SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) November 30, 2000
Allstate Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-17832 54-1208450
-------- ------- ----------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
8180 Greensboro Drive McLean, VA 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 883-9757
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Item 2. Acquisition or Disposition of Assets.
On November 30, 2000, Allstate Financial Corporation ("Allstate") acquired
Harbourton Financial Corp. ("Harbourton"). At October 30, 2000, Harbourton had
total assets of $11.1 million, which consisted primarily ($10.6 million), of
receivables from homebuilders, comprising acquisition, development and
construction loans, as well as cash ($598 thousand). Allstate completed the
transaction through the issuance of 7,516,160 new common shares and the payment
of $ 2.1 million in cash to Harbourton's shareholders. Allstate's majority
shareholder, Value Partners, Ltd., was the majority owner of Harbourton and now
owns approximately 84% of Allstate's shares. Timothy G. Ewing, Managing Director
of Ewing and Partners, which is the general partner of Value Partners, Ltd., is
a director of Allstate. The remainder of the shares was acquired from J. Kenneth
McLendon and James M. Cluett, members of Harbourton's management. Mr. McLendon
and Mr. Cluett serve as Allstate's President and Senior Vice President,
respectively.
Item 7. Financial Information, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
1. Audited statements of financial condition of Harbourton Financial Corp. as
of December 31, 1999 and 1998, and the related statements of operations,
changes in stockholders' equity and cash flows for the year ended December
31, 1999, and for the period August 28, 1998 (Inception), to December 31,
1998.
2. Statements of financial condition of Harbourton Financial Corp. as of
November 30, 2000 (unaudited) and December 31, 1999 (audited) and the
related statements of operations and cash flows for the eleven months ended
November 30, 2000 (unaudited) and year ended December 31, 1999 (audited).
(b) Pro Forma Financial Information.
1. Pro Forma balance sheet giving effect to the combination as of November 30,
2000 (unaudited) and pro forma statements of income for the years ended
December 31, 1999 and 1998 (unaudited), and for the eleven months ended
November 30, 2000 (unaudited) giving effect to the combination at the
beginning of each of the respective periods.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 18, 2000 ALLSTATE FINANCIAL CORPORATION
By: /s/ C. Fred Jackson
--------------------
C. Fred Jackson
Senior Vice President
and CFO
2
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Harbourton Financial Corp.
Financial Statements
As of December 31, 1999 and 1998, and
For the Period August 28, 1998
(Inception), to December 31, 1998
Together With Auditors' Report
3
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Report of Independent Public Accountants
To the Board of Directors of Harbourton Financial Corp.:
We have audited the accompanying statements of financial condition of Harbourton
Financial Corp. (the "Company") as of December 31, 1999 and 1998, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 1999, and for the period August 28, 1998
(Inception), to December 31, 1998. 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 audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 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 the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the year
ended December 31, 1999, and for the period August 28, 1998 (Inception), to
December 31, 1998, in conformity with accounting principles generally accepted
in the United States.
/s/Arthur Andersen LLP
Vienna, Virginia
February 15, 2000
4
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Harbourton Financial Corp.
Table of Contents
Statements of Financial Condition
As of December 31, 1999 and 1998 -6
Statements of Operations
For the Year Ended December 31, 1999, and For the Period
August 28, 1998 (Inception), to December 31, 1998 -7
Statements of Changes in Stockholders' Equity
For the Year Ended December 31, 1999, and For the Period
August 28, 1998 (Inception), to December 31, 1998 -8
Statements of Cash Flows
For the Year Ended December 31, 1999, and For the Period
August 28, 1998 (Inception), to December 31, 1998 -9
Notes to Financial Statements
For the Year Ended December 31, 1999, and For the Period
August 28, 1998 (Inception), to December 31, 1998 -10
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Harbourton Financial Corp.
