FORM 10-KSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-16462
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MONITREND INVESTMENT MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-6382734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1299 Ocean Avenue, Suite 210
Santa Monica, California 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 393-1424
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Preferred Stock, $0.001 par value
(Title of Class)
Series A Preferred Stock, $0.001 par value
(Title of Class)
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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 x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein and will not be contained, to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Registrant's revenues for its most recent fiscal year were $0 in 1995.
As of December 31, 1995, 19,102,394 shares of Common Stock, $0.001 par value
per share, 1,487,046 shares of Preferred Stock, $0.001 par value per share, and
3,189,378 shares of Series A Preferred Stock, $0.001 par value per share, were
issued and outstanding. Of the 19,102,394 shares of common stock shown
as outstanding, 1,612,000 have been reserved for issuance to Corporate
Life Insurance Co., or its statutory liquidator, as it designates. At December
31, 1995, units comprising the Company's
Preferred Stock and Common Stock were listed, without bid and ask quotations, in
the National Daily Quotation Service "Pink Sheets" published by the National
Quotation Bureau, Inc. Therefore, it is not practical to estimate the aggregate
market value of voting stock held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with the solicitation of proxies for its 1995 Annual Meeting of
Stockholders are incorporated by reference into Items 10, 11 and 12 under
Part III hereof.
Transitional Small Business Disclosure Format: Yes No x
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
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Monitrend Investment Management, Inc. (the "Company") serves as a
Registered Investment Advisor under the Investment Advisers Act of 1940, as
amended (the "Investment Act"). The Company receives revenues in the form of
advisory fees from Monitrend Mutual Fund (symbol: "MONITR"). MONITR is a
diversified open-end investment company composed of seven (7) separate
portfolios or series: (1) PIA Adjustable Rate Government Securities Fund (the
"Adjustable Rate Fund"); (2) PIA-Monitrend Government Income Fund (the
"Government Income Fund"); (3) Monitrend Growth and Income Fund (the "Growth and
Income Fund"); (4) Monitrend Gold Fund (the "Gold Fund"); (5) Monitrend Growth
Fund (the "Growth Fund"); (6) Monitrend Gaming and Leisure Fund (the "Gaming
Fund"); and (7) Monitrend Technology Fund (the "Technology Fund") (collectively
referred to herein as the "Funds").
MONITR was established by Phillip R. Verrill and other founders who are no
longer active in the company. In 1984, the company developed its first
fund and has since introduced the six additional funds referred to above.
At present, the Company's only source of revenue is fee income from
advisory services rendered to MONITR. MONITR currently pays the Company a
management fee as a percentage of the net assets managed by the Company. The
fees are based on an annual percentage rate computed daily of each fund's
average daily net assets, which fees are reduced at various levels of assets
under management. The annual percentage rate for the Growth and Income Fund,
the Gold Fund, the Growth Fund and the Technology Fund currently range from
0.625% up to 1.0%, but may be reduced to 0.375% if substantially higher asset
levels are achieved. The management fee for the Government Income Fund is set
at .20%; the Adjustable Rate Fund is set at .04%, and the Gaming Fund is set at
1.25% of each fund's average daily net assets computed in the same fashion. As
part of its investment advisory services for MONITR, the Company selects and
directs the purchase and sale of the equities, government securities and cash
equivalents comprising the funds.
The Company uses various investment techniques including the extensive use
of outside advisors and sub-advisors. The Company forecasts likely trends in
the equities markets and likely trends in interest rates. These forecasts are
formulated through statistical analysis of both fundamental economic indicators,
including, but not limited to, interest rates, Consumer Price Index, the Index
of Leading Economic Indicators and the rate of growth of the money supply, and
technical market indicators such as stock price movements and industry group
price trends, volume data, various sentiment indicators and cyclical
observations.
RECENT DEVELOPMENTS
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The Company filed with the Securities and Exchange Commission (the
"Commission") on February 10, 1994, a Current Report on Form 8-KSB for the
purpose of disclosing that it had entered into a Share Purchase Agreement (the
"Agreement") with Corporate Life Insurance Company, a Pennsylvania stock life
insurance company ("CLIC"), on January 17, 1994. Under the terms of the
Agreement, the Company was to issue shares of its common stock, par value $.001
per share (the "Shares") in exchange for $585,000 in cash and certain assets of
CLIC valued at approximately $4,000,000. The Agreement and related transactions
were scheduled to close on or about April 29, 1994, upon completion of the due
diligence review by the Company and CLIC.
On February 16, 1994, the Company was advised by the Liquidation and
Special Fund Division of the Department of Insurance for the State of
Pennsylvania (the "Insurance Regulators") that pursuant to state regulatory
action instituted against CLIC an Order of Liquidation was entered by the
Commonwealth Court of Pennsylvania on February 15, 1994 (the "Order"). Under
the terms of the Order, the right or power of CLIC to engage in or consummate
non-liquidation activities, such as closing on the Agreement, were eliminated.
Given the foregoing, the transaction set forth in the Agreement was terminated
and the Company will not engage in any further business transactions with CLIC.
Under certain circumstances, if they were to occur, the Company might be
required to return all or a portion of certain preclosing expense reimbursements
advanced by CLIC to the Company. The Company is currently engaged in
discussions with the special counsel to the Insurance Regulators relating to the
advancements and certain other issues relating to the Agreement.
Subsequently, in March 1994, the Company and BeneFund, Inc., a Colorado
corporation ("BeneFund"), entered into a Share Purchase Agreement (the "Purchase
Agreement") whereby BeneFund agreed to purchase the number of shares of the
Company's common stock representing 80% of the issued and outstanding common
capital stock of the Company, along with certain shares of the Company's
preferred stock with par and stated value of approximately $3,301,932. Among
the preclosing conditions to the Purchase Agreement, BeneFund and the Company
agreed to exchange 1,000,000 restricted shares of the Company's common stock for
200,000 restricted shares of BeneFund's common stock. Prior to the consummation
of the afore-referenced transaction, the Company was to undertake certain
corporate recapitalization activities in accordance with the terms and
conditions of the Purchase Agreement. On November 16, 1994, BeneFund announced
that James R. Hocking, previously a Chief Investment Officer with Citibank, U.S.
Private Bank, and formerly a senior investment executive at Templeton
International, Schroder Capital Management, John Hancock Mutual Life, and
Continental Illinois National Bank, would head the financial services division
after consummation of the transaction. Assuming satisfaction and performance of
all preclosing conditions, it was anticipated that this transaction would be
consummated as soon as practical, subject to requisite shareholder and
regulatory approval.
On May 7, 1996 the Company filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-KSB for the purpose of
disclosing that it had entered into an agreement in principle with an investment
group led by Lloyd McAdams and Heather U. Baines, Pacific Income Advisors and
Capital Advisors Inc. which calls for a capital investment in the Company and a
three year agreement to provide facilities and management personnel. All
parties are working to complete related documentation and expect to finalize the
transaction within 30 days or sooner. The new management group plans to build-
up Monitrend's customer service facilities and expand the Company's analytical
staff.
In a related matter, the Company and BeneFund have agreed to a transaction
which calls for the transfer of BeneFund's interest in the Company to the
aforementioned investment group in exchange for preferred stock and retention of
the 1,000,000 shares of the Company common previously issued. The agreement
supersedes prior arrangements, including but not limited to the
Purchase Agreement, and both companies have determined that this
arrangement better facilitates the plans the companies have for developing
financial products.
In conjunction with the transaction with Pacific Income Advisors, the
Company will likely move its corporate offices to Santa Monica, California. The
transaction requires regulatory and stockholder approval which will be submitted
on the appropriate timetable.
FINANCIAL INFORMATION ABOUT SEGMENTS
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The following tables set forth certain information about operations of the
Company, including information about the Funds of MONITR under management by the
Company at December 31, 1993, 1994 and 1995, where applicable:
PIA ADJUSTABLE RATE GOVERNMENT SECURITIES FUND:*<F1>
Year Ended Year Ended Year Ended
12/31/93 12/31/94 12/31/95
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Number of Holders - 12 18
Total assets $2,046,713 $4,268,993
Net Asset Value $9.99 $10.12
Dividend $0.0041 $0.07
(*<F1>Established March 1994)
PIA-MONITREND GOVERNMENT INCOME FUND:
Number of Holders 89 66 53
Total assets $1,219,165 $861,126 $936,980
Net Asset Value $14.09 $12.75 $12.75
Dividend $0.73 $0.87 $0.80
MONITREND GROWTH AND INCOME FUND:*<F2>
Number of Holders 553 413 334
Total assets $2,408,082 $1,570,012 $1,387,630
Net Asset Value $17.13 $16.71 $21.59
Dividend $0.04 $0.09 $0.02
(*<F2>merged with the Monitrend Value Series on May 31, 1991, formerly Summation
Fund)
MONITREND GOLD FUND:
Number of Holders 212 193 166
Total assets $3,185,046 $744,332 $382,018
Net Asset Value $12.18 $6.06 $5.71
Dividend $0.00 $0.00 $0.00
MONITREND GROWTH FUND:*<F3>
Number of Holders 229 177 124
Total assets $1,300,792 $577,315 $474,719
Net Asset Value $13.75 $11.02 $15.39
Dividend $0.00 $0.00 $0.00
(*<F3>Established April 1992)
MONITREND GAMING & LEISURE FUND:*<F4>
Number of Holders 237 271 163
Total assets $872,128 $769,015 $390,441
Net Asset Value $8.02 $6.29 $6.29
Dividend $0.00 $0.00 $0.00
(*<F4>Established October 1993)
MONITREND TECHNOLOGY FUND:*<F5>
Number of Holders 18 37 42
Total assets $42,876 $284,429 $293,676
Net Asset Value $14.84 $14.00 $18.17
Dividend $0.00 $0.32 $1.76
(*<F5>Established October 1993)
DEVELOPMENT OF NEW FUNDS AND CONTEMPLATED PORTFOLIO CHANGES:
The development of additional funds, as well as a number of contemplated
changes, will be instituted upon completion of the investment group transaction
led by Lloyd McAdams, Heather U. Baines, Pacific Income Advisors and Capital
Advisors Inc.
During fiscal year ended December 31, 1995, cash flow for redemption of
MONITR fund securities had not yet impacted the Company's money management since
the MONITR fund managed by the Company has had adequate cash to meet redemption
needs. There is no assurance that such cash flow for such redemptions will be
adequate in the future.
SUMMARY
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Year Ended Year Ended Year Ended
12/31/93 12/31/94 12/31/95
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Aggregate Net Management Fees
Received by the Company $(90,126) $0 $0
Net Loss $(453,873) $(739,006) $(325,150)
On May 8, 1992, the Company initiated a private placement of 1,330,000
Units, each unit consisting of two shares of Series A Preferred Stock and three
shares of Common Stock for an aggregate offering of $864,500. The private
placement was supplemented on November 9, 1992 and again on February 5, 1993,
with the February 5, 1993 supplement increasing the offering to a maximum of
$925,000. This offering closed in February 1993 with gross proceeds of
$873,531.10 resulting from the private placement.
OPERATIONS
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The Company's current business plan emphasizes the use of a diversified
investment approach that includes the extensive use of outside advisors and
subadvisors in funds management. The Company offers its services to manage
funds through the MONITR fund for those who lack the time, training, and
experience to shift portfolio commitments in response to changes in the market.
OVERVIEW OF MONITREND'S APPROACH TO MARKETS
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The market indicators, market phase analysis methods and interpretation of
the market used by the Company were developed by the Company's founders and
principals plus certain outside advisors. Management of the Company offers
several approaches to the market which will include investing for long term
capital gains and allocation of assets in and out of various markets that can
maximize long term capital growth by shifting funds in response to, or in
anticipation of, market developments. If the market outlook appears positive,
funds may be invested in the market to gain from the anticipated market rise.
