salary 100,535
Interest 5,133
Miscellaneous 4,038
Office Expenses 13,135
Payroll & Payroll Taxes 16,577
Postage & Delivery 847
Professional Services 23,529
Rent & Leases 26,262
Telephone 17,833
Travel 21,787
Total Administrative 354,051
Profit before Depreciation 327,913
Depreciation 1,489
--------
Profit before Corporate Income Tax 326,474
Corporate Income Tax -O-
Corporate Profit after Tax $326,474
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
123
<PAGE> 128
GUARDIAN INSURANCE & FINANCIAL SERVICES
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
ANALYSIS OF REVENUE
AS OF DECEMBER 31, 1995
GROSS REVENUE
<TABLE>
<S> <C>
COMPLETION PERFORMANCE BONDS $654,970
BID BONDS 2,900
--------
TOTAL GROSS REVENUE $657,870
--------
</TABLE>
The accompanying notes are an integral part of these Financial Statements,
124
<PAGE> 129
GUARDIAN INSURANCE & FINANCIAL SERVICES
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
ANALYSIS OF CONTINGENT LIABILITY)
AS OF DECEMBER 31,1995
CONTINGENT LIABILITY ON PERFORMANCE BONDS
<TABLE>
<S> <C>
As of December 31, 1995 $21,459,000
As of December 31, 1994 23,000
TOTAL CONTINGENT LIABILITY $21,482,000
-----------
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
125
<PAGE> 130
GUARDIAN INSURANCE & FINANCIAL SERVICES
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
ANALYSIS OF ADDITIONAL COLLATERAL
AS OF DECEMBER 31, 1995
ADDITIONAL COLLATERAL
<TABLE>
<S> <C> <C>
1994 BALL HOME IMPROVEMENT CO.
Machinery & Equipment $ 900,000
2120/95 BERNARD MCLAUGHLIN
Real Estate 75,000
5/14/95 C. ELVIN FELTNER
Krypton/Feltner Film Library 172,000,000
9/20/95 R.A. BANKS CONSTRUCTION
Real Estate 7,000,000
10/4/95 B. WALL CONSTRUCTION
U.C.C. on Corporation 500,000
10/6/95 SOLOMON 0F NU, INC.
(1) Mining Claim 2,000,000
-------------
TOTAL ADDITIONAL COLLATERAL $ 379,975,000
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
126
<PAGE> 131
ACADEMY INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARY
CONGRESS REINSURANCE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
NOTE A- HISTORY OF COMPANY
Academy Insurance & Financial Services, Inc. was incorporated February 8, 1988,
in the State of Nevada, with the intent to locate suitable business ventures to
acquire. In October, 1994, the company acquired P.A.P Financial, Inc. in a tax
free stock for stock transaction, whereby P.A.P. became a wholly owned
subsidiary. P.A.P. Financial, Inc. operates as a network of insurance agencies
with three offices located in Florida. Its principal activity is the
performance of retail insurance services which involves placing property and
casualty insurance with insurers on behalf of commercial and individual clients
in a variety of industries.
Congress Reinsurance Corporation, Inc., and its wholly owned subsidiaries, is a
non-regulated surety company operating pursuant to the Federal Miller Act
U.S.C. Title 40 Section 270(b) as it pertains to corporate and individual
surety and state regulations which pertain to the same. The Miller Act
authorizes the issuance of corporate surety bonds, performance bonds, bid
bonds, and various forms and types of financial guaranty bonds and other
similar obligations.
In July, 1995, an agreement and plan of reorganization was entered into between
Academy Insurance and Financial Services, Inc. (NASDAQ-B.B.-OTC-AIFS) whereby
Academy acquired Congress Reinsurance, as a wholly owned subsidiary, in a tax
free stock transaction.
In November 1995, Mr. Stan Cohen resigned as CEO of Academy, a tax free
exchange ensued, whereby P.A.P. was spun off. The management of Congress
Reinsurance, with Mr. Mohamed Zayed as CEO, remains the same. Congress
Reinsurance is the only operating subsidiary of Academy Insurance. Mr. Zayed
is also CEO of Academy. After the reorganization, Academy has 31,955,555
shares of common stock authorized and issued, of which 434,530 shares are free
trading.
