<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported):
AUGUST 31, 1998
Commission File Number 0-631
ROSE'S HOLDINGS, INC.
Incorporated Under the Laws of Delaware
I.R.S. Employer Identification No. 56-2043000
150 East 52nd Street, 21st Floor
New York, New York
10022
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code:
212-813-1500
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(A). FINANCIAL STATEMENTS OF COMPANY ACQUIRED
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
FINANCIAL STATEMENTS
December 31, 1997 and May 15, 1997 to December 31,1997
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of WebBank Corporation
We have audited the accompanying balance sheet of WebBank Corporation (a
wholly-owned subsidiary of Block Financial Corporation) as of December 31,
1997, and the related statements of operations, stockholder's equity, and
cash flows for the period May 15, 1997 (date of inception) to December 31,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of WebBank Corporation at December 31, 1997,
and the results of its operations and its cash flows for the period May 15,
1997 (date of inception) to December 31, 1997, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
January 27, 1998
(August 31, 1998 as to Note 11)
Salt Lake City, Utah
<PAGE>
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Aug. 31, 1998 Dec. 31, 1997
(unaudited)
----------------------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 1,835 $ 25
SECURITIES AVAILABLE FOR SALE
At fair value (amortized cost $1,291
at August 31, 1998 & $1,622 at
December 31, 1997) 1,291 1,622
UNDIVIDED INTEREST IN CREDIT CARD PORTFOLIO
Net of allowance for estimated losses of $1,238 --- 13,762
LOAN RECEIVABLE 1,115 ---
ACCRUED INTEREST RECEIVABLE 21 88
BANK PREMISES AND EQUIPMENT-Net 89 122
OTHER ASSETS 89 4
DEFERRED TAX ASSET -- 36
------ ------
TOTAL ASSETS $ 4,440 $15,659
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
DEPOSITS-Demand & Time $ 105 $ 1,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 8 98
DUE TO PARENT 327 333
------ ------
TOTAL LIABILITIES 440 1,431
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11)
STOCKHOLDER'S EQUITY
Common stock - $.10 par value:100,000,000 shares
authorized, 1,500,000 issued and outstanding 150 150
Additional paid-in capital 14,850 14,850
Accumulated earnings/(deficit) 1,106 (772)
Treasury stock (12,106)
------ ------
TOTAL STOCKHOLDER'S EQUITY 4,000 14,228
------ ------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 4,440 $15,659
====== ======
</TABLE>
See notes to financial statements.
<PAGE>
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
STATEMENTS OF OPERATIONS
FOR THE PERIOD MAY 15, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (AUDITED)
AND
8 MONTHS ENDED AUGUST 31, 1998 (UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
8 Months Ended May 15, 1997 to
Aug. 31, 1998 (date of
inception) to
Dec. 31, 1997
(unaudited)
----------------------------
<S> <C> <C>
INTEREST INCOME
Interest on undivided interest
in credit card portfolio $ 1,374 $ 1,058
Interest on loans receivable 38 ---
Interest and dividends on securities
available for sale 54 85
------ ------
INTEREST INCOME BEFORE PROVISION FOR LOSSES ON
UNDIVIDED INTEREST IN CREDIT CARD PORTFOLIO 1,466 1,143
PROVISION FOR LOSSES ON UNDIVIDED INTEREST IN
CREDIT CARD PORTFOLIO (1,238) 1,238
------ ------
NET INTEREST INCOME/(LOSS) 2,704 (95)
------ ------
OTHER INCOME - Service charges and fees 260 213
------ ------
OTHER EXPENSES
Salaries and employee benefits 607 423
Net occupancy expenses 73 59
General and administrative expenses 161 119
------ ------
TOTAL OTHER EXPENSES 841 601
------ ------
INCOME/(LOSS) BEFORE INCOME TAXES 2,123 (483)
INCOME TAX EXPENSE 245 289
------ ------
NET LOSS $ 1,878 $ (772)
====== ======
</TABLE>
See notes to financial statements.
