SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-22934
DEVELOPMENT BANCORP, LTD.
(Exact name of small business issuer in its charter)
Washington 93-1192971
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
14 Quai du Seujet Geveva, Switzerland CH-1201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011 41 229 081 598
--------------------
Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy
or information statements incorporated by reference in part III of this Form
10-K or any amendment to this Form
10-K. [X]
State issuer's revenues for its most recent fiscal year: $656,482
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $7,796,925 based upon the average of the bid and asked
price of the Common Stock of $6.25 as of September 20, 1996.
The number of shares outstanding of the issuer's classes of Common
Stock as of September 20, 1996:
Common Stock, No Par Value - 1,404,423 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
Item 1. Description of Business
Business Development
Development Bancorp, Ltd. (the "Company") is engaged in providing a
broad range of financial services to its clients, through its subsidiaries
Societe Fianaciere de Distribution Geneve SA (located in Switzerland) and
Development Bancorp Services Limited (located in Ireland).
On November 14, 1995 the Company acquired all of the Common Stock,
representing 99.93%, of KSM Financial Holdings, a Nevada corporation, which in
turn owns all of the capital stock of Global Financial Group ("Global") in
exchange for 110,000 shares of Series B Convertible Preferred Stock. Global is a
broker dealer registered with the National Association of Securities Dealers,
Inc. ("NASD"). The Series B Convertible Preferred Stock is convertible into
110,000 shares of Common Stock and ranks on a parity with Common Stock with
respect to any dividend payments. The holder of the Series B Convertible
Preferred Stock is granted certain registration rights, including one demand
registration made before December 31, 1997, and piggy back rights on any other
registration by the Company (subject to certain limitations). The remaining .07%
ownership of KSM is represented by 2,400 shares of 10% cumulative, convertible
preferred stock by KSM. Commencing in July 1995, preferred stockholders are
entitled to cumulative cash dividends of $10.00 per share payable quarterly plus
securities dividends equal to 25% of all securities received by KSM in
connection with investment banking services payable annually. Each share of
preferred stock is convertible, at the holder's option, into 100 shares of KSM
common stock. KSM may redeem the preferred at anytime for $100 per share plus
accrued dividends. On November 1, 1996 the Company and KSM mutually agreed to
rescind the acquisition of KSM/Global. All amounts paid to KSM by the Company
($415,000) were reclassified as debt due at 8% interest in November 2001. Unless
otherwise stated, all information herein reflects the recission of the
KSM/Global transaction.
In June 1993 the Company commenced developing its business of providing
international financial services, and organized in July 1993 an operating
subsidiary, SFD Societe Financiere de Distribution Geneve S.A. ("SFD"). SFD
operates out of Geneva, Switzerland and is a Swiss financial company. In fiscal
1995 the Company organized Development Bancorp Services Limited ("Ireland") as
well. SFD's and Ireland's activities consist primarily of financial services.
Neither Ireland nor SFD publicly solicits customer deposits and employs other
banks as custodian of its cash and securities assets, and is therefore exempt
from the banking regulations.
As of December 1, 1995, SFD was owned 99.3% by the Company and 0.7% by
Mr. Riccardo Mortara, who
was then the President and director of the Company, and a managing director of
SFD. SFD was capitalized in July,
1993 by a capital contribution of 427,000 Swiss Francs ("SFr") by the Company
and SFr 3,000 by Mr. Mortara.
If not for Mr. Mortara's ownership of SFD, it would be a wholly owned subsidiary
of the Company and under Swiss
law the Company would be deemed to be liable for all of SFD's liabilities.
Societe Financiere de Seujet, S.A. is
a shareholder of the Company, and its shares may be deemed beneficially owned by
Mr. Mortara.
The Company was incorporated on August 16, 1984 in the state of
Washington under the name Gold Valley, Inc. for the primary purpose of exploring
and developing gold properties. No commercial ore deposits were developed. In
1986, the Company acquired an 18.75% interest in an oil partnership consisting
of five wells in Pondera County, Montana. In 1991, the Company sold this
partnership interest to officers and directors of the Company for $2,139 on an
installment contract. In 1991, the Company canceled this contract from these
affiliates in exchange for investment banking and financial consulting services
when it became apparent that the affiliates were not willing or able to pay.
After sale of its partnership interest, the Company began to seek the
acquisition of a business opportunity. On August 13, 1993, the Company changed
its name to Development Bancorp, Ltd. and effected a 165-for-1 reverse stock
split. The purpose of the reverse stock split was to attract institutional
investors who might not otherwise invest in a Company private placement. Under
the Washington Business Corporation Act, the name change and the reverse stock
split only required approval of the Board of Directors of the Company and not
approval of its shareholders. In conjunction with the special meeting in lieu of
the annual meeting, held on
2
<PAGE>
October 4, 1993, the Company's shareholders authorized the issuance of preferred
stock, adopted a Stock Option Plan and ratified the reverse stock split.
All information herein has been adjusted to reflect the 165-for-1
referred stock split referenced to above.
Investment Banking Services
The Company's investment banking services are intended to be equally
divided between securities underwriting, both in public and private offerings,
and advising in and arranging mergers and acquisitions. The Company intends to
concentrate its activities in the United States, Europe, and South Asia; however
the decision to become involved in any transaction will be made primarily based
upon the merits of the transaction and not its geographic location. Because of
its relatively limited capital, the Company will be limited, at least initially,
to smaller (less than $10 million) and mid-sized (less than $100 million)
transactions. Based on the experience of its management in financial advisory
and banking services with a special emphasis on international banking, and
opportunities which have been presented to the Company, the Company believes
that there exist many opportunities for international investment banking in this
market segment.
Investment banking compensation is typically paid either on a fee basis
or on a percentage commission. Although the Company may on occasion provide
advisory services for a fee to its clients, the major part of its investment
banking revenues are expected to be derived from underwriting commissions or on
transaction fees from merger or acquisitions. Such transactional fees are
usually negotiated in each transaction as a percentage of the total transaction,
but are expected to range from 5 to 15 percent for underwritings and a similar
percentage for acquisition and mergers. The Company intends to engage in
underwritings for $10 million or less for the foreseeable future.
The Company intends to market its securities underwritings only to
institutions such as mutual funds, banks, insurance companies and pension funds
and not to the general public, with emphasis on institutions outside the United
States, the Company does not intend to conduct itself as a broker or dealer
within the United States and does not believe it will be subject to regulation
as a U.S. broker dealer.
Although its primary focus will be on companies trading on United
States, Asian or European trading markets, the Company intends to perform
investment banking services for European, Asian and American companies that are
in the process of going public, and in particular in the United States. With the
globalization of financial markets, companies from Europe and the Pacific Rim
are increasingly desirous of becoming traded in the U.S. equity markets. The
costs of going public in the United States vary from $300,000 to over $1
million. Costs include legal and accounting fees, listing fees, due diligence
costs, investment banking fees, broker road-shows, promotion costs, and
printing. For example, for a $10 million transaction for which the Company would
supply bridge financing, the costs of going public (exclusive of costs paid at
the closing) typically vary from 5% to 7% of the gross amount of the offering.
For companies which already have a firm underwriting commitment, the Company may
make an investment in the company from its working capital reserves to cover
these costs and to enable the company to obtain working capital for expansion
pending receipt of the proceeds from the offering. Each potential company's
working capital needs will differ and cannot be ascertained at this time. This
type of investment is often referred to as "bridge financing." Bridge financing
funds will typically be provided in U.S. dollars regardless of the region in
which the borrowing company is located.
In exchange for the bridge investment, the Company will receive either
a convertible instrument or stock in the invested company at a discount to the
estimated public market share price. In addition to the original bridge
investment, the Company may invest in subsequent offerings after the Company is
public. As a component of the original bridge investment, the Company may
negotiate a small discount for the Company's participation in subsequent
offerings within a one year time period.
In bridge financing, the Company seeks to gain primarily by realizing
the spread between the public valuation and the cost at which the securities are
actually acquired. The Company may also experience gain through
3
<PAGE>
appreciation in the traded market, but there can be no assurance that the
Company will be able to sell its investment at a profit. The level of return, if
any, will be highly dependent on the success of the investee company and the
price of its securities in the public market, all of which are subject to
numerous events outside the control of the Company.
The possibility of risk of loss in connection with the Company's
proposed activities exists if there is depreciation of securities in the traded
market or if the investee company is unsuccessful for reasons beyond the control
of the Company.
Competition
Competition in the investment banking industry comes from international
and local brokerage firms, banks, and other financial institutions. Most of
these competitors have greater experience and greater financial resources than
the Company. However, management believes that most broker dealers and
investment banking firms in the smaller to mid-sized segment in which the
Company intends to operate have limited experience in international
transactions. This is especially true for U.S. investment banking firms, due to
the large size of the U.S. market.
Employees
The Company has 7 employees, including its officers.
