UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 0-18945
WESTMARK GROUP HOLDINGS, INC.
(name of small business issuer in its charter)
DELAWARE 84-1055077
(State or other jurisdiction (IRS Employe
of incorporation or organization) Identification No.)
8000 No. FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33487
(Address of principal executive offices)(Zip Code)
(561) 526-3300
(Issuer's telephone number, including area code)
---------------------
Check whether the issuer (1) 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 [XX] No [ ]
The number of shares outstanding of each of the registrant's classes of common
stock, as of July 30, 1999: 3,324,214 (one class).
Transitional Small Business Disclosure Format: Yes [ ] No [XX]
1
WESTMARK GROUP HOLDINGS, INC.
FORM 10-QSB REPORT INDEX
10-QSB Part and Item No.
Part I-Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets as of
June 30, 1999 and December 31, 1998..........................3
Consolidated statements of operations
for the three months and six months ended June 30, 1999
and 1998.....................................................4
Consolidated statements of cash flows for the six
months ended June 30, 1999 and 1998..........................5
Condensed notes to consolidated financial statements..................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................7 - 11
Part II-Other Information
Item 1. Legal Proceedings.....................................................11
Item 2. Changes in Securities.................................................11-12
Item 3. Defaults Upon Senior Securities.......................................12
Item 4. Submission of Matters to a Vote of Security Holders...................12
Item 5. Other Information.....................................................12
Item 6. Exhibits and Reports on Form 8-K......................................12-13
Signatures..............................................................................13
2
ITEM 1. Financial Statements
Westmark Group Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 1999 with comparative figures for December 31, 1998
UNAUDITED
ASSETS
------ 1999 1998
------------------------------
Current assets:
Cash and cash equivalents $ 677,216 $ 7,111,373
Accounts receivable 2,727,250 1,259,252
Mortgage loans held for sale 28,388,080 21,741,557
Deferred tax asset 1,275,000 1,275,000
-----------------------------
Total current assets 33,067,546 31,387,182
-----------------------------
Property and equipment 798,347 578,382
Investments in preferred stock 349,028 349,028
Investments in real estate and mortgage loans 778,670 511,500
Other assets 522,180 315,982
=============================
Total assets $35,515,771 $33,142,074
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Warehouse lines of credit $30,678,477 $29,006,951
Notes payable and capital leases 414,026 304,525
Settlements payable 221,264 309,746
Accounts payable 293,873 723,765
Accrued liabilities 372,514 221,775
Income taxes payable 32,000 32,000
Dividends payable 45,000 17,500
-----------------------------
Total current liabilities 32,057,154 30,616,262
-----------------------------
Long-term portion of debt and capital lease obligations - 39,749
Stockholders' Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 413,991
(150,005 At December 31, 1998) shares issued and outstanding;
stated at liquidation value 1,431,510 600,010
Common stock, $0.005 par value, 15,000,000 shares authorized,
3,318,332 (3,315,824 at December 31, 1998) shares issued and outstanding 16,592 16,579
Additional paid-in capital 29,189,141 29,293,091
Deficit (26,928,626) (27,173,617)
Stock subscription receivable (250,000) (250,000)
-----------------------------
Total stockholders' equity 3,458,617 2,486,063
-----------------------------
=============================
Total liabilities and stockholders' equity $35,515,771 $33,142,074
=============================
See accompanying condensed notes to consolidated financial statements.