NOTE B- SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements contain the accounts of Congress
Reinsurance and its wholly owned subsidiaries, Financial Guaranty Indemnity
Corporation, Inc., Intertech Investment Corporation and Guarantee Settlement
Corporation, Inc. after elimination of intercompany balances and transactions.
NOTE C- CASH IN BANKS
Each corporation has an independent bank account. Intertech Investment Group,
Inc. banks with First Union National Bank. Bank statements indicate a balance
of $143,009.09 as of December
127
<PAGE> 132
31, 1995. The balance was the same as of December 31, 1994. In addition to its
commercial bank account, Congress Reinsurance maintains a trading account at
Merrill Lynch Company, The cash balance as of December 31, 1995 was $18,778.
NOTE D- GOLD COINS
Corporate policy has been to invest all surplus funds in gold coins that are
readily convertible into cash.
NOTE E- INVESTMENTS - YEN BONDS
The corporation through Intertech investment Group, Inc., has entered into a
joint venture and collateral transfer agreement with Southeast Financial
Acceptance Corporation, Crossville, Tennessee, whereby one certain Japanese
government issued Yen Bond, bearing the face value equivalent of Eighty Million
Dollars ($89,000,000.00) shall be made available for the purpose of using said
Yen Bond to apply for transaction specific encumbrance as a collateral security
instrument for specific surety bond purposes.
NOTE F- INVESTMENTS-CORUNDUM
The corporation has entered into an agreement with M.I.G., INC., Miami,
Florida, for the possession of 192,000 carats of corundum, to be used for
hypothecation in surety contracts. Appraisal value said corundum at $2,304,000.
The corporation paid a fee of $ 100,000 for the perpetual use of these assets.
NOTE G- INVESTMENTS - MATSUI BONDS
The corporation acquired the right to use, for bonding purposes, a portfolio of
Japanese corporate bonds, issued by Matsui First Merchant (Overseas) Ltd. The
marketability of said bonds is through any NASDAQ broker. Orderly liquidation
of said bonds will generate in excess of $29,500.000.00.
NOTE H- INVESTMENTS - GOLD DORE' BARS
The corporation has acquired a first security agreement and a UCC-1 filing on
Dore' Bars (semi-refined gold bars) from First American Company. Said bars are
located in the vault of Bank of America. The net value, fully refined, is $
8,500,000.00.
NOTE I- INVESTMENTS - GOLD LEASE MINE
The corporation received an assignment of all rights under a certain gold mine
lease held by Solomon of Nu, Inc., for use as a collateral security in Surety
Bond transactions. Such assignment and all of its accompanying certificates has
been determined to be worth $18,000,000,00.
128
<PAGE> 133
NOTE J- FIXED ASSETS
Office Fumiture and Office equipment are stated at acquisition cost.
Depreciation is provided on a straight line method over the estimated useful
life of the asset.
NOTE K- INCOME TAX
The books and records all subsidiaries are kept on the accrual method for
financial purposes, For income tax purposes reserves for contingent liabilities
are reported. Indications are that there is no corporate income tax due.
NOTE L- PAID IN SURPLUS
On December 24,1995 the corporation acquired Serenity Acres, a 622 acre farm
and 5 capped gas wells. The corporation assumed a liability of a first mortgage
of $ 206,000 and issued 406,626 shares of 144 treasury stock. At the time of
sale the seller was asking $1,158,000 for the property. This was the appraised
value of the property.
NOTE M- PAID IN SURPLUS
The corporation has no obligation to return any of the assets listed as
investments, and has the unrestricted use of these assets for surety purposes.
Consequently, then assets are being treated as Paid-In Surplus.
NOTE N- CONTINGENCIES
The corporation is party to certain law suits arising in the course of
business. In the opinion of management and its legal counsel, the potential
effect of these suits is not significant. As of December 31, 1995 there are
various bonds and Sureties in effect with a face value of
$35,653,000.00.