Statements of Financial Condition
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
1999 1998
Cash and cash equivalents ............................. $ 971,317 $1,871,130
Restricted cash ....................................... 45,341 10,750
Loans held for investment, net of deferred income of
$548,530 and $292,099, respectively ................... 7,183,291 2,249,969
Interest receivable ................................... 118,261 37,177
Other receivables ..................................... 76,298 99,125
Property and equipment, net of accumulated depreciation
of $18,661 and $32,060, respectively .................. 19,243 19,784
Income taxes receivable ............................... 32,267 --
Total assets .......................................... $8,446,018 $4,287,935
</TABLE>
Liabilities and Stockholders' Equity
===============================================================================
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Accrued liabilities and accounts payable ........ $ 209,039 $
58,157
Income taxes payable ............................ -- 77,733
Total liabilities .................................. 209,039 135,890
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares
authorized, no shares issued or outstanding ..... -- --
Common stock, $.01 par value, 1,000,000 shares
authorized, 745,428 and 405,762 shares issued and
outstanding, respectively ....................... 7,454 4,057
Additional paid-in capital ...................... 7,675,546 3,995,943
Retained earnings ............................... 553,979 152,045
Total stockholders' equity ......................... 8,236,979 4,152,045
Total liabilities and stockholders' equity ......... $8,446,018 $4,287,935
</TABLE>
===============================================================================
The accompanying notes are an integral part of these statements.
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<PAGE>
Harbourton Financial Corp.
Statements of Operations
For the Year Ended December 31, 1999, and
For the Period August 28, 1998 (Inception), to December 31, 1998
1999 1998
Revenues:
Loan income ............................. $1,331,992 $ 463,711
Other income ............................ 85,358 11,971
Total revenues ............................. 1,417,350 475,682
Expenses:
Salaries and benefits ................... 452,648 117,781
Depreciation and amortization ........... 13,330 5,345
General and administrative .............. 297,765 122,778
Total expenses ............................. 763,743 245,904
Net income before provision for income taxes 653,607 229,778
Provision for income taxes ................. 251,673 77,733
Net income ................................. $ 401,934 $ 152,045
================================================================================
The accompanying notes are an integral part of these statements.
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Harbourton Financial Corp.
Statements of Changes in Stockholders' Equity
For the Year Ended December 31, 1999, and
For the Period August 28, 1998 (Inception), to December 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Capital Earnings Total
<S> <C> <C> <C> <C>
Balance, August 28, 1998
(Inception) .............................................................. $ $ $ $
-------- ---------- ---------- ----------
Issuance of shares .................................................... 4,057 3,995,943 -- 4,000,000
Net income ............................................................ -- -- 152,045 152,045
Balance, December 31, 1998 ............................................... 4,057 3,995,943 152,045 4,152,045
Issuance of shares .................................................... 3,397 3,679,603 -- 3,683,000
Net income ............................................................ -- -- 401,934 401,934
Balance, December 31, 1999 ............................................... $ 7,454 $7,675,546 $ 553,979 $8,236,979
</TABLE>
===============================================================================
The accompanying notes are an integral part of these statements.
of these statements.
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Harbourton Financial Corp.
Statements of Cash Flows
For the Year Ended December 31, 1999, and
For the Period August 28, 1998 (Inception), to December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Cash flows from operating activities:
Net income .......................................... $ 401,934 $ 152,045
Adjustments to reconcile net income to net cash flows
provided by operating activities-
Depreciation and amortization ..................... 13,330 5,345
Changes in operating assets and liabilities:
Interest receivable ............................. (81,084) (2,489)
Other receivables ............................... 22,827 (75,413)
Accrued liabilities and accounts payable ........ 150,882 23,705
Income taxes, net ............................... (110,000) 77,733
Net cash provided by operating activities .............. 397,889 180,926
Cash flows from investing activities:
Increase in loans held for investment, net .......... (4,933,322) (485,267)
Purchase of property and equipment, net ............. (12,789) (11,201)
Payment for purchase of assets of Harbourton
Residential Capital Corporation, net of cash acquired -- (1,802,578)
Net cash used in investing activities .................. (4,946,111) (2,299,046)
Cash flows from financing activities:
Proceeds from issuance of shares .................... 3,683,000 4,000,000
Net cash provided by financing activities .............. 3,683,000 4,000,000
Net (decrease) increase in cash and cash equivalents ... (865,222) 1,881,880
Cash and cash equivalents, beginning of period ......... 1,881,880 --
Cash and cash equivalents, end of period ............... $ 1,016,658 $ 1,881,880
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes .......... $ 361,673
</TABLE>
================================================================================
The accompanying notes are an integral part of these statements.
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Harbourton Financial Corp.
