U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT UNDER 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
---------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of March 31, 1996, 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.
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INDEX
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Part I. Financial Information
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Item 1. Financial Statements
Balance sheets
Statement of Operations (unaudited)
Statement of Changes in Stockholders' Equity (Deficiency)
Statement of Cash Flows (Unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
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Item 1. Legal Proceedings
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K - Not Applicable
Signatures
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Item 1.
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FINANCIAL STATEMENTS
Monitrend Investment Management, Inc.
Balance Sheet
March 31, 1996
ASSETS
First Tennessee Bank $75.53
Investments 6,240.00
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TOTAL CURRENT ASSETS $6,315.53
TOTAL ASSETS $6,315.53
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Monitrend Investment Management, Inc.
BALANCE SHEET
MARCH 31, 1996
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES:
Accounts Payable $40,128.82
Payable to Pallas Financial 79,074.96
Payable to E.Black 2,000.00
Payable to Eminent Domain 25,000.00
Notes Payable 1,235,000.00
Due to Monitrend Funds 306,244.45
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TOTAL CURRENT LIABILITIES $1,687,448.23
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EQUITY:
Common Stock 19,103.00
ConvertiblePreferred Stock 1,487.00
Preferred Stock, Series A 3,189.00
Additional Paid in Capital 3,554,947.00
Retained Earnings (5,207,727.62)
NET INCOME (LOSS) (52,131.08
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TOTAL EQUITY $(1,681,132.70)
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TOTAL LIABILITIES AND EQUITY $6,314.53
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Monitrend Investment Management, Inc.
INCOME STATEMENT
FOR THE PERIOD
03/01/96-- 01/01/96--
03/31/96 03/31/96
REVENUE 0 0
EXPENSES:
Fund Reimbursement 51,040.80 51,040.80
Freight & Delivery 44.00 44.00
Accounting Fees 0 0
Interest 0 0
Legal Fees 0 0
Office Expense 8.66 8.66
Postage and Freight 100.00 100.00
Technical Fees 0 0
Transfer Agent 0 0
Telephone 937.62 937.62
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TOTAL EXPENSES 1,046.28 1,046.28
NET OPERATING INCOME (LOSS) (52,131.08) (52,131.08)
NET INCOME (LOSS) (52,131.08) (52,131.08)
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<TABLE>
MONITREND INVESTMENT MANAGEMENT, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
From December 31, 1995 through March 31, 1996
<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, 1995 19,102,394 19,103 1,487,046 1,487 3,189,378 3,189 3,554,947 $(5,207,728 $(1,629,002)
Net Loss -- -- -- -- -- -- -- -- (52,131)
----------- ------- ---------- ------- --------- ------ --------- ----------- -----------
Balance at
March 31, 1996 19,102,394 19,103 1,487,046 1,487 3,189,378 3,189 3,554,947 $(5,207,728) $(1,681,132)
</TABLE>
Item 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below should be read in conjunction with the financial
statements of Monitrend Investment Management, Inc. (the "Registrant" or the
"Company") included in its previously filed Annual Report on Form 10-KSB for the
year ended December 31, 1995, and with the financial information (unaudited) for
the period ended March 31, 1996, filed herewith.
THE COMPANY
Monitrend Investment Management, Inc. (the "Company") serves as a
Registered Investment Advisor under the Investment Advisers Act of 1940, as
amended (the "Investment Act"). (See subsequent events). 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").
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 seven funds currently
range from 0.375% up to 1.25%, but may be reduced if substantially higher asset
levels are achieved.
The Company receives varying portions of the management fees based on the
advisory capacity. 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.
MANAGEMENT'S REVIEW OF FIRST QUARTER DEVELOPMENTS
There have been developments in several vital areas in the first quarter of
1996 that management feels were necessary to pursue in its continuing efforts to
stabilize the Company's position. Management has identified one of these areas
to be the pursuit of some form of business combination to provide an additional
source of funds to the Company. Additionally, the Company has continued to
attempt to identify expenses which could be reduced in an effort to increase
revenues.
As previously reported, 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 will 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, will head the financial services division
after consummation of the transaction. Assuming satisfaction and performance of
all preclosing conditions, it is anticipated that this transaction will be
consummated as soon as practical, subject to requisite shareholder and
regulatory approval.