NOTE 0- SUBSEQUENT EVENTS
In December, 1995, conditional Letters of Commitment were exchanged between the
corporation and the Nevele Country Club, Inc., Ellenwood, New York, whereby the
Nevele would be acquired by the corporation in a tax free exchange of treasury
stock of the corporation. The Nevele is a $27,000,000 destination resort having
complete recreational facilities that has been in business since 1901. As of
February 15, 1996, this matter is still be negotiated.
NOTE P- LEASING ARRANGEMENTS
The corporation conducts its operations from facilities that are leased under a
five (3) year operating lease expiring December 31, 2000.
129
<PAGE> 134
The following is a schedule of minimum rental payments required under the above
operating lease.
<TABLE>
<S> <C>
1996 $ 33,660
1997 33,660
1998 33,660
TOTAL $100,980
--------
</TABLE>
130
<PAGE> 135
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
DECEMBER 31, 1994
131
<PAGE> 136
GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Report of Independent Accountant 133
Balance Sheet 134
Statement of Operations 135
Notes To Financial Statements 136
</TABLE>
132
<PAGE> 137
HERBERT WOLL
CERTIFIED PUBLIC ACCOUNTANT
<TABLE>
<S> <C>
2891 GANT QUARTERS DRIVE 23611 CHAGRIN BLVD. STE 101
MARIETTA, GA 30068 BEECHWOOD, OH 44122
(770) 565-7299 (216) 292-7505
FAX (770) 977-5622 FAX (216) 464-1802
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Guardian Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Guardian
Insurance & Financial Services, Inc. and its wholly owned subsidiaries, as of
December 31, 1994, and the related consolidated statement of operations for the
period then ended. These consolidated financial statements are the
responsibility of the company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Guardian Insurance & Financial Services, Inc. and its subsidiaries as of
December 31, 1994 and the results of their consolidated operations for the
period then ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
December 31, 1994
133
<PAGE> 138
CONGRESS REINSURANCE CORPORATION
AS OF DECEMBER 31,1994
ASSETS
<TABLE>
<S> <C> <C> <C>
CURRENT ASSETS
Cash in Banks (Note C) $143,099
Gold Coins (Note D) 67,311
Loans Receivable 22,700
--------
TOTAL CURRENT ASSETS $233,110
INVESTMENTS
Yen Bonds (Note E) $80,000,000
Corundum (Note F) 2,304,000
Matsui Bonds (Note G) 29,500,000
Gold Dore' Bonds (Note H) 8,500,000
Gold Mining Lease (Note H) 18,000,000
Real Estate (Note L) 1,158,000
TOTAL INVESTMENTS $138,304,000
FURNITURE & OFFICE EQUIPMENT
Office Furniture - Net $ 4,543
Office Equipment - Net 3,496
------------
TOTAL FURNITURE & EQUIPMENT $ 8,039
OTHER ASSETS - LICENSES & PERMITS $ 105,000
TOTAL ASSETS $138,650,149
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Accounts Payable 15,407
OTHER LIABILITIES - Notes Payable 1,445,000
STOCKHOLDERS' EQUITY 137,189,742
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $138,650,149
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
134
<PAGE> 139
CONGRESS REINSURANCE CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1994
<TABLE>
<S> <C> <C>
Commission Income $288,175
Cost of Operations
- ------------------
Commissions $28,401
Executive Salary 31,000
Rent & Leases 9,573
Professional Services 9,683
Travel 45,152
Telephone 19,613
Payroll & Payroll Taxes 9,657
Office Expenses 8,389
Automobile Expenses 5,757
Miscellaneous 2,661
Advertising 649
Postage & Delivery 4,989
Total Administrative $175,524
- --------------------
Profit before Depreciation 112,651
Depreciation and Bad Debt Reserve 12,010
Profit before Corporate Income Tax $100,641
- ----------------------------------
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
135
<PAGE> 140
CONGRESS RE-INSURANCE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1994
NOTE A: SUMMARY OF ACCOUNTING POLICIES
Congress Re-Insurance Company Inc., through its subsidiaries, Financial
Guarantee Indemnity Corporation Inc., and Intertech Investment Corporation, is
a non-regulated surety company operating under the auspices of the Federal
Miller Act, U.S.C. Title 40 Section 270(a) - 270 (b) authorized to issue
financial guarantee bonds, performance bonds, and various types of bid and
guarantee bonds.