3
Westmark Group Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
For the three months and six months ended June 30, 1999 and 1998
UNAUDITED
Three Months Ended Six Months Ended
1999 1998 1999 1998
----------------------------------------------------------------------
Revenues:
Gain on sale of loans $ 3,845,917 $ 3,276,186 $ 7,349,446 $ 5,594,006
Loan origination fees 672,782 472,037 1,197,563 956,822
Interest income 682,585 348,511 1,310,309 586,298
Other income 162,514 17,748 244,977 33,498
----------------------------------------------------------------------
5,363,798 4,114,482 10,102,295 7,170,624
----------------------------------------------------------------------
Costs and Expenses:
Direct loan fees 784,844 583,981 1,668,498 1,024,176
Interest expense 466,722 445,522 1,095,932 750,093
General and administrative 3,908,320 2,326,849 7,002,241 4,195,546
Common stock issued for services - 237,500 - 237,500
Depreciation 22,397 18,847 63,134 36,178
Amortization - 24,729 - 49,458
----------------------------------------------------------------------
5,182,283 3,637,428 9,829,805 6,292,951
----------------------------------------------------------------------
Income from operations 181,515 477,054 272,490 877,673
----------------------------------------------------------------------
Other Income (Expense) - 35,000 - 70,000
----------------------------------------------------------------------
Income before taxes 181,515 512,054 272,490 947,673
Income tax expense 77,960 163,469 117,171 315,936
Tax benefit of net operating loss carryforward (77,960) (163,469) (117,171) (315,936)
----------------------------------------------------------------------
Net income $ 181,515 $ 512,054 $ 272,490 $ 947,673
======================================================================
Earnings Per Common Share: ----------------------------------------------------------------------
Basic $ 0.05 $ 0.18 $ 0.07 $ 0.35
======================================================================
Diluted $ 0.05 $ 0.10 $ 0.07 $ 0.20
======================================================================
Weighted Average Shares Outstanding:
Basic 3,318,332 2,859,189 3,317,496 2,717,267
Diluted 3,631,618 5,168,418 3,630,782 4,838,844
See accompanying condensed notes to consolidated financial statements.
4
Westmark Group Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998
UNAUDITED
1999 1998
-----------------------------
Cash Flows from Operating Activites:
Net income $ 272,490 $ 947,673
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 63,134 36,178
Amortization - 49,458
Common stock issued for services - 237,500
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,467,998) -
Mortgage loans held for sale (6,646,523) (12,315,531)
Other assets (206,198) (235,735)
Increase (decrease) in:
Accounts payable (429,892) 13,683
Accrued liabilities 150,739 (224,091)
Settlements payable (88,482) (340,011)
Warehouse lines of credit 1,671,526 11,940,935
-----------------------------
Net cash provided (used) by operating activities (6,681,204) 110,059
-----------------------------
Cash Flows from Investing Activities:
Purchases of property and equipment (283,099) (138,831)
Investment in real estate and mortgage loans (267,170) -
-----------------------------
Net cash used by investing activities (550,269) (138,831)
-----------------------------
Cash Flows from Financing Activities:
Proceeds from sale of preferred stock 727,563 330,995
Proceeds from sale of common stock - 600,000
Dividends received - 35,000
Increase in debt 69,753 (728,000)
-----------------------------
Net cash provided (used) by financing activities 797,316 237,995
-----------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (6,434,157) 209,223
Cash and Cash Equivalents, Beginning 7,111,373 100,010
-----------------------------
Cash and Cash Equivalents, Ending $ 677,216 $ 309,233
=============================
Supplemental Disclosures:
Cash paid for interest $ 1,129,577 $ 750,093
=============================
Capital leases $ 33,845 $ 53,858
=============================
See accompanying condensed notes to consolidated financial statements.
5
Westmark Group Holdings, Inc. and subsidiary
Condensed Consolidated Notes to Financial Statements
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310b of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six and three month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes related thereto included in the
Company's audited annual report on Form 10-KSB for the year ended December 31,
1998.
NOTE 2: FINANCING ACTIVITY
The Company has secured warehouse lines of credit on favorable terms
from the following institutions:
First Union National Bank $15 million
Household Financial Services, Inc. $20 million
Princap Mortgage Warehouse, Inc. $10 million
Republic Bank $7.5 million
Great Eastern Funding $10 million
All warehouse lines of credit are one year renewable contracts and
there can be no assurance that they will renew or renew on similar terms. $9
million, which is not included in the above table, did not renew in the first
quarter of 1999 due to the lenders no longer existing.
NOTE 3: EARNINGS PER SHARE
The Company provides for the calculation of basic and diluted earnings
per share. Basic earnings per share include only common stock outstanding during
the period. Diluted earnings per share assumes exercising warrants and options
granted that are "In the Money" and convertible preferred stock and debt.
