U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
- --------------------------------------------------------------------------------
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
WESTMARK GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 0-18945
DELAWARE 84-1055077
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
355 N.E. FIFTH AVENUE 33483
(Address of Principal Executive Office) (Zip Code)
561-243-8010
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock
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 past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB/A or any amendment to this Form 10-KSB/A. [X]
Issuer's revenues for the 12 months ended December 31, 1996 were $2,933,173.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the average bid and ask price on the OTC Electronic
Bulletin Board on July 30, 1997 was $2,865,064. As of July 30, 1997, the
registrant has 9,523,082 shares of Common Stock outstanding.
<PAGE>
TABLE OF CONTENTS
ITEMS PAGE
PART I
ITEM 1. BUSINESS.....................................................3
ITEM 2. PROPERTIES...................................................9
ITEM 3. LEGAL PROCEEDINGS............................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.........................................12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................12
ITEM 7. FINANCIAL STATEMENTS........................................18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.........................19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT........................................................19
ITEM 10. EXECUTIVE COMPENSATION......................................21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..............................................22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............23
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................24
2
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is a financial services company that, through its
wholly-owned subsidiary Westmark Mortgage, is engaged in the business of
originating, purchasing and selling mortgage loans secured primarily by single
family, multi-family and condominium residences. Investors purchase conforming
loans (generally those borrowers with perfect or good credit) and non-confirming
loans (generally below average and delinquent credit). Westmark Mortgage is
registered and/or licensed to originate, purchase closed loans, underwrite, fund
or sell residential mortgage loans in the states of Arkansas, California,
Florida, Georgia, Illinois, Indiana, Kansas, Michigan, Missouri, Montana,
Tennessee, Utah and Washington.. The Company pools and sells loans to
third-party institutional investors. The primary non-conforming investor is
Household Financial Services which provided 65% of the Company's revenues from
gain on sale in 1996.
The Company was incorporated in Colorado during 1986 under the name
Eagle Venture Acquisitions, Inc. From inception until May 1990, the Company was
engaged in business operations unrelated to its current business strategy. In
May 1990, the Company changed its name to Network Real Estate of California,
Inc. and commenced providing a variety of real estate services through its
wholly-owned subsidiary, Network Real Estate, Inc. ("Network Real Estate"),
including real estate brokerage, mortgage banking services and insurance
services. In July 1992, the Company changed its name to Network Financial
Services, Inc. From May 1990 through August 1993, the Company conducted
substantially all of its business operations through its subsidiary, Network
Real Estate.
In August 1993, the Company acquired Westmark Mortgage from Primark
Corporation, an unaffiliated third party ("Primark"). Westmark Mortgage was
engaged in essentially the same business as it is today, except that the Company
serviced certain originated mortgage loans. In August 1994, Freddie Mac agreed
to the sale by the Company of the mortgage servicing portfolio. In September
1994, the Company sold its entire mortgage servicing portfolio to Crown Bank.
In 1993, the Company ceased operating Network Capital Group, a
wholly-owned mortgage banking subsidiary, in a transaction that had no
significant impact on the Company's financial condition. In an April 1994
agreement, effective December 31, 1993, the Company sold Network Real Estate to
a former president of the Company.
While the Company is primarily a financial services business operation,
in July 1996, the Company acquired Green World Technologies, Inc. ("Green
World"), a wholly owned subsidiary that markets, nationally and internationally
the Talon Refrigerant Management System ("Talon"), an energy saving add-on to
air cooled condensers found in air conditioners, heat pumps and refrigeration
systems. The marketing campaign consists of establishing dealer networks and
warehousing. In addition, testing is currently underway with several
manufacturers for the purpose of having the Talon included as an other equipment
manufacturer ("OEM") in these manufacturers product lines. The business
operations of Green World constitute an insignificant portion of the Company's
business. The Company does not anticipate entering into any further diversified
lines of business.
3
<PAGE>
In June 1994, the Company changed its name to Westmark Group Holdings,
Inc. Currently, the Company conducts its business through two operating
subsidiaries, Westmark Mortgage and Green World, and references to the Company
or Westmark include Westmark Mortgage and Green World, unless otherwise
indicated. The principal executive office of the Company is located at 355 N.E.
Fifth Avenue, Delray Beach, Florida 33483 and its telephone number is (561)
243-8010.
RECENT DEVELOPMENTS
GREEN WORLD ACQUISITION
Effective July 21, 1996, the Company and GTB Company entered
into an agreement which was amended August 22,1996 whereby the Company acquired
all of the issued and outstanding capital stock of Green World in consideration
for (i) 130,000 shares of Series E Preferred Stock, stated value $10.00 per
share, which Preferred Stock is convertible into 2,888,889 shares of Company
Common Stock, and (ii) payment of royalties of 14% of the gross sales of Green
World for a period of two years from the date of this agreement and payment of
royalties of 12% of the gross sales of Green World for a period of three years
from the date of this agreement, which payments are to be made on a quarterly
basis. Green World is in the business of refrigerant management systems for
energy savings. GTB Company had acquired Green World from Medical Industries of
America, Inc., formerly known as Heart Labs of America, Inc. ("MIOA"), for
consideration including (i) the executed non-interest bearing promissory note in
the amount of $380,000, and (ii) the agreement to a royalty payment of 7% of the
gross sales of Green World until July 1998, and 5% until July 1999. Within one
month of acquiring Green World, GTB Company sold it to the Company for the
above-captioned terms and conditions. The Company acquired Green World pursuant
to a prior corporate strategy to diversify its business operations. Management
has determined not to pursue any further diversification strategies at this
time, and intends to focus its resources on its mortgage operations. As of the
date hereof, the board of directors of the Company has determined to spin-off a
minimum of 51% and a maximum of 100% of the Green World capital stock owned by
the Company. As of the date of hereof, neither the record date or the amount of
capital stock to be spun-off has been determined. The timing in terms of the
spin-off will be disclosed through appropriate SEC filings when determined.
Green World is a nationwide marketer of Talon, an
energy-saving add-on to air-cooled condensers found in air conditioners, heat
pumps and refrigeration systems. Green World has been establishing a dealer
network to market its products. Green World has executed an exclusive contract
for the sales of its Talon with Trane Specialty A/C Products ("Trane"). The
contract calls for Trane to purchase no less than 7,125 units over the next 24
months, with 2,535 units in the first 12 months and 4,800 the remaining 12
months and is renewable for an additional 24 months. Additionally, the contract
allows the distributor the exclusive right to market in 16 California counties
including those counties in the San Francisco Bay area. In July 1997, the
Company gave Trane its thirty (30) day notice to terminate the contract.
The Company's decision to acquire Green World was based upon
management's strategy of diversification. In an attempt to diversify the
business in order to off-set the potential cyclical nature of the "A" mortgage
market, the Company embarked on a two-prong diversification strategy. The
Company (i) entered into the Green World acquisition with the purpose of
developing a revenue stream from a less cyclical business and (ii) determined to
aggressively process loan applications in the "B/C" mortgage market. In 1995,
the Company determined that the "B/C" mortgage market was not as particularly
interest-rate sensitive as the "A" mortgage market and after results of
operations were analyzed in the 1996 fiscal year, management determined that the
"B/C" mortgage market resulted in a better yields for the Company than mortgages
originated in the "A" mortgage market. During 1996, the Company met with
numerous financing sources in order to obtain funds to be better able to take
advantage of participating in the "B/C" mortgage
4
<PAGE>
market as well as to develop the Green World business opportunity. In connection
with pursuing such financing, potential investor response led management to
conclude that the Company was better able to take advantage of a "B/C" mortgage
market than the Green World opportunity, management elected in 1997 to spin-off
the Green World business and to concentrate on originating, purchasing and
selling "B/C" mortgage loans.
In connection with the acquisition of Green World by GTB Company from
MIOA and the subsequent acquisition of Green World by the Company from GTB
Company, the sole shareholder of GTB Company was Charles Chillingworth, who for
a brief period prior to the Green World transaction was corporate counsel for
the Company and MIOA. In the Green World transaction, Mr. Chillingworth solely
represented the interest of GTB Company in its dealing with both MIOA and the
Company. Mr. Birmingham was an officer and director of the Company at the time
of the Green World acquisition and currently serves in those positions with the
Company. During the Green World acquisition by MIOA, Mr. Birmingham was an
officer and director of MIOA, and upon the sale of Green World to GTB Company,
Mr. Birmingham was only a director of MIOA. In August 1996, Mr. Birmingham
resigned as a director of MIOA. Mr. Morrell was an officer and director of MIOA
at the time of the acquisition and prior to the acquisition was an officer and
director of the Company.
WESTMARK-MEDICAL INDUSTRIES AGREEMENT
The Company and MIOA entered into an agreement dated January
23, 1997 ("Westmark-Medical Industries Agreement") which was amended March 31,
1997, and June 26, 1997. MIOA presently owns 1,667,284 shares of Company Common
Stock, and 200,000 shares of the Company's Series C Preferred Stock ($3.50
stated value). A contractual right provided to MIOA upon issuance of a portion
of its shares of Common Stock afforded MIOA the right to maintain a 49%
ownership interest in the Company. At June 26, 1997, the Company owed MIOA
$1,953,000, less interest in the sum of $47,000 which represents interest
forgiveness for the second quarter. MIOA agreed to the termination of the 49%
anti-dilution protection.
