UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended June 30, 2000
Commission File Number 0-30601
WHY USA FINANCIAL GROUP, INC.
(Exact name of the small business as specified in its charter)
8301 Creekside #101
Bloomington, MN 55437
(Address of principal executive offices)
(Zip code)
(952) 841-7062
(Registrant's telephone number, including area code)
Nevada 87-0390603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
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) YES [X] NO [ ],
and (2) has been subject to such filing requirements for the past 90 days.
Yes[ ] No [ X ]
The number of shares outstanding of the Registrant's Common Stock, 0.001 par
value, as of June 30, 2000 was 31,400,460; the Company also had an additional
1,114,750 shares subscribed for and reserved for issuance at June 30, 2000.
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WHY USA FINANCIAL GROUP, INC.
INDEX
PART I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30,
2000 (unaudited) and December 31, 1999........................4
Consolidated Statements of Operation and (Accumulated
Deficit) Retained Earnings (unaudited) for the three
months and six months ended June 30, 2000 and 1999............5
Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 2000 and 1999...................6
Notes to Consolidated Financial Statements....................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................7
PART II. Other Information
Item 1. Legal Proceedings............................................15
Item 2. Changes in Securities........................................15
Item 3. Defaults Upon Senior Securities..............................15
Item 4. Submission of Matters to a Vote of Securities Holders........15
Item 5. Other Information............................................15
Item 6. Exhibits and Reports on Form 8-K.............................15
Signatures............................................................17
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PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements
WHY USA FINANCIAL GROUP, INC.
For the Six Months Ended June 30, 2000
(Unaudited)
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WHY USA FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(Unaudited) (Audited)
June 30, December 31,
2000 1999
------------ -------------
Assets
Current Assets:
Cash $ 351,682 $ -
Accounts receivable 35,739 32,407
Notes receivable 468,210 3,210
------------ -------------
Total Current Assets 855,631 35,617
------------ -------------
Fixed Assets:
Furniture and equipment 60,177 14,572
Accumulated depreciation (7,771) (4,863)
------------ -------------
Net Fixed Assets 52,406 9,709
------------ -------------
Other Assets:
Franchise acquisition costs 2,009,589 1,994,589
Amortization of franchise costs (83,316) -
------------ -------------
Net Franchise Acquisition Cost 1,926,273 1,994,589
------------ -------------
Patent application 5,000 5,000
Investment in preferred stock 100,000 -
Advances to former officer - 70,619
------------ -------------
Total Assets $ 2,939,310 $ 2,115,534
============ =============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 9,301 $ 200
Deferred revenue on future conference - 5,729
Due to Northwest Financial Group, Inc. 95,928 18,391
Loan from officer - 26,400
------------ -------------
Total Current Liabilities 105,229 50,720
------------ -------------
Deferred Income Taxes Payable - 3,000
Shareholders' Equity
Preferred stock: no par value, authorized
50,000,000, no shares issued and outstanding - -
Common stock: $.001 par value, authorized
250,000,000, 31,400,460 issued and outstanding
as of December 31,1999 and June 30, 2000 31,400 31,400
Shares subscribed and reserved for
issuance- 1,114,750 shares 1,114,750 -
Additional paid in capital 2,073,283 2,022,698
(Accumulated deficit)/Retained earnings (385,352) 7,716
------------ -------------
Total Shareholders Equity 2,834,081 2,061,814
------------ -------------
Total Liabilities and Shareholders' Equity $ 2,939,310 $ 2,115,534
============ =============
See accompanying notes to consolidated financial statements.