Earnings per share is computed by dividing income available to common
stockholders by the basic weighted average number of common shares and income
available to all stockholders by the diluted weighted average number of common
shares. For the six months ended June 30, 1999, diluted earnings per share have
not been adjusted for the anti-dilutive effect of preferred stock dividends,
warrants, options, convertible debt and convertible preferred stock.
NOTE 4: RELATED PARTY CONTINGENCY
Medical Industries of America, Inc. (MIOA) has the right, through
November 30, 1999, to require the Company to repurchase $333,333 of the
Company's common stock at $5.73 per share because diluted earnings per share did
not equal or exceed $.45 per diluted share, as defined in the settlement
agreement, for the six months ended June 30, 1999. The Company can use $272,500
of MIOA preferred stock that it owns as consideration in the transaction.
Additionally, the Company has agreed to repurchase $333,333 of its common stock
owned by MIOA at $5.73 per share if diluted earnings per share do not equal or
exceed $0.55 per diluted share for the six months ending December 31, 1999.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking
statements. For this purpose, any statements contained in it that are not
statements of historical fact should be regarded as forward-looking statements.
For example, the words "believes," "anticipates," "plans," and "expects" are
intended to identify forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. These factors include those
shown in the company's 1998 Annual Report on Form 10-KSB under the caption
"Certain Factors That May Affect Future Results."
The following discussion of the Company's results of operations and
financial condition should be read together with the Company's condensed
consolidated unaudited Financial Statements contained in Part I, Item 1 and the
related Notes in this Form 10-QSB, and the company's audited Financial
Statements and the related Notes contained in the Company's audited Financial
Statements contained in the Company's 1998 Annual Report on Form 10-KSB.
General
- -------
Westmark Mortgage Corporation, the Company's wholly-owned subsidiary,
is a mortgage banking company engaged in the business of funding, purchasing and
selling mortgage loans secured primarily by one-to-four family residences. The
Company operates in 34 states and has operating offices in Boca Raton, Florida;
Santa Ana, California; Chicago, Illinois area; and, Atlanta, Georgia area. In
1999, the Company began a "Retail Operation" which has three South Florida
locations and deals directly with borrowers, to compliment its "Wholesale
Operation", which deals through mortgage brokers. The Company primarily
generates income from (i) gains recognized from premiums on loans sold to
institutional purchasers, (ii) investment income earned on loans held for sale,
and (iii) origination fees and related revenue received as part of loan
closings. Gain on sale of loans, which represents the sales price in excess of
loan acquisition costs from whole loan sales, constituted 73% and 78%; 72% and
80% of total revenues for the six months and quarter ended June 30, 1999 and
1998, respectively. Investment income earned on loans held for sale constituted
13% and 8%, 13% and 8% of total revenues for the six months and three months
ended June 30, 1999 and 1998, respectively. Loan origination fees and related
revenue represented 12% and 13%; 13% and 11% of total revenues for the six
months and three months ended June 30, 1999 and 1998, respectively.
The Company sells most of the loans it funds, generally within 30 to 45
days of origination. The loans are sold through purchase agreements with
Household Financial Services, Green Tree Mortgage Services, Bay Financial, Conti
Mortgage Corp., Associates Home Equity Services, Inc., First City Capital
Corporation, BancOne Financial Services, Inc., GMAC/Residential Funding
Corporation, and various other non-conforming mortgage conduits. These
agreements are for specific terms or are open ended, and require the loans to
satisfy the underwriting criteria described therein. During the six months and
three months ended June 30, 1999 and 1998, the Company sold loans totaling
$186.6 million and $109.7 million; $101.8 million and $63.7 million
respectively. The Company does not retain the servicing rights for any of the
loans it sells, and sells all loans primarily in whole loan sales. The gain on
sale of loans was $7,349,446 and $5,594,006; $3,845,917 and $3,276,186 for the
six months and three months ended June 30, 1999 and 1998, respectively.
Loans held for sale were comprised of all sub-prime loans at June 30,
1999 and 1998. At the time the Company commits to fund a loan, the interest rate
is locked for the individual loan transaction. Until the Company obtains a
commitment to sell the loan to an investor, the Company is subject to
interest-rate fluctuations.
7
Investment income earned on loans held for sale is derived primarily
from interest payments on loans in inventory. Loans generally carry a note rate
in excess of the Company's borrowing cost. This results in a positive revenue
differential between cost to borrow (at the time the loan funds) and the loan
sale. However, management's strategy is to sell those loans in whole loan sales
and in bulk sales as quickly as practicable in order to optimize cash flow from
the sale of the loans. In addition, the Company realizes revenue from loan
origination fees and certain loan discount fees.
The Company assigns credit grades to its sub-prime loans during the
underwriting process. These grades range from "A+" to "D". At June 30, 1999, the
credit grades assigned to mortgage loans held for sale was approximately 75%
"A+", "A" and "A-", 16% "B", 8% "C", and 1% "D". About 65% of these loans were
adjustable rate mortgages and 35% were fixed rate. The weighted average interest
rate of these loans was approximately 10.45%.
Underwriting
All home equity loans are underwritten to the Company's mortgage
underwriting guidelines. The underwriting process is intended to assess both the
prospective borrower's ability to repay the loan and the adequacy of the real
property security as collateral for the loan. In the origination process,
typically, the loan application is taken by the approved broker/correspondent
using the basic application (FNMA Form 1003) and the credit report ordered by
the originating office. The 1003 and credit report are forwarded via Toll Free
fax to the Boca Raton, Florida, Santa Ana, California, the Downers Grove,
Illinois office or the Atlanta office. Westmark underwriters grade the credit
report and determine acceptability within program guidelines and a preliminary
approval/pre-qualification is faxed back to the originator. Approvals are
generally generated within a 24-hour period and closing occurs within days.
Account executives rely on pagers, fax machines, cellular phones and overnight
delivery to be in contact with corporate headquarters at all times. The
underwriting standards involve the following:
o the borrower's ability to repay is analyzed by verifying income
via traditional methods, i.e., self-employed borrowers are asked
to supply copies of Federal Income Tax Returns and waged borrowers
supply copies of W-2 forms and paystubs. In instances where
"stated income" is used, lower loan to value ratios are offered,
and verification of the source of the income is obtained (copies
of business license, phone verification of employment, and/or bank
statements);
o loan to value ratios are adjusted to reflect the condition of the
borrower's recent credit history. The greater and more recent the
derogatory items are, the more equity the borrower is required to
maintain in the property;
o the property being offered as security for the loan is appraised
by a state licensed appraiser. The appraisal report is carefully
reviewed by Westmark's staff underwriter to ensure that the loan
is sufficiently secured. If there is a question about the quality
of the appraisal, a review from another appraiser is obtained.
Larger loan sizes require two full independent appraisal reports;
o on purchase transactions, the borrower's cash down payment is
verified as to amount and source to ensure that they have
legitimate equity in the property and on refinances, the length of
time of ownership is verified, using FNMA guidelines in this area;
o and, on a case-by-case basis, after review and approval by the
Company's underwriters, home equity loans may be made which vary
from the underwriting guidelines and any variations must be
approved by a senior underwriter or by an executive officer of the
Company.
In summary, Westmark carefully analyzes each borrower's income, credit
and equity. The loan to value ratio reflects the risk associated with each
borrower's situation. These steps are taken to ensure each loan's quality and
performance.
8
See Condensed Notes to Consolidated Financial Statements of the Company
(included in Item 1) for further discussion of accounting policies and other
significant items.
Results of Operations
- ---------------------
Six months and three months ended June 30, 1999 Compared to six months and three
months ended June 30, 1998:
Total revenues increased 41% and 30% to $10,102,295 and $5,363,798 in
the six months and three months ended June 30, 1999 compared with $7,170,624 and
$4,114,482 in the six months and three months ended June 30, 1998. This increase
was primarily due to the Company's increased ability to acquire and sell
non-conforming mortgages, offset by a reduction in the premium spread received
as described below.
Gain on sale of loans, all of which was derived from premiums on whole
loan sales, increased 31% and 17% to $7,349,446 and $3,845,917 compared with
$5,594,006 and $3,276,186 for the six months and three months ended June 30,
1999 and 1998, respectfully. The volume of non-conforming loans sold was
approximately $186.6 and $109.7 million compared with $101.8 and $63.7 million
for the six months and three months ended June 30, 1999 and 1998, respectively.
This is an increase of 83% and 72% for the six and three months ended June 30,
1999 as compared to the six and three months ended June 30, 1998, respectively.
This increase was the result of increased sales volume due to the implementation
of management's strategy to increase the volume of originating and selling
loans, offset by a reduction in the premium spread received, discussed below.
In October and November 1998 industry-wide margins on the sale of loans
and the rate of growth in whole loan sales were both reduced. This resulted in
an industry-wide reduction of premiums on whole loan sales of approximately 25%
due to many investors deciding to invest in more liquid securities with higher
yields. At the same time several investors who historically had acquired
mortgage loans for resale in credit enhanced and non-enhanced packages went out
of business or lost their funding sources. Since this October correction,
margins have begun to stabilize and the Company has been able to continue
growing. This is due primarily to investors who purchase a significant majority
of the Company's mortgages, buying mortgages to hold for investment rather than
resale. As a result of this investment approach the investors are less concerned
with liquidity and are again purchasing the Company's loans in the same or
greater quantities as during 1998, although at reduced premiums of 24% and 25%
for the six months and three months ended June 30, 1999 compared to 1998.
Loan origination fees increased 25% and 43% to $1,197,563 and $672,782
compared to $956,822 and $472,037 for the six months and three months ended June
30, 1999 and 1998, respectively. This increase is primarily due to increased
loan volume and management adjusting the loan origination pricing structure to
provide for an increase in per loan origination fees.
Investment income, comprised primarily of interest earned on loans held
for sale, increased 123% and 96% to $1,310,309 and $682,585 compared to $586,298
and $348,511 for the six and three months ended June 30, 1999 and 1998,
respectively. This increase is due primarily to more loan sales in 1999 as
compared to 1998.
Total expenses increased 56% and 42% to $9,829,805 and $5,182,283
compared to $6,292,951 and $3,637,428 for the six months and three months ended
June 30, 1999 and 1998, respectively. This increase is primarily due to (i) an
increase in direct loan fees, (ii) an increase in interest expense and, (iii) an
increase in general and administrative expenses.
9
Direct loan fee expenses increased 63% and 34% to $1,668,498 and
$784,844 compared to $1,024,176 and $583,981 for the six months and three months
ended June 30, 1999 and 1998, respectively, due primarily to the increase in
loan volume, fees paid to brokers and loan processing fees charged by the
Company's warehouse lenders.
Interest expense increased 46% and 5% to $1,095,932 and $466,722
compared to $750,093 and $445,522 for the six months and three months ended June
30, 1999 and 1998, respectively, due primarily to the increased volume of whole
loan originations and acquisitions, offset by the reduced borrowing cost
associated with the Company's Warehouse Facilities.
General and administrative expense increased 67% and 68% to $7,002,241
and $3,908,320 compared to $4,195,546 and $2,326,849 for the six months and
three months ended June 30, 1999 and 1998, respectively, due primarily to
increased personnel costs necessary to implement management's strategy to
increase loan volumes and provide additional staff for future growth. Personnel
cost increased 60% to $5,007,080 for the six months ended June 30, 1999 compared
to $3,120,601 for the six months ended June 30, 1998. The balance of the
increase in general and administrative expense was primarily attributable to
increases in rent, office supplies, telephones, and overnights, due to
relocation and expansion of the Company's primary operating facility in August
1998.
Depreciation expenses increased to $63,134 and $22,397 compared to
$36,178 and $18,847 for the six and three months ended June 30, 1999 and 1998,
respectively, primarily due to increased purchases of computer hardware and
software, and leasehold improvements.
The Company had net income of $272,490 and $181,515, compared to a net
income of $947,673 and $512,054 for the six months and three months ended June
30, 1999 and 1998, respectively. The decrease in net income in 1999 compared to
1998 was the result of the Company staffing up for higher production to offset
an approximate 25% reduction in the premium spread received and provide
additional staff for future growth.
Liquidity and Capital Resources
- -------------------------------
The Company uses its cash flow from whole loan sales, loan origination
fees, net interest income and borrowings under its warehouse lines of credit to
meet its working capital needs. The Company's cash requirements include the
funding of loan originations, purchases, payment of interest expenses,
operations expenses, taxes and capital expenditures.
On June 30, 1999, total stockholders equity was $3,458,617 working
capital was $1,010,392 and net income was $272,490. Adequate credit facilities
and other sources of funding, including the ability of the Company to sell
loans, are essential to the continuation of the Company's ability to originate
and purchase loans. The Company borrows funds on a short- term basis to support
the accumulation of loans prior to sale. These short-term borrowings are made
under warehouse lines of credit with various lenders as described in note 2 to
the condensed consolidated financial statements (collectively the "Warehouse
Facilities"). Pursuant to the Warehouse Facilities, the Company has available
total secured revolving credit lines of $62.5 million to finance the Company's
origination or purchase of loans, pending sale to investors. The lines of credit
pursuant to the Warehouse Facilities are collateralized by the assignment and
pledge of eligible mortgage loans. The various lines making up the Warehouse
Facilities bear interest at annual rates ranging from LIBOR plus 1 1/8 to prime
plus 2%, payable at the time of purchase by the permanent investor. The
Warehouse Facilities provide for a transaction charge from $100 per loan to as
low as $25 per loan and require the Company to possess a minimum net worth of
$2.5 million, a current ratio of 1.1 and a compensating cash balance on deposit
in the amount of $5,000 under the more restrictive covenants. On June 30, 1999,
the balance outstanding, pursuant to the Warehouse Facilities, totaled
$30,678,477. In April 1999, the Company obtained a working capital line of
credit for $150,000 with Northern Trust Bank.
10
Year 2000 Compliance
- --------------------
Computer-based systems that utilize two digits rather than four digits
to define the applicable year may fail to properly recognize date sensitive
information when the year changes to 2000. The Company has completed a
comprehensive review of its computer-based systems to determine if they will be
affected by resulting Year 2000 related compliance issues, that is whether those
systems have Year 2000 related "computer bugs." This review has revealed no
material Year 2000 related compliance issues primarily because the Company has
developed or purchased most of its computer hardware and software systems within
the last four years. Therefore, it does not expect to be affected by Year 2000
issues because very few of the Company's computer-based systems were installed
before the Y2K problem was recognized. We do not expect to incur Year 2000
compliance related costs that would be material to us. The Company is asking for
confirmation from outside vendors, financial institutions and others that they
are Year 2000 compliant or that they are developing and implementing plans to
become Year 2000 compliant. However, there is no assurance that these outside
vendors, financial institutions and others will timely resolve their own Year
2000 compliance issues or that any such failure would not have an adverse effect
on the Company. The Company has completed contingency plans to assure the
continuation of its operations if these outside vendors, financial institutions
or others fail to timely resolve their own Year 2000 compliance issues. The
Company believes it is devoting the necessary resources to timely address all
Year 2000 compliance issues over which we have control.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-------------------------
The Company is named as a respondent in Ted BRISTOW and GARY PHILLIPPE
VS. GREEN WORLD TECHNOLGIES, INC., MEDICAL INDUSTRIES OF AMERICA, INC. and
WESTMARK GROUP HOLDINGS, INC., Case #74-160-00629-99, filed with the American
Arbitration Association on May 10, 1999. The claimants were employed by Green
World Technologies, Inc., a former affiliate of the Company. The claimants were
terminated by Green World in August of 1997. The claimants allege that they are
entitled to severance compensation as a result of their employment termination.
The Company filed a complaint in the Circuit Court of Palm Beach County, Florida
on June 24, 1999, Case #CL 99-6201 AO, seeking a judicial determination that the
Company is not bound to arbitrate this matter. The Company's motion to stay the
arbitration proceedings was granted on August 2, 1999. The Company expects that
a hearing on the merits within the next sixty (60) days will determine whether
or not the claimants are entitled to proceed against the Company in the
arbitration. The matter is in the initial stages of discovery. The Company is
unable to predict the outcome of this matter at this time.
