UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 8-K/A
Amendment No. 4
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: November 4, 1996
(Date of Earliest Event Reported): __________
NOTE BANKERS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Texas 0 - 12240 84-0882076
(state or other (Commission File (I.R.S. Employer
jurisdiction of Number) identification No.)
incorporation)
C/O M. Stephen Roberts, Esq.
One Riverway, Suite 1700
Houston, Texas 77056
(Address of Principal Executive Offices)(Zip Code)
(713) 961-2696
(Registrant's telephone number, including area code)
________________________
(Former name or former address, if changed since last report.)
<PAGE>
NOTE: This Form 8-K/A Amendment NO. 4 amends the Form 8-K/A Amendment No. 1
filed November 8, 1996; Form 8-K/A Amendment No. 2 filed December 9,
1996; and Form 8-K/A Amendment No. 3 filed January 30, 1997
previously filed on behalf of Registrant. This amended report is
being filed to provide the financial statements and consent
referred to herein, and amends and restates Item 7. in its entirety
as follows:
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired:
The following financial statements and Independent Auditor's Report
of Private Mortgage Bankers, Inc. ("PMB") are filed herewith as
pages F-2 to F-13:
Independent Auditor's Report
Balance Sheets - December 31, 1995 and June 30, 1996 (unaudited) F-3
Statements of Operations - For the Years Ended December 31, 1994 and
1995 and for the Six Months Ended June 30, 1995 and 1996
(unaudited) Statements of Stockholders' Deficit - For the Period
From January 1, 1994 through June 30, 1996 Statements of Cash
Flows - For the Years Ended December 31, 1994 and 1995 and for the Six
Months Ended June 30, 1995 and 1996 (unaudited) Notes to Financial
Statements
The following Combined Financial Statements and Independent Auditor's Report of
Life Today, Inc. and Life Today Financial Services, Inc. ("Life Today") are
filed herewith as pages F-14 to F-20:
Independent Auditor's Report
Combined Balance Sheets - December 31, 1995 and June 30, 1996
(unaudited)
Combined Statements of Operations - For the Year Ended December 31, 1995
and for the Six Months Ended June 30, 1995 and 1996 (unaudited)
Combined Statements of Stockholders' Equity (Deficit) - For the Year
Ended December 31, 1995 and for the Six Months Ended June 30, 1996
(unaudited)
Combined Statements of Cash Flows - For the Year Ended December 31, 1995
and for the Six Months Ended June 30, 1995 and 1996 (unaudited)
Notes to Combined Financial Statements
(b) Pro forma financial information: The following unaudited pro forma
financial statements of PMB, giving effect to its acquisition of Life
Today, are filed herewith as pages F-21 to F-25:
Pro Forma Balance Sheet as of December 31, 1995 and for the Six Months
Ended June 30, 1996
Pro Forma Statement of Operations for the year ended December 31, 1995
and for the Six Months Ended June 30, 1996
Notes to Unaudited Pro Forma Consolidated Financial Data
-2-
<PAGE>
(c) Exhibits
2.1 Agreement for Exchange of Stock and Plan of Reorganization
("Exchange")dated July 31, 1996. (1)
2.2 Plan of Consolidation Merging General Genetics Corporation (Parent)
Into Note Bankers of America, Inc. (Subsidiary) dated September
30, 1996. (1)
3(i) Articles of Incorporation of Note Bankers of America, Inc. (1)
3(ii) Bylaws of Note Bankers of America, Inc. (1)
16.1 Letter from Paul Rosenberg on change in certifying accountant (1)
99.1 Press Release issued October 17, 1996 announcing the consummation
of the Exchange. (1)
(1) Previously filed as an Exhibit to the Registrant's Form 8-K and
amendments and incorporated by reference herein and to be a part hereof
from the date of filing such documents.
(2) Filed herewith.
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 hereunto duly authorized.
NOTE BANKERS OF AMERICA, INC.
Dated: April 6, 1999 BY: /S/ M. Stephen Roberts
M. STEPHEN ROBERTS, President
-3-
<PAGE>
PRIVATE MORTGAGE BANKERS, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1995
LIFE TODAY, INC.
AND
LIFE TODAY FINANCIAL SERVICES, INC.