<PAGE>
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD MAY 15, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
AND
8 MONTHS ENDED AUGUST 31, 1998 (UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury Income/
Stock Capital Stock (Deficit) Total
------------------------------------------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE MAY 15,1997 none none none none none
(Date of Inception)
Initial capitalization
and sale of common stock $ 150 $14,850 $15,000
Net loss $ (772) (772)
------ ------- ------- -------
BALANCE DEC. 31,1997 $ 150 $14,850 none $ (772) $14,228
NET INCOME AUGUST 31, 1998
(unaudited) $ 1,878 $ 1,878
Purchase of treasury stock $(12,106) $(12,106)
------ ------- -------- ------ -------
BALANCE AUGUST 31, 1998
(unaudited) $ 150 $14,850 $(12,106) $1,106 $ 4,000
====== ======= ======== ====== =======
See notes to financial statements.
</TABLE>
See notes to financial statements.
<PAGE>
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD MAY 15, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (AUDITED)
AND
8 MONTHS ENDED AUGUST 31, 1998 (UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
May 15, 1997
(Date of
8 Months Ended inception) to
Aug. 31, 1998 Dec. 31, 1997
(unaudited)
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(loss) $ 1,878 $ (772)
Adjustments to reconcile net loss to net cash
provided by operating activities
Provision for losses on undivided interest
in credit card portfolio (1,238) 1,238
Depreciation and amortization 36 36
Deferred income taxes 36 (36)
(Increase)/decrease in accrued
interest receivable 67 (88)
Increase in other assets (85) (4)
Increase/(decrease) in accounts payable
and accrued expenses (90) 98
Increase/(decrease) in due to parent (6) 333
------- -------
Net cash provided by operating activities 598 805
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale 331 (1,622)
Proceeds/(Purchase) of an undivided
interest in credit card portfolio 15,000 (15,000)
Purchase of loans receivable (1,115) ---
Purchases of bank premises and equipment (3) (158)
------- -------
Net cash used in/provided by investing activities 14,213 (16,780)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits (895) 1,000
Initial capitalization and sale of common stock --- 15,000
Purchase of treasury stock (12,106) ---
------- -------
Net cash provided by/used in financing activities (13,001) 16,000
------- -------
NET INCREASE IN CASH AND DUE FROM BANKS 1,810 25
CASH AND DUE FROM BANKS
Beginning of period 25 NONE
End of period $ 1,835 $ 25
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Income taxes NONE NONE
Interest NONE NONE
</TABLE>
See notes to financial statements.
<PAGE>
WEBBANK CORPORATION
(A Wholly-Owned Subsidiary of Block Financial Corporation)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD MAY 15, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL STRUCTURE - The accompanying financial statements include the
accounts of WebBank Corporation (the Bank), a State of Utah, Department of
Financial Institutions Industrial Loan Corporation. The Bank is a wholly
owned subsidiary of Block Financial Corporation (BFC). BFC is a wholly owned
subsidiary of H & R Block Group, Inc., which is a wholly owned subsidiary of
H & R Block, Inc. (Block). The Bank was capitalized, received Federal
Deposit Insurance Corporation (FDIC) insurance, and commenced business
activities on May 15, 1997. The Bank's corporate offices are located in Park
City, Utah.
ESTIMATES IN FINANCIAL STATEMENTS - The financial statements have been
prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Significant estimates
are used in determining the collectibility of receivables. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for losses on
undivided interest in credit card portfolio is adequate. While management
uses available information to recognize losses on loans, future additions to
the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance. As of
December 31, 1997, the Bank's regulators have required the Bank to set up the
allowance for estimated losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgements about
information available to them at the time of their examination.
CASH AND DUE FROM BANKS - Cash and due from banks include cash and interest-
bearing deposits in other depository institutions. For purposes of the
statement of cash flows, the Bank considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
SECURITIES - In accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The Bank classifies securities as either trading securities,
available for sale securities, or held to maturity securities. As of
December 31, 1997, all of the Bank's securities were classified as available
for sale. Available for sale securities are carried at fair value with net
unrealized gains or losses (net of taxes) excluded from income and reported
as a separate component of stockholder's equity.
