UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Fiscal Year Ended
September 30, 2000
Commission File No. 0-27159
National Residential Properties, Inc.
(Name of Small Business Issuer in its charter)
Nevada 65-439467
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
2921 NW 6th Ave, Miami, Florida 33127
(Address of principal executive offices)
(305) 573-8882
(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 $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days
Yes x No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information: [ ]
Statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB:[ ]
State the aggregate market value of the voting stock (Common Stock) held by
non-affiliates computed by reference to the price at which the stock was sold
or the average bid and asked price of such stock, as of a specified date
within the past sixty days. As of the close of business, January 10, 2001,
the aggregate market value of the Company's Common Stock (based on the average
of the ($.019) bid and ($..02) asked price) held by non-affiliates
was $1,373,965.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Number of shares outstanding of each of the issuer's classes of Common
Stock as of January 4, 2001, was 76,974,119 shares.
State issuer's revenues for its most recent fiscal year. $62,500.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court
Yes No
----- -----
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-KSB ANNUAL REPORT - FISCAL YEAR ENDED SEPTEMBER 30, 2000
NATIONAL RESIDENTIAL PROPERTIES, INC.
TABLE OF CONTENTS Page
PART I
Item 1. Description of Business 3.
Item 2. Description of Property 10.
Item 3. Legal Proceedings 10.
Item 4. Submission of Matters to a Vote of Security Holders 10.
PART II
Item 5. Market for Common Stock Equity and Related Stockholder Matters 11.
Item 6. Management's Discussion and Analysis or Plan of Operation 13.
Item 6a. Quantitative And Qualitative Disclosures About Market Risk 17.
Item 7. Financial Statements 17.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 17.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 18.
Item 10. Executive Compensation 19.
Item 11. Security Ownership of Certain Beneficial Owners and Management 20.
Item 12. Certain Relationships and Related Transactions 21.
Item 13. Exhibits and Reports on Form 8-K 23.
SIGNATURE PAGE 24.
Attachment:
INDEPENDENT AUDITOR'S REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 2000 AND 1999.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT:
1. GENERAL CORPORATE
National Residential Properties, Inc. was incorporated on October 18, 1971 in
the State of Nevada, originally under the name of Mister Las Vegas, Inc. It is a
fully reporting 12(g), 34 Act publicly traded company. The Company's business is
residential real estate development and building construction services. The
Company has undergone many changes to date as a result of certain
reorganizations and changes in management. The current business evolved when
National Rehab Properties, Inc. which was incorporated in Florida in 1993,
completed a reverse merger with Mister Las Vegas, Inc. in 1994 and changed the
name of the surviving Nevada Corporation to National Rehab Properties, Inc. On
September 12, 2000, pursuant to a vote of the shareholders at the annual meeting
of shareholders held at the offices of the Company, the shareholders of the
Company voted to amend the Articles of Incorporation of the Company to change
the name of the Company from National Rehab Properties, Inc. to "National
Residential Properties, Inc." Effective after the September 12, 2000 meeting,
the name of the Company is "National Residential Properties, Inc." The change of
name was made in order to more clearly reflect the business of the Company.
Historical changes are more fully disclosed in prior 34 Act filings. The
Company's principal office is located at 2921 NW 6th Avenue, Miami, Florida
33127; its telephone number is (305) 573-8882; its facsimile number is (305)
571-8357. The Company has one operating subsidiary, Encore Services, Inc., a
Florida Corporation, licensed as a Florida building contractor, and one inactive
subsidiary, MAS Acquisition XV Corp., an Indiana Corporation.
The Company is currently authorized to issue 250,000,000 common shares, $0.001
par value, 76,974,119 of which are outstanding at the date of this report, and
the Company is also has authorized 2,000,000 shares of $.001 par value Class A
common, "super voting shares," with voting right equivalent to 20 common shares
for each Class A share, 1,000,000 of which are outstanding at the date of this
report. In January 1999, the Company completed a reverse split of its $.001 par
value Common Stock on a 1 for 10 basis. All references to shares of Common Stock
in this report take into account this 1 for 10 reverse split of $.001 par value
Common Stock.
2. CURRENT OPERATIONS
The Company's business is residential real estate development and building
construction services. From 1993 until 1999, the Company's business concentrated
in investing in and revitalizing single family homes in established older
residential neighborhoods in urban areas. The Company either buys single unit
vacant properties and builds single family homes or it buys abandoned homes and
completes all renovations to the home followed by a sale of the home. During
1999, while retaining its efforts in the renovation of urban single family homes
as one aspect of its business, the Company entered a second phase of business,
the development, construction and ownership of multifamily housing projects.
Beginning in the Fiscal Year ended September 1999, the Company initiated a
program of acquisition of properties suitable for development as multifamily
housing or multiple unit single family development tracts. Since 1999, the
Company has purchased four tracts with the intention of building from 60 to 72
apartment units on each tract and one twenty acre citrus grove for single family
home development. In April 2000, the Company acquired Encore Services, Inc., a
bonded general construction contractor. The Company has four multifamily
apartment projects and one single family home subdivision development as work in
progress in various stages of development.
OPERATING SUBSIDIARY
--------------------
In April 2000, the Company acquired eighty percent of the outstanding shares of
Encore Services, Inc., ("Encore") a licensed and bonded general construction
contractor. Encore was incorporated in Florida on February 12, 1996. Encore acts
as the general construction contractor for the Company's real estate development
projects.
PRINCIPAL OFFICE OF REGISTRANT
------------------------------
The Company's principal office is at 2921 NW 6th Avenue, Miami, Florida 33127.
The Company's phone number is (305) 573-8882. The Company's operating
subsidiary, Encore Services, Inc., is also located at such address. The
principal offices of the Company and Encore are leased on a month to month basis
by Encore Services.
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INACTIVE SUBSIDIARIES
---------------------
On February 10, 2000, the Company acquired all of the outstanding equity shares
of MAS Acquisition XV Corp., an Indiana Corporation. MAS Acquisition XV Corp.
was incorporated in 1998. At the time of the acquisition, MAS Acquisition XV
Corp. had no active operations and the Company has yet to develop a business
plan or operations within MAS Acquisition XV Corp. MAS Acquisition XV Corp. has
no material assets or liabilities. In March 2000, the Company acquired all of
the outstanding equity shares of Granada Grand, Inc. and Conquistador Maza,
Inc., both Florida corporations. Granada Grand, Inc. and Conquistador Maza, Inc.
have no material assets or liabilities.
3. MANAGEMENT
On April 1, 2000, in conjunction with the acquisition of Encore Services, Inc.,
a Florida Corporation, Braulio Gutierrez, the previous sole shareholder of
Encore, and an individual previously unaffiliated with the Company other than as
a contractor on the Company's housing refurbishing projects, was appointed to
the Board of Directors as a Director.
On September 12, 2000, the shareholders reelected Richard Astrom and Christopher
Astrom, each of whom has been a Director of the Company since 1994, and Braulio
Gutierrez, who was originally appointed as a board member on April 1, 2000, to
the Board of Directors.
At a Board of Directors meeting held September 29, 2000, the Board of Directors
voted to retain the following officers, each of whom has been an officer of the
Company since 1994: Richard Astrom as President, CEO and Chairman of the Board
of Directors, and Christopher Astrom as Secretary and Treasurer.
Current management of the Company consists of President and CEO, Richard Astrom,
Secretary/Treasurer, Christopher Astrom, and Braulio Gutierrez as a non-officer
Director of the Company. Please see Part III Item 9(b) "Business Experience."
The Company is seeking unaffiliated persons willing to serve as outside
Directors.
4. ACQUISITIONS, ASSET FORFEITURES, DISPOSITIONS AND TERMINATIONS OF CONTRACT
RIGHTS
On April 1, 2000, the Company acquired, in a transaction exempt from
registration, eighty percent of the common stock of Encore Services, Inc., a
Florida Corporation, in exchange for (a) 250,000 shares of the Company's $.001
par value Common Stock issued to Braulio Gutierrez, and (b) an assignment and
assumption agreement with Encore Services, Inc. whereby, with the assent of HLKT
Holdings, L.L.C., Encore Services, Inc. assigned to the Company and the Company
irrevocably and unconditionally assumed all the rights and obligations of Encore
Services, Inc. under a $1,000,000 Convertible Debenture previously issued by
Encore Services, Inc. to HLKT Holdings, L.L.C., a Colorado Limited Liability
Company, on March 15, 2000. On April 1, 2000, Mr. Gutierrez was appointed as a
Director of the Company. Commencing April 12, 2000, and continuing through June
28, 2000, the total $1,000,0000 face amount of the Debenture was presented to
the Company's transfer agent for conversion in accordance with the terms of the
Debenture to unrestricted $.001 par value Common Stock of the Company pursuant
to the assignment and assumption agreement with Encore Services, Inc. A total of
28,856,464 shares of the Company's $.001 par value Common Stock were exchanged
for the $1,000,000 Debenture, and an additional 140,023 shares of the Company's
$.001 par value Common Stock were issued in payment of accrued interest on the
Debenture.
As was reported on Form 8-K dated February 14, 2000, pursuant to a Stock
Exchange Agreement (the "Exchange Agreement") dated as of February 10, 2000
between MRC Legal Services Corporation, a California Corporation, which entity
is the controlling shareholder of MAS Acquisition XV Corp. ("MAS XV"), an
Indiana corporation, and National Rehab Properties, Inc., a Nevada corporation,
approximately 96.8% (8,250,000 shares) of the outstanding shares of common stock
of MAS Acquisition XV Corp. were exchanged for 1,000,000 shares of Common Stock
of National Rehab Properties, Inc. in a transaction in which the Company became
the parent corporation of MAS XV. The additional shares representing 3.2% of MAS
XV were subsequently acquired by the Company, making MAS XV a wholly owned
subsidiary of the Company.
In March 2000, the Company acquired all of the outstanding equity shares of
Granada Grand, Inc. and Conquistador Maza, Inc., both Florida corporations, for
a total of $2,000 in cash. Granada Grand, Inc. and Conquistador Maza, Inc. have
no material assets or liabilities.
As was reported on Form 8-K dated November 14, 2000, on September 25, 2000, the
Company's subsidiary, 2217 Acquisition Inc. ("2217 Acquisition"), entered into
an arm's-length contract (the "Real Estate Contract") with an unaffiliated
entity to purchase a parcel of real estate (the "Real Estate") located at 2270
Southwest 32nd Avenue, Miami, Florida. To fund the acquisition of the Real
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Estate, on October 10, 2000, 2217 Acquisition issued its 8% Series A
$1,000,000.00 Senior Subordinated Convertible Redeemable Debenture due October
10, 2002 (the "2217 Acquisition Debenture"), together with underlying shares of
2217 Acquisition's common stock, par value $0.001, into which the 2217
Acquisition Debenture is convertible from time to time. After deducting the
expenses of the investment, including projected interest payments, the net
proceeds to be received by 2217 Acquisition aggregated approximately
$795,000.00. The first installment of proceeds were received on October 27,
2000; the second have yet to be received. From these net proceeds, $300,000.00
was used to make the down payment on the Real Estate, with the balance of the
purchase price to be funded by a purchase money first mortgage on the Real
Estate given to the Seller and a new mortgage from a Miami, Florida, lending
institution, the terms of which have yet to be decided upon. The balance of the
net proceeds were allocated to, and will be used as, working capital.
Following the acquisition of the real estate by 2217 Acquisition, on October 31,
2000, 2217 Acquisition, Inc. was merged into the Company. By operation of law
and pursuant to the Plan of Merger, the rights and obligations of 2217
Acquisition with respect to the Real Estate Contract and the 2217 Acquisition
Debenture will inure to the benefit of and be binding upon the Company. In that
connection, the 2217 Acquisition Debenture, together with the underlying shares
of 2217 Acquisition's common stock, par value $0.001 per share, into which the
2217 Acquisition Debenture is convertible from time to time, shall be converted
into an identical new debenture (the "New Debenture"), together with shares of
underlying Common Stock, par value $0.001 per share, of the Company into which
the New Debenture may be converted.
There were no asset forfeitures, dispositions and terminations of contract
rights other than in the ordinary course of business of the Company
(b) BUSINESS OF ISSUER:
The Company's business is residential real estate development and building
construction services. From 1993 until 1999, the Company's business concentrated
in investing in and revitalizing single family homes in established older
residential neighborhoods in urban areas. The Company either bought single unit
vacant properties and built resale single family homes on individual lots or it
bought abandoned homes and completed all renovations to the home followed by a
sale of the home. During 1999, while retaining its efforts in the renovation of
urban single family homes as one aspect of its business, the Company entered a
second phase of business, the development, construction and ownership of
multifamily housing projects. Beginning in the fiscal year ended September 1999,
the Company initiated a program of acquisition of properties suitable for
development as multifamily housing or single family subdivision development
tracts. Since 1999, the Company has purchased four tracts with the intention of
building from 60 to 72 apartment units on each tract and one twenty acre citrus
grove for a single family subdivision development. The Company has four
multifamily apartment projects and on single family subdivision development as
work in progress in various stages of development.
In April 2000, the Company acquired Encore Services, Inc., a bonded general
construction contractor. Encore, an eighty percent owned subsidiary of the
Company, was incorporated under the laws of the State of Florida. The
construction portion of Company's building and development projects are now
conducted through Encore with Encore as the general contractor. Encore is a
licensed building contractor and with such status is able to secure building
permits throughout the state of Florida. The Company's management believes that
the acquisition of Encore will enable the Company to be more successful in the
control of building costs, construction schedules and project costs.
CURRENT STATUS AND OPERATIONS
-----------------------------
The Company has two phases of business operations. In the first phase which
began in 1993, the Company acquires single unit vacant properties and builds
resale single family homes on individual lots or it buys abandoned homes and
renovates the home for resale. During 1999, while retaining its efforts in the
renovation of urban single family homes as one aspect of its business, the
Company entered a second phase of business, the development, construction and
ownership of multifamily housing projects. Beginning in the fiscal year ended
September 1999, the Company initiated a program of acquisition of properties
suitable for development as multifamily housing or multiple unit single family
development tracts. Since 1999, the Company has purchased four tracts with the
intention of building from 60 to 72 apartment units on each tract as well as a
twenty acre citrus grove which the Company has successfully rezoned for a single
family home subdivision development.
In 1999, the Company purchased land to build a sixty unit apartment building at
the northern border of Coral Gables, a prestigious area of Miami. This project,
known as Granada Grand, is in the permitting stage, with the construction loan
scheduled to close in January 2001.
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Also in 1999, the Company contracted to purchase land to build a sixty unit
apartment building in a quality status neighborhood in Miami, Florida. The
closing for the acquisition of the project as well as the construction loan for
this project, to be known as Conquistador Plaza, is scheduled for January 2001.
In 2000, the Company purchased a site permitted for a sixty unit apartment
building on Bay Harbor Island near Miami Beach, Florida. The Company intends to
construct a sixty unit apartment project on this site. This project, known as
Cosata del Sol, is in the planning and permitting stage.
Also in 2000, the Company purchased a multifamily housing site in Miami upon
which the Company intends to build a seventy two unit apartment project. This
project, called Barcelona Apartments, is in the planning and permitting stage.
In 2000, the Company closed on a twenty acre citrus grove in Vero Beach,
Florida. The Company successfully rezoned the property to a single family
development. It is anticipated that lots will be marketed to home buyers from
northern states seeking to retire in Florida. In this project, known as Eagle
Trace, the Company will either sell bare lots, allowing the buyer to employ his
own architect and contractor, or build the home for the buyer as a total home
package on a lot selected by the buyer.
(c) GOVERNMENT REGULATION:
The Company's operations are subject to government regulation primarily by city
and local zoning regulations, plat restrictions and housing quality and
component requirements. These regulations and requirements determine the
available locations for multifamily housing projects, the size of individual
lots, the number of apartment units which can be built on a project site,
building heights, and various other specifications related to housing projects.
Under federal, state, and local environmental laws, ordinances, and regulations,
the Company may be liable for removal or remediation costs, as well as other
costs (such as fines or injuries to persons and property) where our employees
may have arranged for removal, disposal, or treatment of hazardous or toxic
substances. In addition, environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties can seek recovery
from the Company for personal injury associated with those materials.
Legislation or materially different rules may be proposed and enacted at any
time and may have a material adverse affect on the operations of the Company. At
this time, the Company is unaware of any pending legislation or rule-making
proceedings that would have a material adverse affect on the current operations
of the Company.
COMPETITION
-----------
The Company has not experienced difficulty in locating investment opportunities.
Management believes that ownership of properties in which the Company invests is
highly fragmented among individuals, partnerships, public and private
corporations, and REITs. No single entity or person dominates the market for
such properties. At any given time, a significant number of apartment properties
as well as individual lots and tracts suitable for single family homes are
available for purchase in the various markets where the Company may seek
additional acquisitions. Management believes that there is and will continue to
be a strong demand for well-maintained, affordable housing in these markets and
that the factors discussed above provide a market where a sufficient number of
attractive investment opportunities will be available to allow the Company to
continue to expand through acquisitions as well as through the development of
new properties. However, since the success of any multifamily real estate
investment is affected by factors outside of the Company's control, including
general demand for home purchases, apartment living, interest rates, operating
costs, and job growth, there can be no assurance that we will be successful in
the Company's strategy to continue to expand through acquisitions and
development.
RESEARCH AND DEVELOPMENT
------------------------
The Company has not incurred, and does not expect to incur, significant research
and development expenses.
COPYRIGHTS, PATENTS, PROPRIETARY INFORMATION, AND TRADEMARKS
------------------------------------------------------------
The Company has no registered service marks, copyrights, or patents.
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(d) EMPLOYEES AND CONSULTANTS:
As of the date of this filing, the Company and its wholly owned subsidiary
Encore employs a total of three (3) persons on a full time basis: Richard Astrom
is the President and Chief Executive Officer of the Company and Christopher
Astrom is the Secretary/Treasurer of the Company. Braulio Gutierrez is employed
as the President of Encore, a subsidiary of the Company.
The Company periodically retains outside consultants such as attorneys,
accountants, engineers, technicians and subcontractors to perform certain
corporate administrative tasks as well as actual construction and development of
real estate projects.
