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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934 (Fee Required)
For the fiscal year ended: DECEMBER 31, 1996
-----------------
_______ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission file number: 33-34200
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OMEGA DEVELOPMENT, INC.
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(Name of small business issuer in its charter)
Nevada 13-3476854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9422 S. College Pl., Suite 222
Tulsa, OK 74137
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(Address of principal executive offices) (Zip Code)
Issuer(s)telephone number: (918)299-3212
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4200 E. Skelly Dr., Suite 150; Tulsa, OK 74135
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(Former name, former address or former fiscal year, if changed
since last report)
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par
Value, $.001
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB. [ X ]
State Issuer's revenues for its most recent fiscal year. $940,745.
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State the aggregate market value of the voting stock held by non-affiliates.
The Common Stock does not trade on any recognized stock exchange.
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State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date. 15,000,000 shares of common
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stock, $.001 par value, as of March 31, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT. YES NO X
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<PAGE>
FORM 10-KSB
OMEGA DEVELOPMENT, INC.
ANNUAL REPORT
DECEMBER 31, 1996
Table of Contents
PART I
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . 6
Item 6. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 9
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . .10
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . . . . . . . . . . .11
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . .12
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . . . .13
Item 12. Certain Relationships and Related Transactions . . . . . . . . . .15
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .16
</TABLE>
(i)
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OMEGA DEVELOPMENT, INC.
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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General
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Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc." Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below. At present, the
Company has no ongoing business operations.
Omega's business plan during the first three quarters of 1996 consisted of
operating its sole operating property and development of the Home Partners of
America, Inc. business. In June 1995, Omega Development, Inc., acquired all of
the common stock of Home Partners of America, Inc. ("HPA"), a New Jersey
corporation. Home Partners of America is a home improvement financing and
services corporation. HPA is a development stage company and was to provide
home improvement loans that were to be 90% insured by the Federal government
under the HUD-FHA Title I Property Improvement Program, and conventional home
improvement loans for bank portfolios. Prior to this acquisition, the Company's
sole operating asset since the 1994 Reorganization described below, was the ABB
Building, a 142,000 square foot general purpose office building, located in
Windsor, Connecticut, a suburb of Hartford. The ABB Building is 100% occupied
by one tenant. The Company negotiated a new lease with the tenant in March 1996
and attempted to refinance the debt on the building (See "Item 2. -Description
of Property"). However, the Company was not successful and the bank that held
the mortgage on the property instituted foreclosure proceedings, which were
consummated on September 27, 1996. Since the ABB Building was the Company's
only operating asset, management was additionally forced to cease its
development plans in connection with HPA.
Prior to its 1994 Reorganization, described below, Omega developed, owned and
operated commercial real estate properties throughout the U.S. These properties
consisted primarily of community shopping centers that were each anchored by one
or more large, national retailers. The properties were leased to a variety of
tenants under operating leases. The lease terms ranged from less than one year
for certain small tenants to twenty and twenty-five years for the majority of
the anchor tenants. Immediately prior to the 1994 Reorganization, the Company
owned and operated five shopping centers, one office building and had one
shopping center under expansion.
1
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1994 Reorganization
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On December 22, 1994, two shareholder groups of the Company closed a transaction
pursuant to a Plan and Agreement of Reorganization. Shareholders holding
7,617,438 shares of the outstanding stock of the Company exchanged those shares
for all the Company's stock in a wholly-owned subsidiary, Omega Development
Corp. Other shareholders acquired 7,617,438 shares of common stock from the
Company in exchange for prior indebtedness in the principal amount of $545,000.
This effectively resulted in the Company no longer owning or participating in
the management of its existing retail shopping centers or being liable for any
underlying debt of those shopping centers. The Company retained ownership of
one office building together with the nonrecourse mortgage debt related to the
office building, an executive aircraft and some miscellaneous office furniture.
Acquisition of Home Partners of America, Inc.
- ---------------------------------------------
In a transaction consummated June 21, 1995, Omega acquired all of the common
stock of Home Partners of America, Inc., a New Jersey corporation. HPA is in the
home improvement financing and services business. HPA was to provide home
improvement loans that were 90% insured by the Federal government under the HUD-
FHA Title I Property Improvement Program, and conventional home improvement
loans for bank portfolios. Generally, these loans would qualify as community
reinvestment loans. HPA was also to provide homeowners with technical services
including, home inspections, cost estimates, contractor qualification,
subcontracting, project supervision and completion certifications. However, as
discussed above, management was forced to cease its development plans in
connection with HPA. In December 1996, the HPA subsidiary was sold to the
principal shareholder of the Company for a nominal amount.
Immediately prior to the execution of the Stock Purchase/Exchange Agreement, the
total issued and outstanding capital stock of HPA was 2,500 shares of common
stock (the "HPA Shares"). The HPA Shares were owned 50% by the previous
President of HPA, 33.32% by RAS Investment Banking Group, a New York
partnership, and 16.68% by J. Tabs Investment, an investment club composed of
five individuals. The purchase price was paid by the issuance and exchange at
closing of (i) 400,000 shares of newly issued Series C $5.00 par value
($2,000,000 stated value) convertible preferred stock of Omega which was
allocated among the sellers in the same percentage amounts corresponding to
their percentage ownership of the HPA Shares set forth above, and (ii) 1,600,000
newly issued shares of Common Stock of Omega to RAS Investment Banking Group.
The 400,000 shares of Series C convertible preferred stock is convertible into
666,667 shares of Common Stock of Omega ($3.00 per common share conversion
price), subject to certain anti-dilution adjustments, i.e. if the Company issues
2
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common stock for less than $3.00 per share prior to the time the Series C
preferred stock is converted into common stock, the conversion price is adjusted
accordingly.
Plan of Operation
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The Company's business plan at December 31, 1996 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement. The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited. The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
As of December 2, 1997, the Company entered into a Stock Exchange Agreement and
Plan of Reorganization to acquire Heater Specialists, Inc. and Primenergy, Inc.
See footnote 10, Subsequent Event, to the Financial Statements following on page
F-11.
Risks
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With regard to its real estate activities prior to the 1994 Reorganization, the
Company was subject to all of the risks and hazards typically associated with
the development, ownership and operation of commercial real estate properties.
During 1995 and through September 1996, the Company had no existing business
other than an interest in an office building in Windsor, Connecticut. (See
"Description of Property" below.) During 1995, one hundred percent of the
revenue from this property was currently being applied to principal and interest
on the non-recourse debt related to the property and no cash flow from the
property was available to fund the Company's operations. Accordingly, the
Company's primary risks were finding a suitable acquisition candidate and
funding its cash requirements prior to an acquisition. Additionally, the office
building is occupied by one tenant, thus the Company faced the risk that the
tenant would not renew the lease when it expired in October 1997. These risks
were minimized somewhat as the Company negotiated a new lease with the tenant of
the office building in March 1996, however as discussed below, the Company was
not successful in refinancing the debt on the building and the bank who held the
mortgage on the property instituted foreclosure proceedings. (See Item 2.
Description of Property, below.) Additionally, as discussed above, the Company
acquired HPA and expected to develop the business once adequate funding was
obtained. Additional risks and uncertainties regarding this new business would
be typical of almost any new venture and would include availability of continued
financing, obtaining customers, retaining employees and maintaining appropriate
regulatory certifications.
At December 31, 1995 there was $174,660 due as accounts receivable from the
tenant in the office building. (See Item 2. Description of Property,
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below.) Such amount was subsequently paid in March 1996 in connection with the
refinancing of the office building. In 1996 and 1995 one tenant (ABB C-E
Services, Inc.) accounted for 100% of the Company's rental income.
Employees
- ---------
As of December 31, 1996, the Company employed 1 person.
