As filed with the Securities and Exchange Commission on January 28, 1997
Registration No. 333-05599
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
Registration Statement
Under the Securities Act of 1933
------------------------------------
WESTMARK GROUP HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 6531 84-1055077
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
355 N.E. FIFTH AVENUE MARK SCHAFTLEIN
DELRAY BEACH, FLORIDA 33483 WESTMARK GROUP HOLDINGS, INC.
(561) 243-8010 355 N.E. FIFTH AVENUE
(Address and telephone DELRAY BEACH, FLORIDA 33483
number of principal (561) 243-8010
executive offices) (Name, address and
telephone number of
agent for service)
COPIES TO:
THOMAS C. PRITCHARD
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 659-1744
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities To Be Being Offering Price Aggregate Registration
Registered Registered Per Share(1) Offering Price(1) Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resale of Shares Underlying
Preferred Stock (2).......... 2,464,994 $ .69 (3) $1,700,846 $ 567
Resale of Shares Underlying
Warrants (2)................. 1,671,993 $ 1.02 (3) 1,705,433 $ 517
Resale of Shares Underlying
Convertible Debt............. 639,937 $ .56 (3) 358,365 $ 109
- --------------------------------------------------------------------------------------------
Outstanding Shares of Common
Stock to be Resold........... 2,107,008 $ .81 (4) 1,706,676 $ 569
- --------------------------------------------------------------------------------------------
TOTAL 6,883,932 -- -- $1,762(5)
============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) This registration statement also covers any additional securities which
may become issuable pursuant to anti-dilution and adjustment provisions.
(3) Based upon the average conversion price for the preferred stock and
convertible debt and the average exercise price for the warrants.
(4) Based on the closing bid price of Common Stock as reported by Nasdaq on
January 10, 1997.
(5) This fee was paid in original filing.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
WESTMARK GROUP HOLDINGS, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- --------------------------------- ----------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus.......... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus........................ Inside Front Cover Page;
Outside Back
Cover Page
3. Summary Information and Risk Factors....... Prospectus Summary; Risk
Factors; The
Company
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page;
Risk Factors;
Plan of Distribution and
Selling
Stockholders
6. Dilution................................... *
7. Selling Security-Holders................... Plan of Distribution and
Selling
Stockholders
8. Plan of Distribution....................... Outside Front Cover Page;
Risk Factors;
Plan of Distribution and
Selling
Stockholders
9. Legal Proceedings.......................... Business
10. Directors, Executive Officers, Promoters
and Control Persons........................ The Company; Management--
Executive Officers and
Directors
11. Security Ownership of Certain Beneficial
Owners and Management...................... Principal Stockholders
12. Description of Securities.................. Description of Capital Stock
13. Interest of Named Experts and Counsel...... Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
15. Organization Within Last Five Years........ The Company
16. Description of Business.................... Business
17. Management's Discussion and Analysis
or Plan of Operation....................... Management's Discussion and
Analysis of
Financial Condition and
Results of
Operations
18. Description of Property.................... Business
19. Certain Relationships and Related
Transactions............................... Management -- Certain
Transactions
20. Market for Common Equity and Related
Stockholder Matters........................ Risk Factors; Description of
Capital Stock;
Shares Eligible for Future
Sale; Price
Range of Common Stock and
Dividend
Policy
21. Executive Compensation..................... Management -- Executive
Compensation
22. Financial Statements....................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. Experts
- -----------------------------
(*) None or Not Applicable
ii
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
WESTMARK GROUP HOLDINGS, INC.
RESALE OF 6,883,932 SHARES OF COMMON STOCK
This Prospectus relates to the resale of 6,883,932 shares of Common Stock
which may be sold by the holders thereof ("Selling Stockholders") from time to
time as market conditions permit in the market, or otherwise, at prices and
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The shares of Common Stock to be resold include
2,107,008 shares currently issued and outstanding and up to 4,776,924 shares to
be issued upon (i) exercise of warrants outstanding to purchase an aggregate of
1,671,993 shares ("Warrants"), (ii) conversion of outstanding shares of the
Company's Series A, Series B and Series D Preferred Stock (collectively,
"Preferred Stock") presently convertible to purchase an aggregate of 2,464,994
shares, subject to adjustment, and (iii) conversion of $378,915 of debt for
639,937 shares ("Convertible Debt"). Shares offered by the Selling Stockholders
may be sold by one or more of the following methods without limitation: (i)
ordinary brokerage transactions in which a broker solicits purchases; and (ii)
face to face transactions between the Selling Stockholders and purchasers
without a broker-dealer. A current prospectus must be in effect at the time of
the sale of the shares of Common Stock to which this Prospectus relates. Each
Selling Stockholder or dealer effecting a transaction in the registered
securities, whether or not participating in a distribution, is required to
deliver a current prospectus upon such sale. See "Management--Stock Options,"
"--Certain Transactions," "Description of Capital Stock--Preferred Stock" and
"Plan of Distribution and Selling Stockholders." The Company will retain all
proceeds from the exercise of the Warrants, regardless of the number exercised.
Such proceeds (a maximum amount of approximately $1,929,569) will be used for
working capital and general corporate purposes. The Company will not receive any
proceeds from the resale of Common Stock by the Selling Stockholders or upon
conversion of the Preferred Stock or upon conversion of the Convertible Debt.
The Company's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "WGHI." On January 9, 1997, the last sales price of the Common Stock as
reported by Nasdaq was $.81.
--------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE
INVESTMENT. THE MARKET FOR THE COMMON STOCK
IS LIMITED, SPORADIC AND HIGHLY VOLATILE.
SEE "RISK FACTORS" ON PAGE 6.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus is January 28, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information...................................................... 2
Prospectus Summary......................................................... 3
The Company................................................................ 5
Risk Factors............................................................... 6
Use of Proceeds........................................................... 11
Price Range of Common Stock and Dividend Policy........................... 12
Capitalization............................................................ 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 13
Business................................................................... 19
Management................................................................. 24
Principal Stockholders..................................................... 31
Description of Capital Stock............................................... 32
Plan of Distribution and Selling Stockholders.............................. 34
Legal Matters.............................................................. 43
Experts.................................................................... 44
Index to Financial Statements............................................ F-1
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS
FURNISHED.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files periodic reports, proxy materials and other information with
the Securities and Exchange Commission ("Commission"). Such reports, proxy
materials and other information are available for inspection at, and copies of
such materials may be obtained upon payment of the fees prescribed therefor by
the Commission from, the Commission at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the following regional offices: 7 World Trade Center, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Company has filed a registration statement on Form SB-2
("Registration Statement") under the Act with respect to the securities being
registered. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Copies of the Registration Statement and its exhibits
are on file at the offices of the Commission and may be obtained upon payment of
the fees prescribed by the Commission or may be examined, without charge, at the
public reference facilities of the Commission. The Company will provide without
charge to each person who receives a copy of this Prospectus, upon written or
oral request of such person, a copy of any of the information that is
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such request should be directed to the
Company, attention Mr. Schaftlein, at 355 N.E. Fifth Avenue, Delray Beach,
Florida 33483.
The Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of the site is
http://www.sec.gov. Visitors to the site may access such information by
searching the EDGAR data base on the site.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA (INCLUDING FINANCIAL STATEMENTS AND NOTES
THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO (I) A
1-FOR-30 REVERSE STOCK SPLIT EFFECTED IN JULY 1995, (II) THE REINCORPORATION OF
THE COMPANY IN DELAWARE IN JUNE 1996, WHICH RESULTED IN THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK INCREASING TO 50,000,000, $.001 PAR VALUE, AND THE NUMBER
OF AUTHORIZED SHARES OF PREFERRED STOCK INCREASING TO 10,000,000, $.001 PAR
VALUE, AND (III) THE CLOSING OF THE WESTMARK-MEDICAL INDUSTRIES AGREEMENT (SEE
"COMPANY -- RECENT DEVELOPMENTS").
THE COMPANY
The Company is a diversified financial services company that, through its
wholly-owned subsidiary Westmark Mortgage Corporation ("Westmark Mortgage"), is
engaged in the business of originating, purchasing and selling mortgage loans
secured primarily by single family, multi-family and condominium residences.
Westmark Mortgage is registered and/or licensed to originate, purchase closed
loans, underwrite, fund or sell residential mortgage loans in the states of
Alabama, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho,
Indiana, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, Montana, Ohio,
Oklahoma, Oregon, South Carolina, Tennessee, Utah, Washington, and Wyoming. The
Company pools and sells loans to third-party institutional investors including
the Federal National Mortgage Association ("FNMA" or "Fannie Mae"), the Federal
Home Loan Mortgage Corporation ("Freddie Mac"), the Department of Housing and
Urban Development ("HUD"), its lending agency the Government National Mortgage
Association ("Ginnie Mae"), and various non-conforming mortgage conduits. The
primary non-conforming investors include Household Financial Services and The
Money Store. The primary conforming investor is Fleet Mortgage Corporation.
THE OFFERING
Common Stock Outstanding
Prior to Offering............. 4,838,917(1)
Common Stock to be Resold....... 6,883,932(2)
Use of Proceeds................. Working capital. See "Use of Proceeds."
Risk Factors.................... Prospective purchasers are urged to carefully
review the factors set forth in
"Risk Factors."
Nasdaq Symbol................... WGHI
- ---------------------
(1) Does not include (i) shares underlying the Warrants, (ii) 2,464,994 shares
underlying outstanding shares of Preferred Stock, (iii) shares of Common
Stock underlying currently exercisable options ("Options"), and (iv) shares
issuable upon conversion of Convertible Debt. See "Management -- Certain
Transactions," "Description of Capital Stock -Warrants," and "-- Preferred
Stock."
(2) Includes (i) 1,671,993 shares underlying the Warrants, (ii) 2,464,994 shares
underlying outstanding shares of Preferred Stock, and (iii) 639,937 shares
underlying Convertible Debt.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31
STATEMENTS OF INCOME DATA: 1996 1995 1995 1994
Total Revenues .................... $ 2,893 $ 2,533 $ 3,082 $ 2,938
Total Expense ..................... 3,773 5,086 10,570 6,994
Loss from Continuing Operations ... (882) (2,553) (7,488) (4,056)
Provisions for income tax benefit . 2 0 180 376
Gain on extinguishment of debt(1) . 270 561
Net loss .......................... (784) (2,553) (7,038) (3,119)
Net loss per share ................ (0.22) (2.71) (6.50) (6.28)
Weighted average
shares outstanding ................ 3,260 942 1,082 497
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEET DATA: 1996 1995
Working capital deficit .................... (2,449) (2,044)
Total assets(2) ............................ 14,506 25,510
Long-term obligations(3) ................... 122 1,698
Stockholders' equity ....................... 3,817 1,591
- ------------
(1) Net of tax of $180,000 at December 31, 1995 and $376,000 at December 31,
1994.
(2) Includes investment in loans in process of $19,480,029 at December 31, 1995
and $7,787,287 at September 30, 1996.
(3) Includes short-term debt expected to be refinanced on a long-term basis of
$698,323 and $121,984 at December 31, 1995 and September 30, 1996,
respectively.
4
<PAGE>
THE COMPANY
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.
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.
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 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 Common Stock at the option of the holder at any time prior to
July 21, 1997, at a conversion price of $.45 per share of 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, 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 the following
consideration: (i) it discharged a note executed by MIOA payable to GTB Company
in the amount of $700,000, (ii) executed a no-interest bearing promissory note
in the amount of $380,000, and (iii) agreed to a royalty payment of 7% of the
gross sales of Green World until July 1988, and 5% until July 1999. Within one
5
<PAGE>
month of acquiring Green World, GTB Company sold it to the Company for the
above-captioned terms and conditions.
Green World is a nationwide marketer of the Talon Refrigerant Management
System ("Talon"), an energysaving add-on to air-cooled condensers found in air
conditioners, heat pumps and refrigeration systems. Green World has been
establishing a dealer network and currently has commitments from nine dealers
and negotiations with many more located on the West Coast, plus Hawaii and the
Pacific Basin, from the Marshall to the Fiji Islands. 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.
WESTMARK-MEDICAL INDUSTRIES AGREEMENT
The Company and MIOA entered into a settlement agreement dated January
23, 1997. The Company has entered into negotiations for a financing of a minimum
of $3,000,000 and a maximum of $6,000,000, and the performance of the terms and
conditions of the settlement agreement are conditioned upon the Company
receiving at least $3,000,000 in the financing by February 15, 1997. MIOA
presently owns 1,667,284 shares of Company Common Stock, and 200,000 shares of
the Company's Series C Preferred Stock. 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. MIOA has agreed to return
all of its shares of capital stock in the Company, and forego the 49%
anti-dilution protection in exchange for the following:
The Company must make a cash payment to MIOA from the proceeds of the
financing. In the event the Company receives only $3,000,000, the cash payment
shall be $300,000. If the Company receives more than $3,000,000 but no more than
$5,000,000, the cash payment shall be 10% of the financing. If the Company
receives $5,000,000 but less than $6,000,000, the payment shall be 10% of the
financing plus the amount of the funds exceeding $5,000,000. If the Company
receives $6,000,000, the cash payment shall be $1,500,000. In addition to the
cash payment, the Company has agreed to execute a promissory note amortized over
a period of ten years, the principal balance of which shall be $3,953,000 less
the cash payment made by the Company of up to $1,000,000. In the event the cash
payment exceeds $1,000,000, the principal balance of the promissory note is
reduced by $230,000 for every $100,000 in excess of $1,000,000. Interest on the
promissory note accrues at 10% per annum. The principal balance of the
promissory note and all accrued interest is due and payable three years from the
date of the execution of the settlement agreement.
The promissory note is secured by property, consisting of various strips
of 25-30 foot and 50 foot (perimeter) platted road rights of way located in Palm
Beach County, totaling approximately 1,366,450 square feet with an approximate
value of $1.3 million.
Upon receipt of the Company's shares of capital stock from MIOA, the
Company has agreed to issue MIOA a certificate for 70,000 shares of Company
Common Stock. In addition, the Company is obligated to issue 40,000 shares of
Company Common Stock concurrent with each $100,000 payment on the promissory
note in excess of $1,000,000 until MIOA is in receipt of 400,000 shares of
Company Common Stock.
In the event the Company sells any assets or capital stock of Green
World, the principal balance of the promissory note shall be reduced by
$500,000, and any notes receivable received by the Company as part of the sale
shall be pledged to MIOA as additional security in an amount up to the
outstanding principal balance of the promissory note. The Company has entered
into general negotiations with respect to a potential sale of Green World;
however, there can be no assurance that such sale will occur in the future.
The Company will not request acceleration of the effectiveness of this
registration statement until the Westmark-Medical Industries Agreement is
closed.
RISK FACTORS
AN INVESTMENT IN THE COMPANY COMMON STOCK INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING FACTORS TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO MAKING AN
INVESTMENT DECISION.
CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT
The Company had losses from continuing operations before provision for
income tax and other extraordinary items of $7,488,060 and $4,056,366 for the
years ended December 31, 1995 and 1994, respectively, and $879,999 for the nine
months ended September 30, 1996. At September 30, 1996, the Company had an
accumulated deficit of ($23,742,723). The Company's prospects, therefore, must
be considered in light of the risks, expenses and difficulties frequently
encountered in operating a business in a highly competitive industry. There can
be no assurance that the Company will experience profitability in the future, if
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CAPITAL REQUIREMENT; LIMITED SOURCES OF LIQUIDITY; NEED FOR ADDITIONAL CAPITAL
The Company requires substantial capital to pursue its operating
strategy. To date, the Company has relied primarily upon net cash provided by
financing activities to fund its capital requirements. Net cash provided by
financing activities, exclusive of transactions on its line of credit, was
$3,431,298 and $1,046,124 for the years ended December 31, 1995 and 1994,
respectively. Net cash used by operating activities before working capital
changes was $5,198,712 and $3,068,184 for the years ended December 31, 1995 and
1994, respectively. Net cash provided by financing activities, exclusive of
transactions on its line of credit, was $2,796,000 and $1,987,000 for the nine
months ended September 30, 1996 and 1995, respectively. Net cash (used)/provided
by operating activities before working capital changes was $20,701 and
($1,820,370) for nine months ended September 30, 1996 and 1995, respectively.
6
<PAGE>
The Company expects that operations before working capital changes will not
generate significant cash flow until the Company has net income. These results
will continue to impact the Company's capital position and cause continued
reliance upon external sources of liquidity for at least the near future. There
can be no assurance the Company will generate sufficient cash in future periods
to satisfy the Company's capital requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
At September 30, 1996, the Company had a working capital deficit of
$2,448,582. The Company maintains a $15 million warehouse line of credit with
Princap Mortgage, Inc., secured by the mortgages purchased by the Company from
this warehouse line of credit ("Warehouse Facility"). At September 30, 1996, the
Company had $7,628,734 outstanding under the Warehouse Facility. At September
30, 1996, the Company had short-term indebtedness of $1,652,549 in the form of
convertible debentures and other notes payable, and $121,984 of long-term
liabilities comprised of $121,984 of indebtedness that the Company has reached
settlements to be funded through cash payments and Common Stock issuance. The
Company funds substantially all of the loans which it originates and purchases
through borrowings under its Warehouse Facility. These borrowings are in turn
repaid with the proceeds received by the Company from selling such loans either
through whole loan sales or bulk sales. Any failure to renew or obtain adequate
funding under this Warehouse Facility, or other borrowings, or any substantial
reduction in the size of or pricing in the markets for the Company's loans,
could have a material adverse effect on the Company's operations. To the extent
that the Company is not successful in maintaining or replacing its Warehouse
Facility, it would have to curtail its loan production activities or sell loans
earlier than is optimal, thereby having a material adverse effect on the
Company's results of operations and financial conditions. The Company will need
additional capital to satisfy future capital requirements. To date management
has been involved in discussions with investment bankers with respect to
additional equity financing. There can be no assurance that these discussions
will result in the Company obtaining any such financing or that the Company will
be able to raise needed capital from other sources on terms favorable to the
Company, if at all. If the Company is unable to secure sufficient capital in the
future, its ability to pursue its business strategy and result of operations for
future periods may be impaired. During fiscal 1996, the Company obtained funding
in the form of short-term debt financing. However, no assurance can be made that
any additional financing will be secured and future period results may be
impaired. 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. The Company has not established any other lines of credit or
other similar financial arrangements with any lenders. 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. There can be no
assurance that the Company will be able to obtain external sources for liquidity
on acceptable terms, if at all. Management does not have any firm plans for
additional financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
ECONOMIC CONDITIONS
GENERAL
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support borrowings
and increases the loan-to-value ratios of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on borrowers who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources, the actual rates of delinquencies,
foreclosures and losses on such loans could be higher under adverse economic
conditions than those currently experienced in the mortgage lending industry in
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general. Any sustained period of such increased delinquencies, foreclosures or
losses could adversely affect the pricing of the Company's loan sales. While the
Company believes the underwriting criteria and collection methods it employs
enable it to mitigate the higher risks inherent in loans made to these
borrowers, no assurance can be given that such criteria or methods will afford
adequate protection against such risks.
The success of Company's business is predicated upon the use of its
services in connection with the purchase or refinancing of residential real
estate. In 1994, the mortgage industry experienced a sluggish market. In
addition, the mortgage origination market and real estate market are often
adversely effected, usually on a short-term basis, by unusual climatic events in
any single geographic area such as hurricanes, earthquakes and tornadoes. The
happening of such events or recurrence of such events in a particular area may
increase the rates for mortgage and homeowners insurance causing a decline in
the number of home purchasers and mortgage borrowers. Since 1994, the Company
has undertaken a geographic expansion to avoid concentration in any single
geographic location.
EFFECT OF FLUCTUATING INTEREST RATES
Fluctuations in interest rates and increases and decreases of the prime
rate may directly impact the mortgage market and the ability of the Company to
attract "A" or "B/C" or other classes of mortgage loans. If interest rates
should rise, the number of applications for new mortgages may fall. Management
believes that the "B/C" mortgage market is not as particularly interest-rate
sensitive as is the "A" mortgage market. The "A" mortgage market is primarily
composed of borrowers who are interest-rate-driven or for purchasing homes; that
is, "A" mortgage borrowers refinance current mortgages for ones with lower
interest rates and terms. As interest rates increase, such refinancing
diminishes purchase activities and the number of loan applications in that "A"
market decreases. The "B/C" market is primarily composed of borrowers who are
payment-driven with a use of the mortgage loan as a source of equity. Often a
common goal of the "B/C" borrower is to leverage available equity for immediate
use, and despite increases in interest rates, the "B/C" borrower focuses
primarily on the monthly payment. Thus, the decrease in loan applications in the
"B/C" market which may occur when interest rates increase, is typically not as
significant as in the "A" mortgage market. However, there can be no assurances
that interest rates will not rise and negatively impact the Company's financial
position.
B/C MORTGAGE MARKET
The Company has diversified its mortgage banking strategy to include
lending to additional categories of borrowers, such as the "B/C" mortgage
market, a nationally growing segment of the mortgage industry. The "B/C"
mortgage market serves borrowers whose credit history or amount of debt
increases the risk associated with mortgage loans and puts such loans outside
the guidelines established by Fannie Mae and Freddie Mac. Thus, the "B/C"
mortgage loans cannot be resold to those institutions and the Company must
locate buyers outside that established market. The Company's strategy in
reducing its risk associated with funding "B/C" loans is to obtain commitments
from outside investors for the resale to them of such "B/C" loan mortgages
before the Company funds such mortgages. The "B/C" mortgage loan is particularly
dependent on the accuracy of the appraisal of the underlying property because of
the higher risk of lack of repayment and the consequent mortgage originator's
increased reliance on such underlying mortgage assets. Because of such risk in
funding, "B/C" mortgages require the borrower to place a larger down payment on
the purchased property which permits a higher-debt-to-income ratio. In addition,
because of the inherent risks, the "B/C" loan originator charges greater loan
origination fees and mortgage rates generating a higher yield than those of the
"A" mortgage market. Consequently, the profit margins that can be realized by
the Company on the resale of such "B/C" loans is greater than those realizable
from the "A" loan mortgage market. There is no assurance that the Company will
be able to continue to achieve a higher profit margin from the resale of its
loans or will be able to continue to locate buyers from such "B/C" loan
packages. Occasionally, as part of such resale of the mortgages, the Company
issues certain representations to repurchase defective loans, but only as to
defective loans arising from an incidence of fraud. While there can be no
assurance that the Company will not be required to repurchase a significant
amount of such loans, this has not traditionally been a serious consideration
for the Company. In fiscal 1994, the Company paid a total of $103,000 for
repurchased defective loans or .0664% of its total loan originations. In fiscal
1995, the Company paid a total of $480,000 for repurchased defective loans, or
.3038% of its total loan originations, which amount related to loans originated
prior to the purchase of Westmark Mortgage by the Company. In fiscal 1996, the
Company repurchased one (1) loan for $51,000 (.007% of loan originations) due to
a defect which was subsequently cured.
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CONTINGENT RISKS
Although the Company sells substantially all loans which it originates
and purchases on a nonrecourse basis, the Company retains some degree of risk on
substantially all loans sold.
During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers.
In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. The Company believes that liability
with respect to any currently asserted claims or legal actions is not likely to
be material to the Company's consolidated results of operation or financial
condition; however, any claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
Likewise with the repurchase scenario discussed above, the Company at any
one time is potentially subject to past portfolio liabilities, particularly from
the conforming business. Periodically, the Company will receive demands for
repurchase from various investors. Though the Company has been successful in
having individual requests rescinded or cured, there can be no assurance that
individual defects will be cured.
Management does not feel that this risk could seriously impair the Company's
ability to operate.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends, in part, upon a number of key managerial
personnel and employees, including Norman Birmingham, Mark Schaftlein and Payton
Story, the loss of whom could adversely affect the Company. The Company believes
that its future success depends in part on its ability to continue to attract
and retain highly skilled employees. The Company has entered into employment
agreements with Messrs. Birmingham and Schaftlein, but does not maintain life
insurance policies on these officers. See "Management--Executive Officers and
Directors."
REGULATORY COMPLIANCE
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
The Company's domestic 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, investment 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
9
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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.
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive.
COMPETITION
As a marketer of mortgage loans, the Company faces intense competition,
primarily from mortgage banking companies, commercial banks, credit unions,
thrift institutions, and finance companies. Many of these competitors are
substantially larger and have more capital and other resources than the Company.
Competition can take many forms, including convenience in obtaining a loan,
customer service, marketing and distribution channels and interest rates.
Furthermore, the current level of gains realized by the Company and its
competitors on the sale of the type of loans they originate and purchase is
attracting additional competitors into this market with the possible effect of
lowering gains that may be realized on the Company's future loan sales.
Competition may be affected by fluctuations in interest rates and general
economic conditions. During periods of rising rates, competitors which have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit the Company's customers to refinance
their loans. During economic slowdowns or recessions, the Company's borrowers
may have new financial difficulties and may be receptive to offers by the
Company's competitors.
The Company depends largely on independent mortgage brokers, financial
institutions and other mortgage bankers for its originations and purchases of
new loans. The Company's competitors also seek to establish relationships with
the Company's independent mortgage brokers, financial institutions and other
mortgage bankers, none of whom is obligated by contract or otherwise to continue
to do business with the Company. In addition, the Company expects the volume of
wholesale loans purchased by the Company to increase and the relative proportion
of wholesale loans to total loans originated and purchased by the Company to
expand. The Company's future results may become more exposed to fluctuations in
the volume and cost of its wholesale loans resulting from competition from other
purchasers of such loans, market conditions and other factors.
NASDAQ LISTING AND PUBLIC MARKET
The Company Common Stock is currently listed for quotation on the Nasdaq
SmallCap Market. The trading market for the Common Stock is sporadic, limited
and highly volatile. In order for the Common Stock to be eligible for continued
listing on the Nasdaq SmallCap Market, the Company must (i) have total assets of
at least $2 million, (ii) total capital and surplus of at least $1 million, and
(iii) maintain a minimum bid price of $1.00 or, if the minimum bid price is less
than $1.00, the Company must maintain capital and surplus of $2 million and a
market value of the public float of its securities of not less than $1 million.
Nasdaq recently proposed new criteria for listing on the Nasdaq SmallCap Market.
The requirements for continued inclusion under the proposed standards include:
(i) net tangible assets of at least $2 million, or net income of $500,000 in two
of the last three years, or a market capitalization of at least $35 million and
(ii) maintain a minimum bid price of $1.00. The Company believes it meets both
of these requirements. If the Company becomes unable to satisfy the requirements
for continued quotation on the Nasdaq SmallCap Market, trading, if any, in the
securities listed thereon would be conducted in the over-the-counter market of
the National Quotation Bureau, Inc., or on the OTC Electronic Bulletin Board.
There can be no assurance that any trading market will continue to exist for the
Common Stock. See "Price Range of Common Stock and Dividend Policy."
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SHARES ELIGIBLE FOR FUTURE SALE
Of the 4,838,917 shares of Common Stock issued and outstanding, the
Company is registering the resale of the 2,107,008 issued and outstanding shares
of Common Stock. Substantially all of the balance of the shares of Common Stock
outstanding are freely tradeable as such shares were issued pursuant to
registration statements registering the issuance of such shares under the Act or
such shares have been outstanding for over two years and can be sold pursuant to
Rule 144 promulgated under the Act. Generally, under Rule 144, each person
holding restricted securities for a period of two years may, every three months,
sell through ordinary brokerage transactions or to market makers an amount of
shares up to the greater of 1% of the Company's then outstanding stock or the
average weekly trading volume for the four weeks prior to the proposed sale. The
sale of a substantial amount of restricted and unrestricted Common Stock by
shareholders of the Company under Rule 144, or even the potential for such
sales, could have an depressive effect on the market price of the shares of
Common Stock and could impede the Company's ability to raise additional capital
through the sale of its equity securities . A depressive effect on the market
price of the Common Stock could require the Company to issue additional shares
of Common Stock to its creditors or make additional cash payments to creditors
pursuant to settlement agreements for which the resale of 1,019,019 shares of
Common Stock under this Prospectus is being provided for. See "Plan of
Distribution and Selling Stockholders."
SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED PREFERRED STOCK; POSSIBLE
ANTI-TAKEOVER EFFECT
The Board of Directors has total discretion in the issuance and the
determination of the rights and privileges of any shares of preferred stock
which may be issued in the future, which rights and privileges may be
detrimental to the holders of the Common Stock of the Company. The Board of
Directors could issue shares of preferred stock with such rights and preferences
that could discourage attempts by others to obtain control of the Company
through merger, tender offer, proxy contest or otherwise by making such attempts
more difficult to achieve or more costly. The Company is authorized to issue 10
million shares of its preferred stock, and only 798,750 shares of which are
presently issued and outstanding. Additionally, the Board of Directors has been
authorized to issue up to 50 million shares of Common Stock, of which only
4,838,917 shares are issued and outstanding as of the date of this Prospectus.
See "Description of Capital Stock."
NECESSITY FOR CONTINUING REGISTRATION
The resale of the registered shares hereby, as well as the resale of the
shares issuable upon exercise of the Warrants, Options and Preferred Stock
registered hereby, can be publicly sold only pursuant to an effective
registration statement and a current Prospectus under the Act. There is no
assurance that the Company will be able to keep the registration statement of
which this Prospectus is a part current or pay the legal and related costs of
doing so. In addition, it is a condition to the Company's ability to issue
free-trading shares of Common Stock upon such resale that such securities remain
qualified for resale under the securities laws of the states in which holders of
such securities reside, and there is no assurance that such securities will
remain so qualified. If a holder moves, or subsequent purchaser resides, in a
jurisdiction in which the Company has not registered the transactions set forth
in this Prospectus, the benefits of this Prospectus may not be available. If the
Prospectus ceases to be current with respect to such securities, the Company may
be precluded from issuing free-trading shares of Common Stock upon resale.
