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, 1996
------------------------
Commission file number 0-12666
-----------------
American Financial Holding, Inc.
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 87-0458888
--------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 South 200 West, Suite 302,Farmington, Utah 84025
(Address of principal executive offices)
(801) 451-9580
------------------------------
(Registrant's telephone number, including area code)
Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The Company had 4,232,000 shares of common stock, par value $0.01 per
share, issued and outstanding as of November 15, 1996.
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ITEM 1. FINANCIAL STATEMENTS
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SPECIAL NOTE
This report on Form 10-QSB for the interim period ended March 31, 1995, of
American Financial Holding, Inc. (the "Company"), is being filed in November
1996, substantially after its due date. This report should be read in
conjunction with other periodic reports reporting events occurring after
December 31, 1995. Such other periodic reports and the information set forth
therein should be read in conjunction with the Company's annual report on Form
10-KSB, which contains information as of December 31, 1995, and this quarterly
report on Form 10-KSB unless otherwise indicated.
The consolidated condensed financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, in the opinion of management, all adjustments (which include only
normal recurring accruals) necessary to present fairly the financial position
and results of operations for the periods presented have been made. These
consolidated condensed financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1996 1995
Current assets -------------- ----------------
Cash $ 827,556 $ 988,904
Marketable securities 87,025 88,100
Commissions receivable 12,500 170,014
Interest receivable 2,762 1,414
------------ ------------
Total current assets 929,843 1,248,432
------------ ------------
Property and equipment
Automobiles 96,115 97,852
Equipment 48,875 48,238
Furniture and fixtures 22,133 22,133
167,123 168,223
Less: accumulated depreciation (72,234) (65,622)
------------ -----------
Net property and equipment 94,889 102,601
------------ -----------
Other Assets
Investment in real estate 216,344 102,955
Net deferred tax asset 195,560 195,560
Deposits 26,804 26,804
------------ ----------
Total other assets 438,708 325,319
------------ ----------
Total Assets $ 1,463,440 $ 1,676,352
============= =============
See the accompanying notes to condensed consolidated financial statements.
AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, December 31,
1996 1995
Current liabilities ------------- ------------
Accounts payable $ 348,085 $ 317,277
Commissions payable 66,181 170,014
Short-term borrowings 53,478 53,478
Accrued liabilities 244,714 281,528
Income taxes payable 260,241 256,241
Preferred dividends payable 36,096 24,064
Current portion of long-term debt 15,206 57,738
------------- ------------
Total current liabilities 1,024,001 1,160,340
------------- ------------
Long-term debt, net of current portion 562,648 522,403
------------- ------------
Minority interest (preferred stock in
consolidated subsidiary) 401,843 414,440
------------- ------------
Stockholders' deficit (Note 2)
Common stock - $.01 par value;
20,000,000 shares authorized,
3,763,425 and 4,232,399 shares
issued and outstanding at March
31, 1996 and December 31, 1995,
respectively 42,581 42,324
Additional paid-in capital 7,409,662 7,378,424
Stockholders' notes receivable, net
of reserve of $960,595 and $869,255
at March 31, 1996 and December 31,
1995, respectively (379,233) (383,966)
Unrealized loss on marketable
securities (53,412) (53,412)
Accumulated deficit (7,544,650) (7,404,201)
------------ -----------
Total stockholders' deficit (525,052) (420,831)
------------ -----------
Total liabilities and stockholders'
deficit $ 1,463,440 $ 1,676,352
============ ===========
See the accompanying notes to condensed consolidated financial statements.
AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
-----------------------------
1996 1995
-------------- ------------
Commission revenue $ 1,070,772 $ 1,156,204
Commission expense 901,800 993,842
-------------- ------------
Gross profit 168,972 162,362
General and administrative expense 358,994 295,653
-------------- ------------
Loss from operations (190,022) (133,291)
Other Income (Expense)
Interest income 55,740 37,808
Interet expense (2,167) (3,168)
------------ ----------
Total other income and expense 53,573 34,640
------------ ----------
Loss before income taxes (136,449) (98,651)
------------ ----------
Income tax provision 4,000 3,011
------------ ----------
Loss before minority interest (140,449) (101,662)
Minority interest, preferred dividend
of subsidiare 12,032 -
Net Loss $ (152,531) $ (101,662)
=========== ==========
Net loss per common share $ (0.03) $ (0.03)
=========== ==========
Weighted average number of
common shares outstanding 4,233,909 3,703,613
=========== ==========
See the accompanying notes to condensed consolidated financial statements.
AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
For the Three Months
Ended March 31,
------------- --------------
1996 1995
------------ -------------
Cash flows from operating activities
Net loss $ (140,449) $ (101,662)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 8,348 7,003
Increase in reserve against
stockholders' notes receivable 91,340 72,380
Changes in current assets
and liabilities 50,837 65,923
Interest income added to
shareholders' notes receivable (46,230) (37,686)
Interest expense added to notes
payable - 1,130
----------- ----------
Net cash provided by (used in)
operating activities (36,154) 7,088
----------- ----------
Cash flows from investing activities
Increase in stockholders'
notes receivable (40,377) (48,359)
Purchase of equipment (636) -
Purchase of real estate held
for investment (113,389) -
----------- ----------
Net cash used in investing activities (154,402) (48,359)
----------- ----------
Cash flows from financing activities
Proceeds from sale of common stock 31,495 107,876
Principal payments on short-term
borrowings and long-term debt (2,287) (5,479)
Stock issuance costs paid - (16,791)
Proceeds from collection of receivable
from shareholder - 9,800
---------- ----------
Net cash provided by financing
activities 29,208 95,406
---------- ----------
Net increase (decrease) in cash (161,348) 54,135
Cash at beginning of period 988,904 38,007
----------- -----------
Cash at end of period $ 827,556 $ 92,142
=========== ===========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 2,167 $ 1,916
=========== ==========
See the accompanying notes to condensed consolidated financial statements.
AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have
been prepared by the Company, and are not audited. All adjustments
necessary for fair presentation have been included, and consist only
of normal recurring adjustments. These financial statements are
condensed and, therefore, do not include all disclosures normally
required by generally accepted accounting principles. These
statements should be read in conjunction with the Company's most
recent annual report on Form 10-K. The financial position and results
of operations presented in the accompanying financial statements are
not necessarily indicative of the results to be generated for the
remainder of 1996.
NOTE 2--STOCKHOLDERS' DEFICIT
During the three months ended March 31, 1996, an additional 25,750
shares of common stock were issued for cash at an average price of
$1.22 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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The Company's Ability to Continue as a Going Concern--Shortage of Working
Capital and Continuing Losses
The Company has extremely limited working capital, no credit lines, and
insufficient revenue to meet its operating requirements. For the inteirm
period ended March 31, 1996, the Company suffered net losses of $152,531, and as
of March 31, 1996, had an accumulated deficit of $7,544,650. The Company
expects that it will continue to incur operating losses and that its accumulated
deficit will increase. The Company has been dependent solely upon cash provided
by financing activities to fund its operations. The principal sources of capital
from outside sources during the preceding years has been receipts from the sale
of securities. All of the foregoing raises substantial concerns respecting the
ability of the Company to continue as a going concern.
The Company's operating plan for the balance of 1996 and into 1997 is
dependent upon the receipt of additional funding from equity financing. The
Company received $31,495 in net proceeds from its sale of common stock during
the inteirm period ended March 31, 1996. There can be no assurance that the
Company will be able to sell additional equity securities in the future to meet
its capital requirements. The Company is relying on the surplus of AF
Reinsurance and the sale of common stock and borrowings, if available, to
provide the $224,000 required to repurchase Triad Preferred Stock from APL and
cancel its $100,000 claim.
The consolidated financial statements do not include any adjustments
relating to recoverability and classification of asset carrying amounts or the
amount and classification of liabilities if the Company were unable to continue
as a going concern.
The Company incurred in 1995 and previous years, and continues to incur,
substantial costs in connection with its now abandoned efforts to acquire, and
its completed efforts to organize, a chartered insurance company subsidiary and
to fund planned expansion in order to retain coinsurance revenue from the
established life insurance and annuity production of Income Builders. A
substantial portion of such acquisition and organization costs was for fees for
outside consulting and professional fees that will be eliminated or
substantially reduced in the future.
