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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transaction report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transaction period from _______ to _________.
Commission file number: 0-26328
SHC CORP.
Formerly known as
VICTORMAXX TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
ILLINOIS 36-3971950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
390 SOUTH EIGHTH STREET, 2ND FLOOR, WEST DUNDEE, ILLINOIS 60118
(Address of principal executive offices) (Zip Code)
(847) 836-6685
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Check whether the issuer (1) has filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[ ]Yes [X] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulations S-B
is not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-SB. [ ]
The Issuer's revenues for the year ended December 31, 1999 were $3,055,856.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 19,
2000 as reported on the OTC Bulletin Board, was approximately $6,838,900 (based
upon $0.08 per share closing price on that date, as reported by the OTC Bulletin
Board).
As of June 19, 2000, there were 85,486,248 shares of the registrant's Common
Stock outstanding.
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SHC CORP.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
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PAGE
<S> <C>
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 9
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7. Consolidated Financial Statements 15
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
Item 9. Directors and Executive Officers of the Registrant 16
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial Owners and
Management 19
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits and Reports on Form 8-K 22
Signatures 25
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PART I
ITEM 1. BUSINESS
GENERAL AND BUSINESS DEVELOPMENT
SHC Corp. (the "Company"), f/k/a VictorMaxx Technologies, Inc. ("VictorMaxx"),
was incorporated as an Illinois corporation on March 22, 1994. Prior to the
Company's initial public offering (the "Public Offering"), the Company financed
its operations primarily through the private sales of equity securities, which
raised net proceeds of $663,732; borrowings from its stockholders, which raised
net proceeds of $93,900; bridge loan financings, which raised net proceeds of
$3,051,763; and the issuance of short term debt, which raised an aggregate of
$300,000. The Company completed its Public Offering on August 10, 1995, which
raised net proceeds of approximately $14,839,708. On September 29, 1995, the
underwriter exercised a portion of its over-allotment option, which raised net
proceeds of approximately $81,619.
VictorMaxx initially designed, developed and sold virtual reality products for
home use. These efforts focused on hardware products but were expanded in
September 1995 to include development of a virtual reality software system and
applications. VictorMaxx achieved only limited revenues since its inception.
After marketing efforts failed to stimulate sales, the Company's management
ceased marketing virtual reality hardware products and subsequently liquidated
its remaining inventory. On October 31, 1996, VictorMaxx vacated its office
facilities and suspended its operations indefinitely. From that date through
December 1997, management conducted its business from a variety of their
personal residences. VictorMaxx did not generate any revenues for the year ended
December 31, 1997.
On January 8, 1998, VictorMaxx closed on an Agreement and Plan of Reorganization
(the "Reorganization Agreement") to acquire all of the outstanding capital stock
of Sonoma Holding Corporation, a diversified holding company ("Sonoma"). At the
time of the Reorganization Agreement, Sonoma was a diversified holding company
whose wholly-owned subsidiaries included U.S. Dell, Inc., Brighton Hill
Enterprises, Inc., Northstar Petroleum, Inc., Randall Road Corp., Sonoma
Management Co. and an eighty percent (80%) equity interest in Payday Check
Advance, Inc. Subsequent to the Reorganization Agreement, the Company
established new offices in West Dundee and Schaumburg, Illinois, and changed its
name to SHC Corp. The transaction has been accounted for as a reverse
acquisition ("Acquisition") of VictorMaxx by Sonoma using the purchase method of
accounting. No goodwill was recognized in connection with the acquisition. In
connection with the Acquisition, the Company issued 12,108,558 shares of
VictorMaxx common stock and 100,000 shares of its convertible preferred stock
("Preferred Stock") to the shareholders of Sonoma. Each share of Preferred Stock
was convertible into 300 shares of common stock. In June 1998, 70,000 shares of
Preferred Stock were converted into 21,000,000 shares of common stock. In July
1998, 30,000 shares of Preferred Stock were converted into 9,000,000 shares of
common stock. Additionally, the Company has issued 1,550,000 shares of its
common stock to certain creditors of the Company, which include certain former
executive officers and a director of the Company. In addition, the Company has
issued 615,000 shares of its common stock to a group of individuals as a
settlement of various employment claims and as compensation for assisting in the
consummation of the transaction.
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On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, who is a
shareholder, officer, and director. Consideration paid by the purchaser was
5.5 million shares of the Company's common stock and debt assumption of
$353,867. Concurrently with the surrender of the 5,500,000 shares, such
shareholder, officer and director of the Company was granted a warrant to
purchase up to 5,500,000 shares of the Company's common stock at $.21 per
share. Included in the warrant is the right of such shareholder, officer and
director to vote all of the underlying shares with respect to all matters
presented to the shareholders for a vote.
All parties to the settlement agreed to release all other parties from any and
all claims related to this matter.
Following the Agreement of Purchase and Sale with Fleetmax, the Company retained
its eighty percent (80%) equity interest in Payday Check Advance, Inc., d/b/a
Payday Express ("Payday"). The remaining 20% was held by Argent Enterprises,
Inc., an Illinois corporation ("Argent"). In January 1999, Sonoma and Payday
received notice from a third party that such third party was a 20% shareholder
of Payday based on a transaction with Argent whereby it acquired such interest.
SEE ITEM 3 - LEGAL PROCEEDINGS.
Management intends to focus its efforts and resources on growing the Payday
business. The first Payday location opened for business in August 1997. The
Company currently expects its future revenues, if any, to be derived from
interest earned on short-term loans offered by Payday to its customers. As of
early 2000, there were approximately 44 Payday locations conducting business
in Illinois and 5 stores in Indiana. Since then, the Board of Directors has
elected to close certain unprofitable stores and following such closings, as
of June 15, 2000, there are approximately 27 Payday locations conducting
business in Illinois and 4 locations operating in Indiana under the name
"Money Market." In addition to its equity interests in Payday and Money
Market, the Company has four wholly-owned subsidiaries: Millenium Funding,
LLC, which was formed with the intent of seeking opportunities to leverage
the Company's customer base; E Star Systems, Inc., which performs collections
functions on delinquent loans; Sonoma Financial Corporation, which is and has
been a non-operating entity; and Payday Express of America, Inc, which was
intended to operate as the Company's operating entity in Wisconsin and which
to date has not commenced doing business.
In May 1999, the Company entered into an agreement to purchase all of the issued
and outstanding shares of Money Market, Inc., an Indiana corporation ("Money
Market") engaged in the payday lending business through two separate locations.
Following a short period during which the shares were held in escrow by the
Company's counsel, title to the shares transferred to the Company upon issuance
of a payday lending license by the State of Indiana. In consideration of the
shares of the Money Market, the Company issued to the sellers: (i) $60,000 in
cash; (ii) promissory notes with an aggregate principal balance of $55,000; and
(iii) 167,000 shares of the Company's common stock in the aggregate. Management
has been operating Money Market as a wholly-owned subsidiary.
In June 1999, the Company, through Money Market, entered into an Asset Purchase
Agreement with Easy Money of Indiana, Inc., an Indiana corporation engaged in
the payday lending business. Pursuant to the Asset Purchase Agreement, the
Company purchased certain assets relating to a payday lending store in Indiana
for cash consideration of approximately $28,000.
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PRINCIPAL PRODUCTS AND SERVICES
The Company is primarily engaged in the small consumer loan business, offering
short-term loans to individuals, which are commonly referred to as payday loans.
The Company's management believes that a market exists for prospective customers
that may have limited access to other sources of consumer credit. Payday is a
licensed provider of small consumer loans in Illinois and Money Market is a
licensed provider of small consumer loans in Indiana. Where permitted by law,
Payday and Money Market offer a standardized, single installment loan ranging
from $50 to $300 through its post-dated check process. Through this process,
Payday and Money Market permit customers to receive a cash advance for a finance
charge and a signed loan agreement, secured by a post-dated personal check. Such
loans generally have terms of one to two weeks. Small consumer loans are offered
in a highly structured regulatory environment. Payday and Money Market stores
are licensed under their respective state laws where their business is
transacted, which establish allowable interest rates, fees and other charges on
small loans made to consumers.
STORE OPERATIONS
The Company's objective is to locate its stores in highly visible and accessible
locations and to operate them during convenient hours. The Company attempts to
locate stores on high traffic streets or intersections, in many cases, in or
near destination shopping centers. On average, a typical store occupies 1,200
square feet and is located in a strip shopping center or a free standing
building. All of Company's store locations are individually leased. Company
management and personnel supervise the construction and decoration of new
stores. Consistent signage and decorations are used at each store in order to
maintain and increase the market's awareness of the Company. Typically, business
hours at Company's store locations are from 10 a.m. to 7 p.m., Monday through
Friday, 9 a.m. to 1 p.m. on Saturday and closed on Sunday.
The cost of opening a new store is dependent on the size and location of the
store. Typical costs include, among other things, store lease, leasehold
improvements, furniture and fixtures, computer equipment, and start-up capital.
According to current management estimates, the average cost to open a new store
with a turnkey operation ranges from $20,000 to $25,000. The establishment of a
new store location takes approximately 2 to 3 months to complete before becoming
fully operational. During 1998 and 1999, Payday opened 16 stores and 24 stores,
respectively. There can be no assurance that the Company's stores will continue
to generate the same growth level as in the past or that any newly opened or
acquired store will perform at a level comparable to any of the Company's
existing stores.
MARKETING, SALES AND DISTRIBUTION OF PRODUCTS AND SERVICES
Management believes that its most effective marketing takes place through
in-store programs. Store personnel are trained to provide courteous and
efficient service and to develop and maintain strong relationships with the
Company's customers. In addition, the Company attempts to create a consistency
of appearance at each store through consistent signage and decoration. The
Company is currently in the process of developing a comprehensive marketing
program.
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STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
On October 15, 1998, the Company, through a wholly-owned subsidiary formed
for such purpose, entered into an agreement with Millenium Financial, Inc., a
full service mortgage broker ("Millenium Financial"), to provide mortgage
services to the Company's customers. As of June 19, 2000, the Company had not
generated any material benefits or revenues from this agreement.
COMPETITIVE BUSINESS CONDITIONS AND THE COMPANY'S COMPETITIVE POSITION IN THE
INDUSTRY AND METHODS OF COMPETITION
Due to the relatively recent development of the payday lending industry, there
exists a lack of substantial literature and information regarding the industry
as a whole. However, management believes that the payday lending industry is
characterized by intense and increasing competition. Management believes major
competitive factors are location, finance charges, internal operating controls
and customer service. Management believes that certain of its competitors have
substantially greater number of locations, larger customer bases and stronger
financial capabilities than the Company. In addition, management believes some
of Payday's competitors may offer a broader range of financial services than
Payday currently provides, which may include such items as check cashing and car
title services. It is also the belief of the Company that the industry is also
characterized by low entry barriers and is highly fractionalized. Management
estimates that in Illinois, where Payday currently conducts all of its
operations, there are at least 25 persons or entities engaged in the payday
lending business. Management estimates that in Indiana, where Money Market
currently conducts all of its operations, there are at least 15 persons or
entities engaged in the payday lending business. Management also believes that
based on number of operating stores, Payday is one of the largest providers of
payday loans in the Chicago metropolitan area. It is impossible to predict what
the effect, if any, certain potential initiatives will have on the industry's
competitive business conditions or the Company's competitive position within the
industry. See below - "Government Regulation." There can be no assurance that
the Company will be able to successfully compete in the future.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Company has no major customers on which it depends.