Notes to Financial Statements
For the Year Ended December 31, 1999, and
For the Period August 28, 1998 (Inception), to December 31, 1998
1. Summary of Significant Accounting Policies:
General
Harbourton Financial Corp. (the "Company")
incorporated and began operations on August
28, 1998. The Company's operations began
with the acquisition of the assets and
liabilities of Harbourton Residential
Capital Corporation ("HRCC") on August 28,
1998 (see Note 2).
The Company provides a broad range of
services to the residential building
community. Its primary business is providing
development and construction financing to
building companies in the Mid-Atlantic
region in Maryland, Virginia, North Carolina
and the Southeast region in Florida. The
Company operates as a standalone entity with
full capabilities of administering both debt
and equity investments in real estate
development and construction.
The accounting and reporting policies of the
Company conform to generally accepted
accounting principles ("GAAP") and
prevailing practices within the mortgage
banking industry.
Use of Estimates
The preparation of financial statements in
accordance with GAAP requires management to
make estimates and assumptions that affect
the reported amount of assets and
liabilities, the 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.
Loans Held for Investment
Loans held for investment consist of the
retained interest in loans originated by the
Company, net of deferred income.
Loan Income
Loan fees and certain direct loan
origination costs related to retained
interests are deferred and recognized over
the life of the loan on a straight-line
basis.
Loan fees received and certain direct loan
origination costs allocated to the
participation interest sold are recognized
as advances are made and funded by the
participants.
The Company receives two forms of interest
income. The current portion is accrued into
income monthly based on the outstanding
amount of the investment in the loan at a
market rate of interest. In addition, on
certain loans, the Company is entitled to an
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additional preferred return based on the
outstanding amount of the investment in the
loan times the rate of preferred return. The
preferred return is recognized in income as
the borrower conveys title to third-party
purchasers. At December 31, 1999, the
Company had lending arrangements with the
following returns:
Current portion 10% to 12%
Deferred portion 3% to 13%
In certain lending arrangements, the Company
is entitled to a percentage share of
underlying project profit in addition to
loan fees and interest. The Company
recognizes this income as the borrower
conveys title to third-party purchasers.
Property and Equipment
Property and equipment includes furniture,
fixtures, and equipment recorded at cost.
Major additions are capitalized while
routine replacements, maintenance and
repairs are charged to expense. Depreciation
is computed using the straight-line method
over estimated useful lives ranging from 3
to 5 years. The cost and accumulated
depreciation for property and equipment
retired, sold, or otherwise disposed of are
removed from the accounts, and any resulting
gains or losses are reflected in income.
Income Taxes
The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under
the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to temporary differences
between the financial statement carrying
amounts of existing assets and liabilities
and their respective tax bases. Deferred tax
assets and liabilities are measured using
enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be
recovered or settled.
Statements of Cash Flow
For purposes of the Statement of Cash Flows,
the Company considers cash and overnight
investments with original maturities of 90
days or less as cash and cash equivalents.
Reclassification
Certain 1998 amounts have been reclassified
to conform with the 1999 financial statement
presentation.
2. Loans Held for Investment:
The Company's main line of business is
originating acquisition, development and
construction loans and, in certain
instances, selling a participation interest
(typically between 80 percent and 95
percent) in those loans. The participant is
required to fund advances on these loans
based upon their participation interest and
the Company funds the remainder. The
interest retained by the Company is
subordinate to that of the participant such
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that the Company assumes the risk for any
losses up to the amount of retained interest
in the loan. Currently, the Company has
participation agreements with three
entities. Pursuant to the current
participation arrangements, the Company
passes through interest to the participants
based on their participation interest
amounts.
At December 31, 1999 and 1998, loans held
for investment, net is comprised of the
following:
1999 1998
Loans receivable - gross ..... $ 19,629,239 $ 14,892,879
Portion sold to participants . (11,897,418) (12,350,811)
Deferred loan fees ........... (326,067) (292,099)
Deferred interest income ..... (222,463) --
Loans held for investment, net $ 7,183,291 $ 2,249,969
==============================================================================
The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of
Liabilities." The statement significantly
changed the accounting treatment for
transfers of financial assets requiring
financial assets to be accounted for on a
financial-component basis. After a transfer
of financial assets, an entity recognizes
the financial and servicing assets it
controls and the liabilities it has
incurred, derecognizes financial assets when
control has been surrendered, and
derecognizes liabilities when extinguished.