The Company is working toward an expanded relationship with Pacific
Income Advisors and Capital Advisors Inc. All parties are working to complete
related documentation and expect to finalize the transaction soon.
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 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
Monitrend Mutual Fund will move its corporate offices to Santa Monica,
California.
The existing Monitrend funds are designed to accommodate a diversified
investor approach to the market. This allows an investor to control risk
through diversification among professionally managed vehicles. The Company will
continue to look for opportunities to create new funds which may increase assets
under management.
Through acquisition, merger or alliances, and with its own introduction of
new funds, Monitrend expects to expand the number of funds it will offer to
investors. Investment areas being considered for new funds include
international securities funds, additional growth and income funds,
international bond funds and others.
Efforts to substantially increase assets under management, so as to enhance
stockholder value, also include the continued exploration and development of
strategic alliances with existing mutual funds, financial institutions and money
management organizations.
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 adviser to one mutual fund, Monitrend Mutual
Fund, 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 assets 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 the Company currently 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 adviser.
The Company has agreed that it will furnish to MONITR, at the Company's
expense, all office space and facilities, 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 the 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, stockholder 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 stockholders of MONITR;
(x) all other expenses incidental to holding meetings of MONITR's stockholders;
(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 Exchange Act. The Company has
agreed to reimburse MONITR for certain expenses above 1.45% of average net
assets for four of the Funds. With regard to the other three Funds, the Company
is not required by contract to reimburse said Funds for expenses but may do so
based upon management's discretion or varying state regulations. 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 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 may have a material impact on revenues, if any, of the Company.
The amount of assets under management by the Company and fee revenues are
indications of the Company's ability to maintain or achieve liquidity. Assets
under management have generally declined since 1987. The Total Assets under
Management on December 31 of each of the following full fiscal years were
$9,062,806 for 1985, the first full year of operation; $27,956,108 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 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; the Technology Fund
had $293,676; and the PIA Fund had $4,268,993. As of March 31, 1996, the
Government Income Fund had $906,208; the Gold Fund had $2,146,450; the Growth
and Income Fund had $1,388,895; the Growth Fund had $452,339; the Gaming Fund
had $387,256; the Technology Fund had $463,869; and the PIA Fund had $4,190,709.
If assets under management do not increase more substantially, the Company will
have an uncertain ability to generate adequate revenues to meet its operating
needs.
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. On March 31, 1996, the current assets of the Company were
$6,376 and the current liabilities were $427,508. As of December 31, 1995, the
Company's stockholders' equity was a deficit of $1,629,002; whereas, the
stockholder's equity was at a deficit of $1,681,133 on March 31, 1996. Even
though the Company will likely incur additional losses as it seeks to expand its
business, the substantial operating cost savings that have recently been
instituted as well as the introduction of new products and the planned strategic
alliance with the investment group led by 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. 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
adviser and in pursuing the development of additional series of the Fund.
Additionally, the Company must have the ability to pay those Advisory Fee and
Expense Reimbursements as set forth in the Statements of Operations. Liquidity
problems though have affected the Company's ability to expand its marketing
efforts and may present problems as to the viability of the Company.
Revenues from advisory fees have traditionally been reported as Total
Revenues less the amount of Advisory Fee and Expense Reimbursement incurred.
Revenue from advisory fees was $0.00 for the year ended December 31, 1995 as
compared to $0.00 for the year ended December 31, 1994. In comparing the first
quarter of 1996 to 1995, Total Revenues were $0.00 versus $0, respectively.
Advisory Fee Expense and Reimbursement for the first quarter of 1995 to 1996
were $51,042 versus $35,611, respectively. 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 the other
three 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 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. 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, Standard & Poor's, Smith
Barney and Salomon Brothers.
In the opinion of management, the Company is dependent on the completion of
the Purchase Agreement to satisfy its basic operational and cash requirements
for the next 12 months; however the Company has taken a different avenue. See
subsequent events. 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 or the Company does not complete the
Purchase Agreement with the investment group or another similar strategic
alliance, 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 Purchase
Agreement 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.