GOVERNMENT REGULATION
The Company is licensed to provide payday lending services in Illinois and
Indiana.
Primary responsibility for regulating financial institutions rests at the state
level. Management of the Company believes that at least 21 states now permit
payday lending. With the exception of the Company's four Money Market stores in
Indiana, all of the Company's Payday stores are located and conduct their
business within the state of Illinois, which permits payday lending. Following
the decision of the Illinois General Assembly in 1981 to abolish the previously
existing usury law, Illinois has no restrictions on the rate of interest or the
amount of fees which may be charged by payday lenders. It is the expectation of
management that efforts to expand the Company's geographic area of business will
focus on states currently permitting payday
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lending or on states where management believes there may be a reasonable
likelihood that payday lending will soon be permitted. However, management's
plans for expansion may be adversely affected by restrictive regulation by the
various states or potential future regulation or control of the payday lending
industry.
Certain consumer rights groups and at least one State of Illinois legislator
have indicated their desire to promote initiatives designed to more strictly
regulate the payday lending industry. Management perceives the focus of these
efforts to be limits on interest charged and caps on fees associated with loans
made to customers. It is impossible for management to predict the outcome of any
such initiatives or their possible effect on the Company and its operations.
However, there can be no assurances that any such initiatives will not
ultimately have a material adverse effect on the Company and its operations.
RESEARCH AND DEVELOPMENT
The Company incurred no research and development costs in 1998 or 1999 and does
not anticipate to incur any material research and development costs going
forward. However, this belief is dependent on management's current plans for the
Company and could change in the event of a change in such plans.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Based on the nature of its current and past business operations, the Company has
not incurred and does not expect to incur going forward any material costs or
adverse effects with respect to compliance with any applicable environmental
laws.
EMPLOYEES
The Company currently employs approximately 60 people. Of these employees, 53
are full-time employees and 7 are part time employees. The Company's
relationship with its employees is not governed by any collective bargaining
agreements and the Company has never experienced any organized work stoppage.
The Company believes its relationship with its employees to be good. The Company
also offers certain employees a group health insurance program.
REPORTS TO SECURITY HOLDERS
The Company is required to file quarterly reports with the Securities and
Exchange Commission. The public may read and copy any materials filed by the
Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may also obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at HTTP://WWW.SEC.GOV.
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ITEM 2. PROPERTIES
Currently, the Company's executive offices are leased at 390 South Eighth
Street, Second Floor, West Dundee, Illinois, 60118. The lease is set to expire
in 2005, unless the Company elects to renew the term for an additional 5 years.
The Company owns no real estate.
In addition to its administrative and executive offices, the Company conducts
business through its Payday and Money Market subsidiaries, at various
locations, which stores are leased by the Company from the corresponding
property owners. Store leases are typically for three year terms, and contain
Payday and Money Market options for one or two additional three year terms.
The leases provide for rental payments at prevailing market rates. Most of
the stores are located in strip malls.
ITEM 3. LEGAL PROCEEDINGS
Except as set forth below, the Company is not party to any material legal
proceedings.
In July 1995, the Company, a shareholder of the Company, the Placement Agent,
two officers of the Placement Agent, and the former president, CEO and director
of the Company executed an agreement with respect to the settlement of
litigation brought by the former president, CEO and director against the
Company, the Placement Agent and two officers of the Placement Agent claiming
wrongful breach by the Company of an alleged employment agreement with the
former president, CEO and director and the Company's wrongful rejection of its
former president's attempt to put 122,900 shares of Common Stock to the Company
thereunder and intentional interference with such alleged agreement by the
Placement Agent and its officers. Under the terms of the settlement, the former
president, CEO and director agreed to act as a consultant to the Company for a
specified period and the Company agreed to him an aggregate of $560,000
thereunder of which $300,000 was paid out of the net proceeds of the Company's
IPO and the balance to be paid in 26 monthly installments commencing September
15, 1995. The former president, CEO and director also agreed not to compete with
the Company during the consulting period and to refrain from acquiring
beneficial ownership of more than 10% of its outstanding shares or becoming
involved in any proxy contest with respect to, or tender offer for, the Company.
The settlement arrangement also provided for the exchange of general releases
between the Company, the former president, CEO and director and other parties
thereto. The Company expensed the entire cost of this settlement in 1995. The
Company has not made any payments to the former president, CEO and director
subsequent to July 1996.
During the month of December 1997, the former president, CEO and director
executed a settlement agreement, effective upon the acquisition of Sonoma,
whereby his claims arising from the alleged breach of the July 1995
settlement agreement was settled for 1,000,000 shares of Common Stock of the
Company. The former president, CEO and director was an affiliate of Sonoma at
the date of the acquisition.
In May 1998, the Company and certain of its officers entered into a second
agreement with the former president, CEO and director to settle all remaining
claims and issues between the parties. The terms of the agreement provided
for certain payments to be made by or on behalf of the Company to the former
president, CEO and director in exchange for the delivery and release to an
escrow agent and voting trust of 12,632,568 shares of Company stock held by
the former president, CEO and director. As of June 19, 2000, all but
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770,000 of the shares had been released from the voting trust. A third party
ultimately delivered $650,000 representing the Company's obligation to the
escrow agent, and in exchange for such funds was assigned the Company's
rights in and to certain of the escrowed shares. In November 1999, the former
president, CEO and director filed a motion in the United States District
Court for the Eastern District of Illinois, case number 98 C 1697, seeking to
compel distribution of the remaining escrowed shares and alleged that he may
be entitled to certain additional shares of the Company's stock based on
alleged anti-dilution provisions contained in the Settlement Agreement. As of
June 19, 2000, most of the escrowed shares have been distributed from the
escrow and the Board of Directors has approved a settlement offer which would
provide for: (i) distribution of the shares which remain in escrow and (ii)
the issuance of approximately 1,300,000 shares of the Company's common stock
in exchange for a dismissal of the litigation and complete and mutual release
of any and all claims between the parties. With regards to this settlement,
the Company recorded an expense of $65,000 in 1998. The parties are
currently in the process of drafting appropriate settlement documents.
In a related matter, the Company recently negotiated a settlement agreement
with its prior counsel (and escrow agent under the aforementioned settlement
agreement) pursuant to which such prior counsel resigned as escrow agent and
returned 1,000,000 shares of the Company's stock to the Company which had
been previously issued to such counsel in exchange for a execution of a
mutual general release of claims and payment of $20,000 for fees incurred in
acting as escrow agent in the above matter.
Sonoma owns 80% of the outstanding capital stock of Payday. Prior to January
1999, the remaining 20% was held by Argent Enterprises, Inc., an Illinois
corporation ("Argent"). Sonoma and Argent are parties to an agreement
restricting transfer of the Payday stock. Such agreement grants each party the
right of first refusal to purchase any stock of Payday before any such stock may
be transferred by a shareholder to any third party. In January 1999, Sonoma and
Payday received notice from a third party that such third party was a 20%
shareholder of Payday based on a transaction with Argent whereby it acquired
such interest. The Company and Payday are currently in the process of
investigating such purported transaction in order to determine whether such
third party is a shareholder of Payday and whether such purported transaction
violated the terms of the shareholders' agreement.
In May 1998, Payday entered into an agreement with a third party which allegedly
owned 20% of 1825 Corp., a former Payday subsidiary which owned and operated
several Payday stores. Pursuant to the agreement, such third party was to sell
and assign all of its 20% interest to Payday in consideration of certain
payments by Payday consisting of cash and stock of the Company. Part of the
consideration was delivered to and accepted by such third party and part of the
consideration was rejected. The parties are in dispute as to whether the
contract was breached and by whom. The third party commenced litigation in the
Circuit Court of Will County, Illinois, case number 99 L 596. The parties have
exchanged settlement offers. The Company cannot predict with any certainty the
outcome of this litigation.
On November 4, 1998, an investor in the Company filed a lawsuit in the Circuit
Court of Kane County, Illinois, case number LKA 98 580, seeking $250,000 in
damage. The plaintiff asserts that he exercised a "put" option with respect to
1,000,000 shares owned by plaintiff, which would allegedly entitle him to "put"
such shares to the Company in exchange for $250,000. The plaintiff claims that
the Company breached an agreement between the parties by failing to honor
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the put and pay $250,000 to plaintiff and received a judgment to such effect in
May 2000. The parties have subsequently agreed to a settlement in principle
pursuant to which the Company will deliver to such investor, in exchange for a
release of all claims, $100,000 and 1,500,000 shares of the Company's common
stock. The parties are currently in the process of documenting the settlement
agreement.
Payday is a defendant in a number of federal class action cases asserting
various violations of the Truth in Lending Act, 15 U.S.C. Section 1601, ET SEQ.
("TILA"), Fair Debt Collection Practices Act ("FDCPA"), state consumer fraud
claims and unconscionability claims. The cases, which are listed below, are at
various stages in the litigation process.
SANDRA BROWN ET AL. V. PAYDAY CHECK ADVANCE, INCORPORATED, ET AL., United
States District Court Case No. 99 C 2074, 7th Circuit Case No. 99-3110;
MARGUERITE MITCHEM V. PAYDAY CHECK ADVANCE, INC. ET AL., United States
District Court Case No. 99 C 1869, 7th Circuit Case No. 99-3110. Both of
these cases, consolidated for appeal purposes, were dismissed by the
respective federal district court judges before whom they were pending. The
Court of Appeals for the Seventh Circuit affirmed the dismissals. The
Plaintiffs have filed a Petition for WRIT OF CERTIORARI with the United
States Supreme Court, requesting that the Court accept the appeal because:
(a) the Seventh Circuit misapplied TILA to Plaintiffs' claims; (b) TILA
permits the recovery of statutory damages for Plaintiff's claims; and, (c)
there exists a conflict between the federal Circuit Courts of Appeals and the
interpretation of TILA to the Plaintiffs' claims. There is no way to predict
whether the Supreme Court will accept the Plaintiffs' Petition. The Supreme
Court will not decide until it returns from summer recess. If the Supreme
Court were to accept the case for review, there is a possibility of an
unfavorable outcome and the Supreme Court could reverse the Seventh Circuit's
finding and determine that Payday was in "technical" violation of TILA.
