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, 1996
[ ] 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-KSB. [X]
State issuer's revenues for its most recent fiscal year: $103,243
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $14,740,363 based upon the average of the bid and asked
price of the Common Stock of $4.4375 as of May 27, 1997.
The number of shares outstanding of the issuer's classes of Common
Stock as of May 27, 1997:
Common Stock, No Par Value - 3,394,668 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
Item 1. Description of Business
Business Development
Development Bancorp, Ltd. (the "Company") Development Bancorp is a
holding company that owns various interests in subsidiaries and investee
companies in the financial services industry in North America and Europe. 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
the then officers and directors of the Company 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 other business opportunities. On
August 13, 1993, the Company changed its name to Development Bancorp, Ltd. and
effected a 165-for-1 reverse stock split in preparation for a private placement
fund raising. 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 October 4, 1993, the Company's
shareholders authorized the issuance of preferred stock, adopted a Stock Option
Plan and ratified the reverse stock split. Following this reorganization, the
Company has directed its efforts towards financial services as well as merchant
banking activities focused on investing in financial service subsidiaries and
partnering with other companies around the world engaged in financial services.
Financial Services
In June 1993 the Company commenced its business of providing financial
services with the organization of an operating subsidiary, Societe Financiere de
Distribution Geneve S.A. (oSFDo). SFD operates in Geneva, Switzerland and is a
Swiss financial company. In fiscal 1995 the Company organized Development
Bancorp Services Limited, an Irish corporation?? ("Ireland"). SFD's and
Ireland's activities consist primarily of financial services, including
financial advisory and transactional support services. Neither Ireland nor SFD
publicly solicits customer deposits and both companies employ other banks as
custodian of customer cash and securities assets, and are therefore exempt from
the banking regulations. Both subsidiaries deal exclusively with institutional
clients in Europe. The Company's European operations are managed by Riccardo
Mortara, president and chairman of the Company. Mr. Mortara has over 20 years
experience in the Swiss banking industry and he is the owner and operator of
Societe Financiere du Seujet, a Swiss trust & portfolio management company.
Certain conflicts of interest do exist (See Conflicts...)
SFD is owned 99.3% by the Company and 0.7% by Mr. Riccardo Mortara, 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. Following the reorganization of the Company into financial services
and the establishment of the Company's European subsidiaries, the Company has
been active in seeking merchant banking opportunities to invest and partner with
other financial services companies around the world.
Merchant Banking Activities
In September of 1993, the Company invested US$921,000 with an
organization known as PEMP. PEMP is a licensed Canadian financial advisory,
insurance, and fund management group based in Montreal. The Company received
120,000 Class G Shares, or 9%, of the holding company for the PEMP operations,
known as Gestion PEMP, Inc., as well as a royalty to receive a portion of
certain fees from the development of the PEMP network. The Class G shares are
not transferable except in the event of a sale of the entire business. In 1996
and 1995 the
2
<PAGE>
Company received $0 and $35,017, respectively, in commissions from royalty in
the PEMP Network. No proceeds have been received in 1996 because PEMP is
currently reorganizing its ownership structure and it is anticipated that the
Company's royalty right will be converted into redeemable preferred shares in
late 1997. The PEMP group currently has 5 offices and 6,000 customers throughout
Canada.
In 1996, the Company helped fund PEMP's expansion with the purchase of
4.65 million redeemable preferred shares of the senior holding Company, Gestion
Guychar Inc. for $3.5 million (Canadian dollars). The preferred shares are
non-voting, non-transferable, and non-participating and are redeemed as follows:
$1,250,000 on October 1, 2001, with an annual cumulative dividend of 4%, payable
on October 1 of each year; $1,300,000 on October 1, 2002, with an annual
cumulative dividend of 3.8%, payable on October 1 of each year; and $2,100,000
on October 1, 2003, with an annual cumulative dividend of 3.5% payable on
October 1 of each year. All amounts respecting the preferred shares are in
Canadian dollars. The purchase price of the preferred shares in US dollars was
$3,132,012.
On December 6, 1995, the Company acquired 1,967,1433 shares, or 51%, or
KSM Financial Holdings, Inc. ("KSM") for a purchase price of $250,000. KSM, a
Nevada corporation, owns all of the capital stock of Global Financial Group,
Inc. ("Global"). The management of KSM and Global continued without change after
the acquisition by the Company. Global is a broker deal registered with the
National Association of Securities Dealers, Inc. ("NASD"). Following the initial
acquisition, the Company invested additional sums and negotiated with Kevin
Miller, CEO of KSM and Global and the owner of the 49% remaining stake in KSM,
to acquire his stake. With the Company's assistance, Global quickly grew from
being an agency brokerage with offices in two US cities, to a fully licensed
market maker and underwriter, with offices in ten US cities. The terms of the
acquisition of the remaining stake were finalized in the early summer of 1996
and the acquisition was formally closed on September 6, 1996, making KSM a
wholly owned subsidiary. The additional stake was acquired from Kevin Miller for
110,000 shares of Series B Convertible Preferred Shares of the Company.
While the Company was pleased with Global's initial growth, management
of the subsidiaries were reluctant to fully implement changes or improvements
suggested by the Company, and consistently failed to provide complete financial
information to the Company. The Company believed that the acquisition of the
remaining 49% stake, thus making KSM and Global wholly owned subsidiaries of the
Company, would make KSM and Global management fully answerable. This did not
prove to be the case. Kevin Miller was either unwilling or unable to fully
embrace and implement the suggested direction and changes favored by the
Company. The Company favored revenue building strategies including hiring more
brokers for each office. The Company also favored strategies to have Global
enforce a basic dress code, minimal work hours, and minimal production levels.
The company favored increased compliance and a policy of restricting brokers
from activities that are not completely understood and approved in advance by
Global's head of compliance.
Replacing Kevin Miller was an option but it was also noted that he had
substantial loyalty among the Global workforce - who were increasingly seeing
the Company as an unwanted and meddlesome outsider. At the same time, the
Company was having difficulties understanding the nature of Global's cash flow
needs as well as troubles completing the Company's public reporting - largely
because of less than perfect cooperation from the subsidiaries.