COMBINED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1995
UNAUDITED PRO FORMA INFORMATION
<PAGE>
I N D E X
Page
----
PRIVATE MORTGAGE BANKERS, INC.:
Independent Auditor's Report F-2
Balance Sheets - December 31, 1995 and June 30, 1996 (unaudited) F-3
Statements of Operations - For the Years
Ended December 31, 1994 and 1995 and for the Six
Months Ended June 30, 1995 and 1996 (unaudited) F-4
Statements of Stockholders' Deficit - For the
Period From January 1, 1994 through June 30, 1996 F-5
Statements of Cash Flows - For the Years
Ended December 31, 1994 and 1995
and for the Six Months Ended June 30, 1995
and 1996 (unaudited) F-6
Notes to Financial Statements F-8
LIFE TODAY, INC.:
Independent Auditor's Report F-13
Combined Balance Sheets - December 31, 1995
and June 30, 1996 (unaudited) F-14
Combined Statements of Operations - For the
Year Ended December 31, 1995 and for the Six Months
Ended June 30, 1995 and 1996 (unaudited) F-15
Combined Statements of Stockholders' Equity
(Deficit) - For the Year Ended
December 31, 1995 and for the Six Months
Ended June 30, 1996 (unaudited) F-16
Combined Statements of Cash Flows - For the
Year Ended December 31, 1995 and for the Six Months
Ended June 30, 1995 and 1996 (unaudited) F-17
Notes to Combined Financial Statements F-18
UNAUDITED PRO FORMA INFORMATION F-20
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Private Mortgage Bankers, Inc.
We have audited the accompanying balance sheet of Private Mortgage Bankers, Inc.
as of December 31, 1995, and the related statements of operations, changes in
stockholders' deficit and cash flows for each of the years in the two-year
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial state-ments. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Private Mortgage Bankers, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for each of the years in the two-year period then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company had a net loss of $117,672 for the year ended
December 31, 1995 and had a stockholders' deficit of $219,294 at December 31,
1995. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding those matters also
are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Hein + Associates llp
Houston, Texas
September 16, 1996
F-2
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
------
CASH $ 65,369 $ 13,191
LOANS HELD FOR RESALE, net 1,143,184 1,083,264
REAL ESTATE OWNED 228,811 154,656
ACCRUED INCOME AND OTHER ASSETS 21,602 19,086
-------------- -----------
Total assets $ 1,458,966 $1,270,197
============== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-----------------------------------------
BANK LINE OF CREDIT $ 245,933 $ 245,933
ESCROW DEPOSITS 68,692 46,343
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 92,796 125,851
NOTES PAYABLE 1,277,839 1,133,883
STOCKHOLDERS' DEFICIT:
Common stock, no par value; 100,000 shares authorized;
30,000 shares issued and outstanding 1,000 1,000
Treasury stock, at cost (8,000) (8,000)
Accumulated deficit (219,294) (274,813)
-------------- -----------
Total stockholders' deficit (226,294) (281,813)
-------------- -----------
Total liabilities and stockholders' deficit $ 1,458,966 $1,270,197
============== ===========
</TABLE>
F-3
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
December 31, June 30,
-------------------------- --------------------
1994 1995 1995 1996
-------------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Brokerage income $ 170,711 $ 93,678 $ 50,369 $ 16,297
Gain on loan sales 15,989 43,575 25,375 22,203
Interest on loans 197,481 159,345 89,702 85,797
Loan servicing fees 6,775 5,080 2,115 4,785
-------------- ---------- --------- ---------
Total revenue 390,956 301,678 167,561 129,082
OPERATING EXPENSES:
Interest expense 146,275 168,009 82,903 87,026
Salaries and benefits 198,178 203,108 94,859 81,895
Occupancy 16,981 24,170 11,744 12,172
Other 114,014 117,391 36,773 29,177
-------------- ---------- --------- ---------
Total operating expenses 475,448 512,678 226,279 210,270
LOSS FROM OPERATIONS (84,492) (211,000) (58,718) (81,188)
OTHER INCOME (EXPENSE):
Gain on sale of real estate 86,243 73,483 8,011 10,329
Other income 38,973 19,845 6,529 15,340
-------------- ---------- --------- ---------
Total other income 125,216 93,328 14,540 25,669
NET INCOME (LOSS) $ 40,724 $(117,672) $(44,178) $(55,519)
============== ========== ========= =========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH JUNE 30, 1996
Common Stock Total
----------------------- Treasury Accumulated Stockholders'
Shares Amount Stock Deficit Deficit
------------ --------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 30,000 $ 1,000 $ (8,000) $ (142,346) $(149,346)
Net income - - - 40,724 40,724
------------ --------- ------------- --------------- ----------
BALANCES, December 31, 1994 30,000 1,000 (8,000) (101,622) (108,622)
Net loss - - - (117,672) (117,672)
------------ --------- ------------- --------------- ----------
BALANCES, December 31, 1995 30,000 1,000 (8,000) (219,294) (226,294)
Net loss (unaudited) - - - (55,519) (55,519)
------------ --------- ------------- --------------- ----------
BALANCES, June 30,1996
(unaudited) 30,000 $ 1,000 $ (8,000) $ (274,813) $(281,813)
============ ========= ============= =============== ==========
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years Ended For the Six Months Ended
December 31, June 30,
--------------------------- ----------------------
1994 1995 1995 1996
--------------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 40,724 $(117,672) $ (44,178) $ (55,519)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of unearned
discounts and fees (34,090) (8,161) (6,196) (14,465)
Provision for credit losses - 10,000 - -
Changes in operating assets and
liabilities:
Decrease (increase) in accrued
income and other assets (10,983) 1,205 4,068 2,516
(Decrease) increase in accounts
payable and accrued
expenses 15,497 13,909 (26,718) 33,055
Gain on sale of loans (15,989) (43,575) 25,375 (22,203)
Gain on sale of real estate (86,243) (73,483) (8,011) (10,329)
--------------- ---------- ---------- ----------
Net cash used in operating