The transferor has surrendered control over
transferred assets if and only if the
transferred assets have been isolated from
the transferor, the transferee obtains the
right to pledge or exchange the transferred
assets, and the transferor does not maintain
effective control over the transferred
assets.
3. Commitments and Contingencies:
The Company leases office space and
equipment under noncancelable operating
leases. Future minimum rental commitments
under existing operating leases having an
initial or remaining noncancelable lease
terms in excess of one year at December 31,
1999, are as follows:
Year Ended
December 31
2000 $109,449
2001 113,268
2002 116,621
2003 48,137
Total $387,475
================================================================================
Rent expense totaled $59,947 for 1999 and
$12,914 for the period August 28, 1998
(Inception), to December 31, 1998.
The Company originates construction and land
development loans primarily in its market
area of the Mid-Atlantic and Southeastern
states including Maryland, Virginia,
District of Columbia, Delaware,
Pennsylvania, North Carolina and Florida.
These loans are collateralized by deeds of
trust on the underlying real property. The
Company uses standard underwriting
practices, which are generally accepted in
the mortgage banking industry. These
underwriting practices are designed to meet
the requirements of the various mortgage
agencies and attract the best investment
opportunities.
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The Company also sells participation
interests in certain of its loans as
discussed in Note 2 above. The Company is
exposed to credit risk under these
participation agreements to the extent that
the participant fails to perform under the
participation agreement. Currently, the
Company has three participants, all of which
meet the credit requirements of the Company.
Any future participants will be reviewed
closely by the Company to ensure they meet
credit requirements.
The Company is required to fund advances
under its loan agreements. At December 31,
1999, the Company is committed to fund
advances up to a maximum amount of
$33,164,224 under all loan agreements for
the life of the agreements. Participation
interests in these commitments totaled
$22,997,000 at December 31, 1999.
The aggregate balance of custodial escrow
funds maintained in connection with the
loans serviced as of December 31, 1999 and
1998, was $0 and $90,000, respectively.
These balances are not included in the
accompanying statement of financial
condition. However, the Company receives
income reflected as other income on the
accompanying statement of operations.
4.Estimated Fair Value of Financial Instruments:
The following estimated fair values of the
Company's financial instruments as of
December 31, 1999 and 1998, are presented in
accordance with generally accepted
accounting principles, which define fair
value as the amount at which a financial
instrument could be exchanged in a current
transaction between willing parties, other
than a forced or liquidation sale. These
estimated fair values, however, may not
represent the liquidation value or the
market value of the Company.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and cash equivalents ............... $1,016,658 $1,016,658 $1,881,880 $1,881,880
Loans held for investment,
net ..................................... 7,183,291 7,183,291 2,249,969 2,249,969
</TABLE>
--------------------------------------------------------------------------------
The following methods and assumptions were
used to estimate the fair values at December
31, 1999 and 1998:
Cash and Cash Equivalents
Carrying amount approximates fair value.
Loans held for investment, net
Carrying amount approximates fair value as
all loans are at rates that approximate
current lending rates.
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5. Income Taxes:
The provision for income taxes for the year
ended December 31, 1999 and for the period
August 28, 1998 (Inception), to December 31,
1998, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C> <C> <C>
Current Deferred Total Current Deferred Total
Federal .............. $ 149,669 $ 62,194 $ 211,863 $ 129,147 $ (65,335) $ 63,812
State ................ 28,835 10,975 39,810 25,451 (11,530) 13,921
$ 178,504 $ 73,169 $ 251,673 $ 154,598 $ (76,865) $ 77,733
</TABLE>
================================================================================
A reconciliation of the statutory Federal
income tax rate to the Company's effective
income tax rate for the year ended December
31, 1999, and for the period August 28, 1998
(Inception), to December 31, 1998 is as
follows:
1999 1998
Statutory Federal income tax rate ........ 32.4% 27.8%
State taxes, net of federal benefit ...... 5.2% 5.1%
Disallowed meal and entertainment expenses .9% .9%
Effective income tax rate ................ 38.5% 33.8%
================================================================================
Deferred income taxes result from temporary
differences in the recognition of income and
expense for tax versus financial reporting
purposes. The sources of these temporary
differences and the related tax effects at
December 31, 1999 and 1998 are as follows:
1999 1998
Deferred tax assets:
Loan fees .......... $ -- $70,972
Organizational costs 3,516 5,893
$ 3,516 $76,865
================================================================================
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Harbourton Financial Corp.