If the market outlook appears negative and a market decline is to be avoided,
several of the funds may liquidate a portion of their portfolio and investing in
short-term interest-bearing securities or portfolio hedging may be initiated.
In a declining market, avoiding losses is often difficult. While addressing
market risks, the methodology does not eliminate all market risks or all risks
of loss related to individual securities or industry sectors.
The Company's strategies incorporate the basic premise that past actions of
the stock market provide information which is useful in attempting to forecast
future market trends. The market action decisions are based upon quantitative
statistical analysis of past market patterns and the use of probability theory.
The statistical analysis includes collection, classification, and tabulation of
market and economic data. The probability analysis uses the resulting data to
make predictions under different assumed or actual circumstances and evidences a
likelihood that a certain market move may occur. Certain outside advisors
provide fundamental analysis to determine market positions.
Using computer automation of data collection and compilation, the Company
and its advisors have assembled a database which includes more than seventy (70)
years of technical data in addition to historical data on items such as gross
national product, money supply growth, inflation rates, and other indicators of
economic strength or weakness. The market database also includes market data
such as composite market indexes and price and volume information on industry
groups and individual stocks. A variety of indicators of investor sentiment as
well as various momentum indicators, moving averages, and oscillators are
included in the data.
The rate of return to an investor in any fund managed by the Company is
determined by several factors, including (i) performance of the market over
time, (ii) the performance of the individual securities comprising the fund, and
(iii) the accuracy of the Company's and its advisors buy, sell and hold decision
making activities. However, there is no assurance of a guaranteed rate of return
on principal or return of principal or payment of interest.
BASIC DESCRIPTION OF THE COMPANY'S MARKET STRATEGIES
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The following information is intended as a summary of some factors
affecting the Company's market strategies. The summary is not a complete
explanation of such methods. The Company's methods are subject to change as
additional technical data is obtained, as new models are developed and refined
or as available indicators are changed. The system is inherently dynamic since
the market and other factors change. In addition, each Fund and its Advisors
and Sub-Advisors can have different investment methodologies depending on their
particular expertise and market segment.
FUNDAMENTAL INDICATORS
The Company and its advisors consider certain fundamental characteristics
which include, but are not limited to: (i) a positive cash flow to allow for
self-financing growth; (ii) a return on equity of close to 20%; (iii) a debt to
equity ratio lower than that of the average public company; (iv) the payment of
taxes at normal tax rates; (v) a diversified customer and supplier base; (vi)
accounts receivable having an average of maturity of less than 70 days; and
(vii) increasing operating margins and declining sales and administrative
expenses. Although the companies in which the Company may invest may not be the
largest and best known companies in their industry groups, they frequently are
in rapidly growing sectors of the economy and often bring proprietary skills to
a developing niche in a particular market.
In selecting investments, the Company will consider the public filings of
issuers with the Commission as well as research reports of broker-dealers and
trade publications. In appropriate situations, the Company and/or Growth Fund
Sub-Adviser may meet with management. Greater weight will be given to internal
factors such as product or service development than to external factors such as
interest rate changes and general stock market trends.
LONG-TERM INDICATORS
The Company and its advisors consider, but are not limited to, long-term
indicators, such as the Major Trough Indicator ("MTI"), to determine the
market's current position within its long-term cycle. According to management's
analysis, the market generally has a long-term cycle of about four years. The
MTI is a monthly measure which tracks the market's rate of change during its
long-term cycle. Management of the Company believes that the market acts and
reacts differently at various points or phases in its long-term cycle.
Different rules governing buy or sell decisions for each phase of the
market have been devised. The requirements for generating a buy signal during a
bullish market phase are less stringent than those that apply in a bearish
market phase. Conversely, sell signals are easier to trigger during a bearish
phase.
MARKET PHASE ANALYSIS
Market phase analysis is another concept of the Company's market
evaluation methodology. This analysis is based upon the premise that the stock
market acts differently at various points in its cycle and that trading
techniques must vary at various points to optimize results.
Phase I: During Phase I, the primary market trend is down. Major market
bottoms are formed in Phase I. Management identifies this as the weakest and
most dangerous part of the market. Prudence requires extreme caution when
investing in stocks.
Phase II: During Phase II, the primary market trend is up. This is the
strongest and least dangerous part of the market cycle. During the early part
of Phase II, there is general skepticism about the market's ability to sustain
gains. Since Phase II is where the majority of stock market profits can be
made, the Company generally would take an aggressive stance during this period.
Phase III: During Phase III, the market's momentum is slowing
significantly. Phase III is a time to take profits made in Phase II and a time
to watch for market deterioration.
Phase IV: If the market is able to regain momentum, it enters Phase IV.
Often the market enters new highs during this phase. Since Phase IV would occur
late in the market cycle, caution must be exercised.
Phase V: Phase V is the primary down phase. After the completion of Phase
IV, the market generally declines into Phase I. As the market's downward trend
becomes evident, the market's downward momentum accelerates into Phase I.
Although five distinct phases are noted above, the market may skip Phase IV
and V and go directly back to Phase I.
INTERMEDIATE-TERM INDICATORS
The Company considers a number of weekly indicators in its market analysis
and timing activities. Two such weekly indicators include Percup [percentage of
New York Stock Exchange ("NYSE") listed stocks trading above their 200 day
moving price averages] and Industry Percup (percentage of industry groups
trading higher than the levels logged for the previous four weeks). Management
of the Company has determined that the probabilities of a market top are high
whenever these indicators reach points evidencing high levels of optimism on the
part of investors, and the reverse is generally true near market bottoms.
Management also monitors another contrarian indicator, "Attitude." Attitude
is a composite of intermediate-term indicators. Attitude includes such diverse
elements as Percup, Industry Percup, advance/decline differentials, deviation of
the NYSE Composite Index from its 200-day moving average, price/dividend ratios,
Federal Reserve policy, and the like. When the majority of the indicators are
bullish, the chances are good that a market top is being completed and a
reversal will follow. If a consensus registers bearish readings, a cyclical low
is probable.
SHORT-TERM INDICATORS
Short-term indicators include the advance/decline ratio, up/down volume
ratios, short term momentum indicators, and the like. Once these short-term
indicators confirm the intermediate-term indicators, action is taken. The
Company also takes into consideration current price and momentum data, the
position of the Company's interest rate model, mutual fund statistics, NYSE
price/dividend analysis, Federal Reserve policy figures and other current market
measurements.
MARKET SEGMENTS AND INDIVIDUAL SECURITIES
The strategies outlined above do not eliminate the risks associated with
changes in values of individual stocks or groups of stocks within an industry
segment. Often certain market segments move independently of the market and in
a direction and with a rate of change different from the overall market. The
buy and sell signals generated as part of the timing methodologies would not
apply to, or correlate with, market segment moves.
MONITREND MUTUAL FUND
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The Company serves as investment advisor to MONITR. MONITR was organized
in January 1984, as a Business Trust under the laws of the Commonwealth of
Massachusetts. The Company commenced serving as the investment advisor to
MONITR during October, 1984, under an initial Investment Advisory Agreement
relating to the Value Series. On May 31, 1991, the Value Series was
successfully merged into the Growth and Income Fund (formerly the Summation
Fund), which was initially developed in January 1988. The PIA-Monitrend
Government Income Fund was added during October, 1986, and the Growth Fund was
established in April 1992. The Company began operations of two additional
funds, the Gaming Fund and the Technology Fund, on October 20, 1993. The PIA
Adjustable Rate Government Securities Fund commenced operations on March 31,
1994.
PIA ADJUSTABLE RATE GOVERNMENT SECURITIES FUND: The Adjustable Rate
Fund's objective is to provide investors with a high level of current income,
consistent with low volatility of principal through investing in adjustable rate
and floating rate U.S. Government securities. Under normal circumstances at
least 65% of the Adjustable Rate Fund's portfolio will consist of adjustable
rate and floating rate mortgage pass-through securities and other securities
representing an interest in or collateralized by mortgages. The Adjustable Rate
Fund will maintain a maximum duration equal to that of a two-year U.S. Treasury
security and a target duration in a range approximately equal to that of a six-
month to one-year U.S. Treasury security. The Adjustable Rate Fund is managed
by Pacific Income Advisers (PIA), specialists in the management of fixed income
portfolios.
PIA-MONITREND GOVERNMENT INCOME FUND: The main objectives of the
Government Income Fund are growth of capital, preservation of principal, and
income. The Government Income Fund invests only in obligations issued by the
U.S. Government ("U.S. Government Securities") of any maturity as selected by
the Company. The average portfolio maturity of this fund will depend on the
Company's forecasts as to likely trends in interest rate movements. The
Government Income Fund is managed by Pacific Income Advisers (PIA), specialists
in the management of fixed income portfolios. PIA utilizes a model which takes
advantage of variations in the yield curve to seek opportunities for above
average yields. In selecting securities for the portfolio, PIA systematically
identifies those sectors which provide higher yields relative to those which
would normally be expected if the yield curve were in equilibrium, thus offering
investors above average income and the opportunity for capital gains.
GROWTH AND INCOME FUND: The objective of the Growth and Income Fund
(formerly the "Summation Fund"), is capital gains from investing in stocks in
1<F6>
the Standard & Poor's 500 Index
of companies with market capitalizations in
excess of $500,000,000 and low price/earnings ratios that appear to be
undervalued relative to their potential growth rates. The Fund Advisor will
examine the first 250 companies with price/earnings ratios below the median of
the S&P 500, eliminating any stock with a market capitalization of less than
$500 million. Generally, the Growth and Income Fund Advisor will purchase a
stock that meets its price/earnings ratio range, market capitalization range,
volatility test, credit standard quality and fundamental judgment of
undervaluation. Under normal market conditions, it is expected that the Fund
will have at least 80% of its assets invested in common stocks. However, when
the Growth and Income Adviser deems it advisable for temporary defensive
purposes, the Fund may invest up to 100% of its net assets in U.S. Government
securities, principally expected to be Treasury Bills, bank instruments or
commercial paper master notes.
1<F6>
"S&P", "Standard & Poor's", and "500" in connection with "S&P" and
"Standard & Poor's" are trademarks of Standard & Poor's Corporation, which is
not an affiliate of the Company. Standard & Poor's Corporation determinesc
composes, and calculates the S&P 500 without regard to the Company or MONITR.
GOLD FUND: The Gold Fund's objective is long-term growth of capital
through investing primarily in equity securities of domestic and foreign
companies engaged in activities related to gold and precious metals. The
companies may be engaged in exploration, refining, development, manufacturing,
production, or marketing of precious metal products. Under normal
circumstances, the Gold Fund's assets will be invested primarily in equity
securities of such companies whose activities are related to gold. Securities of
such companies are subject to substantial price fluctuations, and are affected
by various economic factors that normal do not affect other investments, which
in turn may cause the value of the fund to fluctuate significantly.
GROWTH FUND: The Growth Fund is managed by Mr. Robert Lloyd Bender. As
head of his own investment advisory company since 1972, he has provided
portfolio management services to individuals, pension and profit sharing plans,
and trust accounts having the required minimum portfolio of $100,000. Nelson's
Directory of Investment Managers rated Mr. Bender as one of "America's Best
Money Managers" for the ten-year period ending December 31, 1991. Another
respected publication, Money Manager Review, has ranked Mr. Bender in the top
ten percent of 627 equity managers in the categories of five-year total return
(17th) and give-year risk-adjusted rate of return (51st) for the period ending
March 31, 1992. As portfolio manager for the Growth Fund, Mr. Bender applies
the same investment methodology used in the successful management of individual
portfolios. At the heart of the Bender investment philosophy is a commitment to
capital appreciation well in excess of economic and general market growth, while
limiting exposure to risk. The focus of this investment strategy is the growth
sector of the stock market, with primary emphasis on emerging growth companies
which generally have achieved a consistent long-term rate of growth in excess of
20% and can reasonably be expected to do so in the future.