The consolidated financial statements include the accounts of the company
and its subsidiaries after elimination of intercompany balances and
transactions.
REVENUE RECOGNITI'ON
Finance fees incorporated over the life of the bond issued. A bond is not
issued until fees are received. Bonds are subject to 10 days cancellation for
failure to perform at the scheduled level. This method is in accord with
industry protocol for private guarantee facilities.
NOTE B: FIXED ASSETS:
Furniture, Fixtures, and Office Equipment are stated at acquisition cost.
Depreciation is provided on the straight line method over the estimated useful
life of the asset.
Major expenditures which substantially increase useful lives of assets are
capitalized. Maintenance, repairs, and minor renewals are expensed as
incurred. Upon retirement or other disposition of equipment, the cost and
related accumulated provisions for depreciation are removed from the accounts
and the resulting gains or losses are included in income.
NOTE C: CASH IN BANKS:
Each corporation has an independent bank account. Intertech Investment
Group Inc. banks with First Union National Bank. Bank records indicate a
balance of $143,009.19 as of December 31, 1994.
NOTE D: INVESTMENTS-GOLD COINS:
The company has determined to invest its surplus funds into gold coins
that are readily convertible into cash.
NOTE E: INVESTMENTS-YEN BOND:
The corporation, through Intertech Investment Group Inc., has entered into
a JOINT VENTURE AND COLLATERAL TRANSFER AGREEMENT with Southeast Financial
Acceptance Corporation, Crossville, Tennessee, whereby one certain Japanese
Government issued yen bond, bearing the face value of Eighty Million Dollars
($80,000,000) shall be made available for the purpose of using said yen bond to
apply for transaction specific encumbrance as a collateral security instrument
for specific surety bond purposes.
136
<PAGE> 141
NOTE F: INVESTMENTS-CORUNDUM:
The corporation has entered into an agreement with M.I.G., INC, Miami,
Florida for the use of 192,000 carats of corundum for the use of hypothecation
in surety contracts. Professional expert appraisals value said corundum at
$2,304,000. The corporation paid a fee of $100,000 for this agreement.
NOTE G: INVESTMENTS-MATSUI BONDS:
The corporation acquired the right to use for bonding purposes a portfolio
of Japanese Corporate bonds issued by Matsui First Merchants (Overseas) Ltd.
The marketability of said bonds is through any NASD broker. Orderly
liquidation of these bonds will generate in excess of $29,500,000.
NOTE H: INVESTMENTS-GOLD DORE' BARS:
The corporation has acquired a first security agreement and a UCC-1 filing
on Dore' (pre-refined gold) bars from First American Company. Said bars are
located in the Bank of America. The net value, fully refined, is $ 8,500,000.
NOTE I: INVESTMENTS-GOLD MINING LEASE:
Congress received an assignment of all rights under a certain Idaho mining
lease from Solomon of Nu, Inc. for use as collateral security in Surety Bond
transactions. such assignment and all of its certificates has been determined
to be worth $18,000,000 for Balance Sheet purposes.
NOTE J: SUBORDINATED CAPITAL
As stated in the various notes, the company reports $138,304,000 as
investment in various assets. The company has no obligation to return these
assets at any specific date, and has the unrestricted use of these assets for
surety purposes. Consequently, these assets are being treated as subordinated
capital.
NOTE K: CONTINGENCIES:
The company is party to certain law suits arising in the normal course of
business. In the opinion of management and its legal counsel, the potential
effect of these suits is not significant.
137
<PAGE> 142
[JAMES E. PRATT LETTERHEAD]
February 1, 1996
Guardian Insurance & Financial Services, Inc.
Congress Re-Insurance Corporation, Inc.