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WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
30-Jun 30-Jun 30-Jun 30-Jun
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Mortgage loan originations $ 156,430 $ 245,445 $ 323,505 $ 381,324
Franchise fees - real estate 96,030 - 154,006 -
New franchise sales 31,000 - 51,000 -
------------- -------------- ------------- -------------
Total Revenue 283,460 245,445 528,511 381,334
------------- -------------- ------------- -------------
Expenses:
General & Administrative 160,267 35,624 393,177 45,460
Mortgage loan origination fees 122,173 128,821 271,108 196,836
Franchise costs - real estate 15,272 - 47,452 -
Marketing costs and travel 79,080 - 131,951 -
Interest (income) (5,011) - (5,333) -
Depreciation 1,821 199 2,908 342
Amortization franchise
acquisition cost 41,762 - 83,316 -
------------- -------------- ------------- -------------
Total Expenses 415,364 164,644 924,579 242,638
------------- -------------- ------------- -------------
Income from continuing
operations (131,904) 80,801 (396,068) 138,696
Income from discontinued
operations - 7,261 - 7,261
(Income taxes) benefit -
continuing operations - (27,000) 3,000 (44,000)
------------- -------------- ------------- -------------
Net Income (loss) (131,904) 61,062 (393,068) 101,957
------------- -------------- ------------- -------------
(Accumulated deficit)Retained
Earnings beginning of period (253,448) 40,895 7,716 -
------------- -------------- ------------- -------------
Accumulated deficit, retained
earnings - end of period $ (385,352) $ 101,957 $ (385,352) $ 101,957
============= ============== ============= =============
Weighted average shares
outstanding 31,400,460 10,000 31,400,460 10,000
============= ============== ============= =============
Net loss per common share;
Continuing operations $ (0.004) $ 5.380 $ (0.012) $ 9.470
Discontinued operations $ (0.000) $ 0.730 $ (0.000) $ 0.730
Net loss $ (0.004) $ 6.110 $ (0.012) $ 10.200
See accompanying notes to consolidated financial statements.
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WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
2000 1999
------------ -------------
Cash Flows from (used in) Operating Activities:
Net income (loss) from continuing operations $ (393,068) $ 94,696
Adjustments to reconcile net income to net cash flow
Provision for depreciation and amortization 86,224 342
Deferred tax benefit (3,000) -
Common stock issued for compensation 57,135 -
------------ -------------
Increase (decrease) in Cash Flow from
continuing Operating Activities (252,709) 95,038
------------ -------------
Discontinued operations cash flow - 13,433
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts & notes receivable (468,332) 2,000
Increase in accounts payable 9,101 -
Increase in income taxes payable - 44,000
Increase in deferred conference revenues (5,729) -
------------ -------------
Total Change to Operating Assets an Liabilities (464,960) 46,000
------------ -------------
Net Cash from Operations (717,669) 154,471
------------ -------------
Cash Flows Provided By (Used) in Investing Activities:
Building acquisition and improvements - (422,723)
Capital expenditures - computers/equipment (45,605) (4,235)
Capital expenditures - franchise cost (15,000) -
Investment in preferred stock (100,000) -
------------ -------------
Net Cash Provided by (Used)
in Investing Activities (160,605) (426,958)
------------ -------------
Cash Flows Used in Financial Activities:
Net proceeds of common stock sold 1,108,199 -
Advances from Northwest Financial Group, Inc. 148,157 3,632
Mortgage and building loans - 404,818
Advances payments to officers (26,400) -
------------ -------------
Net Cash Used in Financing Activities 1,229,956 408,450
------------ -------------
Net Increase in Cash and Cash Equivalents 351,682 135,963
Cash and Cash Equivalents at Beginning of Period - 22,731
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 351,682 $ 158,694
============ =============
Supplemental Non-Cash Activities
Supplemental Cash Flow Information:
Cash Paid During the Year for:
Interest Expense $ - $ -
Income Taxes $ - $ -
See accompanying notes to consolidated financial statements.
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WHY USA FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's December 31, 1999 financial statements in the Company's Form
10-SB12G as amended.
Certain amounts in the financial statements of prior periods have been
reclassified to conform to the presentation used for three and six-month
periods ended June 30, 2000.