(e) REAL ESTATE DEVELOPMENT INDUSTRY:
Ownership of properties in the categories of which the Company invests is highly
fragmented among individuals, partnerships, public and private corporations, and
REITs. No single entity or person dominates the market for such properties. At
any given time, a significant number of apartment properties as well as
individual lots and tracts suitable for single family homes are available for
purchase in the various markets where the Company may seek additional
acquisitions. Industry risks include environmental hazards; changes in general
or local economic conditions; changes in interest rates and the availability of
permanent mortgage financing which may render the acquisition, sale, or
refinancing of a property difficult or unattractive and which may make debt
service burdensome; changes in real estate and zoning laws; changes in income
taxes, real estate taxes, or federal or local economic or rent controls; floods,
earthquakes, and other acts of nature; and other factors beyond the control of
any firm involved in the real estate development industry. The illiquidity of
real estate investments generally may impair an industry participant's ability
to respond promptly to changing circumstances.
RISK FACTORS
------------
Certain Factors Associated with Real Estate and Related Investments. The Company
is subject to the risks associated with ownership, operation, and financing of
real estate. These risks include, but are not limited to, liability for
environmental hazards; changes in general or local economic conditions; changes
in interest rates and the availability of permanent mortgage financing which may
render the acquisition, sale, or refinancing of a property difficult or
unattractive and which may make debt service burdensome; changes in real estate
and zoning laws; changes in income taxes, real estate taxes, or federal or local
economic or rent controls; floods, earthquakes, and other acts of nature; and
other factors beyond the company's control. The illiquidity of real estate
investments generally may impair the Company's ability to respond promptly to
changing circumstances.
Under federal, state, and local environmental laws, ordinances, and regulations,
the Company may be liable for removal or remediation costs, as well as other
costs (such as fines or injuries to persons and property) where our employees
may have arranged for removal, disposal, or treatment of hazardous or toxic
substances. In addition, environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties can seek recovery
from the Company for personal injury associated with those materials.
Certain Factors Associated with the Company and its Business. The securities of
the Company are speculative and involve a high degree of risk, including, but
not necessarily limited to, the factors affecting operating results described
below. The statements which are not historical facts contained in this report,
including statements containing words such as "believes," "expects," "intends,"
"estimates," "anticipates," or similar expressions, are "forward looking
statements" (as defined in the Private Securities Litigation Reform Act of 1995)
that involve risks and uncertainties including, but not limited to, the factors
set forth below (see also "Forward Looking Statements").
Limited Revenues; Limited Relevant Operating History; Significant and Continuing
Operating Losses; Negative Cash Flow; Accumulated Deficit. Since its inception,
the Company has been engaged primarily in development of real estate, and has
had limited revenues from sales of its properties. Accordingly, the Company has
a limited relevant operating history upon which an evaluation of its prospects
can be made. Such prospects must be considered in light of the risks, expenses
and difficulties frequently encountered in the establishment of a relatively new
business in the real estate development industry, which is a continually
evolving industry characterized by an increasing number of market entrants and
intense competition, as well as the risks, expenses and difficulties encountered
in the real estate development and building construction business. The Company
has incurred operating losses in each quarter since inception and on September
30, 2000, the Company had an accumulated deficit of approximately $959,212.
There can be no assurance that the Company will be successful in generating
revenues at a sufficient quantity or margin or that the Company will ever
achieve profitable operations.
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Significant Capital Requirements; Need for Additional Capital; Explanatory
Paragraph in Accountant's Report. The Company's capital requirements have been
and will continue to be significant. The Company has been dependent primarily on
the private placement of equity securities and debt financings. The Company
anticipates, based on its current proposed growth plans and assumptions relating
to its growth and operations, that the proceeds from the existing private
placements and borrowings and planned revenues will be sufficient to satisfy the
Company's contemplated cash requirements for the next 12 months. In the event
that the Company's plans change or its assumptions prove to be inaccurate (due
to unanticipated expenses, delays, problems, or otherwise), the Company would be
required to seek additional funding sooner than anticipated. Any such additional
funding could be in the form of additional equity capital. The Company is
currently pursuing potential funding opportunities. However, there can be no
assurance that any of such opportunities will result in actual funding or that
additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. If the Company is unable to obtain
additional financing if needed, it will likely be required to curtail its real
estate development plans and may possibly cease its operations. Any additional
equity financings may involve substantial dilution to the Company's
then-existing shareholders.
Management of Growth and Attraction and Retention of Key Personnel. Management
of the Company's growth may place a considerable strain on the Company's
management, operations and systems. The Company's ability to execute any future
business strategy will depend in part upon its ability to manage the demands of
a growing business. Any failure of the Company's management team to effectively
manage growth could have a material adverse affect on the Company's business,
financial condition or results of operations. The Company's future success
depends in large part on the continued service of its key management personnel.
The Company believes that its future success also depends on its ability to
attract and retain skilled technical, managerial and marketing personnel.
Competition for qualified personnel is intense. The Company has from time to
time experienced difficulties in recruiting qualified personnel. Failure by the
Company to attract and retain the personnel it requires could have a material
adverse affect on the financial condition and results of operations of the
Company.
Lack of Dividend History; No Dividends. The Company has never paid dividends on
its Common Stock and intends to utilize any earnings for growth of its business.
Therefore, the Company does not intend to pay cash dividends for the foreseeable
future. This lack of dividends and a dividend history may adversely affect the
liquidity and value of the Company's Common Stock.
Possible Volatility of Market Price. The Company's Common Stock has been traded
on the OTC Bulletin Board since 1994. The Company believes that factors such as
(but not limited to) announcements of developments related to the Company's
business, fluctuations in the Company's quarterly or annual operating results,
failure to meet securities analysts' expectations, general conditions in the
international marketplace and the worldwide economy, announcements of
technological innovations or new systems or enhancements by the Company or its
competitors, interest rate changes or money supply fluctuations and developments
in the Company's relationships with clients and suppliers could cause the price
of the Company's Common Stock to fluctuate, perhaps substantially. In recent
years the stock market has experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of the Company's Common
Stock.
OTC Bulletin Board Listing Requirements. Under the new rules for continued
listing on the Bulletin Board, OTC traded firms are required to become and
remain fully reporting under Section 12 of the 1934 Securities and Exchange Act.
Although the Company intends to complete all future required filings on a timely
basis, there can be no assurance that its $.001 par value Common Stock (NRPI)
will not be de-listed from the Bulletin Board. If de-listed, the market will
almost certainly reflect a depressive effect on the price of the Company's
Common Stock.
Penny Stock Regulations and Requirements for Low Priced Stock. The Commission
adopted regulations which generally define a "penny stock" to be any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. Based upon the price of the Company's Common Stock as
currently traded on the OTC Bulletin Board, the Company's stock is subject to
Rule 15g-9 under the Exchange Act which imposes additional sales practice
requirements on broker-dealers which sell securities to persons other than
established customers and "accredited investors." For transactions covered by
this Rule, a broker-dealer must make a special suitability determination for the
purchaser and have received a purchasers written consent to the transaction
prior to sale. Consequently, the Rule may have a negative effect on the ability
of shareholders to sell common shares of the Company in the secondary market.
Stock prices are unpredictable. General market price declines or market
volatility in the future could be negative with respect to the price of our
Common Stock. In recent years, the stock markets in general, and securities of
small capitalization companies in particular, have experienced extreme price
fluctuations in response to such occurrences as quarterly variations in
operating results, changes in earnings estimates, and announcements concerning
strategic relationships and other events or facts. This pattern of
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extreme volatility in the stock market, which in many cases was unrelated to
actual operating performance, could cause the price of the Company's Common
Stock to go down.
The Company Will Need Additional Funds. The Company will require substantial
additional funding to further its real estate operations and business
objectives. Although management believes that such funds will become available
from sources including cash flow from business operations, bank loans, mortgage
loans or sale of additional stock, it has not formulated any specific plan for
raising additional funds, including sale of additional equity securities, as of
the date of this report. If the Company's capital is insufficient to conduct its
business and if the Company is unable to obtain needed financing, it will be
unable to pursue its business plan. Management has not thoroughly investigated
whether this capital would be available, who would provide it, and on what
terms. If the Company is unable to raise the capital required to fund its
proposed projects, on acceptable terms, its business may be seriously harmed or
even terminated. It is not certain that the Company will be able to obtain
additional funding or, if obtained, that the terms of such funding would be
favorable. This means that investor's shares of Common Stock could lose much of
their value.
Management Controls the Company's Funds. Management has broad discretion over
how to spend the funds held by the Company. Although management will endeavor to
act in the best interests of the shareholders, there can be no assurance that
the decision to utilize proceeds will prove profitable to the Company.
The Company May Not be Successful. The Company competes in a competitive market
of real estate development and housing construction. The Company's prospects for
success will depend on management's ability to successfully market its lots or
houses to buyers and its apartment projects to renters. As a result, demand and
market acceptance for our houses and apartment projects is subject to a high
level of uncertainty. The Company currently has limited financial, personnel and
other resources to undertake the extensive activities that will be necessary to
acquire property and build apartment complexes, houses and related real estate
projects. If the Company is unable to expand its marketing efforts, it will not
generate substantial additional revenues. Investors should be aware that if the
Company is not successful in the operation of its current business, or any
future acquisition endeavors, each investors entire investment in the Common
Stock of the Company could become worthless. Even if the Company is successful
in our operations and potential acquisitions, it is not certain that investors
will derive a profit from investment in the Company.
The Company Relies on its Management. The Company is dependent upon the members
of management set forth herein. If the current management is no longer able to
provide services to the Company, its business will be negatively affected. No
member of management is currently serving under a written employment agreement.
Additional Equity Financing May Affect Investor's Ability to Sell Common Stock.
The Company's Common Stock currently trades on the OTC Bulletin Board under the
symbol NRPI. Stocks trading on the OTC Bulletin Board generally attract a
smaller number of market makers and a less active public market and may be
subject to significant volatility. If the Company raises additional money from
the sale of its Common Stock, the market price could drop and investor's ability
to sell stock could be diminished.
Super Voting Rights Granted to Current Management. Our board of Directors can
issue "super voting" Class A Common Stock without shareholder consent and dilute
the voting rights or otherwise significantly affect the rights of existing
shareholders. The present principal shareholders will maintain voting control of
the Company based on the issuance of 1,000,000 Class A common shares on June 17,
1999, which entitle the holder thereof (Christopher Astrom) to 20 Common Stock
equivalent votes for every Class A share held. The purpose of issuing these
shares is to ensure that current management will maintain control of the Company
despite maintaining beneficial ownership of less than a majority of the shares
of the Company's Common Stock. An additional 1,000,000 of the authorized
2,000,000 shares of Class A Common Stock is available for issuance. The Class A
Common Stock is non-transferable except to a family member. Furthermore, the
disproportionate vote afforded the Class A Common Stock will prevent or impede
potential acquirers from seeking to acquire control of the Company, which could
have a depressive effect on the price of our Common Stock.
FORWARD-LOOKING STATEMENTS. A number of the matters and subject areas discussed
in the foregoing "Risk Factors" section and elsewhere in this Form 10-KSB Report
that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company has attempted to identify, in context, certain of the factors that
it currently believes may cause actual future experience and results to differ
from the Company's current expectations regarding the relevant matter or subject
area. The operation and results of the Company's real estate development
business also may be subject to the effect of other risks and uncertainties in
addition to the relevant qualifying factors identified elsewhere in the
foregoing "Risk Factors" section, including, but not limited to, general
economic conditions in the geographic areas and occupational market segments
(such as, for example, construction, delivery, and real estate management
services) that the Company is targeting for its apartment units, the
9
<PAGE>
ability to achieve adequate occupancy levels, access to sufficient debt or
equity capital to meet the Company's operating and financing needs, the quality
and price of similar or comparable housing offered or to be offered by the
Company's competitors, future legislative or regulatory actions relating to real
estate activities and real estate financing, other housing trends generally and
other risks and uncertainties described from time to time in the Company's
reports filed with the Commission.
ITEM 2. DESCRIPTION OF PROPERTY
CORPORATE OFFICE:
The Company shares offices with Encore Builders, Inc., a corporation wholly
owned by a Director of the Company. The Company pays no rent for its space.
Encore Builders, Inc. leases approximately 4000 square feet of combination
warehouse and executive office space at 2921 NW 6th Avenue, Miami, Florida
33127. The lease is a month to month lease. All corporate, administrative,
accounting and operational functions are carried out from the corporate
headquarters. The leased facility consists of approximately 4000 square feet of
a combination office and warehouse; approximately six hundred square feet of
office space is utilized by the Company and eight hundred square feet of office
space and twenty six hundred feet of warehouse space is utilized by Encore
Builders, Inc. in its operations. This leased space is 90% utilized for Company
purposes and is adequate for the Company's current needs.
At December 31, 1999, our real estate portfolio consisted of five properties in
various stages of development, all of which were owned by the Company, including
four apartment communities in various stages of construction and one subdivision
development of lots for single family homes. We believe our properties are
adequately covered by liability and casualty insurance, consistent with industry
standards.
The following summarizes certain information about our apartment and single
family home properties:
In 1999, the Company purchased land to build a sixty unit apartment building at
the northern border of Coral Gables, a prestigious area of Miami. This project,
known as Granada Grand, is in the permitting stage, with the construction loan
scheduled to close in January 2001.
Also in 1999, the Company contracted to purchase land to build a sixty unit
apartment building in a quality status neighborhood in Miami, Florida. The
closing for the acquisition of the project as well as the construction loan for
this project, to be known as Conquistador Plaza, is scheduled for January 2001.
In 2000, the Company purchased a site permitted for a sixty unit apartment
building on Bay Harbor Island near Miami Beach, Florida. The Company intends to
construct a sixty unit apartment project on this site. This project, known as
Cosata del Sol, is in the planning and permitting stage.
Also in 2000, the Company purchased a multifamily housing site in Miami upon
which the Company intends to build a seventy two unit apartment project. This
project, called Barcelona Apartments, is in the planning and permitting stage.
In 2000, the Company closed on a twenty acre citrus grove in Vero Beach,
Florida. The Company successfully rezoned the property to a single family
development. It is anticipated that lots will be marketed to home buyers from
northern states seeking to retire in Florida. In this project, known as Eagle
Trace, the Company will either sell bare lots, allowing the buyer to employ his
own architect and contractor, or build the home for the buyer as a total home
package on a lot selected by the buyer.
The Company also has in inventory six single family homes, three of which have
buyers with purchase contracts awaiting buyer qualification and home loan
approval.
ITEM 3. LEGAL PROCEEDINGS
No non-course of business or other material legal proceedings, to which the
Company is a party or to which the property of the Company is subject, is
pending or known by the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 12, 2000 pursuant to a vote of the shareholders at the annual
meeting of shareholders held at the offices of the Company, the shareholders of
the Company voted to amend the Articles of Incorporation of the Company to
change the name of the
10
<PAGE>
Company from National Rehab Properties, Inc. to "National Residential
Properties, Inc." Effective after the September 12, 2000 meeting, the name of
the Company is "National Residential Properties, Inc." The change of name was
made in order to more clearly reflect the business of the company. Additionally,
at the same annual meeting, the following persons, each of whom was an existing
Director, were elected to the board of Directors: Richard Astrom, Christopher
Astrom and Braulio Gutierrez, by a majority of the votes represented at the
meeting.
On October 10, 2000, the Company amended the Articles of Incorporation of the
Company by increasing the authorized shares of the Company's $.001 par value
Common Stock from 40,000,000 to 250,000,000 shares. No proxy statement was
issued and no shareholder proxies were solicited or accepted, such action being
adopted by written consent in lieu of a combined special meeting of Directors
and shareholders.
The results of the special combined Director and shareholder meeting were
previously reported in the Form 8-K filed October 17, 2000. No matters have been
submitted to the shareholders since the September 12, 2000 annual meeting of
shareholders.
PART II
ITEM 5. MARKET FOR COMMON STOCK EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION.
The principal market of the Company's $.001 par value Common Stock, its only
trading class of equity securities, is the NASD Electronic Bulletin Board
over-the-counter market. The Company's Common Stock currently trades under the
symbol "NRPI. The Company has approximately 2,400 shareholders of record. The
Company's transfer agent is High Country Transfer Agency, Inc. 914 W. Cheyenne
Road, P.O. Box 60371, Colorado Springs, Colorado 80906.
The following table indicates the quarterly high and low bid market price ranges
of the Company's Common Stock in the over-the-counter market on the Electronic
Bulletin Board for the fiscal years ended September 30, 1999 and September 30,
2000, as reported by the Nasdaq-Amex Market Group, an NASD company. The
information supplied represents quotations between dealers that does not include
retail markups, markdowns or commissions, actual transactions and any
adjustments for stock dividends. In January 1999, the Company completed a
reverse split of its $.001 par value Common Stock on a 1 for 10 basis. All
references to shares of Common Stock in this report take into account this 1 for
10 reverse split of $.001 par value Common Stock.
BID BID
HIGH ($) LOW($)
-------- ------
FISCAL 1999:
First Quarter: October 1, 1998 through December 31, 1998 $0.53 $0.48
Second Quarter: January 1, 1999 through March 31, 1999 $0.49 $0.42
Third Quarter: April 1, 1999 through June 30, 1999 $0.25 $0.22
Fourth Quarter: July 1, 1999 through September 30, 1999 $0.36 $0.11
FISCAL 2000:
First Quarter: October 1, 1999 through December 31, 1999 $0.36 $0.10
Second Quarter: January 1, 2000 through March 31, 2000 $0.31 $0.13
Third Quarter: April 1, 2000 through June 30, 2000 $0.16 $0.05
Fourth Quarter: July 1, 2000 through September 30, 2000 $0.07 $0.03
(b) HOLDERS:
As of January 4, 2001, the approximate number of holders of record of shares of
the Company's Common Stock, $.001 par value per share, the Company's only class
of trading securities, was believed by management to be as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.001 par 2,400
11
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(c) DIVIDENDS:
The Company has paid no dividends during fiscal years ended September 30, 2000,
September 30, 1999, or to the present date. Other than the requirements of the
Nevada Revised Statutes that dividends be paid out of capital surplus only and
that the declaration and payment of a dividend not render the Company insolvent,
there are no restrictions on the Company's present or future ability to pay
dividends.
The payment by the Company of dividends, if any, in the future rests within the
discretion of its Board of Directors and will depend, among other things, upon
the Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. There is no current plan to pay dividends.
UNREGISTERED SHARES ISSUED
--------------------------
The following shares of the Company's $.001 par value Common Stock were issued
without registration to the named entities during the fiscal year ended
September 30, 2000, which the Company believed to be exempt from registration
requirement as a nonpublic offering.