Table of Contents
Statements of Financial Condition
As of November 30, 2000 (unaudited) and December 31, 1999 -16
Statements of Operations
For the Eleven Months Ended November 30, 2000
and 1999 (unaudited)- 17
Statements of Cash Flows
For the Eleven Months Ended November 30, 2000
and 1999
(unaudited)-18
Notes to Financial Statements -19
For the Eleven Months Ended November 30, 2000
15
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Harbourton Financial Corp.
Statements of Financial Condition
As of November 30, 2000 and December 31,1999
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
November 30, December 31,
2000 1999
(Unaudited)
Cash and cash equivalents ................................................... $ 249,945 $ 971,317
Restricted cash ................................................................ -- 45,341
Loans held for investment, net ................................................. 11,253,730 7,183,291
Interest and other receivables ................................................. 451,691 118,261
Property and equipment, net .................................................... 10,727 19,243
Income taxes receivable ........................................................ -- 32,267
-------------------------------------------------------------------------------- ----------- -----------
Total assets ................................................................... $11,966,093 $ 8,446,018
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Loan Payable ............................................................... $ 2,145,000 --
Accrued liabilities and accounts payable ................................... 478,777 209,039
Income taxes payable ....................................................... 83,074 --
------------------------------------------------------------------------------- ----------- -----------
Total liabilities ............................................................. 2,706,851 209,039
------------------------------------------------------------------------------- ----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no shares
issued or outstanding ...................................................... -- --
Common stock, $.01 par value, 1,000,000 shares authorized, 778,582 and
745,428 shares issued and outstanding, respectively ........................ 7,876 7,454
Additional paid-in capital ................................................. 8,146,624 7,675,546
Retained earnings .......................................................... 1,104,742 553,979
------------------------------------------------------------------------------- ----------- -----------
Total stockholders' equity .................................................... 9,259,242 8,236,979
------------------------------------------------------------------------------- ----------- -----------
Total liabilities and stockholders' equity .................................... $11,966,093 $ 8,446,018
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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Harbourton Financial Corp.
Statements of Operations
For the eleven month periods ended November 30, 2000 and 1999 (unaudited)
2000 1999
Revenues:
Loan income ............................. $1,411,960 $1,208,445
Other income ............................ 1,157,036 60,631
Total revenues ............................. 2,568,996 1,269,076
Expenses:
Salaries and benefits ................... 752,759 377,833
Depreciation and amortization ........... 836,539 254,772
General and administrative .............. 11,039 12,277
Interest ............................... 76,158 0
Total expenses ............................. 1,676,495 644,882
Net income before provision for income taxes 892,500 624,194
Provision for income taxes ................. 341,739 236,944
Net income ................................. $ 550,762 $ 387,250
--------------------------------------------------------------------------------
The accompanying notes are an integral part of
these statements.
17
<PAGE>
<TABLE>
<CAPTION>
Harbourton Financial Corp.
Statement Of Cash Flows
For the eleven month periods ended November 30,
<S> <C> <C>
2000 1999
Cash flows from operating activities:
Net income .......................................... $ 550,763 $ 387,250
Adjustments to reconcile net income to net cash flows
provided by operating activities-
Depreciation and amortization ..................... 11,039 12,277
Changes in operating assets and liabilities:
Interest receivable ............................. (192,538) (63,184)
Other receivables ............................... (64,594) 70,941
Accrued liabilities and accounts payable ........ 269,738 84,879
Income taxes, net ............................... 115,342 4,878
Net cash provided by operating activities .............. 689,750 497,041
Cash flows from investing activities:
Increase in loans held for investment, net .......... (4,070,439) (4,885,235)
Purchase of property and equipment, net ............. (2,524) (12,789)
Net cash used in investing activities .................. (4,072,963) (4,898,024)
Cash flows from financing activities:
Increase from issuance of shares .................... 471,500 2,600,000
Proceeds from bank loan ............................. 2,145,000 0
Net cash provided by financing activities .............. 2,616,500 2,600,000
Net (decrease) increase in cash and cash equivalents ... (766,713) (1,800,983)
Cash and cash equivalents, beginning of period ......... 1,016,658 1,881,880
Cash and cash equivalents, end of period ............... $ 249,945 $ 80,897
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes .......... $ 226,283 $ 232,066
</TABLE>
================================================================================
The accompanying notes are an integral part of these statements.