ITEM 2. DESCRIPTION OF PROPERTY
- -----------------------------------
As of December 31, 1996, the Company neither owned nor leased any property.
During 1995 and until September 27, 1996, the Company's sole operating asset was
a 100% interest in the Omega-Hartford Limited Partnership, which owns the ABB
Building, a 142,000 square foot office building. In a transaction consummated
in March 1996, the Company executed an extension of the lease on the building
with the tenant through September 2002. However, Omega could not successfully
refinance the debt and the bank who held the mortgage on the property instituted
foreclosure proceedings, which were consummated on September 27, 1996.
The building is a three story general purpose office building located in
Windsor, Connecticut, a suburb of Hartford. The ABB Building is currently, and
has been since its original construction in 1990, 100% occupied by ABB C-E
Services, Inc., a division of ABB Asea Brown Boveri Ltd. ("ABB"). ABB is a
global company serving electric power generation transmission and distribution,
industrial and building systems, and rail transportation customers. ABB is
headquartered in Zurich, Switzerland.
At December 31, 1995, the ABB Building was subject to non-recourse mortgage
debt, held by Fleet Bank N.A., incurred in connection with its construction.
The mortgage debt bore interest at 9.36% and had an outstanding principal
balance at December 31, 1995 of approximately $13,584,000, which was due to
mature on October 1, 1997. 100% of the property's net cash flow was pledged to
monthly payments to service the mortgage debt. The net book value of the
property was $12,836,153 at December 31, 1995.
In June 1996, the Company reached an agreement with Fleet Bank to extinguish the
old debt and allow the Company to refinance the property with another lender, in
connection with a renewed lease agreement with the tenant of the building. The
bank agreed to: (i) settle past due interest on the note (from November 1, 1995
to the new loan closing date) in an amount equivalent to the rate of the new
monthly rent charged to the tenant on the property, (ii) by August 15, 1996,
Omega must pay Fleet Bank $6,670,000 cash and deliver a note payable for
$500,000 in settlement of the outstanding debt, (iii) the bank must approve a
future sale of the property to a third party.
4
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It was management's intent to close the loan to refinance the ABB Building by
mid-August 1996. In order to protect itself, Fleet Bank instituted foreclosure
proceedings on the building in August 1996, however they voluntarily delayed the
"law date" (the date title would pass) sufficiently to allow the described
refinancing to occur. The Company's refinancing plan was not consummated and on
September 27, 1996 the bank completed their foreclosure proceedings and assumed
title to the building.
The old lease on the ABB Building was due to expire in October 1997 and 100% of
the rental income was being applied to the outstanding loan on the building. In
a transaction consummated in March 1996, the Company negotiated a lease renewal
with the sole tenant, ABB C-E Services, who occupies 100% of the available space
of the ABB Building. The new lease was effective November 1, 1995 for a period
of approximately seven years. The new lease is a so called "triple net" lease
where the tenant pays for taxes, insurance, maintenance and operating costs on
the building. Annual rentals from the new lease are approximately $1,048,000
for the first two years and $958,500 per year for the remaining five years. The
new lease expires September 30, 2002 and contains two five year renewal options.
In connection with the new lease agreement, as of November 1, 1995, the tenant
assigned its five percent interest in the Omega-Hartford Limited Partnership to
the Company and agreed there were no outstanding claims, offsets, disputes or
liabilities owed by either party to the other. There is no significant
undeveloped property surrounding the office building, thus there are no plans
for improvement. In the opinion of management of the Company, the office
building was adequately covered by insurance.
The Company's executive offices are located in Tulsa, Oklahoma, and until
October 1996, occupied an operating lease covering approximately 1,900 square
feet, which was scheduled to expire in July 1998. The annual rent for these
offices was approximately $23,800. In October 1996, the Company found other
tenants for its office space and the landlord cancelled its lease.
ITEM 3. LEGAL PROCEEDINGS
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A former employee of the Company's subsidiary, HPA, sued the Company in March
1996 for unpaid wages and other claims related to loan advances to another
former employee of the Company. In November 1997, the Company agreed with the
former employee to settle the lawsuit following an arbitration hearing for the
payment of $12,000 in exchange for a full release of all claims by the former
employee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to the Company's stockholders during the fourth
quarter of the fiscal year ended December 31, 1996.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------
To date there has been no significant public market for the Company's Common
Stock. In light of the Company's lack of business operations or properties as
of December 31, 1996, it is unlikely its Common Stock had any value other than a
nominal value. Of the 15,000,000 shares of the Company's common stock presently
outstanding, approximately 14,252,130 shares or 95.0% are "restricted
securities," as the SEC's rules and regulations define such term. The holders
of these restricted shares may not sell them in the public market unless they
are first registered for sale under the Act, or are sold in compliance with Rule
144 under the Act. The "float" of the Company's Common Stock available for
trading in the public market does not exceed 747,870 shares (5.0%). The holders
of approximately 8,784,564 shares are "affiliates," as defined by the Act (See
"Item 11. - Security Ownership of Certain Beneficial Owners and Management,"
following).
In connection with the acquisition of HPA, the sellers received demand and
"piggyback" registration rights for the Common Stock exchanged and for the
Common Stock into which the Series C Preferred Stock is convertible (See "Item
1. - Description of Business, Acquisition of Home Partners of America, Inc.").
Additionally, under the terms of a private offering under which 209,000 shares
of Common Stock have been sold, the investors were offered registration rights
within six months after the closing date of the offering.
As described in the previous paragraph, approximately 14,252,130 shares of the
Company's Common Stock which are currently outstanding are "restricted"
securities, as Rule 144 promulgated under the Act defines that term. In the
future, the holders of these shares may sell them in compliance with Rule 144.
Generally under Rule 144, a person holding restricted securities for a period of
at least one year may, if there is adequate public information available
concerning the Company, every three months sell in ordinary brokerage
transactions or transactions with a market maker an amount equal to the greater
of (i) 1% of the Company's then outstanding stock, or (ii) the average weekly
volume of sales during the four calendar weeks preceding the sale. After two
years have elapsed, a person who is not an affiliate of the Company may sell an
---
unlimited amount of the restricted securities. Under Rule 144, however,
affiliates of the Company are subject to these volume limitations as long as
they are affiliated with the Company and for a period of at least three months
after their affiliation ends, regardless of the length of the holding period.
Sales under Rule 144 may, in the future, tend to depress the market price of the
Company's securities should a public market develop. Subject to compliance with
other provisions of Rule 144, most of these
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restricted securities will not be subject for resale in the public market until
December 15, 1998 (under the two year hold rule that was in effect on December
31, 1996).
At March 31, 1997, there were approximately 580 record holders of the Company's
Common Stock. The Company has not paid any cash dividends on shares of its
Common Stock since its inception and currently intends to retain earnings in the
future for the Company's operations and expansion of its business.
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ---------------------------------------------------------------------
PLAN OF OPERATION
-----------------
As a result of the Company's 1994 Reorganization, the Company disposed of
substantially all of its operating assets and the mortgage debt related thereto.
The Company's business plan during the first three quarters of the year
consisted of operating its sole operating property and development of the Home
Partners of America, Inc. ("HPA") business. In June 1995 Omega acquired all of
the common stock of HPA, a New Jersey corporation. HPA is a home improvement
financing and services corporation. HPA is a development stage company and was
to provide home improvement loans that were to be 90% insured by the Federal
government under the HUD-FHA Title I Property Improvement Program, and
conventional home improvement loans for bank portfolios. Generally, these loans
would qualify as community reinvestment loans. HPA was also to provide
homeowners with technical services including, cost estimates, contractor
qualification, subcontracting, home inspections, project supervision and
completion certifications. HPA planned to commence its operations in Newark,
New Jersey. However, with the loss of the ABB Building through foreclosure (See
Item 1, Description of Business, above), management was forced to abandon its
plans to pursue development of the HPA business. In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount.