Plaintiffs would be entitled to recover statutory damages based on the lesser
of $500,000 or 1% of the defendant's net worth, and attorneys' fees. Because
of the current procedural status of the cases, the Company is unable to
evaluate the outcomes of these cases.
EARL TERRY V. PAYDAY CHECK ADVANCE, INC., ET AL., Case No. 99 C 2486; LIZABETH
MACCAGNO, ET AL. V. PAYDAY CHECK ADVANCE, LLC, ET AL., Case No. 99 C 2579;
LATANDA ALLEN, ET AL. V. PAYDAY CHECK ADVANCE, INC., ET AL., Case No. 99 C 7656.
These are cases similar to BROWN and MITCHEM and to the extent they assert the
same TILA violations as those found in BROWN and MITCHEM, their outcome is
determined by the financial disposition of those cases. These cases raise new
TILA violations based upon disclosure of a security interest taken in the
post-dated check received from each borrower. Payday has argued in its filings
in this case that this issue has been addressed and resolved favorable to the
lender in cases decided by various federal district court judges and the Seventh
Circuit.
In LATANDA ALLEN V. PAYDAY, a motion to dismiss was filed on behalf of
Payday. The motion is fully briefed and a ruling is anticipated within the
next 60 days. The motion raises the same defenses as those raised in BROWN,
MITCHEM and other Payday loan cases. Because of the current procedural status
of the case, the Company is unable to evaluate the outcomes of this case.
In EARL TERRY V. PAYDAY, a motion to dismiss was filed and fully briefed. The
court ruled that the plaintiff in MITCHEM raised the same three issues that
Terry raises, and sued the same defendant
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as Terry. Therefore, the court ruled that ruling on Payday's motion to dismiss
would be a duplication of judicial resources and stayed further proceedings
until the Seventh Circuit ruled on the MITCHEM case. Payday anticipates renewing
its motion to dismiss based upon the ruling in MITCHEM.
LIZABETH MACCAGNO, ET AL. V. PAYDAY asserts many of the same claims asserted
in the other cases filed against Payday. Additionally, claims are asserted
against Payday for purported violations of the Fair Debt Collection Practices
Act ("FDCP"). The FDCP contains damages provisions similar to those of TILA
(the lesser of $500,000 or 1% of net worth). There is currently a stay in
effect pending settlement discussions. The case of SANDERS V. JACKSON was
recently decided by the Seventh Circuit. The court found under the facts
there, an award of the lesser of $500,000 or 1% of the net worth was
warranted. The thrust of the opinion deals with the court deciding on how to
value net worth and, in doing so, whether net worth included goodwill as a
component. The court concluded that net worth means book value net worth, not
fair market net worth. Further, the court concluded that goodwill is not a
component of net worth.
The outcome of these cases, for the most part, depends upon whether the
Seventh Circuit's opinions in BROWN and MITCHEM remain final and the
resolution of the security interest disclosure by the federal district judges
before whom the remaining cases are pending. No potential losses can be
quantified until these legal issues are finally resolved; although, as stated
above, statutory damages under ss. 1640 of TILA are based on the lesser of
$500,000 or 1% of the defendant's net worth and any unfavorable ruling could
result in an award being made under TILA.
In April 1999, the Company entered into a settlement agreement with a judgment
creditor of the Company, Circuit Court of Cook County, Illinois, Case No. 99 CH
00625, pursuant to which the Company was obligated to make installment payments
in the aggregate amount of $100,000 to the creditor, with all remaining sums due
on or before October 15, 1999, certain amounts of which remain outstanding. In
addition, the Company issued 10,000 shares of common stock to the investor as
part of the settlement. On May 12, 2000 the parties entered into a settlement
agreement pursuant to which the Company issued 990,000 shares of the Company's
common stock in exchange for a full release of claims (including the judgment)
and the return of the 10,000 shares previously delivered to the judgment
creditor. These 10,000 shares were subsequently cancelled by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In March 1998, the Company's Board of Directors and a majority of the Company's
shareholders amended the Company's Articles of Incorporation for the purpose of
changing the name of the Company to SHC Corp.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock commenced trading on the NASDAQ Small-Cap Market
("NASDAQ") on August 10, 1995 under the symbol "VMAX" and commencing on April
17,
9
<PAGE>
2000, under the symbol "VMAXE." Upon filing of this document and certain other
required filings, it is anticipated that the stock will resume trading under the
symbol "VMAX." Prior to August 10, 1995, the common stock was not publicly
traded. On October 23, 1996, the Company received notification from the NASDAQ
Listing Qualifications Panel that because the Company did not meet the
maintenance criteria for continued listing of its securities on NASDAQ, the
Company's Securities would be delisted from NASDAQ effective at the close of
business on October 24, 1996. Subsequent to that date, the Securities of the
Company have been quoted on the OTC Bulletin Board. The following table sets
forth the high and low closing sales price for each quarterly period since
January 1, 1998 for the common stock, as reported on the OTC Bulletin Board.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Fiscal Year ended December 31, 1998
First Quarter .38 .22
Second Quarter .30 .20
Third Quarter .28 .12
Fourth Quarter .25 .14
Fiscal Year ending December 31, 1999
First Quarter .25 .09
Second Quarter .25 .15
Third Quarter .31 .125
Fourth Quarter .23 .11
Fiscal Year Ending December 31, 2000
First Quarter .44 .125
</TABLE>
As of June 19, 2000, there were approximately 500 shareholders of record of the
Company's common stock.
As part of the sale of certain subsidiaries to Fleetmax, a shareholder, officer
and director of the Company was granted a warrant to purchase up to 5,500,000
shares of the Company's common stock at $.21 per share. Included in the warrant
is the right of such shareholder, officer and director to vote all of the
underlying shares with respect to all matters presented to the shareholders for
a vote. SEE ITEM I - GENERAL AND BUSINESS DEVELOPMENT.
To date, the Company has not paid any dividends on its common stock. The payment
of dividends, if any, in the future is within the discretion of the Company's
board of directors and will depend upon the Company's ability to generate
earnings, its capital requirements, and financial condition and other relevant
factors. The Company does not intend to declare any dividends in the foreseeable
future.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto contained
elsewhere in this report. The discussion of these results should not be
construed to imply any conclusion that any condition or circumstance discussed
herein will necessarily continue in the future. When used in this report, the
words "believes," "anticipates," "expects," and similar expressions are intended
to identify forward-looking statements. Those statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those that are modified by such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date of this report, or to reflect the
occurrence of unanticipated events.
The Company's independent accountants have included an explanatory paragraph in
their audit reports making reference to the Company's Notes to Consolidated
Financial Statements (Note 1), which discusses the fact that the Company's
consolidated financial statements for the years ended December 31, 1999 and 1998
have been prepared assuming that the Company will continue as a going concern.
As it has in the past, the Company will need to rely upon debt and equity
capital to sustain operations in the future. If such funding is not obtained,
the Company will be required to scale back operations and/or to seek a financial
re-structure.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUES. The Company had revenues for the year ending December 31, 1999 of
$3,055,856 compared to revenues of $1,598,049 for the year ending December 31,
1998. This increase of 91% was due to the increase in the number of stores from
20 at December 31, 1998 to 48 at the end of December 31, 1999.
COST OF STORE OPERATIONS. For the year ended December 31, 1999 and 1998, the
Company had expenses related to store operations of $2,459,691 and $890,330,
respectively. This increase of 176% was due to the increase in the number of
stores, which encompasses expenses for staffing, rent, utilities, and other
operating expenses.
GROSS PROFIT. Gross profit decreased 16% from $707,719 for the year ended in
December 1998 to $596,165 for the same period in fiscal 1999. This was due to
the fact that costs associated with store openings and ramping up store
activities exceeded the increase in store revenues.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. These expenses increased 20% from
the year ended December 1998 to the year ended December 1999. The amounts for
1998 and 1999 were
11
<PAGE>
$2,182,135 and $2,625,209, respectively. The increase was due primarily to the
increases in provision for bad debts and collection expenses in fiscal 1999 over
the 1998 expense.
INTEREST EXPENSE. Interest expense in fiscal 1999 was $173,427, and in fiscal
1998 was $101,044. This increase of 72% was due to the increase in borrowings to
fund the increase in the number of stores and to support the growth in
receivables.
NET LOSS. The net loss in fiscal 1999 widened to $2,202,471 from a net loss of
$1,575,460 in fiscal 1998. This was due to the reasons stated above.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $5.5 million to offset future taxable
income, if any. Under Section 382 of the Internal Revenue Code of 1986, as
amended, the utilization of net operating loss carryforwards is limited after an
ownership change, as defined in such Section 382, to an annual amount equal to
the value of the corporation's outstanding common stock immediately before the
date of the ownership change multiplied by the federal long-term tax-exempt rate
in effect during the month the ownership change occurred. Due to the ownership
change in connection with the initial public offering, the Company is subject to
an annual limitation on the use of its net operating losses. Therefore, in the
event the Company achieves profitability, such limitation would have the effect
of increasing the Company's tax liability and reducing the net income and
available cash resources of the Company in the future.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations. However, there can be no assurance that inflation will
not affect the Company's business in the future.
IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
During January 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" (SOP 98-5) becomes effective for all fiscal years beginning after
December 15, 1998. The Company adopted SOP 98-5 in its fiscal year that began
January 1, 1999.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"), which was
effective for financial statements for periods ending after December 14, 1997
and establishes standards for disclosing information about an entity's capital
structure. SFAS 129 was adopted by the Company in 1998. There were no
significant effects on the Company's disclosures about its capital structure, as
that term is defined in SFAS 129, in the years ended December 31, 1999 or 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which was effective for financial
statements for periods
12
<PAGE>
beginning after December 15, 1997 and establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The Company
adopted SFAS 130 in 1998. There were no items of other comprehensive income, as
that term is defined in SFAS 130, in the years ended December 31, 1999 or 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company has a single segment in the "Payday Loan" industry
located in the Mideast section of the contiguous United States.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The standard also provides specific guidance for accounting for derivatives
designated as hedging instruments. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of Statement No. 133"
("SFAS No. 137"), which delayed the effective date of SFAS No. 133 for the
company until 2001. The Company is currently evaluating what impact this
standard will have on its financial statements.
LIQUIDITY
The Company had a negative working capital position of $2,192,610 and $1,090,506
at December 31, 1999 and December 31, 1998, respectively. The Company has been
able to fund its operations via receipts from issuances of common stock and
notes payable.
The Company realizes it needs to strengthen its working capital position and
over-all financial condition. It has closed 18 stores to reduce the losses
and improve its cash position. It is in talks with several groups regarding
cash infusions via equity or debt capital. It is expected with the 10-K
filing for fiscal 1999, these groups will be willing to conclude such
discussions in a positive manner, such that, the Company will receive funds
for operating capital. If the discussions are not successful, the Company
will need to examine various options, such as, closing additional stores
and/or financial restructuring.