18
<PAGE>
Harbourton Financial Corp.
Notes to Financial Statements
For the Eleven Months Ended November 30, 2000
1. General. The consolidated financial statements of Harbourton Financial
Corporation ("Harbourton") included herein are unaudited for the periods
ended November 30, 2000 and 1999; however, they reflect all adjustments
which, in the opinion of management, are necessary to present fairly the
results for the periods presented. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Harbourton believes that the disclosures are adequate to make the
information presented not misleading. The results of operations for the
eleven months ended November 30, 2000 are not necessarily indicative of the
results of operations to be expected for the remainder of the year. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Harbourton's audited financial statements for the year ended
December 31, 1999 and for the Period August 28, 1998 (inception) to
December 31, 1998.
2. Line of Credit. On May 11, 2000, Harbourton obtained a senior secured
credit facility in the amount of $2,000,000 from a local FDIC-insured
financial institution,. The facility is a revolving line of credit, carries
an interest rate of the prime rate plus a premium, and expires May 11,
2001. The lender has been granted a collateral security interest in two of
Harbourton's loans having a combined original principal indebtedness of
$4,320,000, and a general assignment of Harbourton's right to all
collections from notes. The loan contains financial covenants of the type
generally found in this type of facility. On November 10, 2000 the facility
was increased to $2,500,000.
3. Merger Agreement. On October 25, 2000, Harbourton entered into a definitive
merger agreement with Allstate Financial Corporation ("Allstate"), a
company controlled by Harbourton's majority shareholder. The agreement
calls for Allstate to issue approximately 7,516,162 shares of common stock,
plus make a cash payment of approximately $1,900,000, to purchase all of
the outstanding common stock of Harbourton.
4. Subsequent Event. On November 30, 2000 Allstate Financial Corporation
purchased 100% of the issued and outstanding common stock of Harbourton
Financial Corporation, for 7,516,160 shares of Allstate common stock plus a
cash payment of $2,115,630. The transaction was accounted for as a
combination of a pooling of interests and a purchase. Harbourton was merged
into Allstate with Allstate being the surviving company.
19
<PAGE>
Pro Forma Financial Information.
The pro forma condensed consolidated financial statements of Allstate Financial
Corporation ("Allstate") and Harbourton Financial Corporation ("Harbourton")
included herein are unaudited, and are not prepared in accordance with generally
accepted accounting principles. They reflect the combined operations of Allstate
and Harbourton giving effect to the combination at the beginning of each of the
periods presented. Information and note disclosures normally included in
financial statements have been condensed or omitted. Allstate believes that the
disclosures are adequate to make the information presented not misleading. The
results of operations for the eleven months ended November 30, 2000 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year or in future years. It is suggested that these pro forma
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in Allstate's
audited financial statements for the years ended December 31, 1999 and 1998 and
Harbourton's audited financial statements for the year ended December 31, 1999
and for the Period August 28, 1998 (inception) to December 31, 1998.