NOTE 2 - NATURE OF BUSINESS
The company sells real estate franchises under the Why USA name and originates
loans under the Northwest Financial Ltd. name. The company does not service
or retain the loans, which it originates. Operations are conducted throughout
the United States, however the majority of the company's current income stream
is derived from the Midwestern states of Wisconsin, Minnesota, Iowa and
Nebraska. The company is actively marketing its franchise systems in Texas,
California and Arizona and eventually seeks to cover the entire continental
U.S.A. The company's business is impacted by the seasonality of real estate
sales from which it derives its franchise fees. The company's 2nd and 3rd
quarters have appreciably higher activity than the 1st and 4th quarters. The
company's mortgage origination business is strongly influenced by both the
refinancing of mortgages and new mortgage loan originations for residential
homes. The company's operations are negatively impacted when interest rates
rise and favorably impacted when interest rates drop. Currently, the company
is focusing on integrating its mortgage loan origination business with its
real estate franchisees.
NOTE 3 - PRIVATE PLACEMENT OF COMMON STOCK
The company is in the process of selling 1.5 million units at $1.00 per unit
which consists of one share of common stock and one 3-year warrant excisable
at $1.00. The private placement is being offered under Regulation D Rule 506
exemption because it is not publicly soliciting investors and the company has
limited solicitation to sophisticated investors and business affiliates of
officers and directors. The company has sold 1,410,000 units as of August 9,
2000.
NOTE 4 - NOTES RECEIVABLE
The company has advanced an affiliated entity $240,000 on a short term basis
to fund mortgage loan originations and has advanced $145,500 to an affiliated
title company for operations and to promote future business referrals. These
notes bear interest at 8% and they are due upon demand by the company. The
company has also advanced $65,000 to two non-affiliated mortgage origination
companies to promote mortgage loan origination business. These notes bear
interest at 8% and they are due upon demand by the company.
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NOTE 5 - PREFERRED STOCK INVESTMENT
The company has invested $100,000 in a 8% non-cumulative preferred stock of
America's Cashline to promote mortgage loan originations from associated
entities. America's Cashline specializes in doing B and C credit
(non-conforming) residential mortgages.
NOTE 6 - ADVANCES FROM NORTHWEST FINANCIAL GROUP, INC
The company has been advanced $95,928 as of June 30, 2000 from Northwest
Financial Group, Inc. an entity controlled by the company's largest
stockholder and CEO. These funds have been advanced on a non interest-bearing
basis for operational cash needs.
NOTE 7 - COMPENSATION FOR COMMON STOCK
The majority shareholder contributed 1,950,000 shares of common stock to the
company and then the company issued these shares to various individuals in
exchange for future services. The common stock was valued at $0.0293 per
share, based upon the price per share paid by the majority shareholder,
resulting in additional corporate payroll expense of $57,135.
NOTE 8 - AMORTIZATION OF FRANCHISE ACQUISITION COSTS
The company amortizes its franchise acquisition costs of $ 2,009,589 over 12
years, based upon the original 3 year franchise agreement which is renewable
for three additional 3 year terms without additional cost to the franchisee.
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ITEM 2 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
------------
WHY USA Financial Group, Inc. (the "Company") is in the business of
providing comprehensive real estate services primarily for real estate brokers
and their sales agents and customers. The business is currently conducted
through two recently acquired, wholly-owned subsidiaries: Northwest Financial,
Ltd. ("NWF"), which offers residential mortgage loan services principally as a
loan originator, and WHY USA North America, Inc. ("WHY USA NA"), which offers
a real estate franchise program. The Company's franchise sales are regulated
by the Federal Trade Commission as well as applicable state statutes.
Acquisition of Subsidiaries
---------------------------
The Company's business is that of its subsidiaries which were acquired on
December 31, 1999. In 1999, the Company was a public company with no trading
market and no operations which desired to acquire or merge with an operating
entity or entities. In an arms length transaction in December of 1999, it
acquired NWF and its subsidiary, WHY USA NA, through the issuance of
10,000,000 of its unregistered common shares. The transaction was completed
through a series of steps which included:
* the acquisition of all of the issued and outstanding shares of WHY
USA NA from its three shareholders by Mr. Don Riesterer for a
combination of cash and promissory notes equaling $2,026,400.