USE OF PROCEEDS
Assuming exercise of all the Warrants, the Company will receive aggregate
proceeds of approximately $1,929,569, prior to deducting estimated offering
expenses of approximately $200,000. The Company will use these proceeds for
working capital and will have broad discretion in the application of such
proceeds. As there are no commitments from the holders of the Warrants to
exercise such securities, there can be no assurance that the Warrants will be
exercised. The Company will receive no proceeds from the resale of shares by the
Selling Stockholders upon conversion of the Preferred Stock or upon conversion
of the Convertible Debt. See "Plan of Distribution and Selling Stockholders."
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
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:
PRICE RANGE
------------------
FISCAL YEAR HIGH LOW
------ ------
1994
----
First Quarter................................. $36.60 $26.40
Second Quarter ................................ 30.00 12.30
Third Quarter.................................. 18.90 12.30
Fourth Quarter................................. 18.90 11.40
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 .75
On January 10, 1997, the last sales price for the Common Stock was $.8125,
and the Company believes there were approximately 674 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.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and on a pro-forma basis to reflect the closing of the
Westmark-Medical Industries Agreement. This table should be read in conjunction
with the Company's financial statements and notes thereto that are included
elsewhere in this Prospectus.
SEPTEMBER 30, 1996
------------------
ACTUAL PROFORMA, MIN. PROFORMA, MAX
------------ -------------- -------------
Liabilities
Current Liabilities .......... $ 10,566,432 $ 8,618,416 $ 8,518,416
Long-Term Debt, Less
Current Portions ........... 121,984 3,653,000 2,453,000
Stockholders' equity:
Preferred stock .............. 2,675,000 (1) 0 0
Common stock (2)(3) .......... 23,488,911 24,480,911 27,080,911
Additional Paid-In Capital ... 1,396,448 796,448 796,448
Accumulated deficit .......... (23,742,723) (24,042,723) (24,042,723)
Total stockholders' equity ... 3,817,636 1,234,636 3,834,636
Total capitalization ......... $ 14,506,052 $ 13,506,052 $ 14,806,052
============ ============ ============
(1) Consists of (i) 118,750 shares of Series A Preferred Stock issued May 1,
1996 for the Convertible Debt, 300,000 shares of Series B Preferred Stock
in April 1, 1996 for the Convertible Debt, 200,000 shares of Series C
Preferred Stock issued to MIOA effective March 29, 1996, and (ii) 130,000
shares of Series E Preferred Stock issued in connection with the purchase
of Green World.
(2) Does not include 11,000 shares of Common Stock issued subsequent to
September 30, 1996.
(3) Does not include (i) 1,671,993 shares issuable upon exercise of the
Warrants, and (ii) 2,464,994 shares issuable upon conversion of
outstanding shares of Preferred Stock. See "Description of Capital
Stock--Warrants," and "--Preferred Stock."
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 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 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 50% and
19% of total revenues in 1995 and 1994, respectively, and 68% of the total
revenues for the nine months ended September 30, 1996. Investment income earned
on loans held for sale constituted 30% and 19% of total revenues in 1995 and
1994, respectively, and 22% of the total revenues for the nine months ended
September 30, 1996. Loan origination fees and related revenue represented 18%
and 30% of total revenues in 1995 and 1994, respectively, and 18% of the total
revenues for the nine months ended September 30, 1996. In 1994, loan service
fees accounted for 28% of total revenues.
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The Company currently has purchase agreements with Fleet Mortgage
Corporation, Household Financial Services, Industry Mortgage Company, The Money
Store, Fannie Mae, Freddie Mac, HUD, Ginnie Mae 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 1995 and 1994, the Company sold
loans totaling $158 million and $155 million, respectively. During the nine
months ended September 30, 1996, the Company sold loans totaling approximately
$67 million. 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
$1,544,559 and $556,436 in 1995 and 1994, respectively, and $2,492,479 during
the nine months ended September 30, 1996.
Loans held for sale were comprised of 78% "A" (conforming) loans and 22%
"B/C" (non-conforming) loans at December 31, 1995 and 21% "A" loans and 79%
"B/C" loans at September 30, 1996. At December 31, 1994, loans held for sale
consisted entirely of "A" loans. 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. 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.
In September of 1994, the Company sold its loan servicing portfolio to
Crown Bank. Subsequent to the sale, the Company has not serviced any mortgages
except those held in inventory for sale. In connection with the 1994 sale to
Crown Bank, the Company recognized a $14,781 loss on the sale of such servicing
rights and recognized additional performance losses of $659,000 over two (2)
years. See "--Operations" for a discussion of certain expense items in
connection with the Crown Bank sale.
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.
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 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.
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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 165,00 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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS SEPTEMBER 30,
ENDED 1995
On a consolidated basis, total revenues increased to $2,737,880 in the
nine months ended September 30, 1996 from $2,492,479 in the nine months ended
September 30, 1995, an increase of 10%. The increase is a result of downsizing
the Conforming "A" Division ("A"), whose profit margins are approximately 1/5 of
the Non-Conforming B/C Division ("B/C"). Additionally, the frequency of B/C Bulk
Sales has reduced both the interest income and the interest expense as the loans
have remained on the warehouse line for a reduced period.
Expenses for the nine months ended September 30, 1996 decreased 26% to
$3,773,000 from $5,086,000 for the nine months ended September 30, 1995. Loan
origination costs decreased 36% to $185,000 for the current quarter from
$290,000 in the comparable prior year to date ending September 30, 1995. General
and administrative expenses decreased 25% to $3,468,000 from $4,614,000 for the
nine months ended September 30, 1995. The decrease in these expenses is
primarily due to the Company's cost containment strategy.
A net loss resulted for the nine months ended September 30, 1996 was
$784,000, or $.22 per share as compared to a net loss of $2,553,000 or $2.71 per
share for the nine months ended September 30, 1995. This decreased loss is due
to continued cost cutting efforts by management in areas of general and
administrative through operational consolidations. These cost containment
strategies continued through fiscal 1996, mainly through reduction of employees
and general and administrative expenses. The loss breakdown is as follows:
Westmark Mortgage (.14), Green World (.02), other WGHI (.06).
During the third quarter of 1996, the Company continued increasing loan
volumes in B/C paper. B/C loan fundings increased from $8.26 million in the
three months ending September 30, 1995 to $11.90 million for the three months
ended September 30, 1996, an increase of 44%. For the nine months ending
September 30, 1996, total B/C production increased 44% to $25.3 million versus
$17.6 million in period ending September 30, 1995. Total production including
"A" paper was $57.3 million for the nine months ending September 30, 1996.
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FISCAL 1995 COMPARED TO FISCAL 1994
Total revenues increased 5% to $3,081,900 in 1995 from $2,937,646 in 1994.
This was primarily due to a combined increase in gain on sale of loans and
investment income, both of which offset the lack of loan servicing fees in 1995
due to management's decision to sell its servicing portfolio in 1994.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 277% to $1,544,559 from $556,439 in 1994. 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 1995 was approximately $25 million compared to
$0 in 1994. 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 39% to $544,386 in 1995 from $883,399 in
1994. 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, increased 62% to $938,657 in 1995 from $581,066 in 1994. This increase
is due primarily to a larger principal amount of mortgage loans held for sale in
1995 compared with 1994.
Total expenses increased 49% to $10,569,960 from $6,994,012 for the
periods ended December 31, 1995 and 1994, respectively. This increase is
primarily due to (i) an increase in interest expense, (ii) an increase in
general and administrative expense, (iii) a $225,000 loss in an investment
relating to the failed acquisition of Greentree, (iv) a $480,000 repurchase loss
and $179,663 write down with respect to the sale of the Company's servicing
portfolio to Crown Bank, and (v) a $1,099,000 non-cash, non-recurring expense
consisting of equity-related incentives ("cheap stock expense") incurred in 1995
financial transactions.
Direct loan fee expenses increased 48% to $187,309 in 1995 from $123,182
in 1994, due primarily to the Company's increased volume of whole loan sales in
1995.
Interest expense increased 86% to $1,223,875 in 1995 from $657,025 in
1994, 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 increased 27% to $6,775,395 in 1995
from $5,337,097 in 1994, due primarily to (i) the hiring of additional personnel
necessary in order to initiate the origination and sale of "B/C" loans, (ii)
cheap stock expenses associated with below market equity issuances to
consultants and employees, and (iii) other increased operating expenses,
including facilities and equipment. Management has adopted a cost containment
strategy to reduce salary and related expenses in 1996. 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. This reduction of space also resulted in the reduction of
employees.
The closing of the Hawaii office in March 1996 resulted in a 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
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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.
In connection with the Company's September 1994 sale of its entire
mortgage servicing portfolio to Crown Bank, the Company established two reserve
accounts, one with FHLMC in the amount of $480,000 as a repurchase reserve and
the other with Crown Bank in the amount of $360,000 as a performance reserve.
Due to delinquencies in the servicing portfolio sold to Crown Bank, the terms of
the $480,000 repurchase reserve provided that such funds were to be paid to
Freddie Mac in 1995, and that $179,663 of the performance reserve was paid to
Crown Bank in 1995 which amount was reserved in 1994. The balance of this
performance reserve was paid to Crown Bank in 1995.
Depreciation and amortization expenses decreased to $194,543 in 1995 from
$486,739 in 1994, primarily due to 1994 one-time charges to operations from (i)
expenses associated with purchased mortgage servicing rights of $186,000, and
(ii) Florida office start up expenses of $130,000.
Net loss increased to $7,038,060 in 1995 from $3,118,953 in 1994,
resulting in a net loss per share of $6.50 in 1995 compared with $6.28 in 1994.
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 the first quarter.
On December 31, 1995, the Company had a working capital deficit of
$2,044,258, total stockholders equity of $1,591,204. On September 30, 1996, the
Company had a working capital deficit of $2,570,566, total stockholders equity
of $3,817,636. Net cash used by operating activities was $16,665,858 for 1995
and net cash provided by operating activities was $17,346,602 in 1994. The
reason for the significant change is that the Company increased the amount of
mortgage loans held for sale by approximately $14 million in 1995, versus a
decrease in mortgage loans of approximately $20 million in 1994, which
substantially equates to the difference in the amount of cash used in 1995 and
provided in 1994 by operating activities. The use of operating cash is offset by
funds provided by the Warehouse Facility. Net cash provided by financing
activities was $16,971,281 in 1995 compared with net cash used in financing
activities of ($18,378,329) in 1994, which relates to the amount outstanding
pursuant to the Warehouse Facility at the respective year ends. Net cash used in
investing activities was ($101,080) in 1995 compared with $1,062,690 of net cash
provided by investing activities in 1994, primarily due to the proceeds received
in 1994 from the sale of the mortgage servicing portfolio to Crown Bank, and
liquidation of certain properties received in loan foreclosures. Net cash
provided by operating activities was $7,916,619 for the 1996 Nine Months and net
cash (used) by operating activities was ($14,695,775) for the 1995 Nine Months.
The reason for this significant change is volume on the line of credit. Net cash
provided (used) in operations before working capital changes in the 1996 Nine
Months and 1995 Nine Months was $20,701 and ($1,820,370), respectively, which
increase was primarily due to a decrease in losses from operations. Net cash
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provided by financing activities was $12,964,510 in the 1996 Nine Months
compared to net cash used by financing activities of ($8,200,656) in the 1995
Nine Months, which relates to the amount outstanding pursuant to the Warehouse
Facility at the respective period ends. Net cash (used) in investing activities
was ($1,832) in the 1996 Nine Months compared to ($144,141) of net cash (used)
by investing activities in the 1995 Nine Months.
Increase in other current assets of $107,546 is due to accrued interest
income. Increase in other assets is due to the acquisition of Green World stock
and prepaid expenses. Reduction of ($621,250) in accounts payable is due to the
payment of those accounts payable through monies received from stock purchases
and loans received.
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. Pursuant to the Warehouse Facility, the Company has available a
secured revolving credit line of $15 million to finance the Company's
origination or purchase of loans, pending sale to investors. The line of credit,
pursuant to the Warehouse Facility, has collateral of the assignment and pledge
of eligible mortgage loans, 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 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 September 30, 1996, the balance outstanding, pursuant to
this Warehouse Facility, totaled $7,787,287. 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 the 1996 Nine
Months, the Company issued a total of 853,000 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. See "The Company --
Recent Developments" and "Management -Certain Transactions." 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. See "Description of Capital
Stock--Preferred Stock" for a description of the series B preferred stock.
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 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 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
and third quarter of fiscal 1996, the Company borrowed an aggregate of $378,915
from various individuals for working capital purposes. See "Description of
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Capital Stock-Convertible Debt". 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. The Company has not established any other lines of credit
or other similar financial arrangements with any lenders. 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 Company has
had general discussions with respect to a potential sale of Green World. In the
event that such sale occurs, it could improve the cash flow of the Company,
however there can be no assurance that such sale will occur. 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.
BUSINESS
The Company is a diversified financial holdings 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. Westmark Mortgage is registered
and/or licensed to originate, purchase closed loans, underwrite, fund or sell
residential mortgage loans in the states of Alabama, Arizona, California,
Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky,
Michigan, Mississippi, Missouri, Montana, Ohio, Oklahoma, Oregon, South
Carolina, Tennessee, Utah, and Washington. The Company pools and sells loans to
third-party investors including Household Financial Services, the Money Store,
Fleet Mortgage Corporation and various non-conforming mortgage conduits.
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.
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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 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 amount for
non-conforming "B/C" production was $92,551. Westmark expects these average 1995
amounts to be similar in 1996. In 1996, B/C Production totaled approximately $40
million and total production was $79 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
California, Florida, Georgia, Hawaii, Missouri, Oregon, 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 1995, "B/C" loans accounted for
approximately 15% of the Company's production as compared to 1994 when the
Company did not originate "B/C" loans. This percentage increased in 1996 and
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 Company had interest rate commitments on loans totaling
$1.6 million and $2.5 million at December 31, 1995 and 1994, respectively, and
$5.2 million at September 30, 1996. 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
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(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.
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 5% 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
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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.
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
fourth quarter employment related taxes of approximately $93,803.
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 first
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.
FACILITIES
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. 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 lease expires
in March 1997. The Company rents 1,400 square feet in Valley Springs, California
at a cost of $1,800 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
$150,000, which amount is believed to be consistent with the surrounding market
rates. To date, the Company has not closed on that unit.
LEGAL PROCEEDINGS
The Company is a defendant in ROBERT J. CONOVER VS. GREENTREE MORTGAGE
CO., L.P. AND GREENTREE MANAGEMENT CORPORATION (COLLECTIVELY, "GREENTREE"),
WESTMARK GROUP HOLDINGS, INC., WESTMARK MORTGAGE CORPORATION AND MICHAEL F.
