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 March 31, 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 March 31, 2000 was 31,400,460; the Company also had 498,500
common shares subscribed for and reserved for issuance.
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WHY USA FINANCIAL GROUP, INC.
INDEX
PART I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000,
(unaudited) and December 31, 1999 .............................4
Consolidated Statements of Operation and (Accumulated
Deficit) Retained Earnings (unaudited) for the three
months ended March 31, 2000 and 1999...........................5
Consolidated Statements of Cash Flows (unaudited) for the
Three months ended March 31, 2000 and 1999.....................6
Notes to Consolidated Financial Statements.....................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................9
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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2
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements
WHY USA FINANCIAL GROUP, INC.
For the Three Months Ended March 31, 2000
(Unaudited)
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WHY USA FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(Unaudited) (Audited)
March 31, December 31,
2000 1999
------------- -------------
Assets
Current Assets:
Cash $ 389,501 $ -
Accounts receivable 24,270 32,407
Notes receivable 12,710 3,210
------------- -------------
Total Current Assets 426,481 35,617
------------- -------------
Fixed Assets:
Furniture and equipment 36,572 14,572
Accumulated depreciation (5,950) (4,863)
------------- -------------
Net Fixed Assets 30,622 9,709
------------- -------------
Other Assets:
Franchise acquisition costs 1,994,589 1,994,589
Amortization of franchise costs (41,554) -
------------- -------------
Net Franchise Acquisition Cost 1,953,035 1,994,589
------------- -------------
Patent application 5,000 5,000
Advances to former officer - 70,619
------------- -------------
Total Assets $ 2,415,138 $ 2,115,534
============= =============
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts payable $ 17,710 $ 200
Deferred revenue on future conference - 5,729
Due to Northwest Financial Group, Inc. 44,693 18,391
Loan from officer - 26,400
------------- -------------
Total Current Liabilities 62,403 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 March 31, 2000 31,400 31,400
Common stock subscribed and reserved for
issuance - 498,500 shares 498,500 -
Additional paid in capital 2,076,283 2,022,698
(Accumulated deficit)/Retained earnings (253,448) 7,716
------------- -------------
Total Shareholders Equity 2,352,735 2,061,814
------------- -------------
Total Liabilities and Shareholders' Equity $ 2,415,138 $ 2,115,534
============= =============
See accompanying notes to consolidated financial statements.
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WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATION
AND(ACCUMULATED DEFICIT) RETAINED EARNINGS (Unaudited)
Three Months Ended
March 31, March 31,
2000 1999
------------- -------------
Revenue:
Mortgage loan originations $ 167,075 $ 135,889
Franchise fees - real estate 57,976 -
New franchise sales 20,000 -
------------- -------------
Total Revenue 245,051 135,889
------------- -------------
Expenses:
General & Administrative 232,910 9,837
Mortgage loan origination fees 148,935 68,014
Franchise costs - real estate 32,180 -
Marketing costs and travel 52,871 -
Interest expense (income) (322) -
Depreciation 1,087 143
Amortization franchise acquisition cost 41,554 -
------------- -------------
Total Expenses 509,215 77,994
------------- -------------
Income (loss) from continuing operations (264,164) 57,895
(Income taxes) benefit- continuing operations 3,000 (17,000)
------------- -------------
Net Income (loss) (261,164) 40,895
(Accumulated deficit), Retained Earnings
beginning of period 7,716 -
------------- -------------
(Accumulated deficit) Retained Earnings
end of period $ (253,448) $ 40,895
============= =============
Weighted average shares outstanding 31,400,460 10,000
============= =============
Net Income (loss per) common share
(basic and diluted) $ (0.008) $ 4.090
============= =============
See accompanying notes to consolidated financial statements.