(its wholly owned subsidiary)
Boards of Directors of both corporations
735 Broad Street
James Building, Suite 1001
Chattanooga, TN 37402
Attn: Mr. Mohamed Khairy Mohamed Zayed, II
President and Chief Executive Officer
Dear Mr. Zayed:
After careful consideration and review of the documentation provided by
Guardian Insurance & Financial Services, Inc. ("Guardian") and Congress
Re-Insurance Corporation, Inc. ("Congress") regarding the rights of Guardian,
Congress and you to encumber the various assets of Southeastern Financial
Acceptance Corporation, Solomon of Nu, Inc., Chase Capital Services, Inc.,
First American Companies, Inc., MIG, Inc. and others listed in the documentation
provided by Guardian and Congress, it is my opinion that Guardian, Congress,
you and Congress' financial consulting department d/b/a Intertech Investment
Group have the unrestricted right to encumber these assets and to utilize the
same as subordinated capital assets guaranteeing the various indemnification
agreements (corporately issued indemnity bonds) pursuant to the covenants set
out therein.
Thank you for your time and assistance with regard to this matter. It
is a pleasure working with you and your fine staff.
Very truly yours,
/s/ James E. Pratt
-----------------------
James E. Pratt, Esq.
138
<PAGE> 143
SUBSEQUENT EVENTS (AMENDED)
DATE: January 23, 1996
RE: Summary and Analysis of Book Value.
Since the previous inclusion of subsequent events in this report, other
additional events which materially affect the value of the Company have
transpired, and are generally as follows:
Earlier this month, Academy Insurance Financial Services, Inc., changed
its name to Genesis Insurance Financial Services, Inc., to better reflect the
operations of the Company. Additionally, Genesis Insurance Financial Services,
Inc., through its newly-formed subsidiary, Guarantee Settlement Corporation,
Inc., and its subdivision, Longhorn Energy Corporation, Inc. (both Delaware
corporations), acquired a 620-acre agricultural operation, yielding an
additional $325,000 in revenues, and over $1.2 Million in asset value (real
estate, equipment, livestock, etc.). This property has been announced to the
public during this previous week, and the same were deeded to Guarantee
Settlement Corporation, Inc., a wholly-owned subsidiary of GUARDIAN.
Further, in addition to this transaction, five drilled and capped gas
wells tested for reserves and appraised, utilizing state-certified geologists'
analysis and audit reports on the natural gas wells, original valuation of $3.2
million, was reported based on a previous gas price obtained through public
data, selecting last years' prices (1995). However, due to the increased price
of over $3 per unit of gas sold, the value has increased dramatically to over $5
million. These energy rights and the liberty interest therein, together with
the wells, have been deeded into LONGHORN ENERGY CORPORATION, INC., a
wholly-owned subsidiary of GUARDIAN (a Delaware corporation).
Further, based on these new events, together with previous history and
earnings, it is estimated current book value of GUARDIAN INSURANCE FINANCIAL
SERVICES, INC., and its wholly-owned subsidiary divisions, is determined to be
approximately $14.50 per share, utilizing a calculation of 20% in calculating
contingent liabilities (this being the standard of the regulated insurance
industry); however, GUARDIAN and its wholly-owned subsidiaries, not being
regulated insurers, has taken a more conservative approach to calculating the
book value of the Company. The Company has used a 100% subtraction of
contingent liabilities outstanding at the present time (rather than 20%), to
estimate the book value of the Company based on outstanding shares of 10
million to date, to be approximately $11.
This information has been provided by certified geologists' appraisals,
reports and information from the Company and management, together with public
information available for consideration; therefore, based upon investigation of
the facts, it is believed that the foregoing representations accurately reflect
the current book value of GUARDIAN INSURANCE FINANCIAL SERVICES, INC. at the
present time. Pending economic and market conditions could affect the book
value of the Company, as well as any addition and subtraction of contingent
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liabilities; likewise, real-time analysis of the current financial status of
GUARDIAN INSURANCE FINANCIAL SERVICES, INC. should be made, and it is
recommended that individuals not sophisticated in reviewing such matters
contact specialized consultants prior to making investment decisions.