ACCRUED INTEREST RECEIVABLE - Interest on the undivided interest in credit
card portfolio is recognized as earned. An allowance is provided for
interest believed to be uncollectible. Subsequent collection of delinquent
interest is reflected in income in the period of recovery.
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are recorded at
cost. Depreciation and amortization is computed on the straight-line method
over the estimated useful lives of 1 to 5 years on furniture, fixtures, and
equipment or the life of the lease for leasehold improvements.
ALLOWANCE FOR ESTIMATED LOSSES - A provision for estimated losses is charged
to expense to reduce the recorded balance of the undivided interest in credit
card portfolio to its estimated net realizable value. Such provisions are
based on management's consideration of current and anticipated operating or
sales conditions, loss experience in relation to outstanding credit cards,
overall portfolio quality, and economic conditions. Recovery of the carrying
value of such credit cards is dependent to a great extent on economic,
operating, and other conditions that may be beyond the Bank's control.
Management believes that the allowances for estimated losses are adequate.
While management uses available information to recognize estimated losses,
future additions to the allowances may be necessary based on changes in
economic conditions. Actual losses may be greater or less than the estimate
due to numerous factors beyond the Bank's control.
DEPOSITS - Deposits consist of a single non-interest bearing demand deposit
from BFC at December 31, 1997.
LONG-LIVED ASSETS - Impairment of long-lived assets is determined in
accordance with SFAS No. 121, "Accounting for the Impairment of long-lived
Assets and of Long-Lived Assets to be Disposed Of". There were no
impairments as of December 31, 1997.
INCOME TAXES - The Bank utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes
are provided for temporary differences in the bases of assets and liabilities
as reported for financial statement purposes and income tax purposes. The
Bank files a consolidated Federal income tax return with Block. Block's
intercompany tax allocation policy provides for the Bank to compute its taxes
on a stand alone basis. The Bank has, therefore, recorded the current income
tax payable as part of "Due to Parent" in the accompanying balance sheet.
STOCK BASED COMPENSATION - In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123 requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The financial information noted as
unaudited included herein is unaudited. However, the information reflects
all adjustments (consisting of normal recurring adjustments that are, in the
opinion of management necessary to the fair presentation of the financial
position, results of operations, and cash flows for the interim period).
The results of operations for the eight months ended August 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of securities available for sale as of
December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfuss Government
Cash Mangement
Fund $1,622 NONE NONE $1,622
====== ====== ====== ======
</TABLE>
3. UNDIVIDED INTEREST IN CREDIT CARD PORTFOLIO
The undivided interest in credit card portfolio represents a $15,000,000
undivided interest in a credit card portfolio, purchased from BFC's credit
card issuing agent, net of allowance for estimated losses of $1,238,000.
The effective weighted average interest rate on the undivided interest in
credit card portfolio for the period May 15, 1997 to December 31, 1997 was
13.31%.
An analysis of changes in the allowance for estimated losses is
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at May 15, 1997 (Date of Inception) NONE
Provision charged to expense $1,238
Charge-offs NONE
------
Balance at December 31, 1997 $1,238
======
</TABLE>
BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following at December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements $ 66
Furniture, fixtures, and equipment 120
------
Total 186
Less accumulated depreciation and amortization (64)
------
Total $ 122
======
</TABLE>
Bank premises and equipment were purchased from BFC at BFC's recorded values,
net of accumulated depreciation.
5. RELATED PARTY TRANSACTIONS
OPERATING AND REGULATORY COMPLIANCE AGREEMENT - The Bank entered into an
amended and restated Operating and Regulatory Compliance Agreement (the
Agreement) with Block and BFC as of December 9, 1997. The Agreement
includes, among others, the following provisions:
OBLIGATIONS TO CONTRIBUTE CAPITAL - During the first three years after the
Bank commences operations as an insured depository institution, BFC shall
contribute to the Bank sufficient funds as capital to enable the Bank to
meet all minimum capital requirements applicable to it by law, regulation,
rule or agreement with any regulator or deposit insurer of the Bank.