activities (91,084) (217,777) (55,660) (66,945)
--------------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of loans (315,116) (323,416) (218,575) (33,448)
Proceeds from sale of loans 116,962 411,983 339,488 139,021
Payments received on loans 97,556 173,666 83,457 83,765
Purchase of real estate and
improvements (189,020) (246,225) (117,846) (10,266)
Proceeds from sale of real estate 25,000 62,922 35,317 2,000
--------------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities (264,618) 78,930 121,841 181,072
--------------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase (decrease) in escrow
deposits 20,050 31,213 8,519 (22,349)
Proceeds from bank line of credit 298,040 195,317 100,650 -
Payments on bank line of credit (159,903) (192,759) (161,255) -
Proceeds from notes payable 288,787 596,025 330,818 42,800
Payments on notes payable (120,646) (458,373) (329,956) (186,756)
--------------- ---------- ---------- ----------
Net cash provided by financing 326,328 171,423 (51,224) (166,305)
--------------- ---------- ---------- ----------
activities
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended For the Six Months Ended
December 31, June 30,
------------------------- -------------------
1994 1995 1995 1996
-------------- --------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (29,374) 32,576 14,957 (52,178)
CASH AND CASH EQUIVALENTS,
beginning of year 62,167 32,793 32,793 65,369
-------------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, end
of year $ 32,793 $ 65,369 $ 47,750 $ 13,191
============== ========= ======== =========
SUPPLEMENTAL CASH FLOWS
INFORMATION:
Transfers of loans to real estate
owned $ 265,500 $ 133,957 $133,957 $ 13,250
============== ========= ======== =========
Financing provided on sales of real
estate owned $ - $ 227,196 $ 43,445 $106,000
============== ========= ======== =========
Debt assumed in the purchase of
real estate owned $ 38,417 $ 19,207 $ 19,207 $ -
============== ========= ======== =========
Debt transferred on loan sale $ - $ 37,868 $ 37,868 $ -
============== ========= ======== =========
</TABLE>
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(3) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
- --- ----------------------------------------------------
General - Private Mortgage Bankers, Inc. (the Company) purchases privately-held,
- -------
owner-financed mortgages from individuals who have personally financed the sale
of real property throughout Texas. The Company either holds the loans for
investment purposes or sells them to individual investors, banks or other
institutions. The Company is also in the business of brokering owner-financed
mortgages.
Loans Held for Resale - Loans to be held for an indefinite period of time are
- ------------------------
classified as available for sale and are carried at the lower of cost or market.
Cost is computed as the principal amount outstanding, net of unearned discounts
and deferred loan fees and expenses. Unearned discounts on loans are recognized
as income over the term of the loans on a level-yield method. These loans are
sold in response to changes in market interest rates, liquidity needs or other
similar factors.
The allowance for credit losses is established through a provision for credit
losses charged to operating expense. The allowance represents an amount which,
in management's judgement, will be adequate to absorb possible losses on
existing credits which may become uncollectible. Management's judgement in
determining the adequacy of the allowance is based on evaluations of the
collectibility of loans. These evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, current economic
conditions, overall portfolio quality and review of specific credits.
The Company began accounting for impaired loans in 1995 as prescribed in
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan" (SFAS No. 118). Impaired loans are measured on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
The adoption of SFAS No. 118 had no material impact upon the financial
statements of the Company.
Loan Origination Costs - Loan origination costs are deferred and amortized over
- -----------------------
the lives of the related loans as an adjustment of yield.
Real Estate Owned - Real estate owned represents property purchased for
- -------------------
investment or acquired through foreclosure. Real estate owned is carried at the
lower of cost or fair value. Reductions in the balance of real estate owned at
the time of foreclosure are charged to the allowance for credit losses. Any
subsequent writedowns to reflect cur-rent fair value are charged to operating
expense.
Income Taxes - The Company recognizes income taxes in accordance with Statement
- ------------
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under this method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis (temporary differences.)
Under SFAS No. 109, deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards, and then a
valuation allowance is established to reduce that deferred tax asset if it is
"more likely than not" that the related tax benefits will not be realized.
F-8
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
----------------------------------------------------
Concentrations of Credit Risk - The Company's financial instruments which are
- -------------------------------
exposed to concentrations of credit risk consist primarily of loans receivable
secured by single family residential mortgages in Houston and the surrounding
area. The Company assesses its credit risk and provides an allowance for credit
loss for any loans which it deems doubtful of collection.
Fair Value of Financial Instruments - The estimated fair values for financial
- --------------------------------------
instruments are determined at discrete points in time based on relevant market
information. The carrying amount of loans held for resale approximate fair
value. Cash and accrued income and other assets are valued at book value which
approximates fair value. The carrying amounts of escrow deposits, accounts
payable and accrued liabilities, bank line of credit and notes payable
approximate fair value.