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CURRENT AND PROJECTED EARNINGS PER SHARE
Based on current outstanding shares at 10,500,000 shares of common
stock, the current earnings per share is approximately $0.035 gross earnings
per share to date. While earnings per share based on current projections for
the next five years are as follows:
1995: $0.03 per share
1996: $0.27 per share
1997: $0.11 per share
1998: $1.51 per share
1999: $2.25 per share
2000: $3.54 per share
It should be noted that these projections take into consideration that
additional shares will be issued and pursuant to an anticipated secondary public
offering; and, even though anticipated revenue projections are sizable, the
number of shares outstanding will have increased dramatically, resulting in the
estimated earnings per share as represented above.
It should also be noted that, should the anticipated secondary offering
not be successful, or should economic or other adverse conditions ensue, the
estimated earnings per share could be dramatically less, or nonexistent, should
economic conditions negatively impact the balance sheet and operations of
GUARDIAN and its wholly-owned subsidiaries.
Conversely, should economic conditions have an increased positive
effect on the operations and balance sheets of GUARDIAN, and should the
secondary offering be successful, the estimated earnings per share could be
higher than represented above. Consequently, caution should be exercised with
the knowledge that earnings per share as well as the current book value of
GUARDIAN and its wholly-owned subsidiaries could be dramatically decreased and
shareholder value could be lost entirely under adverse circumstances which are
present on any industry which relies upon current economic conditions to
support its projected value and success.
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GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
FINANCIAL STATEMENTS
DECEMBER 31, 1993
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GUARDIAN INSURANCE & FINANCIAL SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES
CHATTANOOGA, TENNESSEE
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Report of Independent Accountant 144
Balance Sheet 145
Statement of Operations 146
Notes To Financial Statements 147
</TABLE>
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HERBERT WOLL
CERTIFIED PUBLIC ACCOUNTANT
<TABLE>
<S> <C>
2891 GANT QUARTERS DRIVE 23611 CHAGRIN BLVD. STE 101
MARIETTA, GA 30068 BEECHWOOD, OH 44122
(770) 565-7299 (216) 292-7505
FAX (770) 977-5622 FAX (216) 464-1802
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Guardian Insurance & Financial Services, Inc.
Chattanooga, Tennessee
I have audited the accompanying consolidated balance sheet of Guardian
Insurance & Financial Services, Inc. and its wholly owned subsidiaries, as of
December 31, 1993, and the related consolidated statement of operations for the
period then ended. These consolidated financial statements are the
responsibility of the company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audit.
I have conducted the audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement preparation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Guardian Insurance & Financial Services, Inc. and its subsidiaries as of
December 31, 1993 and the results of their consolidated operations for the
period then ended in conformity with generally accepted accounting principles.
Herbert E. Woll, C.P.A.
December 31, 1993
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CONGRESS REINSURANCE CORPORATION
AS OF DECEMBER 31,1993
ASSETS
<TABLE>
<S> <C> <C> <C>
CURRENT ASSETS
- --------------
Cash in Banks (Note C) $ 143,344
Loans Receivable 10,500
------------
TOTAL CURRENT ASSETS $ 153,844
- --------------------
INVESTMENTS
- -----------
Yen Bonds (Note D $ 80,000,000
Corundum (Note E) 3,600,000
Gold Coins (Note F) 18,762
------------
TOTAL INVESTMENTS $ 83,618,762
- -----------------
FURNITURE & OFFICE EQUIPMENT
- ----------------------------
Office Furniture - Net $ 5,679
Office Equipment - Net 4,369
------------
TOTAL FURNITURE & EQUIPMENT $ 10,049
- ---------------------------
OTHER ASSETS - LICENSES & PERMITS $ 105,000
- ----------------------------------
TOTAL ASSETS $ 83,887,655
- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Accounts Payable 7,555
- --------------------------------------
STOCKHOLDERS' EQUITY 83,880,100
- --------------------
EARNED SURPLUS 30,100
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 83,887,655
- ---------------------------------------
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
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CONGRESS REINSURANCE CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
Commission Income $238,556
Cost of Operations
- ------------------
Commissions $61,973
Executive Salary 52,000
Rent & Leases 6,615
Professional Services 2,544
Travel 19,574
Telephone 4,285
Payroll & Payroll Taxes 15,069
Office Expenses 5,701
Automobile Expenses 5,521
Miscellaneous 508
Advertising 4,847
Total Administrative $178,637
- --------------------
Profit before Depreciation 59,915
Depreciation and Bad Debt Reserve 1,250
Profit before Corporate Income Tax $ 58,661
- ----------------------------------
</TABLE>
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CONGRESS RE-INSURANCE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A: SUMMARY OF ACCOUNTING POLICIES
Congress Re-insurance Corporation, Inc., through its subsidiaries,
Financial Indemnity Corporation Inc., and Intertech Investment Corporation is a
non-regulated surety company operating under the auspices of the Federal Miller
Act, U.S.C. Title 40 Section 270(a) - 270 (b) authorized to issue financial
guarantee bonds, performance bonds, and various types of bid and guarantee
bonds.