Payment of the indebtedness shall be made upon the following terms.
The Company executed a three year promissory note in the sum of
$1,953,000, bearing interest at 10% per annum, with monthly payments in the
amount of $25,000 which commenced June 30, 1997.
In the event the Company receives additional capitalization of a
minimum amount of $300,000 and a maximum amount of $1.5 million, MIOA shall be
entitled to receive the first $300,000. In the event the additional
capitalization exceeds $1.5 million, MIOA will be entitled to receive the first
$500,000 of additional capitalization in excess of $1.5 million. In the event
additional capitalization exceeds $3 million, MIOA shall be entitled to receive
50% of the excess until the above captioned indebtedness is paid in full.
In addition, MIOA shall be entitled to 15% of the net cash of the
Company in excess of operating expenses and settlement payments on a
consolidated basis during the calendar year 1997, and 20% of said net cash flow
in the calendar year 1998.
In the event the Company should sell or spin-off either of its
subsidiaries, MIOA shall be entitled 50% of the cash proceeds received by the
Company resulting from the sale or spin-off up to the maximum of their
indebtedness.
Pursuant to a separate agreement, MIOA is also entitled to demand
registration rights for its shares of Common Stock.
5
<PAGE>
BUSINESS STRATEGY-MORTGAGE OPERATION
The Company has historically been a wholesale mortgage lender providing
a full range of mortgage lending services which include conventional,
governmental, jumbo (large loan amounts) and non-conforming ("B/C") home
mortgage loans. The majority of the Company's loans are made to owners of single
family, multi-family and condominium residences who use the loan proceeds for
purchasing new homes or refinancing existing home mortgages. Westmark provides
funds to approved mortgage brokers and correspondent lenders who originate the
mortgage for the consumer. Westmark closes and funds the loan through approved
correspondent mortgage brokers and lenders. Westmark solicits these brokers for
business, competing with other wholesale lenders.
Westmark provides products to its approved mortgage broker customers
related to home loans. In general, Westmark offers brokers products for their
clients who have credit from "A" (perfect and good credit) to "D" (below average
and delinquent) and who desire conventional loans, government loans, conforming
loans, and non-conforming loans. All mortgage products are secured by the
property the borrower used as collateral for the mortgage.
Mortgage brokers submit loan packages to a Westmark representative for
review and approval. After the mortgage loan is closed, Westmark packages the
loans into groups and sells the loans to mortgage lending conduits. Westmark
determines to whom it will sell the loans based on the conduits price and
service at the time the specific loans are sold. Westmark does not retain the
rights to service the mortgage loans it closes or loans purchased from approved
correspondent lenders.
BUSINESS STRATEGY-GREEN WORLD OPERATION
Green World will continue to market the Talon Refrigerant Management
Systems through a network of dealers and expand marketing in a direct to retail
approach. The Company may divest itself of all or a portion of Green World as
conditions warrant. Green World constitutes an insignificant portion of the
Company's business.
PRODUCTION
Westmark's 1996 closed loan production was $76 million. Of this,
approximately $35 million was conforming conventional mortgage home loans
(otherwise referred to as "A" product) and approximately $41 million in
non-conforming mortgage home loans (otherwise referred to as "B/C" product).
Total loan dollar amount originated in 1996 reflected a 52% decrease over 1995.
The total number of loans originated decreased 40% to 855 from 1,432 loans. The
decrease resulted primarily from a shift to B/C production. Of the total
production, approximately 90% was originated from Florida and California. The
1996 average loan amount for conforming "A" production was $95,000 compared to
$86,000 for 1995. The 1996 average loan amount for conforming "A" production was
$110,000 and the average loan amount for non-conforming "B/C" production was
$88,000.
Westmark's 1995 closed loan production was $158 million. Of this,
approximately $133 million was conforming conventional mortgage home loans
(otherwise referred to as "A" product) and approximately $25 million in
non-conforming mortgage home loans (otherwise referred to as "B/C" product).
Westmark's 1994 production was $155 million all in conforming conventional
mortgage home loans. Total loan dollar amount originated in 1995 reflected a 2%
increase over 1994. However, the total number of loans originated increased 30%
from 1,095 to 1,432 loans. The increase resulted primarily from B/C production.
Of the total production, approximately 91% was originated from Florida and
California. The 1995 average loan amount for conforming "A" production was
$114,272 compared to $141,701 for 1994. The 1995 average loan
6
<PAGE>
amount for non-conforming "B/C" production was $92,551. In 1996, B/C Production
totaled approximately $41 million and total production was $76 million.
Management's strategy is to expand its geographical production to
additional states, while intensifying sales efforts in its home state of
Florida. Management's strategy is to expand both the "A" and "B/C" business in
Arkansas, California, Florida, Georgia, Illinois, Indiana, Kansas, Michigan,
Missouri, Montana, Tennessee, Utah and Washington., and developing new markets
by utilizing Westmark's inside sales representatives. Westmark has hired six (6)
account executives in Florida and two (2) account executives in Georgia focusing
on the "B/C" business. In addition, Westmark has hired a national sales manager.
Westmark's goal is to build upon its existing sales force every sixty to ninety
days with growth into the states where it is currently licensed or approved to
conduct business.
"B/C" MORTGAGES
In January 1995, the Company began marketing its non-conforming ("B/C")
mortgage loan products. These mortgages are available for borrowers with credit
histories that fall below the guidelines of conforming "A" mortgage loans. The
Company believes that the "B/C" mortgage market is a growing segment of the
mortgage industry for two reasons: (i) because of the weaker credit ratings,
banks and savings and loans typically have not entered this arena; and (ii) the
secondary market for securities and selling "B/C" mortgages has become more
prevalent. As demand increases, Westmark believes it can take advantage of this
opportunity. Typically, these loans generate a greater gain on sale compared to
their conforming "A" loan counterparts. In 1996, "B/C" loans accounted for
approximately 54% of the Company's production as compared to approximately 15%
of the Company's production in 1995. Management expects the "B/C" loans to
account for over 90% of the Company's 1997 production and revenue.
PIPELINE
The loan pipeline ("Pipeline") is the volume of loans ("A" and "B/C")
in the Company's system that have met all of the Company's preliminary
qualification criteria and are consequently eligible for funding. These loans
have been preapproved and are awaiting final review. Generally, between 60% to
65% of the loans in the Pipeline successfully pass the final review and are
funded. The majority of loans that fund will do so within 60 days from entrance
into the Pipeline. The total loan Pipeline at December 31, 1996 was $18,364,143
with in excess of 90% of the pipeline consisting of B/C loans.
The loans generated by the Company can be sold on an individual loan
basis (flow) or sold in package form (bulk). A bulk package contains as little
as $500,000 in mortgage loans up to an unlimited amount. The Company can form
one package or several packages in any given month, depending on the best
execution (highest price). Loans sold on a flow (i.e., one at a time) can be
sold rapidly and loans sold in bulk generally require more time to assemble,
often 15 to 30 days from funding.
OPERATIONS
Westmark's operations are centralized in the Delray Beach office. In
January 1995, Westmark Mortgage had two operation centers located in Florida and
California. In 1996, Westmark centralized its operations to Florida, creating
more efficiency and lowering overhead. With this centralization, management
initiated a new program to create greater profits from the sale of loans.
Historically, closed loans have been sold one by one to institutional investors.
Westmark began to participate in the "bulk sale" loan process whereby loans are
packaged into a group and sold in one transaction. This results in expanded
revenue opportunities over typical loan by loan sales and has created greater
economies of scale in the operations delivery of closed loans.
7
<PAGE>
MARKETING
Traditionally, Westmark has marketed its products and services through
field sales representatives ("account executives") who are responsible for
building relations with brokers in a geographical region. A typical account
executive visits prospective clients in a particular territory and reviews
specific loans. If the loan can be funded or purchased by Westmark, the account
executive obtains the mortgage documentation and provides this to the
underwriters.
In addition to field representatives, Westmark has an inside sales
group. These employees usually cover less densely populated states and
territories, utilizing telemarketing to prospect for Westmark business. If an
opportunity exists, the broker will send the loan application into the
operations division directly. Management believes this process is more cost
effective for sparsely populated areas.
Westmark also markets its products at national and regional industry
trade shows, utilizing a sales booth and sending representatives to meet new and
existing clients. This effort provides continued market recognition for the
Westmark account executives and inside sales representatives, as well as the
Company. Westmark obtains this information and inputs the data in its computers
for marketing use. These new contacts are distributed to the appropriate sales
representatives who make sales calls while at the same time the central
marketing department sends out marketing literature by mail or facsimile to
enhance market recognition of the Company and its products. This process assists
the sales representatives in developing new prospects.
COMPETITION
The Company competes against savings and loan associations, thrifts,
commercial banks, consumer finance companies and other mortgage bankers in the
origination of single-family, multi-family and condominium residential mortgage
loans. Even though some of the competition is large and operates on a nationwide
scope, management believes that no single firm controls more than 9% of this
market. Furthermore, management believes that mortgage bankers, in general,
control more than 55% of the national market. The Company competes on the basis
of quality of services along with the relationships established by the sales and
operations staff.
REGULATION
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and is
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. The Company is
subject to the rules and regulations of, and examinations by, HUD and state
regulatory authorities with respect to originating, processing, underwriting and
selling loans. These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investments and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to demands for
indemnifications or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
8
<PAGE>
The exceptions are that the required corporate tax returns for 1994 and
1995 have not been filed nor have the state returns for which these federal
documents must be attached. Further, the Company is in arrears on payment of
1996 employment related taxes of approximately $62,000.