Estimates - The preparation of financial statements in conformity with generally
- ---------
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in their financial statements and
accompanying notes. Actual results could differ from those estimates.
Unaudited Information - The accompanying financial information for the six
- ----------------------
months ended June 30, 1996 and 1995 have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The June 30, 1996 and 1995 financial statements reflect all
adjustments, consisting of normal recurring accruals, which are, in the opinion
of management, necessary to fairly present such information in accordance with
generally accepted accounting principles.
(4) GOING CONCERN:
--------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company had a net loss of $117,672 for the year ended
December 31, 1995 and had a stockholders' deficit of $219,294 at December 31,
1995. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The Company's ability to continue as a going concern is dependent upon its
ability to expand its share of the market for cash flow instruments and to
obtain additional funding to facilitate the Company's expansion. Management
believes the Company will be successful in expanding market share revenue base
and obtaining additional funding in sufficient amounts to provide for the
Company's existing operating requirements and expansion of its revenue base.
F-9
<PAGE>
(5) LOANS RECEIVABLE:
-----------------
Major classifications of loans at December 31, 1995 and June 30, 1996 are
as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
(unaudited)
<S> <C> <C>
Residential real estate:
Single family residential $1,304,479 $1,267,935
Multi-family residential 42,929 35,951
Commercial 16,739 15,966
Land 16,341 11,551
----------- -----------
1,380,488 1,331,403
Less: Loan fees and unearned discount (227,304) (238,139)
Allowance for credit losses (10,000) (10,000)
----------- -----------
$1,143,184 $1,083,264
=========== ===========
</TABLE>
Changes in the allowance for credit losses for the years ended December 31, 1994
and 1995 and for the six-month period ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- --------
(unaudited)
<S> <C> <C> <C>
Balance, at beginning of
period $ - $ - $$10,000
Provision for credit loses - 10,000 -
Credits charged off - - -
----- ------- --------
Balance, at end of period $ - $10,000 $ 10,000
===== ======= ========
</TABLE>
(2) INCOME TAXES:
- --- -------------
Deferred tax assets and liabilities as of December 31, 1995 consisted of
the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset - net operating loss carryforwards $ 74,800
Less: Valuation allowance (74,800)
---------
Deferred tax asset, net -
---------
Deferred tax liability -
---------
$ -
=========
</TABLE>
F-10
<PAGE>
4. INCOME TAXES: (continued)
-------------
The Company used net operating loss carryforwards (NOLs) of approximately
$41,000 in 1994 to offset taxable income.
At December 31, 1995, the Company had net operating loss carry forwards (NOL's)
of approximately $220,000 available to offset future taxable income. The carry
forwards expire beginning 2008.
(7) RELATED PARTY TRANSACTIONS:
- --- ----------------------------
During 1994 and 1995, the Company paid a stockholder approximately $79,400 and
$86,500, respectively, in exchange for office space and equipment leased from
the stockholder and the use of certain office personnel. The lease agreement is
on a month-to-month basis. During the six months ended June 30, 1995 and 1996,
$48,222 and $12,172 in rent and other expenses were incurred, respectively.
(8) REVOLVING LINE OF CREDIT:
- --- ---------------------------
The Company has a revolving line of credit with a bank in the maximum amount of
$250,000 which was renewed on March 25, 1996 and matures on September 26, 1996.
The line of credit is used by the Company solely to finance the purchase of
single family residential loans and the holding of such loans until they are
sold. Borrowings under the line of credit are limited to the sum of 90% of the
current purchase price of the mortgage loans (the original purchase price of
existing mortgage notes less all principal payments), excluding those loans 60
days or longer past due. At December 31, 1995, the Company's outstanding
balance of $245,933 exceeded the maximum advance available of $225,393.
Interest is payable monthly at a floating rate of prime rate plus 2%. The line
of credit is collateralized by all of the mortgage loans securing each advance
and is guaranteed by the Company's stockholders. The line of credit contains
various covenants which require among other things, no other debt in excess of
$75,000. At December 31, 1995, the Company was not in compliance with this
covenant.
<PAGE>
(9) NOTES PAYABLE:
- --- --------------
At December 31, 1995, the Company had a note payable to a bank, due March 28,
1996, including all interest accrued thereon at the bank's prime rate plus 2%.
The note is collateralized by a single family residential property and
guaranteed by stockholders of the Company. The balance outstanding on the note
at December 31, 1995 was $47,339. During 1996, the note was renewed through
September 25, 1996.
At December 31, 1995, the Company had a note payable to a Company, payable in
monthly installments of $216 through June 1, 2007. Interest on the note is
payable monthly at 9.125% and the note is collateralized by single family
residential real estate. The balance outstanding on the note at December 31,
1995 was $18,403.