MORRELL, Superior Court of New Jersey, Chancery Division, Burlington County,
filed September 25, 1995. The plaintiff served as president and chief financial
officer of Greentree pursuant to an employment agreement between the plaintiff
and Greentree. Plaintiff was discharged from those positions in September 1995.
Plaintiff brought this action for compensatory damages based upon an alleged
breach of such employment agreement. Plaintiff seeks, among other things,
damages against Westmark and Mr. Morrell based upon an allegation of intentional
interference with contractual obligations and a third party beneficiary claim
with respect to the Company. Mr. Morrell is indemnified by the Company.
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On October 27, 1995, the plaintiff sought a temporary restraining order
and preliminary injunction enjoining the Company from acquiring Greentree. Such
request was denied as the Court found that, among other things, the applicable
test requiring plaintiff to show a likelihood of success on the merits was not
met. The Company has terminated negotiations with Greentree. Greentree has
agreed to maintain a minimum net worth of $1,000,000. Management believes that
this obligation does not transfer in any way to the Company in connection with
its attempted purchase of certain assets of Greentree. Greentree disputes the
allegations of the complaint. The Company believes that there is no legal
justification for the joinder of the Company and Mr. Morrell as defendants in
the pending dispute between the plaintiff and Greentree, and intends to
vigorously defend this allegation.
Extensive discovery has been undertaken by plaintiff and defendants and
the Company anticipates filing a Motion for Summary Judgement within the near
future. The Company does not anticipate any liability with respect to this
litigation.
In the matter of SAXON MORTGAGE V. 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.
Counsel for the Company anticipates a further amendment to the stipulated
judgement wherein all monthly payments are suspended in consideration for which
the Company will secure the obligation to Saxon Mortgage with a portion of the
real property acquired from PBF. The Company would remain obligated for the full
payment of $407,560 on July 15,1998 and would be entitled to a full release and
final settlement upon payment of the sum of $318,261 on .or before June 27,1997.
The Company is a defendant in CONWAY ET AL V. DANNA, NETWORK FINANCIAL
SERVICES, INC., ET AL. The suit alleges Unfair Practices; Fraud (Negligent
Misrepresentations; Intentional Misrepresentations; Concealment); Breach of
Written Contract; Breach of Implied Covenant of Good Faith and Fair Dealing;
Common Count; and Breach of California Securities Statutes against Network
Financial Services, Inc. (aka Westmark Group Holdings, Inc.) and others. The
Company considers the risk of loss in this matter to be remote and,
consequently, no amount has been accrued as of December 31, 1995.
Plaintiffs were recently sanctioned by the Superior Court for failing to
file appropriate pleadings and until such time as Plaintiff's Amended Complaint
if filed, no discovery will be undertaken. The Company remains confident that
there is only a remote possibility of liability.
Plaintiffs were recently sanctioned by the Superior Court for failing to
file appropriate pleadings and until such time as Plaintiff's Amended Complaint
if filed, no discovery will be undertaken. The Company believes that there is
only a remote possibility of liability.
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, 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.
23
<PAGE>
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, 1995.
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 has recently filed a Demurrer to plaintiff's Complaint, which
Demurrer was sustained on or about October 11, 1996.
One of the Company's wholly owned subsidiaries, Green World has been
named, together with other defendants, in SHAPE UP AMERICA V. PHILLIPPE 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.
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.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Mark Schaftlein 38 President and Chief Executive Officer of
Westmark Mortgage, and Chief Operating
Officer and Director of the Company
Norman J. Birmingham 41 Chief Financial Officer and Director of
the Company
Todd Walker 37 Secretary and Director of the Company
Louis Resweber 35 Director of the Company
Payton Story, III 50 Senior Vice-President Director of Lending
of Westmark Mortgage
24
<PAGE>
Mr. Schaftlein has served as president and chief executive officer of
Westmark Mortgage since February 1996. 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
this 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. 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 October 1996. Since July 1995, Mr.
Birmingham has served as chief operating officer, president, and as a director
of MIOA, whose securities are registered under Section 12 of the 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 senior vice-president of Lending since May 1996.
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, Mr. Story has served as president
of the Florida Association of Mortgage Brokers-Gulf Coast from 1984 to 1984.
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 is a
graduate of Tulane University (1981) and received his Masters of Business
Administration degree (1985) and Juris Doctorate degree (1985) from the Tulane
Graduate Business School and Tulane Law School, respectively.
Mr. Resweber has served as a director since December 1996. Additionally,
Mr. Resweber serves as president and chief executive officer of Network
Acquisition Corporation and as executive vice president and senior advisor to
the Board of Network Long Distance, Inc. Formerly, Mr. Resweber served as senior
vice president, Equity Markets for United Companies Financial Corp. Mr. Resweber
has over 15 years' experience in finance, M&A, capital markets, strategic
planning and investor relations as part of the management teams of a number of
publicly traded companies.
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
25
<PAGE>
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.
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.
EXECUTIVE COMPENSATION
Mark Schaftlein served as the chief operating officer of the Company since
September 11, 1996. 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION 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> <C>
Mark Schaftlein, 1996 $ 143,353.00(1) $3,353 -- 91,500 --
Chief Executive 1995 $ 100,685.15 -- -- -- --
Officer 1994 -- -- -- -- --
Norman J. Birmingham 1996 $ 87,500.00 -- -- 90,000 --
Chief Financial 1995 -0- -- -- -- --
Officer 1994 -- -- -- -- --
</TABLE>
- --------------------
(1) Includes $3,353 in other annual compensation comprised of a car allowance.
EMPLOYMENT AGREEMENTS
In April 1996, Messrs. Birmingham and Schaftlein entered into three-year
employment agreements with the Company which provide for an annual base salary
of $87,500 and $140,000, respectively. Additionally, Messrs. Birmingham and
Schaftlein were issued warrants 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.
Additionally, Messrs. Birmingham and Schaftlein have deferred $18,227 and
$45,416, respectively, of their 1995 and 1996 salaries.
STOCK OPTIONS AND WARRANTS
The following table provides information on options granted under the
Company's 1994 Stock Option Plan in fiscal 1996 and warrants granted in fiscal
1996 to Messrs. Schaftlein and Birmingham:
26
<PAGE>
INDIVIDUAL GRANTS
Percent of
Total
Options/Warrants Exercise or
Shares Underlying Granted to Base Price
Options/Warrants Employees in Per Expiration
Name Granted Fiscal Year Share Date
- ---- ----------------- ---------------- ----------- ----------
Mark Schaftlein 1,500 .008% $2.00 3/05
90,000(1) 49% $2.25 4/01
Norman J. Birmingham 90,000(1) 49% $2.25 4/01
- ---------------
(1)For terms of these warrants, see "--Employment Agreements" above.
Additionally, as of September 30, 1996, non-executive officers held
options to purchase an aggregate of 218,483 shares of Common Stock at exercise
prices ranging from $2 to $45 per share. See "--Employment Agreements" for a
discussion of warrants issued to current executive officers in April 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.
CERTAIN 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 $2,293,000
pursuant to one-year notes, bearing interest at the rate of 10% per annum.
Effective March 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. In
January 1997, the Company and MIOA entered into an agreement whereby the Company
agreed to pay MIOA $3,953,000 in exchange for the return of Company capital
stock held by MIOA, the relinquishment of anti-dilution protection, and the
agreement to reissue an aggregate of 400,000 shares of Company Common Stock to
MIOA in conjunction with certain of the cash payments. 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. Mr. Morrell was issued a MIOA note in the principal amount of $415,000,
bearing interest at a rate of 12% per annum, to repay a $415,000 advance
previously made to the Company. Currently, approximately $200,000 is the
remaining balance. Mr. Morrell has the right to convert all or a portion of this
loan into shares of Common Stock at a rate equal to 50% of the closing bid price
on the day preceding such conversion. The Company also agreed to pay Mr. Morrell
accrued salary of $229,000 by issuance of a promissory note is in such amount,
bearing interest at the rate of 12% per annum, which amount can be converted
into shares of Common Stock at the rate of 50% of the closing bid price on the
day preceding such conversion. The conversion is being registered under the Act
hereby. For a three year period, the Company agreed to pay Mr. Morrell a
27
<PAGE>
consulting fee of $7,500 per month, plus certain perquisites. The Company leases
certain of its facilities from Mr. Morrell at rates it believes reflect fair
market value. See "Business - Facilities." Mr. Gardner was issued 25,000 shares
of Common Stock (the resale of which is being registered under the Act hereby)
and severance compensation in the amount of $54,000. Ms. Moore was issued a MIOA
note in the principal amount of $60,000 to repay a $60,000 advance previously
made to the Company and was paid in full in 1996. The Company agreed to pay Ms.
Moore accrued salary of $80,000 by issuance of a promissory note, in such, an
amount, bearing interest at the rate of 12% per annum, which amount can be
converted into shares of Common Stock at the rate of 50% of the closing bid
price on the day preceding such conversion. This conversion is being registered
under the Act hereby. For an 18 month period, the Company agreed to pay Ms.
Moore a consulting fee of $4,000 per month.
GTB Company is controlled by Bradley Ray and the principal stockholder is
Charles Chillingworth. For a description of the transactions involving GTB
Company and the Company, see "The Company -- Recent Developments." PBF is
controlled by Bradley Ray and Charles Chillingworth. 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,
and warrents to purchase 73,102 shares of Common Stock the resale of which is
being registered hereby. 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. Furthermore, an affiliate of Mr. Chillingworth
loaned the Company $150,000 pursuant to notes that mature in June 1997, bear
interest at the rate of 10% per annum and are convertible at a conversion price
of $.69 per share. Mr. Ray loaned the Company $61,251.36 in July 1996, which
note matures in July 1997, bears interest at the rate of 10% per annum payable
quarterly, and is non-convertible.
Alan Adelson, a principal stockholder of the Company, made the following
loans to the Company: (i) On October 1, 1996, Mr. Adelson loaned the Company
$7,000 in the form of a thirty day convertible note. The note is renewable at
the option of the Company for additional thirty day periods, and is convertible
at any time after October 1, 1996 for 85% of the closing bid price on October
1,1996 which is calculated to be $.6035. In connection with the convertible
note, Mr Adelson received two warrants to purchase 7,000 shares of common stock
each at an exercise price concurrent with the conversion price of the note which
expire December 31, 1997. (ii) On October 3, 1996, Mr. Adelson loaned the
Company $6,600 in the form of a thirty day convertible note. The note is
renewable at the option of the Company for additional thirty day periods, and is
convertible at any time after October 3, 1996 for 85% of the closing bid price
on October 3, 1996 which is calculated to be $.5015. In connection with the
convertible note, Mr Adelson received two warrants to purchase 6,600 shares of
common stock each at an exercise price concurrent with the conversion price of
the note which expire December 31, 1997. (iii) On October 31, 1996, Mr. Adelson
loaned the Company $4,500 in the form of a thirty day convertible note. The note
is renewable at the option of the Company for additional thirty day periods, and
is convertible at any time after October 31, 1996 for 85% of the closing bid
price on October 31, 1996 which is calculated to be $.48. In connection with the
convertible note, Mr Adelson received two warrants to purchase 4,500 shares of
common stock each at an exercise price concurrent with the conversion price of
the note which expire December 31, 1997. (iv) On November 15, 1996, Mr. Adelson
loaned the Company $9,500 in the form of a thirty day convertible note. The note
is renewable at the option of the Company for additional thirty day periods, and
is convertible at any time after November 15, 1996 for 85% of the closing bid
price on November 15,1996 which is calculated to be $.4760. In connection with
the convertible note, Mr Adelson received two warrants to purchase 9,500 shares
of common stock each at an exercise price concurrent with the conversion price
of the note which expire December 31, 1997. (v) On December 3, 1996, Mr. Adelson
28
<PAGE>
loaned the Company $7,000 in the form of a thirty day convertible note. The note
is renewable at the option of the Company for additional thirty day periods, and
is convertible at any time after December 3, 1996 for 85% of the closing bid
price on December 3,1996 which is calculated to be $.4250. In connection with
the convertible note, Mr Adelson received two warrants to purchase 7,000 shares
of common stock each at an exercise price concurrent with the conversion price
of the note which expire December 31, 1997. (vi) On December 13, 1996, Mr.
Adelson loaned the Company $7,000 in the form of a thirty day convertible note.
The note is renewable at the option of the Company for additional thirty day
periods, and is convertible at any time after December 13, 1996 for 85% of the
closing bid price on December 13,1996 which is calculated to be $.6120. In
connection with the convertible note, Mr Adelson received two warrants to
purchase 7,000 shares of common stock each at an exercise price concurrent with
the conversion price of the note which expire December 31, 1997. (vii) On
January 9, 1997, Mr. Adelson loaned the Company $40,000 in the form of a thirty
day convertible note. The note is renewable at the option of the Company for
additional thirty day periods, and is convertible at any time after January 9,
1997 for 85% of the closing bid price on January 9,1997 which is calculated to
be $.68. In addition, in September 1996, Mr. Adelson was issued 360,000
unrestricted shares of common stock registered pursuant to a registration
statement on form S-8.
In August 1996, I.W. Miller, a principal stockholder of the Company, was
issued the following for services rendered: (i)150,000 unrestricted shares of
common stock registered pursuant to a registration statement on form S-8, and
(ii) a warrant to purchase 100,000 shares of common stock at an exercise price
of $.86 per share which expires December 31, 1997. In addition, in January 1997,
I. W. Miller was issued 250,000 shares of common stock for services rendered and
to be rendered, the resale of which is being registered hereby. For a
description of transactions between the Company and Drew Hollenbeck, see
"Description of Capital Stock -- Preferred Stock."
LIMITATION ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation eliminates, subject to certain
exceptions, the personal liability of directors of the Company or its
stockholders for monetary damages for breaches of fiduciary duty of such
directors. The Certificate of Incorporation does not provide for the elimination
of or any limitation on the personal liability of a director for (i) any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful corporate distributions, or (iv) any
transaction from which such director derives an improper personal benefit. This
provision of the Certificate of Incorporation will limit the remedies available
to the stockholder who is dissatisfied with a decision of the Board of Directors
protected by this provision; such stockholder's only remedy may be to bring a
suit to prevent the action of the Board. This remedy may not be effective in
many situations, because stockholders are often unaware of a transaction or an
event prior to Board action in respect of such transaction or event. In these
cases, the stockholders and the Company could be injured by a Board's decision
and have no effective remedy.