Regulations
SFD is subject to numerous regulations under the Swiss financial
companies statutes. SFD is subject to annual audit requirements; must maintain
an adequate relationship between its equity and its total liabilities, and
between its current assets and liabilities; and is prohibited from engaging in
money laundering. SFD is not permitted to place securities with the general
public, but only with institutional clients, and does not hold custody of cash
for customers. Commissions for securities transactions are not regulated. SFD
opens accounts for each customer in an authorized bank, outside of its own
balance sheet.
Since SFD does not publicly solicit customer deposits, it is exempt
from many reporting and regulatory provisions ordinarily applicable to Swiss
financial companies.
A financial company like SFD which does not publicly recommend itself
for the acceptance of deposits can obtain the status of a bank-like finance
company by means of a decision of the Banking Commission. Based on the
activities of a finance company, the Banking Commission is empowered to
interpret the applicability or non- applicability of certain provisions of the
Swiss Banking Law.
In addition to the general regulations applicable to all Swiss
companies, bank-like companies, not publicly soliciting deposits, have to comply
with the following provisions:
(1) Pursuant to Article 7 of the Swiss Banking Law they are
required to submit to the National Bank their annual balance
sheet. If the National Bank requires it may also require
detailed semi-annual balance sheets, as well as any other
information and reports which it may consider necessary, such
in connection with the credit and monetary policy.
(2) To enable the Banking Commission to determine whether a
bank-like finance company does not in fact publicly solicit
deposits, it is required to submit to the Banking Commission
an annual balance sheet prepared in accordance with the
Implementing Ordinance to the Swiss Banking Law, an annual
report of the board of directors, and an auditor's report
prepared by an independent and qualified auditing company.
4
<PAGE>
(3) Under Article 8 of the Swiss Banking Law the prior approval of
the Swiss National Bank is
required for foreign bond or share issues of SFr 10 million or
more floated in Switzerland and for
credits and loans to non-residents in amounts exceeding this sum and with terms
of longer than
twelve months. The rule applies to the placement of medium term foreign
obligations with a
maturity of twelve months or more, if the amount placed is expected to total
Sfr 3 million within
a year. The Swiss National Bank is empowered to refuse permission or to impose
conditions if
deemed necessary in the light of the Swiss franc exchange rate, the interest
rate trend on the Swiss
money and capital markets or the overall national interest.
In comparison with banks, the advantages of a finance company that is
subject to Articles 7 and 8 of the Swiss Banking Law only consist, for example,
in the fact that in the exercise of its activity it is not bound by the
provisions of the Swiss Banking Law concerning ratios between equity,
liabilities and liquid funds. Moreover, such a finance company would be under no
restriction if, for example, it proposed to grant substantial credit facilities
to a single customer, while real banks are required to maintain an adequate
ratio to their own funds with regard to any single borrower.
There are no other licensing or other requirements known to the Company
which would be required to enable it to compete effectively in the United States
and foreign markets.
Oil and Gas Investment
On October 5, 1994, the Company purchased from Cretaceous Investments
("Cretaceous") a 67.5% working interest in the interest of Cretaceous in an oil
and gas project consisting of approximately 1800 acres located in Van Zandt
County, Texas known as the Fruitvale Field. The purchase price was $630,000
cash, plus a commission to the broker in the transaction equal to 30% of the
Company's net return on the investment after recovery of the of the purchase
price. The Company acquired this interest as an investment, and received no
revenues and recorded no expense as its share of the working interest. On
February 23, 1995 the Company agreed to sell this investment to Starratt
Resources Limited, a Canadian public company ("Starratt") for 231,000 shares of
Starratt's common stock, valued for purpose of the transaction at $900,000.
Effective September 30, 1995, the Company returned the 231,000 shares to
Starratt and received in return 150,000 shares of Company Stock, which were
cancelled. The Company has no further relationship with Starratt or Cretaceous.
5
<PAGE>
Item 2. Description of Property
The Company's headquarters are provided by its President at no cost.
Item 3. Legal Proceedings
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
Until October 4, 1993 the Company's common stock was traded only
intermittently over-the-counter in what is commonly referred to as the "pink
sheets." The Common Stock was listed without price quotations in 1992 and in
1993 through October 4, 1993. Thereafter, the Common Stock was quoted in the
NASD's Electronic Bulletin Board, which reports the following quotations:
Bid Price Ask Prices
High Low High Low
Quarter Ended
December 31, 1993
(commencing October 5, 1993) 7.50 3.50 9.00 4.00
March 31, 1994 7.00 4.50 8.00 5.50
June 30, 1994 6.50 4.50 8.00 5.50
September 30, 1994 6.50 4.00 8.00 7.50
December 31, 1994 7.00 5.50 7.50 7.25
March 31, 1995 7.00 3.00 7.75 6.00
June 30, 1995 5.75 4.00 7.75 6.00
September 30, 1995 5.00 2.00 7.00 4.00
December 30, 1995 5.25 3.00 6.00 5.50
March 31, 1996 5.625 1.50 6.00 3.50
June 30, 1996 3.25 .625 4.00 2.00
These prices reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions. The Company
does not believe that trading of its common stock currently is necessarily
reflective of an established trading market.
(b) Holders
As of September 30, 1996, there were approximately 168 record holders
of Company common stock, two holders of its Series A Preferred Stock and one
holder of its Series B Convertible Preferred Stock. The Series B Convertible
Preferred Stock was cancelled in November 1996.
6
<PAGE>
(c) Dividends
The Company has not paid any dividends on its common stock. The Company
currently intends to retain any earnings for use in its business and therefore
does not anticipate paying cash dividends in the foreseeable future. The Series
A Preferred Stock has no dividend rights and does not restrict the payment of
dividends to holders of Common Stock. The Series B Convertible Preferred Stock
ranks on a parity with common stock with respect to any dividends.
The Company's subsidiary, KSM Holdings, Inc. has outstanding 2,400
shares of preferred stock. Commencing in July 1995, preferred stockholders are
entitled to cumulative cash dividends of $10.00 per share payable quarterly plus
securities dividends equal to 25% of all securities received by KSM in
connection with investment banking services payable annually. Each share of
preferred stock is convertible, at the holder's option, into 100 shares of KSM
common stock. KSM may redeem the preferred at anytime for $100 per share plus
accrued dividends. The Series B Convertible Preferred Stock was cancelled in
November 1996.
Item 6. Management's Discussions and Analysis or Plan of Operations
The following discussion regarding the financial statements of the
Company should be read in conjunction with the financial statements and notes
thereto included in this Report.
The following Summary Financial Information is derived from the
financial statements of the Company.
7
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data
Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $ 656,482 $ 42,106 $ 9,843 $ -0- $ 84
Net Income (Loss) $(450,242) $(127,339) $(19,338) (9,728) (3,117)
Net Income (Loss) Per Share $ (.41) (.13) (.08) (.53) $ (.18)
Weighted Average
Shares Outstanding 1,095,606 984,090 233,550 18,424 17,063
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
As of December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Working capital $ 2,181,582 $ 2,097,051 $ 1,309,393 $ 3,221 $ 3,221
Long Term Debt $ 41,770 $ -0- $ -0- $ -0- $ -0-
Total Assets $ 4,857,460 $ 4,308,941 $ 3,808,696 $ 3,221 $ 3,221
Shareholder's
Equity $ 3,446,447 $ 3,881,892 $ 3,032,264 $ 3,221 $ 3,221
</TABLE>
Results of Operations
Year ended December 31, 1995 compared to year ended December 31, 1994.
Revenues for 1995 include two-month's operations of Global Financial Holdings,
acquired in November 1995. Substantially all of the increase in revenue of
fiscal 1995 over fiscal 1994 is due to the operation of Global Financial
Holdings.
The results of operations for the year ended December 31, 1996 are
expected to be similar to the year ended December 31, 1994.
Oil and Gas Investment
On October 5, 1994, the Company purchased from Cretaceous Investments
("Cretaceous") a 67.5% working interest in the interest of Cretaceous in an oil
and gas project consisting of approximately 1800 acres located in Van Zandt
County, Texas known as the Fruitvale Field. The purchase price was $630,000
cash, plus a commission to the broker in the transaction equal to 30% of the
Company's net return on the investment after recovery of the of the purchase
price. The Company acquired this interest as an investment, and received as
revenues and recorded no expense as its share of the working interest. On
February 23, 1995 the Company agreed to sell this investment to Starratt
Resources Limited (Toronto OTC:SRCI), a Canadian public company ("Starratt") for
231,000 shares of Starratt's common stock, valued for purpose of the transaction
at $900,000. Effective September 30, 1995, the Company returned the 231,000
shares to Starratt and received in return 150,000 shares of Company Stock. The
Company has no further relationship with Starratt or Cretaceous.
The Company purchased Class G shares of Gestion PEMP, Inc. ("PEMP") for
$921,000 in September 1993. The shares are held by a custodian bank not
affiliated with the Company. The Class G shares are not transferable, except
that in the event Gestion Guychar (Canada) Inc. sells its Class G shares the
Company shall have the right to put its shares at the same price. The Class G
shareholders are also obligated to vote in favor of any proposed public offering
of PEMP.