* Mr. Riesterer's contribution of the WHY USA NA shares to NWF for
which he was issued 90,000 NWF shares increasing his share
ownership in NWF to 100,000 shares; the 100,000 outstanding
shares of NWF constituted all of the outstanding shares of NWF;
* the issuance of 10,000,000 shares of the Company to NWF, and
the subsequent distribution of those shares to Mr. Riesterer
in exchange for his 100,000 shares of NWF (equaling 100 shares of
the Company for each NWF share.)
* the election of a new Board of Directors comprised of directors of
NWF and WHY USA NA.
As a result of the merger the Company acquired the business operations,
products and assets NWF and its subsidiary WHY USA NA. Because the Company had
no assets, revenues or operations, the accounting successor in the transaction
became NWF.
Merger Treatment
----------------
The Company's merger with NWF has been accounted for as a reverse
acquisition because management of NWF became management of the Company. The
financial statements for the Company's year ended 1999 reflected only the
operations of NWF for 1999. NWF was incorporated in 1998, but did not commence
operations until early 1999. The contribution of WHY USA NA has been
accounted for as a purchase transaction and therefore the Company's Statements
of Operations and Cash Flows for December 31, 1999, did not include the
operations and cash flow of WHY USA NA. The financial statements of WHY USA
NA for December were accounted for separately at December 31, 1999 as those of
a purchased entity. The operations of WHY USA NA have combined with those
of the Company for the six months ended June 30, 2000
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Results of Operations
---------------------
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999.
The Company incurred a loss of ($393,068) in the first six months of 2000 vs.
net income from continuing operations of $96,696 in first six months of 1999.
The operations have been adversely impacted by increased general and
administrative expenses from $45,460 in 1999 to $393,177 in 2000. These
expenses have been attributable to the companies expansion and efforts to
raise capital and costs associates with its acquisition of Why USA NA, Inc. on
December 31,1999 the comparative statements of operations do not reflect the
operations of Why USA NA, Inc. in 1999. The Company has accounted for its
acquisition of WHY USA NA, Inc. under the purchase accounting method. The
results of Why USA NA, Inc. have been consolidated with the Company since the
acquisition date. The Company has also been adversely affected by increased
interest rates as the Federal Reserved Board has increased rates at each of
its last six meetings. Mortgage interest rates have generally trended upward
to the 8 1/2 % interest rate level from the 6 1/2 to 7% level prevalent in the
early 1999 time frame. This interest rate increase has virtually eliminated
the housing refinance market, which represented in access of 50% of the
companies mortgage loan business in early 1999. The Company has staffed full
time administrative positions in the Why USA franchise group in an effort to
integrate its mortgage loan operations and sell new franchises. The Company
expended over $14,000 in legal and accounting fees to register its franchise
prospectus in over 40 states. The Company has also expended funds for legal
and accounting fees to register its stock with the Securities Exchange
Commission which costs exceeded $17,000. These types of expenses were not
incurred in 1999. The Company overall expansion efforts have resulted in
increased travel, communication costs and marketing activity which has not yet
resulted in revenues to date. The Company's mortgage related expenses
increased from $196,836 to $271,108 in 2000, on a relative basis client
mortgage loan costs were 51.6% of mortgage sales views 83.8% in 2000, which
reflects the slower mortgage loan origination market in 2000. Loan processors
and office payroll were higher as loan production was lower in 2000 and higher
staff costs have incurred per loan. The Company incurred $131,951 in marketing
costs for new franchise sales in the first six months of 2000 vs. $43,000 for
the entire 1999 fiscal year
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED
TO JUNE 30, 1999.