The Company's business plan at December 31, 1996 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement. The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited. The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
In seeking to attain its business objectives, the Company will not restrict its
search to any particular industry. As of December 2, 1997, the Company entered
into a Stock Exchange Agreement and Plan of Reorganization to acquire Heater
Specialists, Inc. and Primenergy, Inc. See footnote 10, Subsequent Event, to
the Financial Statements following on page F-11.
7
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As a result of the 1994 Reorganization, the Company's overhead was significantly
reduced. Prior to the 1994 Reorganization, the Company had 11 employees; after
the reorganization the Company had only three employees working with no
contractual commitments from much smaller offices. However, after the
foreclosure of the ABB Building and the abandonment of the HPA plans, discussed
above, the Company has only one employee, no office and the on going general and
administrative expenses are near zero.
Immediately prior to year-end, the Company had a significant working capital
deficit and suffered a severe cash flow problem. The Company has relied on
small equity placements under a private placement memorandum and loans from
Directors and a private investor to fund its current overhead. Such equity
placements in calendar 1995 totaled $151,000 and totaled $58,000 in calendar
1996. The equity placements are in the form of Units consisting of (i) one
share of common Stock; (ii) one common stock purchase warrant, exercisable into
one share of Common Stock per warrant until October 31, 1996, at a price of
$2.00; and (iii) one common stock purchase warrant, exercisable into one share
of Common Stock per warrant until October 31, 1997, at a price of $3.00.
Working capital loans from Directors and a private investor totaled $109,500 in
1995 and $79,000 in 1996. In connection with the working capital loans in 1996,
the Company issued a total of 30,000 shares of Common Stock.
In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferred Stock to shares of the Company's Common Stock. In
total, $1,061,666 of accounts payables and accrued liabilities were converted to
3,132,583 shares of Common Stock. The Preferred Stock was converted into 666,667
shares of Common Stock in accordance with a previous agreement.
RESULTS OF OPERATIONS - FISCAL 1996 VS. FISCAL 1995
---------------------------------------------------
The net loss for the year ended December 31, 1996 was $1,939,706 compared to a
net loss of $839,337 for the year ended December 31, 1995. Generally, the
increased net loss for the current year is attributable to the loss recognized
in the third quarter of 1996 from writing off the Excess of Cost Over Book Value
of Investment in Subsidiary ($2,352,098), offset by the extraordinary item of
gain ($1,226,243) recognized from the extinguishment of debt on the ABB Building
in the third quarter.
Rental income decreased approximately $986,200 (56%) in the year ended December
31, 1996 as compared to the year ended December 31, 1995. The reduction in
rental income was primarily due to the reduction in rental rates on the
Company's ABB Building, which resulted from the recent renegotiation of the
tenant's lease on the building.
8
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The gain on sale of subsidiary of $153,775 resulted from the sale of the HPA
subsidiary to the principal shareholder of the Company. The gain related to the
assumption of liabilities in excess of assets of HPA by the principal
shareholder.
General and administrative expenses decreased approximately $424,900 (60%) in
the current year as compared to the prior year. The reduction is primarily due
to a reduction in salary accruals and a general winding down of the business in
October 1996.
Depreciation and amortization expenses decreased approximately $269,400 (27%) in
1996 as compared to 1995. This decrease is primarily attributable to the bank
foreclosure on the ABB Building in September 1996, whereby no depreciation was
taken on the building in the last quarter of 1996.
Interest expense declined approximately $471,600 (38%) in the year ended
December 31, 1996 as compared to the year ended December 31, 1995. This decline
is a result of the modification of the financing on the Company's ABB Building,
where the current lending bank agreed to accept the current rentals as interest
payment in lieu of actual interest, which amount would be somewhat higher.
Additionally, no interest was incurred in the last quarter of 1996 due to the
bank foreclosure on the ABB Building.
No income tax expense or benefit has been recorded for 1996, as a valuation
allowance has been provided for the tax effects of the entire net operating loss
carry forwards and other net deductible temporary differences.
Some of the information in this report constitutes "forward looking" statements
within Omega's interpretation of the Private Securities Litigation Reform Act of
1995. Although Omega believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its businesses, there is no
assurance these transactions and financial goals will be achieved. Factors that
could cause actual results to differ from those in forward looking statements,
or used as a basis for forward looking statements, include the success in the
Company's plan to acquire or merge with potential businesses that may warrant
the Company's business.
ITEM 7. FINANCIAL STATEMENTS
- --------------------------------
The information required by this Item begins at page F-1 following page 19
hereof.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
At a meeting held on August 15, 1995, the Board of Directors of the Company
approved the engagement of Ernst & Young LLP as its independent auditors for the
fiscal year ending December 31, 1995, to replace the firm of Arthur Andersen
LLP, who were dismissed as auditors of the Company effective August 15, 1995.
The reports of Arthur Andersen LLP on the Company's financial statements for
1994 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audit of the Company's financial statements for the year
ended December 31, 1994, and in the subsequent interim period, there were no
disagreements with Arthur Andersen LLP on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Arthur Andersen LLP would have
caused Arthur Andersen LLP to make reference to the matter in their report.
The Company requested Arthur Andersen LLP to furnish it a letter addressed to
the Commission stating whether it agrees with the above statements. A copy of
that letter, dated August 17, 1995, was filed as Exhibit 1 to the Registrant's
Form 8-K dated August 15, 1995, with the Commission.
10
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- -------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows. The Company
expects that these persons will serve in these offices until the next annual
meeting or until their respective successors are elected and qualified:
Name Age Position
- -------------------- ------- ----------------------------
A. Paul Shapansky 47 Chairman of the Board, President
and Chief Executive Officer and
Principal Financial Officer
Herbert Maxwell 76 Director
A. Paul Shapansky. Mr. Shapansky joined the Company in January 1994 as Chief
- ------------------
Operating Officer and was appointed Chairman, President and Chief Executive
Officer in December 1994 in connection with the 1994 Reorganization. He has
served as a financial consultant to the Company through his investment banking
firm, A.G. Group Inc., since March 1993 and was responsible for the combination
with Lewison Enterprises, Inc. and Omega Development Corp. in July 1993,
arranging new funding for the Company's operations and the 1994 Reorganization
in December 1994. Mr. Shapansky has been President and owner of A.G. Group
Inc., an investment banking firm, since 1988. From September 1996 to September
1997, Mr. Shapansky was a Financial Advisor for Prudential Securities, Inc.
Previously, Mr. Shapansky was President of Struthers Industries, Inc. (SIR-
AMEX), a company in the aerospace industry, from May 1991 to January 1992 where
he arranged for Struthers to purchase Peacock Aerospace from Nortek, Inc. for
$5.4 million and listed Struthers on the American Stock Exchange in December
1991. He was formerly Vice-President Finance, Secretary and a Director of
C.I.S. Technologies, Inc. (CISI-NASDAQ National Market System) from January 1985
to January 1988 where he completed equity financing for C.I.S. of more than $35
million for its startup in the health care industry. Mr. Shapansky has a
Bachelor of Commerce (Honours) degree in Actuarial Mathematics and Finance, from
the University of Manitoba in Winnipeg, Canada.
11
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Herbert Maxwell. Mr. Maxwell has been a director of the Company since December
- ---------------
1994. He has been self-employed as a crisis management consultant and investor
for over 20 years. Mr. Maxwell resides in the Manhattan district of New York
City and also serves as President and a director for Zachary Ventures, Inc. and
is a director on numerous other private companies.
The Company's directors are elected for one year terms and hold office until
their successors are elected. The number of directors serving on the Board is
three. The Company's officers are elected annually by the Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's common stock, to report their initial ownership of the
common stock and any subsequent changes in that ownership to the SEC and to
furnish the Company with a copy of each such report. SEC regulations impose
specific due dates for such reports, and the Company is required to disclose any
failure to file by these dates.