8
<PAGE>
Liquidity and Capital Resources
The Company is currently raising additional funds through private
placements, and believes that such funds, together with current financial
resources, are sufficient to support operations over the next 12 months. The
Company has not, however, adopted any formal budget. No material capital
expenditures are contemplated at this time.
Item 7. Financial Statements and Supplementary Data
Financial Statements
The following financial statements are included herein:
Independent Auditors' Report
Consolidated Balance Sheet at December 31, 1995 and 1994
Consolidated Statement of Operations for the years ended
December 31, 1995 and 1994 Consolidated Statement of
Shareholders' Equity Consolidated Statement of Cash Flows for
the years ended December 31, 1995 and 1994 Notes to
Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Registrant's former independent accountant Terrence J. Dunne,
C.P.A. ("Dunne") resigned from that capacity on December 6, 1995. The report by
Dunne on the financial statements of the Registrant dated June 27, 1995,
including balance sheets as of December 31, 1994 and 1993 and the statements of
operations, cash flows and statement of stockholders' equity for the years ended
December 31, 1994, 1993 and 1992 did not contain an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. During the period covered by the financial
statements through the date of resignation of the former accountant, there were
no disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. A letter from the former independent accountant for the Registrant
was attached as an Exhibit to a Form 8-K dated December 6, 1995 in which the
resignation of Mr. Dunne was reported. On February 28, 1996 the Registrant
engaged Silverman, Olson, Thorvilson & Kaufmann Ltd. as its new independent
accountant.
9
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the
Exchange Act.
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. Information as to the directors and executive officers of the Company
as of October 16, 1996 is as follows. No annual meeting has been set.
Riccardo Mortara President and Director
Dempsey K. Mork Chief Financial Officer, Secretary
and Director
Riccardo Mortara
Riccardo Mortara, age 49, has been President and a Director of the
Company since June 1993. Mr. Mortara is the managing director of Societe
Financiere du Seujet, Geneva, Switzerland, a company which provides portfolio
management and financial services to banks, corporations, and high net-worth
individuals primarily in Europe. Between the years of 1984 and 1991, Mr. Mortara
was a director of a Geneva private portfolio management company in which he
still is a co-owner. Mr. Mortara currently serves on the boards of five
financial services companies.
Dempsey K. Mork
Dempsey K. Mork, age 54, has been the Secretary/Treasurer and a
Director of the Company since December
1992 and was President from December 1992 to June 1993. From 1989 to 1992 Mr.
Mork served as president of
Whitehall Company, Ltd. a financial services and banking investment company.
Mr. Mork is also president and a
director of A.G. Holdings, Inc.
Item 10. Executive Compensation
The following table sets forth the cash compensation of the Company's
executive officers and directors during each of the last three fiscal years. The
remuneration described in the table does not include the cost to the Company of
benefits furnished to the named executive officers, including automobiles,
premiums for health insurance and other benefits provided to such individuals
that are extended in connection with the conduct of the Company's business. The
value of such benefits cannot be precisely determined, but the executive
officers named below did not receive other compensation in excess of the lesser
of $50,000 or 10% of such officer's cash compensation.
10
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL COMPENSATION LONG TERM COMPENSATION
Name and Other Annual Awards Payouts All
Principal Position Year Salary Bonus Compensation Other
Restricted Options/ LTIP
Stock ($)SARs(#) Payouts ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Riccardo Mortara 1995(1) 0 60,000 0 0 0 0
President and Director 1994(1) 0 0 0 83,500 0 0
1993(1) 0 0 0 0 0 0
Dempsey K. Mork 1995(1) 0 60,000 0 0 0 0
Chief Financial Officer, 1994(1) 0 0 0 83,500 0 0
Secretary and Director 1993(1) 0 0 0 0 0 0
</TABLE>
(1) The above table does not include fringe benefits since such amount is less
than $25,000 for each person, and does not include 20,000 shares of
restricted stock awarded to each of the named persons for services in
fiscal 1994. The Board of Directors awarded $120,000 to Messrs. Mork and
Mortara for services in fiscal 1995 but the Company has not paid such
amount nor allocated it between the two officers.
Options Granted in Fiscal 1995
There were no options granted in fiscal 1995.
Option Exercises and Year-end Value Table
The following table contains information concerning the exercise of stock
options and employment related options and information in unexercised stock
options held as of December 31, 1995 by the named executive officers:
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options
Number of Unexercised at
Shares Options & Warrants December 31, 1995
Acquired on Value
Exercise Realized(1) Exercisable NonExercisable Exercisable(2)
<S> <C> <C> <C> <C> <C> <C>
Riccardo Mortara -0- $ -0- 83,500 0 $ 260,938
Dempsey K. Mork -0- $ -0- 83,500 0 $ 260,938
</TABLE>
(1) Market Value at time of exercise less exercise price.
(2) The average of the closing bid price of the Common Stock at December
28, 1995 was $5-5/8. Value equals
the difference between market value and exercise price.
In fiscal 1994, the Company issued 20,000 shares to each of Messrs.
Mork and Mortara for services rendered. The shares were valued at $2.20 per
share, and the number of shares was not based upon the hours of services to the
Company. In April 1994 the Company issued options to purchase 200,000 Shares at
$2.50 per share, exercisable until April, 2004, including 83,500 options to each
of Messrs. Mork and Mortara. The options were not issued under the 1993 Plan.
Except as noted above, the Company has no agreement or understanding,
express or implied, with any officer or director, or any other person regarding
employment with the Company or compensation for services. Compensation of
officers and directors is determined by the Company's board of directors and is
not subject to shareholder approval.
11
<PAGE>
Stock Option Plan
The Company has adopted the 1993 Stock Option Plan (the "Plan") to
offer an incentive based compensation system to employees, officers and
directors and to outside consultants or advisors, and, as is frequently the
practice, including to the professional corporations of such consultants or
advisors.
A total of 800,000 shares are authorized for issuance under the Plan.
As of December 31, 1994, no options had been granted under the Plan. The Company
may increase the number of shares authorized for issuance under the Plan or may
make other material modifications to the Plan without shareholder approval.
However, no amendment may change the existing rights of any option holder.
Any shares which are subject to an award but are not used because the
terms and conditions of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards under the Plan. However, shares with respect to which a stock
appreciation right has been exercised may not again be made subject to an award.
In the discretion of a committee comprised of non-employee directors
outside consultants or advisors, including to the professional corporations of
such consultants or advisors (the "Committee"), directors, officers, and key
employees of the Company and its subsidiaries or employees of companies with
which the Company does business become participants in the Plan upon receiving
grants in the form of stock options or restricted stock. Pending formation of
the Committee, the Board of Directors is acting as the Committee.
Stock options may be granted as non-qualified stock options or
incentive stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market value of the
stock as of the date of grant. Restricted stock may not be granted under the
Plan in connection with incentive stock options.
Stock options may be exercised during a period of time fixed by the
Committee except that no stock option may be exercised more than ten years after
the date of grant or three years after death or disability, whichever is later.
In the discretion of the Committee, payment of the purchase price for the shares
of stock acquired through the exercise of a stock option may be made in cash,
shares of the Company's Common Stock or by delivery or recourse promissory notes
or a combination of notes, cash and shares of the Company's common stock or a
combination thereof. Incentive stock options may only be issued to directors,
officers and employees of the Company.
Stock options may be granted under the Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). All options
granted to date have included the "AO" feature. If an option grant contains the
AO feature and if a participant pays all or part of the purchase price of the
option with shares of the Company's common stock, then upon exercise of the
option the participant is granted an AO to purchase, at the fair market value as
of the date of the AO grant, the number of shares of common stock the Company
equal to the sum of the number of whole shares used by the participant in
payment of the purchase price and the number of whole shares, if any, withheld
by the Company as payment for withholding taxes. An AO may be exercised between
the date of grant and the date of expiration, which will be the same as the date
of expiration of the option to which the AO is related.
Stock appreciation rights and/or restricted stock may be granted in
conjunction with, or may be unrelated to stock options. A stock appreciation
right entitles a participant to receive a payment, in cash or common stock or a
combination thereof, in an amount equal to the excess of the fair market value
of the stock at the time of exercise over the fair market value as of the date
of grant. Stock appreciation rights may be exercised during a period of time
fixed by the Committee not to exceed ten years after the date of grant or three
years after death or disability, whichever is later. Restricted stock requires
the recipient to continue in service as an officer, director, employee or
consultant for a fixed period of time for ownership of the shares to vest. If
restricted shares or stock appreciation rights are issued in tandem with
options, the restricted stock or stock appreciation right is canceled upon
exercise of the option and the option will likewise terminate upon vesting of
the restricted shares.
12
<PAGE>
Directors currently receive no compensation for their duties as
directors.