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES ISSUED TO CONSIDERATION
<S> <C> <C> <C>
10/01/1999 to 5,056,818 Bondholders Debenture Conversions
12/31/2000
10/13/1999 227,272 Consultant Consulting Services
11/30/2000 308,333 Consultant Consulting Services
12/07/1999 250,000 Consultant Consulting Services
02/10/2000 455,000 MRC Legal Services LLC MAS XV Acquisition Agreement*
02/10/2000 140,000 Brian A. Lebrecht MAS XV Acquisition Agreement*
02/10/2000 105,000 Vi Bui MAS XV Acquisition Agreement*
02/10/2000 125,000 MAS Capital, Inc. MAS XV Acquisition Agreement*
02/10/2000 87,500 James Stubler MAS XV Acquisition Agreement*
02/10/2000 87,500 Portfolio Investment Strategies, Inc. MAX XV Acquisition Agreement*
02/10/2000 260,000 M. Richard Cutler Consulting Agreement**
02/10/2000 80,000 Brian Lebrecht Consulting Agreement**
02/10/2000 60,000 Vi Bui Consulting Agreement**
02/10/2000 50,000 James Stubler Consulting Agreement**
02/10/2000 50,000 Samuel Eisenberg Consulting Agreement**
04/01/2000 250,000 Braulio Gutierrez 80% of Equity in Encore Services, Inc.
04/03/2000 6,000,000 Christopher Astrom $6,000,000 Option Price of Shares***
04/12/2000 29,136,510 HLKT Holdings, L.L.C. Assignment of $1,000,000 Debenture****
05/02/2000 250,000 Yeshiva Gedoluh of Midwood Charitable Donation
</TABLE>
----------------------
*Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated as of
February 10, 2000, between MRC Legal Services Corporation, a California
Corporation, which entity is the controlling shareholder of MAS Acquisition XV
Corp. ("MAS XV"), an Indiana corporation, and the Company, in which
approximately 96.8% (8,250,000 shares) of the outstanding shares of common stock
of MAS Acquisition XV Corp. were exchanged with the shareholders of MAS XV for
1,000,000 shares of Common Stock of the Company. in a transaction in which the
Company became the parent corporation of MAS XV.
**On February 10, 2000, the Company entered into a consulting agreement between
the Company and the following individual professional persons who acted as
consultants to the Company: M. Richard Cutler, Brian A. Lebrecht, Vi Bui, James
Stubler and Samuel Eisenberg for services involving consultation, advice and
counsel with respect to the negotiation and completion of the stock exchange
between the Company and MAS XV. In addition to cash compensation, the agreement
called for issuance of a total of 500,000 shares of the Company to be issued to
the consultants together with an obligation for the Company to register such
shares on Form S-8 at the Company's sole expense. This obligation was completed
in February 2000.
***On March 1, 1999, Christopher Astrom was granted options to acquire 6,000,000
shares of Common Stock at a price of $.001 per share. On April 3, 2000, Mr.
Astrom exercised his option and acquired 6,000,000 shares of the Company's $.001
par value Common Stock for payment of $6,000. These options were authorized and
awarded to Mr. Christopher Astrom by a written consent
12
<PAGE>
in lieu of combined special meeting of Directors and Shareholders held on
March 1, 1999. The options were granted to Christopher Astrom in consideration
for waiver of compensation during 1996 and 1997.
**** On April 1, 2000, the Company acquired, in a transaction exempt from
registration, eighty percent of the common stock of Encore Services, Inc., a
Florida Corporation, and, with the assent of HLKT Holdings, L.L.C., Encore
Services, Inc. assigned to the Company and the Company irrevocably and
unconditionally assumed all the rights and obligations of Encore Services, Inc.
under a $1,000,000 Convertible Debenture previously issued by Encore Services,
Inc. to HLKT Holdings, L.L.C., a Colorado Limited Liability Company, on March
15, 2000. Commencing April 12, 2000, and continuing through June 28, 2000, the
total $1,000,000 face amount of the Debenture was presented to the Company's
transfer agent for conversion in accordance with the terms of the Debenture to
unrestricted $.001 par value Common Stock of the Company pursuant to the
assignment and assumption agreement with Encore Services, Inc. A total of
28,856,464 shares of the Company's $.001 par value Common Stock were exchanged
for the $1,000,000 Debenture, and an additional 140,023 shares of the Company's
$.001 par value Common Stock were issued in payment of accrued interest on the
Debenture.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
--------------------------
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created thereby. These forward-looking statements
include the plans and objectives of management for future operations, including
plans and objectives relating to the possible further capitalization and
potential acquisitions of or mergers with operating companies. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-KSB will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the fiscal years ended September 30,
2000, and September 30, 1999, which should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and notes
thereto included elsewhere in this report.
Statements contained herein that are not historical facts are forward-looking
statements as that term is defined by the Private Securities Litigation Reform
Act of 1995. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, the forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
from those projected. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance and that
actual results may differ materially from those in the forward-looking
statements. Such risks and uncertainties include, without limitation,
fluctuations in demand, loss of subscribers, the quality and price of similar or
comparable housing projects, the existence of well-established competitors who
have substantially greater financial resources and longer operating histories,
regulatory delays or denials, ability to complete intended construction,
termination of proposed transactions, access to sources of capital, adverse
results in litigation, consequences of actions by regulatory or housing and
mortgage authorities, general economics and the risks discussed under
"Business--Risk Factors" in this report.
(a) PLAN OF OPERATION:
CURRENT STATUS AND OPERATIONS
-----------------------------
Subsequent to the year ended September 30, 1999, the Company changed its
operational direction from that of building or remodeling relatively low cost
"starter" homes to the business of developing multifamily housing projects. As a
result of this change in operations, although projects are in the development
stage, only limited revenues were generated in the twelve month period ended
September 30, 2000. The Company's financial statements are therefore not
indicative of anticipated revenues which may be attained or expenditures which
may be incurred by the Company in future periods. The Company's ability to
achieve profitable operations is subject to the validity of its assumptions and
risk factors within the industry and pertaining to the Company. The market for
real estate development and housing construction is highly competitive and
subject to economic changes, regulatory
13
<PAGE>
developments and emerging industry standards. We believe that the principal
competitive factors in its markets are conformance to building standards,
reliability, safety, price and quality of its final product. There can be no
assurance that the Company will compete successfully in the future with respect
to these or other factors.
The Company has two phases of business operations. In the first phase which
began in 1993, the Company acquires single unit vacant properties and builds
resale single family homes on individual lots or it buys abandoned homes and
renovates the home for resale. During 1999, while retaining its efforts in the
renovation of urban single family homes as one aspect of its business, the
Company entered a second phase of business, the development, construction and
ownership of multifamily housing projects. Beginning in the fiscal year ended
September 1999, the Company initiated a program of acquisition of properties
suitable for development as multifamily housing or multiple unit single family
development tracts. Since 1999, the Company has purchased four tracts with the
intention of building from 60 to 72 apartment units on each tract as well as a
twenty acre citrus grove which the Company has successfully rezoned for single
family home development. In April 2000, the Company acquired Encore Services,
Inc., a bonded general construction contractor. Encore, an eighty percent owned
subsidiary of the Company, was incorporated under the laws of the State of
Florida. The Company's building and development projects are now conducted
through Encore. Encore is a licensed building contractor and with such status is
able to secure building permits throughout the state of Florida. The Company's
management believes that the acquisition of Encore will enable the Company to be
more successful in the control of building costs, construction schedules and
project costs.
In 1999, the Company purchased land to build a sixty unit apartment building at
the northern border of Coral Gables, a prestigious area of Miami. This project,
known as Granada Grand, is in the permitting stage, with the construction loan
scheduled to close in January 2001.
Also in 1999, the Company contracted to purchase land to build a sixty unit
apartment building in a quality status neighborhood in Miami, Florida. The
closing for the acquisition of the project as well as the construction loan for
this project, to be known as Conquistador Plaza, is scheduled for January 2001.
In 2000, the Company purchased a site permitted for a sixty unit apartment
building on Bay Harbor Island near Miami Beach, Florida. The Company intends to
construct a sixty unit apartment project on this site. This project, known as
Cosata del Sol, is in the planning and permitting stage.
Also in 2000, the Company purchased a multifamily housing site in Miami upon
which the Company intends to build a seventy two unit apartment project. This
project, called Barcelona Apartments, is in the planning and permitting stage.
In 2000, the Company closed on a twenty acre citrus grove in Vero Beach,
Florida. The Company successfully rezoned the property to a single family
development. It is anticipated that lots will be marketed to home buyers from
northern states seeking to retire in Florida. In this project, known as Eagle
Trace, the Company will either sell bare lots, allowing the buyer to employ his
own architect and contractor, or build the home for the buyer as a total home
package on a lot selected by the buyer.
The Company anticipates completing and marketing these projects during the next
two fiscal years. Managements intends to secure additional apartment and single
family housing projects similar to the previously described development in
progress over the next two years in order to bring the Company's total projects
in development to a total of eight projects in various stages of completion at
all times. In the future it is anticipated that one project would be completed
and marketed in each quarter in order to establish consistent cash flow to the
Company.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The Company reported a net loss of $541,757 for the year ended September 30,
2000, and a net loss of $259,509 for the year ended September 30, 1999, and has
reported net losses of approximately $1,000,000 from inception to September 30,
2000. As reported on the consolidated statements of cash flows, the Company
incurred deficient cash flows from operating activities of $759,185 and
$2,113,174 for the years ended September 30, 1999 and 2000, respectively. To
date, these losses and cash flow deficiencies have been financed principally
through the sale of Common Stock and issuance of short and long-term debt which
includes related party debt. Additional capital and/or borrowings will be
necessary in order for the Company to continue in existence until attaining
profitable operations. Although a portion of convertible debt was liquidated
through the issuance of Common Stock, no assurances can be given that the
sources of borrowings would continue. The Company is highly leveraged and a
number of developments over the past year had material adverse effects on the
Company. The Company has a significant investment in real estate in the
development stage, the recoverability of which is dependent upon the success of
future events.
14
<PAGE>
Management is endeavoring to develop a strategic plan to raise private mortgage
financing, develop a management team, maintain reporting compliance and complete
its existing real estate projects. Richard Astrom and Christopher Astrom are
required by lenders to personally guarantee mortgage loans obtained by the
Company in its real estate development projects.
Should the Company be successful in obtaining substantial additional debt
financing, management plans to seek acquisitions of additional real estate for
development projects. Managements intends to secure sufficient apartment and
single family housing projects similar to the previously described development
in progress over the next two years in order to bring the Company's total
projects in development to a total of eight projects in various stages of
completion at all times. There can be no assurances that the Company will be
successful in the implementation of its plan for expansion and its overall
business plan.
From October 1, 2000, to the end of fiscal year ended September 30, 2001, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is $240,000. This amount is composed of $240,000
for working capital assuming that current operations continue in its present
status and mortgage funding now in place for various projects remains viable.
These amounts include offsets for anticipated amounts of cash generated from the
current operations. The monthly costs of our corporate offices are estimated to
be approximately $20,000 per month. The monthly expense of $20,000 includes
payroll, payroll taxes, dues and subscriptions, utilities for the corporate
offices, health insurance for the employees, general liability insurance, office
supplies, postage and freight, professional fees for accounting, legal and other
consultants, corporate office rent, repairs and maintenance primarily for office
equipment, telephone expenses and travel and entertainment. There can be no
assurances that the Company will be able to successfully obtain the additional
financings or will be otherwise able to obtain sufficient financing to
consummate the Company's business plan.
The Company has limited capitalization and is dependent on the proceeds of
private or exempt offerings to continue as a going concern and implementing a
business plan. All during fiscal 2000 and to the date of this filing, the
Company has had and continues to have a substantial need for working capital for
normal operating expenses associated with the Company continuing as a going
concern. This lack of cash has slowed its ability to acquire and construct
properties or other productive assets and initiate revenue producing operations.
Any activity in the real estate development industry requires adequate financing
and on-going funding sources. The Company has entered this industry with limited
financing and funding sources. The Company is currently in discussions with one
or more entities for private mortgage funding financing package(s).
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Prior to inception as a publicly owned company, the Company relied primarily
upon loans originated by the Company's President, Richard Astrom. These loans
helped to finance working capital needs when operations did not provide enough
cash flow. Additionally, the Company has relied upon bank financing to acquire
properties and pay operational costs. The bank financing has required the
personal guarantees of Richard Astrom and Christopher Astrom. In the future, the
Company will need to acquire additional financing for the Company with the
proceeds of mortgage funding or public or private offerings of stock or debt
instruments. Future funding needs will arise from business expansion and/or
improvements to our financial lending structure. The Company does not have a
schedule of future funds to be acquired and quantified because it is difficult
to estimate when, or if, business expansion will occur , or when, or if,
financial lucrative opportunities present themselves. If funds are required in
the future, they may be generated from stock sales, debt issuance or from the
mortgaging of real estate. There can be no assurance that any such funds will be
available on favorable terms and conditions when the capital is required.
From January through August, 1999, the Company raised $557,500 from the sale
and/or conversion into Common Stock of senior subordinated debentures. In
addition, the Company raised $211,500 from the sale of its restricted stock
during the 1999 fiscal year.
On April 1, 2000, the Company acquired, in a transaction exempt from
registration, eighty percent of the common stock of Encore Services, Inc., a
Florida Corporation, in exchange for (a) 250,000 shares of the Company's $.001
par value Common Stock issued to Braulio Gutierrez, and (b) an assignment and
assumption agreement with Encore Services, Inc. whereby, with the assent of HLKT
Holdings, L.L.C., Encore Services, Inc. assigned to the Company and the Company
irrevocably and unconditionally assumed all the rights and obligations of Encore
Services, Inc. under a $1,000,000 Convertible Debenture previously issued by
Encore Services, Inc. to HLKT Holdings, L.L.C., a Colorado Limited Liability
Company, on March 15, 2000. Commencing April 12, 2000 and continuing through
June 28, 2000, the total $1,000,000 face amount of the Debenture was presented
to the Company's transfer agent for conversion in accordance with the terms of
the Debenture to unrestricted $.001 par value Common Stock of the Company
pursuant to the assignment and assumption agreement with Encore Services, Inc. A
total of 28,856,464 shares of the Company's $.001 par value Common Stock were
exchanged for the $1,000,000 Debenture, and an additional 140,023 shares of the
Company's $.001 par value Common Stock were issued in payment of accrued
interest on the Debenture.
15
<PAGE>
On September 25, 2000, the Company's wholly owned subsidiary, 2217 Acquisition
Inc. ("2217 Acquisition"), entered into an arm's-length contract (the "Real
Estate Contract") with an unaffiliated entity to purchase a parcel of real
estate (the "Real Estate") located at 2270 Southwest 32nd Avenue, Miami,
Florida. To fund the acquisition of the Real Estate, on October 10, 2000, 2217
Acquisition issued its 8% Series A $1,000,000 Senior Subordinated Convertible
Redeemable Debenture due October 10, 2002 (the "2217 Acquisition Debenture"),
together with underlying shares of 2217 Acquisition's common stock, par value
$0.001, into which the 2217 Acquisition Debenture is convertible from time to
time. After deducting the expenses of the investment, including projected
interest payments, the net proceeds to be received by 2217 Acquisition
aggregated approximately $795,000. The first installment of proceeds were
received on October 27, 2000; the second have yet to be received. From these net
proceeds, $300,000 was used to make the down payment on the Real Estate, with
the balance of the purchase price to be funded by a purchase money first
mortgage on the Real Estate given to the Seller and a new mortgage from a Miami,
Florida, lending institution, the terms of which have yet to be decided upon.
The balance of the net proceeds were allocated to, and will be used as, working
capital.
ENVIRONMENTAL MATTERS
---------------------
Under federal, state, and local environmental laws, ordinances, and regulations,
the Company may be liable for removal or remediation costs, as well as other
costs (such as fines or injuries to persons and property) where Company
employees may have arranged for removal, disposal, or treatment of hazardous or
toxic substances. In addition, environmental laws impose liability for release
of asbestos-containing materials into the air, and third parties can seek
recovery from the Company for personal injury associated with those materials.
The Company is not aware of any liability relating to these matters that would
have a material adverse effect on our business, financial position, or results
of operations.
INCOME TAXES
------------
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The Company has net operating losses (NOL) of approximately $1,000,000.
Deferred tax benefit (34% statutory rate) $340,000
Valuation Allowance $340,000
--------
Net Benefit $ - 0 -
========
Due to the uncertainty of utilizing the NOL and recognizing the deferred tax
benefit, an offsetting valuation allowance has been provided.
(e) RESULTS OF OPERATIONS:
Fiscal Year Ended September 30, 2000
Subsequent to the year ended September 30, 2000, the Company changed its
operational direction from that of building or remodeling relatively low cost
"starter" homes to the business of developing multifamily housing projects. As a
result of this change in operations, although projects are in the development
stage, only limited revenues were generated in the twelve month period ended
September 30, 2000. The Company's financial statements are therefore not
indicative of anticipated revenues which may be attained or expenditures which
may be incurred by the Company in future periods. For the year ended September
30, 2000, the Company recorded a net loss before other income and expense of
$588,712 and a net loss of $541,757 with a net loss per common share of $0.02.
For the year ended September 30, 1999, the Company recorded a net loss before
other income and expense of $253,873 and a net loss of $259,509 with a net loss
per common share of $0.08. As of September 30, 2000, the Company incurred direct
operating expenses of $591,066 associated with the administration and limited
operations of the Company compared to $509,543 reported in the year ended
September 30, 1999, an increase of $81,523 from similar expenses incurred during
the year ended September 30, 1999. The major reasons for the increase in expense
were due to increased size of real estate development operations, legal and
consulting fees related to subsidiary acquisitions, fees related to capital
acquired through debenture conversion transactions and compensation to officers.
The Company had net other income of $17,950 after interest expense from interest
earned and other miscellaneous sources.
Fiscal Year Ended September 30, 1999
During the year ended September 30, 1999, the Company changed its operational
direction from that of building or remodeling relatively low cost "starter"
homes to the business of developing multifamily housing projects. As a result of
this change in
16
<PAGE>
operations, although projects were in the development stage, only limited
revenues were generated in the twelve month period ended September 30, 1999. For
the year ended September 30, 1999, the Company recorded a net loss before other
income and expense of $253,873 and a net loss of $259,509 with a net loss per
common share of $0.08. For the year ended September 30, 1998, the Company
recorded a net loss before other income and expense of $347,396 and a net loss
of $344,064 with a net loss per common share of $0.35. As of September 30, 1999
the Company incurred direct operating expenses of $509,543 associated with the
administration and limited operations of the Company compared to $118,459
reported in the year ended September 30, 1998. The major reasons for the
increase in expense were due to increased size of real estate development
operations, legal and consulting fees related to subsidiary acquisitions, fees
related to capital acquired through debenture conversion transactions and
increases in compensation to officers. The Company had net other expense of
$5,636 after interest income from interest expense.