DELAWARE ANTI-TAKEOVER LAW
The Company is not subject to Section 203 of The Delaware General
Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combinations with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) before such date the
Board of Directors of the Company approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the Company outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares that are owned, (iii) by persons who are
directors and also officers and (iv) by employee stock plans in which employee
participants do not have a right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer, or (v) on or
after such date the business combination is approved by the Board of Directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
29
<PAGE>
Section 203 defines "combination" to include (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, lease, exchange, mortgage, transfer pledge or other disposition involving
the interested stockholder of 10% or more of assets of the Company, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the Company of any stock of the Company to the interested
stockholder, (iv) any transaction involving the Company that has the effect of
increasing the proportionate share of the stock of any class or series of the
Company beneficially owned by the interested stockholder, or (v) the receipt by
the interested stockholder of the benefit of any loans, advances guarantees,
pledges or other financial benefits provided by or through the Company. Is in
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the Company
and any entity or person affiliated with or controlling or controlled by such an
entity or person. Accordingly, transactions with MIOA will not be subject to
Section 203.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial
ownership of all shares of Common Stock at January 10, 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.
PERCENT OF VOTING POWER
-------------------------
BEFORE AFTER
NAME AND ADDRESS(1) SHARES OF COMMON STOCK OFFERING OFFERING(2)
------------------- ---------------------- -------- -----------
GTB Company 2,888,889(3) 37.4% 21.2%
Drew Hollenbeck 625,038(4) 12% 5.5%
Medical Industries of 400,000 8.2% 3.7%
America, Inc.
Alan Adelson 393,222(5) 6.2% 2.8%
I. W. Miller 350,000(6) 7.0% 3.2%
Louis Resweber 250,000(7) 4.9% 2.2%
Mark Schaftlein 49,667(8) 1% *
Norman Birmingham 46,000(9) * *
Todd Walker -- -- --
All officers and
directors as a
group (five persons) 345,66710 6.6% 3.1%
- ------------
* Less than one percent.
(1) The address for the above referenced stockholders is 355 N.E. Fifth
Avenue, Delray Beach, FL 334831, except for Medical Industries of America,
Inc., which is 1903 S. Congress Avenue, #400, Boynton Beach, FL 33426.
(2) Assumes the issuance of 1,671,993 shares upon exercise of all Warrants,
conversion of all shares of Preferred Stock, and conversion of Convertible
Debt.
(3) Includes 130,000 Series E Preferred Shares with a conversion price of
$.45.
(4) 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-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. See "Description of
Capital Stock Preferred Stock." Includes 100,000 shares of Series A
Preferred Stock convertible into 588,000 shares of Common Stock.
(5) Includes loans in the amount of $81,600 convertible into 138,656 shares of
Common Stock, and currently exercisable warrants to purchase 83,200 shares
of Common Stock.
(6) Includes a warrant currently exercisable to purchase 100,000 shares of
Common Stock.
(7) Includes a warrant to purchase 250,000 shares of Common Stock.
(8) Includes an option and warrant currently exercisable to purchase an
aggregate of 46,500 shares of Common Stock.
(9) Includes an option presently exercisable to purchase 45,000 shares of
Common Stock.
(10) Includes options and warrants to purchase an aggregate of 342,500 shares
of Common Stock.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Under the Company's Certificate of Incorporation, the authorized capital
stock of the Company consists of 60 million shares, of which 50 million shares
are Common Stock and 10 million shares are preferred stock. As of the date of
this Prospectus, the Company had outstanding 4,802,366 shares of Common Stock
and 118,750 shares of Series A Preferred Stock, 300,000 shares of Series B
Preferred Stock, 200,000 shares of Series C Preferred Stock, 50,000 shares of
Series D Preferred Stock held of record by 59 persons, and 130,000 shares of
Series E Preferred Stock. The Company has reserved 218,483 shares for issuance
upon exercise of outstanding Options, 1,671,993 shares for issuance upon
exercise of Warrants, 2,464,994 shares for issuance upon conversion of the
Preferred Stock, and 639,937 upon conversion of the Convertible Debt.
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Certificate of Incorporation, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share with
respect to all matters required by law to be submitted to stockholders of the
Company. The holders of Common Stock have the sole right to vote, except as
otherwise provided by law or by the Company's Certificate, including provisions
governing any preferred stock. The Common Stock does not have any cumulative
voting, preemptive, subscription or conversion rights. Election of directors and
other general shareholder action requires the affirmative vote of a majority of
shares represented at a meeting in which a quorum is represented. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, upon payment therefor as contemplated herein, validly issued,
fully paid and non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the affairs of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment or provision for all
liabilities and any preferential liquidation rights of any preferred stock then
outstanding.
PREFERRED STOCK
The Board of Directors is authorized, without action by the holders of
the Common Stock, to provide for the issuance of the preferred stock in one or
more series, to establish the number of shares to be included in each series and
to fix the designations, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights which
shall be superior to the Common Stock. The issuance of one or more series of the
preferred stock could adversely affect the voting power of the holders of the
Common Stock and could have the effect of discouraging or making more difficult
any attempt by a person or group to attain control of the Company. The Company
has no present plans to issue any additional shares of preferred stock.
SERIES A PREFERRED STOCK. In April 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 200,000 shares of series A
cumulative preferred stock ("Series A Preferred Stock"). In April 1996, an
aggregate of 100,000 shares of Series A Preferred Stock were issued with an
aggregate stated value of $400,000 to Mr. Hollenbeck and an aggregate of 18,750
shares of Series A Preferred Stock were issued to an unaffiliated third party.
The Series A Preferred Stock has a liquidation preference of $4 per share, plus
any accrued unpaid dividends, is redeemable by the Company at a redemption price
32
<PAGE>
of $4 per share, plus accrued unpaid dividends to the date of redemption, after
October 1, 1996 the holder can force redemption by the Company upon the same
redemption terms that the Company possesses, and does not have any voting
rights. The shares of Series A Preferred Stock are convertible into shares of
Common Stock at the lessor or (i) $1.50 or (ii) 84% of the closing bid price on
the day prior to conversion (subject to adjustment).
SERIES B PREFERRED STOCK. In April 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 300,000 shares of series B
cumulative preferred stock ("Series B Preferred Stock"). In April 1996, an
aggregate of 300,000 shares of Series B Preferred Stock were issued with an
aggregate stated value of $600,000. The Series B Preferred Stock has a
liquidation preference of $2 per share, plus any accrued unpaid dividends, is
redeemable by the Company at a redemption price of $2 per share, plus accrued
unpaid dividends to the date of redemption, and does not have any voting rights.
The shares of Series B Preferred Stock are convertible by the holders in shares
of Common Stock at the lesser of (i) $2.00 or (ii) 84% of the closing bid price
on the day prior to conversion (subject to adjustment). The shares of Series B
Preferred Stock automatically convert, at the above referenced conversion rate,
into shares of Common Stock in April 1998.
SERIES C PREFERRED STOCK. In March 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 500,000 shares of series C
cumulative preferred stock ("Series C Preferred Stock"). Effective March 1996,
an aggregate of 200,000 shares of Series C Preferred Stock were issued with an
aggregate stated value of $700,000. Upon the closing of the WestmarkMedical
Industries Agreement, the 200,000 shares of Series C Preferred Stock will be
redeemed by the Company and, for purposes of this Prospectus, are not deemed
outstanding.
SERIES D PREFERRED STOCK. In August 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 1,000,000 shares of series D
convertible preferred stock ("Series D Preferred Stock"). In August 1996, an
aggregate of 200,000 shares of Series D Preferred Stock were issued with an
aggregate stated value of $1,000,000. The Series D Preferred Stock pays interest
quarterly at 10% per annum. The Series D Preferred Stock has a liquidation
preference of $5 per share, is redeemable by the Company and does not have any
voting rights. The shares of Series D Preferred Stock are convertible by the
holders in shares of Common Stock at 100% of the closing bid price on the day of
conversion.
SERIES E PREFERRED STOCK. In July 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 130,000 shares of series E
convertible preferred stock ("Series E Preferred Stock"). In July 1996, an
aggregate of 130,00 shares of Series E Preferred Stock were issued with an
aggregate stated value of $1,300,000. The 130,000 shares of Series E Preferred
Stock will be converted by the holder at the price of $.45 per share, for the
issuance of 2,888,889 shares of Common Stock upon the closing of the
Westmark-GTB Agreement, and for purposes of this Prospectus are not deemed
outstanding.
SERIES F PREFERRED STOCK. In August 1996, the Board of Directors
established a series of shares setting forth the preferences, rights and
limitations and authorizing the issuance of up to 1,000,000 shares of series F
convertible preferred stock ("Series F Preferred Stock"). The Series F Preferred
Stock has a liquidation preference of $5 per share, is redeemable by the Company
and does not have any voting rights. The shares of Series F Preferred Stock are
convertible by the holders in shares of Common Stock at the greater of (i) $1.00
or (ii) the average closing bid price for the five days prior to conversion
(subject to adjustment).
33
<PAGE>
WARRANTS
As discussed is in "Management--Employment Agreements," warrants were
issued to Messrs. Birmingham and Schaftlein providing for the issuance of up to
180,000 shares of Common Stock. Additionally, there are warrants outstanding
authorizing the holders to purchase an aggregate of 1,671,993 shares of Common
Stock, currently exercisable and expiring between one and eight years from the
date of this Prospectus at exercise prices between $.4760 and $9.00.
CONVERTIBLE DEBT
In 1996, Mr. Adelson loaned the Company an aggregate of $81,600 pursuant
to convertible notes which are discussed in "Management-Certain Transactions."
In 1996, an affiliate of Mr. Chillingworth loaned the Company an
aggregate of $138,715 pursuant to convertible notes which are discussed in
"Management-Certain Transactions"
In 1996, Eugene Snowden loaned the Company an aggregate of $92,000
pursuant to thirty day renewable notes, which are presently convertible at a
conversion price of $.45.
In 1996, Ronald Snowden loaned the Company an aggregate of $13,750
pursuant to thirty day renewable notes, which are presently convertible at a
conversion price of $.45.
In 1996, Jim Hull loaned the Company $52,850 pursuant to a thirty day
renewable convertible note with a conversion price of $.81.
TRANSFER AGENT
The Company's transfer agent for the Common Stock is Corporate Stock
Transfer, Inc., Republic Plaza, 370 17th Street, Suite 2340, Denver, Colorado
80202.
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS
The resale of shares by the Selling Stockholders, of which 2,107,008 are
currently issued and outstanding and 4,776,924 will be issued upon (i) exercise
of Warrants to purchase 1,671,993 shares, (ii) conversion of Preferred Stock to
purchase 2,464,994 shares, and (iii) the conversion of Convertible Debt to
purchase 639,937 shares, all of which are subject to adjustment.
This table sets forth information with respect to the resale of Common
Stock by the Selling Stockholders, including the resale of shares of Common
Stock issued upon exercise of outstanding Warrants upon conversion of the
outstanding Preferred Stock, and upon the conversion of Convertible Debt. The
Company will not receive any proceeds from the resale of Common Stock by the
Selling Stockholders for shares currently outstanding or upon conversion of
Preferred Stock or conversion of Convertible Debt; however, the Company will
receive the exercise price per share upon issuance of shares underlying the
Warrants.
