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, 1997
[ ] 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
IMATEL HOLDINGS, INC.
(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: $0.
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $14,532,748 based upon the average of the bid and asked
price of the Common Stock of $4.375 as of December 31, 1997.
The number of shares outstanding of the issuer's classes of Common
Stock as of December 31, 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.
On October 20, 1997, the Company entered into a Stock Purchase
Agreement with International Marketing and Advertising, Inc. (IMATEL), a Florida
corporation engaged in telecommunications, pursuant to which the Company was to
acquire 51% of IMATEL for $500,000 cash. The acquisition was reported pursuant
to Item 2 of Form 8-K dated October 20, 1997 and the Company changed its name to
IMATEL Holdings, Inc. Subsequent to the acquisition, the Company became aware of
a purported shareholders' agreement among the shareholders of IMATEL which
prohibited the sale of shares to the Company without consent of IMATEL
shareholders. The Company has accounted for the $500,000 investment as a loan
and has reserved $250,000 against this receivable for costs of collection and
potential impairment.
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.
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.
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<PAGE>
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 Company received $0 and $35,017, respectively, in commissions from
royalty in the PEMP Network. No proceeds have been received in 1996 or 1997
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.
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.
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
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<PAGE>
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 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
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
4
<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 high and low bid
prices. 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:
High Low
Quarter Ended
December 31, 1993
(commencing October 5, 1993)$ 6.25 $2.92
March 31, 1994 5.83 3.75
June 30, 1994 5.42 3.75
September 30, 1994 5.42 3.33
December 31, 1994 5.83 4.58
March 31, 1995 5.83 2.50
June 30, 1995 4.79 3.33
September 30, 1995 2.50 1.67
December 30, 1995 4.37 2.50
March 31, 1996 4.695 1.25
June 30, 1996 2.71 .52
September 30, 1996 4.45 1.95
December 31, 1996 6.30 4.00
March 31, 1997 5.75 3.25
June 30, 1997 6.00 4.00
September 30, 1997 5.25 3.25
December 31, 1997 5.00 2.50
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 December 31, 1997, there were approximately 161 record holders of
Company common stock. There are three holders of its Series A Preferred Stock.
(c) Dividends
The Company has not paid any cash 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.
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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,
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Revenues $ -0- $103,243 $656,482 $42,106 $9,843 $-0-
Net Income (Loss) - Continuing
Operations (3,986,592) (3,451) (349,773) (127,339) (19,338) (9,728)
Net Income (Loss) - Discontinued
Operations (177,850) (520,257) 326,087
Net Income (Loss) Per Share (1.19)(.30) (.35) (.13) (.08) (.53)
Weighted Average
Shares Outstanding
$3,364,183 $1,747,762 $1,282,403 $ 984,090 $ 233,550 $ 18,424
Balance Sheet Data
As of December 31,
1997 1996 1995 1994 1993 1992
Working capital $ (351,664) $ 725,475 $ 2,181,582 $ 2,097,051 $ 1,309,393 $ 3,221
Long Term Debt -0- -0- 41,770 -0- -0- -0-
Total Assets 5,952,981 9,476,510 4,857,460 4,308,941 3,808,696 3,221
Shareholders'
Equity $4,660,538$ 9,179,427 $3,446,447 $3,881,892 $3,032,264 $3,221
</TABLE>
Results of Operations
The Company's had no revenues in 1997. Gaensel and administrative
expenses were $732,090, compared to $1,087,041 in fiscal 1996. The reduction was
due to cost cutting measures. The majority of the loss in fiscal 1997 was
attributable to the write down of investments made in prior fiscal years, but
also includes $250,000 written off in connection with an investment in Imatel, a
Florida telecommunications company.