On November 1, 1996, the Company agreed to rescind the acquisition of KSM and
treat all moneys paid by the Company to or on behalf of KSM and Global as a
loan, due and payable in 3 years with 10% interest paid annually.
Kevin Miller signed the recission agreement and wrote in two changes, a 5 year
term and 8% interest, which only he initialed. In the summer of 1997 during
routine audit confirmations, Kevin Miller informed the Company's auditor that
KSM and Global has no intention of ever repaying the Company. In part due to Mr.
Miller's comments and in part for fundamental collectibility concerns, the
auditor has caused the Company to write its investment into Global down to
$250,000. Because of Mr. Miller's current position and his failure to surrender
the Company's Series B Convertible Preferred Shares that he received, the
Company is not certain of the legal effect of the recission or what the proper
terms are. The Company intends to recover the maximum amount possible and is
currently studying litigation should a friendly resolution not be forthcoming.
Unless otherwise stated in this filing, all information herein reflects the
recission of the KSM/Global transaction.
3
<PAGE>
In the second half of 1997, the Company purchased 7,345 shares of
Societe Financiere Privee ("SFP"), a Swiss bank for US$4,148,293. SFP offers
complete banking and portfolio management services and is publicly traded on the
Swiss Stock Exchange. The Company's ownership of SFP is equal to about 3% of
SFP's outstanding shares. The Company is currently in discussion with SFP to
co-develop and offer certain services in the United States.
Competition
Competition in the Company's areas of focus come from international and
local banks, brokerage firms, and other financial institutions. Most of these
competitors have greater experience and greater financial resources than the
Company.
Employees
The Company has 5 employees, including its officers. The officers of
the Company do not work exclusively for the Company and certain conflicts of
interest exist (See conflicts).
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.
(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
4
<PAGE>
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.
Item 2. Description of Property
The Company's headquarters in Geneva is furnished by the Company's
president at no cost. The Company also has two office leases in Palm Springs,
California that expire in August of 1998, and February of 1999.
Item 3. Legal Proceedings
The Company is not currently involved in any litigation. Litigation is
being contemplated by the Company against KSM Financial Holdings, Inc. ("KSM")
and its shareholder Kevin Miller. KSM is the holding company of an NASD
registered broker-dealer under the name of Global Financial Group, Inc. In
December of 1995, the Company acquired a 51% interest in KSM for $250,000, with
the intention of infusing financial and strategic support to enable Global to
expand its operations. The Company later added to its interest in KSM by
acquiring the remaining common shares in KSM from Kevin Miller, who continued to
manage KSM and Global post-acquisition. The Company provided its investment and
strategic assistance to KSM to enable Global to grow from an initial
organization that conducted agency business in two cities, to an organization
with complete market-making and public underwriting ability with offices in 10
cities.
For the time that KSM and Global were subsidiaries, the Company
experienced great difficulty in securing complete and open books and records.
The Company also developed doubts as to Miller's effectiveness as the president
of Global, with regards to firm profitability, compliance, and leadership.
Despite the addition of several branches and revenues, KSM frequently sought
cash flow injections from the Company to meet its basic overhead. These matters
caused the Company to become more outspoken and press for specific changes in
Global - changes aimed at increasing revenues and compliance. The Company found
Miller unwilling or unable to effect any significant changes. The only seeming
result of the Company's pushing for material changes was significant resentment
from Miller and other employees of Global. The overwhelming message received by
the Company from all of the above was that Miller and some of its employees
viewed Global's relationship with the Company not consistent with a
parent-subsidiary structure but more as an independent partner in a voluntary
partnership.
The relationship of the individuals of the Company and Global has
remained mostly positive, with perhaps one month of hostility when the Company
was hard pressing for change. When it became evident to the Company that this
change would not happen regardless of the Company's percentage ownership on
paper, the Company faced a few alternatives. Rather than enter into a major
dispute that may have damaged the future viability of KSM and Global, the
Company agreed to rescind the entire acquisition of KSM in exchange for treating
all capital infusions into or on behalf of KSM and Global as a loan from the
Company to KSM, with 10% interest and maturity in 3 years. Since the time of the
recission agreement, various actions and developments have taken place which
raise the concern of the Company. Foremost among these actions is that Miller
informed the auditor for the Company that KSM and Global had no intention of
ever paying on the debt to the Company. The Company is currently contemplating
various possibilities to collect its debt and/or re-take ownership of KSM and
Global, and to recover any losses it may sustain in the process. (See Merchant
Banking Activities)
5
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
6
<PAGE>
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. These
prices have been adjusted for a one-for-six stock dividend to holders of record
as of November 1, 1996, payable November 15, 1996:
<TABLE>
<CAPTION>
Bid Price Ask Prices
High Low High Low
Quarter Ended
December 31, 1993
<S> <C> <C> <C> <C>
(commencing October 5, 1993) 6.25 2.92 7.50 3.33
March 31, 1994 5.83 3.75 6.67 4.58
June 30, 1994 5.42 3.75 6.67 4.58
September 30, 1994 5.42 3.33 6.67 6.25
December 31, 1994 5.83 4.58 6.25 6.04
March 31, 1995 5.83 2.50 6.46 5.00
June 30, 1995 4.79 3.33 6.46 5.00
September 30, 1995 2.50 1.67 5.83 3.33
December 30, 1995 4.37 2.50 5.00 4.58
March 31, 1996 4.695 1.25 5.00 2.92
June 30, 1996 2.71 .52 3.33 1.67
September 30, 1996 4.45 1.95 4.64 2.49
December 31, 1996 6.30 4.00 7.00 4.27
March 31, 1997 5.75 3.25 6.00 3.25
</TABLE>
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 May 28, 1997, there were approximately 290 record holders of
Company common stock. There are three holders of its Series A Preferred Stock.
(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.
7
<PAGE>
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.