The Company does not believe that any of the pending legal proceedings and
those reported in its 1998 Annual Report on Form 10-KSB, individually or in the
aggregate, would materially impact the company's financial condition or results
of operations. From time to time, the company is a defendant (actual or
threatened), in certain lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of the company, should not
have a material adverse effect on the company's financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-------------------------------------------------
On March 1, 1999 the Company issued 2,508 shares of its common stock to a
creditor of the Company in satisfaction of $5,000 in debt. In June 1999, the
Company completed an initial closing of a private placement in which it sold
263,977 shares of Series H Preferred Stock and warrants to purchase 263,977
shares of the Company's common stock. Each share of preferred stock has a
liquidation preference of $3.15 per share, is convertible into one share of
common stock, and is entitled to a cumulative dividend of 10% per year. Each
warrant is exercisable at $3.75 per share into one share of common stock at the
11
election of the holder. The warrants expire on May 31, 2004. The securities were
sold to "accredited investors" as that term is defined in Regulation D of the
Securities Act of 1933. The Company received net proceeds of approximately
$727,563 from the initial closing of the Private Placement. The net proceeds
will be used for working capital and general corporate purposes. The exemption
the Company relied upon for the above transactions is Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
---------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The Company held its Annual Meeting of Stockholders on June 22, 1999.
At the Annual Meeting, Mark D. Schaftlein, Payton Story, III, Irving H. Bowen,
Louis Resweber, John O. Hopkins and Allan C. Sorensen were elected as directors
to serve until the next Annual Meeting of Stockholders.
At the Annual Meeting, the stockholders also voted to ratify the
appointment of Rachlin Cohen & Holtz as the Company's independent accountants
for the fiscal year ending December 31, 1999. The following table shows the
votes cast for and against, and abstentions, with respect to the above matter
and with respect to each nominee for director:
Proposal 1 - Election of Directors:
For Against Abstentions
-------------------------------------------
Mark D. Schaftlein 2,774,824 0 18,219
Payton Story, III 2,775,136 0 17,907
Irving H. Bowen 2,775,136 0 17,907
Louis Resweber 2,775,196 0 17,847
Allan C. Sorensen 2,775,196 0 17,847
John O. Hopkins 2,775,196 0 17,847
Proposal 2 - Ratification of Appointment of Rachlin Cohen & Holtz as the
Company's Independent Accountants:
For Against Abstentions
---------------------------------------------------
1,821,174 14,354 5,668
ITEM 5. OTHER INFORMATION
--------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) EXHIBITS
Exhibit Description
- ------- -----------
10.1 $150,000 Line of Credit Agreement between the Company and Northern
Trust Bank dated April 29, 1999.
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10.2 Promissory Note between the Company and Northern Trust Bank dated April
29, 1999.
10.3 Guaranty between the Company and Northern Trust Bank dated April 29,
1999.
10.4 Security Agreement between the Company and Northern Trust Bank Dated
April 29, 1999.
10.5 Wholesale Loan Agreement between the Company's wholly-owned subsidiary,
Westmark Mortgage Corporation, and Great Eastern Funding, LLC dated May
28, 1999.
10.6 Client Contract between the Company's wholly-owned subsidiary, Westmark
Mortgage Corporation, and Residential Funding Corporation dated June 8,
1999.
10.7 Master Mortgage Loan Purchase Agreement between the Company's
wholly-owned subsidiary, Westmark Mortgage Corporation and Banc One
Financial Services, Inc. dated December 22, 1998.
27.1 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
None
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 hereunto duly authorized.
WESTMARK GROUP HOLDINGS, INC.
By: /c/ Irving H. Bowen
--------------------------------------------------------------
Irving H. Bowen, Executive Vice President, Treasurer
& Chief Financial Officer, Director (Principal Accounting
Officer & Duly Authorized Director & Officer of the Registrant)
By: /c/ Mark D. Schaftlein
--------------------------------------------------------------
Mark D. Schaftlein, President & Chief Executive
Officer, Director (Duly Authorized Director & Officer
of the Registrant)
Dated: August 10, 1999
13