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WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, March 31,
2000 1999
------------- -------------
Cash Flows from (used in) Operating Activities:
Net income(loss) $ (261,164) $ 40,895
Adjustments to reconcile net income (loss) to
net cash flow
Provision for depreciation and amortization 42,641 143
Deferred tax benefit (3,000) -
Common stock issued for compensation 57,135 -
------------- -------------
Increase (decrease) in Cash Flow
from Operating Activities (164,388) 41,038
------------- -------------
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts & notes receivable (1,363) 2,000
Increase in accounts payable 17,510 -
Decrease in deferred conference revenues (5,729) -
Increase in income taxes payable - 17,000
------------- -------------
Total Change to Operating Assets and
Liabilities 10,418 19,000
------------- -------------
Net Cash (used in) from Operations (153,970) 60,038
------------- -------------
Cash Flows Used in Investing Activities:
Capital expenditures - computers/equipment (22,000) (2,000)
------------- -------------
Net Cash Used in Investing Activities (22,000) (2,000)
------------- -------------
Cash Flows Provided by (Used in)
Financial Activities:
Net proceeds of common stock sold 494,949 -
Advances from (to)Northwest Financial Group, Inc. 96,922 (53,483)
Advances (Payments) to officers (26,400) -
------------- -------------
Net Cash Provided by (Used in)
Financing Activities 565,471 (53,483)
------------- -------------
Net Increase in Cash and Cash Equivalents 389,501 4,555
Cash and Cash Equivalents at Beginning of Period - 22,731
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 389,501 $ 27,286
============= =============
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 FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS:
The unaudited consolidated financial statements for the three months ended
March 31, 2000, have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to those rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for a
fair presentation of results of operations have been made to the interim
financial statements. Results of operations for the three-month period ended
March 31, 2000 are not necessarily indicative of results of operations for the
respective full year.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated financial statements
for its first quarter ended March 31, 2000, is presented in the Company's
audited financial statements for the year ended December 31, 1999.
Accordingly, the Company's audited financial statements, as contained in the
Company's Form 10SB12G, as amended, should be read in connection with these
financial statements.
Certain amounts in the financial statements of prior periods have been
reclassified to conform to the presentation used for three month period ended
March 31, 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 sold 1,116,000 units at as of August 9,
2000.
NOTE 4 - ADVANCES FROM NORTHWEST FINANCIAL GROUP, INC
The company has been advanced $44,693 as of March 31, 2000 from Northwest
Financial Group, Inc. an entity controlled by the company's largest
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stockholder and CEO. These funds have been advanced on a non interest-bearing
basis for operational cash needs.
NOTE 5 - 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 6 - AMORTIZATION OF FRANCHISE ACQUISITION COSTS
The company amortizes its franchise acquisition costs of $ 1,994,589 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 and additional 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. The public shell had no
revenues or operations.
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 for the
first quarter ended March 31, 2000.
Results of Operations - First Quarters Ended March 31, 2000 and 1999
--------------------------------------------------------------------
The Company's mortgage loan business suffered in the first quarter of
2000 as the federal reserve Board continued to increase lending rates which
adversely impacted residential mortgage rates. Although the Company has begun
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to do a significant amount of second mortgages, it did not result in as large
a commission on a per loan basis. Mortgage loan origination revenues were
$167,075 in the first quarter of 2000 vs. $135,889 in the first quarter of
1999. These number are not directly comparable as the Company did not fully
scale up its mortgage loan business until February of 1999. The Company's
operations reflect a loss of $261,164 in first quarter 2000 vs. net income of
$40,895 in the first quarter 1999. The loss is attributable to higher
marketing and personnel costs incurred by WHY USA NA to broaden its franchise
system. The Company's marketing costs were substantially greater than its new
franchise sales in the first quarter ended March 31, 2000. The Company's
franchise fees on real estate transactions totaled $57,976 during the first
quarter of this year. The Company has a seasonal decline in real estate
franchise transactions fees in the first and fourth quarters of each year. New
franchise sales totaled $20,000 and direct marketing and travel costs $52,871
The Company lost $111,660 in its franchising operations, $76,385 in its
mortgage loan origination operations and incurred additional general and
administrative expenses of $73,119 during the first quarter of 2000 resulting
in a total loss of $261,164. The Company's additional general and
administrative expenses were incurred in connection with reviewing various
business opportunities as well as increased personnel expenses, higher legal
and accounting expenses, and employee recruitment fees. The Company expensed
$57,135 for stock transferred to officers for services in connection with
consolidating the entities during the first quarter. This stock was owned by
Donald Riesterer, the Company's Chief Excutive Officer. The Company also
incurred a non cash expense on the amortization of its franchise acquisition
costs of $41,554 in first quarter of 2000. The 1999 first quarter financials
include only the operations of NWF as WHY USA NA was not acquired until
December 31, 1999. The Company's 1999 operations were favorably influenced by
a strong refinancing market which generated a greater margin for level of
effort in the mortgage operations.