OBLIGATIONS TO LEND - Subject to the terms and conditions of the Agreement,
and if sufficient funds are available to BFC or can be obtained by BFC, BFC
shall lend to the Bank such amounts that the Bank may request from time to
time to fund its operations. No loan made by BFC to the Bank shall be at a
rate or include fees or other charges that exceed what the Bank could
reasonably expect to obtain from an unaffiliated lender at the time the
loan is made.
PURCHASE OF UNDIVIDED INTEREST IN CREDIT CARD PORTFOLIO - The Bank has
purchased a $15,000,000 undivided interest in credit card receivables from
BFC's credit card issuing agent under an affinity agreement between BFC and
such agent. The price paid was the carrying value of such receivables.
SALE OF UNDIVIDED INTEREST IN CREDIT CARED PORTFOLIO TO BFC - BFC agrees
that it shall purchase from the Bank, at carrying value, up to 100% of the
undivided interest in credit card portfolio owned by the Bank, at any time
upon written request from the Bank; provided, such request shall (i)
specify the date such sale to BFC is to occur and (ii) be delivered to BFC
no less than five business days prior to the sale date. In the event that
BFC enters into a binding and definitive agreement for the sale to an
unaffiliated third-party of any portion of the credit card receivables
owned by BFC, BFC agrees that it shall, in its sole and absolute discretion
on any business day on or before the closing date of the sale as BFC
elects, purchase at par value 100% of the undivided interest in credit card
receivables owned by the Bank. BFC shall notify the Bank in writing of its
intent to purchase the Bank's undivided interest in credit card receivables
no less than five days prior to the sales date.
LOSSES ON UNDIVIDED INTEREST IN CREDIT CARD PORTFOLIO - BFC agrees that it
shall reimburse the Bank for any losses that the Bank may incur on the
undivided interest in credit card portfolio. The reimbursement by BFC will
be 100% of the amount of loss. Any such reimbursement would be recorded by
the Bank as a capital contribution at the time received.
MANAGEMENT SERVICES - Block or BFC shall provide, or arrange to be provided
at no expense to the Bank, certain management services and other benefits,
including but not limited to:
Payroll accounting, including issuance of payroll checks,and preparation
of federal and state income tax forms and withholding;
Employee benefits, including health insurance, life insurance,
disability income coverage, and participation in retirement plans;
Accounting and administrative services to the extent requested by the
Bank;
Development and implementation of plans to market products and services
offered by the Bank alone or in conjunction with other products and
services offered by an affiliate, which plans shall be implemented at
the expense of BFC and shall not be billed back to the Bank for
reimbursement;
Credit card servicing and accounting services, which shall be provided
at the expense of BFC and shall not be billed back to the Bank for
reimbursement;
All quarterly Credit Card Association fees relating to the credit card
receivables;
All expense of meeting the insurance requirements of the Bank's landlord
at its main office and providing $180,000 in insurance coverage for the
contents at that office; and
Such additional management services and other benefits set forth in the
Agreement.
START-UP COSTS - Certain start-up costs, incurred prior to May 15, 1997, were
provided by BFC. No allocations have been recorded in the financial
statements of the Bank for any such services provided by Block or BFC.
DUE TO PARENT - The due to parent relates to the Bank's liability for income
taxes ($325,409) and payroll withholding items ($8,027). BFC does not charge
the Bank interest on the balance due.
EMPLOYEE BENEFIT PLANS - Block provides the following employee benefit plans
for the officers and employees of the Bank:
401(k) SAVINGS PLAN - The Bank's employees are eligible to participate in
Block's 401(k) Savings Plan. The plan allows for employees to contribute
2% to 15% of their pre-tax earnings. Full-time employees receive a match
of 25% of pre-tax employee contributions up to 6% of their pre-tax
earnings, with such amounts vesting ratably over five years after the
employee has completed two years of service. The employer match expense is
not included in the Bank's statement of operations but is included in the
Block statement of operations.