<TABLE>
<CAPTION>
Income Statement Data
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $ 103,243 $ 656,482 $ 42,106 $ 9,843 $ -0-
Net Income (Loss) - Continuing Operations $ (3,451) $(349,773) $(127,339) $ (19,338) (9,728)
Net Income (Loss) - Discontinued Operations $ (520,257)$326,087
Net Income (Loss) Per Share $ (.30) $ (.35) (.13) (.08) (.53)
Weighted Average
Shares Outstanding 1,747,762 1,282,403 984,090 233,550 18,424
Balance Sheet Data
As of December 31,
1996 1995 1994 1993 1992
Working capital $ 725,475 $ 2,181,582 $ 2,097,051 $ 1,309,393 $ 3,221
Long Term Debt $ -0- $ 41,770 $ -0- $ -0- $ -0-
Total Assets $ 9,476,510 $ 4,857,460 $ 4,308,941 $ 3,808,696 $ 3,221
Shareholders'
Equity $ 9,179,427 $ 3,446,447 $ 3,881,892 $ 3,032,264 $ 3,221
</TABLE>
Results of Operations
The Company's revenues in 1996 were primarily derived from its
ownership of Gestion Pemp Network shares and from one time consulting fees of
$64,509 received from a corporation affiliated with an officer. Discontinued
operations relate to the operations of KSM and Global Financial Group. The
acquisition of Global Financial was mutually rescinded in November 1996.
It was intended that Global would be the cornerstone of the Company's financial
services network in the U.S. Soon after the acquisition was completed, the
Company encountered difficulty in obtaining monthly and quarterly financial and
other operating information regarding Global. In the view of management, Global
was not being operated in conformity with the Company's strategic plan.
Management considered various plans to remedy the situation and finally
concluded that implementation of its plans would lead to excessive employee
attrition at Global, lessening the value of Global to the Company. The Board of
Directors determined that it would be in the best interests of the Company to
rescind the acquisition. In the recision agreement, KSM agreed to repay all
amounts advanced to it or on its behalf. However, since Global has informed the
Company's auditor that it won't pay anything and total collectibility is in
doubt, the company has written down this receivable to $250,000. See Notes 19
and 20 to Consolidated Financial Statements.
General and administrative expenses were more than double in fiscal
1996, compared to 1995, primarily because the Company commenced significant
operations only in the latter half of fiscal 1995. Other income in fiscal 1996
was $980,257, compared to expense of $349,773 in fiscal 1995. The difference was
due primarily to foreign currency transaction gains and losses, which were more
favorable in fiscal 1996 and a significant increase in gain in marketable
securities. Future other income (loss) is difficult to predict due to the
fluctuating nature of the value of foreign currencies and securities prices.
There can be no assurance that the Societe Financiere Privee or Gestion Guychar,
Inc. securities can be resold or redeemed, respectively, at any given price.
8
<PAGE>
Investments
In 1996 the Company entered into a strategic investment in the common
shares of Societe Financial Privee, Geneva, a Swiss financial institution
involved in portfolio management and financial services. The Company intends to
market SFP Geneva's services in the United States. A total of 7,345 shares of
SFP (constituting 3% of SFP's outstanding shares) were purchased for $4,148,293.
In 1996 the Company purchased 4.65 million redeemable preferred shares
of Gestion Guychar, Inc., which is a related company to Gestion Pemp Network.
The redeemable preferred stock was purchased for investment. See Merchant
Banking Activities.
The Company purchased 120,000 Class G shares of Gestion PEMP, Inc.
("PEMP") and Gestion PEMP Network, a multi-level marketing system of 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 (PEMP) Inc. sells its Class G shares the
Company shall have the right to sell its shares at the same price. The Class G
shareholders are also obligated to vote in favor of any proposed public offering
of PEMP. In 1996 and 1995 the Company received $0 and $35,017, respectively in
commissions from the ownership of Gestion PEMP Network. See Merchant Banking
Activities.
Liquidity and Capital Resources
The Company has generated cash for its operations and investment
through operations and 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, 1996 and 1995
Consolidated Statement of Operations for the years ended
December 31, 1996 and 1995 Consolidated Statement of
Shareholders' Equity Consolidated Statement of Cash Flows for
the years ended December 31, 1996 and 1995 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
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. Mr. Mork is also president and
a director of A.G. Holdings, Inc., Gaensel
Gold Mines, Inc. and Magellan Capital Corporation. Mr. Mork's background
includes consulting experience in international
transactional work.
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 1996(1) 0 60,000 0 0 0 0
President and Director
1995(1) 0 60,000 0 0 0 0
1994(1) 0 97,417 0 0
Dempsey K. Mork 1996(1) 0 60,000 0 0 0 0
Chief Financial Officer, 1995(1) 0 60,000 0 0 0 0
Secretary and
Director 1994(1) 0 0 0 97,417 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 23,333 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 to Mr.
Mork the $60,000. The Company issued 29,165 shares to Mr. Mortara for such
amount.
Options Granted in Fiscal 1996
There were no options granted in fiscal 1996.
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, 1996 by the named executive officers:
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options
Number of Unexercised at
Shares Options & Warrants December 31, 1996
Acquired on Value
Exercise Realized(1) Exercisable NonExercisable Exercisable(2)
<S> <C> <C> <C> <C> <C>
Riccardo Mortara -0- $ -0- 97,417 0 $ 235,749
Dempsey K. Mork -0- $ -0- 97,417 0 $ 235,749
</TABLE>
(1) Market Value at time of exercise less exercise price.
(2) The average of the closing bid and ask prices of the Common Stock at
December 30, 1996 was $4.50. Value equals the
difference between market value and exercise price.
In fiscal 1994, the Company issued 23,333 shares to each of Messrs. Mork
and Mortara for services rendered. The shares were valued at $1.83 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
$2.08 per share, exercisable until April, 2004, including 97,417 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.
Directors currently receive no compensation for their duties as directors.
Compliance with Section 16
12
<PAGE>
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 3,394,668 common shares outstanding and 1,500 Class A
Preferred Shares outstanding at May 27, 1997.