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
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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, 1997
Consolidated Statement of Operations for the years ended
December 31, 1997 and 1996 Consolidated Statement of
Shareholders' Equity Consolidated Statement of Cash Flows for
the years ended December 31, 1997 and 1996 Notes to
Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company's former independent accountant Silverman, Olson,
Thorvilson & Kaufmann Ltd. ("Silverman") resigned from that capacity on December
6, 1997. The report by Silverman on the financial statements of the Company
dated June 6, 1997, including balance sheets as of December 31, 1996 and 1995
and the statements of operations, cash flows and statement of stockholders'
equity for the years ended December 31, 1996 and 1995 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. On January 27, 1998 the Company engaged Cordovano &
Howey, PC., as its new independent accountant.
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.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the
Exchange Act.
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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 50, 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 55, 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 $50,000 or 10% of such officer's cash compensation.
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<TABLE>
<CAPTION>
Summary Compensation Table
===================================================================================================================================
ANNUAL COMPENSATION LONG TERM COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
Name and Other Annual All
Principal Position Year Salary Bonus Compensation Awards Payouts Other
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted Options/ LTIP
Stock ($) SARs(#) Payouts ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Riccardo Mortara
<S> <C> <C> <C> <C> <C> <C> <C>
President and Director 1997(1) 0 60,000 0 0 0 0
1996(1) 0 60,000 0 0 0
1995(1) 0 60,000 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Dempsey K. Mork 1997(1) 0 60,000 0 0 0 0
Chief Financial Officer 1996(1) 0 60,000 0 0 0 0
Secretary and Director 1995(1) 0 60,000 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. All amounts for 1996 and 1997 have been accrued but unpaid.
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 1997.
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, 1997 by the named executive officers:
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options
Number of Unexercised at
Shares Options & Warrants December 31, 1997
Acquired on Value
Exercise Realized(1) Exercisable NonExercisable Exercisable(2)
<S> <C> <C> <C> <C> <C> <C>
Riccardo Mortara -0- $ -0- 97,417 0 $ 223,572
Dempsey K. Mork -0- $ -0- 97,417 0 $ 223,572
</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 $4.375.
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 233,334 Shares at
$2.50 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.
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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.
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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 3,394,668 common shares
outstanding and 1,500 Class A Preferred Shares outstanding at December 31, 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 4.1%
74900 Highway 111
Suite 121
Indian Wells, CA 92210
Riccardo Mortara(3) 130,145 3.8%
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 7.9%
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.
11
<PAGE>
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.
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.
PART IV
Item 13. (a) 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 Recision Agreement with respect to the transaction described in
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)
3.6 Amendment to Articles of Incorporation changing name
to IMATEL Holdings, Inc.(6)
23. Consents of Auditors.
23.1 Consent of Cordovano & Company P.C.(6)
12
<PAGE>
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) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,
1996.
(6) Filed herewith.
(b) Reports on Form 8-K
On October 20, 1997, the Company entered into a Stock Purchase Agreement
with International Marketing and Advertising, Inc. (IMATEL), a Florida
corporation engaged in telecommunications, pursuant to which the Company was to
acquire 51% of IMATEL for $500,000 cash. The acquisition was reported pursuant
to Item 2 of Form 8-K dated October 20, 1997 and the Company changed its name to
IMATEL Holdings, Inc. Subsequent to the acquisition, the Company became aware of
a purported shareholders' agreement among the shareholders of IMATEL which
prohibited the sale of shares to the Company without consent of IMATEL
shareholders. The Company has accounted for the $500,000 investment as a loan
and has reserved $250,000 against this receivable for costs of collection and
potential impairment.
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: April 13, 1998 IMATEL HOLDINGS, INC.
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 April 13, 1998.
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
14
<PAGE>
<TABLE>
<CAPTION>
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
Index to Consolidated Financial Statements
As of and for the year ended December 31, 1997
Page
<S> <C>
Independent auditors' report .. F-2
Consolidated balance sheet .. F-3
Consolidated statement of operations . F-4
Consolidated statement of shareholders' equity ... F-5
Consolidated statement of cash flows F-6
Summary of significant accounting policies ... F-7
Notes to consolidated financial statements . F-9
</TABLE>
15
<PAGE>
F-1
To the Board of Directors
Imatel Holdings, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of Imatel Holdings, Inc.
