UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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, NO. 302, P.O. BOX 683, FARMINGTON, UTAH 84025-0683
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 451-9580
Telecopy: (801) 451-9582
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act 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
q No x
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
State issuer's revenues for its most recent fiscal year: $4,759,000
As of October 10, 1996, the Registrant had outstanding 4,232,399 shares of its
common stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are
incorporated by reference, briefly describe them and identify the part of the
Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 31, 1990): NONE.
Transitional Small Business Disclosure Format (Check one): Yes No x
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 years ended
December 31 1995 and 1994, the Company suffered net losses applicable to common
stockholders of $696,000 and $687,000, respectively, and as of December 31,
1995, had an accumulated deficit of $7,400,000. At December 31, 1995, the
Company had a stockholders' deficit of $503,000. 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 $472,000 in net proceeds from its sale of common stock during
1995 as well as $439,000 in net proceeds through the sale of preferred stock of
its wholly-owned subsidiary. 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 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. See FINANCIAL STATEMENTS: Note 10.
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
For the year ended December 31, 1995, the Company experienced negative cash
flow from operating activities of $459,000, compared with negative cash flow
from operating activities of $149,000 in 1994. The increased cash required to
fund operating activities in 1995 as compared to 1994 is principally due to the
increased operating loss in 1995.
During 1995, the Company financed its cash flow requirements for operating
activities through $472,000 in net proceeds from the sale of its common stock,
$439,000 in net proceeds from the issuance of preferred stock, and $425,000 from
issuance of long-term debt.
The Company holds promissory notes receivable from executive officers and
directors who are also stockholders aggregating approximately $2,606,000. See
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. For financial
reporting purposes, the Company has recorded reserves aggregating $2,222,000
against these notes based on management's conclusion that the ultimate
collectibility of certain of these notes was uncertain. The remaining balance
of these notes is reflected as contra equity as opposed to an asset in the
Company's balance sheet. The stockholders continue to be obligated to repay the
full amount of these notes, including accrued interest, and management believes
the remaining net stockholders' notes receivable of approximately $384,000,
after deducting the above reserves, are realizable based on the availability of
stockholders' personal financial resources. See FINANCIAL STATEMENTS: Note 9.
The Company does not expect that payments under these notes will provide capital
during the next 12 months.
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 $1,219,000 current liabilities were past due
at December 31, 1995, 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, secured by a pledge of the outstanding common stock of AF
Reinsurance. 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.
A substantial portion of the current assets of the Company consists of cash
and cash items of AF Reinsurance, which is required to maintain capital and
surplus aggregating at least $250,000 in order to conduct reinsurance activities
in Arizona. The Company, Triad, and AF Reinsurance have represented to the
purchasers of preferred stock in Triad and $425,000 in surplus debentures of AF
Reinsurance that the net proceeds from the issuance of such securities would be
used for the reinsurance activities of AF Reinsurance.
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. 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 1995 increased $250,000, or 5.6%, from 1994 due to
promotions offered by LifeUSA and favorable interest rates. In addition, during
1995 prevailing interest rates were relatively lower than in 1994. Lower
interest rates generally aid in the sale of annuity products such as those
marketed by the Company.
Commission expense was 86.1% and 82.8% of commission revenue in 1995 and
1994, respectively. This fluctuation reflect 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 declined to $1,486,000 in 1995 from
$1,513,000 in 1995 and 1994, or 30% and 33.6% of commission revenue in 1995 and
1994, respectively. General and administrative expenses include office expense,
as well as travel, lodging, and other expenses associated with recruiting
additional sales personnel, which sometimes must be increased in anticipation of
increasing business. The change in general and administrative expense in 1995,
as compared to 1994, was primarily due to cost-cutting measures implemented in
1995 respecting outside financial advisory services.
Commission revenue for the year ended December 31, 1995, increased
$250,000, or 5.6%, over the preceding year. The increase in 1995 commission
revenue was due principally to the increase in 1995 production over the previous
year. The field marketing organization grew from approximately 4,300 agents at
December 31, 1994, to approximately 5,500 agents at December 31, 1995. See
"ITEM 1. BUSINESS: Marketing" respecting the current program to terminate
inactive agents.
The Company generated net interest income in each of the last three years
primarily attributable to interest income from stockholder receivables and
interest expense from notes issued in connection with the acquisition of
automobiles and real estate.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, dated as of
the 3rd day of December, 1996.
AMERICAN FINANCIAL HOLDING, INC.
By /s/ Kenton L. Stanger, President
(Principal Executive and Principal
Financial and Accounting Officer)
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