UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[ x ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 2000
[ ] Transaction report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transaction period from _______________ to __________________.
Commission file number: 0-26328
SHC CORP.
(Name of small business issuer in its charter)
ILLINOIS 36-3971950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 SKOKIE BOULEVARD, SUITE 450, NORTHBROOK, ILLINOIS 60062
(Address of principal executive offices) (Zip Code)
(847) 562-0041
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Check whether the issuer (1) has filed all reports 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.
[X] Yes [ ] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulations S-B
is not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. []
The Issuer's revenues for the year ended December 31, 2000 were $2,852,504.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on December
29, 2000 as reported on the OTC Bulletin Board, was approximately $3,032,000
(based upon $.03125 per share closing price on that date, as reported by the OTC
Bulletin Board).
As of March 30, 2001, there were 109,250,577 shares of the registrant's Common
Stock outstanding.
SHC CORP.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2000
PAGE
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 9
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7. Consolidated Financial Statements 13
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III
Item 9. Directors and Executive Officers of the Registrant 31
Item 10. Executive Compensation 32
Item 11. Security Ownership of Certain Beneficial Owners and
Management 34
Item 12. Certain Relationships and Related Transactions 35
Item 13. Exhibits and Reports on Form 8-K 36
Signatures 37
PART I
ITEM 1. BUSINESS
GENERAL AND BUSINESS DEVELOPMENT
SHC Corp. (the "Company"), f/k/a VictorMaxx Technologies, Inc. ("VictorMaxx"),
was incorporated as an Illinois corporation on March 22, 1994. Prior to the
Company's initial public offering (the "Public Offering"), the Company financed
its operations primarily through the private sales of equity securities, which
raised net proceeds of $663,732; borrowings from its stockholders, which raised
net proceeds of $93,900; bridge loan financings, which raised net proceeds of
$3,051,763; and the issuance of short term debt, which raised an aggregate of
$300,000. The Company completed its Public Offering on August 10, 1995, which
raised net proceeds of approximately $14,839,708. On September 29, 1995, the
underwriter exercised a portion of its over-allotment option, which raised net
proceeds of approximately $81,619.
VictorMaxx initially designed, developed and sold virtual reality products for
home use. These efforts focused on hardware products but were expanded in
September 1995 to include development of a virtual reality software system and
applications. VictorMaxx achieved only limited revenues since its inception.
After marketing efforts failed to stimulate sales, the Company's management
ceased marketing virtual reality hardware products and subsequently liquidated
its remaining inventory. On October 31, 1996, VictorMaxx vacated its office
facilities and suspended its operations indefinitely. From that date through
December 1997, management conducted its business from a variety of their
personal residences. VictorMaxx did not generate any revenues for the year ended
December 31, 1997.
On January 8, 1998, VictorMaxx closed on an Agreement and Plan of Reorganization
(the "Reorganization Agreement") to acquire all of the outstanding capital stock
of Sonoma Holding Corporation, a diversified holding company ("Sonoma"). At the
time of the Reorganization Agreement, Sonoma was a diversified holding company
whose wholly-owned subsidiaries included U.S. Dell, Inc., Brighton Hill
Enterprises, Inc., Northstar Petroleum, Inc., Randall Road Corp., Sonoma
Management Co. and an eighty percent (80%) equity interest in Payday Check
Advance, Inc. Subsequent to the Reorganization Agreement, the Company
established new offices in West Dundee and Schaumburg, Illinois, and changed its
name to SHC Corp. The transaction has been accounted for as a reverse
acquisition ("Acquisition") of VictorMaxx by Sonoma using the purchase method of
accounting. No goodwill was recognized in connection with the acquisition. In
connection with the Acquisition, the Company issued 12,108,558 shares of
VictorMaxx common stock and 100,000 shares of its convertible preferred stock
("Preferred Stock") to the shareholders of Sonoma. Each share of Preferred Stock
was convertible into 300 shares of common stock. In June 1998, 70,000 shares of
Preferred Stock were converted into 21,000,000 shares of common stock. In July
1998, 30,000 shares of Preferred Stock were converted into 9,000,000 shares of
common stock. Additionally, the Company has issued 1,550,000 shares of its
common stock to certain creditors of the Company, which include certain former
executive officers and a director of the Company. In addition, the Company
issued 615,000 shares of its common stock to a group of individuals as a
settlement of various employment claims and as compensation for assisting in the
consummation of the transaction.
1
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, who is a
shareholder, officer, and director. Consideration paid by the purchaser was 5.5
million shares of the Company's common stock and debt assumption of $353,867.
Concurrently with the surrender of the 5,500,000 shares, such shareholder,
officer and director of the Company was granted a warrant to purchase up to
5,500,000 shares of the Company's common stock at $.21 per share. Included in
the warrant is the right of such shareholder, officer and director to vote all
of the underlying shares with respect to all matters presented to the
shareholders for a vote.
All parties to the settlement agreed to release all other parties from any and
all claims related to this matter.
Following the Agreement of Purchase and Sale with Fleetmax, the Company retained
its eighty percent (80%) equity interest in Payday Check Advance, Inc., d/b/a
Payday Express ("Payday"). The remaining 20% was held by Argent Enterprises,
Inc., an Illinois corporation ("Argent"). In January 1999, Sonoma and Payday
received notice from a third party that such third party was a 20% shareholder
of Payday based on a transaction with Argent whereby it acquired such interest.
SEE ITEM 3 - LEGAL PROCEEDINGS.