PROFIT SHARING RETIREMENT PLAN - The Bank's employees participate in
Block's profit sharing retirement plan. At the discretion of Block's
management, BFC makes yearly contributions to the plan based upon a
determined percentage of eligible payroll. The plan contribution expenses
are not included in the Bank's statement of operations but are included in
the BFC statement of operations.
STOCK OPTION PLAN - The Bank's employees participate in a Block stock
option plan for its common stock. Under this plan, options may be granted
to select employees to purchase Block's common stock for periods not
exceeding ten years at a price not less than 100 percent of the fair market
value on the date of grant. The options are exercisable on a cumulative
basis at an annual rate of 33 1/3 percent of the total number of option
shares.
EXECUTIVE DEFERRED COMPENSATION PLAN - Certain key employees of the Bank
participate in Block's Executive Deferred Compensation Plan. This Plan
permits its participants to defer portions of compensation and accrue
earnings on the deferred amounts. The salaries are included in salaries
and employee benefits in the Bank's statement of operations while the
matching of deferred salaries is not included in the Bank's statement of
operations but are included in the BFC statement of operations.
6. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures
of the Bank's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgements by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to end
of period assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the Bank has been notified that it was "well
capitalized" under the regulatory framework. To be categorized as "well
capitalized", the Bank must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table below. There are
no conditions or events since the initial visitation by the FDIC that
management believes have changed the institution's category.
<TABLE>
<CAPTION>
Minimum
To Be "Well
Capitalized" Under
Minimum for Capital Prompt Corrective
As of December 31, 1997 Actual Adequacy Purposes Action Provisions
(in thousands) ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(Tier 1 + Tier 2)
To Risk Weighted
Assets $14,439 91.1% $1,268 8.0% $1,585 10.0%
Tier 1 Capital to
Risk Weighted Assets 14,228 89.8% 634 4.0% 951 6.0%
Tier 1 Capital to End
of Period Assets 14,228 90.9% 626 4.0% 783 5.0%
(Leverage ratio)
</TABLE>
At periodic intervals, the State of Utah banking regulators routinely examine
the Bank's financial statements as part of their legally prescribed oversight
of the banking industry. The FDIC also has certain regulatory oversight
authority. Based on these examinations, the regulators can direct that the
Bank's financial statements be adjusted in accordance with their findings.
Management is aware of no significant adjustments which have been proposed by
the regulators which have not been reflected in the Bank's financial
statements.
7. INCOME TAXES
Income tax expense (benefit) is as follows for the year ended
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
U.S. Federal $283 $(33) $250
State 42 (3) 39
---- ---- ----
Total $325 $(36) $289
==== ==== ====
</TABLE>
The tax provisions were at effective rates as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax rate 35.0 %
Change in rate resulting from:
Valuation allowance recorded (98.1)
State income taxes, net of Federal
income tax benefit 3.3
----
Effective tax rate (59.8)%
====
</TABLE>
Temporary differences that give rise to the deferred tax asset are as follows
at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Assets:
Deferred compensation $ 36
Provision for losses on undivided interest
in credit card portfolio 474
Valuation allowance (474)
-----
Total deferred tax asset $ 36
=====
</TABLE>
The Bank has recorded a temporary difference relating to the provisions for
losses on undivided interest in credit card portfolio with an offsetting
valuation allowance. The valuation allowance was recorded because management
believes the asset recorded will more than likely not be realized as a result
of the anticipated sale of the Bank (Note 11).
8. COMMITMENTS AND CONTINGENCIES
LEASE - The Bank leases office premises under an operating lease agreement
requiring future contractual minimum annual rental payments as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31
1998 $ 40,000
1999 41,400
2000 42,852
2001 44,348
2002 30,248
-------
Total $198,848
=======
</TABLE>
Rent expense for this lease office space for the period May 15, 1997 (date of
inception) to December 31, 1997 was $25,773. The operating lease agreement
can be terminated at the option of the Bank in 2000.