The Company has petitioned the Internal Revenue Service for a change is
its tax year to a calendar year end to match its current year end for all other
regulatory authorities for which periods certified audits have been prepared.
The Company believes there is a reasonable chance for approval is in the second
quarter of 1997 of this change.
Except as set forth above, the Company believes that it is in
compliance is in all material respects with applicable federal and state laws
and regulations.
EMPLOYEES
As of December 31, 1996, the Company employed 10 full-time
administrative employees and 35 full-time production and operations employees.
To date, the Company has been able to recruit and retain sufficient qualified
personnel. None of the Company's employees are represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
ITEM 2. PROPERTIES
The Company maintains its executive offices and a production branch at
355 N.E. Fifth Avenue, Suite #4, Delray Beach, Florida 33483. Suite 4 is
comprised of Units 2,3, and 4. This total space consists of 7,800 square feet
and is leased through April 30, 1998 at an average monthly net rental of $2,300
per month over the term of the lease, which lease amount is considered
consistent with the surrounding market rates. Suite 4 is in a building owned by
a consultant and former officer and director of the Company, Michael Morrel. In
1994, the Company acquired from an unaffiliated third party ownership of Unit #7
(1,100 square feet) in the same complex which is occupied primarily by the loan
production department. In 1995, Unit 5 was acquired by the Company from an
unaffiliated third party for use by the operations staff, and the mortgage
payment is $2,807 per month until maturity in 1998. The Company also operates a
1,500 square foot satellite office in California at a cost of $1,098 per month.
The Company rented 800 square feet in Valley Springs, California at a cost of
$575 per month.
The Company has also entered into an agreement to acquire Unit #1,
approximately 1,200 square feet, which is located in the same complex for
$83,000, which amount is believed to be consistent with the surrounding market
rates. To date, the Company has not closed on that unit.
ITEM 3. LEGAL PROCEEDINGS
In the matter of SAXON MORTGAGE VS. WESTMARK, Saxon Mortgage obtained a
judgment in the amount of $419,348, in connection with various repurchase
obligations. An amount of $61,788 has been paid, and the remaining liability of
$407,560 is accrued. The Company has reached a settlement which calls for
monthly payments of $11,788 for 36 months.
The Company is a plaintiff in NETWORK FINANCIAL SERVICES, INC. V.
MCCURDY RAICHE, RYALS, NASH & MOSS LAND COMPANY, filed March 1993 in Monterey
County, California Superior Court. The plaintiff alleges fraud, negligent
misrepresentation, breach of fiduciary duty, negligence, quiet title, RICO
violations and conversion. Defendant McCurdy initiated a cross-complaint naming,
among others, the Company as a cross defendant. The cross-complaint seeks
damages for breach of a stock option agreement, breach of contract,
9
<PAGE>
and declaratory relief. The Company has finalized a settlement with defendants
Raiche and Ryals, wherein defendants Raiche and Ryals transferred 7,166 shares
of the Company's Common Stock to the Company in addition to one-half (1/2)
interest in certain property. The balance of the pending litigation involving
defendant and cross-complaint McCurdy and others is unaffected by the
Raiche/Ryals settlement. Management intends to vigorously defend this
cross-complaint.
A settlement has been negotiated wherein and whereby both the Complaint
and Cross-Complaint will be dismissed and no monetary compensation paid by
either party. The Company has requested several modifications to the proposed
settlement agreement.
The Company is a defendant in KNIGHT V. LOMAS MORTGAGE U.S.A. AND
WESTMARK MORTGAGE CORPORATION. The complaint is based upon a contention by the
Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully impaired
the credit rating of Plaintiff and breached the written agreement between the
parties. A preliminary determination indicated that the basis for the dispute is
between Lomas U.S.A. and the Plaintiff. But the Company has been named as a
party defendant in view of the original contractual relationship between the
Plaintiff and Westmark. The Company considers the risk of loss in this matter to
be remote, and consequently, no amount has been accrued as of December 31, 1996.
The Company and plaintiffs entered into an agreement wherein and
whereby the subject litigation was dismissed without prejudice. The case was
refiled in Orange County, California Superior Court on October 29, 1996. The
Company does not anticipate any liability with respect to this litigation.
The Company is a defendant in ORTEGA V. MICHAEL SANTA MARIA ET AL filed
in Orange County Superior Court of the State of California. The complaint is
based upon a contention by the Borrower Ortega that Santa Maria, individually
and as a owner/manager/broker of Bann Cor Mortgage made false presentations of
material fact to plaintiffs. The Company acquired this loan from Bann Cor and
subsequently sold the loan to Imperial Credit Industries. A preliminary
determination indicates that the basis for the dispute is between Santa Maria
and Bann Cor. However, the Company has been named as a party defendant. Westmark
generally and specifically denies each and every allegation contained in the
complaint. The Company considers the risk of loss in this matter to minimal and
fully intends to defend this action.
The Company filed a Demurrer to plaintiff's Complaint and was dismissed
from the suit. However, the Company remains as a defendant in a cross-complaint
for indemnification filed by Imperial Credit Industries.
10
<PAGE>
One of the Company's wholly owned subsidiaries, Green World has been
named, together with other defendants, in SHAPE UP AMERICA V. PHILIPPE ET AL.,
filed is in Alameda County, California Superior Court on August 19, 1996. The
Complaint alleges breach of contract, conspiracy, fraud, and quantum meruit. The
basic premise to plaintiff's Complaint is that plaintiff claims to be entitled
to various forms of compensation based upon the sale of certain licensing,
patent and marketing rights to the Talon Refrigerant Management System. It is
anticipated that venue for this action will be transferred to Sacramento County
and to date, no discovery has been undertaken. Based upon a preliminary review
of relevant documentation, the Company does not anticipate any liability.
The Company has received a demand for Arbitration from Amber Capital
Corporation, Universal Solutions, Pyramid Holdings, Inc. and Affiliated
Services, Inc. which claims the Company breached contracts between the parties
and failed to issue and/or register securities pursuant to those contracts and
seeks compensating damages in an undetermined amount and recission of the stock
purchase agreements between the Company and the various parties.
The Company is a defendant in CORESTATES BANK, N.A. VS. WESTMARK
MORTGAGE CORPORATION, filed in the Circuit Court in Broward County, Florida on
June 20, 1997. The Company alleges breach of contract with respect to brokering
a sale of the Company's loan servicing rights resulting in damages of
approximately $73,000, exclusive of interest and costs.
Management does not believe that any of these proceedings, individually
or in the aggregate, will materially impact the Company's financial condition or
results of operations. From time to time the Company is a defendant (actual or
threatened) in certain lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse affect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq SmallCap Market
under the symbol "WGHI." The following table sets forth the high and low last
sales prices of the Common Stock for the periods indicated and reflect
inter-dealer prices, without retail mark-up, mark-down or commission:
PRICE RANGE
------------------
FISCAL YEAR HIGH LOW
---- ---
1995
First Quarter .................... $ 11.40 $ 3.60
Second Quarter ................... 8.40 3.60
Third Quarter .................... 8.50 5.40
Fourth Quarter ................... 6.50 1.62
1996
First Quarter .................... $ 3.23 $ 2.13
Second Quarter ................... 1.75 .81
Third Quarter .................... 1.44 .53
Fourth Quarter ................... 1.375 .47
1997
First Quarter .................... 1.34 .62
On July 28, 1997, the last sales price for the Common Stock was $.46,
and the Company believes there were approximately 759 beneficial owners of its
Common Stock.
The Company has not paid, and the Company does not currently intend to
pay, cash dividends on its Common Stock. The current policy of the Company's
Board of Directors is to retain earnings, if any, to provide funds for operation
and expansion of the Company's business. Such policy will be reviewed by the
Board of Directors of the Company from time to time in light of, among other
things, the Company's earnings and financial position.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying Notes to the
Consolidated Financial Statements.
GENERAL
The Company is primarily a mortgage banking company engaged in the
business of originating, purchasing and selling mortgage loans secured primarily
by one-to-four family residences. The Company primarily generates income from
(i) gains recognized from premiums on loans sold through whole loan sales to
institutional purchasers, (ii) investment income earned on loans held for sale,
and (iii) origination fees and
12
<PAGE>
related revenue received as part of loan closings. Gain on sale of loans, which
represents the sales price in excess of loan acquisition and related costs from
whole loan sales, constituted 65% and 50% of total revenues in 1996 and 1995,
respectively. Investment income earned on loans held for sale constituted 20%
and 30% of total revenues in 1996 and 1995, respectively. Loan origination fees
and related revenue represented 12% and 18% of total revenues in 1996 and 1995,
respectively.
The Company currently has purchase agreements with Fleet Mortgage
Corporation, Household Financial Services, The Money Store, and various
non-conforming mortgage conduits whereby the Company originates and sells loans
to them. The Company sells virtually all of the loans it originates. These
agreements are for specific terms or are open ended, and require the loans to
satisfy the underwriting criteria described therein. During 1996 and 1995, the
Company sold loans totaling $89.5 million and $158 million, respectively. The
Company does not service any of the loans it originates and sells all loans
primarily in whole loan sales. The gain on sale of loans was $1,881,068 and
$1,544,556 in 1996 and 1995, respectively.