To the Company's knowledge, based solely on the review of the copies of such
reports furnished to the Company, during and with respect to fiscal 1996, all
Section 16(a) filing requirements applicable to its officers, directors and more
than ten percent stockholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
- -----------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------
The following table summarizes compensation for services to Omega in all
capacities awarded to, earned by or paid to Omega's chief executive officer for
the fiscal year ended December 31, 1996. No other executive officer of Omega
met the definition of "highly compensated" within the meaning of the Securities
and Exchange Commission's executive compensation disclosure rules.
12
<PAGE>
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary($) Bonus Compensation
- -------------------- ---- --------- --------- ------------
<S> <C> <C> <C> <C>
A. Paul Shapansky 1996 $97,000 (A) $0 $0
President, Chief
Executive Officer
and Chairman
</TABLE>
(A) Although Mr. Shapansky's salary was accrued and not paid in cash to him
in 1996, in accordance with applicable regulations of the SEC, the
amounts are disclosed as "earned" in the fiscal year.
Stock Options
- -------------
The Company has never had an employee stock option or other plan under which
cash, stock, restricted stock, phantom stock, stock options, stock appreciation
rights, warrants, convertible securities, performance units and performance
shares, or similar instruments may be awarded.
Compensation Of Directors
- -------------------------
Directors receive no additional compensation for service on the Board of
Directors or any committee thereof. All Directors are reimbursed by the Company
for out-of-pocket expenses incurred by them in connection with their service on
the Board of Directors and any committee thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ---------------------------------------------------------------------------
Changes in Control of Registrant
- --------------------------------
On December 22, 1994, two shareholder groups of the Company closed a transaction
pursuant to a Plan and Agreement of Reorganization ("1994 Reorganization").
Shareholders holding 7,617,438 shares of the outstanding stock of the Company
exchanged those shares for all the Company's stock in a wholly-owned subsidiary,
Omega Development Corp. Other shareholders acquired 7,617,438 shares of common
stock from the Company in exchange for prior indebtedness in the principal
amount of $545,000.
The 1994 Reorganization resulted in a change of control of the Company. Prior to
the transaction, P. Thomas Mann, the Peter Allen Dysert Trust and Kirby J.
Bourgeois owned in the aggregate 6,963,738 shares or approximately 74.8% of the
outstanding common stock. After the transaction, A. Paul Shapansky owned
approximately 6,417,800 shares (or 68.9%) of the common stock.
13
<PAGE>
Principal Shareholders - Common Stock
- -------------------------------------
The following table shows the number of shares of Common Stock of the Company
beneficially owned, as of March 15, 1997, by (i) the persons known to the
Company to be the beneficial owners of more than five percent (5%) of the
outstanding shares, (ii) each of the directors of the Company, (iii) the
Company's Chief Executive Officer, and (iv) by all executive officers and
directors of the Company as a group, as follows:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned Outstanding Shares
- ---------------- ------------------ ------------------
<S> <C> <C>
A. Paul Shapansky 7,352,429 (1) 49.0%
9422 S. College Pl.
Suite 222
Tulsa, OK 74137
Herbert Maxwell 1,432,135 9.6%
1501 Broadway
Suite 1807
New York, NY 10036
Dennis W. Rendflesh 1,675,141 (2) 11.2%
508 Whiston Pl.
Edmonton, Alberta
Canada T6M2C6
RAS Investment Banking Group 1,600,000 10.7%
2 Broadway
New York, NY 10004-2801
All Executive Officers and 8,784,564 58.6%
Directors as a group (2 persons)
</TABLE>
(1) Of these shares, 1,830,000 shares are held by Investors LLC No. 1, of
which Mr. Shapansky is the Manager and Controlling Member, 1,000,000
shares are held in trust by Mr. Shapansky's wife and 200,000 shares
are held in trust for Mr. Shapansky's minor children.
(2) Of these shares, 200,000 shares are held in trust by Mr. Rendflesh's
wife and 30,000 shares are held in trust for Mr. Rendflesh's minor
children.
14
<PAGE>
Preferred Stock
- ---------------
In November 1993, the Company issued 400,000 shares of $5.00 par value Series B
Preferred Stock to Aviation Specialists, Inc. in connection with the acquisition
of an aircraft. The Preferred Stock paid a dividend of $.30 per share per year,
payable monthly and was convertible at the option of the holder to Common Stock
of Omega, at a ratio of one share of Preferred Stock for one share of Common
Stock. The Preferred Stock was also callable, at the option of Omega, at a call
price of $5.00 per share. Additionally, Omega could, at its option, redeem the
Preferred Stock at any time by transferring the aircraft back to the seller and
issuing 50,000 shares of its Common Stock to the seller. In the last quarter of
1995 the Series B Preferred Stock was redeemed and canceled and the plane was
transferred back to the seller for 50,000 shares of Common Stock and an
agreement to pay the seller $120,000 in accrued Preferred Stock dividends. In
December 1996, the accrued Preferred Stock dividends were converted to Common
Stock by agreement.
In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA. The 400,000
shares of Series C convertible Preferred Stock is convertible into 666,667
shares of Common Stock of Omega, subject to certain anti-dilution adjustments
(See "Item 1. - Description of Business, Acquisition of Home Partners of
America, Inc."). In December 1996, the Preferred Stock was converted into
666,667 shares of Common Stock by agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------------------
Issuance of Shares to Directors
- -------------------------------
Herbert Maxwell, a director of the Company, was issued 912,500 shares in
December 1994 in connection with the 1994 Reorganization and 10,000 shares in
March 1996 in connection with a working capital loan. Mr. Maxwell also received
90,466 shares in December 1996 in connection with the conversion of liabilities
to Common Stock. A. Paul Shapansky was issued 50,000 shares in January 1994 in
connection with working capital loans Mr. Shapansky made to the Company. He was
also issued 150,000 shares in January 1994 as a part of a compensation agreement
for serving as Chief Operating Officer for the Company and was issued 6,000,688
shares in December 1994 in connection with the 1994 Reorganization. Mr.
Shapansky also received 1,056,146 shares in December 1996 in connection with the
conversion of liabilities to Common Stock.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------------
(a) Exhibits
The following documents are included as exhibits to this Form 10-KSB.
Those exhibits below incorporated by reference herein are indicated as such
by the information supplied in the parenthetical thereafter. If no
parenthetical appears after an exhibit, such exhibit is filed herewith.
Exhibits
- --------
2.1 Agreement and Plan of Reorganization by and between Lewison Enterprises,
Inc., Omega Development Corp. and the shareholders of Omega Development
Corp. dated July 13, 1993 (Filed as Exhibit 2.1 to the Form 8-K dated July
23, 1993, previously filed with the Commission, File No. 33-34200).
2.2 Plan and Agreement of Reorganization by and among Omega Development Inc.,
Omega Development Corporation, P. Thomas Mann, Peter Allen Dysert, the
Peter Allen Dysert Trust UTI dated July 13, 1983, Kirby J. Bourgeois,
Toklan Oil & Gas Corporation, Stephen M. King Properties, Inc., A. Paul
Shapansky and Omega Investors L.L.C. No. 1 consummated on December 22,
1994 (Filed as Exhibit 2.1 to the Form 8-K dated December 22, 1994,
previously filed with the Commission, File No. 33-34200).
2.3 Stock Purchase/Exchange Agreement by and among Home Partners of America,
Inc., RAS Investment Banking Group, J. Tabs Investment and Michael Coleman
and Omega Development, Inc. dated June 2, 1995 (Filed as Exhibit 2.1 to
the Form 8-K dated June 21, 1995, previously filed with the Commission,
File No. 33-34200).