F-11
<PAGE>
7. NOTES PAYABLE: (continued)
--------------
On December 31, 1995, the Company had financial arrangements with various
individuals through their individual retirement (IRA) accounts, which were
originated to finance the purchase of mortgage loans and real estate. Notes
collateralized by mortgage loans mature at various dates from 1997 to 2021 at
December 31, 1995. The notes become due and payable immediately upon demand of
the individuals. Principal and interest are payable monthly, at rates ranging
from 11% to 12%. In the event of foreclosure, the notes payable are
collateralized by the underlying real estate; principal payments are
discontinued and interest only is payable monthly. Upon the Company's sale of
the real estate and creation of a new mortgage loan, principal payments and
interest are due monthly, based on the term and maturity date of the new
mortgage loan. Upon the Company's sale of the real estate for cash, the note
payable becomes unsecured. The Company is obligated to make a best effort to
collateralize the note with a new mortgage loan purchase or real estate
purchase. Unsecured notes and notes secured by real estate have no stated
maturity date. Interest is payable monthly at rates ranging from 11 to 12%. At
December 31, 1995 the notes payable to individuals pursuant to this arrangement
totaled $831,391.
The Company has various notes to two individuals, having no written terms,
including the maturity dates and interest rates. Some of the notes are due upon
the maturity of the underlying mortgage loan collateral; and the other notes
have no stated maturity dated and are unsecured. Interest rates vary between
12% and 15% and for some notes, interest is payable monthly; for others,
interest is due at maturity of the underlying mortgage loan collateral. Should
an individual desire to liquidate his IRA account, upon written notice, the
Company will employ its best efforts and has up to six months to sell the
underlying collateral for cash proceeds to be remitted to the individual. The
collateralized notes total $277,040 and the unsecured notes total $15,149 at
December 31, 1995.
At December 31, 1995, the Company had three notes payable to a stockholder,
having no written terms including the maturity dates and interest rates. The
notes were initially funded to purchase real estate. The notes are
collateralized by mortgage loans and real estate. The balance at December 31,
1995 was $88,517.
(10) SUBSEQUENT EVENT:
- --- -----------------
On August 31, 1996, 100% of the outstanding shares of the Company were acquired
by General Genetics Corporation in exchange for 20,313,000 shares of common
stock of General Genetics Corporation in a transaction accounted for as a
reverse acquisition. Upon completion of the acquisition, the stockholders of
the Company became the controlling stockholders of General Genetics Corporation.
On July 22, 1996, the Company purchased 100% of the outstanding shares of Life
Today, Inc. in exchange for a $25,000 note payable.
F-12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Life Today, Inc. and Life Today Financial Services, Inc.
We have audited the accompanying combined balance sheet of Life Today, Inc. and
Life Today Financial Services, Inc. (the Company) as of December 31, 1995, and
the related combined statements of operations, stockholders' equity (deficit),
and cash flows for the year then ended. These combined financial statements are
the responsibility of the Company's manage-ment. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial state-ments. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall combined financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the combined financial statements referred to above, present
fairly, in all material respects, the financial position of the Company as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Hein + Associates llp
Certified Public Accountants
Houston, Texas
October 24, 1996
F-13
<PAGE>
<TABLE>
<CAPTION>
LIFE TODAY, INC. AND LIFE TODAY FINANCIAL SERVICES, INC.
COMBINED BALANCE SHEETS
December 31, June 30,
1995 1996
-------------- ------------
(unaudited)
ASSETS
------------
<S> <C> <C>
CURRENT ASSETS - Cash $ 2,001 $ 9,609
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
accumulated depreciation of $5,709 at December 31, 1995
and $7,370 at June 30, 1996 9,622 11,250
ORGANIZATION COSTS, less accumulated amortization
of $811 at December 31, 1995 and $902 at June 30, 1996. 182 91
OTHER ASSETS 2,148 2,148
-------------- ------------
Total assets $ 13,953 $ 23,098
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities . . . . . . . . $ 19,082 $ 12,246
Accrued payroll taxes. . . . . . . . . . . . . . . . . . 3,542 3,879
Accrued interest payable . . . . . . . . .. . . . . . . . 3,250 -
-------------- ------------
Total current liabilities. . . . . . . . . . . . . . . 25,874 16,125
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Retained earnings (deficit). . .. . . . . . . . . . . . . (13,921) 4,973
-------------- ------------
Total stockholders' equity (deficit) . . . . . . . . . (11,921) 6,973
-------------- ------------
Total liabilities and stockholders' equity (deficit) . $ 13,953 $ 23,098
============== ============
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
LIFE TODAY, INC. AND LIFE TODAY FINANCIAL SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
For the Year
Ended For the Six Months Ended
December 31, June 30,
-------------- ----------------------------
1995 1995 1996
-------------- ------------------ --------
(unaudited)
<S> <C> <C> <C>