Management intends to focus its efforts and resources on growing the Payday
business and on developing payday lending franchise opportunities. SEE BELOW
-STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE. The first Payday
location opened for business in August 1997. The Company currently expects
its future revenues, if any, to be derived from interest earned on short-term
loans offered by Payday to its customers and franchise fees and royalties
from its recently announced franchise program. As of early 2000, there were
approximately 44 Payday locations conducting business in Illinois and 5
stores in Indiana. Since then, the Board of Directors has elected to close
certain unprofitable stores and following such closings, as of December 31,
2000, there were 19 Payday locations conducting business in Illinois and 3
locations operating in Indiana under the name "Money Market." In addition to
its equity interests in Payday and Money Market, the Company has five
wholly-owned subsidiaries: Money Market Payday Express Franchising Inc.,
which will be responsible for the employment and promotion of the Company's
franchising efforts; Millenium Funding, LLC, which was formed with the intent
of seeking opportunities to leverage the Company's customer base and, which
to date, has not commenced doing business; E Star Systems, Inc., which
performs collections functions on delinquent loans; Sonoma Financial
Corporation, which is and has been a non-operating entity; and Payday Express
of America, Inc, which was intended to operate as the Company's operating
entity in Wisconsin and, which to date, has not commenced doing business.
In May 1999, the Company entered into an agreement to purchase all of the issued
and outstanding shares of Money Market, Inc., an Indiana corporation ("Money
Market") engaged in the payday lending business through two separate locations.
Following a short period during which the shares were held in escrow by the
Company's counsel, title to the shares transferred to the Company upon issuance
of a payday lending license by the State of Indiana. In consideration of the
shares of the Money Market, the Company issued to the sellers: (i) $60,000 in
cash; (ii) promissory notes with an aggregate principal balance of $55,000; and
(iii) 167,000 shares of the Company's common stock in the aggregate. Management
has been operating Money Market as a wholly-owned subsidiary.
In June 1999, the Company, through Money Market, entered into an Asset Purchase
Agreement with Easy Money of Indiana, Inc., an Indiana corporation engaged in
the payday lending business. Pursuant to the Asset Purchase Agreement, the
Company purchased certain assets relating to a payday lending store in Indiana
for cash consideration of approximately $28,000.
2
PRINCIPAL PRODUCTS AND SERVICES
The Company is primarily engaged in the small consumer loan business, offering
short-term loans to individuals, which are commonly referred to as payday loans.
The Company's management believes that a market exists for prospective customers
that may have limited access to other sources of consumer credit. Payday is a
licensed provider of small consumer loans in Illinois and Money Market is a
licensed provider of small consumer loans in Indiana. Where permitted by law,
Payday and Money Market offer a standardized, single installment loan ranging
from $50 to $500 through its post-dated check process. Through this process,
Payday and Money Market permit customers to receive a cash advance for a finance
charge and a signed loan agreement, secured by a post-dated personal check. Such
loans generally have terms of one to two weeks. Small consumer loans are offered
in a highly structured regulatory environment. Payday and Money Market stores
are licensed under their respective state laws where their business is
transacted, which establish allowable interest rates, fees and other charges on
small loans made to consumers.
STORE OPERATIONS
The Company's objective is to locate its stores in highly visible and accessible
locations and to operate them during convenient hours. The Company attempts to
locate stores on high traffic streets or intersections, in many cases, in or
near destination shopping centers. On average, a typical store occupies 1,200
square feet and is located in a strip shopping center or a free standing
building. All of Company's store locations are individually leased. Company
management and personnel supervise the construction and decoration of new
stores. Consistent signage and decorations are used at each store in order to
maintain and increase the market's awareness of the Company. Typically, business
hours at Company's store locations are from 10 a.m. to 7 p.m., Monday through
Friday, 9 a.m. to 1 p.m. on Saturday and closed on Sunday.
The cost of opening a new store is dependent on the size and location of the
store. Typical costs include, among other things, store lease, leasehold
improvements, furniture and fixtures, computer equipment, and start-up capital.
According to current management estimates, the average cost to open a new store
with a turnkey operation ranges from $20,000 to $25,000. The establishment of a
new store location takes approximately 2 to 3 months to complete before becoming
fully operational. During 1999, the Company opened 24 and during 2000, acquired
one store in Indiana and closed or discontinued operating at 27 stores and never
opened 5 stores, for which leases were signed. There can be no assurance that
the Company's stores will continue to generate the same growth level as in the
past.
MARKETING, SALES AND DISTRIBUTION OF PRODUCTS AND SERVICES
Management believes that its most effective marketing takes place through
in-store programs. Store personnel are trained to provide courteous and
efficient service and to develop and maintain strong relationships with the
Company's customers. In addition, the Company attempts to create a consistency
of appearance at each store through consistent signage and decoration. The
Company is currently in the process of developing a comprehensive marketing
program.
3
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
FRANCHISE OPPORTUNITIES - During the first quarter of 2001, the Company,
through its wholly-owned subsidiary, Money Market Payday Express Franchising,
Inc. ("Franchise Co.") received approval from the State of Illinois to begin
selling payday loan franchises in Illinois. As of March 30, 2001, the Company
has sold one franchise in Illinois. In addition, the Company has registered
in two other states, Wisconsin and Michigan, and is authorized to do business
in approximately 30 other states and the District of Columbia. Of these,
management believes 20 states are "payday friendly" and offer attractive
franchise opportunities.
COMPETITIVE BUSINESS CONDITIONS AND THE COMPANY'S COMPETITIVE POSITION IN THE
INDUSTRY AND METHODS OF COMPETITION
Due to the relatively recent development of the payday lending industry, there
exists a lack of substantial literature and information regarding the industry
as a whole. However, management believes that the payday lending industry is
characterized by intense and increasing competition. Management believes major
competitive factors are location, finance charges, internal operating controls
and customer service. Management believes that certain of its competitors have
substantially greater number of locations, larger customer bases and stronger
financial capabilities than the Company. In addition, management believes some
of Payday's competitors may offer a broader range of financial services than
Payday currently provides, which may include such items as check cashing and car
title services. It is also the belief of the Company that the industry is also
characterized by low entry barriers and is highly fractionalized. Management
estimates that in Illinois, where Payday currently conducts all of its
operations, there are at least 25 persons or entities engaged in the payday
lending business. Management estimates that in Indiana, where Money Market
currently conducts all of its operations, there are at least 15 persons or
entities engaged in the payday lending business. Management also believes that
based on number of operating stores, Payday is one of the largest providers of
payday loans in the Chicago metropolitan area. It is impossible to predict what
the effect, if any, certain potential initiatives will have on the industry's
competitive business conditions or the Company's competitive position within the
industry. See below - "Government Regulation." There can be no assurance that
the Company will be able to successfully compete in the future.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Company has no major customers on which it depends.