GAMING FUND: The Gaming Fund seeks to achieve long-term growth of capital
through investing primarily in equity securities of companies engaged in
activities related to the gaming and leisure industry. The gaming and leisure
industry includes companies engaged in the design, production or distribution of
sporting goods, recreational equipment, toys, games (including video and other
electronic games), photographic equipment and supplies, musical instruments and
recordings. Also included in the gaming and leisure industry are motion picture
and broadcast companies (including cable television companies), companies
engaged in furnishing domestic and foreign transportation by air, and companies
engaged in operating hotels or motels, sports arenas, gambling casinos,
amusement or theme parks, or restaurants. Securities of companies in the gaming
and leisure industry may be considered speculative, in particular, because of
their unpredictable earnings.
TECHNOLOGY FUND: The Technology Fund seeks to achieve long-term growth of
capital through investing primarily in equity securities of companies that the
Advisor believes can produce products or services that provide or benefit from
advances in technology. The Technology Fund utilizes a Sub-Advisor, Negative
Beta Associates, Inc. The President of the Sub-Advisor is Mr. John Michael
Murphy. Mr. Murphy has been a portfolio manager since 1973 and a securities
analyst since 1970. He also has been the president of an investment newsletter
publisher since 1981. The Advisor interprets the term "technology" broadly to
include semiconductors and electronic components, computers, computer services,
computer peripherals and software, communications, multimedia, instruments,
office automation, factory automation, robotics, consumer electronics,
electronic games, cable television, pharmaceuticals, biotechnology, medical
devices, superconductivity, specialty materials, alternative energy and other
advances resulting from research and development programs.
The Company, in its advisory capacity, uses various asset allocation
techniques. As a defensive strategy, as much as 100% of each portfolio can be
invested in cash equivalents or various hedging instruments. Cash equivalents
selected by the Company for the Funds generally consist of debt securities
maturing in one year or less from the date of purchase and issued or guaranteed
by the U.S. Government or its agencies.
When the Company, as investment Advisor, expects a decline in the prices of
the type of securities held by a particular fund, "hedging" may be used. As an
investment advisor, the Company may select one or more hedging instruments to
attempt to prevent, or at least minimize, a decrease in the value of the assets
of that fund. When the Company as investment advisor believes that prices will
no longer decline or when the securities that are hedged are to be sold, the
hedge may be terminated or "lifted."
When the Company as investment advisor expects an increase in the prices of
the type of securities held by a particular fund, "long hedging" may be used. A
long hedge provides a fund with a substitute for the purchase of securities,
which then may be purchased in an orderly fashion. The long hedge may be
terminated if the securities are subsequently purchased.
Various hedging instruments may be used, including futures contracts on
stock indexes, debt futures and options thereon, call options, and put options.
For the Government Income Fund, forecasts are formulated through
statistical analysis of the same economic indicators as are used in the
allocation of assets for the Growth and Income Fund and through statistical
analysis of technical market indicators relating to interest rates and bond
prices (interest rate movements, trends in bond prices, and the like). If the
Company and its advisor determine that the likely trend in interest rates is
upward, then it will shorten the average maturity of the portfolio or may engage
in hedging. Management would likely make these adjustments because rising
interest rates generally do not impact capital invested in short-term U.S.
Government Securities. If the Company and its advisor determine that the likely
trend in interest rates is downward, then it will lengthen the portfolio
maturity of the Funds. The investment advisor would likely lengthen the
portfolio maturities since downward movements in interest rates have more of an
upward impact on long-term U.S. Government Securities than on short-term U.S.
Government Securities. If relatively stable conditions in interest rates are
forecast, the advisor would likely advise the Government Income Fund to remain
in its then invested position, except that the proceeds from the sale of
portfolio securities may be invested in intermediate or long-term U.S.
Government Securities to attempt to achieve the income objective of the fund.
ADVISORY FEE REVENUES
- ---------------------
For its management services, the Company receives a fee from each of the
Funds based on percentage of net assets under management. The total net asset
value is the value of securities and other assets of the Funds less that fund's
liabilities. At present, the Company's only source of revenue is fee income
from advisory services rendered to MONITR. MONITR currently pays the Company a
management fee as a percentage of the net assets managed by the Company. The
fees are based on an annual percentage rate, computed daily of each Fund's
average daily net assets which fees are reduced at various levels of assets
under management. The annual percentage rate of the Growth and Income Fund, the
Gold Fund, the Growth Fund and the Technology Fund currently range from 0.625%
up to 1.0%, but will be reduced once substantially higher asset levels are
achieved. The management fee for the Government Income Fund is set at .20%; the
Adjustable Rate Fund is set at .04%, and the Gaming Fund is set at 1.25% of
each Fund's average daily net assets computed in the same fashion.
The Company has entered into a separate Investment Advisory Agreement, Sub-
Advisory Agreement or Management Agreement with each fund of MONITR. Under
these agreements with MONITR, the Company supervises and arranges the purchase
and sale of securities held in the portfolio of each of the Growth and Income,
Gaming, Growth, Technology, Government Income and Adjustable Rate Funds and the
use of hedging instruments. The MONITR trust, not the Company, is responsible
for each fund's operating expenses including brokerage commissions and
distribution expenditures, except that the Company pays certain marketing
expenses not paid under the fund's plan of distribution.
FACTORS AFFECTING ASSETS UNDER MANAGEMENT AND MANAGEMENT FEES
- -------------------------------------------------------------
The Company's sole source of revenues is fees for services rendered as
investment advisor ("Advisor") to MONITR. The Company may be terminated as an
Advisor to MONITR upon thirty days notice from the Trustees of MONITR. Although
the Company could receive revenues from serving as an Advisor to other mutual
funds, there is no assurance that the Company would receive such revenues.
There is no assurance that the Company's or its advisors forecast of market
trends or interest rate trends will be correct or that the Company or its
advisors will correctly make allocations of assets under management. Incorrect
allocations could result in a decline in the value of assets under management by
the Company or a decline in the number of investors who invest in funds managed
by the Company. Since the revenues received by the Company are a percentage of
the assets under management by the Company, the ability of the Company to be
operate profitably would be diminished in the event of such declines. In
particular, as relating to capital growth funds under management, an incorrect
allocation by the Company could result in having a substantial portion of the
assets under management invested in equities at a time when equity prices were
declining or having a substantial portion of the assets hedged in a short hedge
or invested in cash equivalents at a time when equity prices were increasing.
As relating to government securities funds, an incorrect allocation by the
Company or its advisor could result in having a portfolio with a long-term
maturity when interest rates were increasing or having a substantial portion of
the assets hedged in a short hedge when interest rates were declining.
The value of the assets under management may decline through no fault of
the Company in the event of adverse economic conditions or a general decline in
the market value of securities. Since the revenues of the Company are dependent
upon the value of assets under management, the ability of the Company to
generate revenues or profits, if any, may be adversely affected.
Declines in the value of the assets under management can also take place
because of net redemptions due to economic trends which may make other fund
investments offered by other money managers more attractive.
Total assets under management since the inception of the Company in 1984
have varied. Total assets under management on December 31 of each fiscal year
were $9,062,806 for 1985, the first full year of operation; $27,965,108 for
1986; $27,116,529 for 1987; $20,768,108 for 1988; $17,085,727 for 1989;
$17,903,745 for 1990; $17,869,860 for 1991; $9,823,606 for 1992; $9,028,089 for
1993; and $6,852,942 for 1994. On December 31, 1995, the Adjustable Rate Fund
had $4,268,993; the Government Income Fund had $936,980; the Gold Fund had
$382,018; the Growth and Income Fund had $1,387,630; the Growth Fund had
$474,719; the Gaming Fund had $390,441; and the Technology Fund had $293,676.
Accordingly, fee revenues have fluctuated over this same time period. Fee
revenues for the years ending December 31 of each fiscal year were $0.00 in
1985; $107,603 in 1986; $167,407 in 1987; $6,892 in 1988; ($27,721) in 1989;
($174,150) in 1990; ($110,852) in 1991; ($67,881) in 1992; ($90,126) in 1993; $0
in 1994, and $0 in 1995. Under the Advisory Agreement with MONITR, the Company
has agreed to reimburse MONITR for certain expenses above 1.45% of average net
assets for four of the funds. The Company is not required to reimburse the
Adjustable Rate Fund for expenses. On the other two funds, the Company is not
required by contract to reimburse the Funds for expenses, but may do so based
upon management's discretion or varying state regulations. While no assurance
can be given that funds under management can be significantly increased, the
Company expects that fee revenues will increase in 1995.
FRONT-END LOADS
- ---------------
With any fund of MONITR (other than the Adjustable Rate Fund), investors
pay up to 4.5% front-end loads but no back-end loads. There is also a
continuing 12b-1 charge of a maximum of .99% (.10% for the Government Income
Fund and 0.05% for the Adjustable Rate Fund) (See "Marketing and Marketing
Services"). The following table shows current applicable sales charges for all
Funds but the Adjustable Rate Fund:
SALES CHARGE AS SALES CHARGE
PERCENTAGE OF AS PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE OF AMOUNT
- ------------------ -------------- ------------
Less than $100,000 4.50% 4.71%
$100,000 to $249,999 3.00% 3.09%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 or more 0.00% 0.00%
The current applicable sales charges for the Adjustable Rate Fund are as
follows:
SALES CHARGE AS SALES CHARGE
PERCENTAGE OF AS PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE OF AMOUNT
- ------------------ -------------- -------------
Less than $100,000 1.25% 1.27%
$100,000 to $249,999 1.00% 1.01%
$250,000 to $499,999 0.75% 0.76%
$500,000 to $999,999 0.50% 0.50%
$1,000,000 or more 0.00% 0.00%
The Company does not receive any fee income from the front-end loads.
MARKETING AND MARKETING SERVICES
- --------------------------------
The Company has marketed its services principally through the efforts of
its management and the distributor of MONITR, Pallas Financial Corp. ("Pallas"),
and certain sales representatives under contract with Pallas. Pallas is owned
and controlled by Mr. Phillip R. Verrill, the Company's Chairman of the Board
and President.
The Company entered into an amended Marketing Services Agreement
("Marketing Services Agreement") effective November 1, 1988, with Pallas
(including Mr. Verrill). Under the Marketing Services Agreement, the Company
pays Pallas a minimum of $99,996 per year ($8,333 per month) for marketing
services and for the use of office facilities, for clerical and marketing staff
personnel, and telephone services. In addition to charges under the Marketing
Services Agreement, the Company is responsible for payment of certain other
marketing expenses such as costs associated with sales representatives.
Marketing of the Company's services has been a significant expense item.
By marketing its services, the Company seeks an increase in the total assets
under management by the Company and an increase in related management fees
received by the Company. (See "Management Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of marketing expenses.)
For the foreseeable future, marketing of the Company's services will continue to
be a significant expense item. Marketing expenses incurred by the Company
include charges incurred in communicating information about MONITR and
encouraging purchase of shares of MONITR.
Through Pallas, at December 31, 1995, the Company was represented by
selling agreements with over 340 broker-dealers who rely on their
representatives for retail sales.
TECHNICAL SERVICES
- ------------------
The Company receives technical services in selecting securities and fund
timing from its management. The technical services in 1995 were rendered
primarily by Mr. Phillip R. Verrill, President and Chairman of the Board, and
Mr. Michael A. Licameli, Director.
For the foreseeable future, it is likely that the Company will utilize its
present management along with outside advisors for technical services. (See
"Management Discussion and Analysis of Financial Condition and Results of
Operations" for discussion of technical services expenses.)