Loans held for sale were comprised of 78% "A" (conforming) loans and
22% "B/C" (non-conforming) loans at December 31, 1995 and 10% "A" loans and 90%
"B/C" loans at December 31, 1996. When the Company commits to fund loans, the
parties agree upon an interest rate. Until the Company obtains a commitment to
sell the loan to an investor, the Company is subject to interest-rate
fluctuations. Typically, the Company obtains commitments for the sale of "A"
loans to investors concurrently with making such loan commitment to the
borrower. Interest rate commitments are not typically made to B/C borrowers
until the loan funds. In order to mitigate interest-rate fluctuations, the
Company's strategy in committing to make "B/C" loans has been to negotiate a 30
day forward commitment containing minimum pricing by credit class of loans by
investor.
Investment income earned on loans held for sale is derived primarily
from interest payments on loans in inventory. Certain fixed rate "B/C" loans
generally carry a note rate in excess of the cost to borrow. This results in a
positive revenue differential between cost to borrow (at the time the loan
funds) and the loan sale. Management's strategy is to sell those loans in whole
loan sales and in bulk sales as quickly as practicable in order to optimize cash
flow from the sale of the loans. In addition, the Company realizes revenue from
loan origination fees and certain loan discount fees.
SIGNIFICANT ACCOUNTING POLICIES
Mortgage loans are originated to be sold to investors and are reported
at the lower of cost or market. Loans covered by commitments are valued as
specified in the commitment. Loans not covered by commitments are valued at
market, as determined by reference to the Company's normal market outlets. Loan
origination fees and certain direct costs are deferred and reflected in
operations when the underlying loan is sold. Investment income on loans held for
sale is recognized as earned. Sales and expenses of Green World are reorganized
as incurred.
INVESTMENT IN REAL ESTATE AND PREFERRED STOCK
In July 1995, the Company settled certain pending litigation arising
out of a claim by Dolan Development Partners, Ltd. and related parties ("Dolan")
that the Company defaulted on certain promissory notes. The settlement reduced
the amount of principal and interest payable by the Company to Dolan pursuant to
two promissory notes from $1.5 million to approximately $1 million. The Company
owned a 50% interest in the property securing the payment of the notes and
Dolan, the payee, owns the remaining 50% undivided interest in the property. The
Company's interest in this real estate at December 31, 1995 was valued at
$2,115,000. The balance on the note payable to Dolan, secured by such property,
was $1 million
13
<PAGE>
as of December 31, 1995. This note bears interest at the rate of 9.75% per annum
and matures, with principal payable in one lump sum, on June 1, 1998. The
modifications of the amount owed to Dolan resulted in a pre-tax gain of
extinguishment of debt of $450,000 in 1995.
On July 10,1996, the Company sold all of its capital stock of Network
Capital Group, Inc. to PBF Land Company ("PBF"), an affiliate of GTB Company, in
exchange for various parcels of real property in Florida with a market value
appraised at $1,298,000 (Parcel A). In addition, PBF placed an attorney's
opinion letter of title for Quit Claim Deeds for additional parcels (Parcel B)
valued at up to $5 million into escrow. In exchange for the additional property,
the Company placed preferred stock with a stated value of $5 million into
escrow. The preferred stock may be convertible into common stock beginning April
1, 1997. The minimum conversion price is $1 and no more than a cumulative total
of $200,000 worth of preferred stock may be converted per quarter. For any
additional shares to be issued, certain sales by PBF must be completed. Further
due diligence regarding appraisal, title and legal issues are necessary in order
for the Company to exercise the option to acquire the additional parcels.
The subject property consists of various strips of 25-30 foot and 50
foot (perimeter) platted road rights of way, located in Palm Beach County.
Parcel 1 contains 165,000 square feet ($2.25/sq.ft.), Parcel 2 contains 51, 300
square feet ($3.50/sq.ft.) and Parcel 3 contains 1,150,150 square feet
($.60/sq.ft.), combined, these rights of way total 1,366,450 square feet for a
total value of $1.3 million. The Company valued for accounting purposes, the
strips at a cost of $1.0 million. The Company has received an attorney's opinion
letter of title.
Whitehall Financial Services, Inc. claimed a third party beneficial
interest in and to the PBF agreement. PBF agreed to return 88,963 shares of
Company Common Stock to the Company which was issued to Whitehall in full and
final settlement of all claims.
The Company received an unsolicited offer to buy the capital stock of
Network Capital Group which owned developed and undeveloped land in California,
in exchange for undeveloped property located within a 30-mile radius of the
Company's headquarters. Management determined that it lacked the technical and
financial resources to monitor the property as well as the complicated and
ever-changing land use and regulatory laws affecting the California real estate
and believed that it was more prudent to own and operate real estate within a
30-mile radius of its corporate headquarters. Moreover, the property in
California was subject to a foreclosure action. Management weighed the tax
factors with the proximity of the Florida real estate, causing management to
effect the trade in Network Capital Group with the underdeveloped property
previously owned by PBF.
RECENT FINANCING
In July 1997, the Company entered into a financing agreement with MCA
Financial Corp. ("MCA") whereby MCA agreed to pay the Company $500,000 in
exchange for the issuance to MCA of 100,000 shares of series G convertible
redeemable preferred stock ("Series G Convertible Preferred Stock") having a
stated value of $5 per share, and the delivery of certain loan packages to MCA.
Payment of the $500,000 shall be made in installments through January 30, 1998
and are conditioned upon the loan packages eligible to be purchased having
certain aggregate principle balances. The Company's obligation to deliver loans
to MCA terminates immediately upon the effective date of the Company's
redemption of the Series G Preferred Stock.
14
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues decreased 6% to $2,933,173 in 1996 from $3,106,900 in
1995. This was primarily due to a shift in focus to originating non-conforming
mortgages and the disposal of previously unsold loans whose gain on sales were
minimal. In particular, $15,000,000 of 1995 ending inventory was sold for a net
gain of 60 basis points. This inventory comprised 20% of total sales in 1996.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 20% to $1,881,068 in 1996 from $1,544,556 in 1995. This
increase was due as a result of management's decision to originate and sell
"B/C" loans along with increased premiums on "A" whole loan sales. Management
intends to continue to originate and sell "B/C" loans as part of its overall
strategy. The volume of "B/C" loans sold during 1996 was approximately $41
million compared to $25 million in 1995. Generally, the "A" loans provide less
income to the Company than "B/C" loans. Due to the Company's strategy of selling
loans prior to the first payment, management believes that there is no greater
substantive risk in original "B/C" loans than "A" loans.
Loan origination fees decreased 35% to $355,255 in 1996 from $544,386
in 1995. This decrease is primarily due to originating fewer government-backed
loans, resulting in less loan origination fees. Traditionally, conforming "A"
and non-conforming "B/C" loans, at the wholesale level, do not contain loan
origination fees. Management has adjusted the loan origination pricing structure
to provide for an increase in per loan origination fees on non-conforming "B/C"
product. Initially, this change could reduce the cash requirements at the time
of loan funding, thereby possibly reducing gain on sale of these loans; however,
management's goal is to increase the volume of loans, creating larger pools of
loans to sell to investors, which should allow the Company to maintain its
current premium rate on ultimate gain on sale of loans.
Investment income, comprised primarily of interest earned on loans held
for sale, decreased 38% to $584,399 in 1996 from $938,657 in 1995. This decrease
is due primarily to a more rapid sale of loans in 1996 as compared with 1995.
Total expenses decreased 34% to $6,971,539 in 1996 from $10,594,920 in
1995. This decrease is primarily due to (i) a decrease in general and
administrative expenses and (ii) non-recurring expenses incurred in 1995
financial transactions.
Direct loan fee expenses increased 104% to $432,425 in 1996 from
$212,309 in 1995, due primarily to the fact that the Company incurred
substantial loan fees on its warehouse facilities during the entire twelve
months of 1996 compared to two months in 1995. In April 1997, the Company
obtained a warehouse line of credit with The Money Store, which does not charge
loan transaction fees.
Interest expense decreased 4% to $1,172,852 in 1996 from $1,223,875 in
1995, due primarily to the increased volume of whole loan sales and the
borrowing cost associated with the Company's Warehouse Facility.
General and administrative expense decreased 42% to $3,930,199 from
$6,775,395 in 1995, due primarily to a cost containment measure in personnel,
overhead and marketing expenses. In March 1996, the Company consolidated its
operations to Delray Beach, Florida. In connection with this consolidation, the
Company sublet excess rental space in Costa Mesa, California and in Hawaii and
negotiated the termination of its San Jose, California lease. The closing of the
Hawaii office in March 1996 resulted in a
15
<PAGE>
savings of approximately $3,400 per month, the sublease of office space in Costa
Mesa in March 1996 resulted in a savings of approximately $8,500 per month, the
termination of the San Jose office in October 1996 resulted in savings of
approximately $3,500 per month, and where appropriate accruals were established
on the income statement.