The Company incurred a loss of ($131,904) for the three months ended June 30,
2000 compared to a net income from continuing operations of $55,801 for the
three months ended June 30, 1999. The revenue from mortgage loan originations
have been adversely affected by the increased residential mortgage rates
resulting in almost complete elimination of the residential refinancing
market. The results of Why USA NA, Inc. are not reflected in the three months
ended June 30, 1999, however they are consolidated with the three months ended
June 30, 2000. General and administrative expenses have increased
significantly due to the Company's expansion and acquisition of Why USA NA,
Inc. The Company's salary and benefit expense have increased in order to
promote faster growth and integration of the two businesses. As stated in the
above paragraph the Company has incurred additional legal and accounting
expenses to register its franchise agreement in various states and to register
its stock with the Securities Exchange Commission. The Company's effort in
raising capital and market expansion has resulted in increased travel
expenses. The Company's results reflect the difficulty and increased cost of
originating new residential mortgages vs. refinance residential mortgages. For
the three months ended June 30, 2000 mortgage loan origination fees were
$122,173 resulting in a cost of 78.1% of mortgage loan origination revenue
which was $156,430 compared to June 30, 1999 when mortgage loan origination
fees were $128,821 resulting in a cost of 52.48% of mortgage loan originations
revenue which was $245,445. Please refer to the above paragraph for
additional factors that resulted in the Company's operational loss.
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Liquidity and Capital Resources
-------------------------------
Revenues
The Company derives revenues from: (1) franchise fees, (2) new franchise
sales, and (3) mortgage origination fees. During the Company's second quarter
ended June 30, 2000, the Company total revenues of $528,511 were comprised of
the following: 61% of its revenues came from mortgage loan origination fees,
29% from franchise transaction fees, and 10% from new franchise sales.
Mortgage origination fees are achieved through NWF; revenues from real estate
transactions are generated by WHY USA NA, the majority of which were derived
from franchise fees. Franchise fees are comprised of ongoing transaction fees
paid to the Company by its franchisees, 71 as of June 30, 2000, based on $95
per transaction or 6% of commission revenues, whichever is less, provided each
franchisee must pay a monthly minimum of $325. On a proforma basis in 1999,
total revenues from operations were $924,835 of which franchise fees from the
Company's franchisees accounted for $366,830 (or 40%) in 1999, new franchise
sales totaled $11,805 (or 1%)and mortgage loan originations totaled $546,200
(or 59%). The first half of the Company's fiscal year shows some shift in
revenue percentages and evidences its current focus on new franchise sales
with an 9% increase in that revenue category. Approximately 65% of such
franchise fee revenues were generated from the franchisees located in
Minnesota and surrounding Midwestern states (Nebraska, Iowa and Wisconsin). In
1998 and 1999, revenues from franchise sales were based on an initial fee of
$9,500 for local market areas with a population greater than 50,000 and $6,500
for areas with a population of less than 50,000. The Company's new franchise
offering circular provides for one initial fee of $9,900.
Franchise Agreements
The Company has Franchise Agreements in effect with 76 franchisees. The
franchise agreement provides for:
* initial terms of three years renewable for three additional three
year terms with written notice to the Company prior to expiration
without additional cost to the franchisee, provided the franchisee
has complied with its obligations under the franchise agreement
* an initial franchise fee of $9,900; payment of $95 per transaction or
6% of revenues received from each transaction; a minimum of $325 in
fees in each month; pay not less than $50 per month or more than 10%
of transaction fees per month into an advertising fund if
established; and, pay a $2,500 transfer fee upon an approved
transfer of the real estate franchise.
* Provides for a "protected" territory and sets forth conditions and
provisions regarding non-competition, the use of the WHY USA logo and
proprietary information and selling techniques
* Sets forth the Company's various obligations to provide training and
materials
Investing Activities
The Company purchased $45,605 in computers and communications equipment
to support its telemarketing operations during the first 6 months of 2000.