At present, technical services are provided by the Company's management,
sub-advisors and numerous outside services, including Chart Watch, Jim Jones,
O'Neil, Gelderman, Salomon Brothers, Standard & Poor's, and Smith Barney.
COMPETITION
- -----------
The investment advisory market is very competitive. Over the past several
years, there has been an increase in the number of mutual funds being offered to
the investing public. The Company must compete against numerous other entities
that offer mutual funds and services similar to those offered by the Company.
Numerous firms offer asset allocation services and alternative investment
vehicles. The Company currently provides only seven investment vehicles as
opposed to larger managers providing a large fund family of funds with numerous,
varied series or portfolios. Since data concerning the actual performance of
the Company and other advisory firms is generally available to the public,
investors may prefer the services provided by the competition over the Company's
services.
Various competitive factors affect the ability of the Company, as a money
manager, to attract cash to be invested in its mutual funds. One key factor
related to competing is fund marketing. Money managers, broker-dealers,
investment advisors, investors, and others who make investment decisions have to
be made aware of the Company's funds to be attracted to select one of the
Company's funds, over competing funds, as an investment vehicle. A competitive
marketing program is needed to solicit new accounts and to maintain established
accounts. Another key competitive factor is technical competence. The
Company's fund management techniques must be credible to the financial
community. Credibility may be measured, in part, by the results produced by the
methodologies.
GOVERNMENT REGULATION
- ---------------------
The Company is registered as an investment advisor under the Investment
Advisers Act of 1940, as amended ("IAA"), and the laws of the State of New
Jersey where the Company serves as an advisor. Although the Company is so
registered, such registration does not imply in any manner that the Company has
been approved by the Securities and Exchange Commission (the "Commission") or
any state regulatory authority or that the qualifications of the Company have
been passed upon by the Commission or any state regulatory authority.
The Company is subject to the regulations passed under the IAA pertaining
to maintaining books and records, reporting, advertising, payments to solicitors
of clients, custody or possession of funds or securities of others, and other
matters. Even though management of the Company believes the Company is now in
compliance with applicable regulations, changes in such regulations may affect
the expense of operations and require costly adjustments in the Company's
business procedures to ensure compliance.
EXPENDITURES FOR RESEARCH AND DEVELOPMENT
- -----------------------------------------
Since the inception of the Company, the Company has relied on its
management and founders, for research and development. The Company has
expended significant sums for Company sponsored development of new services or
techniques or the improvement of existing services or techniques. The Company
has relied and plans to continue to rely upon its management and selected
outside advisors for technical services. The Company has not had any material
customer-sponsored research and development activities.
EMPLOYEES
- ---------
As of December 31, 1995 the personnel of the Company included (1) the
Chairman of the Board of Directors and President, (2) the Secretary and
Treasurer, and (3) the Vice President-Sales. At such date, under the Marketing
Services Agreement, in addition to services rendered by management, the Company
had access to two marketing staff persons.
ITEM 2. PROPERTIES
----------
The Company's executive offices located at 272 Closter Dock Road, Suite 1,
Closter, New Jersey 07624 were closed during 1995, and the offices have now
moved to 1299 Ocean Avenue, Suite 210, Santa Monica, California. During 1994
and into early 1995, the Company maintained an office at 2000 Richard Jones
Road, Nashville, Tennessee. As of April 1996, Monitrend moved its marketing
facilities to 1299 Ocean Avenue, Suite 210, Santa Monica, California 90401.
ITEM 3. LEGAL PROCEEDINGS
-----------------
PENNSYLVANIA INSURANCE COMMISSIONER. In January of 1994 Monitrend and CLIC
entered into a Share Purchase Agreement for the sale of Monitrend shares to
CLIC. As part of the Agreement and contemporaneously with its execution, CLIC
loaned Monitrend a total of $161,334.00, in exchange for the Share Purchase
Agreement and promissory notes which Monitrend executed. The parties planned to
close the sale on April 29, 1994, at which time the Agreement provided that
Monitrend would repay the loans.
The closing did not occur. As noted above, on February 15, 1994, the
Commonwealth Court entered an Order of Liquidation of CLIC. This was the first
time that Monitrend learned that CLIC was the subject of liquidation
proceedings, which in fact had been ongoing since the Commissioner filed a
petition for liquidation on March 31, 1992. The record had been previously
sealed and kept secret by court order entered at CLIC's behest. Further, CLIC
had concealed these proceedings from Monitrend and had otherwise misrepresented
the state of its financial affairs to Monitrend.
The Commissioner's claims against Monitrend are based on the promissory
notes and on provisions of the Pennsylvania insurance act.. The Commonweath
Court heard oral argument on the matter on January 24, 1995. On January 31,
1995, the Court issued its opinion and order sustaining the Commissioner's
Preliminary Objections insofar as Monitrend's Counterclaim pertains to Counts I
and IV of the Commissioner's Complaint, but overruling the Commissioner's
Preliminary Objections insofar as Monitrend's Counterclaim pertains to Counts II
and III of the Commissioner's Complaint. In effect, the Court held that
Monitrend could maintain its Counterclaim in defense to the Commissioner's
claims to recovery under the terms of the promissory notes. However, the Court
held that the Commissioner's claims under the Pennsylvania insurance act which
did not depend on the Share Purchase Agreement or the promissory notes were
immune from Monitrend's defensive Counterclaim. In a footnote, however, the
Court noted that Monitrend had pleaded facts which, if proven, would provide a
complete defense to the Commissioner's claims under the insurance act.
Monitrend intends to vigorously defend this lawsuit unless and until the
Commissioner would make an offer to settle which would be comparable to the
estimated remaining costs of defending the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, though solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON AND
PREFERRED STOCK AND RELATED SHAREHOLDER MATTERS
-----------------------------------------------
On December 24, 1987, the Company completed its initial public offering of
securities, which securities were registered with the Commission pursuant to a
registration statement on Form S-18. At the close of the public offering, the
Company issued, for an aggregate consideration of $1,200,092, a total of 600,046
Units of securities, with each Unit comprising three shares of Common Stock,
$0.001 par value per share, and one share of convertible Preferred Stock, $0.001
par value per share. At the close of the offering, the Company issued Gilbert
Marshall & Company, the Underwriter, warrants to purchase 180,014 shares of
Common Stock at $0.60 per share, which warrants were exercisable during the four
year period commencing December 24, 1988. The Company agreed to register the
warrants and/or underlying shares, one time only, during the period in which
they are exercisable.
During January, 1988, Units comprising the Company's securities were listed
in the National Daily Quotation Service "Pink Sheets" published by the National
Quotation Bureau, Inc. During 1994, and at March 30, 1996, units comprising the
Company's Preferred Stock and Common Stock were listed, without bid and ask
quotations, in the "Pink Sheets" of the National Quotation Bureau, Inc.
During June 1988, the Company commenced a private placement of Units of
securities which Units comprised a promissory note bearing interest at twelve
percent (12%) payable monthly and Common Stock Purchase Warrants. The Company
withdrew the offering after obtaining $40,000 in loans. In 1993, $20,000 of
these Notes were converted to equity. As part of the loan transactions, the
Company issued warrants to purchase 80,000 shares of Common Stock at the lessor
of fifty cents ($0.50) per share or 75% of the fair market value of the Common
Stock five years after the loan transactions were closed. These warrants were
not exercisable until 1993.
During the period ended September 30, 1989, the Company sold units of
securities in private placements. These units of securities comprised a
Principal Right, a Revenue Certificate, and Common Stock Purchase Warrants. As
part of the unit sales, $1,195,000 of Principal Rights were sold and the Company
issued warrants to purchase 2,235,000 shares of Common Stock at the lesser of
fifty cents ($.50) per share or fifty percent (50%) of the Common Stock price
six years after the securities transactions were closed.
These Common Stock Purchase Warrants are exercisable at various times in
late 1995 and 1996. In addition, each holder of a Principal Right is to receive
$10,000 per unit ($1,235,000 total for all 123.5 units sold) as a return of the
participant's capital at the end of the sixth year after the closing of the
offering. Each Revenue Certificate entitles each holder to receive $11,631 per
unit (totaling $1,389,905 for all 123.5 units sold at September 30, 1989) as
investment income. Each holder of one Revenue Certificate will each receive
0.5% per unit of the Company's total revenues, if any, until each $11,631
Revenue Certificate is paid in full. Although the Company intends to set aside
59.75% of its total revenues, if any, to pay holders of the 123.5 Revenue
Certificates sold effective September 30, 1989, the Company shall first apply
all revenues to working capital and maintenance of current operations and
expenses.
The Common Stock Purchase Warrants can be exercised at any time during the
twelve months following seventy-two months after the date of the related
closing. During the period in which the Common Stock Purchase Warrants are
exercisable, the Company will register, one time only and at the expense of the
holders, under the Securities Act of 1933 (the "Act"), the securities issuable
upon exercise of the Common Stock Purchase Warrants, upon certain conditions of
the Common Stock Purchase Warrants. If all Common Stock Purchase Warrants are
exercised, the Company would issue a total of 2,470,000 shares of its Common
Stock.
On March 19, 1991, the Company, through a private placement, completed the
sale of 900,000 units, each unit consisting of one share of Preferred Stock and
four shares of Common Stock of the Company. The gross proceeds of the private
placement were $585,000.
On May 8, 1992, the Company initiated a private placement of 1,330,000
Units, each unit consisting of two shares of Series A Preferred Stock and three
shares of Common Stock for an aggregate offering of $864,500. The private
placement was supplemented on November 9, 1992 and again on February 5, 1993,
with the second supplement increasing the offering to a maximum of $925,000.
The private placement closed in February 1993 with gross proceeds of $873,531.10
resulting from the offering.
HOLDERS
- -------
At December 31, 1995, there were approximately 292 holders of record of the
Company's Common Stock, 176 holders of record of the Company's Preferred Stock
and 84 holders of the Company's Series A Preferred Stock. No trading market
currently exists for the Series A Preferred Stock but the Company intends to
register the Series A Preferred Stock under the Securities Exchange Act of 1934,
as amended (the "1934 Act") and to develop a market therefor. The Company does
not anticipate paying dividends on any of its securities for the foreseeable
future, and intends to utilize any operating revenues in the operation of its
business.
DIVIDENDS
- ---------
The Company has made one dividend payment aggregating $37,503 on July 12,
1988, on outstanding shares of Preferred Stock, or $0.0625 per share for 600,046
shares of Preferred Stock. The Company intends to pay dividends on its
securities as soon as practicable after cash flow covers operating expenses.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION
---------------------------------------------------------
The discussion below should be read in conjunction with the financial
statements of the Company included in this Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES: Material Changes in Financial Condition
- -------------------------------
The Company is registered under the Investment Advisers Act of 1940, as
amended, and serves as investment advisor to one mutual fund, Monitrend Mutual
Fund (symbol: "MONITR"), pursuant to an Investment Advisory Agreement. At
present, the Company receives revenues only by rendering advisory services to
MONITR for advisory fees. The Company's ability to generate cash sufficient to
meet its future operating needs depends upon its earning advisory fees. The
amount of advisory fees received by the Company is determined by the amount of
funds under management. Such fees are an important factor in determining the
future liquidity of the Company as such fees are the Company's only present
internal source of liquidity and, at present, the Company has no external source
of liquidity. The Company has no material unused source of liquid assets. To
augment its present operations, the Company may form or acquire management
rights to additional series or mutual funds to which the Company would serve as
investment advisor.