Unaudited Pro Forma Condensed Consolidated Balance Sheet giving effect to the
merger of Harbourton Financial Corp. into of Allstate Financial Corporation as
of November 30, 2000
<TABLE>
<CAPTION>
................................................ Pro Forma
................................................ Merger Pro Forma
................................................ Allstate Harbourton Combined Adjustments Consolidated
<S> ..............................................<C> <C> <C> <C> <C> <C>
Cash and cash equivalents ........................ $ 2,446 $ 250 $ 2,696 ($ 2,116) (a) $ 580
Total receivables, net ........................... 2,745 11,705 14,450 (106) (b) 14,345
Securities held for sale ......................... 52 -- 52 -- -- 52
Other assets ..................................... 137 11 148 -- -- 148
Deferred Taxes ................................... -- -- -- 3,033 (c) 3,033
-------- -------- -------- ----------- --------
Total assets ..................................... $ 5,380 $ 11,966 $ 17,347 $ 811 $ 18,159
======== ======== ======== ======== =========== ========
Loan payable ..................................... -- $ 2,145 $ 2,145 -- -- $ 2,145
Convertible subordinated notes .................. 266 -- 266 -- -- 266
Other liabilities ................................ 347 562 909 -- -- 909
-------- -------- -------- -------- ----------- --------
Total liabilities ................................ 613 2,707 3,320 -- -- 3,320
-------- -------- -------- -------- ----------- --------
Common stock, $.01 par value ..................... 84 8 92 66 (d) 160
Additional paid-in capital ....................... 23,679 8,147 31,826 (2,240) (d) 29,586
Treasury stock ................................... (4,962) -- (4,962) -- -- (4,962)
Retained earnings (deficit) ...................... (14,090) 1,105 (12,985) 2,985 (e) (10,000)
Unrealized gains on
investment securities ....................... 48 -- 48 -- -- 48
-------- -------- -------- -------- ----------- --------
Total stockholders' equity ....................... 4,768 9,259 14,027 (2,018) -- 14,839
-------- -------- -------- -------- ----------- --------
Total liabilities and
stockholders' equity ........................ $ 5,380 $ 11,966 $ 17,347 (2,025) -- $ 18,159
======== ======== ======== ======== =========== ========
</TABLE>
Notes to unaudited pro forma condensed combined balance sheet as
of November 30, 2000
(a) ($2,115,630) is the cash portion of the acquisition price ( Harbourton
book value less 7,516,160 shares times notional value of $0.95 per
share)
(b) ($105,684) is negative goodwill generated by the excess of the fair
value of the net assets acquired over the cost of the portion (4.32%)
of the common stock of Harbourton being acquired from minority
shareholders. The acquisition of these shares is treated as a purchase.
This amount is allocated to the non-current portion of notes receivable
as a valuation allowance. The amount is equal to the book value of
Harbourton, $9,259,242, times the percentage owned by the minority
holders, 4.32%, or $400,060, less the book acquisition price, 324,746
shares times $0.625 market price per share (=$202,966) plus $91,410, or
$294,376. The market price is the closing trading price of Allstate on
20
<PAGE>
November 30, 2000.
(c) Tax benefit arising from the decrease in the valuation allowance
recognized as a result of the merged companies' improved prospects of
utilizing Allstate's net operating loss carryforwards, $3,033,334
(d) Stock issuance adjustments include:
o $75,162 in new par value of shares issued, less $7,786 in
Harbourton par value cancelled.
o $5,905,756 in additional paid in capital of new shares issued,
less $8,146,624 in additional paid in capital of Harbourton shares
cancelled.
(e) Retained earnings adjustments include $1,057,010 in Harbourton retained
earnings acquired, plus $3,033,334 credit for income taxes arising from
the decrease in the valuation allowance recognized as a result of the
merger company's prospects of utilizing Allstate's net operating loss
carryforwards.
Unaudited Pro Forma Condensed Combined Income Statement for the eleven months
ended November 30, 2000.
<TABLE>
<CAPTION>
(In thousands, except per share data)
................................................
................................................Allstate Harbourton Merger
................................................Historical Historical Adjustments Pro Forma
<S> .............................................. <C> <C> <C> <C>
Total revenue .................................... $ 708 $ 2,569 $(26)(a) $ 3,251
------- -------- ------- -------
Expenses:
Compensation and fringe benefits ............ 479 753 -- 1,232
General and administrative .................. 933 836 (26)(a) 1,742
Interest expense ............................ 562 76 -- 639
Provision for credit losses (recovery) ...... (839) -- -- (839)
Depreciation and amortization ............... 60 11 -- 71
------- ------- ------- ------
Total expenses .............................. 1,194 1,676 (26) 2,844
------- ------- ------- ------
Income (loss) before income tax expense ..........
(benefit) ........................................ (486) 893 -- 407
Income tax expense (benefit) ..................... -- 342 (3,375)(b) (3,034)
------- -------- ------
Net income (loss) ................................ $ (486) $ 551 -- $ 3,440
======== ======== ======== =======
Net income (loss) per share:
Basic and diluted ........................... $ (0.16) $ 0.71 -- $ 0.33(c)
</TABLE>
Notes to unaudited pro forma condensed combined income statement for the eleven
months ended November 30, 2000
(a) Intercompany loan participation fees paid during period.