The consolidated financial statements include the accounts of the company
and its subsidiaries after elimination of intercompany balances and
transactions,
REVENUE RECOGNITION
Finance fees are pro-rated over the life of the bond issued. A bond is
not issued until fees are received. Bonds are subject to 10 days cancellation
for failure to perform at the scheduled level. This method is in accord with
industry protocol for private guarantee facilities.
NOTE B: FIXED ASSETS
Furniture and Fixtures, and Office Equipment are stated at acquisition
cost. Depreciation is provided on the straight line method over the estimated
useful life of the asset.
Major expenditures which substantially increase useful lives of assets are
capitalized. Maintenance, repairs, and minor renewals are expensed as
incurred. Upon retirement or other disposition of equipment, the cost and
related accumulated provisions for depreciation are removed from the accounts
and the resulting gains or losses are included in income.
NOTE C: CASH IN BANKS:
Each corporation has an independent bank account. Intertech Investment
Group Inc. banks with First Union National Bank. Bank records indicate a
balance of $143,009.19 as of December 31, 1993.
NOTE D: INVESTMENTS-YEN BOND:
The corporation, through Intertech Investment Group Inc., has entered into
a JOINT VENTURE AND COLLATERAL TRANSFER AGREEMENT with Southeast Financial
Acceptance Corporation, Crossville, Tennessee, whereby one certain Japanese
Government issued yen bond, bearing the face value of Eighty Million Dollars
($80,000,000) shall be made available for the purpose of using said yen bond to
apply for transaction specific encumbrance as a collateral security instrument
for specific surety bond purposes.
NOTE E: INVESTMENTS-CORUNDUM:
The corporation has entered into an agreement with M.I.G., INC., Miami,
Florida for the use of 192,000 carats of corundum for the use of hypothecation
in surety contracts. Professional
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expert appraisals value said corundum at $ 2,304,000. The corporation paid a
fee of $ 100,000 for this agreement.
NOTE F: INVESTMENTS-GOLD COINS:
The corporation acquired 50 U.S. gold coins at a cost of $18,762.50.
NOTE G: INCOME TAX:
The books and records of all subsidiaries are kept on the accrual method
for financial reporting purposes. For income tax purposes, reporting is on the
cash method. Tax returns for 1991, 1992, and 1993 are being prepared for
filing. Indications are that there will be no corporate tax due.
NOTE H: SUBORDINATED CAPITAL:
As stated in Notes D and E, the company carries as an investment an
$80,000,000 yen bond and 192,000 carats of corundum. The company is not
obligated to return these assets at any specific date, and has the unrestricted
right to use these assets for surety purposes. Consequently, these assets are
being treated as subordinated capital.
NOTE I: CONTINGENCIES:
The company is party to certain law suits arising in the normal course of
business. In the opinion of management and its legal counsel, the potential
effect of these claims against the company is not significant. As of December
31, 1993, there are no surety bonds outstanding for which the company has any
contingent liability.
148