GOVERNMENT REGULATION
The Company is licensed to provide payday lending services in Illinois and
Indiana. In addition, the Company has received approval or is authorized to sell
payday lending franchises in approximately 33 states, including Illinois,
Wisconsin, Michigan, New Jersey, Arkansas and New Mexico, and the District of
Columbia.
Primary responsibility for regulating financial institutions rests at the state
level. Management of the Company believes that at least 21 states now permit
payday lending. With the exception of the Company's three Money Market stores in
Indiana, all of the Company's Payday stores are located and conduct their
business within the state of Illinois, which permits payday lending. Following
the decision of the Illinois General Assembly in 1981 to abolish the previously
existing usury law, Illinois has no restrictions on the rate of interest or the
amount of fees which may be charged by payday lenders. It is
4
the expectation of management that efforts to expand the Company's geographic
area of business of operations and franchises will focus on states currently
permitting payday lending or on states where management believes there may be a
reasonable likelihood that payday lending will soon be permitted. However,
management's plans for expansion may be adversely affected by restrictive
regulation by the various states or potential future regulation or control of
the payday lending industry.
Certain consumer rights groups have indicated their desire to promote
initiatives designed to more strictly regulate the payday lending industry.
Management perceives the focus of these efforts to be limits on interest charged
and caps on fees associated with loans made to customers. It is impossible for
management to predict the outcome of any such initiatives or their possible
effect on the Company and its operations. However, there can be no assurances
that any such initiatives will not ultimately have a material adverse effect on
the Company and its operations.
RESEARCH AND DEVELOPMENT
The Company incurred no research and development costs in 2000 or 1999 and does
not anticipate to incur any material research and development costs going
forward. However, this belief is dependent on management's current plans for the
Company and could change in the event of a change in such plans.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Based on the nature of its current and past business operations, the Company has
not incurred and does not expect to incur going forward any material costs or
adverse effects with respect to compliance with any applicable environmental
laws.
EMPLOYEES
The Company currently employs approximately 40 people. Of these employees, 32
are full-time employees and 8 are part time employees. The Company's
relationship with its employees is not governed by any collective bargaining
agreements and the Company has never experienced any organized work stoppage.
The Company believes its relationship with its employees to be good. The Company
also offers certain employees a group health insurance program.
REPORTS TO SECURITY HOLDERS
The Company is required to file quarterly reports with the Securities and
Exchange Commission. The public may read and copy any materials filed by the
Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may also obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at HTTP://WWW.SEC.GOV.
ITEM 2. PROPERTIES
Currently, the Company's executive offices are leased at 40 Skokie Boulevard,
Suite 450, Northbrook, Illinois 60062. The lease is set to expire in 2004. The
Company owns no real estate.
In addition to its administrative and executive offices, the Company conducts
business through its Payday and Money Market subsidiaries, at various
locations, which stores are leased by the Company from the property owners.
Store leases are typically for three year terms, and contain Payday and
5
Money Market options for one or two additional three year terms. The leases
provide for rental payments at prevailing market rates. Most of the stores are
located in strip malls.
ITEM 3. LEGAL PROCEEDINGS
Except as set forth below, the Company is not party to any material legal
proceedings.
In May 1998, the Company and certain of its officers entered into a settlement
agreement with a former president, CEO and director of the Company to settle all
claims and issues between the parties. The terms of the agreement provided for
certain payments to be made by or on behalf of the Company to the former
president, CEO and director in exchange for the delivery and release to an
escrow agent and voting trust of 12,632,568 shares of Company stock held by the
former president, CEO and director. A third party ultimately delivered $650,000
representing the Company's obligation to the escrow agent, and in exchange for
such funds was assigned the Company's rights in and to certain of the escrowed
shares. In November 1999, the former president, CEO and director filed a motion
in the United States District Court for the Eastern District of Illinois, case
number 98 C 1697, seeking to compel distribution of the remaining escrowed
shares and alleging that he may be entitled to certain additional shares of the
Company's stock based on alleged anti-dilution provisions contained in the
Settlement Agreement. In the fourth quarter of 2000, the Company and the former
president, CEO and director and the Company entered into a subsequent settlement
agreement that provides for: (i) distribution of the shares which remained in
escrow and (ii) the issuance of approximately 1,300,000 shares of the Company's
common stock in exchange for a dismissal of the litigation and complete and
mutual release of any and all claims between the parties. The shares were issued
in February 2001 and the case has been dismissed.
In a related matter, during the second quarter of 2000, the Company negotiated a
settlement agreement with its prior counsel (and escrow agent under the
aforementioned settlement agreement) pursuant to which such prior counsel
resigned as escrow agent and returned 1,000,000 shares of the Company's stock to
the Company which had been previously issued to such counsel in exchange for a
execution of a mutual general release of claims and payment of $20,000 for fees
incurred in acting as escrow agent in the above matter.
The Company owns 80% of the outstanding capital stock of Payday. Prior to
January 1999, the remaining 20% was held by Argent Enterprises, Inc., an
Illinois corporation ("Argent"). Sonoma and Argent are parties to an
agreement restricting transfer of the Payday stock. Such agreement grants
each party the right of first refusal to purchase any stock of Payday before
any such stock may be transferred by a shareholder to any third party. In
January 1999, Sonoma and Payday received notice from a third party that such
third party was a 20% shareholder of Payday based on a transaction with
Argent whereby it acquired such interest. The Company and Payday are
currently in the process of investigating such purported transaction in order
to determine whether such third party is a shareholder of Payday and whether
such purported transaction violated the terms of the shareholders' agreement.