(formerly Development Bancorp, Ltd.) and subsidiaries as of December 31, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 Imatel Holdings,
Inc. and subsidiaries, as of December 31, 1997 and the results of their
operations and their cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
Cordovano and Harvey, P.C.
Denver, Colorado
March 5, 1998
16
<PAGE>
F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
Consolidated Balance Sheet
December 31, 1997
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 8,596
.
Interest receivable 13,275
....
Other receivable (Note H) .. 250,000
Loan receivable, related party (Note B) 295,862
.
Marketable securities (Note A) 371,046
TOTAL CURRENT ASSETS 938,779
INVESTMENTS, NET (Note C) 4,971,962
..
PROPERTY AND EQUIPMENT, less $19,360 of
accumulated depreciation (Note D) 29,414
ORGANIZATION COSTS, less $11,602 of
accumulated amortization 5,859
OTHER ASSETS 6,967
..
TOTAL ASSETS $ 5,952,981
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checks drawn in excess of available funds (Note H).. $ 935,572
Accounts payable 38,412
......
Accrued payroll taxes 459
...
Other accrued liabilities (Note H) 316,000
TOTAL CURRENT LIABILITIES 1,290,443
MINORITY INTEREST 2,000
.
SHAREHOLDERS' EQUITY (Note E)
Preferred stock, no par value, 1,000,000 shares authorized,
1,500 shares issued and outstanding .. 1,500
Common stock, no par value, 50,000,000 shares
Authorized, 3,394,668 shares issued and outstanding . 12,252,597
Cumulative translation adjustment ... (193,082)
Retained deficit (7,400,477)
TOTAL SHAREHOLDERS' EQUITY 4,660,538
$ 5,952,981
</TABLE>
See accompanying summary of significant accounting policies and
notes to the consolidated financial statements
F-3
<TABLE>
<CAPTION>
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
Consolidated Statement of Operations
For the year ended December 31, 1997
EXPENSES
<S> <C>
General and administrative expense $ 732,090
.
LOSS FROM OPERATIONS (732,090)
OTHER INCOME (EXPENSE)
Interest income 40,976
..
Interest expense (52,300)
Foreign currency transaction loss (Note F) (31,007)
..
Loss on sale of marketable securities (10,522)
...
Loss on write-down of other receivable (Note (250,000)
H)..
Loss on write-down of investments (Note C) (2,865,401)
TOTAL OTHER INCOME (EXPENSE) (3,168,254)
LOSS FROM CONTINUING OPERATIONS (3,900,344)
INCOME TAXES (Note G)
Current benefit (738,232)
Deferred 824,480
expense...
NET LOSS FROM CONTINUING OPERATIONS (3,986,592)
DISCONTINUED OPERATIONS (Note J)
Loss on disposal of discontinued operations,
net of $86,248 income tax (177,850)
benefit..
TOTAL LOSS FROM DISCONTINUED OPERATIONS (177,850)
NET LOSS $(4,164,442)
Basic loss per common share, continuing operations $ (1.19)
Basic loss per common share, discontinued operations $ (0.05)
Basic weighted average common shares outstanding 3,364,183
...
Diluted loss per common share, continuing operations $ (1.11)
..
Diluted loss per common share, discontinued operations $ (0.05)
Diluted weighted average common shares outstanding 3,597,517
.
</TABLE>
See accompanying summary of significant accounting policies and
notes to the consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the year December 31, 1997
Preferred Stock Common Stock Retained Translation
Shares Amount Shares Amount Deficit Adjustment Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 1,000 1,000 3,341,940 12,131,685 (3,110,258) 155,000 9,177,427
Prior period adjustment (Note E) - - - - (125,777) - (125,777)
...
BALANCE, DECEMBER 31, 1996
(as restated) 1,000 1,000 3,341,940 12,131,685 (3,236,035) 155,000 9,051,650
Shares issued for services - - 30,000 30,000 - - 30,000
.