In July 1995, the Company entered into a letter of intent to acquire
certain assets of Greentree. The aggregate purchase price was $1,575,000 payable
in installments with the remaining unpaid purchase price payable from the
proceeds of the Company's proposed offering of convertible debentures. The
Company paid $100,000 cash and issued 16,667 shares of its Common Stock valued
at $125,000 in anticipation of the acquisition. In November 1995, the Company
abandoned the proposed convertible debenture offering and terminated the
Greentree acquisition. The Company's $225,000 investment in Greentree was
charged to expense in 1995. The acquisition agreement provided for Greentree to
retain all sums previously paid and required the Company to register the resale
of the 16,667 shares of Company Common Stock. The Company failed to register the
resale of such shares, providing Greentree with the option of retaining such
shares or demanding an additional $125,000 payment. The parties agreed to settle
the $125,000 obligation for $35,000, payable through the issuance of shares
which, when sold by Greentree, will net $35,000, and a three-year warrant to
purchase 150,000 shares of Company Common Stock at $2.62 a share.
Depreciation and amortization expenses decreased to $185,277 in 1996
from $194,543 in 1995, primarily due to the age of the equipment and the
disposal of certain California based assets and was adversely affected by the
Green World amortization.
Net loss decreased to $3,800,995 in 1996 from $7,038,060 in 1995,
resulting in a net loss per share of $1.04 in 1996 compared with $6.50 in 1995.
GREEN WORLD RESULTS OF OPERATIONS
Green World is a development-stage company which began marketing the
Talon Refrigerant Management System in February 1996. The results of operations
discussed hereafter are for the period after acquisition by Westmark Group
Holdings, Inc. from July 18, 1996 through September 30, 1996 per audit. Revenue
for the periods was $29,221 while cost of goods sold was $10,311. The expenses
of the operation consisted of general and administrative of $85,496, selling
expenses of $24,651 and research and development costs of $21,919. There is no
comparative data for prior years available.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash flow from whole loan sales, loan origination
fees, net interest income and borrowings under its Warehouse Facility to meet
its working capital needs. The Company's cash requirements include the funding
of loan originations, purchases, payment of interest expenses, operating
expenses, taxes and capital expenditures, along with settlement agreements
negotiated during 1996.
On December 31, 1996, the Company had a working capital deficit of
$5,079,003 and total stockholders equity of $200,527. Net cash provided by
operating activities was $11,893,769 in 1996 compared with net cash used by
operating activities of $16,665,858 for 1995. The reason for the significant
change is that the Company decreased the amount of mortgage loans held for sale
by approximately $14 million at the 1996 year end, as compared to the 1995 year
end. The use of operating cash is offset by funds provided by the Princap
Warehouse Facility. Net cash used by financing activities was $12,173,400
compared with net cash provided from financing activities of $16,971,281 in
1995, which relates
16
<PAGE>
approximately to the amount outstanding pursuant to the Princap Warehouse
Facility at the respective year ends. Net cash used in investing activities was
($13,752) in 1996 compared with ($101,080) in 1995.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans, are essential to the continuation of the
Company's ability to originate and purchase loans. The Company borrows funds on
a short term basis to support the accumulation of loans prior to sale. These
short-term borrowings are made under the Warehouse Facility with Princap
Mortgage, Inc., The Money Store and Household Financial Services, Inc. Pursuant
to the Princap Warehouse Facility, the Company has available a secured revolving
credit line of $10 million to finance the Company's origination or purchase of
loans, pending sale to investors. The line of credit, pursuant to the Princap
Warehouse Facility, has collateral of the assignment and pledge of eligible
mortgage loans, and bears interest at an annual rate of 2% above prime, payable
at the time of purchase by the permanent investor. This arrangement allows the
Company to utilize interest received from the borrower during the period prior
to the sale of the loan. The Princap Warehouse Facility provides for a
transaction charge of $140 per loan and requires the Company to possess a
minimum net worth of $250,000 and a compensating cash balance on deposit in the
amount of $5,000. At December 31, 1996, the balance outstanding, pursuant to
this Princap Warehouse Facility, totaled $4,748,021. In 1997, the Company
entered into warehouse lines of credit with The Money Store and Household
Financial Services, Inc. Pursuant to the Money Store Warehouse Facility, the
Company has available a $5 million line of credit with an interest rate of 1.5 %
above prime and no transaction fee. Pursuant to the Household Financial Services
Warehouse Facility, the Company has available a $5 million line of credit with
an interest rate of 2% above prime and a $100 loan transaction fee. The Company
does not have any other external lines of credit for financing.
From December 31, 1994 through November 22, 1995, the Company had a
warehouse agreement with Lomas Mortgage USA, Inc. ("Lomas") in the amount of $15
million. In August 1995, Lomas gave notice of the termination of its commitment
with the Company and subsequently declared bankruptcy under Chapter 11 of the
United States Bankruptcy Code. Prior to filing for protection, Lomas notified
the Company of its assignment of its repurchase agreement with the Company to
PSB. Shortly thereafter, the Company obtained its current Warehouse Facility. At
December 31, 1995, the outstanding balance on the line of credit with PSB was
$3,333,763, which line was closed in the first quarter of 1996 when all
remaining loans, that collateralized this line of credit, were sold.
Historically, the Company has obtained financing through the issuance
of its Common Stock and borrowings on a negotiated basis. During 1996, the
Company issued a total of 2,815,046 shares for services rendered and converted
$700,000 of indebtedness owed to MIOA into 200,000 shares of Series C Preferred
Stock with a stated value of $3.50 per share. During 1995, the Company issued
1,958,167 shares of Common Stock for cash and for other consideration as
follows: (i) 1,298,388 of Company Common Stock was issued for $1,210,000 of cash
and MIOA preferred stock; (ii) an aggregate of 338,000 shares of Common Stock
were issued in private placements grossing approximately $875,000; and (iii)
322,167 shares of Common Stock were issued for general corporate purposes and
for services rendered. In May and June 1995, the Company raised $600,000 cash
through the issuance of convertible promissory notes in the principal amount of
$600,000 and warrants entitling holders to purchase the securities contemplated
to have been issued in the failed 1995 convertible debenture offering. In April
1996, the Company and all these investors agreed to restructure the investment
and the Company paid such investors an aggregate amount of $600,000 and issued
such investors 300,000 shares of Series B Preferred Stock with a stated value of
$600,000.
In addition, MIOA advanced the Company an aggregate amount of $790,000
during the 1996 first quarter (of which $700,000 was converted into 200,000
shares of Series C Preferred Stock with a stated value of $3.50 per share) and
$1,503,000 in the second quarter of 1996, primarily to fund outstanding
obligations
17
<PAGE>
and working capital needs. During 1996, the Company reached agreements to settle
approximately $848,714 of outstanding indebtedness through the sale of Common
Stock issued to the creditors. In connection therewith, the Company issued these
creditors 1,596,382 shares as a settlement. In the event that the sale of shares
is insufficient to reach $848,714, the Company is obligated to issue additional
shares in order to net the required cash payments or pay the balance in cash.
The creditors are obligated to return any excess shares which are not required
to be sold once they have received their full payment. The Company has received
additional debt capital from external sources in 1996, as it has not relied on
any additional capital from MIOA since June 1996. During the second, third and
fourth quarters of fiscal 1996, the Company borrowed an aggregate of $379,000
from various individuals for working capital purposes. During the first quarter
of 1997, the Company borrowed $192,000 from various individuals for working
capital purposes.
The Company's internally generated cash flows from operations has
historically been and continues to be insufficient for its cash needs. It is
expected that internal sources of liquidity will improve during 1997. However,
until such time as the Company achieves positive cash flow before working
capital changes, the Company will continue to rely on external sources for
liquidity. MIOA presently owns 1,667,284 shares of Company Common Stock, and
200,000 shares of the Company's Series C Preferred Stock ($3.50 stated value). A
contractual right provided to MIOA upon issuance of a portion of its shares of
Common Stock afforded MIOA the right to maintain a 49% ownership interest in the
Company. At June 26, 1997, the Company owed MIOA $1,953,000, less interest in
the sum of $47,000 which represents interest forgiveness for the second quarter.
MIOA agreed to the termination of the 49% anti-dilution protection. Payment of
the indebtedness shall be made upon the following terms. The Company executed a
three year promissory note in the sum of $1,953,000, bearing interest at 10% per
annum, with monthly payments in the amount of $25,000 which commenced June 30,
1997. The Company intends to fund the debt servicing through cash flow, however
there can be no assurance that it will be able to meet the required monthly
payments. In the event the Company receives additional capitalization of a
minimum amount of $300,000 and a maximum amount of $1.5 million, MIOA shall be
entitled to receive the first $300,000. In the event the additional
capitalization exceeds $1.5 million, MIOA will be entitled to receive the first
$500,000 of additional capitalization in excess of $1.5 million. In the event
additional capitalization exceeds $3 million, MIOA shall be entitled to receive
50% of the excess until the above captioned indebtedness is paid in full. In
addition, MIOA shall be entitled to 15% of the net cash of the Company in excess
of operating expenses and settlement payments on a consolidated basis during the
calendar year 1997, and 20% of said net cash flow in the calendar year 1998. In
the event the Company should sell or spin-off either of its subsidiaries, MIOA
shall be entitled 50% of the cash proceeds received by the Company resulting
from the sale or spin-off. If it appears at any time in the future that the
Company is again approaching a condition of cash deficiency, the Company will be
required to seek additional debt or equity financing, sell assets, or otherwise
bring cash flow in balance. The board of directors of the Company has determined
to spin-off a minimum of 51% and a maximum of 100% of the Green World capital
stock it owns as a dividend to its shareholders. By spinning-off all or a
substantial interest in Green World, Green World will operate as a separate
entity, will seek its own public or private financing (debt or equity) in order
to support its operations, and will partially or wholly cease to be an asset of
the Company. There can be no assurance that the Company will be able to obtain
external sources for liquidity.