34
<PAGE>
RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS
FOR SHARES CURRENTLY OUTSTANDING ("S"),
SHARES TO BE ISSUED UPON EXERCISE OF WARRANTS ("W"),
OPTIONS ("O"), CONVERSION OF PREFERRED STOCK ("P")
AND CONVERTIBLE DEBT ("D")
<TABLE>
<CAPTION>
SHARES AMOUNT SHARES
BENEFICIALLY OFFERED BENEFICIALLY
OWNED (ASSUMING ALL OWNED
BEFORE SHARES IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
- ----------- ------------ ------------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Albert F. Abree, III and A. Ruth Murray 1,235 1,235 P(1) 0 0.0
D. Blair Adams 3,713 3,713 S 0 0.0
Alan Adelson 945 945 S 0 0.0
1,223 1,223 S 0 0.0
7,000 7,000 W(2) 0 0.0
7,000 7,000 W(2) 0 0.0
6,600 6,600 W(2) 0 0.0
6,600 6,600 W(2) 0 0.0
4,500 4,500 W(2) 0 0.0
4,500 4,500 W(2) 0 0.0
7,000 7,000 W(2) 0 0.0
7,000 7,000 W(2) 0 0.0
9,500 9,500 W(2) 0 0.0
9,500 9,500 W(2) 0 0.0
7,000 7,000 W(2) 0 0.0
7,000 7,000 W(2) 0 0.0
11,599 11,599 D(3) 0 0.0
13,161 13,161 D(4) 0 0.0
9,375 9,375 D(5) 0 0.0
19,958 19,958 D(6) 0 0.0
7,059 7,059 D(7) 0 0.0
7,240 7,240 D(8) 0 0.0
11,438 11,438 D(9) 0 0.0
58,824 58.824 D(10) 0 0.0
Affiliated Services, Inc. 104,000 104,000 S 0 0.0
Sharon Aitken 1,000 1,000 S 0 0.0
Amber Capital Corporation 51,741 51,741 S 0 0.0
Anacapa Venture Partners 123,445 123,445 P(11) 0 0.0
Richard Anderson 1,191 1,191 S 0 0.0
596 596 S 0 0.0
596 596 S 0 0.0
Aqumulate, Ltd. 327 327 S 0 0.0
340 340 S 0 0.0
2,500 2,500 S 0 0.0
Mark Atherstone 2,469 2,469 P(1) 0 0.0
Atlantic Bottled Gas 2,075 2,075 S 0 0.0
John and Pierina Bailo 494 494 P(1) 0 0.0
Tom Baldwin 596 596 S 0 0.0
Vincent Barras 1,334 1,334 S 0 0.0
35
<PAGE>
T. Byron and Dene Bates 1,235 1,235 P(1) 0 0.0
Kimberly L. Beller 8,642 8,642 P(1) 0 0.0
Norman J. Birmingham(*) 45,000 45,000 W(12) 0 0.0
45,000 45,000 W(13) 0 0.0
David Blackman 334 334 S 0 0.0
John Blausey 1,667 1,667 S 0 0.0
6,667 6,667 S 0 0.0
1,334 1,334 S 0 0.0
20,000 20,000 S 0 0.0
20,000 20,000 W(14) 0 0.0
Martha Borman 370 370 P(1) 0 0.0
Kathy J. Bosch, D.C. 18,519 18,519 P(1) 0 0.0
Thomas Burd 667 667 S 0 0.0
R. Bushey 2,000 2,000 S 0 0.0
Virginia C. Butler 2,000 2,000 S 0 0.0
1,000 1,000 S 0 0.0
Capitol Ventures International 33,334 33,334 S 0 0.0
Caribou Bridge Fund 61,723 61,723 P(11) 0 0.0
Robert and Teresa Caffey 247 247 P(1) 0 0.0
Jeannie Caron 926 926 S 0 0.0
Darren Cassey 1,067 1,067 S 0 0.0
Jill Cather 821 821 P(1) 0 0.0
Tracey Cather 160 160 P(1) 0 0.0
Valerie Cawley 336 336 S 0 0.0
Elisa R. Ceron 1,148 1,148 P(1) 0 0.0
Jaime C. Ceron 1,235 1,235 P(1) 0 0.0
Jaime Ruiz Ceron 821 821 P(1) 0 0.0
Ted and Judy Childers 148,148 148,148 P(1) 0 0.0
Charles Chillingworth 36,551 36,551 W(15) 0 0.0
36,551 36,551 W(15) 0 0.0
Harry Coolidge 2,218 2,218 S 0 0.0
3,704 3,704 S 0 0.0
21,350 21,350 S 0 0.0
John S. Copeland 334 334 S 0 0.0
Corbin Trust 1,067 1,067 S 0 0.0
F. Barbara Covington 374 374 S 0 0.0
Griffin Dickerman 1,700 1,700 S 0 0.0
Ilaine Dickerman 1,000 1,000 S 0 0.0
John J. Dickerman 1,834 1,834 S 0 0.0
2,000 2,000 S 0 0.0
Mario DiFilippo 3,852 3,852 S 0 0.0
2,000 2,000 S 0 0.0
Louis DiFilippo 1,852 1,852 S 0 0.0
Richard Dillion 1,800 1,800 S 0 0.0
581 581 S 0 0.0
1,784 1,784 S 0 0.0
Joseph Divilio 536 536 S 0 0.0
Dawn Drella 10,000 10,000 S 0 0.0
Karen Dunlap 1,642 1,642 P(1) 0 0.0
E.C.S. International, Inc. 7,151 7,151 P(1) 0 0.0
Kelly Eilifritz 1,969 1,969 P(1) 0 0.0
36
<PAGE>
Ray Eilifritz 160 160 P(1) 0 0.0
Chuck Everill 88,175 88,175 P(11) 0 0.0
Kathryn Fabian 1,000 1,000 S 0 0.0
Bevan Farber 2,000 2,000 S 0 0.0
Craig Faria 821 821 P(1) 0 0.0
M.S. Farrell 1,630 1,630 S 0 0.0
1,261 1,261 S 0 0.0
33,333 33,333 W(16) 0 0.0
William Field 1,191 1,191 S 0 0.0
667 667 S 0 0.0
334 334 S 0 0.0
Charles G. Fink 3,334 3,334 S 0 0.0
Thomas and Marisa Flint 2,593 2,593 S 0 0.0
Donald and Nancie Fox 21,234 21,234 P(1) 0 0.0
Ellen Friedman 596 596 S 0 0.0
G4, Inc. 1,457 1,457 S 0 0.0
Albert Gardner 3,025 3,025 S 0 0.0
David Gardner 1,167 1,167 S 0 0.0
Generation Capital Associates 273,343 273,343 P(11) 0 0.0
Tarek Ghalwash 741 741 S 0 0.0
Joseph Giglio 1,191 1,191 S 0 0.0
Barry Goodin 871 871 S 0 0.0
George Grahn 1,235 1,235 P(1) 0 0.0
Greentree Mortgage 150,000 150,000 W(17) 0 0.0
GS Seagrass 167 167 S 0 0.0
GTB Company 400,000 2,888,889 P(18) 0 0.0
Gerard and Harriet Guitard 1,000 1,000 S 0 0.0
Lonnie F. Hall 167 167 S 0 0.0
James Hamlet 712 712 S 0 0.0
Charles Hanney 667 667 S 0 0.0
Bradley Hanson 1,334 1,334 S 0 0.0
1,134 1,134 S 0 0.0
Boyd Harden 123,457 123,457 S 0 0.0
Gail Harden 24,691 24,691 S 0 0.0
Graham Harden 18,518 18,518 S 0 0.0
Holmes Harden, Jr. 18,518 18,518 S 0 0.0
Robert Harding 4,938 4,938 P(1) 0 0.0
Martin Heilbraun 2,000 2,000 S 0 0.0
Steve Hembree 8,228 8,228 P(1) 0 0.0
Darol M. Hoffman 7,223 7,223 S 0 0.0
Richard Hofmann 667 667 S 0 0.0
Drew Hollenbeck 588,000 588,000 P(19) 0 0.0
Sheldon Honig 1,000 1,000 S 0 0.0
1,852 1,852 S 0 0.0
Abe Huberman 584 584 S 0 0.0
James S. Hull 110,250 110,250 P(19) 0 0.0
56,247 65,247 D(20) 0 0.0
James S. Hull, Trustee 2,000 2,000 S 0 0.0
Nuge Johnson 1,191 1,191 S 0 0.0
Michael Johnstone 2,593 2,593 P(1) 0 0.0
Ajit Kahaduwe 596 596 S 0 0.0
Richard Klass 945 945 S 0 0.0
37
<PAGE>
1,223 1,223 S 0 0.0
Jakob Krommenhock 1,067 1,067 S 0 0.0
Donald E. and Nancy A. Kuellpier 3,704 3,704 P(1) 0 0.0
Kevin Lam 53,750 53,750 S 0 0.0
David and Lori Lawrence 2,469 2,469 P(1) 0 0.0
Lebanon Valley Auto Racing 44,088 44,088 P(11) 0 0.0
Corporation
Malcolm Lee 3,704 3,704 S 0 0.0
Kent and Julie Leigh 3,290 3,290 P(1) 0 0.0
J. Lamar Lessor 1,068 1,068 S 0 0.0
Mary C. Lessor 1,067 1,067 S 0 0.0
Anna Liselli 334 334 S 0 0.0
Sam Lockwood 596 596 S 0 0.0
Robert and Donna Lopez 2,469 2,469 P(1) 0 0.0
Harold Lowell 834 834 S 0 0.0
Thomas E. Lynch 1,387 1,387 S 0 0.0
Magnum Financial Corporation 31,482 31,482 S 0 0.0
Shirley Mann 1,191 1,191 S 0 0.0
Marklewitz Family Trust 12,345 12,345 P(1) 0 0.0
Lorrie McClintock 3,334 3,334 S 0 0.0
John McDaniel 2,469 2,469 P(1) 0 0.0
Ron McTighe 741 741 S 0 0.0
David Mihlroth 741 741 S 0 0.0
Christopher Miller 2,000 2,000 S 0 0.0
I.W. Miller 100,000 100,000 W(21) 0 0.0
250,000 250,000 S 0 0.0
Danny Mills Profit Sharing 1,067 1,067 S 0 0.0
James Mitchell 186 186 S 0 0.0
Kristen and Michael Mitchell 654 654 P(1) 0 0.0
Richard Molinsky 1,786 1,786 S 0 0.0
1,191 1,191 S 0 0.0
Linda Moore 4,815 4,815 S 0 0.0
Ahmad Moradi 2,223 2,223 S 0 0.0
Harold and Dolores Morrell 2,000 2,000 S 0 0.0
Michael Morrell 16,204 16,204 S 0 0.0
Patrick Morton 176,350 176,350 P(11) 0 0.0
Timothy J. Murphy Charitable Unitrust 31,000 31,000 S 0 0.0
John Murtha 2,000 2,000 S 0 0.0
John and Ann Murtha 2,000 2,000 S 0 0.0
Edward and Terri Myers 712 712 S 0 0.0
Sharon M. Myers 186 186 S 0 0.0
Shea Harden Naporano 18,518 18,518 S 0 0.0
James Noonan 17,635 17,635 P(11) 0 0.0
Gerald R. Novich 88,183 88,183 P(11) 0 0.0
Theodore J. Orlando 2,667 2,667 S 0 0.0
Renee Ortega 160 160 P(1) 0 0.0
George Paez 1,191 1,191 S 0 0.0
2,917 2,917 S 0 0.0
William and Kathleen Papola 1,067 1,067 S 0 0.0
Richard Paull 167 167 S 0 0.0
Petros Petrides 838 838 S 0 0.0
38
<PAGE>
Chris Phelan 2,500 2,500 S 0 0.0
Michael S. Pomerantz 2,000 2,000 S 0 0.0
Piere Pype 2,977 2,977 S 0 0.0
Pyramid Holdings, Inc. 37,037 37,037 S 0 0.0
Ted Ralston 7,408 7,408 S 0 0.0
Jackie Rankin 334 334 S 0 0.0
Red River Cattle Company 201,036 201,036 W(22) 0 0.0
201,036 201,036 W(22) 0 0.0
201,036 201,036 D(23) 0 0.0
Louis Resewber 50,000 50,000 W(24) 0 0.0
200,000 200,000 W(24) 0 0.0
David Rittmueller 596 596 S 0 0.0
Donald and Joan Rose 1,556 1,556 S 0 0.0
Edward and Martina Russell 712 712 S 0 0.0
Dr. Frank W. Sannella 24,691 24,691 P(1) 0 0.0
Thomas Sauthoff 1,000 1,000 S 0 0.0
James E. and Elaine F. Savage 1,235 1,235 P(1) 0 0.0
Mark Schaftlein (*) 667 667 S 0 0.0
45,000 45,000 W(12) 0 0.0
45,000 45,000 W(13) 0 0.0
William Schneider 1,191 1,191 S 0 0.0
Christine and Richard Schreier 593 593 S 0 0.0
Marcelo Scigiliano 149 149 S 0 0.0
James Scordo 4,167 4,167 S 0 0.0
Michael Sherry 16,000 16,000 S 0 0.0
Frank and Barbara Sirico 5,556 5,556 S 0 0.0
Lawrence and Kathy Smith 3,284 3,284 P(1) 0 0.0
William E Sohenck 2,469 2,469 P(1) 0 0.0
John M. Soldati 596 596 S 0 0.0
Connie Solis 327 327 P(1) 0 0.0
Bob Sorenson 821 821 P(1) 0 0.0
Eugene Snowden 46,667 46,667 W(2) 0 0.0
46,667 46,667 W(2) 0 0.0
66,667 66,667 W(2) 0 0.0
66,667 66,667 W(2) 0 0.0
204,444 204,444 D(25) 0 0.0
Eugene and Ruth Snowden 32,385 32,385 W(2) 0 0.0
32,385 32,385 W(2) 0 0.0
Ronald Snowden 8,334 8,334 W(2) 0 0.0
8,334 8,334 W(2) 0 0.0
30,556 30,556 D(26) 0 0.0
Ronald and Paulette Snowden 21,590 21,590 W(2) 0 0.0
21,590 21,590 W(2) 0 0.0
Jean and Doug Stetinlohs 654 654 P(1) 0 0.0
Jeff and Jan Stormer 4,938 4,938 P(1) 0 0.0
Jeffrey R. Stormer, Jr. 247 247 P(1) 0 0.0
Roy R. and Ellinore Stormer 247 247 P(1) 0 0.0
Tom Stowe 821 821 P(1) 0 0.0
Rodger Stubbs 11,482 11,482 S 0 0.0
Susan L. Suminski 19 19 S 0 0.0
Tissera Overseas Fund, NV 44,088 44,088 P(11) 0 0.0
Gaye Tosi 596 596 S 0 0.0
39
<PAGE>
Westport Capital Partners 88,175 88,175 P(11) 0 0.0
William Vitello 596 596 S 0 0.0
Clifford D. and Annette L. Von Aspern 1,235 1,235 P(1) 0 0.0
Arthur Vorel 926 926 S 0 0.0
Kevin Walsh 596 596 S 0 0.0
Eleanore and Hubert Watson 34 34 S 0 0.0
Jack Webber 1,000 1,000 S 0 0.0
Larry Wells 52,905 52,905 P(11) 0 0.0
1,235 1,235 P(1) 0 0.0
Norman Wieselberg 1,191 1,191 S 0 0.0
Barbara D. Wilt 167 167 S 0 0.0
Richard C. Wilt III 667 667 S 0 0.0
Sheila B. Williamson 260 260 S 0 0.0
Kevin and Susan Wrenne 5,186 5,186 S 0 0.0
Mike Yankish, Sr. 2,469 2,469 P(1) 0 0.0
Melvin Young 821 821 P(1) 0 0.0
Jackson, Tufts, Cole & Black 209,876 209,876 S(27) 0 0.0
Cassidy & Associates 86,790 86,790 S(28) 0 0.0
Greentree Mortgage 43,210 43,210 S(29) 0 0.0
Brentwood Computers 46,913 46,913 S(30) 0 0.0
Cohen, Brame and Smith 23,263 23,263 S(31) 0 0.0
William Tetsworth 28,000 28,000 S(32) 0 0.0
Teletrend Communications 29,111 29,111 S(33) 0 0.0
Republic Indemnity 25,790 25,790 S(34) 0 0.0
First American Flood Data 21,988 21,988 S(35) 0 0.0
Hakman & Company 19,325 19,325 S(36) 0 0.0
Foster Ousley Conley 24,470 24,470 S(37) 0 0.0
Theodore Orlando 20,000 20,000 S(38) 0 0.0
Prentice Hall 10,998 10,998 S(39) 0 0.0
Howard Rice 24,691 24,691 S(40) 0 0.0
M.S. Farrell & Company, Inc. 7,143 7,143 S(41) 0 0.0
Richard L. Klass 3,571 3,571 S(41) 0 0.0
Alan H. Adelson 3,572 3,572 S(41) 0 0.0
James D. Tucker 2,440 2,440 S(42) 0 0.0
Lomas Mortgage USA, Inc. 27,447 27,447 S(43) 0 0.0
Kenny the Printer 5,556 5,556 S(44) 0 0.0
Steve Jizmagian 7,963 7,963 S(45) 0 0.0
Xpedite Systems 25,659 25,659 S(46) 0 0.0
Copelco Capital 3,086 3,086 S(47) 0 0.0
Papola Enterprises 3,249 3,249 S(48) 0 0.0
MFS Intelenet 15,969 15,969 S(49) 0 0.0
Ahmad F. Moradi 43,788 43,788 S(50) 0 0.0
Grubb & Ellis 15,500 15,500 S(51) 0 0.0
Hacienda Property Valuation 25,000 25,000 S(52) 0 0.0
Mediatel 25,000 25,000 S(53) 0 0.0
Ousley 16,200 16,200 S(54) 0 0.0
Curci-England 136,900 136,900 S(55) 0 0.0
Charles Chillingworth 36,551 36,551 S(56) 0 0.0
</TABLE>
- -------------------------
(*) Is an officer or director of the Company. See "Management--Executive
Officers and Directors."
40
<PAGE>
(1) The Preferred Stock is currently convertible at a conversion price equal to
100% of the closing bid price per share of Common Stock as quoted by
Nasdaq. For purposes of this table, the closing price was $.81 on January
9, 1997, resulting in a conversion price of $.68. This Prospectus covers
additional shares that may be issued based on adjustments to the conversion
price. See "Description of Capital Stock--Preferred Stock."
(2) Warrant expires December 31, 1997.
(3) The conversion price for this loan in the amount of $7,000 is $.6035.
(4) The conversion price for this loan in the amount of $6,600 is $.5015.
(5) The conversion price for this loan in the amount of $4,500 is $.48.
(6) The conversion price for this loan in the amount of $9,500 is $.4760.
(7) The conversion price for this loan in the amount of $3,000 is $.4250.
(8) The conversion price for this loan in the amount of $4,000 is $.5525.