COMMISSIONS. . . . . . . . . . $ 343,872 $ 190,453 $175,085
COST OF SALES. . . . . . . . . 58,101 30,664 41,081
-------------- -------------------------- --------
Gross Profit . . . . . . . . . 285,771 159,789 134,004
OPERATING EXPENSES:
Advertising. . . . . . . . . . 25,897 15,561 3,033
Compensation and benefits. . . 223,414 148,720 63,313
Depreciation and amortization. 3,495 1,748 1,753
Interest . . . . . . . . . . . 2,062 1,117 641
General and administrative . . 88,379 50,205 45,338
-------------- -------------------------- --------
Total operating expenses . . . 343,247 217,351 114,078
-------------- -------------------------- --------
INTEREST INCOME. . . . . . . . 2,346 2,328 -
LOSS ON SALE OF ASSETS . . . . (21,575) (21,575) -
-------------- -------------------------- --------
NET INCOME (LOSS). . . . . . . $ (76,705) $ (76,809) $ 19,926
============== ========================== ========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
LIFE TODAY, INC. AND LIFE TODAY FINANCIAL SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
Common Stock Treasury Stock Total
--------------------- --------------- Retained Stockholders'
Shares Amount Shares Amount Earnings Equity (Deficit)
------------ ------- --------------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 . . . . . 2,000 $ 2,000 - $ - $ 63,117 $ 65,117
Net loss. . . . . . . . . . . . . . - - - - (76,705) (76,705)
Purchase of Treasury stock. . . . . - - (333) (333) - (333)
Issuance of Treasury stock. . . . . - - 333 333 (333) -
------------ ------- --------------- -------- ---------- -----------------
BALANCES, December 31, 1995 . . . . 2,000 2,000 - - (13,921) (11,921)
Net income. . . . . . . . . . . . . - - - - 19,926 19,926
Dividends . . . . . . . . . . . . . - - - - (1,032) (1,032)
------------ ------- --------------- -------- ---------- -----------------
BALANCES, June 30, 1996 (unaudited) 2,000 $ 2,000 - $ - $ 4,973 $ 6,973
============ ======= =============== ======== ========== =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
LIFE TODAY, INC. AND LIFE TODAY FINANCIAL SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Year
Ended For the Six Months Ended
December 31, June 30,
1995 1995 1996
-------------- ------------ ---------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . .. . $ (76,705) $ (76,809) $19,926
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 3,495 1,748 1,753
Changes in operating assets and liabilities:
Accrued payroll taxes. . . . . . . . . . . 1,484 507 337
Accounts payable and accrued
liabilities . . .. . . . . . . . . . . . (10,068) (7,280) (6,836)
Accrued interest payable . . . . . . . . . (1,000) 750 (3,250)
-------------- -------------------------- --------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . (82,794) (81,084) 11,930
CASH FLOWS FROM INVESTING ACTIVITY:
Advances on insurance policies . . .. . . . . 100,451 100,451 -
Other assets . . . . . . . . . . . .. . . . . 1,773 - -
Purchase of equipment. . . . . . . .. . . . . - - (3,290)
-------------- -------------------------- --------
Net cash provided by (used in) investing
activity. . . . . . . . . . . . . . . . . . 102,224 100,451 (3,290)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable. . . . . . . . . . (10,000) - -
Repayment of shareholder advance . . . . . . (9,060) (9,060) -
Treasury stock purchase. . . . . . . . . . . (333) (333) -
-------------- -------------------------- --------
Net cash used in financing activities. . . (19,393) (9,393) (1,032)
INCREASE IN CASH . . . . . . . . . . . . . . . . 37 9,974 7,608
CASH, at beginning of period . . . . . . . . . . 1,964 1,964 2,001
-------------- -------------------------- --------
CASH, at end of period . . . . . . . . . . . . . $ 2,001 $ 11,938 $ 9,609
============== ========================== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest. . . . $ 3,062 $ - $ 3,223
============== ========================== ========
Issuance of treasury stock without
consideration . . . . . . . . . . . . . . . $ 333 $ - $ -
============== ========================== ========
</TABLE>
F-17
<PAGE>
LIFE TODAY, INC. AND LIFE TODAY FINANCIAL SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------------
The financial statements reflect the combined assets and liabilities and the
results of operations for Life Today, Inc. (the Company) and Life Today
Financial Services, Inc. (Services). The combined financial statements have
been presented as both Companies are owned by the same stockholders. The
Company was incorporated in the state of Texas in August 1991. The principal
business activity of the Company is to broker life insurance policies of
terminally ill individuals to viatical settlement companies. The life insurance
policyholder receives a percentage of the face amount of the policy, determined
by certain factors, including the insured's life expectancy. The Company
receives a commission to provide this brokerage service. Currently, the Company
generally brokers the insurance policies of terminally ill individuals in the
Houston, Texas area. Services was incorporated in the state of Texas in
February 1992. The principal business activity of Services was to provide
financial planning services for terminally ill individuals. Services has been
relatively inactive since it was incorporated.
Furniture, Fixtures and Equipment - Furniture, fixtures and equipment is stated
- ----------------------------------
at cost less accumulated depreciation. Depreciation of furniture, fixtures and
equipment is computed using the straight-line method over estimated useful lives
of the assets of five years.