<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) 137,585 3.9%
74900 Highway 111
Suite 121
Indian Wells, CA 92210
Riccardo Mortara(3) 130,145 3.7%
14 Quai du Seujet
CH-1201 Geneva
Switzerland
Series A
Preferred
Stock(1) Dempsey K. Mork 500 33.3%
74900 Highway 111
Suite 121
Indian Wells, CA 92210
Riccardo Mortara 500 33.3%
14 Quai du Seujet
CH-1201 Geneva
Switzerland
Parley International, Inc.(4) 500 33.3%
All directors and officers and
as a Group (3 persons)
Common Stock 267,730 7.5%
Series A Preferred Stock 1,500 100%
</TABLE>
(1) The holders of the beneficial ownership of Series A Preferred Stock
have the right, voting unanimously, to collectively elect two-thirds of
the Board of Directors.
(2) Includes options to purchase 97,417 shares, as well as shares held in
the name of a corporation controlled
by Mr. Mork.
(3) Includes 10,000 Shares held by the spouse of Mr. Mortara of which Mr.
Mortara disclaims beneficial
ownership, and options to purchase 97,417 Shares.
(4) The controlling shareholder of Parley International is Terrence Ramsden.
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
13
<PAGE>
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 November 4, 1994 Resource Bank & Trust loaned $35,000 to theCompany.
This note is due November
1999 and interest is payable monthly at the rate of 10.5%
The Company issued 23,333, 23,333 and 17,500 shares to Dempsey K. Mork,
Riccardo Mortara, and Jehu Hand in December 1994 for services rendered valued at
$1.83 per share as officers of the Company.
The Company issued 40,833 shares to Societe Financiere du Seujet, SA on
August 15, 1995 in reimbursement of out of pocket expenses for travel costs of
$189,000 incurred on behalf of the Company. The shares were valued at the price
of a recent placement of shares at $5.00 less the commission of $.50 which would
have been paid if the Company had sold the shares to a third party. Mr. Mortara
is a principal of Societe Financiere du Seujet.
On February 27, 1997 the Company issued 22,728 shares to Riccardo
Mortara in reimbursement of costs and expenses incurred by him on behalf of the
Company in the amount of $90,912. The shares were valued at $4.00 per share, the
current trading price of the Common Stock.
14
<PAGE>
PART IV
Item 13. Exhibits
Exhibit No. Document Description
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession.
2.1. Share Purchase Agreement between KSM Financial Holdings and the
Company.(3)
2.2 Recission Agreement with respect to the trasaction described i
Exhibit 2.1(4)
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 as revised. (5)
3.5 Certificate of Designation for Series B Convertible
Preferred Stock(2)
23. Consents of Auditors. Consent of Silverman, Olson, Thorvilson & Kaufman,
Ltd.(5)
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) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,
1995.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 6, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated November 1, 1996.
(5) 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: June 29, 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 June 29, 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>
DEVELOPMENT BANCORP, LTD.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-20
17
<PAGE>
</TABLE>
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, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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, 1996 and 1995, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
June 6, 1997
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
ASSETS 1996 1995
Current assets:
<S> <C> <C>
Cash and equivalents $ 34,139 $1,518,327
Commissions receivable - 244,874
Other receivables 11,088 92,728
Marketable securities (Note 2) 661,066 1,572,608
Loan receivable - related party (Note 3) 303,098 -
Other current assets 13,167 122,288
Total current assets 1,022,558 3,550,825
Investments (Note 4) 8,165,123 888,381
Contract receivable - related party (Note 5) 250,000 -
Property and equipment, net (Note 6) 38,829 139,319
Intangible assets, net (Note 7) - 278,935
Total assets $ 9,476,510 $4,857,460
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks drawn in excess of available funds $ 196,826 $ -
Note payable - bank (Note 8) - 50,000
Notes payable - related parties (Note 9) - 304,875
Accounts payable 46,034 482,467
Accrued payroll and commissions 54,223 253,587
Other accrued liabilities - 251,433
Current portion of long-term debt (Note 10) - 26,881
Total current liabilities 297,083 1,369,243
Long-term debt (Note 10) - 6,770
Long-term debt - related party (Note 11) - 35,000
Total liabilities 297,083 1,411,013
Commitments and contingencies (Note 12) - -
Shareholders' equity:
Class A preferred stock, no par value (Note 13) 1,000 1,000
Class B convertible preferred stock, no par value (Note 13) - 165,000
Common stock, no par value; 50,000,000 shares
authorized, 3,317,440 and 1,211,606 shares
issued and outstanding, respectively (Note 14) 12,133,685 3,672,496
Accumulated deficit ( 3,110,258) ( 795,771)
Translation adjustment 155,000 403,722
Total shareholders' equity 9,179,427 3,446,447
Total liabilities and shareholders' equity $ 9,476,510 $4,857,460
</TABLE>
Theaccompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
1996 1995
Revenues:
<S> <C> <C>
Commissions and consulting fees $ 38,734 $ 39,952
Consulting fees - related party (Note 15) 64,509 -
Total revenues 103,243 39,952
General and administrative expenses 1,087,041 513,880
Loss from operations ( 983,798) ( 473,928)
Other income (expense):
Gain on sale of marketable securities 771,721 570,795
Unrealized gain (loss) on marketable
securities portfolio ( 946) 61,112
Interest income 49,492 41,480
Interest expense - ( 17)
Foreign currency transaction gain (loss) (Note 16) 159,990 ( 323,597)
Total other income (expense) 980,257 ( 349,773)
Loss from continuing operations ( 3,541) ( 124,155)
Loss from discontinued operations (Note 20) ( 520,257) ( 326,087)
Net loss $( 523,798) $( 450,242)
Per share information (Note 14):
Loss from continuing operations $ - $( .10)
Loss from discontinued operations ( .30) ( .25)
Net loss per share $( .30) $( .35)
Weighted average number
of common shares outstanding 1,747,762 1,282,403
</TABLE>
Theaccompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
Class A and B Accu- Trans- Total
Preferred Stock Common Stock mulated lation Shareholders'
Shares Amount Shares Amount Deficit Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 (Note 14) 1,000 $1,000 1,275,773 $4,081,496 $(345,529)$ 144,925 $3,881,892
Issuance of common stock for cash - - 58,333 270,000 - - 270,000
Issuance of common stock for services - - 52,500 121,000 - - 121,000
Issuance of preferred stock in acquisition