In an effort to reduce debt, the Company has negotiated with three noteholders
to exchange their notes for common stock in fiscal 2000. The amount of these
notes is approximately $265,000.
It is management's intention to offer a conversion of debt-for-stock to certain
noteholders after the Company's common stock is listed again on the OTC Bulletin
Board. Management does not now how many noteholders, if any, will agree to
convert their notes, but believes there will be some conversions.
13
<PAGE>
LITIGATION
The Company and its subsidiaries are defendants in various business-related
litigation matters. While these litigation matters involve wide ranges of
potential liability, management does not believe the eventual outcome of these
matters will have a material adverse effect on the Company's financial
statements. SEE NOTE 9 OF THE CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
SHC CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Deficit for
the Years Ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
15
<PAGE>
(HANSEN, BARNETT & MAXWELL LETTERHEAD)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of SHC Corp.:
We have audited the consolidated balance sheets of SHC Corp. and Subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides 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 SHC Corp. and
Subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and its 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 discussed in Note 1 to the
consolidated financial statements, the Company has suffered substantial losses
since inception. Those conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
April 30, 2000, except as to note 9,
as to which, the date is May 30, 2000
Salt Lake City, Utah
F-1
<PAGE>
SHC CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 14,242 $ 149,321
Accounts receivable, net of allowance for
doubtful accounts of $1,245,238 and $465,000 912,673 645,015
Notes receivable 4,196 --
Prepaid expenses 34,419 4,350
----------- -----------
TOTAL CURRENT ASSETS 965,530 798,686
FIXED ASSETS
Property and equipment 694,342 369,926
Less: accumulated depreciation (199,403) (67,158)
----------- -----------
TOTAL FIXED ASSETS, NET 494,939 302,768
OTHER ASSETS
Security Deposits 97,769 43,046
----------- -----------
TOTAL ASSETS $ 1,558,238 $ 1,144,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 591,908 $ 96,737
Accrued liabilities 690,838 450,737
Current portion of notes payable 1,875,394 1,341,718
----------- -----------
TOTAL CURRENT LIABILITIES 3,158,140 1,889,192
LONG-TERM PORTION OF NOTES PAYABLE 61,586 35,751
----------- -----------
TOTAL LIABILITIES 3,219,726 1,924,943
REDEEMABLE COMMON STOCK
Common Stock - Class A, $.001 par value; 400,000
shares redeemable at $0.50 per share 200,000 200,000
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.001; 1,000,000 shares
authorized; none issued -- --
Common stock, par value $.001; 100,000,000
shares authorized; 75,073,908 and 64,017,500
shares issued and outstanding, respectively 75,074 64,018
Additional paid-in capital 1,990,969 680,599
Accumulated deficit (3,927,531) (1,725,060)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (1,861,488) (980,443)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,558,238 $ 1,144,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
SHC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 3,055,856 $ 1,598,049
COST OF STORE OPERATIONS 2,459,691 890,330
----------- -----------
Gross profit 596,165 707,719
OPERATING EXPENSES
Selling, general and administrative 2,625,209 2,182,135
----------- -----------
Loss from operations (2,029,044) (1,474,416)
OTHER EXPENSES
Interest expense 173,427 101,044
----------- -----------
NET LOSS $(2,202,471) $(1,575,460)
=========== ===========
LOSS PER SHARE DATA
Basic and diluted $ (0.03) $ (0.04)
=========== ===========
WEIGHTED AVERAGE SHARES
Basic and diluted 69,024,620 41,847,635
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
SHC CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- ------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 100,000 $ 332,459 12,108,558 $ 12,108 $ 122,078 $ (149,600) $ 317,045
Shares issued to acquire VictorMaxx
Technologies, Inc. -- -- 7,791,442 7,792 (7,792) -- --
Stock issued for services -- -- 8,543,876 8,544 481,513 -- 490,057
Stock issued for cash -- -- 12,157,791 12,158 581,442 -- 593,600
Shares issued for conversion of
notes payable -- -- 870,833 871 130,129 -- 131,000
Conversion of preferred shares to
common shares (100,000) (332,459) 30,000,000 30,000 302,459 -- --
Stock purchased for $0.02 then
cancelled -- -- (1,000,000) (1,000) (19,000) -- (20,000)
Stock issued for compensation
at $0.28 per share -- -- 45,000 45 12,330 -- 12,375
Stock acquired in Fleetmax purchase,
then cancelled -- -- (5,500,000) (5,500) (673,560) -- (679,060)
Shares purchased under a put agreement -- -- (1,000,000) (1,000) (249,000) -- (250,000)
Stock issued for acquisition of interest
in three Payday store operations -- -- 400,000 400 199,600 -- 200,000
Less redeemable shares -- -- (400,000) (400) (199,600) -- (200,000)
Net loss -- -- -- -- -- (1,575,460) (1,575,460)
------------ ----------- ----------- -------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 -- -- 64,017,500 64,018 680,599 (1,725,060) (980,443)
Stock issued for cash -- -- 8,965,067 8,965 991,470 -- 1,000,435
Stock issued for services -- -- 1,924,341 1,924 294,067 -- 295,991
Stock issued to acquire interests
in Indiana stores -- -- 167,000 167 24,833 -- 25,000
Net loss -- -- -- -- -- (2,202,471) (2,202,471)
------------ ----------- ----------- -------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 -- $ -- 75,073,908 $ 75,074 $ 1,990,969 $(3,927,531) $(1,861,488)
============ =========== =========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
SHC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,202,471) $ (1,575,460)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 201,580 63,802
Services paid by common stock issuances 295,991 490,057
Compensation expense relating to grant of
common stock -- 12,375
Settlement cost paid in stock and debt
of subsidiary interests -- 325,000
Change in operating assets and liabilities:
Accounts receivable (224,425) (373,223)
Related party receivable -- (267,642)
Prepaid expenses (28,949) 77,544
Other (4,196) --
Accounts payable 495,171 78,801
Accrued liabilities 232,120 267,663
-------------- --------------
NET CASH FROM OPERATING ACTIVITIES (1,235,179) (901,083)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary interests (43,497)
Purchases of property and equipment (308,366) (231,335)
Increase in security deposits (52,983) (33,765)
-------------- --------------
NET CASH FROM INVESTING ACTIVITIES (404,846) (265,100)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,000,435 593,600
Purchase of common stock -- (20,000)
Proceeds from notes payable 818,200 1,088,994
Principal payments of notes payable (313,689) (391,526)
-------------- --------------
NET CASH FROM FINANCING ACTIVITIES 1,504,946 1,271,068
-------------- --------------
NET INCREASE (DECREASE) IN CASH (135,079) 104,885
CASH, BEGINNING OF PERIOD 149,321 44,436
-------------- --------------
CASH, END OF PERIOD $ 14,242 $ 149,321
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 84,350 $ 61,957
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
SHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 -- NATURE OF BUSINESS ACQUISITION AND GOING CONCERN
BUSINESS -- SHC Corp. (the "Company") was incorporated as an Illinois
Corporation on March 22, 1994 and was known as VictorMaxx Technologies,
Inc. ("VictorMaxx"). On January 8, 1998, VictorMaxx closed on an
Agreement and Plan of Reorganization (the "Reorganization Agreement") to
acquire all of the outstanding capital stock of Sonoma Holding
Corporation ("Sonoma"). Subsequent to the Reorganization Agreement, the
Company changed its name to SHC Corp. The transaction has been accounted
for as a reverse acquisition of VictorMaxx by Sonoma using the purchase
method of accounting. No goodwill was recognized in connection with the
acquisition.
The Company is in the business of making short-term loans called payday
loans within the states of Illinois and Indiana in which a customer
agrees to execute a post-dated check which includes the base principal
amount plus a fee. The Company agrees to hold the check for up to two
weeks or until the customer's next pay day, at which time the check is
deposited by the Company.
GOING CONCERN -- The accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going concern.
The Company has incurred $3.9 million of losses from operations since
inception and is highly reliant on obtaining continued financing to
satisfy its liquidity requirements. These factors raise substantial
doubt about the ability of the Company to continue as a going concern.
Management has undertaken measures to reduce its operating costs and
has closed several unprofitable stores. Concurrently, management is
negotiating with third party lenders and equity investors in an effort
to obtain sufficient financing to meet its operating needs.
There can be no assurances that these cost reduction measures will be
adequate or that the additional financing, if any, will be sufficient to
enable the Company to continue as a going concern.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT'S ESTIMATES -- The preparation of consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
REVENUE RECOGNITION -- Revenue from service fees is recognized at the
time the loans are made.
CONCENTRATION OF CREDIT RISK -- The Company's credit risk arises
primarily from accounts receivable in the form of undeposited checks made
to customers within the states of Illinois and Indiana. There is no
collateral securing these undeposited funds.
CASH -- The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at the lower
of cost or net realizable value. Depreciation was computed using the
straight-line method over estimated useful lives of three to nine years.
Expenditures for maintenance and repairs were charged to operations as
incurred. Upon sale or retirement of property and equipment, the cost and
the related accumulated
F-6
<PAGE>
depreciation are eliminated from the respective accounts, and the
resulting gain or loss is included in the statements of operations.
INCOME TAXES -- The Company recognizes the amount of income taxes payable
or refundable for the current year and recognizes deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement amounts of certain assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years those temporary differences are expected to be recovered or
settled. Deferred tax assets are reduced by a valuation allowance to the
extent that uncertainty exists as to whether the deferred tax assets will
ultimately be realized.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and all of its wholly
owned and majority owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
EARNINGS PER SHARE -- The Company has a complex capital structure as
defined under SFAS No. 128. Consequently, the generation of earnings
results in a dual presentation of basic and diluted EPS. The Company had
a loss for 1999 and 1998 and, accordingly, potential common stock
equivalents have been excluded from the weighted average share
computations because their inclusion would have been anti-dilutive. The
numbers of potential common stock equivalents excluded were 9,468,954 and
6,924,921 in 1999 and 1998, respectively.
ADVERTISING -- The Company expenses advertising costs as incurred. In
1999 and 1998, advertising expense was $79,838 and $37,887, respectively.
NEW ACCOUNTING STANDARDS -- In February 1997, the Financial Accounting
Standards Board issued SFAS No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"), which was effective for financial
statements for periods ending after December 14, 1997 and establishes
standards for disclosing information about an entity's capital structure.
SFAS 129 was adopted by the Company in 1998. There were no significant
effects on the Company's disclosures about its capital structure, as that
term is defined in SFAS 129, in the years ended December 31, 1999 or
1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which was effective
for financial statements for periods beginning after December 15, 1997
and establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a
full set of general-purpose financial statements. The Company adopted
SFAS 130 in 1998. There were no items of other comprehensive income, as
that term is defined in SFAS 130, in the years ended December 31, 1999 or
1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131"), which is effective for fiscal years beginning after
December 15, 1997 and establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company has a single segment in the "Payday Loan" industry
located in the Mideast section of the contiguous United States.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
F-7
<PAGE>
instruments at fair value. The standard also provides specific guidance
for accounting for derivatives designated as hedging instruments. In June
1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of Statement No. 133" ("SFAS No. 137"), which
delayed the effective date of SFAS No. 133 for the company until 2001.