Compliance with Section 16
Not Applicable.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Principal Shareholders. The following table sets forth information
relating to the beneficial ownership of Company securities by executive
officers, directors and those persons beneficially holding more than 5% of the
Company capital stock, based on 1,404,423 common shares outstanding and 1,000
Class A Preferred Shares outstanding at September 20, 1996.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial of Beneficial Percent
Title of Class Ownership Ownership of Class
<S> <C> <C> <C>
Common Stock Dempsey K. Mork(2) 204,500 13.7%
74900 Highway 111
Suite 121
Indian Wells, CA 92210
Riccardo Mortara(3) 129,415 8.7%
14 Quai du Seujet
CH-1201 Geneva
Switzerland
Hermes Imperial Investment, L.P. 400,000 28.9%
De Ruyterkade 32
Curacao
Pemp Group, Inc. 400,000 28.9%
1010 Rue de la Gauchetiere Ouest
5th Floor
Montreal, Quebec
Canada H3B2N2
Series A
Preferred
Stock(1) Dempsey K. Mork 500 50.0%
74900 Highway 111
Suite 121
Indian Wells, CA 92210
Riccardo Mortara 500 50.0%
14 Quai du Seujet
CH-1201 Geneva
Switzerland
All directors and officers and
as a Group (2 persons) 1,000 100%
Common Stock 333,995 21.3%
Series A Preferred Stock 1,000 100%
</TABLE>
(1) The holders of the beneficial ownership of Series A Preferred Stock
have the right to collectively elect two-thirds of the Board of
Directors.
13
<PAGE>
(2) Includes options to purchase 83,500 shares, as well as shares held in
the name of a corporation controlled
by Mr. Mortara
(3) Includes 10,000 Shares held by the spouse of Mr. Mortara of which Mr.
Mortara disclaims beneficial
ownership, and options to purchase 83,500 Shares.
Item 12. Certain Relationships and Related Transactions
Certain conflicts of interest now exist and will continue to exist
between the Company and its officers and directors due to the fact that each has
other business interests to which he devotes his primary attention. Each officer
and director may continue to do so notwithstanding the fact that management time
should be devoted to the business of the Company. No procedures have been
adopted to resolve such conflicts of interest.
On August 22, 1995 Kevin and Joy Miller loaned $108,000 to the Company.
The loan bears interest at the rate of 15% per annum and is payable in August,
1996.
On November 4, 1994 Resource Bank & Trust loaned $35,000 to the Company
. This note is due November
1999 and interest is payable monthly at the rate of 10.5%
The Company issued 20,000, 20,000, and 15,000 shares to
Dempsey K. Mork, Riccardo Mortara, and Jehu Hand in December 1994 for services
rendered valued at $2.20 per share as officers of the Company.
14
<PAGE>
PART IV
Item 13. Exhibits
Exhibit No. Document Description
3. Articles of Incorporation and Bylaws
3.1 Articles of Incorporation, (1)
3.2 Bylaws (1)
3.3 Amendment to Articles of Incorporation changing name
to Development Bancorp, Ltd.(1)
3.4 Amendment to Articles of Incorporation authorizing
Series A
Preferred Stock. (1)
3.5 Certificate of Designation for Series B Convertible
Preferred Stock(2)
21. Subsidiaries. The Company's subsidiary, Societe Financiere de
Distribution, Geneva, SA is incorporated in
Switzerland. The subsidiary Development Corp. Services Limited is incorporated
in Ireland; KSM Holding
Corporation is incorporated in Minnesota; and Global Financial Group, a
subsidiary of KSM Holding Corporation,
is a Colorado corporation.
- --------------------------------
(1) Incorporated by reference to the Company's registration statement on Form
10-SB, file no. 0-22934.
(2) Filed herewith.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: January 9, 1997 DEVELOPMENT BANCORP, LTD.
By:/s/ Dempsey K. Mork
Dempsey K. Mork
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on January 9, 1997.
By:/s/ Riccardo Mortara
Riccardo Mortara
President (principal executive officer) and Director
By:/s/ Dempsey K. Mork
Dempsey K. Mork
Secretary/Treasurer (principal accounting and financial officer)
and Director
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Development Bancorp, Ltd.
Indian Wells, California
We have audited the accompanying consolidated balance sheet of Development
Bancorp, Ltd. as of December 31, 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for the year then ended.
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. The financial statements of Development Bancorp, Ltd. as of
December 31, 1994 were audited by another auditor whose report dated June 27,
1995, expressed on unqualified opinion on those statements.
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Development Bancorp,
Ltd. as of December 31, 1995, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
September 6, 1996, except Notes 3 and 18 which are dated November 1, 1996
INDEPENDENT AUDITOR'S REPORT
17
<PAGE>
Board of Directors and Shareholders
Development Bancorp, Ltd.
Indian Wells, California
We have audited the consolidated balance sheet of Development Bancorp, Ltd. as
of December 31, 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. 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 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Development Bancorp,
Ltd. as of December 31, 1994, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
TERRENCE J. DUNNE
CERTIFIED PUBLIC ACCOUNTANT
Spokane, Washington
June 27, 1995
18
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED BALANCE SHEET
December 31, 1995 and 1994
ASSETS 1995 1994
-------------- ---------
Current assets:
<S> <C> <C>
Cash and equivalents $1,518,327 $1,725,446
Commissions receivable 244,874 -
Other receivables 92,728 7,297
Marketable securities (Note 2) 1,572,608 485,000
Foreign exchange contracts - 295,357
Other current assets 122,288 11,000
------------ -------------
Total current assets 3,550,825 2,524,100
Investments (Note 3) 888,381 1,784,841
Intangible assets, net (Note 4) 278,935 -
Property and equipment, net (Note 5) 139,319 -
------------ ------------
Total assets $4,857,460 $4,308,941
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - bank (Note 6) $ 50,000 $ -
Notes payable - related parties (Note 7) 304,875 -
Accounts payable 482,467 10,692
Accrued payroll and commissions 253,587 121,000
Other accrued liabilities (Note 13) 251,433 -
Foreign exchange contracts - 295,357
Current portion of long-term debt (Note 8) 26,881 -
------------- ------------
Total current liabilities 1,369,243 427,049
Long-term debt (Note 8) 6,770 -
Long-term debt - related party (Note 9) 35,000 -
------------- ------------
Total liabilities 1,411,013 427,049
----------- ------------
Commitments and contingencies (Note 10) - -
Shareholders' equity:
Class B convertible preferred stock, no par value; 110,000
shares designated, issued and outstanding (Note 11) 165,000 -
Common stock, no par value; 50,000,000 shares
authorized, 1,034,923 and 1,089,923 shares
issued and outstanding, respectively 3,673,496 4,082,496
Accumulated deficit ( 795,771) ( 345,529)
Translation adjustment 403,722 144,925
------------ ------------
Total shareholders' equity 3,446,447 3,881,892
----------- -----------
Total liabilities and shareholders' equity $4,857,460 $4,308,941
========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1995 and 1994
1995 1994
-------------- ---------
Revenues:
<S> <C> <C>
Commissions and consulting fees $ 606,482 $ 42,106
Consulting fees - related parties (Note 12) 50,000 -
------------- ------------
Total revenues 656,482 42,106
General and administrative expenses 1,186,400 193,456
----------- ------------
Loss from operations ( 529,918) ( 151,350)
------------ ------------
Other income (expense):
Gain on sale of marketable securities 582,849 116
Unrealized gain (loss) on marketable
securities portfolio (Note 2) 16,805 ( 46,063)
Interest income 43,609 16,490
Interest expense ( 29,490) -
Legal settlement (Note 13) ( 210,500) -
Foreign currency transaction gain (loss) (Note 14) ( 323,597) 53,326
Miscellaneous - 142
----------------- ---------------
Total other income (expense) ( 79,676) 24,011
------------- -------------
Net loss $( 450,242) $( 127,339)
=========== ===========
Per share information:
Net loss per share $( .41) $( .13)
=============== ===============
Weighted average number
of common shares outstanding 1,095,606 984,090
=========== ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995 and 1994
Total
Preferred Stock Common Stock Stock Accumulated Translation Shareholders'
Shares Amount Shares Amount Subscriptions Deficit Adjustment Equity
Balances at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993 -- $ -- 700,093 $3,186,924 $ 31,572 $ (218,190) $ 31,958 $ 3,032,264
Issuance of common stock
under subscription -- -- 229,830 31,572 (31,572) -- -- --
Issuance of common stock
for cash -- -- 160,000 864,000 -- -- -- 864,000
Equity adjustment from
foreign currency translation -- -- -- -- -- -- 112,967 112,967
Net loss -- -- -- -- -- (127,339) -- (127,339)
Balances at
December 31, 1994 -- -- 1,089,923 4,082,496 -- (345,529) 144,925 3,881,892
Issuance of common
stock for cash -- -- 50,000 270,000 -- -- -- 270,000
Issuance of common
stock for services -- 45,000 121,000 -- -- -- 121,000
Issuance of preferred
stock in acquisition
of KSM Holding Corp-
oration (Notes 17 and 18) 110,000 165,000 -- -- -- -- -- 165,000
Redemption of common
stock in sale of
investments (note 3) -- --(150,000) (800,000) -- -- -- (800,000)
Equity adjustment from
foreign currency
translation -- -- -- -- -- -- 258,797 258,797
Net loss -- -- -- -- -- (450,242) -- (450,242)
Balances at
December 31, 1995 110,000 $ 165,000 1,034,923 $3,673,496 $ -- $ (795,771) $ 403,722 $ 3,446,447
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
-------------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $( 450,242) $( 127,339)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 22,064 2,986
Common stock issued for services 121,000 -
Non-cash gain on sale of investment ( 9,572) -
Unrealized (gain) loss on marketable securities ( 62,868) 46,063
Foreign currency transaction loss 106,032 6,260
(Increase) decrease in assets:
Commissions receivable ( 200,067) -
Other receivables ( 32,195) ( 3,305)
Marketable securities ( 632,107) -
Other current assets ( 59,305) -
Stock subscription receivable - 900,000
Increase (decrease) in liabilities:
Accounts payable 327,972 ( 9,578)
Accrued liabilities 350,011 121,000
------------ ------------
Net cash provided by (used in) operating activities ( 519,277) 936,087
------------ ------------
Cash flows from investing activities:
Purchase of investments - (1,161,181)
Increase in intangible assets ( 52,482) -
Purchase of property and equipment ( 41,962) -
------------- ------------
Net cash used in investing activities ( 94,444) (1,161,181)
------------- -----------
Cash flows from financing activities:
Repayment of notes payable - related parties ( 112,094) -
Repayment of long-term debt ( 5,101) -
Repayment of long-term debt - related party ( 5,000) -
Proceeds from issuance of common stock 270,000 864,000
------------ ------------
Net cash provided by financing activities 147,805 864,000
------------ ------------
Effect of exchange rate changes on cash 258,797 112,967
------------ ------------
Increase (decrease) in cash and equivalents ( 207,119) 751,873
Cash and equivalents - beginning of year 1,725,446 973,573
----------- ------------
Cash and equivalents - end of year $1,518,327 $1,725,446
========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
-------------- ---------
<S> <C> <C>
Cash paid during the year for interest $ 11,057 $ -
============ ==========
</TABLE>
Supplemental schedule of non-cash investing and financing activities: During
1995:
The Company redeemed 150,000 shares of its common stock valued at
$800,000 in the sale of oil and gas investments valued at $790,428 (Note
3).