INFLATION
Although the Company believes that inflation has not had any material
effect on operating results, it cannot be assured that its business will not be
affected by inflation in the future.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Information with respect to this item is set forth in the "Index" to
Consolidate Financial Statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Mark Schaftlein 39 President, Chief Executive Officer and Director
of the Company
Norman J. Birmingham 42 Chief Financial Officer and Director
Payton Story, III 50 Senior Vice-President and Director
Todd Walker 38 Secretary and Director
Louis Resweber 35 Director
MR. SCHAFTLEIN has served as president and chief executive officer of
Westmark Group Holdings, Inc., since May 1997. In May 1997, Mr. Schaftlein
became chief executive officer of Westmark Mortgage Corporation ("Westmark
Mortgage"), and served as president of Westmark Mortgage from February 1996
until May 1997. Mr. Schaftlein has served as a director of the Company since
January 1996. From February 1995 until February 1996, Mr. Schaftlein was
director of the non-conforming division of Westmark Mortgage, managing the
transition of Westmark Mortgage from a conforming to a non-conforming lender.
Mr. Schaftlein established the bulk loan sales with Household Finance Corp. and
The Money Store, which the Company presently utilizes. Prior thereto, Mr.
Schaftlein was a senior vice president with National Lending Center, Inc., from
September 1993 until February 1995. During that time, Mr. Schaftlein expanded
operations into multiple states and assisted in their expansion of B/C lending.
From January 1993 until September 1993, Mr. Schaftlein served as vice president
of Fleet Finance and was responsible for developing a new wholesale division in
the non-conforming (B/D) credit market. From 1984 to January 1993, Mr.
19
<PAGE>
Schaftlein served as vice president at Citicorp. In 1996, Mr. Schaftlein also
served as president of the Gold Coast chapter of the Florida Association of
Mortgage Brokers.
MR. BIRMINGHAM has served as a director since April 1996. Mr.
Birmingham served as president from November 1995 to September 1996. Mr.
Birmingham has served as chief financial officer since December 1996. Since July
1995, Mr. Birmingham has served as chief operating officer, president, and as a
director of Medical Industries of America, Inc., ("MIOA"), whose securities are
registered under Section 12 of the Securities Exchange Act of 1934 ("Exchange
Act"). Mr. Birmingham resigned as an officer of MIOA in June 1996 and as a
director in August 1996. Mr. Birmingham has been engaged in an accounting and
tax practice since 1986.
MR. STORY has served as president of Westmark Mortgage since May 1997,
prior thereto Mr. Story served as senior vice-president of lending since May
1996. Additionally, Mr. Story has served as a director of Westmark Group
Holdings, Inc., since February 1997. Formerly, Mr. Story was chief executive
officer and president of West Coast Mortgage Services, Inc. from July 1985 to
April 1996. Mr. Story was the marketing director of Beneficial Management
Corporation in Peapock, New Jersey from January 1969 to July 1985. Additionally,
in 1984 Mr. Story served as president of the Florida Association of Mortgage
Brokers- Gulf Coast. Currently, Mr. Story is a certified mortgage consultant of
Florida and National Association of Mortgage Brokers.
MR. WALKER has served as a director since January, 1996. In 1987, Mr.
Walker founded, and presently serves as president of, Southern Import
Distributors, Inc. ("SIDI"). On behalf of SIDI, Mr Walker co-founded Tampa
Convention Hotel Associates, Inc., Divot Development Corporation, Herr Damm,
Inc., and Mad Dogs & Englishmen. Prior to forming SIDI, Mr. Walker was a tax
consultant with Arthur Anderson & Company for two years. Mr. Walker graduated
from Tulane University in 1981 and received his Masters of Business
Administration degree in 1985 and Juris Doctorate degree in 1985 from the Tulane
Graduate Business School and Tulane Law School, respectively.
MR. RESWEBER has served as a director since December 1996, and became
chairman in February 1997. Mr. Resweber has extensive prior experience in the
non-conforming industry, as he has served as senior vice president, capital
markets, for United Companies Financial Corp., a NYSE-listed financial services
company and one of the nation's oldest and largest sub-prime mortgage lenders
whose stock price increased from $16 to $132 per share (pre-splits) during Mr.
Resweber's tenure. Most recently, Mr. Resweber served as president and chief
executive officer of Network Acquisition Corp. from 1995 to 1997, which grew
from $4 million to $110 million in revenues through a series of seventeen
successful merger and acquisition transactions. Altogether, Mr. Resweber has
over fifteen years' experience in corporate finance, capital markets, mergers
and acquisitions, strategic planning, business administration and management,
investor relations and communications as an executive officer, board member
and/or senior consultant to a number of NYSE-listed, Fortune 500 firms including
NorAm Energy, Arkla Gas, Entex, Hill & Knowlton, Exxon USA, Celeron Oil, Cabot
Energy, and Goodyear Tire & Rubber. Mr. Resweber also currently serves on the
Boards of Directors of a number of other companies including Connex
Communications, Inc. and Level Best Golf, Inc.
Directors serve until the expiration of their term at the annual
meeting of stockholders. All officers serve at the discretion of the Board of
Directors, subject to employment agreements. Effective February 1996, each
non-employee director is entitled to receive $500 per month, and all directors
are entitled to reimbursement of out-of-pocket expenses to attend Board meetings
and 15,000 option upon becoming director and 12,000 options on the first day of
each new year provided for in the 1994 Employee Stock Option Plan.
20
<PAGE>
BOARD COMMITTEES
The Board of Directors has appointed a compensation committee and an
audit committee. The members of the compensation committee are Messrs.
Schaftlein and Walker. The compensation committee reviews and recommends to the
Board of Directors all forms of remuneration for directors and management of the
Company and has the authority to administer the Company's 1994 stock option
plan. The members of the audit committee are Messrs. Birmingham , Story and
Walker. The audit committee reviews and reports to the Board on the financial
results of the Company's operations and the results of the audit services
provided by the Company's independent accountants, including the fees and costs
for such services.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10 percent of the Company's
common stock, to file reports of ownership and changes of ownership with the
securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company pursuant to Section 16(a). Based solely on the
reports received by the Company, the Company believes that the directors,
executive officers, and greater than ten percent beneficial owners complied with
all applicable filing requirements during the fiscal year ended December 31,
1996.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Mark Schaftlein served as the chief executive officer of the Company
since May 1997, and chief operating officer from September 1996 through May
1997. Norman J. Birmingham served as chief executive officer of the Company from
January 1, 1996 through September 10, 1996. The following table sets forth the
information with respect to the chief executive officers during fiscal 1996. No
other executive officer of the Company received total annual salary and bonus
for the 1996 fiscal year in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- ---------------------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK OPTIONS AND ALL OTHER
POSITION YEAR SALARY COMPENSATION ISSUANCES WARRANTS COMPENSATION
- ------------------ ------ ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Mark Schaftlein, 1996 $143,353(1) $3,353 - 90,000(2) --
Chief Executive 1995 $100,685 -- - 1,500 --
Officer 1994 -- -- - -- --
Norman J. Birmingham , 1996 $ 87,500 -- - 90,000(2) --
Chief Financial 1995 -0- -- - -- --
Officer 1994 -- -- - -- --
</TABLE>
- -------------------
21
<PAGE>
(1) Includes $3,353 in other annual compensation comprised of a car allowance.
(2) Only 45,000 of these options have vested.
EMPLOYMENT AGREEMENTS
In April 1996, Mr. Birmingham entered into a three-year employment
agreement with the Company which provides for an annual base salary of $100,500.
Additionally, Mr Birmingham was issued a warrant to purchase 90,000 shares,
45,000 of which are currently exercisable over a five-year term at $2.25 per
share, and 45,000 of which vest in full if the Company's net income in 1996,
1997 or 1998 is $480,000 (and vest on a pro-rata basis if a lesser amount of net
income is earned in those periods), exercisable during a five year term from the
date of vesting in full. In the event Mr. Birmingham's employment agreement is
terminated other than for "just cause," he would be entitled to receive
one-year's salary.
In March 1997, Mr. Schaftlein entered into a three-year employment
agreement which provides for an annual base salary of $150,000 the first year,
$162,000 the second year and $174,000 the third year and an aggregate of 600,000
incentive stock options vesting as soon as April 1998 and as late as April 2000,
exercisable for a five-year period from vesting at exercise prices ranging from
$1.00 to $2.00 per share. Additionally, Mr. Schaftlein was issued a warrant to
purchase 90,000 shares, 45,000 of which are currently exercisable over a
five-year term at $2.25 per share, and 45,000 of which vest in full if the
Company's net income in 1996, 1997 or 1998 is $480,000 (and vest on a pro-rata
basis if a lesser amount of net income is earned in those periods), exercisable
during a five-year term from the date of vesting in full. In the event an
employment agreement is terminated other than for "just cause," such terminated
employee would be entitled to receive one-year's salary.
In March 1997, Mr. Story entered into a three-year employment agreement
which provides for an annual base salary of $126,000 the first year, $138,000
the second year and $150,000 the third year, and an aggregate of 400,000
incentive stock options vesting as soon as April 1998 and as late as April 2000,
exercisable for a five-year period from vesting at exercise prices ranging from
$1.00 to $2.00.