In May 1998, Payday entered into an agreement with a third party which allegedly
owned 20% of 1825 Corp., a former Payday subsidiary which owned and operated
several Payday stores. Pursuant to the agreement, such third party was to sell
and assign all of its 20% interest to Payday in consideration of certain
payments by Payday consisting of cash and stock of the Company. Part of the
consideration was delivered to and accepted by such third party and part of the
consideration was rejected. The parties were in dispute as to whether the
contract was breached and by whom. The third party commenced litigation in the
Circuit Court of Will County, Illinois, case number 99 L 596. On September 20,
2000, the third party and the Company entered into a settlement agreement
pursuant to which the third party released its claims in exchange for the
issuance of 450,000 shares of the Company's stock and the payment of an
aggregate
6
of $125,000 on an installment basis plus its attorney fees of $6,000. The
agreement further provides that a default in payments will accelerate all
amounts due.
On November 4, 1998, an investor in the Company filed a lawsuit in the
Circuit Court of Kane County, Illinois, case number LKA 98 580, seeking
$250,000 in damages. The plaintiff asserts that he exercised a "put" option
with respect to 1,000,000 shares owned by plaintiff, which would allegedly
entitle him to "put" such shares to the Company in exchange for $250,000. The
plaintiff claimed that the Company breached an agreement between the parties
by failing to honor the put and pay $250,000 to plaintiff and received a
judgment to such effect in May 2000. The parties entered into a settlement
agreement pursuant to which the Company agreed to deliver to such party, in
exchange for a release of all claims, $100,000 and 1,500,000 shares of the
Company's common stock. The Company performed its obligations under the
settlement agreement and the case has been dismissed.
Payday was a defendant in a number of federal class action cases asserting
various violations of the Truth in Lending Act, 15 U.S.C. Section 1601, ET
SEQ. ("TILA"), Fair Debt Collection Practices Act ("FDCPA"), state consumer
fraud claims and unconscionability claims. Sandra Brown et al. v. Payday
Check Advance, Incorporated, et al., United States District Court Case No. 99
C 2074, 7th Circuit Case No. 99-3110; Marguerite Mitchem v. Payday Check
Advance, Inc. et al., United States District Court Case No. 99 C 1869, 7th
Circuit Case No. 99-3110; Earl Terry v. Payday Check Advance, Inc., et al.,
Case No. 99 C 2486; Lizabeth Maccagno, et al. v. Payday Check Advance, LLC,
et al., Case No. 99 C 2579; Latanda Allen, et al. v. Payday Check Advance,
Inc. Case No. 99 C 7656. The cases have all been dismissed or settled during
the year 2000 for an aggregate of $21,600.
Two of these cases, consolidated for appeal purposes, were dismissed by the
respective federal district court judges before whom they were pending. The
Court of Appeals for the Seventh Circuit affirmed the dismissals. The
Plaintiffs filed an appeal with the United States Supreme Court, which appeal
was denied.
7
In April 1999, the Company entered into a settlement agreement with a
judgment creditor of the Company, Circuit Court of Cook County, Illinois,
Case No. 99 CH 00625, pursuant to which the Company was obligated to make
installment payments in the aggregate amount of $100,000 to the creditor,
with all remaining sums due on or before October 15, 1999. In addition, the
Company issued 10,000 shares of common stock to the creditor as part of the
settlement. On May 12, 2000 the parties entered into a second settlement
agreement pursuant to which the Company issued 990,000 shares of the
Company's common stock in exchange for a full release of claims (including
the judgment) and the return of the 10,000 shares previously delivered to the
judgment creditor. These 10,000 shares were subsequently cancelled by the
Company.
The Company filed, and subsequently withdrew, a lien suit against a former
director seeking the return of 3 million shares of the Company's common stock
which the Company alleged was issued in error to such former director as part
of a comprehensive buyout of such director's shares. The former director
claims the shares were not issued in error. The parties have commenced a
dialogue to determine whether any such shares should be returned to the
Company. To date, the Company agrees that 500,000 shares were properly
issued, leaving 2.5 million shares in dispute. In the event that the parties
cannot reach resolution of this matter, the Company may reinstitute the
lawsuit.
During 2000 and 2001, the Company received funds totaling $400,000 from a
shareholder. The Company and the shareholder never reached an agreement as to
the nature, terms and documentation of the funding. On April 10, 2001, the
shareholder made demands on the Company in connection with the funding based on
alleged defaults. It is unclear from the demands what the nature of the alleged
defaults are or the remedies sought. Management is currently investigating this
matter to determine whether a default has occurred and cannot predict with any
certainty the outcome of the demands made by the shareholder.
In the first quarter of 2001, a creditor of the Company, on behalf of itself
and a group of related creditors, made a demand for payment of certain
promissory notes issued by the Company aggregating approximately $250,000
plus accrued interest. The Company is attempting to negotiate a repayment
plan or an extension of the maturity of the notes. Management cannot say
whether they will successfully negotiate an acceptable repayment plan or an
extension of the maturity of the notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January 2001, the Company conducted an annual meeting of its shareholders.
At the meeting, the shareholders elected directors to the Company's Board of
Directors, authorized the grant of certain stock options to Terrence L.
Donati, an officer and director of the Company, and authorized the Company to
amend its
8
Articles of Incorporation to increase the number of common shares issuable by
the Company from 100,000,000 to 250,000,000 and the number of preferred shares
issuable by the Company from 1,000,000 to 20,000,000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock commenced trading on the NASDAQ Small-Cap Market
("NASDAQ") on August 10, 1995 under the symbol "VMAX" and commencing on
April 17, 2000, under the symbol "VMAXE." On September 20, 2000, the symbol
changed to "SONM."
On October 23, 1996, the Company received notification from the NASDAQ Listing
Qualifications Panel that because the Company did not meet the maintenance
criteria for continued listing of its securities on NASDAQ, the Company's
Securities would be delisted from NASDAQ effective at the close of business on
October 24, 1996. Subsequent to that date, the Securities of the Company have
been quoted on the OTC Bulletin Board. The following table sets forth the high
and low closing sales price for each quarterly period since January 1, 1999 for
the common stock, as reported on the OTC Bulletin Board.
--------------------------------------------------------------------- ---------------- -----------------
HIGH LOW
--------------------------------------------------------------------- ---------------- -----------------
Fiscal Year ending December 31, 1999
--------------------------------------------------------------------- ---------------- -----------------
First Quarter $.25 $ .09
--------------------------------------------------------------------- ---------------- -----------------
Second Quarter .25 .15
--------------------------------------------------------------------- ---------------- -----------------
Third Quarter .31 .125
--------------------------------------------------------------------- ---------------- -----------------
Fourth Quarter .23 .11
--------------------------------------------------------------------- ---------------- -----------------
Fiscal Year Ending December 31, 2000
--------------------------------------------------------------------- ---------------- -----------------
First Quarter $.44 $.125
--------------------------------------------------------------------- ---------------- -----------------
Second Quarter .27 .03
--------------------------------------------------------------------- ---------------- -----------------
Third Quarter .25 .03
--------------------------------------------------------------------- ---------------- -----------------
Fourth Quarter .15 .02
--------------------------------------------------------------------- ---------------- -----------------
As of December 31, 2000, there were approximately 520 shareholders of record of
the Company's common stock.
As part of the sale of certain subsidiaries to Fleetmax, a shareholder, officer
and director of the Company was granted a warrant to purchase up to 5,500,000
shares of the Company's common stock at $.21 per share. Included in the warrant
is the right of such shareholder, officer and director to vote all of the
underlying shares with respect to all matters presented to the shareholders for
a vote. SEE ITEM I - GENERAL AND BUSINESS DEVELOPMENT.
To date, the Company has not paid any dividends on its common stock. The payment
of dividends, if any, in the future is within the discretion of the Company's
board of directors and will depend upon the Company's ability to generate
earnings, its capital requirements, and financial condition and other relevant
factors. The Company does not intend to declare any dividends in the foreseeable
future.
The Company has issued a significant number of shares in satisfaction or
settlement of various liabilities and claims, and to certain related parties
in reimbursement and compensation for services rendered on behalf of the
Company. See Item 3 - Legal Proceedings and Item 12 - Certain Relationships
and Related Transactions. In addition, in 1999, the Company engaged in an
exempt offering of its common stock pursuant to section 504 of Regulation D
under the Securities Act of 1933, as amended, pursuant to which it issued
8,965,067 shares for $1,000,435 in cash, which cash was used for general
working capital purposes.
9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto contained
elsewhere in this report. The discussion of these results should not be
construed to imply any conclusion that any condition or circumstance discussed
herein will necessarily continue in the future. When used in this report, the
words "believes," "anticipates," "expects," and similar expressions are intended
to identify forward-looking statements. Those statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those that are modified by such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date of this report, or to reflect the
occurrence of unanticipated events.
The Company's independent accountants have included an explanatory paragraph in
their audit reports making reference to the Company's Notes to Consolidated
Financial Statements (Note 1), which discusses the fact that the Company's
consolidated financial statements for the years ended December 31, 2000 and 1999
have been prepared assuming that the Company will continue as a going concern.
As it has in the past, the Company will need to rely upon debt and equity
capital to sustain operations in the future. If such funding is not obtained,
the Company will be required to scale back operations and/or to seek a financial
re-structure.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
NET REVENUES. The Company had revenues for the year ending December 31, 2000 of
$2,852,504 compared to revenues of $3,055,856 for the year ending December 31,
1999. This decrease of 6.7% was due to the Company's election to close stores.
The number of stores operating at the end of 2000 was 22, compared to 48 at the
end of 1999.
COST OF STORE OPERATIONS. For the year ended December 31, 2000 and 1999, the
Company had expenses related to store operations of $1,823,529 and $2,459,691,
respectively. This decrease of 26% was due to the reduction in the number of
stores during 2000.
GROSS PROFIT. Gross profit increased 73% from $596,165 for the year ended in
December 1999 to $1,028,975 for the same period in fiscal 2000. This was due to
reductions in certain operating expenses, as poor performing stores were closed,
while the loan base declined at a slower rate.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. These expenses increased 27% in
the year ended December 31, 2000 from the year ended December 31, 1999. The
amounts for 2000 and 1999 were $3,729,497 and $2,625,209 respectively. The
increase was due primarily to higher expenses associated with professional
and consulting services incurred.
PROVISION FOR STORE CLOSINGS. The Company recorded a provision for stores closed
during the year. This was necessitated by the Company's lack of funds, after its
accelerated growth in 1998 and 1999 had stretched the Company beyond its funding
capabilities.
10
INTEREST EXPENSE. Interest expense in fiscal 2000 was $544,430, and in fiscal
1999 was $173,427. This increase of 214% was due to increased bank borrowings
and other notes payable and higher interest rates during the year and an
adjustment to record the beneficial conversion feature of notes payable based
upon the excess of the estimated fair market value of the common stock over
the conversion price.
NET LOSS. The net loss in fiscal 2000 increased to $3,794,952 from a net loss of
$2,202,471 in fiscal 1999. This was due to the reasons stated above.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 2000, the Company had net operating loss carryforwards for
income tax purposes of approximately $10.1 million to offset future taxable
income, if any. Under Section 382 of the Internal Revenue Code of 1986, as
amended, the utilization of net operating loss carryforwards is limited after
an ownership change, as defined in such Section 382, to an annual amount
equal to the value of the corporation's outstanding common stock immediately
before the date of the ownership change multiplied by the federal long-term
tax-exempt rate in effect during the month the ownership change occurred. Due
to the ownership change in connection with the initial public offering, the
Company is subject to an annual limitation on the use of its net operating
losses. Therefore, in the event the Company achieves profitability, such
limitation would have the effect of increasing the Company's tax liability
and reducing the net income and available cash resources of the Company in
the future.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations. However, there can be no assurance that inflation will
not affect the Company's business in the future.
IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
NEW ACCOUNTING STANDARDS -- In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes new accounting and reporting standards for companies to
report information about derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This statement, as extended by SFAS
No. 137, is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not expect
this statement to have a material impact on the Company's results of
operations, financial position or liquidity.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
This bulletin requires the application of specific criteria in determination
of the timing of revenue recognition in financial statements and is effective
for all fiscal years beginning after December 16, 1999. The Company's
accounting policies conform to the requirements of this bulletin and the
adoption of this bulletin had no material effect upon the Company's results
of operations, financial position or liquidity.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion
No. 25." Interpretation No. 44 provides definitive guidance regarding
accounting for stock-based compensation to non-employee directors.
Interpretation 44 allows non-employee directors to be treated as "employees"
for purposes of applying APB Opinion No. 25. The Company has applied this
interpretation to all issuances to non-employee directors during 1999 and
thereafter.
11
LIQUIDITY
The Company had a negative working capital position of $2,876,135 and $2,192,610
at December 31, 2000 and December 31, 1999, respectively. The Company has been
able to fund its operations via receipts from issuances of common stock and
notes payable.
The Company realizes it needs to strengthen its working capital position and
over-all financial condition. It has closed 27 stores and was not able to
open 5 other stores as it attempted to reduce its losses and improve its cash
position. It is in talks with several groups regarding cash infusions via
equity or debt capital. If the discussions are not successful, the Company
will need to examine various options, such as, closing additional stores,
selling stores and/or financial restructuring.
In an effort to reduce debt, the Company has negotiated with three
noteholders to exchange their notes for common stock in fiscal 2001. The
amount of these notes is approximately $165,000.
It is management's intention to continue to offer a conversion option of
debt-for-stock to certain noteholders and to other creditors. Management does
not know how many noteholders, if any, will agree to convert any or all of the
amount owed, but believes there will be some conversions.
LITIGATION
The Company and its subsidiaries are defendants in various business-related
litigation matters. While these litigation matters involve wide ranges of
potential liability, management does not believe the eventual outcome of
these matters will have a material adverse effect on the Company's financial
statements. In addition, a creditor of the Company has made, on behalf of
himself and certain related parties, demand for payment of certain promissory
notes issued by the Company in the aggregate amount of approximately
$250,000, including principal and interest. In addition, a shareholder who
has loaned $400,000 to the Company has made certain demands on the Company in
connection with the funds. The Company is currently in discussions with both
of these parties to negotiate an acceptable repayment plan and identify the
nature of the demands, respectively. See Note 9 of the Consolidated
Financial Statements.
12
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
SHC CORP.
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants 14
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and 1999 15
Consolidated Statements of Operations for the Years Ended
December 31, 2000 and 1999 16
Consolidated Statements of Stockholders' Deficit for
the Years Ended December 31, 2000 and 1999 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000 and 1999 18
Notes to Consolidated Financial Statements 19
13
[LETTER HEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of SHC Corp.:
We have audited the consolidated balance sheets of SHC Corp. and Subsidiaries as
of December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' deficit 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 audits 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 provide 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 SHC Corp. and
Subsidiaries as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered substantial losses
since inception. Those conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 13, 2001
14
SHC CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
-------------- ---------------
CURRENT ASSETS
Cash $ 102,547 $ 14,242
Accounts receivable, net of allowance for
doubtful accounts of $175,000 and $1,245,238 675,722 912,673
Notes receivable 4,196 4,196
Prepaid expenses 37,816 34,419
-------------- ---------------
TOTAL CURRENT ASSETS 820,281 965,530
FIXED ASSETS
Property and equipment 419,073 694,342
Less: accumulated depreciation (223,246) (199,403)
-------------- ---------------
TOTAL FIXED ASSETS, NET 195,827 494,939
OTHER ASSETS
Security Deposits 37,861 97,769
-------------- ---------------
TOTAL ASSETS $ 1,053,969 $ 1,558,238
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,427,307 $ 1,282,746
Current portion of notes payable 2,269,109 1,875,394
-------------- ---------------
TOTAL CURRENT LIABILITIES 3,696,416 3,158,140
LONG-TERM PORTION OF NOTES PAYABLE 350,685 61,586
-------------- ---------------
TOTAL LIABILITIES 4,047,101 3,219,726
REDEEMABLE COMMON STOCK
Common Stock - Class A, $.001 par value; 400,000 shares
redeemable at $0.50 per share -- 200,000
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.001; 20,000,000 shares
authorized; none issued -- --
Common stock, par value $.001; 250,000,000
shares authorized; 97,032,287 and 75,073,908
shares issued and outstanding, respectively 97,032 75,074
Additional paid-in capital 4,632,319 1,990,969
Accumulated deficit (7,722,483) (3,927,531)
-------------- ---------------
TOTAL STOCKHOLDERS' DEFICIT (2,993,132) (1,861,488)
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,053,969 $ 1,558,238
============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
15
SHC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
-------------- ---------------
NET SALES $ 2,852,504 $ 3,055,856
COST OF STORE OPERATIONS 1,823,529 2,459,691
-------------- ---------------
Gross profit 1,028,975 596,165
OPERATING EXPENSES
Selling, general and administrative 3,729,497 2,625,209
Provision for store closings 550,000 --
-------------- ---------------
Loss from operations (3,250,522) (2,029,044)
OTHER EXPENSES
Interest expense 544,430 173,427
-------------- ---------------
NET LOSS $ (3,794,952) $ (2,202,471)
-------------- ---------------
LOSS PER SHARE DATA
Basic and diluted $ (0.04) $ (0.03)
============== ===============
WEIGHTED AVERAGE SHARES
Basic and diluted 85,134,553 69,024,620
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements
16
SHC CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 64,017,500 64,018 680,599 (1,725,060) (980,443)
Stock issued for cash 8,965,067 8,965 991,470 -- 1,000,435
Stock issued for services 1,924,341 1,924 294,067 -- 295,991
Stock issued to acquire interests
in Indiana stores 167,000 167 24,833 -- 25,000
Net loss -- -- -- (2,202,471) (2,202,471)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 75,073,908 75,074 1,990,969 (3,927,531) (1,861,488)
Stock issued for cash 7,760,556 7,761 647,794 -- 655,555
Stock issued for payments to creditors
by shareholders 771,343 771 76,364 -- 77,135
Stock and options issued for services 9,021,947 9,022 959,921 -- 968,943
Stock issued for conversion of
notes payable 3,844,069 3,844 275,222 -- 279,066
Stock issued to creditors 2,020,464 2,020 164,849 -- 166,869
Stock issued to redeem shares 450,000 450 203,290 -- 203,740
Beneficial conversion feature of
notes payable -- -- 312,000 -- 312,000
Shares cancelled (1,910,000) (1,910) 1,910 -- --
Net loss -- -- -- (3,794,952) (3,794,952)
------------ ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 2000 97,032,287 $ 97,032 $ 4,632,319 $(7,722,483) $ (2,993,132)
=========== =========== =========== ============ ============
The accompanying notes are an integral part of these consolidated
financial statements
17
SHC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,794,952) $ (2,202,471)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 101,088 201,580
Gain on stock issued for liabilities (57,355) --
Provision for store closings 550,000 --
Shares issued for services and compensation 968,943 295,991
Provision for benefical conversion feature 312,000 --
Change in operating assets and liabilities:
Accounts receivable 236,951 (224,425)
Prepaid expenses (3,597) (28,949)
Other -- (4,196)
Accounts payable and accrued liabilities 251,632 727,291
---------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (1,435,290) (1,235,179)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary interests -- (43,497)
Purchases of property and equipment (69,053) (308,366)
Increase (decrease) in security deposits 59,908 (52,983)
---------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (9,145) (404,846)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 655,555 1,000,435
Proceeds from notes payable 1,070,000 818,200
Principal payments of notes payable (192,815) (313,689)
---------------- -----------------
NET CASH FROM FINANCING ACTIVITIES 1,532,740 1,504,946
---------------- -----------------
NET INCREASE (DECREASE) IN CASH 88,305 (135,079)
CASH, BEGINNING OF YEAR 14,242 149,321
---------------- -----------------
CASH, END OF YEAR $ 102,547 $ 14,242
================ =================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 159,345 $ 84,350
================ =================
NON-CASH TRANSACTIONS
Payments of liabilities made by shareholders $ 94,134 $ --
================ =================
Liabilities exchanged for equity $ 445,935 $ 46,759
================ =================
Write-off of property and equipment of closed stores $ 267,077 $ --
================ =================
The accompanying notes are an integral part of these consolidated
financial statements
18
SHC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1 -- NATURE OF BUSINESS ACQUISITION AND GOING CONCERN
BUSINESS -- SHC Corp. (the Company) was incorporated as an Illinois
Corporation on March 22, 1994 and was known as VictorMaxx Technologies,
Inc. (VictorMaxx). On January 8, 1998, VictorMaxx closed on an
Agreement and Plan of Reorganization (the "Reorganization Agreement") to
acquire all of the outstanding capital stock of Sonoma Holding
Corporation ("Sonoma"). Subsequent to the Reorganization Agreement, the
Company changed its name to SHC Corp. The transaction has been accounted
for as a reverse acquisition of VictorMaxx by Sonoma using the purchase
method of accounting. No goodwill was recognized in connection with the
acquisition.
SHC Corp. has seven subsidiaries: Payday Check Advance, Inc.; The
Money Market Inc.; Payday Express of America, Inc.; E-Star Systems,
Inc.; Sonoma Financial Corporation; Millenium Funding, LLC; and Money
Market Payday Express Franchising Inc.
The Company is in the business of making short-term loans called payday
loans within the states of Illinois and Indiana in which a customer
agrees to execute a post-dated check which includes the base principal
amount plus a fee. The Company agrees to hold the check for up to two
weeks or until the customer's next pay day, at which time the check is
deposited by the Company.
GOING CONCERN -- The accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going concern. The
Company has incurred $7.7 million of losses from operations since
inception and is highly reliant on obtaining continued financing to
satisfy its liquidity requirements. These factors raise substantial doubt
about the ability of the Company to continue as a going concern.
Management has undertaken measures to reduce its operating costs and has
closed many unprofitable stores. Concurrently, management is negotiating
with third party lenders and equity investors in an effort to obtain
sufficient financing to meet its operating needs.
There can be no assurances that these cost reduction measures will be
adequate or that the additional financing, if any, will be sufficient to
enable the Company to continue as a going concern.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT'S ESTIMATES -- The preparation of consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
REVENUE RECOGNITION -- Revenue from service fees is recognized at the
time the loans are made.
CONCENTRATION OF CREDIT RISK -- The Company's credit risk arises
primarily from accounts receivable in the form of undeposited checks made
to customers within the states of Illinois and Indiana. There is no
collateral securing these undeposited funds.
CASH -- The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash.