3.1 (a) Articles of Incorporation of Lewison Enterprises, Inc. filed with the
Secretary of State of Nevada July 14, 1988 (incorporated by reference
to Registration Statement on Form S-1, File Number 33-34200, of
Lewison Enterprises, Inc.);
(b) Amendment to Articles of Incorporation of the Company, as filed with
the Secretary of State of Nevada on September 22, 1989 (incorporated
by reference to Form 10-K of the Company [then known as The Postal
Group, Inc.] for year ended December 31, 1989);
16
<PAGE>
(c) Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Nevada on October 27, 1992 (incorporated by
reference to Form 10-KSB of the Company for the year ended December
31, 1992);
(d) Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Nevada on January 19, 1994 (incorporated by
reference to Form 10-KSB of the Company for the year ended December
31, 1993).
3.2 Bylaws of the Company (incorporated by reference to Registration Statement
on Form S-1, File Number 33-34200, previously filed with the Commission).
4.1 Specimen Form of Certificate for Common Stock (incorporated by reference to
Registration Statement of Form S-1, File Number 33-34200, previously filed
with the Commission).
4.2 Board of Directors Action dated November 8, 1993, designating preferences
of Class B Preferred Stock, pursuant to authority in Certificate of
Amendment of Exhibit 3.1(c) above (incorporated by reference to Form 10-KSB
of the Company for the year ended December 31, 1993).
4.3 Specimen Form of Certificate for Preferred Stock (incorporated by reference
to Form 10-KSB of the Company for the year ended December 31, 1993).
10.1 Agreement and plan of Reorganization dated June 15, 1989 among the Company,
Mail-it-Quik, Inc., and the shareholders of Mail-it-Quik, Inc.
(incorporated by reference to Form 8-K dated June 30, 1989).
10.2 Rescission and revocation of Agreement and Plan of Reorganization
(incorporated by reference to Form 8-K dated December 31, 1990).
10.3 Agreement and Plan of Reorganization by and between Lewison Enterprises,
Inc., Omega Development Corp. and the shareholders of Omega Development
Corp. dated July 13, 1993 (incorporated by reference to Form 8-K dated July
23, 1993).
10.4 HPA Stock Purchase Abreement by and between Omega Development, Inc. and
Omega Investors LLC #1, effective December 15, 1996. (Included herewith.)
17
<PAGE>
16.1 Letter dated August 17, 1995, issued by Arthur Andersen LLP addressing
Registrant disclosures in Form 8-K reporting a change in auditors (Filed as
Exhibit 1 to the Form 8-K dated August 15, 1995, previously filed with the
Commission, File No. 33-34200).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed with the Securities and
Exchange Commission during the last quarter of fiscal 1996.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OMEGA DEVELOPMENT, INC.
Date: January 28th, 1998 By: /s/ A. Paul Shapansky
---------------------
A. Paul Shapansky
Chairman of the Board, President
and Chief Executive Officer and
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
Signature Title Date
- ----------------------- --------------------- ----------------
/s/ A. Paul Shapansky Chairman of the Board, January 28th, 1998
- --------------------- President and Chief
A. Paul Shapansky Executive Officer and
Principal Financial Officer
/s/ Herbert Maxwell Director January 28th, 1998
- ---------------------
Herbert Maxwell
19
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Omega Development, Inc.:
We have audited the accompanying consolidated balance sheet of Omega
Development, Inc. and subsidiaries as of December 31, 1996 and the related
statements of operations and accumulated deficit, changes in stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Omega Development, Inc. and
subsidiaries as of December 31, 1996, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Omega
Development, Inc. and subsidiaries will continue as a going concern. The Company
has incurred recurring operating losses and has a working capital deficiency.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to the Company's future
operations are described in the accompanying notes. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
January 9, 1998
F-1
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
ASSETS 1996
-----------
<S> <C>
CURRENT ASSETS:
Cash $ 120
Prepaid expenses 5,622
-----------
Total current assets 5,742
OFFICE EQUIPMENT, at cost net of accumulated depreciation
of $13,059 in 1996 26,669
-----------
TOTAL ASSETS $ 32,411
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 46,604
COMMITMENTS AND CONTINGENCIES (Note 8) --
STOCKHOLDERS' DEFICIT:
Common Stock, $0.001 par value; 25,000,000 shares authorized;
15,000,000 shares issued and outstanding 15,000
Additional Paid in Capital 4,585,214
Accumulated Deficit (4,614,407)
-----------
Total Stockholders' Deficit (14,193)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 32,411
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Rental income $ 785,970 $ 1,772,160
Gain on sale of subsidiary 153,775 --
Other income 1,000 3,000
------------ ------------
Total revenues 940,745 1,775,160
EXPENSES:
General and administrative 284,278 709,185
Depreciation and amortization 715,671 985,092
Interest 754,647 1,226,220
Write off excess of cost over book value
of investment in subsidiary 2,352,098 --
------------ ------------
Total operating expenses 4,106,694 2,920,497
------------ ------------
NET LOSS BEFORE INCOME TAXES (3,165,949) (1,145,337)
INCOME TAX BENEFIT -- 306,000
------------ ------------
NET LOSS BEFORE EXTRAORDINARY ITEM (3,165,949) (839,337)
EXTRAORDINARY ITEM
Gain on extinguishment of debt 1,226,243 --
------------ ------------
NET LOSS (1,939,706) (839,337)
DIVIDENDS ON PREFERRED STOCK -- (20,000)
------------ ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK (1,939,706) (859,337)
ACCUMULATED DEFICIT, beginning of period (2,674,701) (1,815,364)
------------ ------------
ACCUMULATED DEFICIT, end of period ($ 4,614,407) ($ 2,674,701)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Loss before extraordinary item ($ 0.28) ($ 0.08)
Extraordinary gain 0.11 --
------------ ------------
Net loss ($ 0.17) ($ 0.08)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,178,455 10,238,621
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common
Shares Preferred Shares
Outstanding Stock Outstanding
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 400,000 2,000,000 9,311,750
Issuance of preferred and common stock for acquisition of
HPA (Note 3) 400,000 786,000 1,600,000
Issuance of common stock in connection with private equity
offering -- -- 151,000
Cancellation of preferred stock and issuance of common stock
in connection with disposition of airplane (Note 6) (400,000) (2,000,000) 50,000
Preferred stock dividends -- -- --
Net loss for the period -- -- --
---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 400,000 786,000 11,112,750
Issuance of common stock in connection with private equity
offering and notes payable -- -- 88,000
Conversion of liabilities and preferred stock into common stock (400,000) (786,000) 3,799,250
Net loss for the period -- -- --
---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 0 0 15,000,000
========== ========== ==========
<CAPTION>
Common Additional
Stock Paid-In Accumulated
Par Value Capital Deficit
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 9,312 565,947 (1,815,364)
Issuance of preferred and common stock for acquisition of
HPA (Note 3) 1,600 1,712,400 --
Issuance of common stock in connection with private equity
offering 151 138,350 --
Cancellation of preferred stock and issuance of common stock
in connection with disposition of airplane (Note 6) 50 266,615 --
Preferred stock dividends -- -- (20,000)
Net loss for the period -- -- (839,337)
---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 11,113 2,683,312 (2,674,701)
Issuance of common stock in connection with private equity
offering and notes payable 88 57,942 --
Conversion of liabilities and preferred stock into common stock 3,799 1,843,960 --
Net loss for the period -- -- (1,939,706)
---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 15,000 4,585,214 (4,614,407)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($1,939,706) ($ 839,337)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write off excess of cost over book value of
investment in subsidiary 2,352,098 --
Depreciation and amortization 715,671 985,092
Gain on sale of subsidiary (153,775)
Extraordinary gain on extinguishment of debt (1,226,243)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 174,760 (174,660)
(Increase) decrease in deferred costs -- (74,217)
(Increase) decrease in deposits and other assets 697 (3,484)
Shareholder deficit in HPA at time of acquisition -- (63,118)
Increase (decrease) in accounts payable and
accrued liabilities (77,895) 233,295
Increase in due to officers/stockholders 10,591 518,984
Decrease in deferred taxes -- (306,000)
----------- -----------
Total adjustments 1,795,904 1,115,892
----------- -----------
Net cash provided by (used in) operating activities (143,802) 276,555
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (additions) of office and other equipment 6,834 (3,527)
----------- -----------
Net cash provided by (used in) investing activities 6,834 (3,527)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 79,000 5,000
Payments on notes payable -- (594,245)
Proceeds from sale of common shares 58,000 138,501
----------- -----------
Net cash provided by (used in) financing activities 137,000 (450,744)
----------- -----------
NET INCREASE (DECREASE) IN CASH 32 (177,716)
CASH, beginning of period 88 177,804
----------- -----------
CASH, end of period $ 120 $ 88
=========== ===========
Cash paid during the period for interest $ 740,995 $ 1,115,617
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
- ---------------------------------------------
ORGANIZATION
- ------------
Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc." Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below.