Shares issued to officer in
exchange for expenses
paid on behalf of the Company (Note B) - - 22,728 90,912 - - 90,912
.
Shares issued to related party for
services
500 500 500
currency translation .. - - - - - - (348,082) (348,082)
..
Net loss for the year ended
December 31, - - - - - (4,164,442) - (4,164,442)
1997
BALANCE, DECEMBER 31, 1997 1,500 $1,500 3,394,668$12,252,597 $ (7,400,477) $ (193,082) $ 4,660,538
</TABLE>
<PAGE>
See accompanying summary of significant accounting policies and
notes to the consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
Consolidated Statement of Cash Flows
For the year ended December 31, 1997
OPERATING ACTIVITIES
<S> <C>
Net loss $(4,164,442)
..
Transactions not requiring cash:
Depreciation and amortization 4,927
Stock issued for non-cash consideration (Note 121,412
B)...
Realized loss on sale of marketable securities 10,522
Foreign currency transaction loss 29,941
..
Prior period adjustment (Note E) (125,777)
Loss on write-down of other receivable (Note 250,000
H).
Loss on write-down of investments (Note C) 2,865,401
Loss from discontinued operations (Note J) 264,098
.
Changes in current assets and current liabilities:
Receivables, marketable securities, and other current assets 73,599
..
Accounts payable, accrued liabilities and other current liabilities 992,858
..
NET CASH PROVIDED BY
OPERATING ACTIVITIES 322,539
NET CASH FROM INVESTING ACTIVITES -
NET CASH FROM FINANCING ACTIVITIES -
TRANSLATION ADJUSTMENT CHANGES TO CASH (348,082)
....
DECREASE IN CASH (25,543)
.
Cash, beginning of year 34,139
.
CASH, END OF YEAR $ 8,596
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 52,300
..
Cash paid for income taxes $ 800
</TABLE>
Non-cash investing and financing transactions:
The Company recorded $2,153 of non-cash foreign currency exchange gain on
marketable securities.
The Company issued 30,000 shares of its common stock as payment for services.
The fair value of the services performed totaled $30,000. See Note B.
The Company issued 22,728 shares of its common stock at market, to an officer of
the Company in exchange for $90,912 in expenses the officer paid on behalf of
the Company. See Note B.
The Company issued 500 shares of its preferred stock as payment for services to
an affiliate. The services
were valued at $500. See Note B.
See accompanying summary of significant accounting policies and
notes to the consolidated financial statements
F-6
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
December 31, 1997
Nature of organization
Imatel Holdings, Inc. (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) and SFD Societe Financiere De
Distribution Geneve SA (Switzerland - 99.3% owned). During 1997 the Company had
no operations and is currently seeking to acquire an operating company.
On November 24, 1997, the Company changed its name from Development Bancorp,
Ltd. to Imatel Holdings, Inc.
Basis of consolidation
The consolidated financial statements include the accounts of Imatel Holdings,
Inc. and its majority- owned subsidiaries, Development Corp Services Limited and
SFD Societe Financiere De Distribution Geneve SA.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<PAGE>
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
for Certain Investments in Debt and Equity Securities". Accordingly, unrealized
gains and losses on equity securities are reflected in operations, and
unrealized gains and losses on debt securities are charged to "cumulative
translation adjustment" on the accompanying consolidated balance sheet.
Market value is determined by quoted market prices as of the balance sheet date.
Net realized gains or losses are determined on the specific identification cost
method.
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 the
straight-line method over the estimated five to seven year useful lives of the
assets. Expenditures for additions and improvements are capitalized, while
repairs and maintenance costs are expensed as incurred.
F-7
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
December 31, 1997
Intangible assets
Intangible assets consist of organization costs, which are amortized over 60
months.
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
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Concentrations of Credit risk
The Company maintains cash in bank deposit accounts which, at times, may exceed
federally insured limits or are in foreign banks.