(9) The conversion price for this loan in the amount of $7,000 is $.6120.
(10) The conversion price for this loan in the amount of $40,000 is $.68
(11) The Preferred Stock is currently convertible at a price equal to 70% of the
closing bid price per share of Common Stock as quoted by Nasdaq. For
purposes of this table, the closing price was $.81 on January 9, 1997,
resulting in a conversion price of $.567. This Prospectus covers additional
shares that may be issued based on adjustments to the conversion price. See
"Description of Capital Stock--Preferred Stock."
(12) Warrant expires January 17, 1998.
(13) Warrant expires, depending upon any vesting, on the earlier of April 1,
2002 or April 1, 2004.
(14) Warrant expires April 1, 2001.
(15) Warrant expires August 30, 1997.
(16) Warrant expires November 30, 1997.
(17) Warrant expires April 16, 1999.
(18) The Preferred Stock is currently convertible at a conversion price of $.45.
See "Description of Capital Stock -- Preferred Stock."
(19) The Preferred Stock is currently convertible at a conversion price equal to
$4.00 divided by 84% of the closing bid price per share of Common Stock as
quoted by Nasdaq. For purposes of this table, the closing price was $.81 on
January 9, 1997, resulting in a conversion price of $.68. This Prospectus
covers additional shares that may be issued based on adjustments to the
conversion price. See "Description of Capital Stock--Preferred Stock."
(20) The conversion price for this loan in the amount of $52,850 is $.81.
(21) Warrant expires January 1999.
(22) Warrant expires January 10, 1998.
(23) The conversion price for this loan in the amount of $138,715 is $.69.
(24) Warrant expires December 31, 2001.
(25) The conversion price for this loan in the amount of $92,000 is $.55.
(26) The conversion price for this loan in the amount of $13,750 is $.55.
(27) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $170,000 in the aggregate, to be paid over a period of 10 months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(28) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $70,308 in the aggregate, to be paid over a period of 12 months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(29) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $35,000 in the aggregate, to be paid over a period of 7 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(30) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $33,996 in the aggregate, to be paid over a period of 6 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
41
<PAGE>
(31) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $24,720 in the aggregate, to be paid over a period of 6 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(32) These shares are issued in lieu of a cash payment for services rendered.
(33) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $22,584 in the aggregate, to be paid over a period of 6 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(34) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $17,500 in the aggregate, to be paid over a period of 7 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(35) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $132,000 in the aggregate, to be paid over a period of 7 months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(36) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $18,652.84 in the aggregate, to be paid over a period of 3 months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(37) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $11,520 in the aggregate, to be paid over a period of 6 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(38) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $7,866 in the aggregate, to be paid over a period of 3 months. In
the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(39) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $6,935 in the aggregate, to be paid over a period of three months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(40) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $20,000 in the aggregate, to be paid over a period of two months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(41) These shares of Common Stock are issued pursuant to a settlement agreement.
(42) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $1,838.49 no later than sixty days after the effective date of the
Registration Statement. In the event the number of shares is insufficient
to gross that amount the Company may be obligated to issue additional
shares.
(43) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $22,232 in the aggregate, to be paid over a period of four months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(44) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $4,500 in the aggregate, to be paid over a period of four months.
In the event the number of shares is insufficient to gross that amount, the
Company may be obligated to issue additional shares.
(45) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $6,000 plus accrued interest, to be paid over a period of three
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
42
<PAGE>
(46) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $20,784 plus accrued interest, to be paid over a period of seven
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(47) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $2,500 plus accrued interest, to be paid no later than October 10,
1996.
(48) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $2,632 plus accrued interest, to be paid over a period of two
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(49) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $12,619.32 plus accrued interest, to be paid over a period of five
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(50) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $35,468 plus accrued interest, to be paid over a period of 18
months. In the event the number of shares is insufficient to gross that
amount, the Company may be obligated to issue additional shares.
(51) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $12,555. In the event the number of shares is insufficient to
gross that amount, the Company may be obligated to issue additional shares.
(52) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $16,345, to be paid over a period of five months. In the event the
number of shares is insufficient to gross that amount, the Company may be
obligated to issue additional shares.
(53) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $15,493, to be paid over a period of seven months. In the event
the number of shares is insufficient to gross that amount, the Company may
be obligated to issue additional shares.
(54) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $13,125, to be paid over a period of six months. In the event the
number of shares is insufficient to gross that amount, the Company may be
obligated to issue additional shares.
(55) These shares of Common Stock are issued pursuant to a settlement agreement.
The Company has agreed that the shares will be sold to gross to the
creditor $110,866, to be paid over a period of six months. In the event the
number of shares is insufficient to gross that amount, the Company may be
obligated to issue additional shares.
(56) These shares of Common Stock are issued pursuant to a settlement agreement.
The 2,107,008 shares offered by the Selling Stockholders may be sold by
one or more of the following methods, without limitation: (i) ordinary brokerage
transactions and transactions in which the broker solicits purchases; and (ii)
face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated. Such brokers and dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Act, in connection with such sales. The Selling Stockholder or
dealer effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a Prospectus.
LEGAL MATTERS
Certain legal matters relating to the issuance and resale of shares
hereby will be passed upon for the Company by Brewer & Pritchard, P.C., Houston,
Texas.
43
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995
have been audited by Comiskey & Company, P.C., independent certified public
accountants, for the periods and to the extent as set forth in the reports and
have been included herein is in reliance upon such reports of said firm given on
their authority as experts in accounting and auditing.
In May 1994, Ernst & Young LLP ("E & Y") resigned as auditors. There were
no disagreements with E & Y on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedures, and reports
issued by E & Y on the Company's financial statements did not contain an adverse
opinion, or were modified as to uncertainty, audit scope or accounting
principles. In October 1993, E & Y informed the Company that it needed to
strengthen its internal controls, and management believed that it adequately
addressed this matter in 1993. The Company's current auditors were engaged,
based on the Board of Directors approval, in May 1994.
44
<PAGE>
FINANCIAL INFORMATION
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
SEPT 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalent ........... $ 60,534 $ 311,916
Accounts receivable, net of reserve 131,511 8,004
Inventory .......................... 28,770
Note receivable - stock sale ....... 374,222
Mortgage loans held for sale ....... 7,787,287 19,480,029
Other current assets .............. 109,748 2,202
-------------------------
Total Current Assets ............... 8,117,850 20,176,373
-------------------------
Fixed Assets:
Property and equipment .................. 851,396 820,588
Equipment under lease ................... 16,477 16,477
-------------------------
867,873 837,065
Less Accumulated Depreciation ...... (511,391) (434,411)
-------------------------
Total fixed assets ...................... 356,482 402,654
-------------------------
Other Assets:
Prepaid Expenses .................. 1,187,656
Investment Real Estate ............ 1,000,000 2,115,000
Investment Preferred Stock ........ 2,000,000 2,000,000
Investment Green World stock ...... 1,100,000
Goodwill, net of amortization ..... 711,646 785,833
Deposits and other assets ......... 32,418 30,298
-------------------------
Total other assets ...................... 6,031,720 4,931,131
TOTAL ASSETS ............................ 14,506,052 25,510,158
=========================
F-1
<PAGE>
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPT 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................ $ 612,949 $ 1,234,199
Warehouse line of credit ................................ 7,628,734 18,625,866
Interest Payable ........................................ 196,311 227,619
Settlement liability .................................... 407,560 419,348
Other notes payable ..................................... 1,173,001 717,818
Payroll taxes payable .................................. 68,329 141,329
Other current liabilities ............................... 479,548 854,452
Total Current Liabilities ................................... 10,566,432 22,220,631
--------------------------
Long-Term Liabilities:
Notes payable .......................................... 1,000,000
Short term debt expected to be refinanced .............. 121,984 698,323
--------------------------
Total Long Term Liabilities .................................. 121,984 1,698,323
--------------------------
Total Liabilities ............................................ 10,688,416 23,918,954
--------------------------
STOCKHOLDERS EQUITY
Preferred stock, no par value, 10,000,000 shares authorized;
648,750 shares issued and outstanding at Sept 30, 1996 .. 2,675,000
Common stock, no par value, 50,000,000 shares
authorized; 4,370,876 shares issued and outstanding
at June 30, 1996, 2,632,772 shares issued and outstanding
as of December 31, 1995 ................................. 23,488,911 23,165,937
Additional Paid in Capital from outstanding options
and warrants ............................................. 1,396,448 1,153,688
Accumulated deficit .......................................... (23,742,723) (22,728,421)
--------------------------
Total Stockholder Equity ..................................... 3,817,636 1,591,204
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... 14,506,052 25,510,158
==========================
</TABLE>
F-2
<PAGE>
Westmark Group Holdings, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Loan origination and gain on sales $ 825,104 $ 1,172,665 $ 2,737,880 $ 2,492,479
Product sales ................... 29,252 -- 29,252 --
Interest - Preferred Stock ....... 35,000 -- 105,000 --
Other Income ..................... 9,572 15,759 20,897 40,491
--------------------------------------------------------
TOTAL REVENUES ...................... 898,928 1,188,424 2,893,029 2,532,970
--------------------------------------------------------
EXPENSES:
Loan origination costs ........... 47,200 67,240 185,309 289,733
Cost of goods sold ............... 7,771 -- 7,771 --
Servicing sale adjustment ........ -- -- (70,000) --
General and administrative ....... 1,301,079 1,529,378 3,468,305 4,614,102
Marketing and advertising ........ 1,805 7,456 33,858 33,870
Goodwill amortization ............ 24,729 24,729 74,187 74,187
Depreciation ..................... 25,974 24,834 73,598 74,230
--------------------------------------------------------
TOTAL EXPENSES ...................... 1,408,558 1,653,727 3,773,028 5,086,122
--------------------------------------------------------
Loss before income tax ........... (509,630) (465,213) (879,999) (2,553,152)
Provision for income tax ......... -- -- 1,600 0
--------------------------------------------------------
NET INCOME (LOSS) BEFORE ............ (509,630) (465,213) (881,599) (2,553,152)
EXTRAORDINARY ITEM
Gain on sale of subsidiary ...... 97,371 -- 97,371 --
NET INCOME ( LOSS) .................. (412,259) (465,213) (784,228) (2,553,152)
=========================================================
NET LOSS PER SHARE
Loss before extraordinary
item ............................ ($ 0.11) ($ 0.40) ($ 0.24) ($ 2.71)
Extraordinary item .............. .02 -- .02 --
NET INCOME (LOSS) ................... ($ 0.09) ($ 0.40) ($ 0.22) ($ 2.71)
=========================================================
WEIGHTED AVERAGE OF ................. 4,370,876 1,166,394 3,260,258 941,827
SHARES OUTSTANDING =========================================================
</TABLE>
F-3
<PAGE>
WESTMARK GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT 30, SEPT 30,
1996 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Consolidated net loss .................................. ($ 782,628) ($ 2,553,152)
Adjustments to reconcile consolidated net (loss)
to net cash used by operating activities:
Depreciation ....................................... 73,598 74,230
Stock issued for services .......................... 655,544 410,115
Stock issued for settlement of litigation .......... -- 174,250
Goodwill Amortization .............................. 74,187 74,187
--------------------------
Cash used in operations before working capital changes . 20,701 (1,820,370)
==========================
(Increase)/Decrease in accounts receivable .......... (118,869) 424,434
(Increase)/Decrease in current assets .............. (102,798) (987,082)
(Increase)/Decrease in mortgage loans held for sale . 11,692,742 (11,110,742)
(Increase)/Decrease in prepaid expense ............. (1,187,656)
(Increase)/Decrease in REO loan .................... 62,050
(Increase)/Decrease in Inventory ................... (6,169) --
(Increase)/Decrease in other assets ................ 2,222
(Increase)/Decrease in Long term assets ............ 15,000 314,319
Increase/(Decrease)in Accounts payable ............. (660,999) 17,632
Increase/(Decrease)in Interest payable ............. (31,308) 58,329
Increase/(Decrease)in Other current liabilities .... (740,729) 166,025
Increase/(Decrease)in Long Term Notes payable ...... (1,000,000) --
Increase/(Decrease)in Other notes payable .......... 55,183 0
--------------------------
Net cash used after working capital changes ............ 7,916,619 12,875,405)
--------------------------
Cash used in operating activities ...................... 7,937,320 (14,695,775)
INVESTING ACTIVITIES
Purchase of fixed assets and improvements .......... (1,832) (144,141)
--------------------------
Cash provided/(used) in investing activities ........... (1,832) (144,141)
--------------------------
FINANCING ACTIVITIES
Net Increase/(Decrease) in warehouse line of credit (10,997,132) 10,977,515
Allowance related party ........................... 2,388,593 --
Payment of notes receivable - stock sale ......... 374,222 --
Repayments of notes payable ..................... (576,339) 657,000
Repurchase of stock ............................... (700,000)
Sale of stock for cash ........................... 10,000 1,204,995
Increase/(Decrease) in notes payable - short term 1,300,000 125,000
--------------------------
Cash provided/(used) by financing activities ........... (8,200,656) 12,964,510
--------------------------
Net increase/(decrease) in cash ........................ 265,168 55,036
Cash and cash equivalents, beginning period ............ 325,702 107,573
Cash and cash equivalent, end of period ................ 60,534 52,537
Cash paid for interest ................................ 477,260 761,477
==========================
Cash paid for income tax ............................... 1,600 0
==========================
</TABLE>
F-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
B. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (A) and (B), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under subsections (A) and (B) (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (A) and (B). Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
E. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized by the Certificate of Incorporation. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
F. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
II-1
<PAGE>
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
G. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the Certificate of Incorporation.
H. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee..................................... $ 1,734
Printing and Engraving Expenses.......................... 25,000
Legal Fees and Expenses.................................. 60,000
Accounting Fees and Expenses............................. 75,000
Blue Sky Fees and Expenses............................... 25,000
Transfer Agent Fees...................................... 2,000
Miscellaneous............................................ 11,266
--------
TOTAL............................................... $200,000
========
- --------------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In August 1993, the Company issued 61,796 shares of Common Stock to
eight investors for an aggregate purchase price of approximately $61,796. The
Company believes that the transaction herein is exempt from registration
pursuant to Regulation S of the Act as a transaction sold only to non-United
States resident investors.
Between January and December 1994, the Company issued a total of 84,821
shares of Common Stock to eight investors for an aggregate purchase price of
approximately $700,000. The Company believes that the transaction herein is
exempt from registration pursuant to Regulation S of the Act as a transaction
sold only to non-United States resident investors.
In March 1994, the Company issued options to purchase a total of 81,095
shares of Common Stock at an exercise price of $2.00 per share to employees in
consideration for services rendered. The Company believes that the transactions
herein are exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
Between March and April 1994, the Company issued options to purchase a
total of 13,333 shares of Common Stock at an exercise price of $3.75 per share
to employees in consideration for services rendered. The Company believes that
the transactions herein are exempt from registration pursuant to Section 4(2) of
the Act as a transaction by an issuer not involving any public offering.