SERVICE AGREEMENT - The Bank has a service agreement with a
general ledger processor requiring annual payments as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31
1998 $ 30,000
1999 36,000
--------
Total $ 66,000
========
</TABLE>
The Bank recorded $21,197 expense under this agreement during the period May
15, 1997 (date of inception) to December 31, 1997.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts in the following disclosures have been
determined by the Bank using available market information and appropriate
valuation methodologies as of December 31, 1997.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
-----------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 25 $ 25
Securities available for sale 1,622 1,622
Undivided interest in credit card
portfolio 13,762 13,762
Liabilities:
Deposits $ 1,000 $ 1,000
</TABLE>
Cash and due from banks and deposits are carried at amounts which approximate
fair value. Estimated fair value for the Bank's securities available for
sale is based on quoted market prices. Fair values for the undivided
interest in credit card portfolio is estimated using a discounted cash flow
calculation that applies interest rates currently being offered in similar
instruments to a schedule of expected monthly maturities of these
instruments.
10. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for the Bank's
year ended December 31, 1998.
11. SUBSEQUENT EVENTS
On January 20, 1998, BFC entered into a Stock Purchase Agreement (the
Agreement) with Praxis Investment Advisors (Praxis), a Nevada Limited
Liability Company, to sell to Praxis all of the Bank's issued and outstanding
common shares, subject to regulatory approvals. Under the terms of the
Agreement, BFC purchased from the Bank the undivided interest in the credit
card portfolio.
On August 31, 1998 Rose's International, Inc. ("Rose's"), a wholly owned
subsidiary of Rose's Holdings, Inc. ("the Company") acquired 90% of the stock
of WebBank Corporation (the "Bank") for approximately $5.314 million plus
acquisition cost of $.319 million. Block Financial Corporation ("Block"),
the owner of 100 percent of the outstanding common stock of the Bank, an
FDIC-insured Utah industrial loan corporation, agreed to sell all of the
outstanding stock of the Bank to Praxis Investment Advisors ("PIA"), a
Nevada Limited Liability Company, pursuant to a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated as of January 20, 1998.
The Stock Purchase Agreement was amended by an Amendment No. 1 to Stock
Purchase Agreement (the "Amendment") dated as of August 30, 1998.
PIA assigned its rights under the Stock Purchase Agreement to Andrew Winokur
("AW") and Rose's under an Assignment Agreement (the "Assignment") dated as
of August 30, 1998.
AW and Rose's entered into a Subscription and Stockholders Agreement (the
"Subscription Agreement") dated as of August 30, 1998, under which Rose's
agreed to purchase 90 percent of the stock of the Bank and of Praxis
Investment Advisors, Inc. ("Praxis"), a Delaware Corporation, and AW agreed
to purchase 10 percent of the stock of the Bank and of Praxis. Under the
Subscription Agreement, any amounts paid by AW or Rose's in connection with
the acquisition transaction are to be treated as credits toward the amount
payable in consideration for the purchase of the Praxis shares. The
Subscription Agreement also contains restrictions on transfer, rights of first
refusal, put and call options, a required legend on the share certificates of
the Bank and Praxis and tax sharing provisions, among others.
AW entered into an Employment Agreement dated as of September 1, 1998, with
Praxis under which AW agreed to act as President and Chief Executive Officer
of Praxis.
Praxis and Rose's entered into a Management Agreement dated as of September 1,
1998, under which Praxis agreed to provide Rose's and other stockholders of
the Bank (consisting only of AW as of the Closing) with management services
in connection with the ownership and operation of the Bank.
At the Closing, Rose's purchased from PIA 900,000 shares of the Bank's shares
at the same purchase price per share as paid by PIA under the Stock Purchase
Agreement, and AW purchased from PIA, 100,000 shares of the Bank's shares at
the same purchase price per share as paid by PIA under the Stock Purchase
Agreement.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
(B.) PRO FORMA FINANCIAL INFORMATION
On August 31, 1998 Rose's International, Inc. ("Rose's"), a wholly owned
subsidiary of Rose's Holdings, Inc. ("the Company") acquired 90% of the stock
of WebBank Corporation (the "Bank") for approximately $5.314 million plus
acquisition costs of $.319 million. Block Financial Corporation ("Block"),
the owner of 100 percent of the outstanding common stock of the Bank, an
FDIC-insured Utah industrial loan corporation, agreed to sell all of the
outstanding stock of the Bank to Praxis Investment Advisors ("PIA"), a Nevada
limited liability company, pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of January 20, 1998.