of KSM Holding Corporation (Note 19) 110,000 165,000 - - - - 165,000
Redemption of common stock in sale
of investments (Note 4) - - (175,000) (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 (Note 14) 111,000 166,000 1,211,606 3,672,496 (795,771) 403,722 3,446,447
Issuance of common stock for cash - - 2,006,667 6,466,500 - - 6,466,500
Issuance of common stock for services - - 99,167 204,000 - - 204,000
Issuance of common stock dividend (Note 14) - 1,790,689 (1,790,689)
Redemption of preferred sock in rescission of KSM
Holding Corporation acquisition (Note 20)
(110,000) (165,000) - - - - (165,000)
Equity adjustment from foreign currency translation
- - - - - (248,722) (248,722)
Net loss - - - - (523,798) - (523,798)
Balance at December 31, 1996
1,000 $1,000 3,317,440 $12,133,685 $ 3,110,258) $155,000 $ 9,179,427
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net loss $( 523,798) $( 450,242)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 20,990 22,064
Common stock issued for services 204,000 121,000
Non-cash gain on sale of investment - ( 9,572)
Unrealized (gain) loss on marketable securities 946 ( 62,868)
Foreign currency transaction (gain) loss 204,325 106,032
Loss from discontinued operations 582,457 -
(Increase) decrease in assets:
Commissions receivable 170,632 ( 200,067)
Other receivables ( 90,852) ( 32,195)
Marketable securities 395,065 ( 632,107)
Other current assets 80,189 ( 59,305)
Increase (decrease) in liabilities:
Checks drawn in excess of available funds 196,826 -
Accounts payable ( 368,216) 327,972
Accrued liabilities ( 13,953) 350,011
Net cash provided by (used in) operating activities 858,611 ( 519,277)
Cash flows from investing activities:
Increase in loan and contract receivable - related party ( 1,061,568) -
Purchase of investments ( 7,348,293) -
Increase in intangible assets - ( 52,482)
Purchase of property and equipment ( 46,619) ( 41,962)
Net cash used in investing activities ( 8,456,480) ( 94,444)
Cash flows from financing activities:
Repayment of notes payable - related parties ( 76,544) ( 112,094)
Repayment of long-term debt ( 27,553) ( 5,101)
Repayment of long-term debt - related party - ( 5,000)
Proceeds from issuance of common stock 6,466,500 270,000
Net cash provided by financing activities 6,362,403 147,805
Effect of exchange rate changes on cash ( 248,722) 258,797
Decrease in cash and equivalents ( 1,484,188) ( 207,119)
Cash and equivalents - beginning of year 1,518,327 1,725,446
Cash and equivalents - end of year $ 34,139 $1,518,327
</TABLE>
<PAGE>
Theaccompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
DEVELOPMENT BANCORP, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 6,619 $ 11,057
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1996:
The Company issued $14,413 of long-term debt in exchange for $14,413 of
property and equipment.
The Company recorded $132,774 of non-cash foreign currency exchange gain
on marketable securities.
The Company issued 477,517 shares of its common stock as a dividend to
shareholders valued at $1,790,689.
The Company rescinded its acquisition of KSM. In connection with the
rescission, the Company received a contract receivable valued at
$250,000 and redeemed 110,000 shares of its preferred stock valued at
$165,000 in exchange for returning $95,661 of KSM net assets, the 1996
write-off of $622,861 of KSM advances and $278,935 of intangible assets,
resulting in a $582,457 loss on disposal of the business (Note 20).
During 1995:
The Company redeemed 175,000 shares of its common stock valued at
$800,000 in the sale of oil and gas investments valued at $790,428 (Note
4).
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 19).
Theaccompanying notes are an integral
part of the financial statements.
F-6
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
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 Financiere De
Distribution Geneve SA (Switzerland -
99.3% owned), and KSM Holding Corporation ("KSM") (United
States - 99.93% owned) for the period from November 14,
1995 to November 1, 1996 (Notes 19 and 20). KSM owns 100%
of Global Financial Group ("Global") (United States).
Basis of Presentation:
For the year ended December 31, 1996, 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, and KSM Holding
Corporation for the period from January 1, 1996 to
November 1, 1996 (Note 20). 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
19).
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.
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
F-7
<PAGE>
For the Years Ended December 31, 1996 and 1995
Note 1: Organization and Significant Accounting Policies (Continued)
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.
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.
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.
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.
8
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
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 its 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 of 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.
F-9
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
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 1996, the company adopted 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") which was issued in March
1995
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 is 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.
The adoption of SFAS No. 121 did not result in an
impairment loss in 1996.
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 1995
financial statements in order to conform with 1996
financial statement presentation. These reclassifications
have no effect on accumulated deficit or net loss, as
originally reported.
F-10
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 2: Marketable Securities
Marketable securities consisted of the following at December
31:
<TABLE>
<CAPTION>
Estimated
1996 Market
Cost Value
<S> <C> <C>
Equity securities $ 257,796 $ 259,949
Debt securities 403,994 401,117
$ 661,790 $ 661,066
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
</TABLE>
Unrealized gain (loss) included in marketable securities at
December 31, 1996 and 1995 was $(724) and $16,805,
respectively.
At December 31, 1996, the maturities of debt securities, at
estimated market value, which are classified as available for
sale are as follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ -
One - five years 401,117
$ 401,117
</TABLE>
Note 3: Loan Receivable - Related Party
Loan receivable - related party consisted of a $303,098
advance to a corporation related to the Company by common
management and control. The loan is non-interest bearing,
unsecured and due upon demand.