The Company has agreed that it will furnish to MONITR, at the Company's
expense, all office space and facilities, and equipment and clerical personnel
necessary for carrying out the Company's duties under the Investment Advisory
Agreement. The Company will also pay all compensation of all trustees, officers
and employees of MONITR who are affiliated persons of the Company. All costs
and expenses not expressly assumed by the Company under the Investment Advisory
Agreement shall be paid by MONITR, including, but not limited to, (i) interest
and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its trustees other than those affiliated with the
Company; (v) legal and audit expenses; (vi) fees and expenses of MONITR's
administrator, custodian, shareholder servicing or transfer agent, and
accounting services agent; (vii) expenses incident to the issuance of its
shares, including issuance on the payment of, or reinvestment of, dividends;
(viii) fees and expenses incident to the registration under Federal or state
securities laws of MONITR or its shares; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders of MONITR;
(x) all other expenses incidental to holding meetings of MONITR's shareholders;
(xi) dues or assessments of or contributions to the Investment Company Institute
or any successor; (xii) such non-recurring expenses as may arise, including
litigation affecting MONITR and the legal obligations which MONITR may have to
indemnify its officers and trustees with respect thereto; and (xiii) all
expenses which MONITR agrees to bear in any distribution agreement or in any
plan adopted by MONITR promulgated under the 1934 Act. The Company has agreed
to reimburse MONITR for certain expenses above 1.45% of average net assets for
four of the Funds. On two of the Funds, the Company is not required by contract
to reimburse the Funds for expenses but may do so based upon management's
discretion or varying state regulations. The Company is not required to
reimburse the Fund for expenses related to the Adjustable Rate Fund. The
reimbursement was $255,204 for 1995, $154,101 for 1994, $90,126 for 1993,
$67,881 for 1992, $128,173 for 1991, $103,428 for 1990, and $100,891 for 1989.
In 1991, the Company recommended sweeping changes to the organizational and
cost structures of MONITR. On May 31, 1991, the Value Fund was successfully
merged into the Growth and Income Fund (formerly the Summation Fund). This
merger had the effect of reducing operating costs by eliminating those expenses
associated with the maintenance of a series operating at below the cost
effective asset base level. Changes have been made to MONITR's Auditor,
Custodial Bank, Administrator, Fund Accountant and Transfer Agent. It is
estimated that these changes have resulted in substantial savings. Additional
cost savings have been identified and are being instituted.
In general, MONITR pays the Company an annual management fee computed on
the net asset value of MONITR. Nevertheless, if the expenses of MONITR
(including the fees the Company and the administrator and amortization of
organization expenses, but excluding interest, taxes, brokerage commissions,
extraordinary expenses and sales charges, and distribution fees) for any fiscal
year exceed the limits set by applicable regulations of state securities
commissions, the Company will reduce its fee by the amount of such excess. Any
such reductions are subject to readjustment during the year. The payment of the
management fee will be reduced or postponed, or, if necessary, a refund will be
made to MONITR so that at no time will there be an accrued but unpaid liability
under this expense limitation. The provisions of the Investment Advisory
Agreement requiring reimbursement and/or adjustments for certain fees and
expenses can have a material impact on revenues, if any, of the Company.
In October 1993, the Company began operations of the Gaming Fund and the
Technology Fund. Additionally, the Company is developing and has working
agreements with several advisors regarding new funds. The Company has expanded
its relationship with PIA and has registered a new fund, the PIA Adjustable Rate
Government Securities Fund. This Fund became effective on March 31, 1994, and
is the Company's first product designed specifically for the institutional
marketplace.
Effective marketing and technical management of the Funds represent
important factors in attracting investors to the Funds and thus increasing fee
revenues. The amount of funds under management by the Company and fee revenues
are indications of the Company's ability to maintain or achieve liquidity.
Funds under management have generally declined since 1987. If funds under
management do not increase more substantially, the Company will have an
uncertain ability to generate adequate revenues to meet its operating needs.
During fiscal year ended December 31, 1987, the Company completed its
initial public offering of securities. The Company's capital resources received
a favorable increase from the sale of securities, which sale resulted in gross
proceeds of $1,200,092 and net proceeds of $1,026,092, excluding certain
registration costs. Prior to the closing of the initial public offering of
securities, the Company's activities were financed by the private sale of
securities to investors, loans by individuals, a bank line of credit for
$185,000 with guarantees by management, and operating revenues.
The Company closed a private offering of 123.5 Senior Units of securities
during the period ended September 30, 1989. These units of securities comprised
a Principal Right, a Revenue Certificate and Common Stock Purchase Warrants. As
part of the unit sales, $1,235,000 of Principal Rights were sold and the Company
issued warrants to purchase 2,470,000 shares of Common Stock at the lesser of
fifty cents ($.50) per share or fifty percent (50%) of the Common Stock price
six years after the securities transactions were closed. These Common Stock
Purchase Warrants are exercisable at various times late in 1995 and 1996. In
addition, the holder of a Principal Right is to receive $10,000 per Unit,
totaling $1,235,000 as a return of all of the participants' capital at the end
of the sixth year after the closing of the offering. Each Revenue Certificate
entitles the holder to receive $11,631 per Unit, totalling $1,436,428.50
investment income for 123.5 Senior Units. Each holder of one Revenue
Certificate is to each receive 0.5% per unit of the Company's total revenues, if
any, until each $11,631 Revenue Certificate is paid in full. Although the
Company intends to set aside and reserve 59.75% of its total revenues, if any,
to pay holders of the 123.5 Revenue Certificates, which reserve could have a
material impact on liquidity, the Company shall first apply all revenues to
working capital and maintenance of current operations and expenses. The Company
has agreed to issue warrants for approximately 165,000 shares of common stock to
registered broker-dealers that assisted the Company in the placement of the
units.
The Company, on March 19, 1991, closed a private placement of 900,000
units, each unit consisting of one share of Preferred Stock, $0.001 par value
per share, and four shares of Common Stock, $0.001 par value per share, of the
Company. The gross proceeds from this private placement were $585,000. In
addition, units, each unit consisting of two shares of Series A Preferred Stock
and three shares of Common Stock, were offered by the Company through a private
placement which expired March 31, 1992. The gross proceeds of such offering
totalled $585,000. The net proceeds from these offerings were used to pay
expenses in support of present operations, and for various other working capital
purposes.
On May 8, 1992, the Company initiated a private placement of 1,330,000
Units, each unit consisting of two shares of Series A Preferred Stock and three
shares of Common Stock for an aggregate offering of $864,500. The private
placement was supplemented on November 9, 1992 and again on February 5, 1993,
with the February 5, 1993 supplement increasing the offering to a maximum of
$925,000. The private placement closed in February 1993 resulting in gross
proceeds of $873,531.10 for the Company.
Since inception of the Company in March 1984, the Company has incurred
losses aggregating $1,629,002 at December 31, 1995. As of December 31, 1995,
current assets were $6,325 and current liabilities exceeded current assets by
approximately $552,064, compared with approximately a $490,878 deficiency of
current assets versus current liabilities at the end of the fiscal year ended
December 31, 1994. As of December 31, 1995, the Company's stockholders' equity
was a deficit of $(1,629,002). The Company used a significant portion of the net
proceeds of the May 8, 1992 private placement to defray operating expenses
associated with continued routine business in 1993. Even though the Company
will likely incur additional losses as it seeks to expand its business, the
substantial operating cost savings that have been instituted as well as the
introduction of new products and the planned strategic alliance with the
investment group consisting of Lloyd McAdams and Heather U. Baines, Pacific
Income Advisors and Capital Advisors Inc. should stabilize and bring the Company
to profitability in the near future. The Company anticipates developing avenues
of revenues or profit to permit it to continue its business. However, the
report of the Company's independent certified public accountants accompanying
the Company's financial statements for the fiscal year ended December 31, 1995,
contains an explanatory paragraph describing the uncertainties as to the ability
of the Company to continue its operations due to among other things, prior
losses. These losses were the result of expenses incurred in completing the
development and marketing of the MONITR fund to which the Company serves as
investment advisor and in pursuing the development of additional series of the
fund. In the first quarter of fiscal year 1992, the Company instituted cost
savings measures which the Company feels saved a significant amount of expenses
and which should reduce the Company's losses dramatically over time. It is felt
that the cost saving measures should continue to reduce costs incurred by the
Company, in conjunction with future cost saving measures which may be identified
and implemented.
Management of the Company anticipates that the Company will incur
substantial losses during the fiscal year 1996 in the absence of the
consummation of the investment group transaction. During such period of time,
expenditures are likely to exceed revenues received from advisory services, and
losses during such time may consume all of the Company's financial resources.
Marketing of existing and proposed funds may fail to significantly increase
assets under management. Although there is no assurance, if the marketing
programs increase assets under management, then revenues from future advisory
service fees may increase and the Company may become profitable. It is not now
possible to state whether future losses will exceed the Company's aggregate
losses, excluding dividends on Preferred Stock, of $5,207,728 incurred from
inception to December 31, 1995, since future revenues are dependent upon the
results of the Company's marketing programs.
In the future, to seek to remedy continued losses and to seek to improve
operating results, the Company may organize or acquire additional mutual funds
or series of funds or may acquire the rights to manage one or more additional
funds. It is presently contemplated that the funds for such acquisitions, if
any, will come from borrowing from individual lenders or from financial
institutions. Private placements of securities may also be used to fund
acquisitions, if any are completed. There is no assurance any financing will be
available to the Company, and in particular, that significant additional
proceeds will be obtained from any future private placements. The contemplated
merger should add a significant source of capital which will be used to further
market the existing Funds, develop additional funds and introduce new products
and services.
In the opinion of management, the present capital of the Company, plus
anticipated advisory fee revenues and the completion of the anticipated
acquisition, will, at least for the next twelve (12) months, be sufficient to
meet basic operational and cash requirements of the Company. If the Company
does not generate sufficient operating revenues or other cash flow based upon a
minimum level of revenues necessary to support the Company's cost structure,
then the Company must seek additional capital and may change the application of
available fee revenues and other funds, if any, to enable the Company to meet
basic operational needs. After the proceeds of the anticipated acquisition and
the existing assets of the Company have been exhausted, management is uncertain
as to whether ongoing advisory service operations will provide sufficient
working capital, since the general effect of a declining portfolio of managed
funds is a reduction of fees for advisory services. Revenues from advisory fees
were $0 for the year ended December 31, 1995 as compared to $0 for the year
ended December 31, 1994. Management expects that the deficit will significantly
decrease for year ending December 31, 1996. Under the Investment Advisory
Agreement with MONITR, the Company has agreed to reimburse MONITR for certain
expenses above 1.45% of average net assets for four of the Funds. On two of the
Funds, the Company is not required by contract to reimburse the Funds for
expenses but may do so based upon management's discretion or varying state
regulations. The Company is not required to reimburse the Funds for expenses
for the Adjustable Rate Fund.
The Company supplements and augments its own technical and marketing staff
and continues to operate under contract for marketing services with an affiliate
of the management of the Company. For the year ended December 31, 1995, charges
for marketing services were $15,000, as compared to $120,445 for 1994. For the
year ended December 31, 1995, charges for technical services were $8,500, as
compared to $91,640 for 1994. Subsequent to the quarter ending September 30,
1988, the Company amended its Marketing and Technical Services Agreements to
reduce the minimum amounts that the Company was obligated to pay for technical
and marketing services from $340,992 per year ($85,248 per quarter) to $199,992
per year ($49,998 per quarter). At present, the technical services are now
provided by the Company using its own personnel, including Mr. Michael A.
Licameli, a Director, and Mr. Phillip R. Verrill, Chairman of the Board and
President. In addition, a portion of the technical services are provided by the
Company's management and numerous outside services, including Chart Watch, Jim
Jones, O'Neil, Gelderman, Standard & Poor's, Smith Barney and Salomon Brothers.