In June 1995 Omega acquired all of the common stock of Home Partners of America,
Inc. ("HPA"), a New Jersey corporation. HPA is a home improvement financing and
services corporation. HPA is a development stage company and was to provide home
improvement loans that were to be 90% insured by the Federal government under
the HUD-FHA Title I Property Improvement Program, and conventional home
improvement loans for bank portfolios. The Company's sole operating asset during
1996 was the ABB Building, a 142,000 square foot general purpose office
building, located in Windsor, Connecticut, a suburb of Hartford. The ABB
Building is 100% occupied by one tenant and the Company negotiated a new lease
with the tenant in March 1996 and attempted to refinance the debt on the
building as described in Note 5. However, Omega could not successfully refinance
the debt and the bank that held the mortgage on the property instituted
foreclosure proceedings, which were consummated on September 27, 1996. Since the
ABB Building was the Company's only operating asset, management was additionally
forced to cease its development plans in connection with HPA (See also Note 3).
Since the foreclosure of the ABB Building, the Company ceased all operations and
currently has one employee. Omega's current business plan is to seek to acquire
or merge with potential businesses that may, in the opinion of management,
warrant the Company's involvement. The Company recognizes that as a result of
its limited financial, managerial or other resources, the number of suitable
potential businesses that may be available to it will be extremely limited. The
Company's principal business objective will be to seek long-term growth
potential in the business in which it participates rather than immediate, short-
term earnings. As of December 2, 1997, the Company entered into a Stock Exchange
Agreement and Plan of Reorganization to merge with Heater Specialists, Inc. and
Primenergy, Inc. See footnote 10, Subsequent Event.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
CONSOLIDATION
- -------------
The Company's consolidated financial statements at December 31, 1996 include the
accounts of Omega and its wholly owned subsidiary, Omega Capital Corp. All
intercompany transactions have been eliminated.
REVENUE RECOGNITION
- -------------------
Tenant rental income under operating leases is recognized on a straight-line
basis over the lease term. Deferred rent receivable is recorded for those leases
that specify scheduled rent increases over the lease term or that provide for
initial rent periods without charge. However, deferred rent is not recorded if
there is doubt about its collectibility.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation is recorded using the straight-line method over the estimated
useful lives of the properties. Tenant improvements are included as a component
of investments in real estate and are amortized over the life of the lease or
the useful life of the improvement, whichever is shorter. Those lease terms
range from seven to 20 and 25 years for anchor tenants and average approximately
five years for other tenants. The remaining balance of tenant improvements is
charged to amortization expense if a tenant moves out.
INCOME TAXES
- ------------
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Deferred
---------------------------
taxes are determined based on the estimated future tax effects of differences
between the financial statements and tax basis of assets and liabilities and of
net operating loss carry forwards ("NOL"). SFAS 109 requires that the tax
benefit of such NOLs be recorded as an asset to the extent that management
concludes the realization of the NOLs is "more likely than not."
CONCENTRATION OF CREDIT RISK
- ----------------------------
In 1996 and 1995 one tenant accounted for 100 percent of the Company's rental
income. In March 1996, the tenant's lease was renegotiated effective November 1,
1995 and was extended to September 30, 2002. The building is a three story,
142,000 square foot general purpose office building located in Windsor,
Connecticut, a suburb of Hartford.
F-7
<PAGE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. BUSINESS ACQUISITION
- -------------------------
In a transaction consummated June 21, 1995 and accounted for as a purchase,
Omega acquired all of the common stock of Home Partners of America, Inc., a New
Jersey corporation. HPA is a home improvement loan financing and services
corporation. HPA was to provide home improvement loans that were 90% insured by
the Federal government under the HUD-FHA Title I Property Improvement Program,
and conventional home improvement loans for bank portfolios. HPA was also to
provide homeowners with technical services including, home inspections, cost
estimates, contractor qualification, subcontracting, project supervision and
completion certifications. However, as discussed above, management was forced to
cease its development plans in connection with HPA.
Prior to the acquisition HPA's shares were owned 50% by the previous President
of HPA, 33.32% by RAS Investment Banking Group, a New York partnership, and
16.68% by J. Tabs Investment, an investment club composed of five individuals.
The purchase price was paid by the issuance and exchange at closing of (i)
400,000 shares of newly issued Series C $5.00 par value convertible preferred
stock of Omega which was allocated among the sellers in the same percentage
amounts corresponding to their percentage ownership of the HPA Shares set forth
above, and (ii) 1,600,000 newly issued shares of Common Stock of Omega to RAS
Investment Banking Group. The 400,000 shares of Series C convertible preferred
stock was convertible into 666,667 shares of Common Stock of Omega, subject to
certain anti-dilution adjustments. The common and preferred shares were recorded
at a value of $1.07 per share and $1.97 per share, respectively, based on an
independent valuation of the HPA business being acquired. The resulting excess
purchase was being amortized over a period of 15 years.
The Excess of Cost Over Book Value of Investment in Subsidiary related to the
HPA acquisition of $2,352,098 was expensed in September 1996 when management
decided not to pursue development plans of HPA. In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount, resulting in a gain of approximately $153,000 related to the assumption
of liabilities in excess of assets of HPA by the principal shareholder.
F-8
<PAGE>
4. REAL ESTATE PROPERTIES
- ---------------------------
The Company's sole operating asset during the first three quarters of 1996 was
the ABB Building in Windsor, Connecticut. In a transaction consummated in March
1996 the Company negotiated an extension of the lease on the building with the
tenant, and through September 1996 worked on agreements to refinance the
mortgage debt on the building with a new lender including an agreement with the
current lender to extinguish the previous mortgage on the building with a
substantial discount (see Note 5). Prior to the new lease agreement discussed
above, the ABB Building was owned by a partnership whereby Omega owned a 95%
interest and the tenant owned a 5% interest. In connection with the new lease
agreement, the tenant assigned its 5% interest in the property to Omega and
agreed there were no outstanding claims, offsets, disputes or liabilities owed
by either party to the other. However, as discussed in Note 5 below, the Company
was not successful in refinancing the debt on the building and the bank that
held the mortgage on the property instituted and completed foreclosure
proceedings.
5. NOTES PAYABLE
- ------------------
In June 1996, the Company reached an agreement with the bank that held the
mortgage on the ABB Building. The loan was payable in monthly installments equal
to 100% of the property's net cash flow, matured in October 1997 and had an
interest rate of 9.36%. The loan was in default due to various violations of the
terms of the loan including non payment of interest. In August 1996 the bank
instituted foreclosure proceedings which were completed on September 27, 1996,
at which time the bank assumed title to the building.