F-11
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 4: Investments
Investments consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
7,345 common shares of Societe Financiere Privee
(Switzerland) $ 4,148,293 $ -
4,650,000 redeemable preferred shares of
Gestion Guychar, Inc. 3,132,012 -
Investment in Gestion Pemp Network (Canada) 621,566 624,069
120,000 shares of Gestion Pemp, Inc. (Canada) 263,252 264,312
Total investments $ 8,165,123 $ 888,381
Societe Financiere Privee:
</TABLE>
The company owns 7,345 common shares of Societe Financiere
Privee, representing an approximate 3% ownership interest.
Gestion Guychar, Inc.:
The company owns 4,650,000 redeemable preferred shares of
Gestion Guychar, Inc. These shares are non-voting,
non-participating and non-transferable. They are to be
redeemed at a price of one Canadian dollar per share plus
annual commutative dividends payable on October 1st of
each year at various rates ranging from 3.5% to 4%
according to the following schedule:
Shares To
Be Redeemed
October 1, 2001 1,250,000
October 1, 2002 1,300,000
October 1, 2003 2,100,000
4,650,000
Gestion Pemp Network:
The company owns an interest in Gestion Pemp Network, a
multi-level marketing system of Pemp, Inc., a related
Canadian corporation. The $2,503 and $74,506 decline in
value experienced in 1996 and 1995, respectively, was due
to foreign currency exchange rate declines which
management considers to be temporary. During 1995, the
company received $35,017 in commissions from this
investment.
Gestion Pemp, Inc.:
The company owns 120,000 common shares of Gestion Pemp,
Inc., representing an approximate 8% ownership interest.
F-12
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 4: Investments (Continued)
Investment in oil and gas leaseholds:
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 5: Contract Receivable - Related Party
Contract receivable - related party consisted of a contract valued at
$250,000 which was received in the KSM rescission (Note 20).
The contract bears interest at 8%, is unsecured and due in
November 2001.
Note 6: Property and Equipment
Property and equipment consisted of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Furniture and equipment $ 38,978 $ 178,710
Leasehold improvements 9,796 13,176
48,774 191,886
Less accumulated depreciation ( 9,945) ( 52,567)
Property and equipment, net $ 38,829 $ 139,319
</TABLE>
Depreciation expense aggregated $20,990 in 1996 and $17,334 in
1995.
On November 1, 1996, the company disposed of property and
equipment with an aggregate book value of $140,532 as part of
the KSM rescission (Note 20).
Note 7: Intangible Assets
Intangible assets arose in the acquisition of KSM and
consisted of the following at December 31, 1995 (Note 19):
<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 and accordingly the remaining $278,935 of intangible
assets were written-off as part of the rescission in 1996
(Note 20).
F-13
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 8: Note Payable - Bank
The Company had a $100,000 bank line of credit available, of
which $50,000 was outstanding as of December 31, 1995 and
continuing through November 1, 1996. Interest accrues at a
variable rate (10.0% as of November 1, 1996). This debt was
assumed by KSM as part of the rescission on November 1, 1996
(Note 20).
Note 9: Notes Payable - Related Parties
At December 31, 1995, the Company had notes payable to related
parties as follows:
<TABLE>
<CAPTION>
<S> <C>
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
Notes payable - related parties $ 304,875
</TABLE>
These notes, aggregating $228,331 as of November 1, 1996, were
assumed by KSM as part of the KSM rescission (Note 20).
Note 10: Long-Term Debt
Long-term debt consisted of the following at December 31,
1995:
<TABLE>
<CAPTION>
<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>
Long-term debt aggregating $20,510 as of November 1, 1996, was
assumed by KSM as part of the KSM rescission (Note 20).
F-14
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 11: Long-Term Debt - Related Party
As of December 31, 1995 and continuing through November 1,
1996, the Company had a $35,000 note payable to an officer of
the Company. The unsecured note bears interest at 10.5%,
payable monthly, with principal due upon maturity in November
1999.
This note was assumed by KSM as part of the KSM rescission on
November 1, 1996 (Note 20).
Note 12: Commitments and Contingencies
Bank line of credit:
At December 31, 1996, the company had a 1,950,000 Swiss
Franc line of credit available at a Swiss bank
(approximately $1,450,000 as of December 31, 1996). As of
December 31, 1996, there were no amounts outstanding under
the line of credit.
Development Stock Option Plan:
At December 31 1996, and 1995, an aggregate of 800,000
shares of common stock were reserved for issuance 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, 1996 and 1995, no options
had been granted under the plan.
Other Development Stock Options:
As of December 31, 1996 and 1995, an aggregate of 233,334
shares of common stock were reserved for issuance upon
exercise of non-qualified stock options outstanding to
purchase an aggregate of 233,334 shares of common stock
(of which 194,834 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.
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>
1997 $ 63,037
1998 53,197
1999 4,478
$ 120,712
</TABLE>
Rent expense in 1996 and 1995 aggregated $89,495 and
$58,837, respectively.
F-15
<PAGE>
F-16
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 13: 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, 1996 and
1995, there were 1,000 shares of Class A preferred stock
issued and outstanding.
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 19). These
shares were redeemed in 1996 as part of the KSM rescission
(Note 20).
Note 14: Common Stock Dividend
On November 1, 1996, The Company declared a one-for-six share
common stock dividend to the shareholders of record. All
references in the accompanying financial statements to the
number of common shares and per-share amounts have been
retroactively restated to reflect the issuance of the 477,517
share common stock dividend for both years presented.
Note 15: Related Party Transactions
During 1996, the Company provided consulting services to two
corporations affiliated through common control. Total fees
received aggregated $64,509 and are included in consulting
fees related party.
Note 16: 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 1996 and 1995, the foreign currency transaction gain
(loss) was $159,990 and $(323,597), respectively.
F-17
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 17: Income Taxes
The effective tax rate varies from the maximum federal
statutory rate as a result of the following items:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Tax benefit computed at the
maximum federal statutory rate ( 34.0)% ( 34.0)%
Foreign income exclusion 2.9 30.5
Net (increase) decrease due to various
temporary and permanent differences ( 2.0) ( 13.6)
Net operating loss carryforward 33.1 17.1
Income tax provision - % - %
Deferred taxes consisted of the following at December 31:
1996 1995
Asset:
Net operating loss carryforward $ 76,500 $ 47,000
Other ( 500) ( 7,000)
Net deferred tax asset before
valuation allowance 76,000 40,000
Less valuation allowance ( 76,000) ( 40,000)
Net deferred tax asset $ - $ -
</TABLE>
For financial statement purposes, no tax benefit has been
reported in 1996 or 1995 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, 1996, the Company had net operating loss
carryforwards aggregating approximately $510,500 for income
tax purposes that expire in 2011.