(b) Consists of credit for current period taxes due by Harbourton, $342,000,
and tax benefit arising from the decrease in the valuation allowance
recognized as a result of the combined companies' prospects of utilizing
Allstate's net operating loss carryforwards, $3,033,334. Assumes a combined
income tax return is filed for the period.
(c) Pro forma basic and diluted earnings per share is calculated utilizing
Allstate's weighted-average shares outstanding for the period 2,969,353
combined with Harbourton's weighted-average shares outstanding for the
period, 772,053, times the exchange rate used in the November 30, 2000
merger transaction (9.54), for a total pro forma weighted average of
10,485,513.
21
<PAGE>
Unaudited Pro Forma Condensed Combined Income Statement for 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Allstate Harbourton Merger Pro Forma
Historical Historical Adjustments Combined
<S> ..............................................<C> <C> <C> <C>
Total revenue .................................... $ 3,621 $ 1,417 -- $ 5,038
------ --------
Expenses:
Compensation and fringe benefits ............ 2,059 453 -- 2,512
General and administrative .................. 3,001 298 -- 3,299
Interest expense ............................ 1,293 -- -- 1,293
Provision for credit losses ................. 10,178 -- -- 10,178
Other expense ............................... 339 13 -- 352
-------- -------- ------ --------
Total expenses .............................. 16,869 764 -- 17,634
-------- -------- ------ --------
Income (loss) before income tax expense .......... (13,248) 654 -- (12,596)
Income tax expense ............................... 4,003 252 (4,255)(a) --
-------- ------ --------
Net income (loss) ................................ $(17,251) $ 402 -- ($12,596)
======== ======== ====== ========
Net income (loss) per share:
Basic and diluted ........................... $ (7.42) $ 0.76 -- (1.52)(b)
</TABLE>
Notes to unaudited pro forma condensed combined income statement for 1999
(a) Consists of credit for current period taxes due by Harbourton, $252,000,
and tax benefit arising from the decrease in the income tax expense
(valuation allowance) recognized as a result of the combined companies'
prospects of utilizing Allstate's net operating loss carryforwards,
$4,003,000. Assumes a combined income tax return is filed for the period.
(b) Pro forma basic and diluted earnings per share is calculated utilizing
Allstate's weighted-average shares outstanding for the year ended December
31,1999 of 2,324,616 combined with Harbourton's weighted-average shares
outstanding for the year ended December 31,1999, 527,096, times the
exchange rate used in the November 30, 2000 merger transaction (9.54), for
a total pro forma weighted average of 8,263,111.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Combined Income Statement for 1998
(In thousands, except per share data)
Pro Forma
Allstate Harbourton Merger Pro Forma
Historical Historical Adjustments Combined
<S> .............................................<C> <C> <C> <C>
Total revenue ................................... $ 10,301 $ 476 -- $ 10,777
-------- --------
Expenses:
Compensation and fringe benefits ........... 3,448 118 -- 3,566
General and administrative ................. 4,964 123 -- 5,087
Interest expense ........................... 1,903 -- -- 1,903
Provision for credit losses (recovery) ..... 9,599 -- -- 9,599
Depreciation and amortization .............. -- 5 -- 5
-------- -------- --------
Total expenses ............................. 19,913 246 -- 20,160
-------- -------- --------
Income (loss) before income tax expense (benefit) (9,612) 230 -- (9,383)
Income tax expense (benefit) .................... (3,556) 78 (78) (b) (3,478)
-------- -------- --------
Net income (loss) ............................... $ (6,056) $ 152 -- $ (5,905)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted .......................... $ (2.61) $ 0.55 -- ($1.20)(c)
</TABLE>
22
<PAGE>
Notes to unaudited pro forma condensed combined income statement for 1998 (c)
For the period since inception on August 28, 1998 to December 31, 1998
(d) Credit for income taxes paid by Harbourton. Assumes a combined income
tax return is filed for the period.
(c) Pro forma basic and diluted earnings per share is calculated utilizing
Allstate's weighted-average shares outstanding for the year ended December
31,1998 of 2,322,222 combined with Harbourton's weighted-average shares
outstanding for the year ended December 31,1998, 274,526, times the
exchange rate used in the November 30, 2000 merger transaction (9.54), for
a total pro forma weighted average of 4,941,200.