The Company is currently evaluating what impact this standard will have
on its financial statements.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Leasehold Improvements $ 319,319 $ 184,638
Fixtures and equipment 313,123 123,888
Vehicles 61,900 61,400
---------- -----------
Total $ 694,342 $ 369,926
========== ===========
</TABLE>
The useful lives of property and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Leasehold Improvements 5-9 years
Fixtures and equipment 3-9 years
Vehicles 3 years
</TABLE>
Depreciation expense recorded in 1999 and 1998 was $132,245 and $63,802,
respectively.
NOTE 4 -- INCOME TAXES
The Company did not have a current or deferred provision for income taxes
for the years ended December 31, 1999 and 1998. The following presents
the components of the net deferred tax asset at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
BENEFIT OF:
Operating loss carryforwards $ 2,206,917 $ 1,638,024
Allowance for Bad Debts 498,095 186,000
------------- -------------
NET DEFERRED TAX ASSETS BEFORE VALUATION
ALLOWANCE 2,705,012 1,824,024
LESS: VALUATION ALLOWANCE (2,705,012) (1,824,024)
------------- -------------
NET DEFERRED TAX ASSET $ -- $ --
============= =============
</TABLE>
The valuation allowance increased $880,988 and $630,184 during the years
ended December 31, 1999 and 1998, respectively. The Company has net
operating loss carryforwards of approximately $5,500,000 of which,
$2,835,000 is limited as to usage because they arose from built in losses
of an acquired company. In addition, such losses can only be utilized
through the
F-8
<PAGE>
earnings of the acquired company and are limited to a maximum of $189,000
per year. These losses expire, if unused, in years beginning in 2009.
In addition, Section 382 of the Internal Revenue Code imposes additional
limitations on the utilization of Net Operating Loss Carryforwards by a
corporation following various types of ownership changes which result in
more than a 50% change in ownership of a corporation within a three year
period. Such changes may occur as a result of new common stock issuances
by the Company or changes occurring as a result of filings with the
Securities and Exchange Commission on Schedule 13D and 13G by holders of
more that 5% of the common stock, whether involving the acquisition or
disposition of common stock. If such a subsequent change occurs, the
limitations of Section 382 would apply and may limit or deny the future
utilization of the net operating loss by the Company, which could result
in the Company paying substantial additional federal and state taxes.
The following is a reconciliation of the income tax benefit computed at
the federal statutory tax rate with the provision for income taxes for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Income tax benefit at statutory rate (34%) $ (748,840) $ (535,656)
Deferred tax valuation allowance change 880,988 630,184
State taxes, net of federal benefit (132,468) (94,528)
Effect of change in tax rates -- --
------------ ------------
PROVISION FOR INCOME TAXES $ -- $ --
============ ============
</TABLE>
NOTE 5 -- STOCK TRANSACTIONS
In connection with the merger between Victormaxx and Sonoma Holding
Corporation, the Company issued 12,108,558 shares of common stock and
100,000 shares of its convertible preferred stock ("Preferred Stock") to
the stockholders of Sonoma. This issuance was considered to be a
recapitalization of Sonoma. Each share of Preferred Stock was convertible
into 300 shares of common stock. In June 1998, 70,000 shares of Preferred
Stock were converted into 21,000,000 shares of common stock. In July
1998, 30,000 shares of Preferred Stock were converted into 9,000,000
shares of common stock. 7,791,442 shares of stock issued to the
shareholders of Victormaxx were shown as being issued at a zero cost
because Victormaxx had no monetary assets at the time of the merger.
On June 18, 1998, the Company sold all of its interest in its
wholly-owned subsidiaries U.S. Dell, Inc., Brighton Hill Enterprises,
Inc., Northstar Petroleum, Inc., Randall Road Corp., and Sonoma
Management Co. ("Sold Subsidiaries") to Fleetmax Corporation and a
related party, who is a shareholder, officer and director. Consideration
paid by the purchaser was 5.5 million shares of the Company's common
stock and debt assumption of $353,867. The transaction was valued at
historical cost to the Company of $679,060.
As explained in Note 9, pursuant to a notice of judgment, the Company has
recorded the acquisition of 1,000,000 shares of its stock for $250,000
under the terms of a put agreement which was exercised by a former
shareholder in 1998.
In May 1998, the Company issued 400,000 shares of its stock in connection
with the acquisition of certain minority interests of some of the Payday
stores. The stock is mandatorily redeemable at
F-9
<PAGE>
$0.50 per share and is being presented on the balance sheet under the
caption of redeemable stock.
During 1998, the Company issued 12,157,791 shares of its common stock for
$593,600, the majority of which was issued under a private placement
memorandum.
During 1998, the Company issued 8,543,876 shares of its common stock to
various individuals and companies for services rendered in its behalf.
These shares were issued from prices ranging from $0.05 to $0.32 per
share.
During 1998, the Company issued 870,833 shares at $0.15 per share to
holders of various notes in the amount of $131,000.
During 1998, the Company paid $20,000 to acquire 1,000,000 shares from a
former officer of the Company.
During 1999, the Company issued 8,965,067 shares for $1,000,435 in cash.
During 1999, the Company issued 1,924,341 shares for services valued at
$295,991.
NOTE 6 -- STOCK OPTIONS AND WARRANTS
NON-QUALIFIED PLAN -- During 1994, the Company granted non-qualified
stock options to certain employees to purchase 24,208 shares of the
Company's common stock. The options were exercisable upon vesting, and
vest at one, two, and three year anniversary dates from the date of
grant. Certain of these non-qualified options have been forfeited due to
the termination of the employees. In years prior to 1998, 7,661 of these
options were cancelled with the remaining 16,547 options being cancelled
in 1998.
In July 1995, the Company's Board of Directors and a majority of the
Company's shareholders approved the 1995 Stock Option Plan (the "Stock
Option Plan") covering up to 750,000 shares of the Company's common
stock, pursuant to which, officers and key employees of the Company are
eligible to receive incentive and/or non-qualified stock options. The
Stock Option Plan expires on January 31, 2005. As of December 31,1999 and
1998, options for 749,254 shares were outstanding under the plan. These
options were issued in 1995 at an exercise price of $6.00 per share and
vest at one, two, and three year anniversary dates from the date of
grant. Options issued under the Stock Option Plan expire September 8,
2003. In May 1996, the Company modified the outstanding non-qualified
stock options. All options became immediately vested, and the exercise
price was reset to $2.00 per share for current employees. The exercise
prices on all other options remain as originally issued.
During 1996, the Company granted non-qualified stock options to certain
employees to purchase 1,888 shares of the Company's common stock. None of
these options were exercised and all such options expired during 1998.
A summary of the status of the Company's non-qualified stock options as
of December 31, 1999 and 1998, and changes during the years then ended is
presented as follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 749,254 $2.00 767,689 $ 1.99
Granted - - - -
Exercised - - - -
Canceled - - (18,435) (0.01)
------- -------
Outstanding at end of year 749,254 $2.00 749,254 $ 2.00
======= ===== ======= ======
Options exercisable at year-end 749,254 749,254
======= =======
Weighted-average fair value of
options granted during the year
(unaudited) $ - $ -
===== ======
</TABLE>
At December 31, 1999, the exercise price for options outstanding was
$2.00, and the weighted average remaining contractual life was 2.7 years.
ADDITIONAL OPTIONS -- During March through August 1994, the Company
granted additional options to purchase 209,126 shares of common stock to
certain officers, shareholders, vendors and creditors. In May 1996, the
Company modified certain of these options held by an employee. The
exercise price was changed to $2.00 per share for a current employee. The
exercise prices on all other options remain as originally issued. These
options became fully vested at the date of grant and were immediately
exercisable. The options expired unexercised in 1998.
In 1995, the Company granted certain additional options to purchase 3,375
shares of common stock by certain shareholders and creditors. These
options became fully vested at the date of grant and were immediately
exercisable. These options expired unexercised during 1998 and 1999.
A summary of the status of the Company's additional stock options as of
December 31, 1999 and 1998, and changes during the years then ended is
presented as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,542 $0.10 212,501 $ 3.67
Granted - - - -
Exercised - - - -
Canceled (2,542) 0.10 (209,959) (3.67)
------ --------
Outstanding at end of year - $ - 2,542 $ 0.10
====== ===== ======== ======
Options exercisable at year-end - 2,542
====== ========
Weighted-average fair value of
options granted during the year
(unaudited) $ - $ -
===== ======
</TABLE>
At December 31, 1998, the exercise price for options outstanding was
$0.10 and the weighted average remaining contractual life was 8 months.
F-11
<PAGE>
WARRANTS -- In connection with its 1995 initial public offering, the Company
issued warrants to purchase 3,489,700 shares of common stock. At December 31,
1999 and 1998, 3,219,700 were exercisable at $4.50 per share and expire on
August 10, 2000.
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, who is a
shareholder, officer and director. Consideration paid by the purchaser was
5.5 million shares of the Company's common stock and debt assumption of
$353,867. Concurrently with the surrender of the 5,500,000 shares, such
shareholder, officer and director of the Company was granted a warrant to
purchase up to 5,500,000 shares of the Company's common stock at $.21 per
share. Included in the warrant is the right of such shareholder, officer and
director to vote all of the underlying shares with respect to all matters
presented to the shareholders for a vote.