The utilization of the net operating loss carryforwards is
dependent upon the ability of the Company to generate
sufficient taxable income during the carryforward period. In
addition, utilization of these carryforwards is limited due to
ownership changes as defined in the Internal Revenue Code.
F-18
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 18: Industry and Geographical Segment Reporting
The Company operated and had assets in the United States and
Europe as follows:
<TABLE>
<CAPTION>
1996 1995
Revenues:
<S> <C> <C>
United States $ 103,243 $ 35,017
Europe - 4,935
Total revenues $ 103,243 $ 39,952
Loss From Operations:
United States $( 946,991) $( 482,152)
Europe ( 36,807) 8,224
Total loss from operations $( 983,798) $ 473,928
Identifiable Assets:
United States $4,369,417 $2,121,811
Europe 5,107,093 2,735,649
Total identifiable assets $9,476,510 $4,857,460
</TABLE>
Note 19: 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 totaling $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.
F-19
<PAGE>
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 19: KSM Holding Company Acquisition (Continued)
The following items represent the net tangible assets acquired
and liabilities assumed:
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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.
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).
F-20
<PAGE>
(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).
DEVELOPMENT BANCORP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
Note 20: Loss from Discontinued operations
Loss from discontinued operations consisted of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loss from disposal of business $(582,457) $ -
Income (loss) from discontinued operations 62,200 ( 326,087)
Total loss from discontinued operations $(520,259) $( 326,087)
</TABLE>
Loss from Disposal of Business:
In November 1996, the Company rescinded its acquisition of
KSM (Note 19). The terms of the rescission specify that
all 110,000 shares of Company Class B preferred stock
valued at $165,000 be returned to the Company, and
$1,032,861 of Company advances to KSM ($160,000 of the
advances were expensed by the Company in 1995 and $250,000
is included in the $278,935 intangible asset valuation)
were to be recorded as a contract receivable from KSM, in
exchange for return of $95,661 of KSM net assets and the
write-off of $278,935 of intangible assets. At December
31, 1996, the Company valued the contract receivable at
$250,000 (Note 5). Accordingly, this valuation adjustment
resulted in an additional loss of $622,861 in 1996. The
rescission resulted in an aggregate $582,457 loss on
disposal of business.
Income (loss) from discontinued operations:
Summarized results of discontinued operations were as
follows for years ended December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $2,577,079 $ 616,530
General and administrative Expenses ( 2,597,967) ( 883,019)
Other income (expense) 83,088 ( 59,598)
Income (loss) from discontinued operations $ 62,200 $( 326,087)
</TABLE>
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF
INCORPORATION
OF
DEVELOPMENT BANCORP, LTD.
1. The name of the Corporation is Development Bancorp, Ltd.
2. The following amendment to the Articles of Incorporation
of the Corporation was duly approved by the Board of
Directors and by the required vote of the holders of the
Series A Preferred Stock pursuant to Section 23B.10.30
and Section 23B.10.40 of the Washington Business
Corporation Act. The approval of the common shareholders
of the Corporation was not required.
3. Section 3 of Article IV of the Articles of Incorporation
of the Corporation is hereby
amended in its entirety to read as follows:
" IV.
3. There is hereby created a class of preferred stock denominated
Series A Preferred Stock, with the following relative rights, designations and
limitations:
(a) Number. The number of shares constituting the
Series A Preferred Stock shall
be 2,000.
(b) Dividend. Holders of the Series A Preferred
Stock are not entitled to receive
dividends.
(c) Redemption. The Series A Preferred Stock shall
not be redeemable.
(d) Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series A Preferred Stock
shall be entitled to receive from the assets of the
Corporation $.01 per share, all of which shall be paid or
set apart for payment before the payment or setting apart
for payment of any amount for, or the distribution of any
assets of the Corporation to, the holders of common stock
in connection with such liquidation, dissolution, or
winding up. Each share of Series A Preferred Stock shall
rank on a parity with each other share of Series A
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. After the
payment or the setting apart of payment to the holders of
Series A Preferred Stock of the preferential amount so
<PAGE>
payable to them, the holders of common stock shall be
entitled to receive, ratably, all remaining assets of the
Corporation.
(e) Voting Rights. Except as otherwise provided by law,
the holders of Series A Preferred Stock shall vote as a
class with the holders of common stock. However, the
holders of the Series A Preferred Stock, voting
separately as a class, shall have the right, by unanimous
vote of the class, to elect two-thirds (2/3) of the
members of the Board of Directors, provided, however,
that if the number of directors is not divisible by three
(3), it shall be increased by one (1) additional member
of the Board of Directors, entitling in such a case the
Series A Preferred Stock holders to election of
two-thirds (2/3) of the members of the Board of Directors
plus one (1) additional director.
If the office of any director elected by the holders of
the Series A Preferred Stock voting as a class becomes
vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, the
remaining director elected by the holders of the Series A
Preferred Stock voting as a class may choose a successor
who shall hold office for the unexpired term in respect
of which such vacancy occurred.
If the office of any director elected by the holder of
the Series A Preferred Stock as a class becomes vacant by
any of the reasons specified above, and if there are no
remaining directors on the Board of Directors elected by
the holders of the Series A Preferred Stock voting as a
class, then the directors elected by the holders of
common stock voting as a class may choose a successor who
shall hold office until he is reappointed or until his
successor is chosen by the director elected by the
holders of the Series A Preferred Stock voting as a
class.
(f) No Conversion Rights. The Series A Preferred
Stock shall not be convertible
into any other class or series of shares of the
Corporation.
(g) Right of First Refusal.