The Company also invested $15,000 in the acquisition of a franchisee in
Jamesville, Wisconsin, which it intends to operate or resell. The Company
invested $100,000 in the preferred stock of a high risk or B market lending
institution with which it has established a marketing relationship to develop
new higher risk markets for higher risk mortgage loans. This B or C credit
market has not been a source of revenues for NWF in prior periods. The
Company purchased $4,235 in equipment in the six months ended June 30, 1999
and it completed the acquisition of a commercial office building for $422,723
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of which $408,818 was financed through debt. The office complex was
ultimately returned to an affiliated entity at December 30, 1999 and is
accounted for as a discontinued operation in 1999
Liabilities/Contingent Liabilities
The Company has total liabilities as of its quarter ended June 30, 2000 of
$105,229 which includes an advance from Northwest Financial Group, Inc., an
affiliate, of $95,928. The Company paid a $26,400 loan from an officer during
its six month period ended June 30, 2000. As of December 31, 1999, the Company
was not committed under any operating lease agreements. However, on February
1, 2000, the Company entered into a sub-lease with payments of $2,500 per
month through October 31, 2000, with total future minimum sub-lease payments
of $ 22,500. The Company's three other office facilities are rented on a month
to month basis from affiliates.
Financing Activities
The Company has raised $1,114,750 in its private placement and incurred
$6,551 in private placement costs through June 30, 2000. The Company was
advanced $148,157 by Northwest Financial Group, an affiliate, a portion of
which was reduced by the assumption of an advance from a former officer in the
amount of $70,619 by the affiliate.
Overall Cash Flows
The Company's operations consumed $$252,709 in cash during the first six
months of 2000, vs. the production $95,028 in cash flows in the first six
months of 1999. These losses in 2000 were funded from the private placement
proceeds. The Company has advanced an affiliated entity $240,000 on a short
term basis to fund mortgage loan originations and has advanced $145,500 to an
affiliated title company for operations and to promote future business
referrals. These notes bear interest at 8% and they are due upon demand by
the company. The company has also advanced $65,000 to two non-affiliated
mortgage origination companies to promote mortgage loan origination business.
These notes bear interest at 8% and they are due upon demand by the company.
Cash Requirements and Expansion Plans
Although the Company realized net income in 1999, and had sufficient
revenues from operations to meet its cash requirements, during the second
quarter of 2000 the Company operated at a loss. This trend will likely
continue as the Company contends with increased operating expenses and
initiates its expansion plans. The Company does not have sufficient cash flows
to meet its current operating expenses as well as expansion plans which it
believes are necessary for the Company to succeed. The number of the
Company's franchisees decreased over the three years prior to the Company's
acquisition of the system, from 91 at year end 1997 to 65 at the Company's
acquisition of WHY USA NA on December 31, 1999. The Company is aggressively
pursuing franchise sales and has increased its franchises to 76 at this date.
The Company intends to continue to aggressively pursue its plans to expand
franchise support and services and to expand its WHY USA Franchise System into
more territories. Although the Company is a national franchiser, it has
achieved mostly regional recognition in the Midwestern States where almost
two-thirds of its franchisees are located. Management believes the Company
must develop a stronger national presence in order to increase revenues from
existing franchisees and increase the number of franchise offices.
Expansion plan needs include: (1) increased working capital to support
the growth of current operations, (2) capital to finance marketing and
operational expansion into new territories, and (3) funding for the
acquisition of one or more established businesses engaged in real estate or
mortgage service operations. The Company is required therefore to seek sources
of financing to fund this expansion and has commenced the private placement
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discussed below to fund part of it. The Company's general expansion plans
include some of the following in order of priority:
* expand existing telemarketing service; begin hiring full-time
telemarketing personnel (first five in the next 3-6 months)
* begin placing loan origination agents on site (15 in the next few
months);
* negotiate and buyout certain territories (currently the Diane Butts
territory)
* recruit additional employee/sales representatives
* pursue acquisition possibilities and strategic alliances
* expand web site capabilities including loan origination at website
* offer loan origination for higher risk loans;
* acquire and organize insurance entity
In connection with the Company's capital requirements over the next
year, the Company will require approximately $400,000 for working capital to
fund its operating losses; approximately $400,000 for expansion of
telemarketing, loan agents on site, employee recruitment and territory
buyouts; and $600,000 for strategic alliances and acquisition.