At present, the Company has the following principal annual expenses for
technical and marketing services and other marketing expenses:
Marketing services contract (minimum): $ 99,996
Estimated additional marketing expenses: $100,000
RESULTS OF OPERATIONS
- ---------------------
As of December, 1995, the Company has completed over eleven years of
operations. Since its inception in March, 1984, the Company has incurred losses
aggregating $5,207,728 as of December 31, 1995. The Company's only source of
revenue to date has been fee income from advisory services. Operating expenses
have consisted principally of expenses incurred in establishing, registering,
marketing, and obtaining technical services for the MONITR Fund, to which the
Company serves as an investment advisor.
For fiscal year ended December 31, 1989, 1990, 1991, and 1992, fee income
was $(27,721), $(174,150), $(110,852), and $(67,881), respectively. For the
fiscal year ended December 31, 1993, fee income was $(90,126) while in 1994 and
1995 fee income was $0. The Company incurred a net loss of $(325,150) for 1995,
as compared to a net loss of $(739,006) for 1994, a net loss of $(453,873) in
1993, a net loss of $(537,740) in 1992, $(457,269) in 1991, a net loss of
$(486,965) in 1990, and a net loss of $(528,809) in 1989.
Marketing expenses remain a large component of operating expenses. During
fiscal years ended December 31, 1989, 1990, 1991, 1992, 1993, 1994, and 1995,
marketing service charges and marketing expenses were $171,050, $126,675,
$187,562, $246,837, $138,628, $120,445, and $15,000 respectively.
Certain operating expenses, principally marketing services (distinguished
from marketing expenses), are based on a monthly retainer agreement and a
percentage of funds under management. Such expenses, therefore, will increase
with funds under management. Since inception, the Company has not observed any
material impact of inflation on expenses or revenues; however, the impact of
inflation on the Company's expenses and revenues is not readily determinable.
Management believes that actions presently being taken, and planned, to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern and to increase
revenues during 1996.
The Company's plan to overcome its financial difficulties includes the
following steps:
a. Complete the agreement with the investment group led by Lloyd McAdams
and Heather U. Baines, Pacific Income Advisors and Capital Advisors
Inc. which calls for a capital investment in the Company and a three
year agreement to provide facilities and management personnel. The
new management group also plans to build-up the Company's customer
service facilities and expand the Company's analytical staff.
b. Close unprofitable funds to reduce operating expenses for any funds
which do not obtain break-even profitability within a reasonable
period of time;
c. Devote further attention to reduction of operating costs, including
additional negotiations with service suppliers (fund custodian,
administrative agent, accounting services, and the like);
d. Continued emphasis on marketing to accelerate growth of the funds that
are currently selling;
e. Expand wholesale operations into areas not presently served;
f. Development of new funds and contemplated portfolio changes.
g. Marketing investments software.
While the Company anticipates that this plan will assist the Company in the
strengthening of its financial position, there can be no assurance that any of
the foregoing may improve the financial condition of the Company or allow it to
continue as a going concern.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Consolidated Financial Statements of the Company and Notes thereto,
together with the Report of Schumacher & Bruce, Inc., CPA, may be found
beginning on Page F-1 hereto.
Schedules to the Financial Statements (Regulation S-X) are not required
under the related instructions or are inapplicable and therefore have been
omitted.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
---------------------------------------------------------------------
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
-------------------------------------------------------------------
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------------------
The following sets forth certain information concerning each Director and
Executive Officer of the Company:
Period of Service
Name and Age Positions(s) with the Company as a Director or Officer
------------ ----------------------------- ------------------------
Phillip R. Verrill Chairman of the Board and Since March 8, 1984
Age: 50 (1)<F7>(2)<F8> President
Michael A. Licameli Director Since December, 1990
Age: 33
Robert J. Fisher Vice President - Sales Since December, 1990
Age: 55
(1)<F7> May be deemed to be an "organizer" of the Company.
(2)<F8> May be deemed to be a "promoter" of the Company.
TERM OF OFFICE
- --------------
All directors of the Company hold office until the next annual meeting of
the Company's shareholders, or until their successors have been elected and
qualified. Officers serve at the discretion of the Company's Board of
Directors.
FAMILY RELATIONSHIPS
- --------------------
There are no arrangements or undertakings between any of the named
Directors or Officers and any other persons pursuant to which any Director was
selected or was nominated as a Director or an Officer. There are no family
relationships among the Officers, Directors, or nominees.
BUSINESS EXPERIENCE
- -------------------
PHILLIP R. VERRILL: Mr. Verrill is a founder of the Company. From 1990 to
the present, Mr. Verrill has served as President of the Company. From 1984 to
December 1990, Mr. Verrill served as a Director and Vice President - Marketing
of the Company. He has served as Chairman of the Board since July 1989. From
1984 to 1989, Mr. Verrill served as Vice President of MONITR and since 1988,
Mr. Verrill has served as Director of MONITR. He currently serves as President
of Pallas Financial Corporation and its affiliates Pallas Financial Services,
Inc. and Pallas Financial Group, Inc. (1983 to 1988). Formerly, he was the
Branch Manager and Director, Product Development - Commodity Division, Thomson
McKinnon Securities, Inc. (1978 to 1983) and Mr. Verrill was Vice President and
Nashville, Tennessee, Branch Manager for E. F. Hutton & Co. (1977 to 1978).
During the period from 1970 to 1977, he attained the positions of Senior Account
Executive and Commodity Specialist for the Birmingham, Alabama, office of
Merrill Lynch, Pierce Fenner and Smith, Inc.
MICHAEL A. LICAMELI: Mr. Licameli was appointed as a Director of the
Company in December, 1990, and has also served until June 1995 as Secretary and
Treasurer of the Company. From 1989 to the present, Mr. Licameli has served as
Senior Operations Manager of the Company and from 1986 to 1988 served as
Assistant Portfolio Manager for Greenwich Monitrend Corporation and technical
advisor to the Company. From 1984 to 1986, Mr. Licameli worked in the accounts
and research departments of Greenwich Monitrend Corporation.
ROBERT J. FISHER: Mr. Fisher has served as Vice President - Sales since
December, 1990, and has served as national sales director of the Company since
1987. From 1987 to 1991, Mr. Fisher was Vice President and salesman for Pallas
Financial Corp. Prior to such time, Mr. Fisher was the President and national
sales director of Rochester Fund Distributors, a wholesaler of mutual funds.
DIRECTORSHIPS
- -------------
Phillip R. Verrill and Michael A. Licameli serve as Officers and Directors
of MONITR, a company registered as an investment company under the Investment
Company Act of 1940, as amended. Phillip R. Verrill, Chairman of the Company's
Board of Directors and President, serves as Trustee, and as a Trustee and
President of MONITR. Michael A. Licameli, Secretary and Treasurer of the
Company until June 1995, serves as a Trustee and Vice President of MONITR.
LEGAL PROCEEDINGS
- -----------------
There are no legal proceedings involving any of the Directors or Officers
of the Company.
SECTION 16 REQUIREMENTS
- -----------------------
Section 16(a) of the 1934 Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulation
promulgated pursuant to the 1934 Act to furnish the Company with copies of all
Section 16(a) report forms they file with the SEC.
Based solely on its review of the copies of such report forms received by
it with respect to fiscal year 1993, or written representations from certain
reporting persons, the Company believes that all filing requirements applicable
to its directors, officers and persons who own more than 10% of a registered
class of the Company's equity securities have been timely complied with in
accordance with Section 16(a) of the 1934 Act.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The information regarding executive compensation in response to Item 8 of
Schedule 14A which will appear in the Company's definitive Proxy Statement in
connection with the solicitation of proxies for its 1995 Annual Meeting of
Stockholders is hereby incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------
The information regarding security ownership of certain beneficial owners
and management in response to Item 6 of Schedule 14A which will appear in the
Company's definitive Proxy Statement in connection with the solicitation of
proxies for its 1995 Annual Meeting of Stockholders to be held in 1996 is hereby
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND SUBSEQUENT EVENTS
--------------------------------------------------------------------
The information regarding certain relationships and related transactions in
response to Item 7 of Schedule 14A which will appear in the Company's definitive
Proxy Statement in connection with the solicitation of proxies for its 1995
Annual Meeting of Stockholders is hereby incorporated herein by reference.
Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934, the
Company filed with the Commission Form 8-K on May 7, 1996 noting that the
Company had entered into an agreement in principle with an investment group led
by Lloyd McAdams and Heather U. Baines, Pacific Income Advisors and Capital
Advisors Inc. Which calls for a capital investment in the Company and a three
year agreement to provide facilities and management personnel. All parties are
working to complete related documentation and expect to finalize the transaction
within 30 days or sooner. The new management group plans to build-up
Monitrend's customer service facilities and expand Monitrend's analytical staff.
In a related manner, Monitrend and BeneFund have agreed to a transaction
which calls for the transfer of BeneFund's interest in the Company to the
aforementioned investment group in exchange for preferred stock and retention of
the 1,000,000 shares of the Company common stock previously issued. The
agreement supersedes prior arrangements and both companies have determined that
this arrangement better facilitates the plans the companies have for developing
financial products.
In conjunction with the transaction with Pacific Income Advisors, the
Company announced the move of its corporate offices to Santa Monica, California.
The transaction requires regulatory and stockholder approval which will be
submitted on the appropriate timetable.
Additionally, in conjunction with the transaction with Pacific Income
Advisors, Monitrend's new officers are the following: Chief Executive Officer,
Lloyd McAdams; President, Heather U. Baines; Vice President, Heather U. Baines,
and Secretary, Kathie Hilton.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------
(a)(1) FINANCIAL STATEMENTS: See "Index to Financial Statements and
Supplemental Schedules" under Item 8 above.
(a)(2) FINANCIAL STATEMENT SCHEDULES: See "Index to Financial
Statements and Supplemental Schedules" under Item 8 above.
(a)(3) EXHIBITS: The following Exhibits are filed herewith pursuant to
Rule 601 of Regulation S-B or are incorporated by reference to previous filings.
Exhibit
Table
Number Document Reference
- ------ -------- ---------
(2) Share Purchase Agreement between BeneFund, Inc. and the Company
dated March 11, 1994 (Schedules have been omitted and will be
provided upon request) Not Applicable
(3) Articles of Incorporation and Bylaws - Monitrend (i)
Investment Management, Inc.
(4) Instruments defining the rights of security holders, (i)
including debentures
(9) Voting Trust Agreement Not applicable
(10) Material contracts (i)
(10.1) Sub-Advisory Agreement approved December 27, 1990 and (iii)
effective as of January 31, 1991
(11) Statements regarding computation of earnings per share (iv)
(12) Statements regarding computation of ratios Not applicable
(13) Annual report to security holders, Form 10-Q
or quarterly report to security holders Not applicable
(16) Letter re: change in certifying accountant (ii)
(18) Letter re: change in accounting principles Not applicable
(19) Previously unfiled documents Not applicable
(22) Subsidiaries of the registrant Not applicable
(23) Published report regarding matters submitted to vote Not applicable
of security holders
(24) Consents of experts and counsel Not applicable
(25) Power of attorney Not applicable
(28) Additional exhibits Not applicable
(29) Information from reports furnished to State insurance Not applicable
regulatory authorities
(i) Filed as Exhibits with Registration Statement No. 33-12705 (under the
Securities Act of 1933, as amended) and incorporated herein by this
reference.
(ii) Filed with Form 8-K at February 22, 1988, and pursuant to Item 9(d) of
Schedule 14A (Reg. 240.14a-101).
(iii) Filed with the Securities and Exchange Commission on December 27, 1990
as Exhibit 5(d) to Post Effective Amendment No. 11 to the Monitrend Mutual
Fund Registration Statement on Form N-IA Registration No. 2-90810 and
incorporated herein by reference.
(iv) Not required since the information can be ascertained from the
Company's Financial Statements filed herewith.
(b) REPORTS ON FORM 8-K: No reports on Form 8-K have been filed during
the last quarter of the period covered by this Report.