Management of the Company anticipates that the Company will incur
substantial losses during fiscal year 1996 in the absence of the consummation of
the Purchase Agreement with the investment group or another similar strategic
alliance. 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.
There is no assurance that if the marketing programs increase assets under
management that revenues from future advisory service fees would increase or
that the Company would become profitable. The Company cannot 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.
RESULTS OF OPERATIONS
As of December 31, 1995, the Company had 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. In the first three months of
1996, the Company incurred a net loss of $52,131, as compared for net loss of
the same period of 1995 of $99,684. 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 adviser.
For fiscal year ended December 31, 1989, 1990, 1991, 1992 fee income was
$(27,721), $(174,150), $(110,852), $(67,881), and ($90,126) respectively. For
the fiscal year ended December 31, 1994, fee income was $0.00, and in 1995 fee
income was $0.00. Total revenues for the first three months of 1996 and 1995
were $0.00, respectively, based upon the new reporting requirements set forth
previously. Advisory Fee and Expense Reimbursements for the first three months
of 1996 and 1995 were $51,041 and $35,611, respectively. 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 for 1993, a net loss of $537,740 in 1992, a net loss of
$457,269 in 1991, a net loss of $486,965 in 1990, and a net loss of $528,809 in
1989. The net loss for the first quarter of 1996 was $52,131, as compared to a
net loss of $99,684 for the same period of 1995.
Marketing expenses have been reduced significantly in the past several
years. 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.
For the first three months of 1996, marketing service charges were $0.00 as
compared to $4,000 for the first three months of 1995. For the first quarter of
1996, marketing expenses were $0.00 as compared to $0.00 for the same three
month time period in 1995.
Certain operating expenses, principally marketing services (distinguished
from marketing expenses) and technical services, are based on a monthly retainer
agreement and a percentage of assets under management. Such expenses,
therefore, will increase with assets 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.
Professional fees decreased from $5,868 for the first three months of 1995
to $0.00 for the same time period of 1996.
Assuming the completion of the plans, management believes that actions
presently being contemplated to revise the Company's operating and financial
structure, provide the opportunity for the Company to produce revenues during
1996.
The Company contemplates initiating all or certain of the following
measures to overcome its financial difficulties:
a. To expand customer service facilities and expand 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. Seek additional investors to build out new financial services.
While the Company anticipates that these measures will assist the Company in the
strengthening of its financial position, there can be no assurance that any of
the foregoing will improve the financial condition of the Company or allow it to
continue as a going concern.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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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 2. Changes in Securities
- ------ ---------------------
None.
Item 3. Defaults upon Senior Securities
- ------ -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None.
Item 5. Other Information
- ------ -----------------
SUBSEQUENT EVENTS. The Company has attempted to combine the Company
with a number of investment partners. These parties have signed "Purchase
Agreements" and invested cash and assets into the Company, but to date, have
failed to complete the contracts. On May 7, 1996, Monitrend Investment
Management, Inc. 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 called for a capital investment in MIMI and a three year
agreement to provide facilities and management personnel. All parties were
working to complete related documentation and expected to finalize the
transaction within 30 days or sooner. The new management group had planned to
build-up Monitrend's customer service facilities and expand Monitrend's
analytical staff. This transaction required regulatory and stockholder approval
before implementation. Even though all other parties did everything they had
agreed to do, Capital Advisors, Inc. defaulted on the Purchase Agreement on
September 16, 1996, and accordingly, all their rights and privileges have been
forfeited because of non-performance. This failure of these contractural
agreements has prevented the Company from implementing its expansion plans and
caused the Company to develop new approaches to the core business. Under this
setup, the fund advisors will make a substantial investment into the Monitrend
Fund infrastructure, assume the costs of the day to day operating expenses, and
absorb the risk of future expenses for the next year. The Company, while being
relieved of operating expenses, will participate in future revenues once the
funds reach profitability. Concerning future projects, the Company has
negotiated a favorable cost structure for all necessary administrative
agreements. Additionally, the Company is now moving forward on a plan with
other potential investors, and will announce details of these negotiations upon
completion.
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant: MONITREND INVESTMENT MANAGEMENT, INC.
By: /s/ Phillip R. Verrill
----------------------------
Phillip R. Verrill, Director
Date:
