-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TN35NxUfYPQGAL8K2Y4ZvNyDHrICl3koG7/qR6b0uVm5Iw+YFNjUtj4jN0YfKxOb zi07Zy9UBzhy77MGF0FCig== 0000914233-96-000161.txt : 19961125 0000914233-96-000161.hdr.sgml : 19961125 ACCESSION NUMBER: 0000914233-96-000161 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19961122 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FINANCIAL HOLDING INC /DE CENTRAL INDEX KEY: 0000357097 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 870458888 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12666 FILM NUMBER: 96671253 BUSINESS ADDRESS: STREET 1: 225 SOUTH 200 WEST # 302 STREET 2: PO BOX 683 CITY: FARMINGTON STATE: UT ZIP: 84025-0683 BUSINESS PHONE: 8014519580 MAIL ADDRESS: STREET 1: 225 SOUTH 200 WEST # 302 STREET 2: PO BOX 683 CITY: FARMINGTON STATE: UT ZIP: 84025-0683 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 ------------------------ Commission file number 0-12666 ----------------- American Financial Holding, Inc. ------------------------------------------------------------- (Exact name of registrant as specified in charter) Delaware 87-0458888 --------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 South 200 West, Suite 302,Farmington, Utah 84025 (Address of principal executive offices) (801) 451-9580 ------------------------------ (Registrant's telephone number, including area code) Former name, former address, and former fiscal year, if changed since last report) 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 [ ] No [X] APPLICABLE ONLY TO CORPORATE ISSUERS: The Company had 4,232,000 shares of common stock, par value $0.01 per share, issued and outstanding as of November 15, 1996. - ------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- SPECIAL NOTE This report on Form 10-QSB for the interim period ended March 31, 1995, of American Financial Holding, Inc. (the "Company"), is being filed in November 1996, substantially after its due date. This report should be read in conjunction with other periodic reports reporting events occurring after December 31, 1995. Such other periodic reports and the information set forth therein should be read in conjunction with the Company's annual report on Form 10-KSB, which contains information as of December 31, 1995, and this quarterly report on Form 10-KSB unless otherwise indicated. The consolidated condensed financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1995. AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS March 31, December 31, 1996 1995 Current assets -------------- ---------------- Cash $ 827,556 $ 988,904 Marketable securities 87,025 88,100 Commissions receivable 12,500 170,014 Interest receivable 2,762 1,414 ------------ ------------ Total current assets 929,843 1,248,432 ------------ ------------ Property and equipment Automobiles 96,115 97,852 Equipment 48,875 48,238 Furniture and fixtures 22,133 22,133 167,123 168,223 Less: accumulated depreciation (72,234) (65,622) ------------ ----------- Net property and equipment 94,889 102,601 ------------ ----------- Other Assets Investment in real estate 216,344 102,955 Net deferred tax asset 195,560 195,560 Deposits 26,804 26,804 ------------ ---------- Total other assets 438,708 325,319 ------------ ---------- Total Assets $ 1,463,440 $ 1,676,352 ============= ============= See the accompanying notes to condensed consolidated financial statements. AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT March 31, December 31, 1996 1995 Current liabilities ------------- ------------ Accounts payable $ 348,085 $ 317,277 Commissions payable 66,181 170,014 Short-term borrowings 53,478 53,478 Accrued liabilities 244,714 281,528 Income taxes payable 260,241 256,241 Preferred dividends payable 36,096 24,064 Current portion of long-term debt 15,206 57,738 ------------- ------------ Total current liabilities 1,024,001 1,160,340 ------------- ------------ Long-term debt, net of current portion 562,648 522,403 ------------- ------------ Minority interest (preferred stock in consolidated subsidiary) 401,843 414,440 ------------- ------------ Stockholders' deficit (Note 2) Common stock - $.01 par value; 20,000,000 shares authorized, 3,763,425 and 4,232,399 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 42,581 42,324 Additional paid-in capital 7,409,662 7,378,424 Stockholders' notes receivable, net of reserve of $960,595 and $869,255 at March 31, 1996 and December 31, 1995, respectively (379,233) (383,966) Unrealized loss on marketable securities (53,412) (53,412) Accumulated deficit (7,544,650) (7,404,201) ------------ ----------- Total stockholders' deficit (525,052) (420,831) ------------ ----------- Total liabilities and stockholders' deficit $ 1,463,440 $ 1,676,352 ============ =========== See the accompanying notes to condensed consolidated financial statements. AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, ----------------------------- 1996 1995 -------------- ------------ Commission revenue $ 1,070,772 $ 1,156,204 Commission expense 901,800 993,842 -------------- ------------ Gross profit 168,972 162,362 General and administrative expense 358,994 295,653 -------------- ------------ Loss from operations (190,022) (133,291) Other Income (Expense) Interest income 55,740 37,808 Interet expense (2,167) (3,168) ------------ ---------- Total other income and expense 53,573 34,640 ------------ ---------- Loss before income taxes (136,449) (98,651) ------------ ---------- Income tax provision 4,000 3,011 ------------ ---------- Loss before minority interest (140,449) (101,662) Minority interest, preferred dividend of subsidiare 12,032 - Net Loss $ (152,531) $ (101,662) =========== ========== Net loss per common share $ (0.03) $ (0.03) =========== ========== Weighted average number of common shares outstanding 4,233,909 3,703,613 =========== ========== See the accompanying notes to condensed consolidated financial statements. AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash For the Three Months Ended March 31, ------------- -------------- 1996 1995 ------------ ------------- Cash flows from operating activities Net loss $ (140,449) $ (101,662) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 8,348 7,003 Increase in reserve against stockholders' notes receivable 91,340 72,380 Changes in current assets and liabilities 50,837 65,923 Interest income added to shareholders' notes receivable (46,230) (37,686) Interest expense added to notes payable - 1,130 ----------- ---------- Net cash provided by (used in) operating activities (36,154) 7,088 ----------- ---------- Cash flows from investing activities Increase in stockholders' notes receivable (40,377) (48,359) Purchase of equipment (636) - Purchase of real estate held for investment (113,389) - ----------- ---------- Net cash used in investing activities (154,402) (48,359) ----------- ---------- Cash flows from financing activities Proceeds from sale of common stock 31,495 107,876 Principal payments on short-term borrowings and long-term debt (2,287) (5,479) Stock issuance costs paid - (16,791) Proceeds from collection of receivable from shareholder - 9,800 ---------- ---------- Net cash provided by financing activities 29,208 95,406 ---------- ---------- Net increase (decrease) in cash (161,348) 54,135 Cash at beginning of period 988,904 38,007 ----------- ----------- Cash at end of period $ 827,556 $ 92,142 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest $ 2,167 $ 1,916 =========== ========== See the accompanying notes to condensed consolidated financial statements. AMERICAN FINANCIAL HOLDING, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements have been prepared by the Company, and are not audited. All adjustments necessary for fair presentation have been included, and consist only of normal recurring adjustments. These financial statements are condensed and, therefore, do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the Company's most recent annual report on Form 10-K. The financial position and results of operations presented in the accompanying financial statements are not necessarily indicative of the results to be generated for the remainder of 1996. NOTE 2--STOCKHOLDERS' DEFICIT During the three months ended March 31, 1996, an additional 25,750 shares of common stock were issued for cash at an average price of $1.22 per share. - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - -------------------------------------------------------------------------------- The Company's Ability to Continue as a Going Concern--Shortage of Working Capital and Continuing Losses The Company has extremely limited working capital, no credit lines, and insufficient revenue to meet its operating requirements. For the inteirm period ended March 31, 1996, the Company suffered net losses of $152,531, and as of March 31, 1996, had an accumulated deficit of $7,544,650. The Company expects that it will continue to incur operating losses and that its accumulated deficit will increase. The Company has been dependent solely upon cash provided by financing activities to fund its operations. The principal sources of capital from outside sources during the preceding years has been receipts from the sale of securities. All of the foregoing raises substantial concerns respecting the ability of the Company to continue as a going concern. The Company's operating plan for the balance of 1996 and into 1997 is dependent upon the receipt of additional funding from equity financing. The Company received $31,495 in net proceeds from its sale of common stock during the inteirm period ended March 31, 1996. There can be no assurance that the Company will be able to sell additional equity securities in the future to meet its capital requirements. The Company is relying on the surplus of AF Reinsurance and the sale of common stock and borrowings, if available, to provide the $224,000 required to repurchase Triad Preferred Stock from APL and cancel its $100,000 claim. The consolidated financial statements do not include any adjustments relating to recoverability and classification of asset carrying amounts or the amount and classification of liabilities if the Company were unable to continue as a going concern. The Company incurred in 1995 and previous years, and continues to incur, substantial costs in connection with its now abandoned efforts to acquire, and its completed efforts to organize, a chartered insurance company subsidiary and to fund planned expansion in order to retain coinsurance revenue from the established life insurance and annuity production of Income Builders. A substantial portion of such acquisition and organization costs was for fees for outside consulting and professional fees that will be eliminated or substantially reduced in the future. Liquidity and Capital Resources The Company's cash requirements for operating and investing activiites during the quarter ended March 31, 1996, were provided by financing activities. Operating activities used net cash of $36,000 during the three-month interim period to fund the Company's net loss and increase in reserve against stockholders' notes. Investing activities required net cash of $154,000, including $113,000 used for the purchase of real estate intended for the subsequent purchase by a newly recruited executive marketing manager. Due to the failure to obtain additional Company funding to support marketing expansion, the individual did not begin employment so the real estate was sold to an unrelated party after March 31, 1996. Net cash of $29,000 provided by financing activiites was insufficient to satisfy all of the Company's cash requirements during the quarter, resulting in a $161,000 net decrease in cash during the quarter ended March 31, 1996. Capital Requirements The Company believes that the initial capitalization of AF Reinsurance is sufficient for the subsidiary to begin operations, although the Company is seeking additional funding in order to launch its new product introduction and marketing expansion and, in general, to form a broader base for planned activities. In addition to funding for AF Reinsurance, the Company would benefit from additional funds to cover accrued liabilities and accounts payable inasmuch as most of the Company's $1,024,001 current liabilities were past due at March 31, 1996, to pay ongoing operating losses, and to provide funds for additional marketing by Income Builders. In light of the organization of AF Reinsurance, the Company desires to continue to expand its marketing organization and acquire additional insurance company assets. The Company will require additional equity or debt capital to fund this expansion, and there can be no assurance that such funding will be available on terms viable to the Company. As of September 30, 1996, Triad had issued and outstanding 52,138 shares of Triad Preferred Stock with a liquidation preference of $12 per share, or an aggregate of $625,656 (without giving effect to the proposed repurchase of shares from APL discussed above), and AF Reinsurance had outstanding $425,000 in principal amount of surplus debentures, bearing interest at 7.66% per annum, due quarterly, with annual principal payments of $42,500 due annually, commencing September 30, 1996. All principal and interest payments required through October 20, 1996, have been paid. The Company may elect to utilize proceeds from these surplus debentures, which form a portion of the surplus of AF Reinsurance, to pay the principal portion of the amount due in the future. The Company also has converted an account payable into a promissory note aggregating $317,000 at September 30, 1996, bearing interest at 8% (12% after default) and due five days after demand, but in any event, by March 31, 1997, for professional services rendered. The Company does not expect that demand will be made on this note as long as it pays for ongoing professional services and costs advanced as they are incurred on a current basis, and as long as the payee, in its sole discretion, concludes that the Company is making substantial progress toward obtaining sufficient financing to pay the note. This note is secured by a pledge of officer and director notes payable to the Company aggregating approximately $2,606,000. Inasmuch as the Triad offering of Triad Preferred Stock was not successful in obtaining the amount of funding anticipated, the Company has been unable to launch its product introduction and marketing effort as discussed above. Therefore, the Company is exploring other financing alternatives, including borrowings, if available, and the sale of additional equity securities. Net proceeds from such funding would be utilized to fund marketing expansion and related new product introduction, to increase the surplus of AF Reinsurance, to cover ongoing general and administrative expenses (including payments to executive officers and directors), and perhaps to reduce the outstanding Triad surplus debenture or to redeem Triad Preferred Stock. There can be no assurance that any of the Company's efforts to obtain additional funding will be successful or that the Company will be able to continue. As part of the Company's strategic analysis and planning, it may consider a number of corporate restructuring alternatives and may explore the possibility of separating its Triad reinsurance activities and/or Income Builders marketing organization from the holding company parent and its essentially inactive subsidiary, American Financial Marketing. Management is finalyzing the steps that would be required to implement such a possible restructuring for submittal to the board of directors for consideration. There can be no assurance as to whether any such organizational restructuring will be pursued, whether it will be implemented, or the business or financial effects thereof. Certain Uncertainties The Company and Triad have sold securities in reliance on exemptions from registration under the Securities Act and applicable state securities laws. Management believes that the Company has materially complied with the requirements of the applicable exemptions. However, since compliance with these exemptions is highly technical, it is possible that the Company could be faced with certain contingencies based on civil liabilities resulting from the failure to meet the terms and conditions of such exemptions, which could have a material adverse impact on the Company's financial condition. Neither the Company nor Triad has received any demand from any shareholder requesting a return of his investment, damages, or other remedies in connection with the purchase of securities by such shareholder. Results of Operations Commission revenue for the first quarter of 1996 ("1Q96") decreased $85,000, or 7.4%, from the corresponding quarter in 1995 ("1Q95") due to the absence of special marketing incentive programs and generally moderate prevailing interest rates during 1Q96. In contrast, during 1Q95 the underwriter of the Company's principal annuity products conducted an aggressive sales incentive program. In addition, during 1Q95 prevailing interest rates were relatively higher than in 1Q96, which generally aids in the sale of annuity products such as those marketed by the Company. Commission expense was 84.2% of commission revenue during 1Q96 as compared to 86.0% during 1Q95. This reflects ordinary variations in the commission schedule of various products, the age and other demographic characteristics of policy purchasers, the size of individual annuity and insurance policies sold, the commission schedule of the individual insurance agent selling particular policies, and similar factors, which will likely continue to fluctuate in the future. General and administrative expenses increased $64,000, or 21.7%, during 1Q96 as compared to 1Q95, due principally to the increase in fees for professional services. The $19,000, or 54.7%, increase in other income and expense in 1Q96 as compared to 1Q95 is due principally to the interest accruing on the larger balance of outstanding stockholder notes receivable during the later period. As a result of the foregoing, the Company's net loss increased $51,000 or 50.2% in 1Q06 over the same period in 1995. This increase in the loss during 1Q96 included accrued dividends on outstanding preferred stock of a subsidiary of $12,032. As a result of the larger number of shares outstanding during 1Q96 as compared to 1Q95, reflecting the interim sale of Common Stock to provide funding required for the Company to continue, the loss per common share was equal for 1Q96 and 1Q95. PART II OTHER INFORMATION - ------------------------------------------------------------------------------ ITEM 3. LEGAL PROCEEDINGS - ------------------------------------------------------------------------------ The Company is not a party to any material legal proceedings, and, except as noted below, no such proceedings have been threatened by or, to the best of its knowledge, against it. On October 9, 1996, the Company was advised by the Enforcement Division of the Securities and Exchange Commission (the "Commission") that it is considering recommending that the Commission bring an enforcement action, which could include a civil penalty, against the Company in U.S. District Court for failing to file timely periodic reports in violation of Section 13(a) of the Securities Exchange Act of 1934 and the rules thereunder. In October 1996 the Company also received a request for the voluntary production of information to the Enforcement Division of the Commission related to the resignation of Coopers & Lybrand LLP, the dismissal of Arthur Andersen LLP, and the appointment of Jones, Jensen & Company as the Company's independent accountant and the reasons therefor. In addition, the Company is requested to provide certain information respecting its previous sales of securities. The Company is cooperating in these inquiries. - -------------------------------------------------------------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------------- (a) Exhibits. -------- None (b) Reports on Form 8-K ------------------- During the quarter ended March 31, 1996, the Company filed the following reports on Form 8-K: Date of Event Reported Item Reported January 10, 1996 Item 4. Changes in Registrant's Certifying Accountants SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN FINANCIAL HOLDING, INC. (Registrant) Dated: November 22, 1996 By /s/Knton L. Stanger, President (Chief Financial and Accounting Officer) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF MARCH 31, 1996, AND STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 827,556 87,025 15,262 0 0 929,843 167,123 (72,234) 1,463,440 1,024,001 0 42,581 0 0 (567,633) 1,463,440 1,070,772 1,070,772 901,800 901,800 358,994 (190,922) 2,167 (136,449) 4,000 (140,449) 0 0 0 (140,449) (.03) (.03)
-----END PRIVACY-ENHANCED MESSAGE-----