Commission Revenue - Revenue is recognized when the life insurance policy is
- -------------------
sold to another life insurance company and both parties are funded. Under
insurance regulations, the insured has 15 calendar days, after receipt of the
proceeds, to rescind the sale of the life insurance policy. If the sale is
rescinded, the sales proceeds and the commission is returned to the purchasing
insurance company. The Company accounts for any rescissions during the month
the life insurance policy was originally sold. Since inception, the Company has
not had a policy sale rescinded.
Income Taxes - Effective January 1, 1992, the Company elected S Corporation
- -------------
status under applicable provisions of the Internal Revenue Code. An S
Corporation does not incur federal income taxes; accordingly, federal income
taxes have not been provided in the accompanying financial statements. However,
upon being acquired after June 30, 1996, (see Note 5) the Company became a
taxable entity.
Use of Estimates - The preparation of the Company's financial statements in
- ------------------
conformity with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates.
2. COMMITMENTS AND CONTINGENCIES:
-------------------------------
The Company entered into a consulting agreement during 1995 with a prior
stockholder of the Company. Consulting fees to the prior owner, included in
general and administrative expense, were $6,000 for the year ended December 31,
1995 and $2,000 for the six months ended June 30, 1995.
Rent expense for office space was $14,055 for the year ended December 31, 1995
and was $10,511 and $5,000 for the six months ended June 30, 1995 and 1996,
respectively. The office space is being leased on a month-to-month basis.
F-18
<PAGE>
2. COMMITMENTS AND CONTINGENCIES: (continued)
-------------------------------
The Company was involved in a lawsuit relating to advertising charges incurred
during fiscal 1994. The parties to the lawsuit entered into a settlement
agreement during 1995, resulting in the Company agreeing to pay $26,500. The
settlement was recorded in 1994. The amount relating to this settlement
agreement included in accounts payable and accrued liabilities was $15,500 at
December 31, 1995 and $6,500 at June 30, 1996.
3. COMMON STOCK:
-------------
Common stock of the combined companies is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, June 30,
1995 1996
------------- ----------
(unaudited)
Life Today, Inc., $1 par value; 1,000 shares
authorized, issued and outstanding .. . . $ 1,000 $ 1,000
Life Today Financial Services, Inc., $1 par
value; 1,000 shares authorized, issued
and outstanding. . .. . . . . . . . . . . 1,000 1,000
------------- ------------
$ 2,000 $ 2,000
============= ============
</TABLE>
4. LOSS ON SALE OF ASSETS:
--------------------------
Beginning in 1993, the Company loaned amounts to an individual which were
collateralized by the individual's life insurance policy. During 1995, the
Company sold this receivable and recognized a loss of $20,775 in the year ended
December 31, 1995.
5. SUBSEQUENT EVENT:
-----------------
Subsequent to December 31, 1995, the Company acquired Services and the
stockholders of the Company agreed to sell their interest in the Company to
Private Mortgage Bankers, Inc.
F-19
<PAGE>
UNAUDITED PRO FORM FINANCIAL DATA
The following unaudited pro form consolidated balance sheet and statement of
operations are presented as of and for the year ended December 31, 1995 and the
six-month period ended June 30, 1996, respectively. The pro forma financial
statements have been prepared giving effect to the acquisition of Life Today,
Inc. by Private Mortgage Bankers, Inc. and the related purchase accounting
adjustments, as if such transactions had occurred on January 1, 1995. The
historical financial information of Life Today, Inc. includes the financial
information of Life Today, Inc. and Life Today Financial Services, Inc. which
was acquired by Life Today, Inc. on July 18, 1996.
The acquisition was accounted for under the purchase method of accounting. The
total purchase price was allocated to goodwill.
The pro forma financial information does not purport to be indicative of the
financial position and operating results that would have occurred had the
acquisition and the related purchase accounting adjustments been consummated on
January 1, 1995, nor is it indicative of future operating results. The pro
forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable in the circumstances. The
unaudited pro forma consolidated balance sheet and statements of operations
should be read in conjunction with the historical financial statements and the
related notes thereto and other financial information included elsewhere in this
filing.