The Company applies APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related Interpretations in accounting for its plans. Had compensation cost
for the Company's stock-based compensation plan been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company's net loss and loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C> <C>
Net Loss As reported $(2,202,471) $(1,510,460)
Pro forma $(2,202,471) $(2,033,510)
============= =============
Net Loss per Share As reported $ (0.03) $ (0.04)
Pro forma $ (0.03) $ (0.05)
============= =============
</TABLE>
NOTE 7--NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
<S> <C> <C>
Line of credit payable to a bank, bearing interest
at 10.5%; requiring monthly interest payments $ -- $ 30,000
Line of credit payable to a bank, bearing interest at 8%;
requiring monthly interest only payments; due November
1999-extended through July 2000; secured by company assets 995,000 627,000
Line of credit payable to a bank, bearing interest at 10.25%;
unsecured; requiring interest only payments; due January 1999 -- 30,000
Line of credit payable to a bank, bearing interest at 8.75%;
unsecured; requiring minimum interest only payments; due upon demand 30,000 --
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Note payable to individual bearing interest at 12% in 1999 and
18% in 1998; unsecured; requiring monthly interest only payments;
due August 2000 50,000 50,000
Notes payable to officers; unsecured; no stated interest rate; due
upon demand 25,700 91,400
Note payable to bank; bearing interest at 8.75%; secured by vehicle;
requiring monthly payments of $698; due September 2001 15,286 20,363
Note payable to bank; bearing interest at 8.75%; secured by vehicle;
requiring monthly payments of $697; due October 2001 14,069 20,873
Note payable to bank; bearing interest at 8.25% secured by vehicle;
requiring monthly payments of $583; due April 2000 6,395 12,833
Note payable to individual bearing interest at 10%; unsecured;
due on demand 125,000 125,000
Note payable to individual bearing interest at 14%; unsecured;
requiring monthly interest only payments; due on demand 30,000 30,000
Note payable to individual bearing interest at 8.75%; unsecured;
due on demand 125,100 --
Note payable to individual bearing interest at 8.75%; unsecured;
due on demand 125,100 --
Notes payable to former owners of Money Market; bearing interest at 8%;
unsecured; requiring monthly payments of $ 667; due 2003 52,853 --
Note payable to individual bearing interest at 10%; unsecured; requiring
monthly interest only payments; due on demand 15,000 15,000
Note payable to individual bearing interest at 10%; unsecured; requiring
monthly interest only payments; due on demand 15,000 15,000
Note payable to individual bearing interest at 10%; unsecured;
requiring monthly interest only payments; due on demand 15,000 15,000
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to trust bearing interest at 18%;
unsecured; due on demand 87,477 90,000
Note payable to a trust bearing interest at 18%; unsecured;
requiring monthly interest only payments; due on demand 100,000 100,000
Note payable to individual bearing at 10%; unsecured; requiring
monthly interest only payments; due on demand 90,000 105,000
Note payable to individual bearing interest at 10%; unsecured;
requiring monthly interest only payments; due July 2000 20,000 --
----------- -----------
TOTAL NOTES PAYABLE 1,936,980 1,377,469
Less Current portion of Notes Payable (1,875,394) (1,341,718)
----------- -----------
Long-Term Portion of Notes Payable $ 61,586 $ 35,751
=========== ===========
</TABLE>
<TABLE>
Future maturities of Notes Payable for the next five years are as follows:
<S> <C>
2000 $1,875,394
2001 16,901
2002 44,685
2003 --
2004 --
----------
Total $1,936,980
==========
</TABLE>
NOTE 8 -- LEASES
The Company leases its store facilities under operating leases expiring in
various years through 2004, which require the Company to pay base rents and
certain additional amounts for its pro rata share of building operating costs.
Minimum future rental payments under non-cancelable operating leases as of
December 31, 1999, for each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- ----------
<S> <C>
2000 $ 694,479
2001 731,847
2002 235,561
2003 64,019
2004 2,698
----------
Total Future Minimum Rental Payments $1,728,604
==========
</TABLE>
F-14
<PAGE>
Certain operating leases provide renewal options for periods of three years at
their fair rental value at the time of renewal. In the normal course of
business, operating leases are generally renewed or replaced by other leases.
Rent expense for 1999 and 1998 was $768,100 and $216,838, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
LEGAL SETTLEMENT -- In July 1995, the Company, a shareholder of the Company,
the Placement Agent, two officers of the Placement Agent and the former
president, CEO and director executed an agreement with respect to the
settlement of litigation brought by the former president, CEO and director
against the Company, the Placement Agent and two officers of the Placement
Agent claiming wrongful breach by the Company of an alleged employment
agreement with the former president, CEO and director and the Company's
wrongful rejection of its former president's attempt to put 122,900 shares of
Common Stock to the Company thereunder and intentional interference with such
alleged agreement by the Placement Agent and its officers. Under the terms of
the settlement, the former president, CEO and director agreed to act as a
consultant to the Company for a period of 27 months to commence upon the
closing of the Company's IPO and the Company agreed to pay him an aggregate
$560,000 thereunder of which $300,000 was paid out of the net proceeds of the
Company's IPO and the balance would be paid in 26 monthly installments
commencing September 15, 1995. The former president, CEO and director has
also agreed that during the consulting period he would not compete with the
Company and would refrain from acquiring beneficial ownership of more than
10% of its outstanding shares or becoming involved in any proxy contest with
respect to, or tender offer for, the Company. The settlement arrangement also
provided for the exchange of general releases between the Company, the former
president, CEO and director and the other parties thereto. The Company
expensed the entire cost of this settlement in 1995. The Company has not made
any payments to the former president, CEO and director subsequent to July
1996.
During the month of December 1997, the former president, CEO and director of the
Company and his attorney executed settlement agreements whereby their claims
arising from the alleged breach of the July 1995 settlement agreements was
settled for 1,000,000 shares of the Common Stock of the Company. The settlement
agreement was effective with the acquisition of Sonoma. The former president,
CEO and director was an affiliate of Sonoma on the date of the acquisition.
In May 1998, the Company and certain of its officers entered into a second
agreement with the former president, CEO and director to settle all remaining
claims and issues between the parties. The terms of the agreement provided
for certain payments to be made by or on behalf of the Company to the former
president, CEO and director in exchange for the delivery and release to an
escrow agent and voting trust of 12,632,568 shares of Company stock held by
the former president, CEO and director. A third party ultimately delivered
$650,000, representing the Company's obligation to the escrow agent, and in
exchange for such funds, was assigned the Company's rights in and to certain
of the escrowed shares. The former president, CEO and director instituted
proceedings to enforce certain provisions in the second settlement agreement.
On or about June 13, 2000, the proceeding was dismissed, subject to the
finalization of a settlement in principle reached by the parties. The final
settlement provides for the release and distribution of all shares currently
held pursuant to the voting trust and the issuance of approximately 1,300,000
shares of the Company's common stock to the former president, CEO and
director. With regards to this settlement, the Company recorded an expense of
$65,000 in 1998. The parties are currently in the process of finalizing and
documenting the settlement agreement.
F-15
<PAGE>
Sonoma owns 80% of the outstanding capital stock of Payday. Prior to January
1999, the remaining 20% was held by Argent Enterprises, Inc., an Illinois
corporation ("Argent"). Sonoma and Argent are parties to an agreement
restricting transfer of the Payday stock. Such agreement grants each party
the right of first refusal to purchase any stock of Payday before any such
stock may be transferred by a shareholder to any third party. In January
1999, Sonoma and Payday received notice from a third party that such third
party was a 20% shareholder of Payday based on a transaction with Argent
whereby it acquired such interest. The Company and Payday are currently in
the process of investigating such purported transaction in order to determine
whether such third party is a shareholder of Payday and whether such
purported transaction violated the terms of the shareholders' agreement.
In May 1998, Payday entered into an agreement with a third party which
allegedly owned 20% of 1825 Corp., a former Payday subsidiary which owned and
operated several Payday stores. Pursuant to the agreement, such third party
was to sell and assign all of its 20% interest to Payday in consideration of
certain payments by Payday consisting of cash and stock of the Company. Part
of the consideration was delivered to and accepted by such third party, and
part of the consideration was rejected. The parties are in dispute as to
whether the contract was breached and by whom. The third party commenced
litigation and the Company cannot predict with any certainty the outcome of
this litigation.
On November 4, 1998, an investor in the Company filed a lawsuit seeking
$250,000 in damage. The plaintiff asserts that he exercised a "put" option
with respect to 1,000,000 shares owned by plaintiff, which would allegedly
entitle him to "put" such shares to the Company in exchange for $250,000. The
plaintiff claims that the Company breached an agreement between the parties
by failing to honor the put and pay $250,000 to plaintiff and received a
judgment to such effect in May 2000. The parties have subsequently agreed to
a settlement in principle and are currently in the process of documenting the
settlement agreement.
Payday is a defendant in a number of federal class action cases asserting
various violations of the Truth in Lending act ("TILA"), Fair Debt Collection
Practices Act ("FDCPA"), state consumer fraud claims and unconscionability
claims. The cases are at various stages in the litigation and appeal process.
Two of these cases, consolidated for appeal purposes, were dismissed by the
respective federal district court judges before whom they were pending. The
Court of Appeals for the Seventh Circuit affirmed the dismissals. The
Plaintiffs have filed a Petition for WRIT OF CERTIORARI with the United
States Supreme Court, requesting that the Court accept the appeal because:
(a) the Seventh Circuit misapplied TILA to Plaintiff's claims; (b) TILA
permits the recovery of statutory damages for Plaintiff's claims and (c)
there exists a conflict between the federal Circuit Courts of Appeal and the
interpretation of TILA to the Plaintiffs' claims. there is no way to predict
whether the Supreme Court will accept the Plaintiff's Petition. The Supreme
Court will not decide until it returns from summer recess. If the Supreme
Court were to accept the case for review, there is a possibility of an
unfavorable outcome and the Supreme Court could reverse the Seventh Circuit's
finding and determine that Payday was in "technical" violation of TILA.
Plaintiffs would be entitled to recover statutory damages based on the lesser
of $500,000 or 1% of the defendant's net worth, and attorneys' fees. Because
of the current procedural status of the cases, the Company is unable to
evaluate the outcomes of these cases.
There are three other cases, similar to the previously mentioned cases, and
to the extent they assert the same TILA violation as those cases, their
outcome is determined by the financial disposition of those cases. These
cases raise new TILA violations based upon disclosure of a security interest
taken in the post-dated check received from each borrower. Payday has argued
in its filings in this case that this issue has been addressed and resolved
favorable to the lender in cases decided by various federal district court
judges and the Seventh Circuit.
In two of these cases, Payday has filed a motion to dismiss on behalf of
Payday. For the third case, there is currently a stay in effect pending
settlement discussions between the parties. The outcome of these cases, for
the most part, depends upon whether the Seventh Circuit's opinions in the two
cases before the Supreme Court remain final and the resolution of the
security interest disclosure by the federal district judges before whom the
remaining cases are pending. The Company cannot quantify any potential losses
until these legal issues are finally resolved.
In April 1999, the Company entered into a settlement agreement with a creditor
of the Company pursuant to which, the Company is obligated to make installment
payments in the aggregate amount of $100,000 to the creditor, with all remaining
sums due on or before October 15, 1999. In addition, the Company issued 10,000
shares of common stock to the investor as part of the settlement. In May 2000,
the parties entered into a second settlement agreement pursuant to which the
amounts due to the creditor were satisfied through the issuance of an additional
F-16
<PAGE>
990,000 shares of common stock in May 2000 and the return and subsequent
cancellation of the previously delivered 10,000 shares in or about June 2000.
The creditor retains the right to reinstate the lawsuit if the Company's stock
fails to be tradable or is delisted at any time during the next seven years. If
this occurs, the agreement provides for a one time 30-day grace period to remedy
the situation.
During 1998, the Company entered into a consulting agreement with a financial
consultant. Under the terms of the agreement, the Company issued 200,000 shares
of common stock and agreed to pay the consultant a monthly fee of $5,000 for a
period of 24 months. As of December 31, 1999, the Company has a remaining
obligation of $50,000 for services to be rendered during 2000.