In connection with the acquisition of KSM, the Company issued 110,000
shares of preferred stock valued at $165,000 in exchange for assuming
various liabilities and various non-cash assets (Note 17).
During 1994:
The Company incurred $295,357 of debt in exchange for foreign exchange
contracts.
Theaccompanying notes are an integral
part of the financial statements.
23
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 1: Organization and Significant Accounting Policies
Nature of Organization:
Development Bancorp, Ltd. ("Development" or "the Company")
is a holding company organized in the state of Washington
for the purpose of providing international investment
banking services through its majority-owned subsidiaries:
Development Corp Services Limited (Ireland - 99.93%
owned), SFD Societe Financere De Distribution Geneve SA
(Switzerland - 99.3% owned), and KSM Holding Corporation
("KSM") (United States - 99.93% owned). KSM owns 100% of
Global Financial Group ("Global") (United States).
Basis of Presentation:
For the year ended December 31, 1995, the consolidated
financial statements include the accounts of Development
Bancorp, Ltd. and its wholly-owned subsidiaries,
Development Corp Services Limited, SFD Societe Financiere
De Distribution Geneve SA, and KSM Holding Corporation for
the period from acquisition (November 14, 1995) to
December 31, 1995 (Note 17). For the year ended December
31, 1994, the consolidated financial statements include
the accounts of Development Bancorp, Ltd. and its
wholly-owned subsidiaries, Development Corp Services
Limited and SFD Societe Financiere De Distribution Geneve
SA.
All references to "the Company" in these financial
statements relate to the consolidated entity. All
significant intercompany accounts and transactions are
eliminated in consolidation.
Cash and Equivalents:
Cash equivalents include all highly liquid investments
purchased with a maturity of three months or less.
Marketable Securities:
Marketable securities consist of various equity and debt
securities and are stated at current market value. All
equity securities are considered "trading" securities and
all debt securities are considered "available for sale"
under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting and Certain Investments in
Debt and Equity Securities (SFAS 115). Accordingly,
unrealized gains and losses on equity securities are
reflected in operations, and unrealized gains and losses
on debt securities are credited or charged to "translation
adjustment" on the accompanying balance sheet.
24
<PAGE>
Market value is determined by the quoted market price as
of the balance sheet date. Net realized gains or losses
are determined on the specific identification cost method.
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 1: Organization and Significant Accounting Policies (Continued)
Foreign Exchange Contracts:
Foreign exchange contracts are entered into as a hedge
against foreign currency rate fluctuations. The contracts
are initially recorded at cost and thereafter adjusted to
market value at year-end. Unrealized gains or losses are
credited or charged to "translation adjustment" on the
accompanying balance sheet.
Investments:
Investments consist of various equity ownership interests
in privately-held corporations or partnerships.
Investments are stated at cost, as adjusted for foreign
currency translation gains or losses, if any.
Intangible Assets:
Intangible assets consist of the costs of broker/dealer
network development and related customer lists acquired in
the acquisition of KSM Holding Corporation. These assets
are being amortized on a straight-line basis over five
years.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is
computed using straight-line and accelerated methods over
the estimated five to seven year useful lives of the
assets.
Expenditures for additions and improvements are
capitalized, while repairs and maintenance are expensed as
incurred.
Income Taxes:
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes, if
any. Deferred taxes represent the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Net Loss Per Share:
Loss per share is calculated based on the weighted average
number of common shares outstanding as the effect of
including common stock equivalents would be anti-dilutive.
Financial Instruments:
The carrying amounts of financial instruments such as
cash, commissions and other receivables, marketable
securities, and short-term liabilities approximated their
fair value based upon the short-term maturities of these
instruments.
25
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 1: Organization and Significant Accounting Policies (Continued)
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company
to concentration of credit risk consist principally of
cash, commissions receivable, and the Company's and
customers' margin transactions.
Cash
The Company maintains cash in bank deposit accounts
which, at times, may exceed federally insured limits or
are in foreign banks. The Company believes it has its
cash deposits at high quality financial institutions
and that no significant credit risk exists with respect
to these deposits.
Commissions Receivable
Commissions receivable arise from the introduction of
customers' security trades to the Company's two
carrying brokers who collect and remit to the Company
their allocable share of the commissions earned. The
Company believes it's carrying brokers are financially
stable entities and no significant credit risk exists
with respect to these receivables.
Company's Margin Transactions
In the normal course of business, Global sells
securities not yet purchased (short sales) for its own
account. The establishment of short positions exposes
Global to off-balance sheet market risk in the event
prices increase, as Global may be obligated to acquire
the securities at prevailing market prices.
Customers' Margin Transactions
The activities of Company customers are transacted on
either a cash or margin basis through the facilities of
its clearing broker. In margin transactions, the
clearing broker extends credit to the customers,
subject to various regulatory and margin requirements,
collateralized by cash and securities in the customer's
account. In connection with these activities, the
clearing broker executes and clears customer
transactions involving the sale of securities not yet
purchased ("short sales").
These transactions may expose the Company to
significant off-balance sheet risk in the event margin
requirements are not sufficient to fully cover losses
which the customers may incur. In the event the
customers fail to satisfy their obligations to the
clearing broker, the Company may be required to
compensate the clearing broker for losses incurred on
behalf of its customers.
26
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 1: Organization and Significant Accounting Policies (Continued)
Concentrations of Credit Risk (continued):
Customers' Margin Transactions (continued)
The Company, through its clearing brokers, seeks to
control the risk associated with its customers'
activities by requiring customers to maintain margin
collateral in compliance with various regulatory and
internal guidelines. The clearing brokers monitor
required margin levels daily and, pursuant to such
guidelines, requires the customer to deposit additional
collateral, or reduce positions, when necessary.
Newly-Issued Accounting Standards:
In March 1995, Statement of Financial Accounting Standards
No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121") was issued.
The Company will
adopt SFAS No. 121 in the first quarter of 1996.
This statement requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value
of an asset may not be recoverable. In adopting this
standard, the Company will be required to estimate the
future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the
asset, an impairment loss would be recognized.
Management believes that any impact of adopting SFAS No.
121 will not be
material.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make certain estimates and assumptions about
the future outcome of current transactions which may
affect the reporting and disclosure of these transactions.
Accordingly, actual results could differ from those
estimates used in the preparation of these financial
statements.