F-20
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(Unaudited)
Private
Mortgage Life Today Pro Forma
Bankers, Inc. Inc. Adjustments Pro Forma
--------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
------
CASH. . . . . . . . . . . . . . . . . . . . . . $ 13,191 $ 9,609 $ - $ 22,800
LOANS HELD FOR RESALE . . . . . . . . . . . . . 1,083,264 - - 1,083,264
FURNITURE, FIXTURES AND EQUIPMENT . . . . . . . - 11,250 - 11,250
REAL ESTATE OWNED . . . . . . . . . . . . . . . 154,656 - - 154,656
GOODWILL. . . . . . . . . . . . . . . . . . . . - - 50,000 50,000
ACCRUED INCOME AND OTHER ASSETS . . . . . . . . 19,086 2,239 - 21,325
--------------- ----------- ------------ -----------
Total assets. . . . . . . . . . . . . . . . . . $ 1,270,197 $ 23,098 $ 50,000 $1,343,295
=============== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
BANK LINE OF CREDIT . . . . . . . . . . . . . . $ 245,933 $ - $ - $ 245,933
ESCROW DEPOSITS . . . . . . . . . . . . . . . . 46,343 - - 46,343
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES . . . . . . . . . . . . . . . . . 125,851 16,125 - 141,976
NOTES PAYABLE . . . . . . . . . . . . . . . . . 1,133,883 - 50,000 1,183,883
STOCKHOLDERS' DEFICIT:
Common stock, no par value;
100,000 shares authorized;
30,000 shares issued and outstanding. 1,000 2,000 - 3,000
Treasury stock, at cost . . . . . . . . . . (8,000) - - (8,000)
Accumulated deficit . . . . . . . . . . . . (274,813) 4,973 - (269,840)
--------------- ----------- ------------ -----------
Total stockholders' (deficit)
equity . . . . . . . . . . . . . . . . . . (281,813) 6,973 - (274,840)
--------------- ----------- ------------ -----------
Total liabilities and stock-
holders' deficit . . . . . . . . . . . . . $ 1,270,197 $ 23,098 $ 50,000 $1,343,295
- ----------------------------------------------- =============== =========== ============ ===========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
Private
Mortgage Life Today Pro Forma
Bankers, Inc. Inc. Adjustments Pro Forma
--------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Brokerage income . . . . $ 93,678 $ 343,872 $ - $ 437,550
Gain on loan sales .. . . 43,575 - - 43,575
Interest on loans. .. . . 159,345 - - 159,345
Loan servicing fees.. . . 5,080 - - 5,080
--------------- ------------ ------------- -----------
Total revenue. . . . . 301,678 343,872 - 645,550
OPERATING EXPENSES:
Commission expense . . . - 58,101 - 58,101
Interest expense . . . . 168,009 2,062 - 170,071
Salaries and benefits. . 203,108 223,414 - 426,522
Occupancy. . . . . . . . 24,170 14,055 - 38,225
Other. . . . . . . . . . 117,391 103,716 5,000 226,107
--------------- ------------ ------------- -----------
Total operating expenses . 512,678 401,348 5,000 919,026
LOSS FROM OPERATIONS . . . . (211,000) (57,476) (5,000) (273,476)
OTHER INCOME (EXPENSE):
Gain on sale of real estate. 73,483 - - 73,483
Loss on sale of assets . - (21,575) - (21,575)
Other income . . . . . . 19,845 2,346 - 22,191
--------------- ------------ ------------- -----------
Total other income . . 93,328 (19,229) - 74,099
--------------- ------------ ------------- -----------
NET INCOME (LOSS). . . . . . $ (117,672) $ (76,705) $ (5,000) $ (199,377)
=============== ============ ============= ===========
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
(Unaudited)
Private
Mortgage Life Today Pro Forma
Bankers, Inc. Inc. Adjustments Pro Forma
--------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Brokerage income . . .. . $ 16,297 $ 175,085 $ - $ 191,382
Gain on loan sales . .. . 22,203 - - 22,203
Interest on loans. . .. . 85,797 - - 85,797
Loan servicing fees. .. . 4,785 - - 4,785
--------------- ----------- ------------- -----------
Total revenue. . . . . . 129,082 175,085 304,167
OPERATING EXPENSES:
Commission expense .. . . - 41,081 - 41,081
Interest expense . . . . 87,026 641 - 87,667
Salaries and benefits . . 81,895 63,313 - 145,208
Occupancy. . . . . . .. . 12,172 5,000 - 17,172
Other. . . . . . . . .. . 29,177 45,124 2,500 76,801
--------------- ----------- ------------- -----------
Total operating expenses . 210,270 155,159 2,500 367,929
INCOME FROM OPERATIONS . . . (81,188) 19,926 (2,500) (63,762)
OTHER INCOME (EXPENSE):
Gain on sale of real estate. 10,329 - - 10,329
Other income . . . . . . . . 15,340 - - 15,340
--------------- ----------- ------------- -----------
Total other income . . 25,669 25,669
NET INCOME (LOSS). . . . . . $ (55,519) $ 19,926 $ (2,500) $ (38,093)
=============== =========== ============= ===========
</TABLE>
F-23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
DECEMBER 31, 1995
In preparing the pro forma consolidated balance sheet at June 30, 1996, and the
pro forma consolidated statements of operations for the year ended December 31,
1995, and the six-month period ended June 30, 1996, the Company made the
following adjustments:
a. To give effect as of January 1, 1995 for the purchase of Life Today, Inc.
by Private Mortgage Bankers, Inc. for $50,000. Goodwill of $50,000 was recorded
in connection with the acquisition and is being amortized over 10 years for
purposes of the pro forma financial statements.
F-24
<PAGE>