Between April and August of 1994, the Company raised approximately
$2,000,000 in a private placement of its securities through the sale of 77,477
units, each unit consisting of one share of the Company's Common Stock and one
warrant which has expired. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
II-2
<PAGE>
Between June and July 1994, the Company issued options to purchase a
total of 46,560 shares of Common Stock at exercise prices of between $2.00 and
$45.00 per share to employees in consideration for services rendered. The
Company believes that the transactions herein are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In July 1994, the Company issued 13,334 shares of Common Stock to
Primark Corporation in addition to a $500,000 cash payment for the acquisition
of Westmark Mortgage. The Company believes that the transaction herein is exempt
from registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
In August 1994, the Company issued 8,067 shares of Common Stock to two
individuals in consideration for converting $50,000 of indebtedness into equity.
The Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In August through December 1994, the Company issued an aggregate of
71,747 shares of Common Stock to employees and consultants for services rendered
valued at nominal consideration. The Company believes that the transactions
herein is exempt from registration pursuant to Section 4(2) of
the Act as a transaction by an issuer not
involving any public offering.
In November 1994, the Company issued M.S. Farrell a warrant to purchase
33,333 shares of Common Stock at a purchase price of $9.00 per share in
consideration for services rendered.
The Company believes that the transaction
herein is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In December 1994, the Company issued options to purchase a total of
3,332 shares of Common Stock at an exercise price of $15 per share to employees
is in consideration for services rendered. The Company believes that the
transactions herein are exempt from registration pursuant to Section 4(2)
of the Act as a transaction by an issuer
not involving any public offering.
Between January and May 1995, the Company raised approximately $700,000
in a private placement of its securities through the sale of 220,032 shares of
Common Stock. The Company believes that the transaction herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In March 1995, the Company issued 42,968 shares of Common Stock to
three individuals and/or entities for an aggregate consideration of
approximately $100,000. The Company believes that the transaction herein is
exempt from registration pursuant to Regulation S of the Act as a transaction by
an issuer only to non-resident United States investors.
In March 1995, the Company issued 47,190 shares of Common Stock to
various employees and consultants for services rendered valued at a nominal
amount. The Company believes that the transactions herein are exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
Between March and June 1995, the Company issued four former officers an
aggregate of 9,891 shares of Common Stock for accrued salary of approximately
$62,500. The Company believes that the transactions herein are exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
Between March and July 1995, the Company issued an option to purchase a
total of 173,848 shares of Common Stock at an exercise price of between $2.00
and $3.75 per share to employees in consideration for services rendered. The
Company believes that the transactions herein are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In May 1995, the Company issued 16,667 shares of Common Stock to
Greentree Mortgage Company as a portion of the aggregate sales price for the
acquisition of certain of the production assets of Greentree Mortgage. The
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Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In June 1995, the Company issued three individuals an aggregate of
11,000 shares of Common Stock for services rendered valued at a nominal amount.
The Company believes that the transactions herein are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In August 1995, the Company issued 75,000 shares of Common Stock to an
entity for an aggregate consideration of $75,000. The Company believes that the
transaction herein is exempt from registration pursuant to Regulation S of the
Act as a transaction by an issuer only to non-resident United States investors.
In September 1995, the Company issued 125,000 share of Common Stock to
an individual in connection with converting a promissory note in the amount of
$250,000 for such shares. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
In November 1995, the Company issued an aggregate of 112,419 shares of
Common Stock to five individuals in consideration for consultant services
rendered. The Company believes that the transactions herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction
by an issuer not involving any public
offering.
In November 1995, the Company issued 1,298,000 shares of Common Stock
to MIOA, pursuant to a stock purchase agreement. The Company believes that the
transaction herein is exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
In November 1995, the Company issued a warrant to purchase 300,000
shares of Common Stock at $1.00 per share to Ocean Marketing Corp. in
consideration for consulting services rendered. The Company believes that the
transaction herein is exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
Between January and April 1996, the Company issued an option to
purchase a total of 3,332 shares of Common Stock at an exercise price of $2.00
per share to employees in consideration for services rendered. The Company
believes that the transactions herein are exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In March 1996, an individual exercised an option to purchase 5,000
shares of Common Stock is in satisfaction of accrued debt of $10,000. The
Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In April 1996, the Company issued warrants to purchase 90,000 of Common
Stock at a price of $2.25 per share to Norman J. Birmingham in connection with
his employment agreement. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the
Act as a transaction by an issuer not involving any public offering.
In April 1996, the Company issued warrants to purchase 90,000 of Common
Stock at a price of $2.25 per share to Mark Schaftlein in connection with his
employment agreement. The Company believes that the transaction herein is exempt
from registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
In April 1996, the Company issued a warrant to purchase 150,000 shares
of Common Stock at a price of $2.375 per share to Greentree Mortgage in
consideration of restructuring a $100,000 debt owed by the Company to Greentree
Mortgage. The Company believes that the transaction herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
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In April 1996, an aggregate of 151,350 shares of Common Stock were
issued in consideration for services rendered valued at nominal consideration.
The Company believes that the transaction herein is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In April 1996, an aggregate of 138,656 shares of Common Stock were
issued to five individuals in consideration for converting $165,000 of
indebtedness into equity. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In April 1996, an aggregate of 21,700 shares of Common Stock were
issued to ten individuals in consideration for converting $60,500 of
indebtedness into equity. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In May 1996, an option to purchase 10,000 shares of Common Stock was
issued to a third party, at a purchase price of $2.00 per share, for services
rendered. The Company believes that the transaction herein is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In May 1996, 368,896 shares of Common Stock were issued to MIOA
pursuant to the November 1995 Stock Purchase Agreement. The Company believes
that the transaction herein is exempt from registration pursuant to Section 4(2)
of the Act as a transaction by an issuer not involving any public offering.
In January 1997, 1,019,019 shares of Common Stock were issued pursuant
to settlement agreements. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In January 1997, 639,937 shares of Common Stock were issued upon
conversion of indebtedness. The Company believes that the transaction herein is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In January 1997, 250,000 shares of Common Stock were issued for
services rendered. The Company believes that the transaction herein is exempt
from registration pursuant to Section 4(2) of the Act as a transaction by an
issuer not involving any public offering.
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<PAGE>
ITEM 27. 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(4) 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(4) Series D Preferred Stock Designation
4.6(4) Series E Preferred Stock Designation
4.7(4) Series F Preferred Stock Designation
5.1(5) Opinion Regarding Legality
10.1(4) Westmark Mortgage Acquisition Agreement
10.2(4) Purchase and Sale Agreement between the Company and
Crown Bank
10.3(4) Mortgage Warehouse and Security Agreement between the
Company and Princap
Mortgage Warehouse, Inc. dated October 26, 1995
10.4(4) Purchase and Sale Agreement between the Company and
MIOA dated November 1995, as amended.
10.5(4) Lease Agreement for Corporate Offices in Delray
Beach, Florida
10.6((4) Rodger Stubbs Termination Agreement
10.7((4) Michael Morrell Termination Agreement
10.8(4) Linda Moore Termination Agreement
10.9(4) Norman J. Birmingham Employment Agreement
10.10(3) Mark Schaftlein Employment Agreement
10.11(3) Dawn Drella Employment Agreement
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<PAGE>
10.12(3) Norman J. Birmingham Warrant
10.13(3) Mark Schaftlein Warrant
10.14(4) 1990 Non-Qualified Stock Option Plan
10.15(4) 1993 Non-Qualified Stock Option Plan
10.16(4) 1994 Non-Qualified Stock Option Plan
10.17(4) Settlement Agreement between the Company and Arthur
Strock dated April 17,
1996
10.18(3) Settlement Agreement between the Company and Greentree
Mortgage Company
dated April 19, 1996
10.19(3) Settlement Agreement between the Company and First
American Flood Data, Inc.
dated March 29, 1996
10.20(3) Note Modification Agreement between the Company and
Dolan Development
Partners, Inc. dated July 12, 1995
10.21(3) Form of Settlement Agreement between the Company and
Each Party to the Bridge Financing dated April 1, 1996
10.22(3) Settlement Agreement between the Company and James S.
Hull dated April 25,
1996
10.23(4) Settlement Agreement between the Company and Svarna
Offshore Fund dated
March 21, 1996
10.24(4) Settlement Agreement between the Company and Drew
Hollenbeck dated March
21, 1996
10.25(3) Settlement Agreement between the Company and
Nationwide Computer
Corporation dated March 26, 1996
10.26(3) Settlement Agreement between the Company and Teletrend
Communications dated
March 27, 1996
10.27(4) Settlement Agreement between the Company and Cohen,
Brahme and Smith dated
March 15, 1996
10.28(3) Settlement Agreement between the Company and Mortgage
Quality Management,
Inc. dated March 27, 1996
10.29(3) Settlement Agreement between the Company and Hakman &
Company dated
March 27, 1996
10.30(3) Settlement Agreement between the Company and Republic
Indemnity dated
February, 1996
10.31(4) Settlement Agreement between the Company and Brentwood
Computers dated February 27, 1996
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<PAGE>
10.32(4) Settlement Agreement between the Company and Jackson,
Tufts, Cole & Black dated February 22, 1196
10.33(3) Settlement Agreement between the Company and Cassidy &
Associates
10.34(4) Settlement Agreement between the Company and Howard
Rice dated March 26,
1996
10.35(3) Settlement Agreement between the Company and Jehu Hand
dated March 28, 1996
10.36(4) Settlement Agreement between the Company and Mucci
Associates
10.37(4) Settlement Agreement between the Company and Prentice
Hall dated April 20,
1996
10.38(4) Settlement Agreement between the Company and American
Pacific Printers
College, Inc. d/b/a Kenny the Printer dated May 24,
1996
10.39(4) Settlement Agreement between the Company and Lomas
Mortgage USA, Inc. dated
May 24, 1996
10.40(4) Settlement Agreement between the Company and Deloitte
& Touche, LLP dated
May 1996
10.41(4) Settlement Agreement between the Company and Steve
Jizmagian dated May 30,
1996
10.42(4) Settlement Agreement between the Company and James D.
Tucker dated May 17,
1996
10.43(4) Settlement Agreement between the Company and M.S.
Farrell & Company, Inc.
dated May 29, 1996
10.44(4) Settlement Agreement between the Company and Xpedite
Systems, Inc.
10.45(4) Settlement Agreement between the Company and Copelco
Capital, Inc.
10.46(4) Settlement Agreement between the Company and Papola
Enterprises, Inc. dated
October 31, 1996
10.47(4) Settlement Agreement between the Company and MFS
Intelenet dated October 31,
1996
10.48(4) Settlement Agreement between the Company and Ahmad F.
Moradi
10.49(4) Settlement Agreement between the Company and Grubb &
Ellis
10.50(4) Settlement Agreement between the Company and Hacienda
Property Valuation
10.51(4) Settlement Agreement between the Company and Mediated
10.52(4) Settlement Agreement between the Company and Ousley,
Inc.
10.53(4) Settlement Agreement between the Company and
Curci-England
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<PAGE>
10.54(4) Settlement Agreement between the Company and Charles
Chillingworth
10.55(4) Payton Story Employment Agreement
10.56(4) Louis Resweber Director Compensation Agreement
10.57(4) Agreement between the Company and GTB Company
10.58(4) Agreement between the Company and PBF Land Company
10.59(4) Green World Stock Purchase Agreement
10.60(4) Settlement Agreement between the Company and Medical
Industries of America,
Inc.
21.1(3) List of Subsidiaries
24.1(5) Consent of Comiskey & Company, P.C.
24.2(5) Consent of Brewer & Pritchard, P.C. (Contained in
Exhibit 5.1)
- ---------------------
(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-K8B.
(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. 333-05599).
(4) To be filed by amendment.
(5) Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
i. To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed
that which was registered) and any deviation from the
low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of this
chapter) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
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<PAGE>
iii. To include any additional or changed material
information with respect to the
plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) i. That, for the purpose of determining liability under
the Securities Act of 1933, the information omitted
from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of
the time it was declared effective.
ii. That, for the purpose of determining liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of
such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Delray, State of Florida, on the 28th day of January, 1997.
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
Registration Statement 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 January 28, 1997
Mark Schaftlein Officer and Director
/s/ NORMAN H, BIRMINGHAM Director and Chief Financial January 28, 1997
Norman J. Birmingham Officer
/s/ TODD WALKER Director January 28, 1997
Todd Walker
/s/ LOUIS RESWEBER Director January 28, 1997
Louis Resweber
II-11
EXHIBIT 5.1
January 28, 1997
Mr. Mark Schaftlein
Westmark Group Holdings, Inc.
355 N.E. Fifth Avenue
Delray, Florida 33483
Dear Mr. Birmingham:
As counsel for Westmark Group Holdings, Inc., a Delaware corporation
("Company"), you have requested our firm to render this opinion in connection
with the Amendment No. 1 to the Registration Statement of the Company on Form
SB-2 filed under the Securities Act of 1933, as amended ("Act"), with the
Securities and Exchange Commission relating to the registration of the issuance
of (i) 1,671,993 shares of Common Stock underlying currently exercisable
warrants ("Warrants"), (ii) 639,937 shares of Common Stock issuable upon
conversion of debt ("Convertible Debt") and (iii) 2,464,994 shares of Common
Stock issuable upon conversion of preferred stock ("Preferred Stock"). The
Registration Statement also relates to the resale of 2,107,008 shares of Common
Stock.
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
<PAGE>
Mr. Mark Schaftlein
January 28,1997
Page 2
2. The shares of Common Stock underlying the Warrants to be issued upon
exercise of such Warrants are validly authorized and, upon exercise
of the Warrants in accordance with their terms, will be validly
issued, fully paid and nonassessable.
3. The shares of Common Stock issuable upon conversion of Convertible
Debt are validly authorized and, upon conversion of the Convertible
Debt in accordance with their terms, will be validly issued, fully
paid and nonassessable.
4. The shares of Common Stock underlying the Preferred Stock to be
issued upon conversion of such Preferred Stock are validly
authorized and, upon conversion of the Preferred Stock in accordance
with their terms, will be validly issued, fully paid and
nonassessable.
We consent to the use in the registration statement of the reference to
Brewer & Pritchard, P.C. under the heading "Legal Matters."
This opinion is conditioned upon the registration statement being declared
effective and upon compliance by the Company with all applicable provisions of
the Act and such state securities rules, regulations and laws as may be
applicable.
Very truly yours,
BREWER & PRITCHARD, P.C.
[COMISKEY & COMPANY LETTERHEAD]
To the Board of Directors
Westmark Group Holdings, Inc.
We consent to the use in this registration statement of our report dual dated
March 20, 1996 and April 19, 1996 on the financial statements of Westmark Group
Holdings, Inc., and to reference to our firm under the caption "experts" in the
prospectus.
Aurora, Colorado
January 27, 1997
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