Reclassifications:
Certain reclassifications have been made in the 1994
financial statements in order to conform with 1995
financial statement presentation. These reclassifications
have no effect on accumulated deficit or net loss, as
originally reported.
27
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 2: Marketable Securities
Marketable securities consisted of the following at December
31:
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
1995 Market
Cost Value
Equity securities $1,155,803 $1,170,108
Debt securities 400,000 402,500
------------ ------------
$1,555,803 $1,572,608
Estimated
1994 Market
Cost Value
Equity securities $ 130,189 $ 75,000
Debt securities 400,874 410,000
------------ ------------
$ 531,063 $ 485,000
=========== ===========
</TABLE>
Unrealized gain (loss) included in marketable securities at
December 31, 1995 and 1994 was $16,805 and $(46,063),
respectively.
At December 31, 1995, the maturities of debt securities, at
estimated market value, which are classified as available for
sale are as follows:
Within one year $ 201,250
One - five years 201,250
------------
$ 402,500
Note 3: Investments
Investments consists of the following at December 31:
1995 1994
------------- ---------
120,000 shares of Gestion Pemp, Inc. $264,312 $ 295,838
Investment in Gestion Pemp Network 624,069 698,575
Investment in oil and gas leaseholds - 790,428
Total other investments $ 888,381 $1,784,841
=========== ==========
The Company owns 120,000 shares, or approximately a 6%
interest in Gestion Pemp, Inc., a Canadian corporation.
Additionally, the Company owns an interest in Gestion Pemp
Network, a multiple-level marketing system of Pemp, Inc., a
related Canadian corporation. The decline in value experienced
in 1995 was due to foreign exchange rate declines which
management considers to be temporary.
28
<PAGE>
During 1995 and 1994, the Company received $35,017 and
$42,106, respectively, in commissions from this investment.
29
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 3: Investments (Continued)
In 1995, the Company sold its interest in the oil and gas
leaseholds for a redemption of 150,000 shares of Company
common stock valued at $800,000.
Note 4: Intangible Assets
Intangible assets arose in the acquisition of KSM and
consisted of the following at December 31, 1995 (Note 17):
<TABLE>
<CAPTION>
<S> <C>
Broker/dealer network development $ 233,665
Customer lists 50,000
------------
283,665
Less accumulated amortization ( 4,730)
-------------
Intangible assets, net $ 278,935
==========
</TABLE>
Amortization expense was $4,730 in 1995.
On November 1, 1996, the Company rescinded its acquisition of
KSM (Note 18) and accordingly the remaining intangible assets
will be written-off as part of the recision.
Note 5: Property and Equipment
Property and equipment consisted of the following at December
31, 1995:
Furniture and equipment $ 178,710
Leasehold improvements 13,176
------------
191,886
Less accumulated depreciation ( 52,567)
------------
Property and equipment, net $ 139,319
==========
Depreciation expense aggregated $17,334 in 1995.
Note 6: Note Payable - Bank
In 1995, the Company had a $100,000 bank line of credit
available, of which $50,000 was outstanding at December 31,
1995. Interest accrues at a variable rate (10.0% at December
31, 1995). The line of credit expires in March 1996 and is
personally guaranteed by an officer/shareholder of the
Company.
30
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 7: Note Payable - Related Parties
At December 31, 1995, the Company had notes payable to related
parties as follows:
Note payable - officer/shareholder bearing
interest at 15%. The note is unsecured and
matures August 1996. $ 108,000
Note payable - affiliated company related through common
control, bearing interest at 10%. The note was created when
the affiliate transferred ownership of certain marketable
securities to the Company and is repaid by returning an
equivalent number of the same marketable securities to the
affiliated company upon demand. As a result, the note payable
principal fluctuates with the market price of the securities.
The note is personally guaranteed
by an officer/shareholder of the Company. 196,875
-----------
$ 304,875
Note 8: Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consisted of the following at December 31,
1995:
<S> <C>
Note payable - investment broker bearing
interest at 9%. The note matures in January
1997 and is secured by furniture and equipment. $ 12,091
Note payable - equipment bearing interest at
13.5%. The note matures in March 1997 and
is secured by equipment. 21,560
33,651
Less current portion ( 26,881)
------------
Long-term debt $ 6,770
============
</TABLE>
Note 9: Long-Term Debt - Related Party
At December 31, 1995, the Company had a $35,000 note payable
to an officer of the Company. The note bears interest at
10.5%, payable monthly, with principal due upon maturity in
November 1999. The note is unsecured.
31
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 10: Commitments and Contingencies
Development Stock Option Plan:
At December 31, 1995, an aggregate of 600,000 shares of
common stock were reserved for issuance upon exercise
under the Company's 1993 stock option plan. Pursuant to
the plan, the board of directors may grant options to
employees, officers, directors or others at their
discretion. As of December 31, 1995, no options had been
granted under the plan.
Other Development Stock Options:
As of December 31, 1995, an aggregate of 200,000 shares of
common stock were reserved for issuance upon exercise of
non-qualified stock options outstanding to purchase an
aggregate of 200,000 shares of common stock (of which
167,000 were to Company officers) at $2.50 per share. The
options expire in April 2004. These options were not
issued under the Company's 1993 stock option plan.
KSM Convertible/Redeemable Preferred Stock:
KSM has 2,400 shares of 10% cumulative, convertible
preferred stock outstanding at December 31, 1995,
representing a .07% interest in this subsidiary.
Commencing in July 1995, preferred stockholders are
entitled to cumulative cash dividends of $10.00 per share
payable quarterly plus securities dividends equal to 25%
of all securities received by the Company in connection
with investment banking services payable annually. Each
share of preferred stock is convertible, at the holder's
option, into 100 shares of KSM common stock. The Company
may redeem the preferred stock at anytime for $100 per
share plus accrued dividends.
Operating Leases:
The Company leases its corporate offices and certain
equipment under noncancellable operating leases.
Future minimum lease payments are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 70,910
1997 57,702
1998 41,258
1999 21,578
2000 12,330
-------------
$ 203,778
</TABLE>
Rent expense in 1995 aggregated $58,837.
32
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 10: Commitments and Contingencies (Continued)
KSM 401(k) Retirement Plan:
KSM has a 401(k) retirement plan available for the benefit
of its employees. All employees who have completed 1,000
hours of service to the Company are eligible to
participate. Company contributions are made at the
discretion of the board of directors. Participants vest
immediately in their contributions and over a three year
period for any Company contributions. During 1995, no
Company contributions were made to the plan.
KSM Employment Agreement:
The Company has a five-year employment agreement with a
KSM officer. Pursuant to the employment agreement, the
officer receives a base salary plus a variable percentage
of KSM monthly gross sales. In addition, the officer is
entitled to a bonus payable in registered common stock of
Development Bancorp, Ltd., equal to one-third on any
non-accountable expense allowance received by the Company
and 25% of all underwriter's shares or warrants received
by the Company in connection with any underwriting. The
agreement provides for a five-year covenant not to compete
and six month severance package if terminated. The
agreement automatically renews for a one-year term unless
notice is given by either the Company or the employee 90
days before the end of the agreement.
Global Restriction Agreement:
Global has entered into a "Restriction Agreement" with the
National Association of Securities Dealers, Inc. (NASD)
which provides, among other things, that Global must
obtain NASD approval to expand its business related to
volume (personnel, number of trades, market value of
securities traded) and services provided.
Note 11: Preferred Stock
The Company has authorized an aggregate of 1,000,000 shares of
no par preferred stock as follows:
Class A Preferred Stock:
The Company has designated 1,000 shares of no par value
Class A preferred stock. Class A shareholders are not
entitled to receive dividends. At December 31, 1995 and
1994, there were no shares of Class A preferred stock
issued or outstanding.
33
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 11: Preferred Stock (Continued)
Class B Convertible Preferred Stock:
The Company has designated 110,000 shares of no par value
convertible Class B preferred stock. Class B shareholders
are entitled to receive dividends in a manner similar to
common shareholders when declared by the board of
directors. Each Class B share is convertible into one
share of common stock, at the option of the shareholder,
provided that the market price for the Company's common
stock is at or above $4.50 per share. In 1995, the Company
issued 110,000 shares of Class B preferred stock in the
acquisition of KSM.
Note 12: Related Party Transactions
Consulting Services:
During 1995, the Company provided consulting services to
an affiliated company through common control. Total fees
received aggregated $50,000 and are included in consulting
fees - related parties.
Note 13: Legal Settlement
In 1995, KSM was a respondent, along with another former
broker/dealer, owned by an officer/director of KSM, and
various individuals, in two separate legal matters before the
NASD. The complaints sought reimbursement of trading losses,
aggregating approximately $126,000 plus interest, fees and
punitive damages.
Subsequently in 1996, the NASD arbitration panel awarded the
claimants approximately $210,500 in full settlement of their
complaints. Accordingly, the Company has recorded the entire
settlement in "other accrued liabilities" in the accompanying
balance sheet.