The Stock Purchase Agreement was amended by an Amendment No. 1 to Stock
Purchase Agreement (the "Amendment") dated as of August 30, 1998.
PIA assigned its rights under the Stock Purchase agreement to Andrew Winokur
("AW") and Rose's under an Assignment Agreement (the "Assignment") dated as
of August 30, 1998.
AW and Rose's entered into a Subscription and Stockholders Agreement (the
"Subscription Agreement") dated as of August 30, 1998, under which Rose's
agreed to purchase 90 percent of the stock of the Bank and of Praxis
Investment Advisors, Inc. ("Praxis"), a Delaware corporation, and AW agreed
to purchase 10 percent of the stock of the Bank and of Praxis. Under the
Subscription Agreement, any amounts paid by AW or Rose's in connection with
the acquisition transaction are to be treated as credits toward the amount
payable in consideration for the purchase of the Praxis shares. The
Subscription Agreement also contains restrictions on transfer, rights of
first refusal, put and call options, a required legend on the share
certificates of the Bank and Praxis and tax sharing provisions, among others.
AW entered into an Employment Agreement dated as of September 1, 1998, with
Praxis under which AW agreed to act as President and Chief Executive Officer
of Praxis.
Praxis and Rose's entered into a Management Agreement dated as of September 1,
1998, under which Praxis agreed to provide Rose's and the other stockholders
of the Bank (consisting only of AW as of the Closing) with management
services in connection with the ownership and operation of the Bank.
At the Closing, Rose's purchased from PIA 900,000 shares of the Bank's shares
at the same purchase price per share as paid by PIA under the Stock Purchase
Agreement, and AW purchased from PIA, 100,000 shares of the Bank's shares at
the same purchase price per share as paid by PIA under the Stock Purchase
Agreement.
The unaudited Pro Forma Condensed Consolidated Statements of Operations (the
"Pro Forma Statements of Operations") for the year ended January 31, 1998 and
the six months ended August 1, 1998 give effect to the acquisition of
WebBank as if it had occurred on May 15, 1997. The Pro Forma Statements
of Operations are based on historical results of operations of the
Company and WebBank for the year ended January 31, 1998 and for the year
from the date of inception of May 15, 1997 to December 31, 1997,
respectively; and the six months ended August 1, 1998 (the Company), and the
six months ended June 30, 1998 (WebBank), respectively. The unaudited Pro
Forma Condensed Consolidated Balance Sheet (the "Pro Forma Balance Sheet")
gives effect to the acquisition of WebBank as if the acquisition had occurred
on August 1, 1998. The Pro Forma Statements
of Operations and Pro Forma Balance Sheet and the accompanying notes
(the "Pro Forma Financial Information") should be read in conjunction with
and are qualified by the historical financial statements of the company and
notes and exhibits thereto.
The Pro Forma Financial Information is intended for informational purposes
only and is not necessarily indicative of the future financial position of
future results of operations of the consolidated company after the
acquisition of WebBank, or of the financial position or results of operations
of the consolidated company that would have actually occurred had the
acquisition of WebBank been effected as of the dates described above.