Liquidity and Capital Resources
The Company's cash requirements for operating and investing activiites
during the quarter ended March 31, 1996, were provided by financing activities.
Operating activities used net cash of $36,000 during the three-month interim
period to fund the Company's net loss and increase in reserve against
stockholders' notes. Investing activities required net cash of $154,000,
including $113,000 used for the purchase of real estate intended for the
subsequent purchase by a newly recruited executive marketing manager. Due to
the failure to obtain additional Company funding to support marketing expansion,
the individual did not begin employment so the real estate was sold to an
unrelated party after March 31, 1996. Net cash of $29,000 provided by financing
activiites was insufficient to satisfy all of the Company's cash requirements
during the quarter, resulting in a $161,000 net decrease in cash during the
quarter ended March 31, 1996.
Capital Requirements
The Company believes that the initial capitalization of AF Reinsurance is
sufficient for the subsidiary to begin operations, although the Company is
seeking additional funding in order to launch its new product introduction and
marketing expansion and, in general, to form a broader base for planned
activities. In addition to funding for AF Reinsurance, the Company would
benefit from additional funds to cover accrued liabilities and accounts payable
inasmuch as most of the Company's $1,024,001 current liabilities were past due
at March 31, 1996, to pay ongoing operating losses, and to provide funds for
additional marketing by Income Builders.
In light of the organization of AF Reinsurance, the Company desires to
continue to expand its marketing organization and acquire additional insurance
company assets. The Company will require additional equity or debt capital to
fund this expansion, and there can be no assurance that such funding will be
available on terms viable to the Company.
As of September 30, 1996, Triad had issued and outstanding 52,138 shares of
Triad Preferred Stock with a liquidation preference of $12 per share, or an
aggregate of $625,656 (without giving effect to the proposed repurchase of
shares from APL discussed above), and AF Reinsurance had outstanding $425,000 in
principal amount of surplus debentures, bearing interest at 7.66% per annum, due
quarterly, with annual principal payments of $42,500 due annually, commencing
September 30, 1996. All principal and interest payments required through
October 20, 1996, have been paid. The Company may elect to utilize proceeds
from these surplus debentures, which form a portion of the surplus of AF
Reinsurance, to pay the principal portion of the amount due in the future.
The Company also has converted an account payable into a promissory note
aggregating $317,000 at September 30, 1996, bearing interest at 8% (12% after
default) and due five days after demand, but in any event, by March 31, 1997,
for professional services rendered. The Company does not expect that demand
will be made on this note as long as it pays for ongoing professional services
and costs advanced as they are incurred on a current basis, and as long as the
payee, in its sole discretion, concludes that the Company is making substantial
progress toward obtaining sufficient financing to pay the note. This note is
secured by a pledge of officer and director notes payable to the Company
aggregating approximately $2,606,000.
Inasmuch as the Triad offering of Triad Preferred Stock was not successful
in obtaining the amount of funding anticipated, the Company has been unable to
launch its product introduction and marketing effort as discussed above.
Therefore, the Company is exploring other financing alternatives, including
borrowings, if available, and the sale of additional equity securities. Net
proceeds from such funding would be utilized to fund marketing expansion and
related new product introduction, to increase the surplus of AF Reinsurance, to
cover ongoing general and administrative expenses (including payments to
executive officers and directors), and perhaps to reduce the outstanding Triad
surplus debenture or to redeem Triad Preferred Stock. There can be no assurance
that any of the Company's efforts to obtain additional funding will be
successful or that the Company will be able to continue.
As part of the Company's strategic analysis and planning, it may consider a
number of corporate restructuring alternatives and may explore the possibility
of separating its Triad reinsurance activities and/or Income Builders marketing
organization from the holding company parent and its essentially inactive
subsidiary, American Financial Marketing. Management is finalyzing the steps
that would be required to implement such a possible restructuring for submittal
to the board of directors for consideration. There can be no assurance as to
whether any such organizational restructuring will be pursued, whether it will
be implemented, or the business or financial effects thereof.
Certain Uncertainties
The Company and Triad have sold securities in reliance on exemptions from
registration under the Securities Act and applicable state securities laws.