Note 14: Foreign Currency Transaction Gain (Loss)
Foreign currency transaction gains or losses result from a
change in exchange rates between the functional currency of
the Company or its subsidiaries and the currency in which a
foreign transaction is denominated. These gains or losses are
comprised of actual currency gains or losses realized upon
settlement of foreign currency transactions and expected
(unrealized) currency gains or losses on unsettled foreign
currency transactions.
For 1995 and 1994, the foreign currency transaction gain
(loss) was $(323,597) and $53,326, respectively.
34
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 15: Income Taxes
The effective tax rate varies from the maximum federal
statutory rate as a result of the following items:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Tax benefit computed at the
maximum federal statutory rate ( 34.0)% ( 34.0)%
Foreign income exclusion 30.5 4.7
Net (increase) decrease due to various
temporary and permanent differences ( 13.6) -
Net operating loss carryforward 17.1 29.3
---------- ----------
Income tax provision - % - %
============= =============
</TABLE>
Deferred taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- --------
Asset:
<S> <C> <C>
Net operating loss carryforward $ 47,000 $ 17,000
Other ( 7,000) -
------------- ----------
Net deferred tax asset before
valuation allowance 40,000 17,000
Less valuation allowance ( 40,000) ( 17,000)
------------ -----------
Net deferred tax asset $ - $ -
=============== =========
</TABLE>
For financial statement purposes, no tax benefit has been
reported in 1995 or 1994 as the Company has had significant
losses in recent years and realization of the tax benefits is
uncertain. Accordingly, a valuation allowance has been
established for the full amount of the deferred tax asset.
At December 31, 1995, the Company had net operating loss
carryforwards as follows for income tax purposes:
Carryforward Net Operating
Expires December 31: Loss Carryforwards
-------------------- ------------------
2005 $ 3,000
2006 19,000
2007 2,000
2009 62,000
2010 226,000
------------
$ 312,000
35
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 15: Income Taxes (Continued)
The utilization of the $312,000 of carryforwards relating to
Global prior to its November 14, 1995 acquisition is dependent
upon the ability of Global to generate sufficient taxable
income during the carryforward period (separate return
limitation regulations). In addition, utilization of these
carryforwards is limited due to ownership changes as defined
in the Internal Revenue Code.
Note 16: Industry and Geographical Segment Reporting
The Company operated and had assets in the investment banking
and broker/dealer industries as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues:
Investment banking $ 39,952 $ 42,106
Broker/dealer 616,530 -
------------ ------------
Total revenues $ 656,482 $ 42,106
=========== ============
Operating Loss:
Investment banking $( 478,659) $( 151,350)
Broker/dealer ( 51,259) -
------------- ------------
Total operating loss $(529,918) $(151,350)
========= =========
Identifiable Assets:
Investment banking $3,994,611 $4,308,941
Broker/dealer 862,849 -
------------ ------------
Total identifiable assets $4,857,460 $4,308,941
========== ==========
The Company operated and had assets in the United States and Europe as follows:
Revenues:
United States $ 621,465 $ 24,501
Europe 35,017 17,605
------------ ------------
Total revenues $ 656,482 $ 42,106
- ------------------ ============ ============
Operating Loss:
==================
United States $ (538,141) $ (146,375)
==================
Europe 8,223 (4,975)
------------ -----------
Total operating loss $ (29,918) $ (151,350)
- ------------------ =========== ===========
Identifiable Assets:
United States $ 2,121,811 $ 1,817
==================
Europe 2,735,649 4,307,124
------------ ------------
36
<PAGE>
Total identifiable assets $ 4,857,460 $ 4,308,941
- ------------------ ============ ============
</TABLE>
37
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 17: KSM Holding Company Acquisition
On November 14, 1995, the Company exchanged 110,000 of its
convertible preferred stock for all 3,617,143 shares of KSM
common stock issued and outstanding (not including 2,400
shares of preferred stock outstanding). The exchange resulted
in KSM becoming a 99.93% owned subsidiary of the Company.
The total KSM purchase price was $217,482, consisting of
110,000 shares of Company convertible preferred stock valued
at $165,000 and acquisition costs totalling $52,482. The $1.50
price per share used to value the preferred stock was
determined based upon the market value of an equivalent number
of shares of common stock due to the conversion rights less a
discount to factor in the reduction in value stemming from
restrictions in conversion and the size of the newly issued
block.
The Company accounted for the acquisition under the purchase
method whereby the assets and liabilities of KSM are recorded
at their net book value, which approximated fair market value
as of the date of acquisition as estimated by management. The
following items represent the net tangible assets acquired and
liabilities assumed:
Commissions receivable $ 44,807
Other receivables 53,236
Marketable securities 392,633
Other current assets 51,983
Net property and equipment 114,691
Note payable - bank ( 50,000)
Notes payable - related parties ( 416,969)
Accounts payable ( 143,803)
Accrued liabilities ( 34,009)
Long-term debt ( 38,752)
Long-term debt - related parties ( 40,000)
-------------
Net assets (liabilities) $( 66,183)
============
The $283,665 excess purchase price of the fair market value of
tangible assets and liabilities acquired has been identified
as broker/dealer network development and customer lists
acquired and is being amortized over a five-year period.
38
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
Note 17: KSM Holding Company Acquisition (Continued)
Summarized below is the unaudited condensed and pro-forma
consolidated statement of operations as if the KSM acquisition
had taken place at the beginning of the year ended December
31, 1995.
<TABLE>
<CAPTION>
1995 Pro-forma Consolidated
Statement of Operations (Unaudited)
Pro-forma
Development KSM Holding Pro-forma Development
Bancorp, Ltd. Corporation Consolidating Bancorp, Ltd.
Consolidated Consolidated (1) Entries (2) Consolidated
<S> <C> <C> <C> <C>
Revenues $ 656,482 $ 1,571,490 $ - $ 2,227,972
General &
administrative (1,186,400) (1,831,532) (52,003) (3,069,935)
------------ -------------- --------------- ------------
Loss from operations (529,918) (260,042) (52,003) (841,963)
- -----
Other income (expense) 79,676 (37,342) - 42,334
------------- -------------- ---------------- -------------
Net loss $ (450,242) $ (297,384) $ (52,003) $ (799,629)
============ ============== =============== ============
Net loss per share $ (.41) $ (.73)
============ ============
Weighted average number
of shares outstanding 1,095,606 1,095,606
============= =============
</TABLE>
(1) Represents KSM Holding Corporation consolidated unaudited activity for
the period from January 1, 1995 to November 14, 1995 (date of
acquisition).
(2) Represents adjustment to amortization of intangible assets acquired in
the KSM Holding Corporation acquisition for the period from January 1,
1995 to November 14, 1995 (date of acquisition).
Note 18: Subsequent Event
On November 1, 1996, the Company rescinded its acquisition of
KSM Holding Company (KSM). Accordingly, all 3,617,143 shares
of KSM common stock were returned to KSM in exchange for the
return and cancellation of all 110,000 shares of Company
convertible preferred stock outstanding. Additionally, all
amounts paid to KSM will be considered as unsecured loans
($415,000 as of December 31, 1995) bearing interest at 8% and
due in November 2001.
ARTICLES OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION
Dempsey K. Mork certifies that he is the Secretary of Development
Bancorp, Ltd., a Washington corporation (hereinafter referred to as the
"Corporation" or the "Company"); that, pursuant to the Corporation's Articles of
Incorporation, as amended, and Section 23B.06.020 of the Washington Business
Corporation Act, the Board of Directors of the Corporation duly adopted the
following resolutions on December 30, 1995; that none of the Series B
Convertible Preferred Stock has been issued as of that date; and that the
following sets forth a correction of the Certificate of Designation for the
Series B Convertible Preferred Stock. Shareholder action was not required.
1. Creation and Designation of Series B Convertible Preferred Stock.
There is hereby created a series of preferred stock consisting of 110,000 shares
and designated as the Series B Convertible Preferred Stock, having the voting
powers, preferences, relative, participating, optional and other special rights
and the qualifications, limitations and restrictions thereof that are set forth
below.
2. Dividend Provisions. The holders of shares of Series B Convertible
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors out of any funds at the time legally available therefor, dividends
at the same time and on a parity with holders of common stock, as if on the date
immediately prior to the record date for such dividend, the Series B Convertible
Preferred Stock had been converted into common stock at the Conversion Rate.
Each share of Series B Convertible Preferred Stock shall rank on a parity with
each other share of Series B Convertible Preferred Stock with respect to
dividends.
3. Redemption Provisions. Except as otherwise expressly
provided or required by
law, the Series B Convertible Preferred Stock shall not be redeemable.
4. Liquidation Provisions. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series B Convertible Preferred Stock shall be entitled to receive from the
assets of the Corporation such amount in cash or other property as received by
holders of common stock, as if immediately prior to such distribution the Series
B Convertible Preferred Stock had been converted into common stock at the
Conversion Rate. Each share of Series B Convertible Preferred Stock shall rank
on a parity with each other share of Series B Convertible Preferred Stock and
each share of Series B Convertible Preferred Stock, with respect to the
respective preferential amounts fixed for such series payable upon any
distribution of assets by way of liquidation, dissolution, or winding up of the
Corporation.