<PAGE>
ROSE'S HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 1, 1998
(In thousands)
<TABLE>
<CAPTION>
August 1, 1998 August 31,
ROSE'S 1998 PRO FORMA
HOLDINGS, INC. WEBBANK ADJUSTMENTS PRO FORMA
-------------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Cash & due from bank $ 13,180 $ 1,835 $ (5,070) (1) $ 9,945
Cash restricted in escrow 1,977 1,977
Loans receivable 1,115 1,115
Accounts & interest receivable 32 21 53
Mutual fund investments 1,291 1,291
------ ----- ------ ------
Total current assets 15,189 4,262 (5,070) (1) 14,381
Premises & equipment-net 89 89
Deferred fed/state
tax receivable 26 (2) 26
Purchase accounting-goodwill 1,676 (2) 1,676
Investment in WebBank 5,070 (1)
(5,070) (2) 0
Other assets 157 89 (69) (2) 177
------- ------- ------ -------
Total assets $ 15,346 $ 4,440 $ (3,437) $ 16,349
Liabilities and Stockholders' Equity
Accounts payable
& accrued expenses $ 95 $ 440 $ 535
10% Minority interest 563 (2) 563
Stockholders' equity 15,251 4,000 (4,000) (2) 15,251
-------- -------- ------ --------
Total Liabilities &
Stockholders' Equity $ 15,346 $ 4,440 $ (3,437) $ 16,349
======== ======== ========= ========
</TABLE>
<PAGE>
ROSE'S HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year May 15, 1997 (Date
Ended of inception) to
January 31, 1998 December 31, 1997
ROSE'S WEBBANK
HOLDINGS, INC. CORPORATION ADJUSTMENTS PROFORMA
-------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Interest income - $ 1,143 $ (1,143)(3) $ 0
Provision for losses - (1,238) (1,238)
-------- -------- --------
Net interest loss - (95) (95)
Other income $ 418 $ 213 631
-------- -------- --------
418 118 536
Expenses
Payroll & Benefits 423 423
Occupancy 59 59
General & Administrative 347 119 466
Amortization of Goodwill 168 (1)(4) 168
-------- -------- ------- --------
Total expenses 347 601 168 1,116
-------- -------- ------- --------
Income/(loss) before
income tax expense 71 (483) (168) (580)
Income tax expense (289) (289)
Loss from discontinued
operation (25,609) (25,609)
-------- -------- ------- --------
Net loss $(25,538) $ (772) $ (168) $(26,478)
======== ======== ======= ========
Basic net loss
per share $ (2.96) $ (.51) $ (3.07)
Weighted average
shares used in
computing basic
loss per share 8,632,000 1,500,000 8,632,000
</TABLE>
<PAGE>
ROSE'S HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
August 1, 1998 June 30, 1998
ROSE'S WEBBANK
HOLDINGS, INC. CORPORATION ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income - $ 1,078 $(1,078)(3) $ 0
Other income $ 393 $ 196 589
-------- -------- --------
393 1,274 589
General & administrative
expense 544 563 1,107
Amortization of goodwill 84 84
-------- -------- ------- --------
Total expenses 544 563 1,191
Provision for loan loss 562 562
Provision for federal/state
tax expense 273 273
Net loss $ (151) $ (124) $ (84)(4) $ (359)
======== ======== ======= ========
Basic net loss
per share $ (.02) $ (.08) $ (.03)
Weighted average
shares used in
computing basic
loss per share 8,632,000 1,500,000 8,632,000
</TABLE>
<PAGE>
ROSE'S HOLDINGS, INC.
Note A - The proforma adjustments to the condensed consolidated balance
sheet are as follows (in thousands):
(1) Purchase price: Original purchase of WebBank
by Rose's Holdings, Inc. and adjusted book
value of assets acquired 5,633
10% sold to Praxis Investment Advisors, Inc. (563)
-----
Net investment in WebBank by Rose's Holdings, Inc 5,070
(2) To eliminate investment account:
Equity WebBank $ 4,000
Deferred tax asset 26
Adjustment to net book
value:
Goodwill 1,676
Minority interest (563)
Other assets (69)
-------
Investment account $ 5,070
=======
(3) Credit card interest was eliminated as credit card portfolio
will not be part of the consolidated company.
(4) Amortization life of 10 years was used.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
(C). EXHIBITS: NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROSE'S HOLDINGS, INC.
(Registrant)
By /s/Warren G. Lichtenstein
Warren G. Lichtenstein
President,
Chief Executive Officer
Date: November 16, 1998