Impact of Recently Issued Accounting Standards
The Company has adopted the Statement of Financial Accounting Standards Board
(SFAS) No. 130, "Reporting Comprehensive Income," issued in June 1997.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments and unrealized gains and losses on certain investments
in debt and equity securities. The Company also adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for reporting information about operating
segments in annual financial statements, and requires that an enterprise report
selected information about operating segments in interim reports issued to
shareholders. The Company does not expect the adoption of these statements to
have a material impact on its financial condition or results of operations.
The Company adopted SFAS No. 128, "Earnings Per Share," which specifies the
method of computation, presentation and disclosure for Earnings Per Share. SFAS
No. 128 requires the presentation of two EPS amounts, basic and diluted. Basic
EPS is calculated by dividing net income (loss) by the weighted average number
of common shares outstanding for the period. Diluted EPS includes the dilution
that would occur if outstanding stock options and other dilutive securities were
exercised and is comparable to the EPS the Company has historically reported.
The diluted EPS calculation excludes the effect of stock options when their
exercise prices exceed the average market price over the period. There is no
change in loss per share because diluted EPS is anti-dilutive.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires derivatives be carried at fair value, and provides for
hedge accounting when certain conditions are met. This statement was effective
beginning in the year 2000. The adoption of this statement did not have an
impact on the Company's its consolidated financial statements.
In April 1998, the AICPA finalized SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that costs incurred for start-up activities, be
expensed as incurred. This SOP, which was effective in the first quarter of
1999, is not expected to have a material impact on the consolidated financial
statements.
ITEM 6A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of the date hereof, all the Company's long term debt bears fixed interest
rates; however, the fair market value of this debt is sensitive to changes in
prevailing rates. The Company runs the risk that market rates will decline and
the required payments will exceed those based on the current market rate. The
Company does not use interest rate derivative instruments to manage its exposure
to interest rate changes.
ITEM 7. FINANCIAL STATEMENTS
Financial statements meeting the requirements of Item 310 of Regulation S-B, for
the years ending September 30, 1999 and September 30, 2000, which have been
audited and reported upon by Baum & Company, Certified Public Accountants, are
annexed as a separate section to this Report, designated pages F-1 through F-12.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
17
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth: (1) names and ages of all persons who presently
are Directors of the Company; (2) all positions and offices with the Company
held by each such person; (3) the term or office of each person named as a
Director; and (4) any period during which he or she has served as such:
NAME AGE POSITIONS WITH THE COMPANY
Richard Astrom 53 Director, CEO and President
Since 1994
Christopher Astrom 28 Director, VP, Secretary, Treasurer
Since 1994
Braulio Gutierrez 47 Director
Since April 2000
There is no understanding or arrangement between any Directors or any person or
persons pursuant to which such individual was or is to be selected as a Director
or nominee of the Company.
Each Director is serving a term of office, which shall continue until the next
annual meeting of Shareholders and until his successor has been duly elected and
qualified. Officers of the Company serve at the pleasure of the Board of
Directors.
(b) BUSINESS EXPERIENCE:
The following is a brief account of the experience, during the past five years,
of each Director and executive officer of the Company:
Richard Astrom - Qualifications
Richard Astrom currently serves as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company. He has extensive experience
in the first-time home buyer's market. Throughout his career in real estate, he
has devoted himself to the needs of people seeking to own a piece of the
American dream. Mr. Astrom is a graduate of the University of Miami with a
Bachelor's degree in Business Administration and a major in Finance. As a
certified real estate broker, he has been active as a salesperson, developer,
and real estate investor since 1969. For more than 25 years, he has specialized
in rehabilitating the existing housing stock of Miami, one of America's largest
and fastest growing cities. He gained invaluable experience outside of the Miami
area in the roll of vice president and sales manager of a 200 home retirement
community in Ocala, Florida, selling land and home packages. He was the primary
developer of the land, recreation facilities, and housing stock. He also sold
commercial properties and land in the same area, including 40 to 100 acres
parcels for horse farms. He has directed the Company through a December 1994
merger with a publicly owned and traded company. Richard Astrom has been
President of the Company since 1993.
Christopher Astrom - Qualifications
Christopher Astrom currently serves as Vice President, Secretary, Treasurer and
Director of the Company. Christopher manages all corporate acquisitions. He has
experience in the analysis of market areas and their resale ability. In
addition, he has developed management systems to control costs of acquisition
and rehab thereby helping to ensure our profitability. He received his Bachelor
of Arts in Business Administration from the School of Business at the University
of Florida. Christopher Astrom has been employed by the Company since 1995.
Braulio Gutierrez - Qualifications
Braulio Gutierrez currently serves as a Director of the Company and President of
Encore Services, Inc., a subsidiary of the Company. Mr. Braulio has twenty two
years of supervisory and construction management experience in the Miami,
Florida area and has been a
18
<PAGE>
Florida Certified Construction Contractor since 1980. Mr. Braulio has been the
qualifying agent and President of Encore Services, Inc., a custom home and
residential apartment builder since 1988. Encore Services, Inc. was acquired as
an eighty percent owned subsidiary of the Company on April 1, 2000. Mr.
Gutierrez was appointed as a Director of the Company on April 1, 2000.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES AND CONSULTANTS:
None
(d) FAMILY RELATIONSHIPS:
Richard Astrom and Christopher Astrom, both of whom are officers and Directors,
are father and son.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
No event listed in Subparagraphs (1) through (4) of Subparagraph (d) of Item 401
of Regulation S-B, has occurred with respect to any present executive officer or
Director of the Company during the past five years which is material to an
evaluation of the ability or integrity of such Director or officer.
(f) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
To the date of this filing and to the best of knowledge of the Company, Form 3
has been filed by its current officers and Directors, Form 4 filings have not
been required, and no supplemental Form 5 had been filed with the Securities
Exchange Commission (SEC) by any of its current officers or Directors at
September 30, 2000. As of the date of this report, the SEC has not taken any
additional action with regard to any failure to file reports
ITEM 10. EXECUTIVE COMPENSATION.
(a) GENERAL:
(1) through (7) All Compensation Covered. During the fiscal year ended September
30, 2000, the Company employed the following senior management personnel who
served pursuant to employment agreements further described in Section (g) below.
(b) SUMMARY COMPENSATION TABLE:
No employee of the Company other than Richard Astrom, its CEO, earned in excess
of $100,000 during the fiscal years ended September 30, 1999 and September 30,
2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ----------------------
Name and Position Year Salary Bonus Other SAR Options LTIP Other
----------------- ---- ------ ----- ----- --- ------- ---- -----
Richard Astrom, 2000 $50,000 None None None None None None
CEO and President 1999 $60,000 None None None None None None
(c ) OPTION/SAR GRANT TABLE:
During the fiscal years ended September 30, 1999 and 2000, no effective grants
of stock options or freestanding SAR's were made by the Company.
(d) AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE:
No stock options or freestanding SAR's are issued or outstanding. Accordingly,
and during the fiscal year ended September 30, 2000, no stock options or
freestanding SAR's were exercised.
19
<PAGE>
(f) COMPENSATION OF DIRECTORS:
(1) and (2). During the fiscal year ended September 30, 2000, no Director of the
Company received any compensation in his capacity as Director.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE-IN CONTROL
ARRANGEMENTS:
Report on Repricing of Options/SAR's.
No stock options or freestanding SAR's were issued or outstanding. Accordingly,
during the fiscal year ended September 30, 2000, no stock options or
freestanding SAR's were repriced.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
The information is furnished as of January 4, 2001, as to the number of shares
of the Company's Common Stock, $.001 par value per share owned beneficially, or
is known by the Company to be owned beneficially, by persons owning more than 5%
of any class of such security who is not also an Officer or Director of the
Company:
The Company is currently authorized to issue 250,000,000 common shares, $0.001
par value, 76,974,119 of which are outstanding at the date of this report, and
the Company is also authorized to issue 2,000,000 shares of $.001 par value
Class A common "super voting shares", with voting right equivalent to 20 common
shares for each Class A share, 1,000,000 of which are outstanding at the date of
this report.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner (1) Beneficial Ownership Percent of Class
-------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Common Stock Richard and Pamela Astrom 254,350 0.3%
11415 NW 123 Lane
Class A Common Stock Reddick, FL 32686 0 0.0%
Common Stock Christopher Astrom 6,010,000(1) 7.8%
11415 NW 123 Lane
Class A Common Stock Reddick, FL 32686 1,000,000(2) 100.0%
Common Stock Braulio Gutierrez 250,000 0.3%
2921 N.W. 6th Avenue
Class A Common Stock Miami, FL 33127 0 0.0%
Common Stock All Officers and Directors 6,514,350 8.5%
As a Group (3 persons)
Class A Common Stock 1,000,000 100.0%
--------------------
<FN>
(1) Includes Common Stock obtained by the exercise of options to acquire
6,000,000 shares of Common Stock at a price of $.001 per share on April 3,
2000. The options recently exercised by Mr. Christopher Astrom were
authorized and awarded to him on March 1, 1999 in consideration for waiver
of compensation during 1996 and 1997.
</FN>
<FN>
(2) Each share of Class A Common Stock entitles Mr. Christopher Astrom to the
equivalent of 20 common share votes in any matter to be voted on by the
shareholders of the Company. The Class A Common Stock was authorized on
June 17, 1999, and 1,000,000 shares issued to Mr. Christopher Astrom on
June 17, 1999. The Class A Common Stock may not be transferred to anyone
other than a family member.
</FN>
</TABLE>
20
<PAGE>
(b) SECURITY OWNERSHIP OF MANAGEMENT:
The information is furnished as of January 4, 2001, as to the number of shares
of the Company's Common Stock, $.001 par value per share as well as shares of
the $.001 par value Class A common "super voting shares", with voting right
equivalent to 20 common shares for each Class A share, owned by each executive
officer and Director of the Company and by all executive officers and Directors
as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner (1) Beneficial Ownership Percent of Class
-------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Common Stock Richard and Pamela Astrom 254,350 0.3%
11415 NW 123 Lane
Class A Common Stock Reddick, FL 32686 0 0.0%
Common Stock Christopher Astrom 6,010,000(1) 7.8%
11415 NW 123 Lane
Class A Common Stock Reddick, FL 32686 1,000,000(2) 100.0%
Common Stock Braulio Gutierrez 250,000 0.3%
2921 N.W. 6th Avenue
Class A Common Stock Miami, FL 33127 0 0.0%
Common Stock All Officers and Directors 6,514,350 8.5%
As a Group (3 persons)
Class A Common Stock 1,000,000 100.0%
--------------------
<FN>
(1) Includes Common Stock obtained by the exercise of options to acquire
6,000,000 shares of Common Stock at a price of $.001 per share on April 3,
2000. The options recently exercised by Mr. Christopher Astrom were
authorized and awarded to him on March 1, 1999 in consideration for waiver
of compensation during 1996 and 1997.
</FN>
<FN>
(2) Each share of Class A Common Stock entitles Mr. Christopher Astrom to the
equivalent of 20 common share votes in any matter to be voted on by the
shareholders of the Company. The Class A Common Stock was authorized on
June 17, 1999, and 1,000,000 shares issued to Mr. Christopher Astrom on
June 17, 1999. The Class A Common Stock may not be transferred to anyone
other than a family member.
</FN>
</TABLE>
(c) CHANGES IN CONTROL:
As of the date of this Report, the Company has not entered into any agreements,
the operation of which may at a subsequent date result in a change of control of
the Company.
The Company knows of no arrangement, including the pledge by any person of
securities of the Company, which may at a subsequent date result in a change of
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
--------------------
Richard Astrom, President, CEO and Director, is the father of Christopher
Astrom, Vice President, Secretary, Treasurer and Director, of the Company.
Richard Astrom and Christopher Astrom make up the majority of the Board of
Directors of the Company and control the activities and actions of the Company.
Richard Astrom and Christopher Astrom are required by lenders to personally
guarantee mortgage loans obtained by the Company in its real estate development
projects.
On March 1, 1999, Christopher Astrom was granted options to acquire 6,000,000
shares of Common Stock at a price of $.001 per share. On April 3, 2000, Mr.
Astrom exercised his option and acquired 6,000,000 shares of the Company's $.001
par value Common Stock for payment of $6,000. These options were authorized and
awarded to Mr. Christopher Astrom by a written consent
21
<PAGE>
in lieu of combined special meeting of Directors and Shareholders held on March
1, 1999. The options were granted to Christopher Astrom in consideration for
waiver of compensation during 1996 and 1997.
In April 1999, the Company sold and issued senior subordinated debentures
convertible into shares of Common Stock. As of July 31, 1999, restricted Common
Stock totaling approximately $211,500 was issued and paid for. An additional
amount of approximately $257,500 worth of Common Stock was issued upon
conversion of the April 1999 debentures, and in August 1999, an additional
amount of approximately $300,000 was received from the debenture conversion. As
of the date of this report, 6,000,000 shares of our Common Stock have been
issued as a result of conversion of previously issued senior subordinated
convertible debentures.
On June 17, 1999, by a written consent in lieu of combined special meeting of
Directors and Shareholders, a new class of Common Stock, "Class A Common Stock"
was authorized on June 17, 1999. On that same date, 1,000,000 shares were issued
to Mr. Christopher Astrom. Each share of Class A Common Stock entitles Mr.
Astrom to the equivalent of 20 common share votes in any matter to be voted on
by the shareholders of the Company. The present principal shareholders will
maintain voting control of the Company based on the issuance of 1,000,000 Class
A common shares on June 17, 1999, which entitle the holder thereof (Christopher
Astrom) to 20 votes for every Class A share held. The purpose of issuing these
shares is to ensure that current management will maintain control of the Company
despite maintaining beneficial ownership of less than a majority of the shares
of the Company's Common Stock. An additional 1,000,000 of the authorized
2,000,000 shares of Class A Common Stock is available for issuance. The Class A
Common Stock is non-transferable except to a family member.
On February 10, 2000, the Company entered into a consulting agreement between
the Company and the following individual professional persons who acted as
consultants to the Company: M. Richard Cutler, Brian A. Lebrecht, Vi Bui, James
Stubler, and Samuel Eisenberg for services involving consultation, advice and
counsel with respect to the negotiation and completion of the stock exchange
between the Company and MAS XV. In addition to cash compensation, the agreement
called for issuance of a total of 500,000 shares of the Company to be issued to
the consultants together with an obligation for the Company to register such
shares on Form S-8 at the Company's sole expense. This obligation was completed
in February 2000.
As was reported on Form 8-K dated February 14, 2000, pursuant to a Stock
Exchange Agreement (the "Exchange Agreement") dated as of February 10, 2000,
between MRC Legal Services Corporation, a California Corporation, which entity
is the controlling shareholder of MAS Acquisition XV Corp. ("MAS XV"), an
Indiana corporation, and National Rehab Properties, Inc., a Nevada corporation,
approximately 96.8% (8,250,000 shares) of the outstanding shares of common stock
of MAS Acquisition XV Corp. were exchanged for 1,000,000 shares of Common Stock
of National Rehab Properties, Inc. in a transaction in which the Company became
the parent corporation of MAS XV. The additional shares representing 3.2% of MAS
XV were subsequently acquired by the Company, making MAS XV a wholly owned
subsidiary of the Company.
On April 1, 2000, the Company acquired, in a transaction exempt from
registration, eighty percent of the common stock of Encore Services, Inc., a
Florida Corporation, in exchange for (a) 250,000 shares of the Company's $.001
par value Common Stock issued to Braulio Gutierrez, and (b) an assignment and
assumption agreement with Encore Services, Inc. whereby, with the assent of HLKT
Holdings, L.L.C., Encore Services, Inc. assigned to the Company and the Company
irrevocably and unconditionally assumed all the rights and obligations of Encore
Services, Inc. under a $1,000,000 Convertible Debenture previously issued by
Encore Services, Inc. to HLKT Holdings, L.L.C., a Colorado Limited Liability
Company, on March 15, 2000. On April 1, 2000, Mr. Gutierrez was appointed as a
Director of the Company. Commencing April 12, 2000, and continuing through June
28, 2000, the total $1,000,000 face amount of the Debenture was presented to the
Company's transfer agent for conversion in accordance with the terms of the
Debenture to unrestricted $.001 par value Common Stock of the Company pursuant
to the assignment and assumption agreement with Encore Services, Inc. A total of
28,856,464 shares of the Company's $.001 par value Common Stock were exchanged
for the $1,000,000 Debenture, and an additional 140,023 shares of the Company's
$.001 par value Common Stock were issued in payment of accrued interest on the
Debenture.
The President of the Company, Richard Astrom owed the Company $302,000 pursuant
to a note which matured September 20, 2000. Pursuant to an agreement dated
September 29, 2000, entitled "Prepaid Management Agreement," the previous
$302,000 note was cancelled and a new arrangement for the repayment of the
$302,000 note was created. The Company and Richard Astrom agreed that the
$302,000 debt by Richard Astrom to the Company will be repaid under the
following terms: Beginning January 1, 2001, for the next five years, the first
$60,400 (plus an additional amount equal to the accrued interest on the unearned
portion of the contract balance, calculated at the rate of 8% per annum) of his
annual compensation from the Company will be withheld by the Company and be
applied against the $302,000 item each year. This agreement is made a part of
any existing agreements, whether oral or written, for compensation between the
Company and Richard Astrom as well as any future compensation agreements between
the Company and Richard Astrom.
22
<PAGE>
On September 22, 2000, the Company formed a wholly owned subsidiary, 2217
Acquisition Inc., a Florida Corporation. As was reported on Form 8-K dated
November 14, 2000, on September 25, 2000, the Company's subsidiary, 2217
Acquisition Inc. ("2217 Acquisition"), entered into an arm's-length contract
(the "Real Estate Contract") with an unaffiliated entity to purchase a parcel of
real estate (the "Real Estate") located at 2270 Southwest 32nd Avenue, Miami,
Florida. To fund the acquisition of the Real Estate, on October 10, 2000, 2217
Acquisition issued its 8% Series A $1,000,000 Senior Subordinated Convertible
Redeemable Debenture due October 10, 2002 (the "2217 Acquisition Debenture"),
together with underlying shares of 2217 Acquisition's common stock, par value
$0.001, into which the 2217 Acquisition Debenture is convertible from time to
time. After deducting the expenses of the investment, including projected
interest payments, the net proceeds to be received by 2217 Acquisition
aggregated approximately $795,000. The first installment of proceeds were
received on October 27, 2000; the second have yet to be received. From these net
proceeds, $300,000 was used to make the down payment on the Real Estate, with
the balance of the purchase price to be funded by a purchase money first
mortgage on the Real Estate given to the Seller and a new mortgage from a Miami,
Florida, lending institution, the terms of which have yet to be decided upon.