NOTE 10 -- ACQUISITIONS
During May 1999, the Company acquired Money Market, Inc. ("Money Market") in a
business combination accounted for as a purchase. Money Market is primarily
engaged in the payday loan business in the State of Indiana. The results of
operations of Money Market are included in the accompanying consolidated
financial statements since the date of acquisition. The total value of the
acquisition was $140,000, which exceeded the fair value of the net assets of
Money Market by $23,851. The Company elected to expense this amount during the
year ended December 31, 1999.
Under the terms of the purchase agreement, at closing, the Company paid $60,000
in cash, issued 167,000 of common stock valued at $.15 per share, and signed
promissory notes for the remaining $55,000, which bear interest at 8% and
require monthly payments of $667 through 2003. As of December 31, 1999, the
principal balance of these notes was $52,853.
The following summarized pro-forma (unaudited) information assumed the
acquisition of Money Market had occurred on January 1, 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 3,055,856 $ 1,647,869
============== ============
Net Loss $ (2,133,069) $ (1,581,668)
============== ============
Basic and diluted loss per share $ (0.03) $ (0.04)
============== ============
Weighted Average Shares 69,024,620 42,014,635
============== ============
</TABLE>
NOTE 11 -- NON CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1998, the Company converted $131,000 worth of
debt into 870,883 shares of common stock.
As part of the Fleetmax transaction, a shareholder surrendered 5,500,000 shares
of common stock valued at $679,060 in exchange for all of the Company's
interests in the sold subsidiaries.
During the year ended December 31, 1998, the Company converted 100,000 shares of
preferred stock valued at $332,459 into 30,000,000 shares of common stock.
The Company acquired transportation equipment totaling $57,950 in exchange for
notes.
F-17
<PAGE>
NOTE 12 -- SUBSEQUENT EVENTS
In April 2000, the Company entered into a settlement agreement with its prior
counsel, pursuant to which the Company paid $20,000 and such prior counsel
returned 1,000,000 shares previously issued to him by the Company. The agreement
also provides for a mutual release of all claims between the parties.
Since January 1, 2000, the Company has decided to suspend its expansion program
due to a shortage of capital and has elected to close certain store locations
instead. Management has identified as many as 30 stores for shutdown or
divestiture, of which 18 have been closed as of June 19, 2000. The Company has
established a reserve of approximately $200,000 to provide for closing costs and
the write-off of fixed assets, primarily leasehold improvements. This reserve
will be recorded in the first quarter of fiscal 2000. The Company will continue
to monitor its store program as it seeks to raise more capital.
Since January 1, 2000, the Company has issued approximately 9.0 million
shares of common stock. The following unaudited amounts indicate the purpose
of the issuances, approximate number of shares, and approximate amount of
consideration: conversion of debt, 3.2 million shares for $265,000; sale of
common stock, 4.8 million shares for $335,000; and, compensation for services,
1.0 million shares for $110,000. The range in the "per share" price of these
issuances was $.05 to $.10.
F-18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
The following table lists the name and age of each director of the Company, his
business experience during the past five (5) years, his positions with the
Company and certain directorships.
TERM EXPIRING AT NEXT STOCKHOLDERS' MEETING AT WHICH DIRECTORS ARE ELECTED
<TABLE>
<CAPTION>
Name Age Positions and Experience
---- --- -------------------------
<S> <C> <C>
Terrence L. Donati 48 Director and President from 1998 to
October 1999 and since January 2000, a
Director and President of Sonoma since
1997
Philip E. Ruben 41 Director since 1999, Director and
President of Kwiatt & Ruben, Ltd. since
1994
D. Desmond Paden 65 Director since January 2000, Managing
Director of Des Paden &
Co./totalsourcefinancing.com, Inc. since
1990
</TABLE>
MANAGEMENT
INFORMATION REGARDING EXECUTIVE OFFICERS
Set forth below is information concerning the executive officers and other key
employees of the Company who were in office or employed as of the date of this
Form 10-KSB.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Terrence L. Donati 48 President and Secretary
D. Desmond Paden 65 Chairman
</TABLE>
Terrence L. Donati, President of the Company. See "Information Concerning
Directors" above for a description of Mr. Donati's relevant business experience.
16
<PAGE>
D. Desmond Paden, Chairman of the Company. See "Information Concerning
Directors" above for a description of Mr. Paden's relevant business experience.
Currently, neither Mr. Donati nor Mr. Paden is a party to an employment contract
with the Company.
Officers are appointed by the board of directors of the Company and its
subsidiaries and serve at the pleasure of each respective board. There are no
family relationships among the executive officers and/or directors, nor are
there any arrangements or understandings between any officer and another person
pursuant to which he was appointed to office except as may be hereinafter
described.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers, directors, and certain shareholders to file reports of
ownership and changes of ownership of the Common Stock with the Securities and
Exchange Commission. To the Company's knowledge, based on a review of the copies
of such reports furnished to the Company, during the Company's twelve (12) month
period ending December 31, 1999, not all Section 16(a) filing requirements have
been complied with in a timely fashion.
Messrs. Donati and Contaldo did not file Form 4's nor Form 5's for the prior
three (3) years. Messrs. Donati and Contaldo engaged in numerous transaction,
both on behalf of the Company and themselves and utilizing shares in their
respective names. Neither Mr. Ruben nor Mr. Paden filed Form 3's upon
becoming directors, nor did Mr. Ruben file Form 4's on two (2) subsequent
acquisitions of shares. Mr. Barrish did not file a Form 3 upon becoming a
director. Mr. Gesualdo did not file a Form 3 upon becoming a director, nor
did he file a Form 4 upon a subsequent sale of shares. The Company and its
officers intend on complying with all applicable requirements going forward
and on filing all delinquent reports not yet filed.
ITEM 10. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Presently, directors, whether employees of the Company or not, are not
compensated for serving as directors.
EXECUTIVE OFFICER COMPENSATION
The Company paid no salary in 1998 or 1999 to any of its officers.
The Board of Directors has agreed to consider reviewing the compensation of
certain officers, directors and key employees and anticipates commencing a
review of relevant information for such purpose. The review will include
compensation for guarantees of Company debt raising equity in order for the
Company to have operating capital and other benefits provided by such persons to
the Company. It is intended that the Company will ultimately provide appropriate
compensation to such persons in the future.
OPTION GRANTS IN 1998 AND 1999
There were no grants of options made in 1998 and 1999.
AGGREGATED OPTION EXERCISES IN 1998 AND 1999 AND OPTION VALUES AS OF DECEMBER
31, 1998 AND 1999
NON-QUALIFIED PLAN -- During 1994, the Company granted non-qualified stock
options to certain employees to purchase 24,208 shares of the Company's common
stock. The options,
17
<PAGE>
were exercisable upon vesting, and vest at one, two, and three year anniversary
dates from the date of grant. Certain of these non-qualified options have been
forfeited due to the termination of the employees. In years prior to 1998, 7,661
of these options were cancelled with the remaining 16,547 options being
cancelled in 1998.
In July 1995, the Company's Board of Directors and a majority of the Company's
shareholders approved the 1995 Stock Option Plan (the "Stock Option Plan")
covering up to 750,000 shares of the Company's common stock, pursuant to which,
officers and key employees of the Company are eligible to receive incentive
and/or non-qualified stock options. The Stock Option Plan expires on January 31,
2005. As of December 31,1999 and 1998, options for 749,254 shares were
outstanding under the plan. These options were issued in 1995 at an exercise
price of $6.00 per share and vest at one, two, and three year anniversary dates
from the date of grant. Options issued under the Stock Option Plan expire
September 8, 2003. In May 1996, the Company modified the outstanding
non-qualified stock options. All options became immediately vested, and the
exercise price was reset to $2.00 per share for current employees. The exercise
prices on all other options remain as originally issued.
During 1996, the Company granted non-qualified stock options to certain
employees to purchase 1,888 shares of the Company's common stock. None of these
options were exercised and all such options expired during 1998.
A summary of the status of the Company's non-qualified stock options as of
December 31, 1999 and 1998, and changes during the years then ended is presented
as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 749,254 $2.00 767,689 $1.99
Granted - - - -
Exercised - - - -
Canceled - - (18,435) (0.01)
-------
Outstanding at end of year 749,254 $2.00 749,254 $2.00
======= ===== ======= =====
Options exercisable at year-end 749,254 749,254
======= =======
Weighted-average fair value of
options granted during the year
(unaudited) $ - $ -
===== ====
</TABLE>
At December 31, 1999, the exercise price for options outstanding was $2.00, and
the weighted average remaining contractual life was 2.7 years.
ADDITIONAL OPTIONS -- During March through August 1994, the Company granted
additional options to purchase 209,126 shares of common stock to certain former
officers, shareholders, vendors and creditors. In May 1996, the Company modified
certain of these options held by an employee. The exercise price was changed to
$2.00 per share for a current employee. The exercise prices on all other options
remain as originally issued. These options became fully
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<PAGE>
vested at the date of grant and were immediately exercisable. The options
expired unexercised in 1998.
In 1995, the Company granted certain additional options to purchase 3,375 shares
of common stock by certain shareholders and creditors. These options became
fully vested at the date of grant and were immediately exercisable. These
options expired unexercised during 1998 and 1999.
A summary of the status of the Company's additional stock options as of
December 31, 1999 and 1998, and changes during the years then ended is
presented as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,542 $0.10 212,501 $3.67
Granted - - - -
Exercised - - - -
Canceled (2,542) 0.10 (209,959) (3.67)
------ --------
Outstanding at end of year - $ - 2,542 $0.10
====== ===== ======== =====
Options exercisable at year-end - 2,542
====== =====
Weighted-average fair value of
options granted during the year
(unaudited) $ - $ -
===== =====
</TABLE>
At December 31, 1998, the exercise price for options outstanding was $0.10 and
the weighted average remaining contractual life was 8 months.
WARRANTS -- In connection with its 1995 initial public offering, the Company
issued warrants to purchase 3,489,700 shares of common stock. At December 31,
1999 and 1998, 3,219,700 were exercisable at $4.50 per share and expire on
August 10, 2000.
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, which is a
shareholder, officer, and director. Consideration paid by the purchaser was
5.5 million shares of the Company's common stock and debt assumption of
$353,867. Concurrently with the surrender of the 5,500,000 shares, such
shareholder, officer and director of the Company was granted a warrant to
purchase up to 5,500,000 shares of the Company's common stock at $.21 per
share. Included in the warrant is the right of such shareholder, officer and
director to vote all of the underlying shares with respect to all matters
presented to the shareholders for a vote.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 19, 2000, there were 85,486,248 shares of Common Stock issued and
outstanding. The following table sets forth the number and percentage of Common
Stock known by
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<PAGE>
management of the Company to be beneficially owned as of June 19, 2000 by (i)
all shareholders known by management of the Company to own 5% or more of the
Company's Common Stock; (ii) all directors of the Company; (iii) each executive
officer included in the Summary Compensation Table; and (iv) all directors,
executive officers and other key employees of the Company as a group (4
persons). Unless stated otherwise, each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated.