A. Restriction on Sales. If a holder of Series A
Preferred Stock desires to sell all or any part of his
shares of Series A Preferred Stock in the Corporation and
has received a bona fide offer, such holder of Series A
Preferred Stock (the "Selling Shareholder") shall notify
the remaining holders of record of the Series A Preferred
Stock (the "Non-selling Shareholders") in writing,
stating the number of shares desired to be sold, the
amount of the bona fide offer, and the name of the
offeror. For 15 days following delivery of such notice,
the Non-selling Shareholders shall, on a proportional
basis according to the number of Series A Preferred
Shares owned by each of them, have an option to purchase
the Selling Shareholder's shares of Series A Preferred
Stock for the amount of the bona fide offer. The
Non-selling Shareholders may exercise this option by
delivering written notice to the Selling Shareholder
within the 15-day period. If any holder of Series A
Preferred Stock declines to exercise its option with
respect to its proportional share, then the purchase
option rights of the remaining holders of Series A
Preferred Stock shall proportionately be increased.
<PAGE>
If the Non-selling Shareholders do not exercise said
option, the Selling Shareholder may sell his shares of
Series A Preferred Stock in the Corporation on the terms
disclosed to the original offeror. The Selling
Shareholder must sell his shares of Series A Preferred
Stock in the Corporation on the terms disclosed to the
original offeror within 45 days after delivery of the
original notice from the Selling Shareholder to the
Non-selling Shareholders, otherwise the Non-selling
Shareholders shall have another right to purchase the
Shares for the 15 days following the expiration of the
45-day period.
B. Restriction on Other Transfer of Shares. If a holder
of Series A Preferred Stock desires to transfer,
hypothecate, assign or otherwise transfer ("Transfer")
all or any part of his shares of Series A Preferred Stock
in the Corporation and Section A does not apply, such
holder of Series A Preferred Stock (the "Transferring
Shareholder") shall deliver notice thereof (the "Transfer
Notice") to the other holders of the Series A Preferred
Stock (the "Non-transferring Shareholders"), stating the
shares desired to be Transferred, the name of the
proposed Transferee, the manner of and reason for such
Transfer, and the consideration (if any) to be received.
For 15 days following the determination of the fair
market value pursuant to this Section B, the
Non-transferring Shareholders shall have an option to
purchase such shares for their fair market value. The
Non-transferring Shareholders may exercise this option by
delivering written notice to the Transferring Shareholder
within the 15-day period. If any holder of Series A
Preferred Stock declines to exercise its option with
respect to its proportional share, then the purchase
option rights of the remaining holders of Series A
Preferred Stock shall proportionately be increased.
If the Transferring Shareholder and the Non-transferring
Shareholders cannot agree on the fair market value of
such shares within thirty (3) days after the Transfer
Notice is given pursuant to Section C hereof, the fair
market value shall be determined by three appraisers, one
to be chosen by the Transferring Shareholder and
announced in writing to the Non-transferring Shareholders
within 45 days after the Transfer notice is delivered,
one to be chosen by the Non-transferring Shareholders and
announced in writing to the Transferring Shareholder
within 15 days after the selection of the first
appraiser, and the third to be chosen by the first two
appraisers within 15 days after the selection of the
second appraiser. If the Transferring Shareholder does
not select an appraiser within the 15-day period
described above, the fair market value shall be
determined by two appraisers, one chosen by the
Non-transferring Shareholders and the second chosen by
the first appraiser. The decision of a majority of the
appraisers as to fair market value shall be binding on
all parties.
If the Non-transferring Shareholders do not exercise
their option under this Section B, the Transferring
Shareholder may Transfer his shares of Series A Preferred
Stock in the Corporation on the terms disclosed in the
original notice sent to the Non-transferring Shareholders
for a period of 45 days after expiration of the 15-day
period, otherwise the Non-selling Shareholders shall have
the right to purchase the Shares at such price for
another 15 days.
<PAGE>
C. Notice. Any notice given under Sections A and B shall
be in writing and either (1) hand delivered, or (2)
mailed by registered or certified mail, return receipt
requested and postage prepaid, to the address of the
Shareholder or the Corporation as the case may be. The
Corporation or any Shareholder may change his address by
giving notice of the change. Any hand delivered notice
shall be considered given upon delivery. Any mailed
notice shall be considered given on the third business
day after being mailed by U.S. certified mail, postage
prepaid."
IN WITNESS WHEREOF, these Articles of Amendment have been
executed this 14th day of February, 1997.
DEVELOPMENT BANCORP, LTD.
Dempsey K. Mork
Secretary/Treasurer
ATTEST:
Jehu Hand
Assistant Secretary
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement on Form S-8 of Development Bancorp, Ltd. of our report dated June 7,
1997 on our audit of the consolidated financial statements of Development
Bancorp, Ltd. as of and for the years ended December 31, 1996 and 1995, which
report is included in this Annual Report on Form 10-KSB.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
July __, 1997
<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 1996 AND AS OF
DECEMBER 31, 1995 AND 1996 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> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1995
<PERIOD-START> Jan-01-1996 Jan-01-1995
<PERIOD-END> Dec-01-1996 Dec-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 34,139 1,518,327
<SECURITIES> 661,066 1,572,608
<RECEIVABLES> 314,086 337,602
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,022,558 3,550,825
<PP&E> 38,829 139,319
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 9,476,510 4,857,460
<CURRENT-LIABILITIES> 297,083 1,369,243
<BONDS> 0 0
0 0
1,000 166,000
<COMMON> 12,133,685 3,672,496
<OTHER-SE> (2,958,258) (392,049)
<TOTAL-LIABILITY-AND-EQUITY> 9,476,510 4,857,460
<SALES> 0 0
<TOTAL-REVENUES> 103,243 39,952
<CGS> 0 0
<TOTAL-COSTS> 1,097,041 513,880
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (17)
<INCOME-PRETAX> (523,798) (450,242)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,451) (124,055)
<DISCONTINUED> (520,257) (326,087)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (523,798) (450,242)
<EPS-PRIMARY> (.30) (.35)
<EPS-DILUTED> (.30) (.41)
</TABLE>