Private Placement Offering
In order to fund a portion of its expansion plans, on January 24, 2000,
the Company commenced a private placement of up to 1,500,00 units at an
offering price of $1.00 per unit. Units are comprised of one share of common
stock and one warrant to purchase a share of common stock for $1.00,
exercisable at any time for three year term commencing upon the purchase of
the Unit. The Company reserved the right to call and redeem the warrants upon
thirty days notice whenever the underlying stock has been quoted in a public
trading market for at least 20 consecutive days at $2.00 or more. There is
currently no public trading market for the Company's securities. The offering
is a "best efforts" offering with no minimum; funds are available to the
Company immediately upon receipt. The Company intends to use $500,000 of the
proceeds towards working capital expenses to support the growth of current
operations and the balance for marketing and operation expansion and/or
acquisitions. $252,709 of these proceeds has already been expended in the
Company's first six months. The subscribed for shares have not been issued as
of this date. The offering was scheduled to close on March 31, 2000 but has
been extended until August 31, 2000.
Seasonal Aspects
The Company realizes less revenues in general in the winter months when
the real estate market is slower especially just prior to Christmas.
Inflation
Inflation usually softens the real estate market and increases interest
rates which may also soften the market. In an effort to limit inflation, the
Federal Reserve has increased interest rates which has also had a negative
impact on the Company's loan origination business.
Trends/Uncertainties/Risk Factors Affecting Continuing Operations
------------------------------------------------------------------
Limited Operating History
Both of the operating subsidiaries of the Company have relatively short
operating histories upon which to judge their progress and potential
profitability. The Company's future must be considered in light of the many
risks and uncertainties, expenses and difficulties encountered by businesses
in the early stages of expansion. The Company must be able to implement and
successfully execute its business and marketing strategy, develop and offer
quality services for its franchises at a competitive price, provide effective
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support to its franchisees, develop and implement effective internal business
and financial systems controls, respond to competitive developments in the
real estate industry, respond to the effects of changes in the economy
including rising interest rates or inflation, and attract and retain qualified
personnel.
Need for Additional Financing.
The Company's current cash flow is insufficient to satisfy its cost of
operations, and therefore also insufficient to provide for its current
expansion plans. During the next year, revenues will be unlikely provide
sufficient cash flow to fund operations. As of this date, the Company is
dependent on obtaining funding necessary for both expanded working capital
requirements and expansion through its current private placement offering. To
date it has received $1,116,000 in proceeds in the offering. The Company will
be using $1,000,000 of the proceeds from its private placement for expansion
and $500,000 for expanded working capital requirements, $252,709 of which has
already been expended. Even presuming the Company completes its offering and
achieves maximum gross proceeds of $1,500,000, the proceeds will be sufficient
to satisfy only a portion of the Company's over-all business plan. There is
no assurance that additional financing will be available from any source when
and if needed by the Company either through debt or equity sources. The
inability to obtain additional funding could prevent the Company from
implementing its business expansion plans. Additional financing could have a
negative impact on the Company's shareholders in the form of dilution.
Reliance on Key Personnel
The Company's future success is highly dependent on the experience and
efforts of its management and key personnel. The loss of services of one of
more of these individuals could have an adverse affect on the Company's
business operations and future prospects. The Company is especially dependent
upon those individuals who have experience with the operations of WHY USA NA
and the WHY USA System although one of its priorities is to train and
familiarize all key personnel with all phases of the Company's various
operations. The Company does not have any key man insurance policies. The
Company is also dependent on its ability to attract and retain key management,
marketing and operational personnel for its planned expansion.
Uncertainty of Market Acceptance
The Company's financial condition and future prospects will depend on it
ability to obtain a substantial and increasing share of the real estate and
mortgage business in the areas in which it operates and its ability to
significantly increase its franchisee network. Although the Company has gained
a toe hold in the Midwestern market, there is no assurance that the Company
will achieve national market acceptance.