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares Percent
------------------------ ---------------- -------
<S> <C> <C>
Frank A. Contaldo (1) 8,401,995 9.825%
Terrence Donati (2)(3) 10,570,044 12.365%
D. Desmond Paden (4) -- --
Philip E. Ruben (5) 1,399,163 1.637%
All directors, officers and 5% shareholders as a group (4 persons) 23.827%
</TABLE>
(1) Mr. Frank A. Contaldo's business address is 700 East Grand Avenue,
Chicago, IL. 4,241,995 shares beneficially owned by Mr. Contaldo are
owned by Siena LLC, a limited liability company, of which, Mr. Contaldo
is a member and 4,160,000 are owned by him as trustee of a trust for the
benefit of himself.
(2) Mr. Terrence Donati's business address is 390 South Eighth Street, West
Dundee, Illinois 60118. All shares beneficially owned by Mr. Donati are
owned by Cortona LLC, a limited liability company, of which, Mr. Donati
is a member and retains voting control and which are held for the
benefit of various family trusts.
(3) Includes a warrant to purchase up to 5,500,000 shares and the right to
vote the underlying shares whether or not the warrant is exercised.
(4) Mr. D. Desmond Paden's business address is 580 Milwaukee, Suite 307,
Libertyville, IL 60048.
(5) Mr. Ruben's business address is 211 Waukegan Road, Suite 300, Northfield,
Illinois, 60093. The shares include 1,311,663 shares owned by Kwiatt &
Ruben, Ltd., a law firm which serves as general counsel to the Company,
of which, Mr. Ruben is a principal and 87,500 shares owned by Mr. Ruben,
individually. The Company's fee arrangement with Kwiatt & Ruben, Ltd.
provides that 50% of the amounts due are payable by delivery of shares of
the Company's Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 24, 1997, the Company entered into an agreement to acquire all of
the outstanding stock of Sonoma. The transaction, which closed on January 9,
1998, has been accounted for as a reverse acquisition of VictorMaxx by Sonoma
using the purchase method of accounting. In connection with the acquisition, the
Company issued 12,108,558 shares of its common stock and 100,000 shares of its
preferred stock to the shareholders of Sonoma. The former President, Chief
Executive Officer and a Director of the Company is a beneficiary of a profit
sharing plan and trust that is a shareholder of Sonoma. The preferred shares
were convertible into 30,000,000 shares of Common Stock of the Company, and have
subsequently been so converted. Additionally, the Company has issued or will
issue 1,550,000 shares of its Common Stock to certain creditors of the Company
in full satisfaction of their claims against the Company. The
20
<PAGE>
creditor group includes the former President, Chief Executive Officer and a
Director of the Company and certain former officers and directors of the
Company. In addition, the Company has issued or will issue 615,000 shares of its
common stock to a group of individuals as a settlement of various employment
claims and as compensation for assisting in the consummation of the transaction.
Included in this group are certain former officers and directors of the
Company.
In July 1995, the Company, a shareholder of the Company, the Placement Agent,
two officers of the Placement Agent, and the former president, CEO and
director of the Company executed an agreement with respect to the settlement
of litigation brought by the former president, CEO and director against the
Company, the Placement Agent and two officers of the Placement Agent claiming
wrongful breach by the Company of an alleged employment agreement with the
former president, CEO and director and the Company's wrongful rejection of
its former president's attempt to put 122,900 shares of Common Stock to the
Company thereunder and intentional interference with such alleged agreement
by the Placement Agent and its officers. Under the terms of the settlement,
the former president, CEO and director agreed to act as a consultant to the
Company for a specified period and the Company agreed to pay him an aggregate
of $560,000 thereunder of which $300,000 was paid out of the net proceeds of
the Company's IPO and the balance to be paid in 26 monthly installments
commencing September 15, 1995. The former president, CEO and director also
agreed not to compete with the Company during the consulting period and to
refrain from acquiring beneficial ownership of more than 10% of its
outstanding shares or becoming involved in any proxy contest with respect to,
or tender offer for, the Company. The settlement arrangement also provided
for the exchange of general releases between the Company, the former
president, CEO and director and other parties thereto. The Company expensed
the entire cost of this settlement in 1995. The Company has not made any
payments to the former president, CEO and director subsequent to July 1996.
During the month of December, 1997, the former president, CEO and director
executed a settlement agreement, effective upon the acquisition of Sonoma,
whereby his claims arising from the alleged breach of the July 1995
settlement agreement was settled for 1,000,000 shares of Common Stock of the
Company. The former president, CEO and director was an affiliate of Sonoma at
the date of the acquisition.
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, who is a
shareholder, officer and director. Consideration paid by the purchaser was
5.5 million shares of the Company's common stock and debt assumption of
$353,867. Concurrently with the surrender of the 5,500,000 shares, such
shareholder, officer and director of the Company was granted a warrant to
purchase up to 5,500,000 shares of the Company's common stock at $.21 per
share. Included in the warrant is the right of such shareholder, officer and
director to vote all of the underlying shares with respect to all matters
presented to the shareholders for a vote.
The Board of Directors has agreed to consider reviewing the compensation of
certain officers, directors and key employees and anticipates commencing a
review of relevant information for
21
<PAGE>
such purpose. It is intended that the Company will ultimately provide
appropriate compensation to such persons in the future. See Item 10 for
further description.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
2.1 Agreement and Plan of Reorganization, dated September 24, 1997 between
VictorMaxx Technologies, Inc. and Sonoma Holding Corp.
3.1 Certificate of Incorporation for VictorMaxx Technologies, Inc., a
Delaware corporation.
3.2 Articles of Amendment and Restated Articles to the Articles of
Incorporation for VictorMaxx Technologies, Inc., an Illinois corporation,
incorporated on March 22, 1994.
3.3 Articles of Amendment to the Articles of Incorporation of VictorMaxx
Technologies, Inc., an Illinois corporation, filed March 31, 1998.
3.4 Bylaws of VictorMaxx Technologies, Inc.
4.1 Warrant to purchase 5,500,000 shares of Common Stock of SHC Corp (f/k/a
VictorMaxx Technologies, Inc.) dated June 17, 1999.
5.1 Voting Trust Agreement, dated March 25, 1999, between Ralph Mauro and
Bryan G. Barrish.
5.2 Voting Trust and Escrow Agreement, dated May 1998, between Kevin Koy,
Maureen H. Koy and Chicago Mortgage and Financial Service, Inc. Profit
Sharing Plan & Trust.
10.1 Agreement of Purchase and Sale, dated June 18, 1998, between Fleetmax
Corp. and Sonoma Holding Corp.
10.2 Settlement Agreement, dated June 17, 1999, between Fleetmax Corp. and
Marvin Koenig made payable to Sonoma Holding Corp.
10.3 Consulting Agreement, dated November 12, 1998, between Sonoma Holding
Corporation, PayDay Check Advance, Inc. and Churchill Group, Ltd.
10.4 Consulting Agreement, dated October 1, 1997, between Sonoma Holding Corp.
and Prinz & Associates LLC.
10.5 Demand Promissory Note, dated October 20, 1999, between Sonoma Financial
Corp., as Maker, and Frank Anthony Contaldo, as Payee, for the principal
amount of $125,100.00.
10.6 Demand Promissory Note, dated October 20, 1999, between Sonoma Financial
Corp., as Maker, and Ralph Mauro, as Payee, for the principal amount of
$125,100.00.
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<PAGE>
10.7 Investment Agreement, dated April 14, 1998, between Payday Check Advance,
Inc. and Terrence L. Donati.
10.8 Attorney/Client Agreement, dated February 1999, between Terrence Donati,
Frank A. Contaldo, SHC Corp. f/k/a Victormaxx Technologies, Inc. and
Kwiatt & Ruben, Ltd.
10.9 Release and Settlement Agreement, dated May 12, 2000, between Robert
Hartwig Family Limited Partnership, Frank Anthony Contaldo, Terrance L.
Donati and SHC Corp.
10.10 Settlement Agreement and Mutual General Release, dated April 2, 2000,
between Stuart D. Perlman, Stuart D. Perlman Pension Plan & Trust, SHC
Corp., Sonoma Holding Corp, Terrence L. Donati and Frank A. Contaldo.
10.11 Shareholder's Agreement, dated June 1, 1997, between Argent Enterprises,
Inc., The Sonoma 1998 Co. and the shareholders of PayDay Check
Advance, Inc.
10.12 Terms of Investment between Dan Mazzie and Sonoma Holding Corp, dated
September 24, 1998 executed in connection with the Company's proposed
purchase of the Bagel Factory
10.13 Asset Purchase Agreement, dated June 10, 1999, between Money Market Inc.,
and Easy Money of Indiana Inc.
10.14 Stock Purchase Agreement, dated May 24, 1999, between Money Market Inc.,
SHC Corp., Scott Tracy and Scott Clark.
10.15 Subordinated Promissory Note, dated May 24, 1999, between SHC Corp. and
Scott Tracy, in the amount of $27,500.00
10.16 Subordinated Promissory Note, dated May 24, 1999, between SHC Corp. and
Scott Clark, in the amount of $27,500.00
10.17 Loan Agreement, dated November 24, 1998, between Brickyard Bank and
Payday Check Advance, Inc.
10.18 Promissory Note, dated November 24, 1998, between Brickyard Bank and
Payday Check Advance, Inc. used in connection with $1,000,000 Loan
Agreement.
10.19 Note, dated June 10, 1998, between Richard J. Andresen and Jeannete
Andresen and Payday Check Advance, Inc.
10.20 Settlement Agreement, dated May 15, 1998, between Kevin E. Koy, Maureen
H. Koy, Chicago Mortgage and Financial Services, Inc., Chicago Mortgage
and Financial Services, Inc. Profit Sharing Plan & Trust; Cambridge
Financial Services, Inc.; CorCapital Financial Partners L.L.C., SHC
Corp., Sonoma Holding Corp.; Terrence L. Donati; and, Frank A. Contaldo.
23
<PAGE>
10.21 Agreement, dated May 8, 1998, between Douglas E. Macklin and Payday Check
Advance, Inc.
21 List of Subsidiaries.
27 Financial Data Schedule
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
-----------------------------------------------------
SHC CORP.(f/k/a VictorMaxx Technologies, Inc.)
By: /s/ Terrence L. Donati
-------------------------------------------------
Terrence L. Donati, President, Principal Financial
Officer and Principal Accounting Officer
Date: July 8, 2000
By: /s/ Terrence L. Donati
-------------------------------------------------
Terrence L. Donati, Director
By: /s/ D. Desmond Paden
-------------------------------------------------
D. Desmond Paden, Director
By: /s/ Philip E. Ruben
-------------------------------------------------
Philip E. Ruben, Director
25