STOCK OPTIONS AND WARRANTS
The following table provides information on options granted under the
Company's 1994 Stock Option Plan and warrants granted in fiscal 1996 to Messrs.
Schaftlein and Birmingham:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
TOTAL EXERCISE OR
OPTIONS/WARRANTS BASE PRICE
SHARES UNDERLYING GRANTED TO PER EXPIRATION
NAME OPTIONS/WARRANTS GRANTED EMPLOYEES IN SHARE DATE
------------------------- FISCAL YEAR ----------- ----------
----------------
<S> <C> <C> <C> <C> <C>
Mark Schaftlein 90,000 (1) % (1) $2.25 4/01
Norman J. Birmingham 90,000 (1) % (1) $2.25 4/01
</TABLE>
- ------------------
(1) No options to employees were granted under the 1994 Stock Option Plan
during fiscal 1996. The Warrants issued to Messrs. Schaftlein and
Birmingham each constitute 50% of warrants issued pursuant to employee
compensation arrangements. Additionally, warrants to purchase 810,469
shares of Common stock were issued to third parties in connection with
financing arrangements in fiscal 1996.
22
<PAGE>
The following table provides information regarding warrant exercises in
fiscal 1996 for Messrs. Schaftlein and Birmingham and the value of such
unexercised warrants at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY WARRANTS
ACQUIRED ON VALUE WARRANTS AT AT
NAME EXERCISE REALIZED DECEMBER 31, 1996 DECEMBER 31, 1996
- ----------------- -------- -------- ------------------- ------------------
<S> <C> <C> <C> <C>
Mark Schaftlein - - 90,000 (1)
Norman J. Birmingham - - 90,000 (1)
</TABLE>
(1) Based on the last sales price on December 31, 1996, the options were not
in-the-money at December 31, 1996.
The Company has not established, nor does it provide for, long-term
incentive plans or defined benefit or actuarial plans. The Company does not
grant any stock appreciation rights.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table presents certain information regarding the
beneficial ownership of all shares of Common Stock at July 28, 1997 by (i) each
person who owns beneficially more than five percent of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each named executive
officer and (iv) all directors and officers as a group.
NAME AND ADDRESS (1) SHARES OF COMMON STOCK PERCENT OF VOTING POWER
- -------------------- ---------------------- -----------------------
GTB Company 2,888,889 (2) 30.3%
Medical Industries of 1,667,284 17.5%
America, Inc.
Drew Hollenbeck 800,000 (3) 8.4%
Louis Resweber 250,000 (4) 2.6%
Mark Schaftlein 122,367 (5) 1.3%
Norman Birmingham 80,000 (6) -
Todd Walker - -
Payton Story - -
All officers and 452,367 (7) 4.8%
directors group
(five persons)
- ---------------
* Less than one percent.
1 The address for the above referenced shareholders is 355 N.E. Fifth Avenue,
Delray Beach, FL 33483, except for MIOA, which is 1903 S. Congress Avenue,
#400, Boynton Beach, FL 33426 and GTB Company which is 2090 Palm Beach Lakes
Blvd., West Palm Beach, FL. 33409.
23
<PAGE>
(2) Consists of 2,888,889 shares of Common Stock underlying Series E Preferred
Stock.
(3) Includes 800,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock.
(4) Consists of 250,000 shares of Common Stock underlying a currently
exercisable warrant.
(5) Includes options and warrants currently exercisable to purchase an aggregate
of 46,500 shares of Common Stock.
(6) Includes an option presently exercisable to purchase 45,000 shares of Common
Stock.
(7) Includes options and warrants to purchase an aggregate of 341,500
shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective November 1995, MIOA purchased 1,298,388 shares of Common Stock for
a purchase price of $3,210,000, comprised of $1,210,000 cash and cash
equivalents, and the issuance of 200,000 shares of MIOA series B convertible
preferred stock with a stated value of $10 per share. The stock purchase
agreement provides that MIOA ownership position, equal to 49% of the shares of
Company Common Stock actually outstanding, shall not be diluted below 49%, with
additional shares to be issued to MIOA to maintain such ownership position. In
May 1996, the Company issued MIOA 368,896 shares of Common Stock in order to
maintain such percentage ownership. As additional shares of Common Stock are
issued by the Company, out of the new issuances or on exercise of outstanding
warrants and options and conversion of outstanding Preferred Stock, additional
adjustments will be made resulting in additional shares issued to MIOA in order
to maintain such 49% ownership interest. Subsequent to the November 1995
purchase agreement, MIOA has loaned the Company an aggregate of $2,388,593
pursuant to one-year notes, bearing interest at the rate of 10% per annum.
Effective 1996, MIOA converted $700,000 of this indebtedness into 200,000 shares
of Series C Preferred Stock with a stated value of $3.50 per share. The Company
and MIOA entered into the Westmark-Medical industries Agreement dated January
23, 1997 which was amended March 31, 1997, and June 26, 1997. MIOA presently
owns 1,667,284 shares of Company Common Stock, and 200,000 shares of the
Company's Series C Preferred Stock ($3.50 stated value). A contractual right
provided to MIOA upon issuance of a portion of its shares of Common Stock
afforded MIOA the right to maintain a 49% ownership interest in the Company. At
June 26, 1997, the Company owed MIOA $1,953,000, less interest in the sum of
$47,000 which represents interest forgiveness for the second quarter. MIOA
agreed to the termination of the 49% anti-dilution protection. Payment of the
indebtedness shall be made upon the following terms. The Company executed a
three year promissory note in the sum of $1,953,000, bearing interest at 10% per
annum, with monthly payments in the amount of $25,000 which commenced June 30,
1997. In the event the Company receives additional capitalization of a minimum
amount of $300,000 and a maximum amount of $1.5 million, MIOA shall be entitled
to receive the first $300,000. In the event the additional capitalization
exceeds $1.5 million, MIOA will be entitled to receive the first $500,000 of
additional capitalization in excess of $1.5 million. In the event additional
capitalization exceeds $3 million, MIOA shall be entitled to receive 50% of the
excess until the above captioned indebtedness is paid in full. In addition, MIOA
shall be entitled to 15% of the net cash of the Company in excess of operating
expenses and settlement payments on a consolidated basis during the calendar
year 1997, and 20% of said net cash flow in the calendar year 1998. In the event
the Company should sell or spin-off either of its subsidiaries, MIOA shall be
entitled 50% of the cash proceeds received by the Company resulting from the
sale or spin-off. For a more complete description of the agreement, see "The
Company - Recent Developments."
The then officers of the Company, Messrs. Morrell and Gardener and Linda
Moore resigned as officers and Mr. Morrell resigned as a director in November
1995. Subsequent to their resignations, Mr. Morrell and Ms. Moore entered into
to termination agreements and consulting agreements with the Company. Various
disputes arose in connection with the performance of those agreements, and in
January 1997, the parties entered into a settlement agreement. The settlement
agreement provides that the Company shall pay unpaid salary to Mr. Morrell in
the sum of $115,000 contemporaneously with the close of any transaction by which
the Company shall receive additional capitalization in the minimum sum of
$3,000,000. If no such
24
<PAGE>
capitalization is received, the $115,000 shall be paid through the issuance of
shares registered pursuant to form S-8. In addition, Mr. Morrell was paid
$114,000 through the issuance of shares registered pursuant to form S-8.
Interest in the sum of $31,000 is to be satisfied by the partial assignment of a
promissory note receivable or shares of common stock of Green World received by
the Company in connection with the spin-off of Green World to its shareholders.
Mr. Morrell was reimbursed $1,000 for business expenses in February 1997. The
Company leases certain of its facilities from Mr. Morrell at rates it believes
reflect fair market value. See "Business - Facilities." In February 1997, Mr.
Morrell was paid $13,800 for past due rental obligations. In January 1997, Mr.
Morrell was paid $45,000 in delinquent consulting fees through the issuance of
shares registered pursuant to form S-8, and the Company and Mr. Morrell agreed
that the remaining monthly consulting fees in the amount of $7,500 per month for
22 months would be paid in cash or through the issuance of shares registered
pursuant to form S-8. The Company reimbursed Mr. Morrell $5,400 for automobile
lease expenses, and Mr. Morrell returned the vehicle to the Company in February
1997. Mr. Morrell was issued a one year option to purchase 125,000 shares of
Common Stock at an exercise price of $1 per share, and a one year warrant to
purchase 100,000 shares of Common Stock at an exercise price of $.81 per share.
Ms. Moore is to receive unpaid salary in the sum of $40,000 contemporaneously
with the close of any transaction by which the Company shall receive additional
capitalization in the minimum sum of $3,000,000. If no such capitalization is
received, the $40,000 shall be paid through the issuance of shares registered
pursuant to form S-8. In addition, Ms. Moore was paid $40,000 through the
issuance of shares registered pursuant to form S-8. Interest in the sum of
$9,000 is to be satisfied by the partial assignment of a promissory note
receivable or shares of Common Stock of Green World received by the Company in
connection with the spin-off of Green World to its shareholders. In January
1997, Ms. Moore was paid $24,000 in delinquent consulting fees through the
issuance of shares registered pursuant to form S-8, and the Company and Ms.