Following the acquisition of the Real Estate by 2217 Acquisition, on October 31,
2000, 2217 Acquisition was merged into the Company. By operation of law and
pursuant to the Plan of Merger, the rights and obligations of 2217 Acquisition
with respect to the Real Estate Contract and the 2217 Acquisition Debenture will
inure to the benefit of and be binding upon the Company. In that connection, the
2217 Acquisition Debenture, together with the underlying shares of 2217
Acquisition's Common Stock, par value $0.001 per share, into which the 2217
Acquisition Debenture is convertible from time to time, shall be converted into
an identical debenture (the "New Debenture"), together with shares of underlying
Common Stock, par value $0.001 per share, of the Company into which the New
Debenture may be converted.
The Company has entered into construction contracts totaling $10,934,000 with
Encore Builders, Inc., a corporation wholly owned by Braulio Gutierrez, a
Director of the Company. Mr. Gutierrez is also a minority shareholder of Encore
Services, Inc. Encore Services, Inc. is a subsidiary of the Company, in which
the Company owns 80% equity and Mr. Gutierrez owns 20% equity.
The Company shares offices with Encore Builders, Inc., a corporation wholly
owned by, Braulio Gutierrez, a Director of the Company. The Company pays no rent
for its space. Encore Builders, Inc. leases approximately 4000 square feet of
combination warehouse and executive office space at 2921 NW 6th Avenue, Miami,
Florida 33127. Approximately six hundred square feet of office space is utilized
by the Company.
Except for the foregoing and during the fiscal year ended September 30, 2000, no
officer, Director or relative or spouse of the foregoing persons or any relative
of such person who has the same home as such person, or is a Director or other
officer of any parent or subsidiary of the Company, or any shareholder known by
the Company to own of record or beneficially more than five (5%) percent of the
Company's Common Stock, had a direct or indirect material interest in any
transaction or presently proposed transaction to which the Company or any of its
parents or subsidiaries was or is a party.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed herewith or incorporated herein
by reference as Exhibits:
2.0 Acquisition of Encore Services, Inc. dated April 1, 2000.
2.1 Merger Agreement between 2217 Acquisition, Inc. and National Rehab
Properties, Inc. dated October 11, 2000. Incorporated by reference to Form 8-K
filed November 17, 2000.
3.1 Articles of Incorporation. (1)
3.2 Articles of Amendment to Articles of Incorporation.
3.3 Certificate of Change in Number of Authorized Shares.
3.4 By-laws. (1)
10.01 Consulting Agreement dated February 10, 2000. (1)
10.02 Written Consent in Lieu of Combined Special Meeting of Directors and
Shareholders dated June 17, 1999. (1)
10.03 Written Consent in Lieu of Combined Special Meeting of Directors and
Shareholders dated March 1, 1999. (1)
23
<PAGE>
10.04 Prepaid Management Agreement dated September 29, 2000.
16.1 Consent of Baum & Company, P.A., Certified Public Accountants.
21 Subsidiaries of the registrant.
21.1 Mas Acquisition XV Corp., an Indiana Corporation.
21.2 Encore Services, Inc., a Florida Corporation.
21.3 Granada Grand, Inc., a Florida Corporation.
21.4 Conquistador Maza, Inc., a Florida Corporation.
27 Financial Data Schedule.
--------------------
(1) Incorporated by reference to exhibits filed with the Company's Form 8-K
filed February 14, 2000.
(b) The Company filed one report on Form 8-K during the quarter ended September
30, 2000, and two reports on Form 8-K from September 30, 2000 to the date of
this report.
SIGNATURES
Pursuant to the requirements of the Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report signed on its
behalf by the Undersigned, thereunto duly authorized.
NATIONAL RESIDENTIAL PROPERTIES, INC.
Date: 01/11/01 By s/s Richard Astrom
Chief Executive Officer, ___________________________________
Richard Astrom, President and CEO
By: s/s Christopher Astrom
Chief Financial Officer, ___________________________________
Christopher Astrom, Secretary
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by each Director.
Date: 01/11/01
By s/s Richard Astrom
-----------------------------------
Richard Astrom, Director
By: s/s Christopher Astrom
-----------------------------------
Christopher Astrom, Director
By: s/s Braulio Gutierrez
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Braulio Gutierrez, Director
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Exhibit 2.0
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT dated as of April 1, 2000 (Agreement), among National
Rehab Properties, Inc., a Nevada corporation (NRPI), Encore Services, Inc. (the
Company), a Florida corporation, and Braulio Gutierrez, the sole shareholder of
the Company (Shareholder).
BACKGROUND
The respective Boards of Directors of NRPI and the Company have each approved,
upon the terms and subject to the conditions set forth in this Agreement, the
share exchange between NRPI and the Company whereby eighty (80%) percent of the
issued and outstanding shares of stock of the Company will be exchanged for
shares of Common Stock, as defined below, to be issued by NRPI as set forth in
Article 11 and by which the Company shall become a subsidiary of NRPI.
In consideration of the respective representations, warranties, covenants and
agreements contained in this Agreement, NRPI, the Company, and the Shareholder
hereby agree as follows:
ARTICLE I
THE SHARE EXCHANGE
1.01 The Share Exchange. Upon the terms and subject to the conditions hereof,
the Company shall become a subsidiary of NRPI upon closing of this
Agreement subject to the conditions set forth in Article VI.
1.02 Effective Time. This Agreement shall become effective at such time
(Effective Time) as the conditions set forth in Article VI are satisfied or
waived, if permissible.
1.03 Shares. At or prior to the Effective Time, by virtue of this Agreement, the
following events shall occur.
a) Eighty (80%) percent of the issued and outstanding shares of common
stock of the Company shall be assigned, transferred and conveyed to
NRPI.
b) In exchange thereof:
(1) NRPl shall issue from its treasury 250,000 shares of its common
stock (Common Stock). The Common Stock shall be restricted stock
as that term is defined in Rule 144 of the Securities and
Exchange Commission (SEC) and shall be issued to the Shareholder;
and
(2) NRPI shall deposit in the Company's brokerage account to be
designated shares of stock in a publicly traded company or
companies to be selected by NRPI having a market value of
$300,000, which shares shall be held therein and used as security
for performance bonds which the Company is required to obtain in
connection with construction projects to be undertaken by the
Company (Security Shares). NRPI shall maintain the value of the
Security Shares at $300,000 based upon the closing price of the
Security Shares on the last Friday of each month.
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1.04 Private Placement.
(a) The Common Stock issued to the Shareholder has not been and will not
be registered with the Securities and Exchange Commission (SEC) or the
securities commission of any states, including but not limited to
Florida and Nevada, pursuant to an exemption from registration by
virtue of NRPI's intended compliance with the provisions Sections 4(2)
and 4(6) of the Securities Act of 1933, as amended (Securities Act).
ARTICLE II
EXCHANGE OF SHARES
2.01 Issuance of Certificates. Promptly after the Effective Time, NRPI shall
issue to each person set forth on Exhibit 1.03(b) a certificate
representing the Common Stock to be issued to each Shareholder and
simultaneously the Company shall exchange and surrender certificates
representing eighty (80%) of the issued and outstanding shares in Encore.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
NRPI
NRPI represents and warrants to the Company as of the date of this Agreement and
as of the Effective Time as follows:
3.01 Existence: Good Standing. NRPI is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.
3.02 Capitalization. The authorized capital stock of NRPI consists of (i)
40,000,000 shares of Common Stock, par value $ 0.001, of which 14,000,000
shares are issued and outstanding (Shares) and (ii) 2,000,000 shares of
Class A Stock, par value $ 0.001, of which 1,000,000 are issued and
outstanding. All issued and outstanding shares of Common Stock and Class A
Voting Stock are duly authorized, validly issued, free of preemptive
rights, non-assessable and free of preemptive rights. Except as set forth
in this section 3.02, (i) NRPI is not a party to or bound by any written or
oral contract or agreement which grants to any person an option, warrant or
right of first refusal or other right of any character to acquire at any
time, or upon the happening of any stated events, any shares of or interest
in NRPI, whether or not presently authorized, issued or outstanding, and
(ii) there are outstanding (a) no shares of capital stock or other voting
securities of NRPI, (b) no securities of NRPI or any of its subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of NRPI, (c) no options or other rights to acquire from NRPI or
any of its subsidiaries, and no obligations of NRPI or any of its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
NRPI, and (d) no equity equivalents, interests in the ownership or earnings
of NRPI or any of its subsidiaries or other similar rights. Upon issuance
of the Common Stock to the Shareholder, such shares of Common Stock shall
be duly authorized, validly issued, fully paid, nonassessable, and free of
preemptive rights.
3.03 Authorization: Validity and Effect of Agreements. NRPI has the requisite
corporate power and authority to execute and deliver this Agreement. The
consummation by NRPI of the transactions contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement
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constitutes the valid and legally binding obligation of NRPI, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
3.04 No Violation. To the best of NRPI's knowledge neither the execution and
delivery by NRPI of this Agreement, nor the consummation by NRPI of the
transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of the Articles
of Incorporation or Bylaws of NRPI (ii) violate, or conflict with, or
result in a breach of any provision of, or constitute a default (or an
event which with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination
or cancellation of, or accelerate the performance required by, or result in
the triggering of any payment of compensation under, or result in the
creation of any lien, security interest, charge or encumbrance (Lien) upon
any of the material properties of NRPI or its subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise permit, lease, contract,
agreement or other instrument, commitment or obligation to which NRPI or
any of NRPI's subsidiaries is a party, or by which NRPI or any of NRPI's
subsidiaries or any of their respective properties is bound or affected,
except for any of the foregoing matters which would not have a material
adverse effect on the business, results of operations, financial condition
or prospects of NRPI and its subsidiaries taken as a whole (NRPI Material
Adverse Effect); or (iii) other than the filings required under the
Securities Exchange Act of 1934, (Exchange Act), the Securities Act or
applicable state securities and "Blue Sky" laws or filings in connection
with the maintenance of its qualification to do business in other
jurisdictions, and the filings contemplated by Section 5.02 of this
Agreement (collectively Regulatory Filings), require any material consent,
approval or authorization of or declaration, filings or registration with,
any domestic governmental or regulatory authority, the failure to obtain or
make which would have a NRPI Material Adverse Effect.
3.05 Documents. NRPI has delivered to the Company an audited financial statement
for the year ended December 31, 1999. NRPI represents that the financial
statement was prepared in accordance with generally accepted accounting
principles, present fairly in all material respects the financial condition
of NR.PI as of the dates of such financial statements and the results of
operations of NRPI for such periods. None of the Financial Statements
contain any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
3.06 No Governmental Action Required. The execution and delivery by NRPI of this
Agreement does not and will not, and the consummation of the transactions
contemplated hereby will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official,
including but not limited to the SEC or the National Association of
Securities Dealers (NASD), except such actions or filings that have been
undertaken or made prior to the date hereof and that will be in full force
and effect (or as to which all applicable waiting periods have expired) on
and as of the date hereof or which are not required to be filed on or prior
to the Effective Date.
3.07 Compliance with Applicable Laws. The execution and delivery by NR.PI of
this Agreement did not and will not, and the exchange NRPI's shares will
not, contravene or constitute a default under or violation of any provision
of applicable law or regulation, or (ii) any agreement, judgment,
injunction, order, decree or other instrument binding upon NRPI, or its
assets, or result in the creation or imposition of any lien on any asset of
NRPI. NRPI is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any
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domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties. Shareholders, or any the Company's assets, or result in the
creation or imposition of any lien on any asset of the Company. The Company
is in compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal requirements
of any domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties.
4.08 Taxes. All United States federal, state, county, municipality local or
foreign income tax returns and all other material tax returns (including
foreign tax returns) which are required to be filed by or on behalf of the
Company have been filed (or will be filed prior to the Closing) and all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Company have been paid, except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company in respect of taxes or
other governmental charges have been established in accordance with GAAP.
4.09 Assets and Liabilities. There are no liabilities of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise. and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a
liability, other than as set forth on Exhibit 4.09(a). The assets owned by
the Company, as set forth in Exhibit 4.09(b) annexed hereto, at Closing,
shall be free and clear of any and all liens, claims or other encumbrances.
4.10 No Litigation. Neither the Company nor the Shareholder is (and have not
been) a party to any suit, action, arbitration, or legal, administrative,
or other proceeding, or pending governmental investigation. To the best
knowledge of the Company, there is no basis for any such action or
proceeding and no such action or proceeding is threatened against the
Company and the Company is not subject to or in default with respect to any
order, writ, injunction, or decree of any federal, state, local, or foreign
court, department, agency, or instrumentality
4.11 Survival of Representations. The representations and warranties herein by
the Company will be true and correct in all material respects on and as of
the Effective Time with the same force and effect as though said
representations and warranties had been made on and as of the Effective
Time and will, except, as otherwise provided herein, survive the Effective
Time.
4.12 Directors and Officers' Compensation; Bank Accounts; Powers of Attorney.
Exhibit 4.12 contains (i) the names, addresses, and titles of all
Directors, officers, and employees of the Company and sets forth the
monthly compensation paid to each of them; (ii) the name and address of
each bank with which the Company has an account or safety deposit box, the
identification number thereof, and the names of all persons who are
authorized to draw thereon or have access thereto; and (iii) the names of
persons who have a power of attorney from the Company and a summary of the
terms thereof. The resignations of Elmo Zimbelmann as President of the
Company and of G. Schweitzer as Secretary/Treasurer, annexed as part of
Exhibit 4.12, are fully effective, true and correct and have not since been
amended, modified or rescinded. The sole Director of the Company is
Shareholder and his status as such is fully in accordance with the by-laws
of the Company and the law of the State of the Company's incorporation.
4.13 Intellectual Property. Exhibit 4.13 lists all Intellectual Properties used
or owned by the Company. Except as set forth on Exhibit 4.13, the Company
is the sole and exclusive owner of all rights to the Intellectual
Properties used by it in connection with its business and operations, the
same are fully
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assignable and the Company has the right to use the same without the
payment of any license fee, royalty or similar charge, (ii) there are no
other patents, copyrights, trademarks, service marks (whether registered or
unregistered), trade names, brand names, know-how, trade secrets or other
intellectual properties of a similar nature, or any applications for any of
the foregoing, that are owned or used by the Company in connection with the
Business, (iii) there is no written claim of any other person, firm or
corporation or any proceeding pending against the Company or, to the best
knowledge of the Company, threatened that relates to any of the
Intellectual Properties set forth on such Exhibit and the Company knows of
no basis for any such claim or proceeding, (iv) none of such Intellectual
Properties is subject to any outstanding order, ruling, decree, judgment or
stipulation naming the Company by or with any court, arbitrator or legal
authority, and (v) to the knowledge of the Company, (x) no other person is
using any of the Intellectual Properties and (y) the Company's continued
use of the Intellectual Properties in substantially the same manner the
Company currently uses such Intellectual Properties will not infringe or
violate the proprietary rights of any third party. "Intellectual
Properties" means statutory and common law rights to and in all trademarks,
service marks, trademark registrations, service mark registrations, trade
names, brand names and applications for registration of trademarks and
service marks, all copyrights, copyright registrations and applications for
copyrights, all letters patents, design patents and utility patents, all
applications for grant of any such patents, and all reissues, divisions,
continuations in-part and extensions thereof, all technology, processes,
ideas, concepts, invention disclosures, know-how, trade secrets,
improvements, design information, drawings, patterns, blueprints, plans,
formulations, software, technical data and engineering documentation,
engineering notebooks, and other engineering information, designer lists,
vendor lists, customer lists, trade lists, sales force and distribution
networks and other marketing service information, all licenses granted to
the Company of rights in or to any Intellectual Property, and, all rights
and incidents of interest of the Company, in and to all non-competition or
confidentiality agreements in effect as of the Effective Time that were
entered into or made in connection with the Company's business
has no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Permit. All such
Permits are annexed hereto as Exhibit 4.20.
ARTICLE IV-A
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
4A.l Authorization, Validity and Effect of Agreements. Shareholder represents
that he is the sole shareholder of the Company and that he has the right,
power and authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of such Shareholder, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of
equity.
4A.2 No Violation. Neither the execution and delivery by such Shareholder of
this Agreement nor the consummation by such Shareholder of the transactions
contemplated hereby in accordance with the terms hereof will (i) violate,
or conflict with, or result of in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in
a right of termination or cancellation of, or accelerate the performance
required by, or result in the triggering of any payment or compensation
under, or result in the creation of any Lien upon any of the properties of
the Company or its subsidiaries under, or result in being declared void,
voidable, or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
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material license, franchise, permit, lease, contract, agreement or other
Instrument, commitment or obligation to which the Company or its
subsidiaries is a party, or by which the Company or its subsidiaries or any
of their respective properties or assets is bound or affected, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its subsidiaries, or such Shareholder,
or any of their assets.
4A.3 Title. The shares of the Company that such Shareholder will deliver at
Closing (Shareholder Shares) are owned by such Shareholder free and clear
of any liens or encumbrances. All of the Shareholder Shares are duly
authorized, validly issued, fully paid and non-assessable. The Shareholder
Shares are not subject to preemptive rights or similar rights of the
stockholders of the Company or any other person or any liens or
encumbrances imposed through the actions or failure to action of the
Company or the Shareholder. The Shareholder has not transferred encumbered,
or granted any liens against the Shareholder Shares, or agreed to transfer
encumber or grant a lien against the Shareholder Shares. As of the date
hereof and at Closing, there are and will be no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements understandings, claims, or other commitments or rights
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for the Shareholder Shares.