Competition
Competition in the real estate franchising, mortgage origination, and
insurance industries is intense and each of these industries includes large
well established firms and companies, banks and other financing institutions,
and specialized service companies. Most of these competitors are
substantially larger than the Company with greater expertise and name
recognition and substantially greater financial, personnel, marketing and
other resources than the Company has. In addition, these competitors have
obtained a large and loyal customers base and have achieved significant brand
name recognition for their services, franchises and marketing networks. The
Company will also compete with local businesses in each locale into which it
decides to expand franchise operations. Small, local competitors could provide
significant competition because they have achieved name recognition, customer
base, and reputation within their locale.
14
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has received subscriptions for 1,116,000 Units in its current
private placement offering; the shares and warrants have not yet been issued.
The offering was scheduled to close on March 31, 2000 but has been extended by
the Board of Directors until August 31, 2000. The Company is relying on the
exemption from registration provided under Section 3(b) Regulation D, Rule 506
in the offer and sale of the Units in the private placement. The Company
believes it is entitled to rely on the Regulation D Rule 506 exemption because
it is not publicly soliciting investors who are largely individuals or
entities with a business or personal association with management. The Company
believes that the investors: (1) have access to and have been provided with
information regarding the Company as set forth in a private placement offering
memorandum; (2) are aware that the securities are not being registered under
US securities laws; (3) are acquiring the securities for his/her own account
for investment purposes only; (4) understand that the securities may need to
be held indefinitely unless registered or unless an exemption from
registration applies to a proposed disposition; (5) are "accredited" and/or
"sophisticated" having sufficient knowledge of Company and sufficient
investment experience to make investment decisions, and (6) are aware that no
public market exists for the Company's securities. The Company is paying no
commissions for sales of the Units.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description Location
---------- ------------ ---------
2.1 Reorganization between the Black Butte (1)
Petroleum, Inc.
and Triam Ltd. dated March 23, 1983
2.2 Acquisition Agreement between Triam Ltd (1)
and Northwest
Financial Ltd., dated December 16, 1999
2.3 Acquisition Agreement Addendum, dated
December 20, 1999 (1)
2.4 Stock Purchase Agreement dated September
24, 1999 between Northwest Financial
Group, Inc.,WHY USA NA, and
its selling shareholders (1)
2.5 Addendum to Stock Purchase Agreement,
dated December 30, 1999 including Assignment (1)
to Donald Riesterer
15
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3.1.1 Articles of Triam Ltd., dated January 6, 1983 (1)
3.1.2 Amendment to Articles of Incorporation,
March 4, 1983 (1)
3.1.3 Amendment to Articles of Incorporation,
filed March 29,1983 (1)
3.1.4 Articles of Merger, filed on November 9, 1999 (1)
3.1.5 Amendment to Articles of Incorporation,
Jan. 10, 2000 (1)
3.2 Bylaws (1)
10.1 Sample Franchise Agreement (1)
10.2 Sub-Lease on Menomonie Property (1)
10.3 Donald Riesterer - Note for $500,000 (1)
10.4 Donald Riesterer - Note for $850,000 (1)
10.5 Mainstreet Agreement (2)
10.6 Butts Agreement (2)
10.7 Erks Agreement (2)
10.8 Jarvis Agreement (2)
10.9 Regional Sales Representation Agreements (2)
16 Letter re: Change of Accountants (2)
21 List of Subsidiaries (1)
27 Financial Data Schedule (3)
(1) Filed with the Company's initial Filing on Form 10SB on May 10, 2000.
(2) Filed with the Company's amended Form 10 on August 28, 2000
(3) Filed herewith
(B) Reports on Form 8-K
The company filed no reports on form 8-K during the three months ended
June 30, 2000.
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHY USA FINANCIAL GROUP, INC.
8/25/00 /s/ Donald Riesterer
Dated:_________________ By: _______________________
Donald Riesterer
Chief Executive Officer
Chairman of the Board
8/25/00 /s/ Leslie M. Pearson
Dated:_________________ By: _______________________
Leslie M. Pearson
Secretary and Treasurer
(Chief Accounting Officer)