Stock-based compensation
The Company accounts for its stock-based compensation plans under the principles
prescribed by the Accounting Principles Board's Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Accordingly, stock option awards are
considered to be "noncompensatory" and do not result in the recognition of
compensation expense. See Note H.
<PAGE>
New accounting pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128
specifies the computation, presentation, and disclosure requirements of earnings
per share and supersedes Accounting principles Board Opinion No. 15, Earnings
Per Share. SFAS 128 requires a dual presentation of basic and diluted earnings
per share. Basic earnings per share, which excludes the impact of common stock
equivalents, replaces primary earnings per share. Diluted earnings per share,
which utilizes the average market price per share as opposed the greater of the
average market price per share or ending market price per share when applying
the treasury stock method in determining common stock equivalents, replaces
fully-diluted earnings per share. SFAS 128 is effective for the Company in 1997.
F-8
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note A: Marketable securities
<TABLE>
<CAPTION>
Marketable securities consisted of the following at December 31, 1997:
Estimated
Cost Market Value
<S> <C> <C>
Equity securities . $ 976 $
976
Debt securities 403,994 370,070
$ 404,970 $ 371,046
</TABLE>
Unrealized (loss) included in marketable securities at December 31, 1997 was
$33,924.
At December 31, 1997 the maturities of debt securities, at estimated market
value, which are classified as available-for-sale are as follows:
Within one year $ -
...
One through five years .. 370,070
$ 370,070
Note B: Related party transactions
During the year ended December 31, 1997, the Company issued 30,000 shares of
common stock to officers in exchange for services rendered on behalf of the
Company. The services were valued at cost. Further, the Company issued 22,728
common shares, at market value on date of issuance, to an officer of the Company
as payment for expenses the officer paid on behalf of the Company. The Company
also issued 500 shares of preferred stock to an affiliate for services rendered
on behalf of the Company.
Note C: Investments
Investments consisted of the following at December 31, 1997:
7,345 shares of Societe Financiere Privee $ 4,082,359
....
4,650,000 redeemable preferred shares of
Gestion Guychar, Inc, net of $2,000,0000 allowance 889,603
Investment in Gestion Pemp Network (Canada)
net of $573,458 allowance .. -
120,000 shares of Gestion Pemp, Inc. (Canada)
net of $242,877 allowance ... -
TOTAL INVESTMENTS $ 4,971,962
Societe Financiere Privee
The Company owns 1,140 preferred shares and 6,205 common shares representing an
approximate three percent ownership interest in the Swiss corporation.
Unrealized loss on foreign currency translation from Swiss francs to U.S.
dollars at December 31, 1997 was $65,934 and has been recorded as a component of
shareholders' equity as cumulative translation adjustment.
F-9
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note C: Investments, concluded
Gestion Guychar, Inc.
The Company owns 4,650,000 redeemable preferred shares that are non-voting,
non-participating, and non-transferable. They are to be redeemed at a price of
one Canadian dollar per share plus annual cumulative dividends payable on
October 1 of each year at variable interest rates ranging from 3.5 to 4.0
percent. The shares are redeemable as follows:
<TABLE>
<CAPTION>
<S> <C>
October 1, 2001 1,250,000
.....
October 1, 2002 . 1,300,000
October 1, 2003 . 2,100,000
4,650,000
</TABLE>
During 1997 Gestion Guychar, Inc. experienced a significant liquidity crisis and
consequently, the Company
did not receive its annual dividend payment. In management's opinion, the
decline in the value of the
investment in Gestion Guychar, Inc. is permanent. Therefore the
Company has recorded an allowance of
$2,000,000 to write down the investment to a new cost basis. The
amount of the write down is accounted for
as a realized loss and accordingly, included in the statement of
operations. Prior to the write-down, the
investment experienced a decline in value of $242,409 due to
foreign currency exchange rate declines.
Gestion Pemp Network and Gestion Pemp, Inc.