Management believes that the Company has materially complied with the
requirements of the applicable exemptions. However, since compliance with these
exemptions is highly technical, it is possible that the Company could be faced
with certain contingencies based on civil liabilities resulting from the failure
to meet the terms and conditions of such exemptions, which could have a material
adverse impact on the Company's financial condition. Neither the Company nor
Triad has received any demand from any shareholder requesting a return of his
investment, damages, or other remedies in connection with the purchase of
securities by such shareholder.
Results of Operations
Commission revenue for the first quarter of 1996 ("1Q96") decreased
$85,000, or 7.4%, from the corresponding quarter in 1995 ("1Q95") due to the
absence of special marketing incentive programs and generally moderate
prevailing interest rates during 1Q96. In contrast, during 1Q95 the underwriter
of the Company's principal annuity products conducted an aggressive sales
incentive program. In addition, during 1Q95 prevailing interest rates were
relatively higher than in 1Q96, which generally aids in the sale of annuity
products such as those marketed by the Company.
Commission expense was 84.2% of commission revenue during 1Q96 as compared
to 86.0% during 1Q95. This reflects ordinary variations in the commission
schedule of various products, the age and other demographic characteristics of
policy purchasers, the size of individual annuity and insurance policies sold,
the commission schedule of the individual insurance agent selling particular
policies, and similar factors, which will likely continue to fluctuate in the
future.
General and administrative expenses increased $64,000, or 21.7%, during
1Q96 as compared to 1Q95, due principally to the increase in fees for
professional services.
The $19,000, or 54.7%, increase in other income and expense in 1Q96 as
compared to 1Q95 is due principally to the interest accruing on the larger
balance of outstanding stockholder notes receivable during the later period.
As a result of the foregoing, the Company's net loss increased $51,000 or
50.2% in 1Q06 over the same period in 1995. This increase in the loss during
1Q96 included accrued dividends on outstanding preferred stock of a subsidiary
of $12,032. As a result of the larger number of shares outstanding during 1Q96
as compared to 1Q95, reflecting the interim sale of Common Stock to provide
funding required for the Company to continue, the loss per common share was
equal for 1Q96 and 1Q95.
PART II
OTHER INFORMATION
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ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party to any material legal proceedings, and, except
as noted below, no such proceedings have been threatened by or, to the best of
its knowledge, against it.
On October 9, 1996, the Company was advised by the Enforcement Division of
the Securities and Exchange Commission (the "Commission") that it is considering
recommending that the Commission bring an enforcement action, which could
include a civil penalty, against the Company in U.S. District Court for failing
to file timely periodic reports in violation of Section 13(a) of the Securities
Exchange Act of 1934 and the rules thereunder.
In October 1996 the Company also received a request for the voluntary
production of information to the Enforcement Division of the Commission related
to the resignation of Coopers & Lybrand LLP, the dismissal of Arthur Andersen
LLP, and the appointment of Jones, Jensen & Company as the Company's independent
accountant and the reasons therefor. In addition, the Company is requested to
provide certain information respecting its previous sales of securities.
The Company is cooperating in these inquiries.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits.
--------
None
(b) Reports on Form 8-K
-------------------
During the quarter ended March 31, 1996, the Company filed the
following reports on Form 8-K:
Date of Event Reported Item Reported
January 10, 1996 Item 4. Changes in Registrant's
Certifying Accountants
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.
AMERICAN FINANCIAL HOLDING, INC.
(Registrant)
Dated: November 22, 1996 By /s/Knton L. Stanger, President
(Chief Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996, AND STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 827,556
<SECURITIES> 87,025
<RECEIVABLES> 15,262
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 929,843
<PP&E> 167,123
<DEPRECIATION> (72,234)
<TOTAL-ASSETS> 1,463,440
<CURRENT-LIABILITIES> 1,024,001
<BONDS> 0
42,581
0
<COMMON> 0
<OTHER-SE> (567,633)
<TOTAL-LIABILITY-AND-EQUITY> 1,463,440
<SALES> 1,070,772
<TOTAL-REVENUES> 1,070,772
<CGS> 901,800
<TOTAL-COSTS> 901,800
<OTHER-EXPENSES> 358,994
<LOSS-PROVISION> (190,922)
<INTEREST-EXPENSE> 2,167
<INCOME-PRETAX> (136,449)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (140,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,449)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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