(c) EXHIBITS: See (a)(3) above.
(d) See Item 8 of this report for an index of Financial Statement
schedules.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
By /s/ Phillip R. Verrill May 29, 1996
----------------------------------- ------------
Phillip R. Verrill, Date
Chairman of the Board and President
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
By: /s/ Phillip R. Verrill May 29, 1996
-------------------------- ------------
Phillip R. Verrill, Date
Director and President
By: /s/ Michael A. Licameli May 29, 1996
---------------------------- ------------
Michael A. Licameli, Date
Director
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
FINANCIAL STATEMENTS
with
Report of Independent Certified Public Accountants
December 31, 1995 and 1994
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
Page
----
Report of Independent Certified Public Accountants F-3
Financial Statements:
Balance Sheet F-4
Statements of Operations F-5
Statement of Changes in Stockholders'
(Deficiency) F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Monitrend Investment Management, Inc.
Closter, New Jersey
We have audited the accompanying balance sheet of Monitrend Investment
Management, Inc. as of December 31, 1995, and the statements of operations,
stockholders' (deficiency) and cash flows for the two years ended December 31,
1995 and 1994. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements 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 Monitrend Investment
Management, Inc. as of December 31, 1995 and the results of its operations,
changes in stockholders' (deficiency), and its cash flows for the two years
ended December 31, 1995 and 1994 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 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubts about its ability
to continue as a going concern. Management has taken steps to reduce operating
expenses and is attempting to complete a business combination. Management
believes that the actions planned and presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 East Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
March 29, 1996
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
BALANCE SHEET
December 31, 1995
ASSETS
------
Current Assets:
Cash $85
----------
Total Current Assets 85
Restricted investments (Note 3) 6,240
----------
TOTAL ASSETS $6,325
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
------------------------------------------------
Current Liabilities:
Advances from related parties (Note 6) $88,879
Current maturities of long term debt (Note 3) 158,062
Accounts payable and other accrued
expenses 56,244
Payable to Monitrend Fund 255,204
----------
Total Current Liabilities 558,389
Subordinated Obligations (Note 3) 1,076,938
----------
TOTAL LIABILITIES 1,635,327
----------
Commitments and contingencies (Notes 2,3,5,6,
9 and 10) -
Stockholders' (deficiency):
(Notes 3,5 and 8)
Common stock, $.001 par value,
20,000,000 shares authorized,
19,102,394 issued and outstanding 19,103
Convertible preferred stock, $.001
par value, 1,500,000 shares authorized,
1,487,046 shares issued and outstanding 1,487
Preferred stock, Series A, $.001 par
value, 3,189,378 shares authorized,
3,189,378 shares issued and outstanding 3,189
Additional paid-in capital 3,554,947
Accumulated deficit (5,207,728)
-----------
TOTAL STOCKHOLDERS' (DEFICIENCY) (1,629,002)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY) $6,325
-----------
-----------
The accompanying notes are an integral part of the financial statements.
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
STATEMENTS OF OPERATIONS
For the Year
Ended December 31,
1995 1994
------ ------
Revenues $- $-
-------- --------
Expenses:
Advisory fee and expense
reimbursements (Note 1) 255,204 154,101
Outside advisory services 8,500 91,640
Marketing services (Note 6) 15,000 120,445
Officers salaries 33,875 48,700
Professional fees (Note 2) (50,974) 113,546
Interest - 3,143
Depreciation 6,795 3,310
Taxes and licenses 2,580 5,001
Rent 9,600 9,854
Provision for doubtful account - 48,840
Other 7,070 57,050
--------- --------
Total Expenses 287,650 655,630
--------- --------
Net Loss Before Realized
Investment Gains (287,650) (655,630)
Realized Investment (Losses) (37,500) (83,376)
--------- ---------
Net Loss $(325,150) $(739,006)
--------- ---------
--------- ---------
Loss per common shares:
Primary $(.02) $(.04)
--------- ---------
--------- ---------
Average number of shares
outstanding 19,102,394 17,377,833
---------- ----------
---------- ----------
Fully Diluted $(.02) $(.04)
---------- ----------
---------- ----------
Average number of shares
outstanding 20,589,440 18,864,879
----------- -----------
----------- -----------
The accompanying notes are an integral part of the financial statements.
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
<TABLE>
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIENCY)
From December 31, 1993 through December 31, 1995
<CAPTION>
Preferred Stock Additional
Common Stock Convertible Preferred Series A Paid- Accumulated
No./Shares Amount No./Shares Amount No./Shares Amount in Capital Deficit Total
----------- ------- ---------- ------ ---------- ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31. 1993 15,651,932 $15,652 1,487,046 $1,487 3,189,378 $3,189 $2,857,864 $(4,143,572) $(1,265,380)
Issuance of restricted stock 3,450,462 3,451 - - - - 400,083 - 403,534
Net Loss - - - - - - - (739,006) (739,006)
---------- ------- --------- ------ --------- ------ --------- ---------- ---------
Balance at December 31, 1994 19,102,394 19,103 1,487,046 1,487 3,189,378 3,189 3,257,947 (4,882,578) (1,600,852)
Benefund, Inc. funds - - - - - - 297,000 - 297,000
received
Net Loss - - - - - - - (325,150) (325,150)
---------- ------ --------- ------ --------- ------ ---------- ---------- ---------
Balance at December 31, 91995 19,102,394 $19,103 1,487,046 $1,487 3,189,378 $3,189 $3,554,947 $(520,728) $(1,629,002)
---------- ------- --------- ------ --------- ------ ---------- ---------- ---------
---------- ------- --------- ------ --------- ------ ---------- ---------- ---------
The accompanying notes are an integral part of the financial statements.
</TABLE>
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
STATEMENTS OF CASH FLOWS
For the Year
Ended December 31,
1995 1994
-------- --------
Cash Flows From Operating Activities:
Net (loss) $(325,150) $(739,006)
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Depreciation 6,795 3,310
Increase (decrease) in accounts
payable and accrued expenses (45,971) 28,056
Increase in payable to
Monitrend Funds 76,136 114,050
Provision for doubtful account - 48,840
Other (62,761) (40,840)
--------- --------
Net Cash (Used in) Operating
Activities (350,951) (585,590)
--------- ---------
Cash Flows From Investing Activities:
(Purchases) of property and
equipment - (3,620)
Sale of investments 43,740 265,368
-------- --------
Net Cash Provided by Investing
Activities 43,740 261,748
-------- --------
Cash Flows From Financing Activities:
Funds received from Benefund 297,000 -
Advances from related parties - 78,000
Margin account loan (repayment) - (134,997)
Repayment of debt - (20,000)
Stock issued - 403,534
-------- --------
Net Cash Provided by Financing
Activities 297,000 326,537
-------- --------
Increase (decrease) in cash (10,211) 2,695
Cash, beginning of year 10,296 7,601
-------- --------
Cash, end of year $85 $10,296
-------- --------
-------- --------
Interest paid $- $3,143
-------- --------
-------- --------
Income taxes paid $- $-
-------- --------
-------- --------
The accompanying notes are an integral part of the financial statements.
MONITREND INVESTMENT MANAGEMENT, INC.
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
(1) Organization and History
------------------------
The Company was organized in March 1984 as a Delaware corporation. The
Company is an investment advisor to Monitrend Mutual Fund ("Mutual Fund"),
a Massachusetts Business Trust organized in January 1984, and is registered
as a diversified open-end investment management company under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended.
The Company earns its income principally from management fee arrangements
with six Monitrend Mutual Funds. Under these agreements the Company has
agreed to reimburse the Monitrend Mutual Funds for certain expenses above
1.45% of the Mutual Fund's average net assets on four of the funds. On the
other two funds the Company is not required by contract to reimburse the
funds for expenses but may do so based upon managements discretion or
varying state regulations. During the years ended December 31, 1995 and
1994 the Company received no management fee revenues. During these two
years the Company reimbursed certain expenses to the funds.
(2) Significant Accounting Policies
-------------------------------
Basis of Presentation - Going Concern
-------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. However, the Company has sustained
operating losses since its inception and has a net capital deficiency.
Management has taken steps to reduce operating expenses and is attempting
to complete a business combination as described in note 10. In view of
these matters, realization of certain of the assets in the accompanying
financial statements is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements, raise additional equity capital, and the success
of its future operations. Management believes that actions planned and
presently being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue as a going
concern.
Depreciation
------------
Depreciation of property and equipment is provided principally over the
estimated useful lives of 5 years utilizing the straight-line method.
During 1995 the furniture and office equipment that was formerly used in
the Company's New Jersey office was abandoned when the New Jersey office
was closed. The book value of this abandoned assets of $6,795 has been
shown as depreciation expense in the 1995 financial statements.
Loss per Common Share
---------------------
Loss per common share has been computed based on the weighted average
number of shares outstanding. The fully diluted loss per share included
the effect of the potential conversion of the preferred shares.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Legal Fees Waived
-----------------
Subsequent to December 31, 1995 approximately $100,000 of legal fees were
waived, some of which were for services rendered and invoiced in 1994, in
conjunction with a reorganization of the law firm, whereby mutual releases
were obtained. As part of this transaction, the Company agreed to utilize
the services of the law firm on other future matters with fees totalling at
least $50,000. If the Company fails to utilize the $50,000 of future
services, the Company would be liable for $50,000 of the previously waived
fee. In accordance with the terms of the business combination agreement as
disclosed in Note 10, the Company intends to incur legal fees with this
firm totalling at least $50,000 which will fulfill the commitment.
(3) Long-Term Debt and Subordinated Obligations
-------------------------------------------
Long-term debt and subordinated obligations at December 31, 1995 consisted
of the following (See Note 10):
Subordinated obligations $1,235,000
Current maturities (158,062)
------------
$1,076,938
------------
------------
During June, 1988, the Company commenced a private placement of units of
securities. The Units included a promissory note bearing interest at
twelve percent payable monthly and common stock purchase warrants. The
Company withdrew the offering after receiving $40,000. The $40,000 of
promissory notes have subsequently been satisfied. As a part of the
transaction, the Company issued warrants to purchase 80,000 shares of
common stock at the lessor of fifty cents per share or 75% of the fair
market value of the common stock five years after the unit transactions
were closed.
During 1989, the Company completed two private placements of senior units.
The senior units were offered at $10,000 per unit. The first private
placement included the sale of 100 units totalling $1,000,000. The second
private placement included the sale of 23.5 units totalling $235,000. Each
senior unit comprises one principal right, one revenue certificate and one
common stock purchase warrant.
Each principal right entitles the holder to receive $10,000 as return of
the participant's capital at the end of the sixth year after the final
closing of the offering.
Each revenue right entitles the holder to receive $11,631 as investment
income. Each holder of a revenue certificate will receive 0.5% of the
Company's gross revenues, if any, until the $11,631 revenue certificate is
paid in full.
The Company has covenanted that, during the period of time that any sums
are payable on the principal right and/or revenue certificates, the Company
will not issue any debt securities; however, the Company is permitted to
issue additional equity securities, warrants and options. For the limited
purpose of the above-described covenant, the Company did not intend to
treat the senior units, or any part thereof, as debt securities. Also, the
principal rights and revenue certificates are subordinated to commercial
trade, institutional or bank debts of the Company and senior indebtedness.
Senior indebtedness includes any indebtedness incurred by the Company or
any subsidiary in connection with general business operations or with the
acquisition of any business, properties, or assets and lease obligations.
As a part of the private placements, the Company indicated that it would
establish a reserve fund to pay a portion of the principal rights which may
be diminished if the Company uses the reserve to make payments to complete
a business combination. The Company is actively pursuing various business
opportunities and has incurred approximately $54,684 in 1992, $30,712 in
1993, $110,542 in 1994 and $21,000 in 1995 in related expenses. These
amounts expended and amounts expensed in prior years have reduced the
provision to $158,062. At December 31, 1995 the Company did not have
invested assets to cover this provision. Therefore, at December 31, 1995,
$158,062 has been reclassified from long term to current portion of debt.