Moore agreed that the remaining monthly consulting fees in the amount of $4,000
per month for four months would be paid in cash or through the issuance of
shares registered pursuant to form S-8. Ms. Moore was issued a one year option
to purchase 67,000 shares of Common Stock at an exercise price of $1 per share,
and a one year warrant to purchase 53,333 shares of Common Stock at an exercise
price of $.81 per share. Mr. Gardner was issued 25,000 shares of Common Stock
and severance compensation in the amount of $54,000.
GTB Company is controlled by Charles Chillingworth, the sole stockholder,
officer and director. Bradley Ray is a creditor of GTB Company. For a
description of the transactions involving GTB Company and the Company, see "The
Company-Recent Developments." PBF is controlled by Charles Chillingworth, the
sole stockholder, officer and director. For a description of the transactions
involving PBF and the Company, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Investment in Real Estate and
Preferred Stock." In September 1996, Mr. Chillingworth was issued 36,551
unrestricted shares of Common Stock, registered pursuant to a registration
statement on form S-8, for services rendered. In January 1997, Mr. Chillingworth
was issued 21,000 shares of Common Stock for services rendered. In June 1996,
Mr. Ray was issued 150,000 unrestricted shares of Common Stock, registered
pursuant to a registration statement on form S-8, for services rendered,
pursuant to a January 1996 consulting agreement. Furthermore, an affiliate of
Mr. Chillingworth loaned the Company $150,000 pursuant to notes that mature in
June 1997, and bear interest at the rate of 10% per annum. The approximate
balance of this note is $128,000, as $30,000 has been paid. Mr. Ray loaned the
Company $61,251 in August 1996, pursuant to a note which bears interest at the
rate of 12% per annum payable quarterly, and is convertible at $.56 per share.
The note matured in December 1996, and to date, the sum of $49,751 remains
outstanding. In March 1997, GTB loaned the Company $150,000 pursuant to a note
that matures in March 1998 and bears interest at a rate of 10% per annum.
In March 1996, Mr. Hollenbeck agreed with the Company to provide for the
redemption of his 290,000 shares of Common Stock based on the then market price
in exchange for, among other considerations, a two-
25
<PAGE>
year consulting agreement providing for the payment of $75,000 in the first year
and $90,000 in the second year, $400,000 cash, and the issuance of 100,000
shares of Series A Preferred Stock in April 1996. The Company also agreed to
obtain written consent from Mr. Hollenbeck prior to the issuance of any
convertible preferred stock or other debt or equity security convertible into
Common Stock, and to pay certain of Mr. Hollenbeck's legal fees. In December
1996, Mr. Hollenbeck relinquished his right to force the Company to redeem the
Series A Preferred Stock. In addition, Mr. Hollenbeck agreed to convert 35,500
shares of the Series A Preferred Stock contingent upon the Company receiving
minimum additional capitalization of $3,000,000 and the payment to Mr.
Hollenbeck of $64,000 in attorneys' fees and costs. The Company is currently in
default in the payment of legal fees to Mr. Hollenbeck and payment of interest
on the shares of Series A Preferred Stock (which in the aggregate is
approximately $100,000) and in obtaining the necessary consent to issue debt or
equity securities convertible into common stock subsequent to March 1996.
In December 1996, Mr. Resweber was issued five-year warrants currently
exercisable to purchase 250,000 shares of Common stock in consideration for his
services as a Director of the Company.
In June 1997, Mark Schaftlein converted $45,416 in accrued salary for
1995-1996 into 72,700 shares of Common Stock. In June 1997, Norman Birmingham
converted $21,384 in expenses into 34,000 shares of Common Stock.
ITEM 13. EXHIBITS
The following exhibits are to be filed as part of the Registration Statement:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
2.1(3) Form of Merger between Colorado and Delaware
Companies
3.1(1)(2) Articles of Incorporation of the Company and
Amendments thereto
3.2(3) Certificate of Incorporation of the Company,
filed in the office of the Secretary of
State of Delaware on May 10, 1996, and
incorporated herein by reference
3.3(1) By-Laws of the Company
4.1(3) Form of specimen Common Stock
4.2(3) Series A Preferred Stock Designation
4.3(3) Series B Preferred Stock Designation
4.4(3) Series C Preferred Stock Designation
4.5(3) Series D Preferred Stock Designation
4.6(3) Series E Preferred Stock Designation
26
<PAGE>
4.7(3) Series F Preferred Stock Designation
10.1(3) Green World Stock Purchase Agreement
10.2(3) Mortgage Warehouse and Security Agreement
between the Company and Princap Mortgage
Warehouse, Inc. dated October 26, 1995
10.3(3) Purchase and Sale Agreement between the
Company and MIOA dated November 1995, as
amended.
10.5(3) Rodger Stubbs Termination Agreement
10.6(3) Michael Morrell Termination Agreement
10.7(3) Linda Moore Termination Agreement
10.8(3) Norman J. Birmingham Employment Agreement
10.9(3) Mark Schaftlein Employment Agreement
10.10(3) Payton Story Employment Agreement
10.11(3) Louis Resweber Director Agreement
10.12(3) Norman J. Birmingham Warrant
10.13(3) Mark Schaftlein Warrant
10.14(3) 1990 Non-Qualified Stock Option Plan
10.15(3) 1993 Non-Qualified Stock Option Plan
10.16(3) 1994 Non-Qualified Stock Option Plan
10.17(3) Settlement Agreement between the Company and
Greentree Mortgage Company dated April 19,
1996
10.18(3) Settlement Agreement between the Company and
First American Flood Data, Inc. dated March
29, 1996
10.19(3) Note Modification Agreement between the
Company and Dolan Development Partners, Inc.
dated July 12, 1995
10.20(3) Form of Settlement Agreement between the
Company and Each Party to the Bridge
Financing dated April 1, 1996
10.21(3) Settlement Agreement between the Company and
James S. Hull dated April 25, 1996
27
<PAGE>
10.22(3) Settlement Agreement between the Company and
Svarna Offshore Fund dated March 21, 1996
10.23(3) Settlement Agreement between the Company and
Drew Hollenbeck dated March 21, 1996
10.24(3) Settlement Agreement between the Company and
Nationwide Computer Corporation dated March
26, 1996
10.25(3) Settlement Agreement between the Company and
Teletrend Communications dated March 27,
1996
10.26(3) Settlement Agreement between the Company and
Mortgage Quality Management, Inc. dated
March 27, 1996
10.27(3) Settlement Agreement between the Company and
Hakman & Company dated March 27, 1996
10.28(3) Settlement Agreement between the Company and
Republic Indemnity dated February, 1996
10.29(3) Settlement Agreement between the Company and
Jackson, Tufts, Cole & Black dated February
22, 1196
10.30(3) Settlement Agreement between the Company and
Cassidy & Associates
10.31(3) Settlement Agreement between the Company and
Howard Rice dated March 26, 1996
10.32(3) Settlement Agreement between the Company and
M.S. Farrell & Company, Inc. dated May 29,
1996
10.33(3) Settlement Agreement between the Company and
Ahmad F. Moradi
10.34(3) Settlement Agreement between the Company and
Grubb & Ellis
10.35(3) Settlement Agreement between the Company and
Ousley, Inc.
10.36(3) Settlement Agreement between the Company and
Curci-England
10.37(3) Agreement between the Company and GTB
Company
10.38(3) Agreement between the Company and PBF Land
Company
10.39(3) Settlement Agreement between the Company and
Medical Industries of America, Inc., and
Amendment thereto.
10.40(3) Drew Hollenbeck Conversion Notification
28
<PAGE>
11.1(3) Statement Re: Computation of Per Share
Earnings
21.1(3) List of Subsidiaries
---------------------
(1) The information required by this exhibit is incorporated by reference
to the exhibits filed in connection with the Company's prior
Registration Statement on Form S-18 (Commission File No. 33-16715-D)
(2) The Articles of Amendment to the Articles of Incorporation dated July
11, 1994, were attached to the December 31, 1994 Form 10-KSB.
(3) The information required by this exhibit is incorporated by reference
to the exhibits filed in connection with the Company's prior
Registration Statement on Form SB-2 (Commission File No. 333-05569).
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Westmark Group Holdings, Inc.
By /s/ MARK SCHAFTLEIN
Mark Schaftlein, President, Chief Executive
Officer and Director
----------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Form 10-KSB has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ MARK SCHAFTLEIN President, Chief Executive August 13, 1997
- -------------------------- Officer and Director
Mark Schaftlein
/s/ NORMAN J. BIRMINGHAM Director, Chief Financial August 13, 1997
- -------------------------- Officer, Chief Accounting
Norman J. Birmingham Officer
/s/ TODD WALKER Director August 13, 1997
- --------------------------
Todd Walker
/s/ LOUIS RESWEBER Director August 13, 1997
- --------------------------
Louis Resweber
/s/ PAYTON STORY Director August 13, 1997
- --------------------------
Payton Story
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Westmark Group Holdings, Inc.
By
---------------------------------------
Mark Schaftlein, President, Chief Executive
Officer and Director
----------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Form 10-KSB has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
President, Chief Executive August 13, 1997
- -------------------------- Officer and Director
Mark Schaftlein
Director, Chief Financial
- -------------------------- Officer, Chief Accounting
Norman J. Birmingham Officer August 13, 1997
Director August 13, 1997
- --------------------------
Todd Walker
- -------------------------- Director August 13, 1997
Louis Resweber
- -------------------------- Director August 13, 1997
Payton Story
31