ARTICLE V
COVENANTS
5.01 Conduct of Business. From and after the date of this Agreement until
Closing or this Agreement is terminated, unless NRPI has consented in
writing thereto, the Company, and, with respect to (e) and (f) below, NRPI:
a) Shall, and shall cause its subsidiaries to, conduct its operations
according to its usual, regular and ordinary course in substantially
the same manner as heretofore conducted;
b) Shall use reasonable efforts, and shall cause its subsidiaries to use
reasonable efforts, to preserve intact its business organization and
goodwill, keep available the services of its officers and employees
and maintain satisfactory relationships with those persons having
business relationships with it;
c) Shall confer on a regular basis with one or more representatives of
NRPI to report operational matters of materiality and any proposals to
engage in material transactions;
d) Shall not amend its Articles of Incorporation or By-laws;
e) Shall promptly notify the other parties hereto of any material
emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects or
the normal course of its businesses or in the operation of its
properties, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the breach in any material
respect of any representation or warranty contained herein;
f) Shall promptly deliver to the other parties hereto true and correct
copies of any report, statement or schedule filed with or delivered to
the SEC, any other Governmental entity (other than routine corporate
tax and other filings in the ordinary course of business) or any
shareholder of the
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Company or NRPI, as the case may be, subsequent to the date of this
Agreement;
g) Shall not (i) issue, sell or pledge, or agree to issue, sell or
pledge, any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof,
(ii) grant, confer or award any option, warrant, conversion right or
other right to acquire any shares of its capital stock or grant any
right to convert or exchange any securities of The Company for Common
Stock, (iii) increase any compensation or enter into or amend any
employment agreement with any of its present or future officers or
Directors, other than in the ordinary course of Encore's business,
(iv) adopt any new employee benefit plan, other than in the ordinary
course of Encore's business (including any stock option, stock benefit
or stock purchase plan) or amend any existing employee benefit plan in
any material respect, other than in the ordinary course of business,
except, in each case, for changes which are less favorable to
participants in such plans or as may be required by applicable law, or
(v) amend any Officer Employment Agreement or increase any
compensation payable pursuant to such Officer Employment Agreements;
h) Shall not (i) except in the normal course of business as consistent
with prior practice, declare, set aside or pay any dividend (whether
in cash, stock or property) or make any other distribution or payment
with respect to any shares of its capital stock or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or make any commitment for any such action;
i) Shall not, and shall not permit its subsidiaries to (i) sell, lease or
otherwise dispose of any assets of the Company or its subsidiaries
(including capital stock) which are of a material amount, individually
or in the aggregate, or (ii) make any acquisition, by means of merger
or otherwise, of any assets or securities which are of a material
amount, individually or in the aggregate; and
.j) Shall not, and shall not permit its subsidiaries to, agree in writing
to take or otherwise take (i) any of the foregoing actions or (ii) any
action which would make any representation or warranty of the Company
herein untrue or incorrect.
5.02 Filings; Other Action. Subject to the terms and conditions herein provided,
the Company and NRPI shall: (i) use all reasonable efforts to cooperate
with one another in (a) determining which filings are required to be made
prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time
from, governmental or regulatory authorities of the United States and the
several states, and other jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (b) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; and (ii)
use best efforts to take, or cause to be taken, all other action arid do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the
proper officers and Directors of NRPI and the Company shall use best
efforts to take all such necessary action.
5.03 Inspection of Records From the date hereof to the Effective Time, each of
NRPI and the Company shall allow all designated officers, attorneys,
accountants and other representatives of NRPI and the Company, as the case
may be, access at all reasonable times to the records and files,
correspondence audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs of NRPI,
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the Company, and their subsidiaries.
5.04 Indemnification
(a) After the Effective time, the Shareholder and the Company shall, to
the fullest extent permitted, indemnify, defend and hold harmless
NRPI, and its present and former Directors and officers (other than
Braulio Gutierrez) and their respective heirs, executors,
administrators and legal representatives (individually, an
"Indemnified Party" and, collectively, the "Indemnified Parties"
against all losses, expenses, claims, damages or liabilities arising
out of actions or Omissions occurring prior to the Effective Time in
connection with the operation of the business of the Company
(collectively "Losses"). In connection with the foregoing obligations
from and after the Effective Time, Shareholder shall bear the cost of
expenses incurred in defending against any claim, action, suit,
proceeding or investigation relating to same.
b) The rights of each Indemnified Party hereunder shall be in addition
to any other rights such Indemnified Party may have under the Articles
of Incorporation or by-laws of NRPI, under any statute or common law,
or otherwise. The provisions of this Section shall survive the
consummation of the Effective Time and expressly are intended to
benefit each of the Indemnified Parties and will be binding on all
successors and assigns of the Company and the Shareholder.
5.05 Further Action. Each party hereto shall, subject to the fulfillment at or
before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute
such documents as may be reasonably required to effect the Closing.
5.06 Expenses. Whether or not the Closing is consummated, except as provided in
Section 7.02 hereof or as provided otherwise herein, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
5.07 Consent of the Company's Shareholders. The Company has obtained the consent
of Shareholder to the transactions contemplated hereunder.
5.08 Publicity. The initial press release relating to this Agreement shall be a
joint press release and thereafter the Company and NRPI shall, subject to
their respective legal obligations (including requirements of the Nasdaq
National Market, stock exchanges and other similar regulatory bodies),
consult with each other, and use reasonable efforts to agree upon the text
of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency or with Nasdaq National Market, or any national
securities exchange with respect thereto.
5.09 Best Efforts to Close. The parties hereto agree to use their best efforts
to close the transactions contemplated hereby by April 1, 2000.
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF THE SHARE EXCHANGE
6.01 Conditions to Each Party's Obligation to Effect the Share Exchange. The
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respective obligations of each party to effect the Share Exchange are
subject to the satisfaction or waiver, where permissible, prior to the
Effective Time, of the following conditions:
a) If required, this Agreement shall have been approved by the
affirmative vote of the shareholders of the Company by the requisite
vote in accordance with applicable law, if required, and by the Board
of Directors of NRPI by resolution in accordance with applicable law.
b) No statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent), shall have
been enacted, entered, promulgated or enforced by any court or
governmental authority which is in effect and has the effect of
prohibiting the consummation of the Closing; provided, however, that
each of the parties shall have used its best efforts to prevent the
entry of any injunction or other order and to appeal as promptly as
possible any injunction or other order that may be entered;
c) Each of the consent and resolution set forth on Exhibit 6.0 1(c) and
6.0 1(c) (1) hereto shall have been obtained.
d) The Company has, or on or before the Effective Time of this Agreement
shall have completed the issuance of the Company's Series A Senior
Subordinated Redeemable Convertible Debentures (the "Debentures") in
the face amount of $1,000,000 to HLKT Holdings LLC, a Colorado limited
liability company, upon the terms and conditions set forth in the
Subscription Agreement and other documentation relating to the
issuance of the Debentures. Subject to and upon the Closing of this
Agreement, NRPI agrees to assume the liabilities and obligations of
the Company under the Debentures as further set forth in this
Agreement. On or prior to the Effective Time, the Company shall
secure, in writing, from all of the holders of the Debentures, their
consent to NRPI's assumption of Company's liability and obligations to
perform under the terms and conditions of the Debenture Agreement.
e) An employment and covenant not to compete agreement (Employment
Agreement) between the Company and Shareholder shall have been
executed, a copy of which is annexed to this Agreement as Exhibit 6.0
(f). The Employment Agreement shall become an obligation of the
Company following the Closing of this Agreement. The employment
agreement shall provide, inter alia the following:
i) The term shall be one year.
ii) Shareholder's compensation (Shareholder's Compensation) shall be as
follows:
(A) (1) the first $150,000 of the Company's gross revenue (First Gross
Revenue), less operating expenses and costs of administration
(Operating Expenses);
(2) $100,000 of the next $200,000 of the Company's revenues
(Second Gross - Revenue); and
(3) The first $50,000 of the Company's revenue above First Gross
Revenue and Second Gross Revenue.
(B) All revenue of the Company not distributed as Shareholder
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Compensation or used for Operating Expenses shall be distributed to
NRPI and Shareholder in accordance with their interests in the Company
(NRPI - 80%; Shareholder -20%).
(C) Shareholder shall receive as additional compensation an option to
purchase one (1) share of NRPI's Common Stock for each $2.00
distributed to NRPI pursuant to section 7(h)(ii)(4) above. The option
shall be exercisable in lots of 100 shares at the Common Stock's
lowest closing price during the 24 months preceding the exercise of
the option.
f) NRPI shall take the corporate action necessary to have Shareholder
appointed to the Board of Directors of NRPI effective at the Effective
Time.
g) The Company shall deliver the Shareholder Statements.
h) The Company shall have caused each person who is a Director or
officer of the Company, as set forth in Schedule 4. 13, to submit his or
her written resignation as Director or officer of the Company which will be
effective upon the Closing.
i) Each of the parties to this Agreement shall have performed,
satisfied, and complied with all covenants, agreements, and conditions
required by this Agreement to be performed by them and all representations
and warranties made by each of them pursuant to this Agreement shall be
true on and as of the Closing as if made at that time.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
7.01 Closing and Termination. Except as otherwise set forth in this Section
7.01, this Agreement shall close by no later than 11:59 p.m. New York Time,
May 1, 2000, (Closing ) provided that either party may extend this
Agreement for an additional seven (7) day period by written notice to the
other party prior to the Closing. Notwithstanding the foregoing and/or the
approval of this Agreement by the shareholders of NRPI, this Agreement may
be terminated and the Closing contemplated hereby may be abandoned at any
time prior to the Effective Time:
a) By mutual written consent, duly authorized by their respective Boards
of Directors, by NRPI and the Company;
.b) By either NRPI or Encore
(i) if any court of competent jurisdiction or any other governmental
body shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
permanently prohibiting the Closing and such order, decree,
ruling or other action shall have become final and
non-appealable;
(ii) if, upon a vote at a duly held meeting or upon any adjournment
thereof the shareholders of NRPI and the Board of Directors of
NRPI shall have failed to give any required approvals; or
c) By NRPI if the Company shall have breached any of its representations
and warranties or covenants contained herein and if such breach or
breaches, either individually or in the aggregate,
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will have, or are reasonably likely to have, a material adverse effect
on the business, results of operations, financial condition or
prospects of the Company (a "Company Material Adverse Effect"),
unless, in the case of a breach of covenant, such failure to perform
has been caused by a breach of this Agreement by NRPI.
ARTICLE VIII
CLOSING
8.01 Closing. At the Closing, the following documents, in form reasonably
acceptable to counsel to the parties or as set forth herein, shall be
delivered:
(a) By the Company:
1. Certificates representing eighty (80%) percent of all issued and
outstanding shares of the Company.
2. Resolutions by the Company's Board of Directors and sole
shareholder affirming the transactions contemplated by this
Agreement.
(b) By NRPI:
1. Certificates for the Common Stock as set forth in Article 1..
2. The Employment Agreement.
3. A resolution by the NRPI's Board of Directors affirming the
transactions contemplated by this Agreement.
8.02 Exchange. At Closing, the shares of common stock of the Company delivered
pursuant to this Agreement will be exchanged for fully paid and
nonassessable shares of the Common Stock in accordance with this Agreement.
8.04 Appointment of Directors. At Closing, NRPI will cause Shareholder to be
appointed as a member of NRPI's Board of Directors.
ARTICLE IX
MISCELLANEOUS
9.01 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this agreement or in any
instrument delivered pursuant to this Agreement, including but not limited
to representations made in Article III and IV, the Shareholder Statements,
and in this Article IX, shall not survive the Closing unless otherwise
explicitly stated.
9.02 Assignment, Binding Effect; Benefit; Entire Agreement. Neither this
agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject
to the preceding sentence, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this
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Agreement to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assign any
rights, remedies, obligations or liabilities under or by reason of this
Agreement. This Agreement arid any documents delivered by the parties in
connection herewith Constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto.
No addition to or modification of any provision of this Agreement shall be
binding upon any party hereto unless made in writing and signed by all
parties hereto.
9.03 Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or otherwise affecting the validity or enforceability of any
of the terms or provisions of this Agreement in any other jurisdiction. If
any provision, clause, section or part of this Agreement is so broad as to
be unenforceable, the provision, clause, section or part shall be
interpreted to be only so broad as is enforceable, and all other
provisions, clauses, sections or parts of this Agreement which can be
effective without such unenforceable provision, clause, section or part
shall, nevertheless, remain in full force and effect.
9.04.Notices. Any notice required to be given hereunder shall be sufficient if
in writing, and sent by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return
receipt requested and first-class postage prepaid), addressed as follows:
If to NRPI, to:
National Rehab Properties, Inc.
2921 N.W. 6th Avenue
Miami, FL 33127
Attn: Mr. Richard Astrom, President
Fax: 305-571-8357
With a copy to:
John Belash, Esq.
110 Wall Street
New York, New York 10005
Fax: 212-344-4487
If to the Company, to
Encore Services, Inc.
2921 6th Avenue
Miami, FL 33127
Attn: Mr. Braulio Gutierrez
Fax: 305-571-8357
With a copy to:
Patricia Gutierrez
11,100 N.W. 62nd Street
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Hialeah, FL 33012
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the
date it is telecommunicated, personally delivered or mailed.
9.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its
rules of conflict of laws.
9.06 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
9.07 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies of
this Agreement, each of which may be signed by less than all of the parties
hereto, but together all such copies shall constitute one and the same
instrument.
9.08 Certain Definitions. For purposes of this Agreement, the following terms
shall have the meanings ascribed to them below:
(a) "Affiliate" of a person means a person that directly or indirectly,
through. one or more intermediaries, controls, is controlled by, or is
under----------
executed on its behalf, all as of the day and year first above written.
NATIONAL REHAB PROPERTIES INC.
s/s Richard Astrom, President
ENCORE SERVICES, INC.
s/s Braulio Gutierrez, President
SOLE SHAREHOLDER:
s/s Braulio Gutierrez
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SECURITIES SUBSCRIPTION AGREEMENT
---------------------------------
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of March 15, 2000
(Agreement D), is executed in reliance upon the exemption from registration
afforded by Rule 504 promulgated under Regulation D by the Securities and
Exchange Commission (SEC), under the Securities Act of 1933, as amended.
Capitalized terms used herein and not defined shall have the meanings given to
them in Rule 504 and Regulation D.
This Agreement has been executed by the undersigned buyers (Buyer), to
purchase the amounts set forth on Schedule A hereto, in connection with the
private placement of 9% Series A Senior Subordinated Convertible Debentures of
8% Series A Senior Subordinated Convertible Debentures of Encore Services, Inc.,
a corporation organized under the laws of Florida, with executive offices
located at 2921 NW 6th Avenue, Miami, Florida 33127 (Seller). Buyer hereby
represents and warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT
TO AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(b) OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE 1933 ACT), AND RULE
504 OF REGULATION D PROMULGATED THEREUNDER.
1. Agreement to Subscribe; Purchase Price
(a) Subscription. The undersigned Buyer hereby subscribes for and agrees to
purchase the Seller's 8% Series A Senior Subordinated Convertible Redeemable
Debenture substantially in the form of the Debenture attached as Exhibit A
hereto and having an aggregate original principal face amount of One Million
United States dollars $1,000,000 (singly, a "Debenture," and collectively, the
"Debentures"), at an aggregate purchase price of 90% of the face amount of such
Debentures as set forth in subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture shall be One Million
United States Dollars ($1,000,000) (Purchase Price), which shall be payable at
closing, pursuant to paragraph c herein, in accordance with the terms and
conditions of an Escrow Agreement which shall be executed simultaneously with
this Agreement (Escrow Agreement).
(c) Closing. Subject to the satisfaction of the conditions set forth in
Sections 7 and 8 hereof, the Closing of the transactions contemplated by this
Agreement shall take place when (i) Seller delivers the Debentures to the Escrow
Agent, as defined in an Escrow Agreement among Buyer, Seller and the Escrow
Agent of even date, (ii) Seller delivers the signed Escrow Agreement and
accompanying documents, and (iii) Buyer pays $400,000 towards the Purchase Price
for the Debentures (Closing Date).
2. Buyer Representations and Covenants; Access to Information
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In connection with the purchase and sale of the Debenture, Buyer represents
and warrants to, and covenants and agrees with Seller as follows:
(a) Buyer is not, and on the closing date will not be, an affiliate of
Seller;
(b) Buyer is an "accredited investor" as defined in Rule 501 of Regulation
D promulgated under the 1933 Act, and is purchasing the Shares for its own
account and Buyer is qualified to purchase the Shares under the laws of the
State of Washington;
(c) All offers and sales of any of the Debentures by Buyer shall be made in
compliance with any applicable securities laws of any applicable jurisdiction
and in accordance with Rule 504, as applicable, of Regulation D or pursuant to
registration of securities under the 1933 Act or pursuant to an exemption from
registration;
(d) Buyer understands that the Debentures are not registered under the 1933
Act and are being offered and sold to it in reliance on specific exemptions from
the registration requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Buyer set forth
herein in order to determine the applicability of such exemptions and the
suitability of Buyer and any purchaser from Buyer to acquire the Debentures;
(e) Buyer shall comply with Rule 504 promulgated under Regulation D;
(f) Buyer has the full right, power and authority to enter into this
Agreement and to consummate the transaction contemplated herein. This Agreement
has been duly authorized, validly executed and delivered on behalf of Buyer and
is a valid and binding agreement in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
(g) The execution and delivery of this Agreement and the consummation of
the purchase of the Debentures and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Buyer of
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws (or similar constitutive documents) of Buyer or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Buyer is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court. Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over buyer or any of its
properties or assets;
(h) All invitations, offers and sales of or in respect of, any of the
Debentures, by Buyer and any distribution by Buyer of any documents relating to
any invitation, offer or sale by it of any of the Debentures will be in
compliance with applicable laws and regulations, will be made in such a manner
that no prospectus need be filed and no other filing need be made by Seller with
any regulatory authority or stock exchange in any country or any political
sub-division of any country, and Buyer will make no misrepresentations nor
omissions of material fact in the invitation, offer or resale of the Debentures;
(i) The Buyer (or others for whom it is contracting hereunder) has been
advised to consult its own legal and tax advisors with respect to applicable
resale restrictions and applicable tax
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<PAGE>
considerations and it (or others for whom it is contracting hereunder) is solely
responsible (and the Seller is not in any way responsible) for compliance with
applicable resale restrictions and applicable tax legislation;
j) Buyer understands that no Federal or State or foreign government agency
has passed on or made any recommendation or endorsement of the Debentures;
(k) Buyer has had an opportunity to receive and review all material
information and financial data and to discuss with the officers of Seller, all
matters relating to the securities, financial condition, operations and
prospects of Seller and any questions raised by Buyer have been answered to
Buyer's satisfaction.
(l) Buyer acknowledges that the purchase of the Debentures involve a high
degree of risk. Buyer has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
purchasing the Debentures. Buyer understands that the Debentures are not being
registered under the 1933 Act, or under any state securities laws, and
therefore, Buyer must bear the economic risk of this investment for an
indefinite period of time;
(m) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller; and
(n) Buyer acknowledges and agrees that the transactions contemplated by
this Agreement have taken place solely and exclusively within the State of
Colorado.
3. Seller Representations and Covenants
(a) Seller is a corporation duly organized and validly existing under the
laws of the State of Florida and is in good standing under such laws with its
principal executive office located in the State of Florida. The Seller has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Seller is
qualified to do business as a foreign corporation in each jurisdiction in which
the ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Seller.
(b) There are 600,000 shares of Seller's common stock, $0.001 par value per
share (Common Stock), authorized and 200,0000 outstanding as of March 14, 2000.