As of December 31, 1995 no liability has been provided for any payment on
the revenue certificates since the company has not earned any gross revenue
since the completion of the private placements.
(4) Income Taxes
------------
As of December 31, 1995, there are no current or deferred income taxes
payable. As of December 31, 1995, the Company has total deferred tax
assets of approximately $1,040,000 due to operating loss carryforwards.
However, because of the uncertainty of potential realization of these tax
assets, the Company has provided a valuation allowance for the entire
$1,040,000. Thus, no tax assets have been recorded in the financial
statements as of December 31, 1995.
The Company has available at December 31, 1995 a net operating loss carry
forward of approximately $5,200,000 which may be utilized to offset future
taxable income, if any, through the year 2010. A change of control of more
than 50% of the Company may result in a loss of all or part of this
carryover.
(5) Capital Stock
-------------
The Company has 1,487,046 shares of convertible preferred stock
outstanding. Convertible preferred stock automatically converts to common
shares on a one for one basis upon the payment of a cumulative dividend to
the preferred stockholders of $.50 per share. The holders of preferred
stock, in preference to holders of common stock, are entitled to receive
dividends, if and when declared by the Board of Directors, at the rate
declared by the Board of Directors, until the holders of preferred stock
have received an amount equal to $.50 per share of preferred stock. The
Company has made one preferred dividend payment aggregating $37,503 on July
12, 1988 amounting to $.0625 per share.
After the $.50 per share dividend preference has been paid to holders of
preferred stock, there will be no dividend preference, and all shares of
preferred stock will automatically be converted, on a one for one basis, to
shares of common stock. Any further dividends, if any, declared by the
Board of Directors shall be paid to holders of all shares at the same rate
per share.
Until the Company has paid the aggregate of $.50 per share in dividend
preferences to holders of the preferred stock and the preferred stock is
converted into common stock, the Company may not make secured or unsecured
loans to any officer, director, employee or agent of the Company and the
Company may not pay any officer, director, or employee aggregate
remuneration, including fringe benefits, greater than $55,000 per year.
In the event of dissolution, liquidation, winding up of the Company or sale
or other transfer of the Company's assets not in the ordinary course of
business, after payment of the Company's liabilities to unaffiliated third
parties, holders of preferred stock are entitled, in preference to holders
of common stock, to any amount of remaining assets in an amount not to
exceed $.50 per share of preferred stock outstanding. The liquidation
preference is not reduced by any dividends that may have been paid by the
Company. After payment of the liquidation preference, the holders of
preferred stock will share pro rata with holders of common stock, on a per
share outstanding basis, in all remaining assets of the Company. Upon
conversion of the preferred stock to common stock, there are no liquidation
preferences. Holders of the preferred stock do not have any right to
request conversion of preferred to common stock.
The Company will adjust the number of shares of common stock to be issued
for converted preferred stock by an amount to take into account any
increase or reduction in the number of outstanding shares of common stock
which have accrued since the date of first issuance of the preferred stock
by reason of split, reverse-split, share dividend, consolidation, merger or
other capital change affecting the number of outstanding shares of common
stock so as to fairly and equitably preserve the original conversion rights
of the preferred stock. In case of any reclassification or change such as
a consolidation, merger, or business combination or subdivision exulting in
a capital change for the outstanding shares of the Company (other than as a
result of a subdivision or combination of shares), then lawful provision
shall be made by the Board of Directors so that the holders of the
preferred stock then outstanding shall have the right to convert such
shares into the kind and amount of shares of property, stock or other
securities receivable by a holder of the number of shares of common stock
into which shares of preferred stock might have been converted immediately
prior to such reclassification or change.
Each holder of preferred stock is entitled to one vote per share of
preferred stock for the election of Directors, and upon all matters which
shareholders are entitled to vote; provided however, holders of preferred
stockholders are not entitled to vote as a class upon any mergers,
consolidations, reorganizations, dissolutions, sale of all corporate assets
not in the ordinary course of business, or upon any increase or decrease of
the authorized shares of any class of stock or upon any matter except as
may be required by law. Holders of preferred stock do not have cumulative
voting rights with respect to the election of Directors.
Holders of preferred stock do not have preemptive rights to subscribe to
additional shares offered or sold by the Company. There are no redemption
or sinking fund provisions with respect to shares of preferred stock.
On March 5, 1987, the Directors ratified and approved a special stock
reserve plan for employees and other personnel of the Company. Under this
plan, a total of 600,000 shares of the Company's common stock were reserved
for this purpose. During 1990, the Company issued 200,000 shares each to
two employees of the Company for a total of $400. As of December 31, 1993,
200,000 shares of common stock remain reserved for future issuance under
this plan. During January, 1994 the 200,000 shares were issued to an
employee. During 1995, no shares were issued pursuant to this plan.
During June 1988, the Company commenced a private placement of units of
securities. The units comprised a promissory note bearing interest at
twelve percent (12%) payable monthly and common stock purchase warrants.
As part of the transactions, the Company withdrew the offering after
obtaining $40,000 in loans. The $40,000 of promissory notes have
subsequently been satisfied. As part of the transactions, the Company
issued warrants to purchase 80,000 shares of common stock at the lesser of
$.50 per share or 75% of the fair market value of common stock five years
after the loan transaction was closed. See Note 3 for a description of
successful private placements completed during 1989 and 1990. See Note 8
for a description of the private placement commenced during January, 1992
and completed in 1993.
During June, 1990, the Company's shareholders approved the issuance of
1,000,000 shares of restricted common stock to an individual for $1,000.
As of December 31, 1995, these shares were not issued.
During 1991, the Company completed a private placement of units of its
securities. Each unit consisted of one share of preferred stock and four
shares of its common stock. The Company offered 900,000 units at $.65 per
unit. All units were sold and the total gross proceeds from the offering
were $585,000.
Included in common stock, shown as outstanding is 1,612,000 shares reserved
for the Pennsylvania insurance commissioner, as statutory liquidator of
Corporate Life Insurance Company. These shares have not physically been
issued, pending final outcome of certain administrative or litigation
proceedings. The Company received $161,200 related to this matter, which
was treated as consideration for the stock to be issued. A contingency
exists with respect to this matter, the ultimate resolution cannot
presently be determined.
(6) Related Party Transactions
--------------------------
A principal stockholder is controlling stockholder of Pallas Financial
Corp., and its affiliates, the distributor of Monitrend Mutual Funds, which
currently receives investment advisory services from the Company. Pallas
Financial Corp., and its affiliates are distributors of other mutual funds.
The Company had a marketing service contract with Pallas Financial Corp.
Under the terms of the agreement, the Company agreed to pay a minimum
annual marketing fee of $99,996 to Pallas Financial Corp. and reimburse
other marketing expenses. The contract was terminated during 1995 and only
$15,000 in marketing fees were paid. Pallas has agreed to waive all other
fees for 1995.
The aggregate charges from Pallas Financial Corporation to the Company for
1995 were $15,000; and in 1994 were $120,445. As of December 31, 1995
$6,879 was payable to Pallas for unreimbursed expenses.
As of December 31, 1995 the Company had received advances from related
parties totalling $71,000. These advances had no written repayment terms,
and did not bear interest and are not collateralized. The Company and the
related parties have agreed to convert the $71,000 to debt with the same
terms as the subordinated debentures. The related parties have also agreed
to convert the amounts owed to them to a preferred equity upon successful
completion of a business combination. See Note 10.
(7) Investment in Securities
------------------------
At December 31, 1995 the Company had no investments in securities. The
investments in securities were sold during 1995.
(8) Private Placement of Securities
-------------------------------
During October, 1991, the Company commenced a private placement of units
of its securities. Each unit consisted of three shares of common stock and
two shares of Series A preferred stock. Each unit was sold at $.65 per
unit. The individual investor minimum was 6,500 units with no overall
minimum offering. After receiving gross proceeds from this offering of
$235,410, the Company replaced this private placement offering with a new
offering of a maximum of 1,330,000 units at $.65 per unit. Each new unit
included two shares of Series A preferred and three shares of common stock.
The Company received gross proceeds of $873,551 from this new offering. In
connection with this new offering, broker-dealers were entitled to stock
purchase warrants, allowing the purchase of shares of common stock equal to
10% of the number of shares of common stock in the units sold, a maximum of
399,000 shares of common stock at an exercise price of $.10 per share. The
Series A preferred stock has a par value of $.001 per share. The total
authorized Series A preferred stock is 3,700,000 shares. The cumulative
dividend preference is $.50 per share. The liquidation preference shall be
$.50 per share, less any dividends paid on the preferred stock up to $.50
per share. During 1994, the Company issued 3,450,462 restricted common
shares with net proceeds to the Company of $403,534.
(9) Funds Received from Benefund, Inc.
----------------------------------
During 1994 and 1995 the Company received $297,000 from Benefund, Inc. related
to a potential business combination transaction. According to the terms of the
agreement with Benefund, Inc., Benefund, Inc. agreed to provide assets totalling
approximately $4,000,000 to the Company in exchange for 5,360,301 shares of the
Company's common stock. Since the $4,000,000 of assets have never been
provided, the Company has taken the position that the $297,000 will not be
repaid unless the assets with verifiable value of $4,000,000 have been provided
to the Company as required by the agreement. Benefund, Inc. has requested that
the Company sign a note payable for the balance advanced to the Company. The
Company has refused to sign the note. This amount has been considered
contributed capital as a result of a forfeiture due to the failure of Benefund,
Inc. to perform under the terms of the contract. The Company has offered to
issue 2,936,120 shares of the Company's common stock for all amounts received to
date from Benefund, Inc., if it is ultimately determined that the asset to be
received from Benefund, Inc. is worth less than the amounts advanced by
Benefund, Inc. These 2,936,120 shares have not been shown as outstanding in the
financial statements. A contingency exists with respect to this matter, but the
completion of the change of control transaction described in note 10 below will
resolve this matter with the issuance of certain Company securities as
satisfaction of the various obligations.
(10) Subsequent Events
-----------------
The Company has entered into an agreement in principle with an investment
group which calls for a capital investment into the Company and a three
year agreement to provide facilities and management personnel. Completion
of this transaction would result in a change of the control of the Company.
This transaction requires regulatory and stockholder approval.
Effective January 29, 1996 the Company was provided a Credit Guarantee in
the amount of $220,000 for the purpose of guaranteeing payment of the
balance due to the Funds. As a part of the capital investments described
in the preceding paragraph, the balance payable to the Funds was paid and
this Credit Guarantee was released.
Also, approximately ninety-seven percent of the subordinated obligation
holders have agreed to a proposed recapitalization which will include the
conversion to new notes and a new preferred stock. This recapitalization
is subject to approval of the stockholders. The following pro forma
balance sheet gives effect to the recapitalization as if the
recapitalization had happened effective December 31, 1995:
PRO FORMA BALANCE SHEET
December 31, 1995
(Unaudited)
ASSETS
Assets $6,326
----------
----------
Liabilities:
Advances from related parties $18,879
Current maturities of debt 45,000
Accounts payable 56,244
Payable to Monitrend Fund 255,204
----------
Total Current Liabilities 375,327
Senior bonds payable 328,276
----------
Total Liabilities 703,603
----------
Stockholders' (deficiency):
Common stock 19,103
Convertible preferred 1,487
Convertible preferred 931,725
Preferred stock 3,189
Additional paid-in capital 3,554,947
Accumulated (deficit) (5,207,728)
-----------
Total Deficiency ( 697,277)
-----------
Total Liabilities and (Deficiency) $6,326
----------
----------