The Company owns an investment, in the form of a loan to Gestion Pemp Network.
The Pemp companies, including Gestion Pemp Network and Gestion Pemp, Inc.
recently integrated with Polygone Financial Services Inc. The decline in value
of $48,108 in 1997 was due to foreign currency exchange rate declines. Due to
significant changes in the operations, which management believes has caused a
significant decline in value, the Company has written off its investment. The
impairment of $573,458 is included in the statement of operations.
In addition, the Company owns 120,000 common shares of Gestion Pemp, Inc. The
common stock represents an approximate eight percent ownership interest in
Gestion Pemp, Inc. which was recently integrated with Polygone. The decline in
value of $20,375 in 1997 was due to foreign currency exchange rate declines. Due
to significant changes in the operations, which management believes has caused a
significant decline in value, the Company has written off its investment. The
impairment of $242,877 is included in the statement of operations.
Note D: Property and equipment
Property and equipment consisted of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Furniture . $ 34,913
Equipment .. 8,625
Leasehold improvements .... 5,236
48,774
Less accumulated depreciation .. (19,360)
PROPERTY AND EQUIPMENT, NET $ 29,414
</TABLE>
Depreciation expense totaled $9,415 for the year ended December 31, 1997.
F-10
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note E: Shareholders' equity
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 1,500 shares of no par value Class A
preferred stock. Class A shareholders are not entitled to receive
dividends. During 1997, 500 shares were issued to an affiliate
for services, valued at $500. At December 31, 1997 there were
1,500 shares issued and outstanding.
<PAGE>
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. At
December 31, 1997 there were no shares issued and outstanding.
Prior period adjustment
During the year ended December 31, 1997, the Company expensed $125,777 in
officers' salaries, which were related to salaries earned in 1996. As a result,
the retained deficit balance at December 31, 1996 was increased by $125,777.
Note F: Foreign currency transaction gain (loss)
Foreign currency transaction gains and losses result from a change in exchange
rates between the functional currency of the Company 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.
The foreign currency transaction loss for the year ended December 31, 1997 was
$31,007.
Note G: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows for the year ended December 31, 1997:
U.S. statutory federal rate 34.0%
...
State income tax rate .. 9.3%
Temporary differences -writedown of investments (23.5%)
Net operating loss for which no tax benefit
Is currently available (19.8%)
.
-%
F-11
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note G: Income taxes concluded
At December 31, 1997 deferred taxes consisted of the following:
Deferred tax assets,
Net operating loss carryforward .. $ 824,480
Less valuation allowance (824,480)
.
Net deferred taxes . $ -
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The change in the valuation allowance for the year ended
December 31, 1997 totaled $748,480. The net operating loss carryforward expires
through the year 2012.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
Note H: Commitments and contingencies
Bank line of credit
At December 31, 1997, the Company had two Swiss Franc ("SFr") lines of credit
available at Societe Financiere Privee SA, in the amounts of SFr 1,120,000 and
SFr 350,000, approximately US$767,123 and US$239,726 respectively. As of
December 31, 1997, there were no amounts outstanding under either line of
credit. The SFr 1,120,000 line expires November 27, 1999 and the SFr 350,000
line expires December 31, 1998.
Checks drawn in excess of available funds
The Company's subsidiaries maintains investments with a Swiss trustee, which has
deposited the investments in accounts held at Societe Financiere Privee SA
('SFP"). The trustee is an affiliated entity owned by the president and director
of the Company. From time to time, funds are transferred from the subsidiaries
to the parent, creating an excess of available funds. Available funds consist of
fiduciary deposits as required by SFP. Further, SFP reserves the right to offset
any uncollected amounts by any positive balances of all accounts. Further SFP
has a lien over all securities under its custody and a right of offset against
such securities for any unpaid claims.
Stock option plan
At December 31, 1997, an aggregate of 800,000 shares of common stock was
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, 1997, no options
had been granted under the plan.