Immediately before the foreclosure, the outstanding principal on the mortgage on
the building was approximately $13,584,000. The net book value of the building
immediately preceeding the foreclosure was approximately $12,358,000, therefore
the transaction resulted in an extraordinary gain of $1,226,000.
6. STOCKHOLDERS' EQUITY
- -------------------------
In November 1993, the Company issued 400,000 shares of $5.00 par value Series B
Preferred Stock in connection with the acquisition of an aircraft. The Preferred
Stock paid a dividend of $.30 per share per year, payable monthly and was
convertible at the option of the holder to Common Stock of Omega, at a ratio of
one share of Preferred Stock for one share of Common Stock. The Preferred Stock
was also callable, at the option of Omega, at a call price of $5.00 per share.
Additionally, Omega could, at its option, redeem the Preferred Stock at any time
by transferring the aircraft back to the seller and issuing 50,000 shares of its
Common Stock to the seller. In the last quarter of 1995 the Series B Preferred
Stock was redeemed and canceled and the plane was transferred back to the seller
for 50,000 shares of Common Stock and an agreement to pay the seller $120,000 in
accrued Preferred Stock dividends.
F-9
<PAGE>
In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA. The 400,000
shares of Series C convertible Preferred Stock was convertible into 666,667
shares of Common Stock of Omega, subject to certain anti-dilution adjustments.
During 1996 the Company relied on small equity placements under a private
placement memorandum and loans from a Director and a private investor to fund
its current overhead. Such equity placements in calendar 1996 totaled $58,000.
The equity placements are in the form of Units (58,000 Units) consisting of (i)
one share of Common Stock; (ii) one common stock purchase warrant, exercisable
into one share of Common Stock per warrant until October 31, 1996, at a price of
$2.00; and (iii) one common stock purchase warrant, exercisable into one share
of Common Stock per warrant until October 31, 1997, at a price of $3.00. Working
capital loans from a Director and a private investor totaled $79,000 in 1996.
The Company issued a total of 30,000 shares of Common Stock in connection with
the working capital loans.
In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferred Stock to shares of the Company's Common Stock. In
total, $1,061,666 of accounts payables and accrued liabilities and amounts due
to officers/directors were converted to 3,132,583 shares of Common Stock. The
Preferred Stock was converted into 666,667 shares of Common Stock in accordance
with a previous agreement.
7. INCOME TAXES
- -----------------
The Company had certain federal income tax net operating loss carry forwards
(NOLs) at December 31, 1996. SFAS 109 requires that the tax benefit of such NOLs
be recorded as an asset to the extent that management concludes the realization
of the NOLs is "more likely than not." Realization of the future tax benefits is
dependent on the Company's ability to generate taxable income within the carry
forward periods. Management has concluded that, using the criteria of SFAS 109,
a valuation allowance should be provided for the entire balance of the net
deferred tax asset.
8. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
The Company had a lease commitment for their executive offices which was to
expire in July 1998. In October 1996, the Company found other tenants for its
office space and the landlord cancelled its lease. Lease expense during 1996 was
$16,131. At December 31, 1996, no other lease commitments exist.
F-10
<PAGE>
9. STATEMENT OF CASH FLOWS
- ----------------------------
For purposes of reporting cash flows, cash includes cash and money market
accounts that are due on demand. No cash payments for income taxes were made in
1996 or 1995.
The Company had the following noncash investing and financing activities in 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Write off excess of cost over book value of
investment in subsidiary $ 2,352,098 $ --
Settlements on notes payable 13,584,320 --
Foreclosure of ABB Building 12,363,077 --
Convert liabilities to Common Stock 1,061,666 --
Convert Preferred Stock to Common Stock 786,000 --
Acquisition of HPA for Preferred and Common
Stock -- 2,500,000
Effect of disposition of aircraft -- 1,733,335
</TABLE>
10. SUBSEQUENT EVENT
- ---------------------
On December 2, 1997, the Company signed a Stock Exchange Agreement and Plan of
Reorganization (the "Agreement") with Heater Specialists, Inc. ("HSI") and
Primenergy, Inc. ("Prime"). The Agreement provides for a merger of HSI and
Prime with Omega. The shareholders of HSI and Prime will exchange all of their
outstanding common shares for 8,000,000 newly issued shares of Omega. After the
exchange, current shareholders of Omega will hold 1,000,000 shares of common
stock and 1,000,000 shares of common stock will be held by new investors who
will contribute $3,000,000 of common equity through a private equity offering.
The exchange will qualify under either Section 351 or Section 368(a)(1)(B),
orboth, of the Internal Revenue Code of 1986, as amended, as a "tax-free"
exchange or reorganization, subject to the terms and conditions as more fully
provided in the Agreement. The closing is scheduled to take place on or about
January 30, 1998, unless closing is delayed by mutual agreement. The new equity
of $3,000,000 will be used to pay down bank credit lines and to fund the
business plans of HSI and Prime. The funding is a stipulated condition precedent
to closing, however management of Omega cannot assure that such equity will be
provided.
F-11
<PAGE>
Primenergy, Inc. possesses a license which permits the integrated application of
several technologies to convert biomass into energy. Prime's proprietary process
design incorporates a low temperature, air-starved gasification of biomatter to
produce an energy source for electricity generation, steam production, process
heat, or any combination of these useful forms of energy. Prime has been working
with government officials within the Republic of the Philippines, and more
specifically Metro Manila, for over a year on an opportunity to build a $60
million plant that will convert municipal solid waste to energy. Prime has been
working with the Philippine Presidential Task Force on Waste Disposal which
management believes will lead to multiple projects in the Philippines for energy
cogeneration over the next few years. Although management of Prime is confident
that a contract will be executed with the Republic of the Philippines, at the
date of this writing a firm contract has not yet been received and no assurance
can be given that this objective will be achieved.
Heater Specialists, Inc. is a fully integrated single source manufacturer of
refractory lined vessels and equipment for the oil refining, chemical process,
power generation and incineration industries. HSI offers a unique combination of
steel fabrication expertise and refractory technology and is the primary
contractor for gasifier units sold by Prime and performs the steel fabrication
and refractory work on the gasifiers.
F-12
<PAGE>
EXHIBIT 10.4
HPA STOCK PURCHASE AGREEMENT
THIS AGREEMENT, effective as of December 15, 1996, between Omega
Investors LLC No. 1 ("LLC") an Oklahoma Limited Liability Corporation whose sole
Manager is A. Paul Shapansky, (LLC hereinafter also the "Purchaser") and Omega
Development, Inc., a Nevada corporation having offices at 9422 S. College Place,
Suite 222, Tulsa Oklahoma 74137 (the "Company").
WHEREAS, the Company owns 2500 shares of common stock, no par value,
representing all of the authorized, issued, and outstanding stock of Home
Partners of America, Inc. ("HPA"), a New Jersey corporation, as set out more
particularly in the Paragraph 1.1(a) below in this Agreement, and
WHEREAS, the Company desires to sell and Purchaser has agreed to purchase
HPA, subject to the terms and conditions and as more fully provided in this
Agreement.
NOW THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Sale of HPA
-----------
1.1 Sale.
----
(a) The Company is the sole stockholder and owner of HPA, a corporation
formed under the laws of New Jersey, and HPA ceased its business activities
on or about October 31, 1995. Since that time, HPA has been a dormant
company and its current Balance Sheet is attached hereto as Exhibit A,
which represents that there are no assets in the accounts of HPA, a total
of $152,975 in liabilities due and accrued, and a deficit in shareholder's
equity of $152,975.