Liquidity and Capital Resources
-------------------------------
Revenues from Operating Activities
The Company derives revenues from: (1) franchise fees, (2) new franchise
sales, and (3) mortgage origination fees. During the Company's first quarter
ended March 31, 2000, the Company derived 68% of its revenues from mortgage
loan origination fees, 24% from franchise fees, and 8% 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 a(68 at March 31,
2000 vs. 65 in 1999) based on $95 per transaction or 6% of commission
revenues, whichever is less, provided each franchisee must pay a monthly
minimum of $325. During 1999, the Company had also reduced the minimum
percentage to 4% of commission revenues, and the monthly minimum payment to
$225 under certain circumstances. 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%, showing a 7% increase in revenues from franchise sales in the first
quarter of 2000. 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 requires each franchisee to enter into a Franchise
Agreement. The franchise agreement provides for:
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* 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, subject to performance
* an initial franchise fee of $9,900; the lesser of $95 per transaction
or 6% of revenues received from each transaction with a minimum fee
of $325 in per 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
The provisions of the Franchise Agreement are fully described on page 11
under "Franchise Agreement." The Company had 65 franchise agreements in effect
as of December 31, 1999; 68 as of March 31, 2000, and 76 as of the date
hereof.
Investing Activities
The Company purchased $22,000 in computer and communications equipment
as it began to gear up its telemarketing operations in the first quarter of
2000. The comparative period in 1999 had a purchase of $2,000 for computer
equipment for mortgage operatons.
Liabilities/Contingent Liabilities
The Company has total liabilities as of its quarter ended March 31, 2000
of $62,403 which includes an advance from Northwest Financial Group, Inc. of
$44,693. The Company paid off a $26,400 loan from Don Riesterer during that
quarter. 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 raised $498,500 in its private placement in its first quarter
2000 and consumed approximately $110,000 of this amount to fund losses in its
real estate and mortgage operation. The Company incurred a non-cash
compensation charge of $57,135 to officers and directors for stock which the
CEO transferred from his name to these persons for assistance in the
combination of the consolidated entities. The Company amortized $41,762 of its
franchise acquisition costs in the first quarter of 2000 which is also a non-
cash charge to expenses. The Company also received a minor amount of funding
from vendors who increased accounts payable by $17,500 in its first fiscal
quarter. The Company repaid Donald Riesterer's loan of $26,400 and received
over $24,000 in funding from Northwest Financial Group, Inc. for its mortgage
loan operations. In 1999, net income was utilized by the Company to repay
advances from Northwest Financial Group, Inc. in the amount of $53,483.
Northwest Financial Group is an affiliate of the Company.
Overall Cash Flows
Losses in the first quarter of 2000 consumed a portion of the Company's
private placement proceeds vs. profitable operations in the first quarter of
1999 which were used for repayment of start-up advances from NWF's founder.
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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 first
quarter of 2000 the Company operated at a loss. This trend will likely
continue as the Company initiates its expansion plans. The Company's working
capital requirements during the next 12 months are approximately $1.5 Million
with approximately $1,000,000 in anticipated revenues over the next year. The
Company anticipates utilizing $500,000 of its private placement proceeds to
cover the shortfalls, of which approximately $110,000 has already been
expended. The Company anticipates its General and Administrative expenses will
be between $200,000 and $250,000 per quarter including personnel, rents, and
legal and accounting expenses. This is a significant increase over the pro
forma general and administrative expenses of 1999, and is attributed to the
Company's gearing up to expand franchise sales. Mortgage loan origination
fees and franchise costs will be directly related to revenues in those
categories and based on pro forma December 31, 1999 expenses will cost the
Company approximately $110,000 per quarter. The Company also will experience
approximately $30,000 to $40,000 in travel and marketing expenses per quarter
in the next twelve months. The Company expects revenues of approximately
$250,000 per quarter based on the number of existing franchisees and quarterly
results for its first quarter.
The number of the Company's franchisees decreased over the three years
prior to the Company's acquisition, from 91 at year end 1997 to 65 at the
Company's acquisition of WHY USA NA and 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 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 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 $500,000 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.
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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. $100,000 of this has already been expended in the Company's
first fiscal quarter. The Company currently has 1,116,000 Units subscribed
and paid for. 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
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
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. 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. 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
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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.
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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.
The Company will issue the securities for the subscribed for units upon
close of the offering. The Company has spent $110,000 of the proceeds of the
offering to date on working capital deficits during its first quarter.
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)
15
<PAGE>
2.5 Addendum to Stock Purchase Agreement,
dated December 30, 1999 including Assignment (1)
to Donald Riesterer
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 10SB 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
March 31, 2000.
16
<PAGE>
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)