Other stock options
As of December 31, 1997, 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 option were not issued under the Company's 1993 stock option plan.
F-12
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note H: Commitments and contingencies concluded
25
<PAGE>
Accrued officers' salaries
The board approved payment to two officers for salaries in 1996 and 1997
totalling $300,000, payable in common stock of the Company based on the market
value at time of issuance. At December 31, 1997 no amounts have been paid nor
has any common stock been issued in satisfaction of this commitment.
Operating lease
The Company leases its corporate offices under a noncancellable lease. Future
minimum lease payments are as follows for the years ended December 31:
1998 .. $ 43,965
1999 .. 3,994
$ 47,959
Rent Expense
for the year ended December 31, 1997 totaled $47,066.
Other receivable
On October 20, 1997, the Company entered into an agreement with International
Marketing and Advertising, Inc., ("IMA") a Florida corporation engaged in the
telecommunications business, in which the Company would purchase 51% of the
outstanding common stock of IMA for $500,000 cash, contingent upon IMA
shareholder approval. The Company was notified that the shareholders voted
against the merger therefore
the Company is pursuing return of the $500,000 paid as an advance on the
acquisition of IMA. At December 31, 1997, the Company recorded an allowance
against the $500,000 receivable for $250,000, leaving a net
realizable value of $250,000. The advance is unsecured, however management
expects a favorable
outcome in its collection of the receivable
Note I: Industry and geographical segment reporting
As of and for the year ended December 31, 1997 the Company operated and had
assets in the United States and Europe as follows:
LOSS FROM OPERATIONS
United States .. $ (688,339)
Europe . (43,752)
TOTAL LOSS FROM OPERATIONS $ (732,091)
IDENTIFIABLE ASSETS
United States $ 590,839
Europe .. 5,362,142
TOTAL IDENTIFIABLE ASSETS $ 5,952,981
F-13
IMATEL HOLDINGS, INC.
(FORMERLY DEVELOPMENT BANCORP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
December 31, 1997
Note J: Discontinued operations
During the year ended December 31, 1997, the Company incurred expenses totaling
$14,098 regarding the disposal of discontinued operations. The discontinued
operations related to the acquisition of KSM Holding Corporation in 1995 that
was subsequently rescinded in 1996. Further, under the terms of the rescission,
the Company recorded a $250,000 contract receivable due from KSM. During 1997,
management deemed the receivable as uncollectible and wrote it off. These
transactions resulted in a $264,098 loss from the disposal of discontinued
operations for the year ended December 31, 1997.
F-14
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>
AMENDMENT TO
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 adopted by the Board of Directors on November 21, 1997 without
shareholder action pursuant to Section 23B.10.020.(5) of the Washington Business
Corporation Act.
3. Article I of the Articles of Incorporation of the Corporation
is hereby amended in
its entirety to read as follows:
The name of this corporation shall be "Imatel Holdings, Inc."
Executed this 24th day of November, 1997.
Dempsey K. Mork
Secretary/Treasurer
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Imatel Holdings, Inc. formerly Development Bancorp, Ltd. on Form S-8 of our
report dated March 5, 1998 appearing in the annual Report of From 10-KSB of
Imatel Holdings, Inc. for the year ended December 31, 1997 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
Cordovano and Harvey, P.C.
April 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND AS OF DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000915337
<NAME> IMATEL HOLDINGS, INC.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-01-1997
<EXCHANGE-RATE> 1
<CASH> 8,596
<SECURITIES> 371,046
<RECEIVABLES> 559,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 938,779
<PP&E> 29,414
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,952,981
<CURRENT-LIABILITIES> 1,290,443
<BONDS> 0
0
1,500
<COMMON> 12,252,597
<OTHER-SE> (7,593,559)
<TOTAL-LIABILITY-AND-EQUITY> 5,952,981
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 732,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,324
<INCOME-PRETAX> (4,164,442)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,986,592)
<DISCONTINUED> (177,850)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,164,442)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.11)
</TABLE>