All issued and outstanding shares of Common Stock have been authorized and
validly issued and are fully paid and non-assessable.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to a loss of a material benefit, under, any provision of
the Articles of Incorporation, and any amendments thereto, By-Laws, Stockholders
Agreements and any amendments thereto of the Seller or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law ordinance, rule or
regulation applicable to the Seller, its properties or assets. There is no
action, suit or proceeding pending, or to the knowledge of the Seller,
threatened against the Seller, before any court or arbitrator or any government
body, agency or official, which would have a material adverse affect on Seller's
operations or financial condition.
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(d) The Seller is not subject to the reporting requirements of Sections 13
or 15(d) of the Securities and Exchange Act, is not an investment company or a
developmental stage company that either has no specific business plan or no
purpose. The Debentures and common stock issued upon conversion (Shares) when
issued, will be issued in compliance with all applicable U.S. federal and state
securities laws. The Seller understands and acknowledges that, in certain,
circumstances, the issuance of the Shares could dilute the ownership interests
of other stockholders of the Seller. The execution and delivery by the Seller of
this Agreement and the issuance of the Shares will not contravene or constitute
a default under any provision of applicable law or regulation. The Seller is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations. orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties
(e) There is no fact known to the Seller that has not been publicly
disclosed by the Seller or disclosed in writing to the Buyer which could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or in the earnings, business affairs, properties or
assets of the Seller, or could reasonably be expected to materially and
adversely affect the ability of the Seller to perform its obligations pursuant
to this Agreement. The information furnished by the Seller to Buyer for purposes
of or in connection with this Agreement or any transaction contemplated hereby
does not contain any untrue statement of material fact or omit to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
(f) No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Seller is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Debentures or Common Stock, or the consummation
of any other transaction contemplated hereby, except the filing with the SEC of
Form D.
(g) There is no action, proceeding or investigation pending, or to the
Seller's knowledge, threatened, against the Seller which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Seller. The Seller
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit proceeding or investigation by the Seller currently pending
or which the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock and the Seller is not under
investigation by the SEC or the National Association of Securities Dealers, and
there are no proceedings pending or threatened before either regulatory body.
(h) There are no other material outstanding debt or equity securities
presently convertible into Common Stock.
(i) The Seller has not sold any securities within the 12 month period prior
to the date the Common Stock was first offered in reliance on any exemption
under Section 3(b) of the 1933 Act, Regulation D or its rules or in violation of
Section 5(a) of the 1933 Act.
(j) The issuance, sale and delivery of the Debentures have been duly
authorized by all required corporate action on the part of the Seller, and when
issued, sold and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and validly issued,
fully paid and non-assessable. The Common Stock issuable upon conversion of the
Debenture has been duly and validly reserved for issuance and upon issuance in
accordance with the terms of the
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Debentures, shall be duly and validly issued, fully paid, and non-assessable
There are no pre-emptive rights of any shareholder of Seller.
(k) This Agreement has been duly authorized, validly executed and delivered
on behalf of Seller and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Seller, its Directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Debentures has been taken. Upon their issuance to the Buyer and delivery to the
Escrow Agent, as defined in and pursuant to the Escrow Agreement, the Debentures
will be validly issued and nonassessable, and will be free of any liens or
encumbrances.
(1) Seller acknowledges and agrees that the transactions contemplated by
this the Agreement have taken place solely and exclusively within the State of
Colorado.
4. Exemption Reliance on Representations
Buyer understands that the offer and sale of the Securities are not being
registered under the 1933 Act. Seller and Buyer are relying on the rules
governing offers and sales made pursuant to Rule 504 promulgated under
Regulation D. The offer and sale of the Shares are made solely within the State
and jurisdiction of Colorado.
5. Transfer Agent Instructions
(a) Debentures. Upon the conversion of the Debentures, the Buyer or holder
shall give a notice of conversion to the Seller and the Seller shall instruct
its transfer agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Debenture or Debentures are convertible in
accordance with the provisions regarding conversion set forth in Exhibit A. The
Seller shall act as Debenture Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend. Upon the
conversion of any Debenture, Seller shall instruct Seller's transfer agent to
issue Stock Certificates up to the total of the "Conversion Amount" (as defined
in the Debenture) and any "Interest Shares" (as defined in the Debenture)
without restrictive legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. The Common Stock
shall be immediately freely transferable on the books and records of Seller.
Seller shall also instruct its attorney to issue and render any legal Opinion
which is required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a restrictive
legend as required by this Agreement.
6. Registration If upon conversion of the Debentures effected by the Buyer
pursuant to the terms of this Agreement or payment of interest pursuant to the
Debenture the Seller fails to issue certificates for shares of Common Stock
issuable upon such conversion (Underlying Shares) or the Interest Shares, as
defined in Section 4(b) of the Debenture, to the Buyer bearing no restrictive
legend for any reason, then the Seller shall be required, at the request of the
Buyer and at the Seller's expense. to effect the registration of the Underlying
Shares and/or Interest Shares issuable upon
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conversion of the Debentures and payment of interest under the Act and relevant
Blue Sky laws as promptly as is practicable. The Seller and the Buyer shall
cooperate in good faith in connection with the furnishings of information
required for such registration and the taking of such other actions as may be
legally or commercially necessary in order to effect such registration. The
Seller shall file such a registration statement within 30 days of Buyer's demand
and shall use its good faith diligent efforts to cause such registration
statement to become effective as soon as practicable thereafter. Such good faith
diligent efforts shall include, but not be limited to, promptly responding to
all comments received from the staff of the SEC, providing Buyer's counsel with
a contemporaneous copy of all written communications from and to the staff of
the SEC with respect to such registration statement and promptly preparing and
filing amendments to such registration statement which are responsive to the
comments received from the staff of the SEC. Once declared effective by the SEC,
the Seller shall cause such registration statement to remain effective until the
earlier of (i) the sale by the Buyer of all Underlying Shares registered or (ii)
120 days after the effective date of such registration statement. In the event
the Seller undertakes to file a Registration Statement on in connection with the
Common Stock. upon the effectiveness of such Registration, Buyer shall have the
option to sell the Common Stock pursuant thereto.
7. Delivery Instructions. The Debentures being purchased hereunder, and the
Purchase Price, shall be delivered to the Escrow Agent pursuant to the Escrow
Agreement.
8. Conditions To Seller's Obligation To Sell. Seller's obligation to sell
the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as executed by
Buyer.
(b) All of the representations and warranties of the Buyer contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date. The Buyer shall have
performed or complied with all agreements and satisfied all conditions on its
part to be performed, complied with or satisfied at or prior to the Closing
Date.
(c) No order asserting that the transactions contemplated by this Agreement
are subject to the registration requirements of the Act shall have been issued,
and no proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated. No stop order
suspending the sale of the Debentures or Common Stock shall have been issued,
and no proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to
purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of this Agreement
as evidenced by execution of this Agreement of the duly authorized officer of
Seller.
(b) Delivery of the Debentures and the Escrow Agreement to the Escrow
Agent.
10. No Shareholder Approval and No Dilution
(a) Seller hereby agrees that from the Closing Date until the issuance of
Common Stock upon the conversion of the Debentures, Seller will not take any
action which would require Seller to seek
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shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Debentures or Common
Stock hereunder.
(b) Provided the Debentures, or any Seller Debentures from a series which
predate the Debentures remain outstanding and unpaid, or if there is any portion
of any such Debentures which have not been converted into the Seller's Common
Stock, then the Seller shall not split nor reverse split the Common Stock, nor
consolidate the outstanding number of shares of Common Stock into a small number
of shares, nor otherwise take any action, directly or indirectly, which would
have a material adverse effect on the value of the Debentures or the trading
price of the Common Stock.
(c) Upon (i) a transfer of all or substantially all of the assets of the
Seller to any person in a single transaction or series of related transactions,
or (ii) a consolidation, merger or amalgamation of the Seller with or into
another person or entity in which the Seller is not the surviving entity (other
than a merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i) and (ii) being referred to as a "Sale Event"), then,
in each case, the Seller shall, upon request of any Holder, redeem the
Debentures registered in the name of such Holder in cash for 130% of the
principal amount, plus accrued but unpaid interest through the date of
redemption, or at the election of the Holder, such Holder may convert the unpaid
principal amount of such Convertible Notes (together with the amount of accrued
but unpaid interest) into shares of Common Stock of the surviving entity at the
Conversion Price as set forth in the Debenture
In case of any reclassification, capital reorganization or other change or
exchange of outstanding shares of the Common Stock, or in case of any
consolidation or merger of the Seller with or into another corporation (other
than a consolidation or merger in which the Seller is the continuing corporation
and which does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock), the Seller shall cause
effective provision to be made so that the Purchaser or Holder of the Debenture,
as the case may be, shall have the right thereafter, by exercising the
Debenture, to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
capital reorganization or other change, consolidation or merger by a holder of
the number of shares of Common Stock that could have been purchased upon
exercise of the Debentures and at the same Conversion Price, as defined in the
Debenture, immediately prior to such reclassification, capital reorganization or
other change, consolidation or merger. The foregoing provisions shall similarly
apply to successive reclassifications, capital reorganizations and other changes
of outstanding shares of Common Stock and to successive consolidations or
mergers. If the consideration received by the holders of Common Stock is other
than cash, the value shall be as determined by the Board of Directors of the
Seller or successor person or entity acting in good faith.
11. Miscellaneous
(a) This Agreement together with the Debentures and Escrow Agreement,
constitutes the entire agreement between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and
shall be binding upon the restrictive successors and assigns of the parties
hereto. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the agent of Seller.
Buyer is not authorized to bind Seller or to make any representation or
warranties on behalf of Seller.
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(c) All representations and warranties contained in this Agreement by
Seller and Buyer shall survive the closing of the transactions contemplated by
this Agreement.
(d) This Agreement shall be construed in accordance with the laws of
Colorado applicable to contracts made and wholly to be performed within the
State of Washington and shall be binding upon the successors and assigns of each
party hereto. Buyer and Seller hereby mutually waive trial by jury and consent
to exclusive jurisdiction and venue in the courts of the State of Colorado. At
Buyer's election, any dispute between the parties may be arbitrated rather than
litigated in the courts before the arbitration board of the American Arbitration
Association in Denver and pursuant to its rules. Upon demand made by the Buyer
to the Seller, Seller agrees to submit to and participate in such arbitration.
This Agreement may be executed in counterparts, and the facsimile transmission
of an executed counterpart to this Agreement shall be effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless from any and all
claims, damages and liabilities arising from Seller's breach of its
representations and/or covenants set forth herein.
(f) Buyer agrees to indemnify and hold Seller harmless from any and all
claims, damages and liabilities arising from Buyer's breach of its
representations and warranties set forth in this Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first set forth above.
Official Signatory of Seller:
-----------------------------
ENCORE SERVICES, INC.
s/s: Braulio Gutierrez
Accepted this 15th day of March, 2000 Title: President
Official Signatory of Buyer:
----------------------------
HLKT HOLDINGS L.L.C.
s/s:___________________
45
<PAGE>
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933
ACT"), AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER
A-001 US $1,000,000
ENCORE SERVICES, INC.
---------------------
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE MARCH 15, 2002
THIS DEBENTURE of Encore Services, Inc., a corporation duly organized and
existing under the laws of Florida ("Company"), designated as its 8% Series A
Senior Subordinated Convertible Debentures Due March 15, 2002, in an aggregate
principal face amount not exceeding One Million Dollars (U.S. $1,000,000), which
Debentures are being purchased at 90% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to HLKT Holdings LLC, the
registered holder hereof and its authorized successors and permitted assigns
(Holder), the aggregate principal face of One Million Dollars (U.S. $ 1,000.000)
on March 15, 2002 (Maturity Date), and to pay interest on the principal sum
outstanding, at the rate of 9% per annum commencing April 15, 2000 and due in
full at the Maturity Date pursuant to paragraph 4(b) herein. Accrual of
outstanding principal sum has been made or duly provided for. The interest so
payable will be paid to the person in whose name this Debenture is registered on
the records of the Company regarding registration and transfers of the
Debentures (Debenture Register); provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Securities Subscription Agreement dated as of March 15, 2000 between the Company
and HLKT Holdings, LLC (Subscription Agreement). The principal of, and interest
on, this Debenture are payable at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof from time
to time. The Company will pay the outstanding principal due upon this Debenture
before or on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture by check if paid more than 10 days
prior to the Maturity Date or by wire transfer and addressed to such Holder at
the last address appearing on the Debenture Register. The forwarding of such
check or wire transfer shall constitute a payment of outstanding principal
hereunder and shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such check or wire transfer.
Interest shall be payable in Common Stock (as defined below) pursuant to
paragraph 4(b) herein.
46
<PAGE>
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars (US
$10,000) and integral multiples thereof. The Debentures are exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same, but not less
than U.S. $10,000. No service charge will be made for such registration or
transfer or exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments any amounts
required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in compliance with
the Securities Act of 1933, as amended (Act) and applicable state securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for all
other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected or bound by notice to the contrary.
Any Holder of this Debenture, electing to exercise the right of conversion set
forth in Section 4(a) hereof, in addition to the requirements set forth in
Section 4(a), and any prospective transferee of this Debenture, are also
required to give the Company written confirmation that the Debenture is being
converted (Notice of Conversion) in the form annexed hereto as Exhibit I.
4. (a) The Holder of this Debenture is entitled, at its option, at any time
immediately following execution of this Agreement and delivery of the Debenture
hereof, to convert all or any amount over $10,000 of the principal face amount
of this Debenture then outstanding into freely tradable shares of common stock,
$0.001 par value per share, of the Company without restrictive legend of any
nature (Common Stock), at a conversion price (Conversion Price) for each share
of Common Stock equal to (i) 70% of the per share price valued in accordance
with the book value of the Company's shares which shall include but not be
limited to all assets and good will of the Company and the proceeds of this
Debenture and any other Debenture issued simultaneously with this Debenture or
within 30 days of the issuance of this Debenture, but shall not include any
liabilities of the Company (Asset Book Value), or, if the Company or its
successor or the assignee of this Debenture is traded on an exchange, (ii) 70%
of the closing bid price of the Common Stock as reported on such exchange for
the trading day immediately preceding the date of receipt by the Company of each
Notice of Conversion (Conversion Shares). If the number of resultant Conversion
Shares would as a matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company shall, as
soon as practicable, take the necessary steps to seek such approval. Such
conversion shall be effectuated, as provided in a certain Escrow Agreement
executed simultaneously with this Debenture, by the Company delivering the
Conversion Shares to the Holder within 7 business days of receipt by the Company
of the Notice of Conversion. Once the Holder has received such Conversion
Shares, the Escrow Agent shall surrender the Debentures to be converted to the
Company, executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion hereof, and
accompanied by proper assignment hereof in blank. Accrued but unpaid interest
shall be subject to conversion. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by issuing Common
Stock of the Company as follows: Based on the Asset Book Value, or if the shares
of Common Stock of the Company are traded on an exchange, the closing bid price
of the Common Stock as reported on such exchange for the
47
<PAGE>
trading day immediately preceding the date of the monthly interest payment due
(Market Price), the Company shall issue to the Holder shares of Common Stock in
an amount equal to the total monthly interest accrued and due divided by 70% of
the Market Price (Interest Shares). The dollar amount of interest payable
pursuant to this paragraph 4(b) shall be calculated based upon the total amount
of payments actually made by the Holder in connection with the purchase of the
Debentures at the time any interest payment is due. If such payment is made by
check, interest shall accrue beginning 10 days from the date the check is
received by the Company. If such payment is made by wire transfer directly into
the Company's account, interest shall accrue beginning on the date the wire
transfer is received by the Company. Common Stock issued pursuant hereto shall
be issued pursuant to Rule 504 of Regulation D in accordance with the terms of
the Subscription Agreement.
(c) At any time after 90 days the Company shall have the option to pay to
the Holder 130% of the principal amount of the Debenture, in full, to the extent
conversion has not occurred pursuant to paragraph 4(a) herein, or pay upon
maturity if the Debenture is not converted. The Company shall give the Holder 5
days written notice and the Holder during such 5 days shall have the option to
convert the Debenture or any part thereof into shares of Common Stock at the
Conversion Price set forth in paragraph 4(a) of this Debenture.
(d) Upon (i) a transfer of all or substantially all of the assets of the
Company to any person in a single transaction or series of related transactions,
or (ii) a consolidation, merger or amalgamation of the Company with or into
another person or entity in which the Company is not the surviving entity (other
than a merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i) and (ii) being referred to as a "Sale Event", then, in
each case, the Company shall, upon request of any Holder, redeem the Debentures
registered in the name of such Holder in cash for 130% of the principal amount,
plus accrued but unpaid interest through the date of redemption, or at the
election of the Holder, such Holder may convert the unpaid principal amount of
this Debenture (together with ____________
Then, or at any time thereafter, unless cured, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of the Company.
However, no recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or Director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
48
<PAGE>
10. In case any provision of this Debenture is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be affected or
impaired thereby.
11. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in accordance with
the laws of Colorado applicable to contracts made and wholly to be performed
within the State of Colorado and shall be binding upon the successors and
assigns of each party hereto. The Holder and the Company hereby mutually waive
trial by jury and consent to exclusive jurisdiction and venue in the courts of
the State of Colorado. At Holder's election, any dispute between the parties may
be arbitrated rather than litigated in the courts, before the American
Arbitration Association in Denver and pursuant to its rules. Upon demand made by
the Holder to the Company, the Company agrees to submit to and participate in
such arbitration. This Agreement may be executed in counterparts, and the
facsimile transmission of an executed counterpart to this Agreement shall be
effective as an original.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: March 15, 2000
ENCORE SERVICES, INC.
By:______________________________________
Title: President
49
<PAGE>
Exhibit 3.2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
OCT 10, 2000
DEAN HELLER No. C 2817-71
Secretary of State Dean Heller, Secretary of State
101 North Carson Street, Suite 3
Carson City, Nevada 89701
--------------------------------------------------------------------------
Important: Read attached instructions before completing form
--------------------------------------------------------------------------
Certificate of Amendment to Articles of Incorporation
-----------------------------------------------------
For Nevada Profit Corporation
-----------------------------
(Pursuant to NRS 78.386 and 78.390 - After Issuance of Stock)
-Remit in Duplicate-
1. Name of Corporation: National Rehab Properties, Inc.
------------------------------------------
2. The articles have been amended as follows (provide article numbers, if
available):
"The name of the corporation is:
NATIONAL RESIDENTIAL PROPERTIES, INC."