(b) Subject to and in accordance with the terms and conditions of this
Agreement, the Company shall all of its ownership, right, title and
interest in HPA as set out in paragraph 1.1(a) above, to the Purchaser in
exchange for $10.00 and other consideration, the receipt of which is hereby
acknowledged by the Company.
1.2 The Closing. The closing of sale of the HPA stock to the Purchaser (the
-----------
"Closing") shall be effective as of December 15th 1996.
<PAGE>
ARTICLE LI
Representations, Warranties, and Agreements of the Company
----------------------------------------------------------
The Company represents and warrants to, and agrees with Purchaser as
follows:
2.1 Organization. Company is duly organized under the laws of the state of
------------
Nevada and has full power and authority to enter into this Agreement and to
consummate the transactions set forth herein, and is qualified to transact
business and is in good standing as a foreign corporation in every jurisdiction
in which its ownership, leasing, licensing, or use of property or assets or the
conduct of its business makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or in good standing would not
have a material adverse effect on the business, results of operations, financial
condition, or prospects of Company.
2.2 Validity of Agreement. All necessary proceedings to authorize the
---------------------
execution, delivery, and performance of this Agreement by Company have been duly
taken or will be duly taken prior to Closing. This Agreement has been duly
authorized, executed, and delivered by Company, is the legal, valid, and binding
obligation of Company and is enforceable as to the Company in accordance with
its terms, except as may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium, or other similar laws or by legal or equitable
principles relating to or limiting creditors' rights generally or as rights to
indemnification may be limited by applicable securities laws. Except as to
filings which may be required under applicable state securities regulations, no
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or other
governmental authority or of any court or other tribunal is required for the
execution, delivery, or performance of this Agreement by Company. No consent of
any party to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which Company is a party, or by which any of its properties
or assets are bound, is required for the execution, delivery, or performance by
Company of this Agreement, and the execution, delivery, and performance of this
Agreement, by Company will not violate, result in a breach of, conflict with, or
(with or without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or violate or result
in a breach of any term of the Certificate of Incorporation or by-laws of
Company, or violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on Company or to which any of its
operations, business, properties, or assets is subject.
<PAGE>
2.3 Financial Position; Absence of Undisclosed Liabilities. The HPA
------------------------------------------------------
subsidiary of Company has no assets, no employees, and is not engaged in the
active conduct of any business or operations of any sort.
2.4 Securities Laws Compliance. Subject to the accuracy of the
--------------------------
representations and warranties of the Purchaser set forth in Article II hereof,
the sale of HPA to Purchaser by the Company complies with all applicable federal
and state securities laws.
2.5 Books and Records. The books of account, minute books, stock record
-----------------
books, and other records of HPA, all of which have been made available to
Purchaser, are complete and correct and have been maintained in accordance with
sound business practices and the requirements of Section 13(b)(2) of the
Securities Exchange Act of 1934, as amended, including the maintenance of an
adequate system of internal controls. The minute books of Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the
Boards of Directors of Company, and no meeting of any such stockholders, Board
of Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books.
2.6 Investment Intent. Purchaser represents that it is acquiring the HPA
-----------------
Stock for its own account for investment and not with a view to, or for sale in
connection with, any public distribution thereof in violation of the Securities
Act. Purchaser understands that the HPA Common Stock has not been registered for
sale under the Securities Act or qualified under applicable state securities
laws and that the HPA Common Stock is being offered and exchanged with Company
pursuant to one or more exemptions from the registration or qualification
requirements of such securities laws and that the representations and warranties
contained in this Article II are given with the intention that Purchaser and the
Company may rely thereon for purposes of claiming such exemptions. Purchaser
understands that it must bear the economic risk of its investment in HPA for an
indefinite period of time, as the HPA Common Stock cannot be sold unless
subsequently registered under the Securities Act and qualified under state
securities laws, unless an exemption from such registration and qualification is
available.
ARTICLE III
Miscellaneous
-------------
3.1 Communications. All notices or other communications hereunder shall
--------------
be in writing and shall be given by registered or certified mail (postage
prepaid and return receipt requested), by an overnight courier service which
obtains a receipt to evidence delivery, or by telex or facsimile transmission
(provided that written confirmation of receipt is provided), addressed as set
forth below:
<PAGE>
To the Company:
Omega Development, Inc.
9422 South College Place, Suite 222
Tulsa, Oklahoma 74137
or such other address as any party may designate to the other in accordance with
the aforesaid procedure. All notices and other communications sent by overnight
courier service shall be deemed to have been given as of the next business day
after delivery thereof to such courier service, those given by telex or
facsimile transmission shall be deemed given when sent, and all notices and
other communications sent by mail shall be deemed given as of the third business
day after the date of deposit in the United States mail.
3.2 Amendments and Waivers. Neither this Agreement nor any term hereof
----------------------
may be changed or waived (either generally or in a particular instance and
either retroactively or prospectively) without a writing among the parties.
3.3 Entire Agreement. This Agreement (together with the exhibits attached
----------------
hereto) contains the entire understanding of the parties with respect to their
respective subject matter and all prior negotiations, discussions, commitments,
and understandings heretofore had between them with respect thereto are merged
herein and therein.
3.4 Headings. All article and section headings herein are inserted for
--------
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Agreement.
3.5 Counterparts; Governing Law. This Agreement may be executed in any
---------------------------
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Oklahoma, without giving effect to conflict of laws.
3.6 Further Actions. At any time and from time to time, each party
---------------
agrees, without further consideration, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the purposes
of this Agreement.
3.7 Expenses. Except as otherwise expressly provided in this Agreement,
--------
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
hereinabove set forth.
Company:
OMEGA DEVELOPMENT, INC., a
Nevada corporation
By /s/ A. Paul Shapansky
----------------------------------
A. Paul Shapansky, President
Purchaser:
OMEGA INVESTORS LLC No. 1,
an Oklahoma limited liability corporation
By /s/ A. Paul Shapansky
----------------------------------
A. Paul Shapansky, President
<PAGE>
HOME PARTNERS
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
<S> <C> <C>
Current Assets
Total Current Assets -------------- 0.00
Property and Equipment
--------------
Total Property and Equipment 0.00
Other Assets
--------------
Total Other Assets 0.00
-----------
Total Assets $ 0.00
===========
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable $ 6,298.19
Wages Payable 34,320.70
Federal W/H Tax Payable 13,543.36
FICA Employee Tax Payable 4,586.03
Medicare Employee Tax Payable 1,072.51
FICA Employer Tax Payable 4,586.03
Medicare Employer Tax Payable 1,072.51
State W/H Tax Payable 2,485.84
SUTA Payable 798.46
NJ State Disability 1,279.82
FUTA Payable 279.75
Accrued Expenses 27,000.00
Loan - MCA, Inc. 42,495.62
Interest Payable, MCA, Inc. 8,156.33
Other Current Liabilities 5,000.00
--------------
Total Current Liabilities 152,975.15
Long-Term Liabilities
--------------
Total Long-Term Liabilities 0.00
------------
Total Liabilities 152,975.15
Capital
Additional Paid -In Capital 2,563,117.44
Common Stock 2,500.00
Retained Earnings (236,514.43)
Preferred Stock-Series A 20,000.00
Net Income (2,502,078.16)
--------------
Total Capital (152,975.15)
------------
Total Liabilities & Capital $ 0.00
============
</TABLE>
Unaudited - For Management Purposes Only
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,742
<PP&E> 39,728
<DEPRECIATION> 13,059
<TOTAL-ASSETS> 32,411
<CURRENT-LIABILITIES> 46,604
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> (29,193)
<TOTAL-LIABILITY-AND-EQUITY> 32,411
<SALES> 785,970
<TOTAL-REVENUES> 940,745
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,352,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 754,647
<INCOME-PRETAX> (3,165,949)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,165,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,226,243
<CHANGES> 0
<NET-INCOME> (1,939,706)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