<PAGE>
5. Conversion Provisions. The holders of shares of Series B
Convertible Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(1) On and after the day that the Market Price
of the Corporation's Common Stock is no less
than $4.50 per share, each share of Series B
Convertible Preferred Stock shall be
convertible at any time at the option of the
holder into shares of common stock at a
conversion rate ("Conversion Rate") equal to
one share of Common Stock for each one share
of Series B Preferred Stock. In effecting
the conversion, the Corporation shall pay
any cumulative dividends accrued and unpaid
on the shares being converted in cash. For
purposes of this Section 5(a)(1), Market
Price shall be the closing bid price of the
common stock as reported by the National
Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or the closing
bid price in the over-the-counter market if
other than NASDAQ, or, in the event the
common stock is listed on a stock exchange,
the fair market value per share shall be the
closing price on the exchange, as reported
in the Wall Street Journal, as averaged over
the ten trading days immediately prior to
the date of conversion.
(2) No fractional shares of common stock shall
be issued upon conversion of the Series B
Convertible Preferred Stock and any shares
of Series B Convertible Preferred Stock
surrendered for conversion which would
otherwise result in a fractional share of
common stock shall be rounded to the nearest
whole share.
(b) Adjustments to Conversion Rate.
(1) Reclassification, Exchange and Substitution.
If the common stock issuable on conversion
of the Series B Convertible Preferred Stock
shall be changed into the same or a
different number of shares of any other
class or classes of stock, whether by
capital reorganization, reclassification, or
otherwise (other than a subdivision or
combination of shares provided for above),
the holders of the Series B Convertible
Preferred Stock shall, upon its conversion,
be entitled to receive, in lieu of the
common stock which the holders would have
become entitled to receive but for such
change, a number of shares of such other
class or classes of stock that would have
been subject to receipt by the holders if
they had exercised their rights of
conversion of the Series B Convertible
Preferred Stock immediately before that
change.
2
<PAGE>
(2) Reorganizations, Mergers, Consolidations or
Sale of Assets. If at any time there shall
be a capital reorganization of the
Corporation's common stock (other than a
subdivision, combination, reclassification
or exchange of shares provided for elsewhere
in this Section (b) or merger of the
Corporation into another corporation, or the
sale of the Corporation's properties and
assets as, or substantially as, an entirety
to any other person), then, as a part of
such reorganization, merger or sale, lawful
provision shall be made so that the holders
of the Series B Convertible Preferred Stock
shall thereafter be entitled to receive upon
conversion of the Series B Convertible
Preferred Stock, the number of shares of
stock or other securities or property of the
Corporation, or of the successor corporation
resulting from such merger, to which holders
of the common stock deliverable upon
conversion of the Series B Convertible
Preferred Stock would have been entitled on
such capital reorganization, merger or sale
if the Series B Convertible Preferred Stock
had been converted immediately before that
capital reorganization, merger or sale to
the end that the provisions of this
paragraph (b)(2) (including adjustment of
the Conversion Rate then in effect and
number of shares purchasable upon conversion
of the Series B Convertible Preferred Stock)
shall be applicable after that event as
nearly equivalently as may be practicable.
(c) No Impairment. The Corporation will not, by
amendment of its
Certificate of Incorporation or through any
reorganization, recapitalization,
transfer of assets, merger, dissolution, or any other
voluntary action, avoid
or seek to avoid the observance or performance of
any of the terms to be
observed or performed hereunder by the Corporation,
but will at all times
in good faith assist in the carrying out of all the
provision of this Section
5 and in the taking of all such action as may be
necessary or appropriate
in order to protect the Conversion Rights of the
holders of the Series B
Convertible Preferred Stock against impairment.
(d) Certificate as to Adjustments. Upon the occurrence
of each adjustment
or readjustment of the Conversion Rate for any shares
of Series B
Convertible Preferred Stock, the Corporation at its
expense shall promptly
compute such adjustment or readjustment in accordance
with the terms
hereof and prepare and furnish to each holder of
Series B Convertible
Preferred Stock effected thereby a certificate
setting forth such adjustment
or readjustment and showing in detail the facts upon
which such
adjustment or readjustment is based. The Corporation
shall, upon the
written request at any time of any holder of Series B
Convertible Preferred
Stock, furnish or cause to be furnished to such
holder a like certificate
3
<PAGE>
setting forth (i) such adjustments and readjustments,
(ii) the Conversion Rate at the time in effect, and
(iii) the number of shares of common stock and the
amount, if any, of other property which at the time
would be received upon the conversion of such
holder's shares of Series B Convertible Preferred
Stock.
(e) Notices of Record Date. In the event of the
establishment by the
Corporation of a record of the holders of any class
of securities for the
purpose of determining the holders thereof who are
entitled to receive any
dividend (other than a cash dividend) or other
distribution, the Corporation
shall mail to each holder of Series B Convertible
Preferred Stock at least
twenty (20) days prior to the date specified therein,
a notice specifying the
date on which any such record is to be taken for the
purpose of such di-
vidend or distribution and the amount and character
of such dividend or
distribution.
(f) Reservation of Stock Issuable Upon Conversion. The
Corporation shall
---------------------------------------------
at all times reserve and keep available out of its
authorized but unissued
shares of common stock solely for the purpose of
effecting the conversion
of the shares of the Series B Convertible Preferred
Stock such number of
its shares of common stock as shall from time to time
of the Series B
Convertible Preferred Stock; and if at any time the
number of authorized
but unissued shares of common stock shall not be
sufficient to effect the
conversion of all then outstanding shares of the
Preferred Stock, the
Corporation will take such corporate action as may,
in the opinion of its
counsel, be necessary to increase its authorized but
unissued shares of
common stock to such number of shares as shall be
sufficient for such
purpose.
(g) Notices. Any notices required by the provisions of
this Paragraph (e) to be given to the holders of
shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid,
and addressed to each holder of record at its address
appearing on the books of the Corporation.
6. Registration Rights.
Piggyback Rights. The holders of shares of Series B
Convertible Preferred Stock shall have the following
registration rights: (a) If, at any time until
December 31, 1997 should the Company propose to
register any of its securities under the Securities
Act of 1933 (the "Act") on Form S-1, S-2 or S-3,
their successor forms, or any other form under the
Act under which the shares of Common Stock underlying
the Series B Convertible Preferred
4
<PAGE>
Stock (the "Registrable Securities") are eligible to
be registered (either on its behalf or on behalf of
any selling shareholders) the Company shall include
the Registrable Securities in one such registration
statement, at the Company's cost and expense
(excluding the costs of legal counsel to the holders
of the Registrable Securities); provided, however,
that if, in the opinion of the Company's managing
underwriter, if any, for such offering, the inclusion
of the Registrable Securities when added to the
securities being registered by the Company or any
selling shareholder(s), will exceed the maximum
amount of the Company's securities which can be
marketed (i) at a price reasonable related to their
then current market value; or (ii) without otherwise
materially and adversely affecting the entire
offering, then the Company may exclude from such
offering all or any portion of the Registrable
Securities requested to be so registered; provided,
further, if such registration statement includes
securities of selling shareholder(s), the aggregate
number of the Registrable Securities to be included
in such registration statement shall equal the number
which shall equal the number which bears the same
ratio to the maximum number of securities that he
underwriter believes may be included for all selling
shareholders as the original number of Registrable
Securities proposed to be sold by the holders thereof
bears to the total original number of securities
proposed to be offered by the other selling
shareholders.
(b) Demand Registration. The Company agrees to file a
registration statement under the Act on demand of the
holders of the Registrable Securities made at any
time until December 31, 1997, at the sole cost and
expense of the holders of the Registrable Securities.
7. Voting Provisions. Except as otherwise provided by law, the
holders of Series B
Convertible Preferred Stock shall have the right to vote as a class with the
holders of common stock.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Correction to Certificate of Designation of Series B Convertible Preferred Stock
to be duly executed by its Secretary, on September 30, 1996 as of December 30,
1996.
Dempsey K. Mork
5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND AS OF
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000915337
<NAME> DEVELOPMENT BANCORP, LTD.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,518,327
<SECURITIES> 1,572,608
<RECEIVABLES> 337,602
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,550,825
<PP&E> 139,319
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,857,460
<CURRENT-LIABILITIES> 1,369,243
<BONDS> 0
0
165,000
<COMMON> 3,673,496
<OTHER-SE> (392,049)
<TOTAL-LIABILITY-AND-EQUITY> 294,109
<SALES> 0
<TOTAL-REVENUES> 656,482
<CGS> 0
<TOTAL-COSTS> 1,186,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,490)
<INCOME-PRETAX> (450,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (450,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (450,242)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