-----------------------------------------------------------
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power or such
greater proportion of the voting power as may be required in the case of a
vote by classes or series, or as may be required by the provi- sions of
the articles of incorporation have voted in favor of the amendment
is: 51%
--------------------------------------------------------------------
4. Signature required:
s/s: Richard Astrom s/s: Christoper Astrom
----------------------------------- ----------------------------
President or Vice President Secretary or Asst. Secretary
*If any proposed amendment would alter or change any preference or any
relative or other right given to any class or series of outstanding
shares, then the amendment must be approved by the vote, in addition to
the affirmative vote otherwise required, of the holders of shares
representing a majority of the voting power of each class or series
affected by the amendment regardless of limitations or restrictions on
the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit
the proper fees may cause this filing to be rejected.
50
<PAGE>
Exhibit 3.3
FILED
In the office of the
Secretary of State of the
State of Nevada
Oct 10, 2000
No. C 2817-71
---------
Dean Heller, Secretary of State
CERTIFICATE OF CHANGE IN NUMBER OF AUTHORIZED SHARES
OF
NATIONAL RESIDENTIAL PROPERTIES, INC.
Pursuant to Section 78.209
We, the undersigned, being the president and secretary of NATIONAL
RESIDENTIAL PROPERTIES, INC., do hereby execute and acknowledge the following
instrument:
A) The current number of authorized shares is:
Forty million (40,000,000) without par value
B) The number of authorized shares after the change is:
Two hundred and fifty million (250,000,000) shares
Par value $ .001 per share
C) The number of shares to be issued after the change in exchange for each
issued share of the same class is none.
D) The provisions, if any, for the issuance of fractional shares, or for the
payment of money or the issuance of scrip to stockholders otherwise
entitled to a fraction of a share and the percentage of outstanding shares
affected thereby is none.
E) No stockholder approval is required to effect the change.
F) The effective date of the change shall be the date of filing in the office of
the Nevada Secretary of State.
IN WITNESS WHEREOF. We the undersigned, being the president and the secretary of
NATIONAL RESIDENTIAL PROPERTIES, INC. , do hereby execute and acknowledge the
above instrument.
s/s: Richard Astrom s/s: Christoper Astrom
-----------------------------------------------------------
President Secretary
STATE OF
COUNTY OF
51
<PAGE>
On October 10, 2000, personally appeared before me, a notary public, Richard
Astrom and Christopher Astrom, the President and Secretary of NATIONAL
RESIDENTIAL PROPERTIES, INC., A Nevada corporation and personally known to me to
be the persons whose names are subscribed to the above instrument who
acknowledged that they executed said instrument.
s/s: Patricia Gutierrez
------------------------------------
Notary Public
PATRICIA GUTIERREZ
Notary Public, State of Florida
My comm. exp. Dec. 19, 2003
Comm. No. CC896915
52
<PAGE>
Exhibit 10.04
PREPAID MANAGEMENT AGREEMENT
Agreement made this 20th day of September, 2000 by and between Richard Astrom,
an individual and National Residential Properties, Inc., a Nevada Corporation.
Whereas there exists a $302,000 debt by Richard Astrom to National Residential
Properties, Inc. ("the Company") as listed on the Company's Balance Sheet which
debt matures September 20, 2000.
And Whereas Richard Astrom proposes a means of facilitating the repayment of the
debt wherein the $302,000 note receivable item on the Company's balance sheet
would be converted to a five year prepaid management contract.
And Whereas there are existing arrangements between Richard Astrom and the
Company for paying compensation to Richard Astrom for his services to the
Company.
Therefore, the following agreement is entered into the date first written above:
The $302,000 debt by Richard Astrom to the Company as listed on the Company's
Balance Sheet which debt matures September 20, 2000 is hereby cancelled.
The Company and Richard Astrom agree that the $302,000 debt by Richard Astrom to
the Company as currently listed on the Company's Balance Sheet is by this
Prepaid Management Agreement converted to a five year prepaid management
contract. Beginning January 1, 2001, the first $60,400 (plus an additional
amount equal to the accrued interest on the unearned balance of the prepaid
management contract, calculated at the rate of 8% per annum) of Richard Astrom's
annual compensation from the Company will be applied against the $302,000
prepaid management contract each year.
Richard Astrom pledges and agrees that beginning January 1, 2001, for the next
five years the first $60,400 (plus an additional amount equal to the accrued
interest on the unearned portion of the prepaid management contract balance
calculated at the rate of 8% per annum) of his annual compensation from the
Company will be withheld by the Company and be applied against the $302,000 item
each year.
This agreement is made a part of any existing agreements, whether oral or
written, for compensation between the Company and Richard Astrom as well as any
future compensation agreements between the Company and Richard Astrom.
Witness the signatures of the parties hereto:
s/s Richard Astrom
--------------------------
Richard Astrom, an individual
National Residential Properties, Inc., a Nevada Corporation.
By: s/s Richard Astrom Its: President
--------------------------------
53
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
F-1
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
Table of Contents
Page
Independent Auditor's Report 1
Financial Statements
Consolidated Balance Sheet 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6 - 10
F-2
<PAGE>
BAUM & COMPANY, P.A.
Certified Public Accountants
1515 University Drive - Suite 209
Coral Springs, Florida 33071
(954) 752-1712
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
National Residential Properties, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheet of National
Residential Properties, Inc. and its subsidiaries (formerly National Rehab
Properties, Inc.) of September 30, 2000 and the related consolidated statements
of income, consolidated statement of changes in stockholders' equity, and
consolidated cash flows for the years ended September 30, 2000 and September 30,
1999. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Residential
Properties, Inc. and its subsidiaries (formerly National Rehab Properties, Inc.)
of September 30, 2000, and the results of its operations, changes in
stockholders' equity and its cash flows for the years ended September 30, 2000
and September 30, 1999 in conformity with generally accepted accounting
principles.
December 20, 2000
Coral Springs, Florida
F-3
<PAGE>
<TABLE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<CAPTION>
ASSETS
2000
-------------
<S> <C>
Current Assets
Cash in bank $ 137,990
Inventory - real estate holdings 3,321,090
Other current assets 25,287
-------------
Total Current Assets 3,484,367
--------------
Property, Plant & Equipment
(Net of accumulated depreciation of $29,948 ) 45,395
Other Assets
Notes Receivable (Net of allowance for bad debts of $12,000) 55,344
Organizational costs (net of $55 accumulated amortization) 495
Prepaid management fee 302,000
Goodwill 1,219
-------------
Total Other Assets 359,058
-------------
Total Assets $ 3,888,820
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 72,004
Mortgages and notes payable 1,600,233
-------------
Total Current Liabilities 1,672,237
-------------
Shareholders' Equity
Common stock, $.001 par value; authorized 100,000,000
Shares; issued and outstanding 51,061,866 51,062
Common stock class A voting, $.001; authorized 2,000,000
shares; issued and outstanding 1,000,000 1,000
Additional paid in capital 3,123,733
Accumulated deficit (959,212)
-------------
Total Shareholders' Equity 2,216,583
-------------
Total Liabilities and Shareholders' Equity $ 3,888,820
=============
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIAIRIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Gross sales $ 62,500 $ 374,038
Cost of sales 60,146 118,368
-------------- --------------
Gross profit 2,354 255,670
Operating Expenses:
General & administration expenses 591,066 509,543
-------------- --------------
Net income (loss) before other income (expense) (588,712) (253,873)
Other Income (expense)
Interest income 45,121 8,488
Interest expense (19,927) (14,124)
Miscellaneous (7,244) - - - -
-------------- --------------
Total income (expense) 17,950 (5,636)
-------------- --------------
Net income (loss) before provisions for income
taxes (570,762) (259,509)
Provision for income taxes
Tax benefit 29,005 - - - -
-------------- --------------
Net loss $ ( 541,757) $ ( 259,509)
============== ==============
Weighted average common shares outstanding 28,951,990 3,390,338
-------------- --------------
Weighted average common share diluted 28,951,990 7 715,338
-------------- -------------
Loss per share (.0187) (.0765)
============== ==============
Loss per share full diluted (.0265) (.0336)
============== ==============
See accompanying notes to financial statements
</TABLE>
F-5
<PAGE>
<TABLE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SEPTEMBER 30, 2000 AND 1999
<CAPTION>
Class A Additional Retained Earnings/
Common Stock Common Paid-in Accumulated
#Shares Amount Voting Capital Deficit
---------- ---------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
September 30, 1998 9,054,773 $ 9,055 $ 1,000 $1,324,190 $ (157,946)
Net (Loss) ---- ---- ---- ---- (259,509)
---------- ---------- ------- ---------- -------------
September 30, 1999 9,054,773 $ 9,055 1,000 1,324,190 (417,455)
Shares issued for
services rendered 1,463,765 1,464 ---- 81,060 ----
Shares for options
exercised 6,000,000 6,000 ---- ---- ----
Shares issued for
acquisition of companies 1,750,000 1,750 ---- ---- ----
Additional shares issued
from debenture conversion 34,193,328 34,193 ---- 1,718,483 ----
Canceled shares (1,400,000) (1,400) ---- ---- ----
Net (Loss) ---- ---- ---- ---- (541,757)
---------- ---------- ------- ---------- -------------
September 30, 2000 51,061,866 $ 51,062 $ 1,000 $3,123,733 $ (959,212)
========== ========== ======= ========== =============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIAIRIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
SEPTEMBER 30, 2000 AND 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (541,757) $ (9,509)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 20,171 10,507
Common stock issued for services 81,060 -0-
Changes in assets and liabilities
(Increase) in accrued interest (24,160) -0-
(Increase) in inventory of real estate holdings (1,599,176) (545,153)
Decrease in prepaid expenses 55,873 15,645
Decrease in security deposits -0- 700
(Increase) decrease in deposits (52,000) (25,000)
Increase in customer deposits -0- (1,350)
Increase (decrease) accounts payable (10,199) (82,203)
(Decrease) in income tax payable -0- (37,228)
(Increase) decrease in mortgage receivable (42,986) (41,018)
----------- -----------
(2,113,174) (759,185)
----------- -----------
Cash Flows From Investing Activities:
Acquisition of fixed assets (15,847) (51,060)
Goodwill generated from acquisition (1,219) -0-
Reduction in note to related party ---- 18,091
----------- -----------
(17,066) 8,049
----------- -----------
Cash Flows From Financing Activities:
Proceeds from mortgages payable 1,060,118 605,900
Repayment of mortgages payable (516,135) (970,641)
Proceeds from debentures (947,500) 947,500
Proceeds from note payable - related party ---- 20,000
Proceeds from issuance of common stock 1,760,490 1,045,880
Increase in subscription receivable 500,000 (500,000)
----------- ----------
1,856,973 1,148,639
Net (decrease) increase in cash (273,267) 397,503
Cash at beginning of year 411,257 13,754
----------- ----------
Cash at end of year 137,990 411,257
=========== ==========
See accompanying notes to financial statements
</TABLE>
F-7
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIAIRIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
The Company was originally incorporated in the State of Nevada on October
18, 1971 under the name of Mister Las Vegas, Inc. On December 15, 1994 the
Company merged with a privately owned company, National Rehab Properties,
Inc., a Florida corporation formed on October 1, 1993. The surviving Nevada
corporation changed its name to National Rehab Properties, Inc. and became
authorized to conduct business in the State of Florida on August 17, 1995.
On September 12, 2000, the corporation changed its name to National
Residential Properties, Inc.
The company's business is residential real estate development and building
construction services. From 1993 until 1999 the Company's business
concentrated in investing in and revitalizing single family homes in
established older residential neighborhoods in urban areas. The Company
either buys single unit vacant properties and builds single family homes or
it buys abandoned homes and completes all renovations to the home followed
by a sale of the home. During 1999, while retaining its efforts in the
renovation of urban single family homes as one aspect of its business, the
Company entered a second phase of business, the development, construction
and ownership of multifamily housing projects. Beginning in the fiscal year
ended September 1999, the Company initiated a program of acquisition of
properties suitable for development as multifamily housing or multiple unit
single family development tracts. Since 1999, the company has purchased
four tracts with the intention of building from 60 to 72 apartment units on
each tract and one twenty acre citrus grove for single family home
development. In April 2000, the Company acquired Encore Services, Inc., a
bonded general construction contractor.
Real Estate Holdings
Real estate investments are stated at the lower of cost or market.
Acquisition costs are allocated to respective properties based on
appraisals of the various properties acquired in the acquisition.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
on Financial Accounting standards 109 of "Accounting for Income Taxes."
Under the Statement 109, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The Company has net operating
losses (NOL's) of approximately $1,000,000.
Deferred tax benefit (34% statutory rate) $ 340,000
Valuation allowance 340,000
---------
Net Benefit $ - 0 -
=========
F-8
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Due to the uncertainty of utilizing the NOL and recognizing the deferred
tax benefit, an offsetting valuation allowance has been provided.
Revenue Recognition
Revenue is recognized under the full accrual method of accounting upon the
completed sale of real property held for development and sale. All costs
incurred directly or indirectly in acquiring and developing the real
property are capitalized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at the
time of purchase. The Company maintains cash and cash equivalent balances
at several financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000.
Earnings/Loss Per Share
Primary earnings per common share are computed by dividing the net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year. The number of shares used
for the fiscal years ended September 30, 2000 and 1999 were 28,951,990 and
3,390,338 respectively. Fully diluted shares for the fiscal year ended
September 30, 2000 and 1999 were 28,951,990 and 7,715,338 respectively.
Principles of Consolidation
The consolidated financial statements include accounts of its subsidiaries.
All material intercompany transactions have been eliminated.
NOTE 2 - INVENTORY
Inventory consists of residential single family homes held for resale and
land held for development and is valued at the lower of cost or market
value. Cost includes acquisition, renovation and carrying costs
specifically identified with each unit.
F-9
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM RECEIVABLES
Mortgages Receivable
Due to the irregular payment history of these types of mortgages, the
balance of $55,344 (net of an allowance of $12,000) has been reclassified
as long term receivables. These are due from persons that purchased
properties from the company.
NOTE 4 - PROPERTY & EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, generally three to
five years, on a straight-line basis.
Automobiles $ 54,680
Office Equipment 20,663
---------
75,343
Less: Accumulated Depreciation 29,948
---------
Net Fixed Assets $ 45,395
=========
NOTE 5 - RELATED PARTY TRANSACTION
Prepaid Expenses
The President of the Company owed the Company $302,000 pursuant to a note
which matured on September 20, 2000. Pursuant to an agreement dated
September 29, 2000 entitled "Prepaid Management Agreement," the previous
$302,000 note was canceled and a new arrangement for the repayment of the
$302,000 note was created. The parties agreed that the $302,000 debt by the
president to the Company will be repaid under the following terms:
beginning January 1, 2001, for the next five years, the first $60,400 (plus
an additional amount equal to the accrued interest on the unearned portion
of the contract balance, calculated at the rate of 8% per annum) of his
annual compensation from the Company will be withheld by the Company and be
applied against the $302,000 item each year. This agreement is made a part
of any existing agreements, whether oral or written for compensation
between the Company and the officer well as any future compensation
agreements between the Company and officers.
The Company has entered into construction contracts of approximately
14,000,000 with Encore Builders, Inc., a company wholly owned by a Director
of the Company and a minority shareholder of Encore Services, Inc.
Officers of the Company were paid an aggregate of $ 131,515.
F-10
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIARIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - RELATED PARTY TRANSACTION (Continued)
Leases
Office space is being provided by a company which is wholly owned by
Bravlio Gutierrez a minority shareholder of Encore Services, Inc. and a
director of the company.
NOTE 6 - ACQUISITIONS
A. On February 10, 2000, the company acquired MAS XV Acquisition Corp. for
1,000,000 shares of its common stock and an additional 500,000 for fees. T
he acquisition has been handled as a purchase method of accounting for
business combinations.
B. On April 3, 2000 the Company acquired 80% of Encore Services, Inc. for
250,000 common shares of its stock.
NOTE 7 - MORTGAGES AND NOTES PAYABLE
Mortgage Payable
Collateralized constructions loans, bearing interest at the
greater of 8.25% or 1.5% over prime lending rate. The monthly
interest is added to the principal balance of the loan.
The loans are paid off upon sale of the underlying real estate
or October 1, 2001. Notes are guaranteed by an officer of the
Company. $ 325,233
Mortgage Payable
Collateralized note bearing interest at 12% and payable
in full plus accrued interest on June 29, 2000. The Company
negotiated an extension of the due date to March 1, 2001,
at which time the entire principle and interest will be due. 500,000
Mortgage Payable
Collateralized note, secured by real estate, due upon sale of
underlying real estate or December 9, 2002. Interest is payable
monthly at 12%. Note is guaranteed by an officer of the Company 100,000
Note Payable
Collateralized note bearing interest at 9-1/2% secured by
real estate, due August 2, 2001. $ 675,000
------------
Subtotal 1,600,233
Less: Non-Current Maturities - 0 -
------------
Total Current Maturities $ 1,600,233
============
F-11
<PAGE>
NATIONAL RESIDENTIAL PROPERTIES, INC.
AND ITS SUBSIDIAIRIES
(FORMERLY NATIONAL REHAB PROPERTIES, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 8- CAPITAL TRANSACTIONS
During the fiscal year ended September 30, 2000 the following capital
transactions occurred.
A. On various dates from October 1, 1999 to June 28, 2000 34,193,328
common shares valued at $1,735,447 were issued to debenture holders as
part of debenture conversion provision.
B. On February 10, 2000, the Company issued 1,000,000 common shares for
the purchase of MAX XV Acquisition, Inc. In addition the company
issued 500,000 shares and $100,000 for consulting services regarding
the acquisition.
C. On April 1, 2000, the company issued 250,000 shares for 80% of the
common stock of Encore Services, Inc.
D. On April 3, 2000, an officer of the company stock exercised options
for 6,000,000 shares at their exercise price of $ 6,000.
E. On October 13, 1999 227,272 shares of common stock, valued at $22,727
were issued for consulting fees.
F. In November 1999, 308,333 shares of common stock valued at $30,833
were issued for consulting fees.
G. On December 7, 1999 250,000 common shares valued at $25,000 were
issued for consulting services.
F. On May 2, 2000, the Company donated 250,000 common shares valued at
$2,500 to the Yeshiva Gedoluh of Midwood.
NOTE 9- SUBSEQUENT EVENTS
A. On October 10, 2000 the Company amended its Articles of Incorporation
to increase its authorized common shares from 100,000,000 to
250,000,000.
B. The Company acquired the Company, 2217 Acquisition Inc.on October 10,
2000 for the purpose of purchasing a parcel of land for development
and related convertible financing .
NOTE 10 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES
Interest expense for year 2000 $ 104,135
F-12