19
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- The Company established a reserve for
those loans which may not be paid in full. This amount is an estimate
based on previous collection experience. In 2001, the Company sold all
loans of one of its subsidiaries with a check date prior to December 1,
2000. Those loans and the respective allowances were written off as of
December 31, 2000.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at the lower
of cost or net realizable value. Depreciation was computed using the
straight-line method over estimated useful lives of three to nine years.
Expenditures for maintenance and repairs were charged to operations as
incurred. Upon sale or retirement of property and equipment, the cost and
the related accumulated depreciation are eliminated from the respective
accounts, and the resulting gain or loss is included in the statements of
operations.
INCOME TAXES -- The Company recognizes the amount of income taxes payable
or refundable for the current year and recognizes deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement amounts of certain assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years those temporary differences are expected to be recovered or
settled. Deferred tax assets are reduced by a valuation allowance to the
extent that uncertainty exists as to whether the deferred tax assets will
ultimately be realized.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and all of its wholly
owned and majority owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
EARNINGS PER SHARE -- The Company has a complex capital structure as
defined under SFAS No. 128. Consequently, the generation of earnings
results in a dual presentation of basic and diluted EPS. The Company had
a loss for 2000 and 1999 and, accordingly, potential common stock
equivalents have been excluded from the weighted average share
computations because their inclusion would have been anti-dilutive. The
numbers of potential common stock equivalents excluded were 32,249,254
and 9,468,954 in 2000 and 1999, respectively.
PROVISION FOR STORE CLOSINGS -- The Company recorded a provision for
stores closed during the year. This was necessitated by the Company's
lack of funds, after its accelerated growth in 1998 and 1999 had
stretched the Company beyond its funding capabilities.
ADVERTISING -- The Company expenses advertising costs as incurred. In
2000 and 1999, advertising expense was $65,982 and $79,838, respectively.
NEW ACCOUNTING STANDARDS -- In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes new accounting and reporting standards for
companies to report information about derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
This statement, as extended by SFAS No. 137, is effective for
financial statements issued for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect this
statement to have a material impact on the Company's results of
operations, financial position or liquidity.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This bulletin requires the application of specific
criteria in determination of the timing of revenue recognition in
financial statements and is effective for all fiscal years beginning
after December 16, 1999. The Company's accounting policies conform to
the requirements of this bulletin and the adoption of this bulletin
had no material effect upon the Company's results of operations,
financial position or liquidity.
20
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation
of APB Opinion No. 25." Interpretation No. 44 provides definitive
guidance regarding accounting for stock-based compensation to
non-employee directors. Interpretation 44 allows non-employee
directors to be treated as "employees" for purposes of applying APB
Opinion No. 25. The Company has applied this interpretation to all
issuances to non-employee directors during 1999 and thereafter.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
2000 1999
------------- -------------
Leasehold improvements $ 150,208 $ 319,319
Fixtures and equipment 203,465 313,123
Vehicles 65,400 61,900
------------- -------------
Total $ 419,073 $ 694,342
============= =============
The useful lives of property and equipment for purposes of computing
depreciation are:
Leasehold Improvements 5-9 years
Fixtures and equipment 3-9 years
Vehicles 3 years
Depreciation expense recorded in 2000 and 1999 was $101,088 and
$132,245, respectively.
21
NOTE 4 -- INCOME TAXES
The Company did not have a current or deferred provision for income
taxes for the years ended December 31, 2000 and 1999. The following
presents the components of the net deferred tax asset at December 31,
2000 and 1999:
2000 1999
------------- -------------
BENEFIT OF:
Operating loss carryforwards $ 4,038,936 $ 2,206,917
Reserve for closed stores 114,057 --
Allowance for Bad Debts 70,000 498,095
------------- -------------
NET DEFERRED TAX ASSETS BEFORE VALUATION ALLOWANCE 4,222,993 2,705,012
LESS: VALUATION ALLOWANCE (4,222,993) (2,705,012)
------------- -------------
NET DEFERRED TAX ASSET $ - $ -
============= =============
The valuation allowance increased $1,517,981 and $880,988 during the
years ended December 31, 2000 and 1999, respectively. The Company has
net operating loss carryforwards of approximately $10,100,000 of which,
$2,835,000 is limited as to usage because they arose from built in
losses of an acquired company. In addition, such losses can only be
utilized through the earnings of the acquired company and are limited
to a maximum of $189,000 per year. These losses expire, if unused, in
years beginning in 2009.
In addition, Section 382 of the Internal Revenue Code imposes
additional limitations on the utilization of Net Operating Loss
Carryforwards by a corporation following various types of ownership
changes which result in more than a 50% change in ownership of a
corporation within a three year period. Such changes may occur as a
result of new common stock issuances by the Company or changes
occurring as a result of filings with the Securities and Exchange
Commission on Schedule 13D and 13G by holders of more that 5% of the
common stock, whether involving the acquisition or disposition of
common stock. If such a subsequent change occurs, the limitations of
Section 382 would apply and may limit or deny the future utilization of
the net operating loss by the Company, which could result in the
company paying substantial additional federal and state taxes.
The following is a reconciliation of the income tax benefit computed at
the federal statutory tax rate with the provision for income taxes for
the years ended December 31, 2000 and 1999:
DECEMBER 31,
------------------------------
2000 1999
------------- -------------
Income tax benefit at statutory rate (34%) $ (1,290,283) $ (748,840)
Deferred tax valuation allowance change 1,517,981 880,988
State taxes, net of federal benefit (227,698) (132,148)
Effect of change in tax rates - -
------------ ------------
PROVISION FOR INCOME TAXES $ - $ -
============= ============
22
NOTE 5 -- STOCK TRANSACTIONS
In January 2001, at the Annual Meeting of Shareholders, the
shareholders authorized the Company to amend its Articles of
Incorporation to increase the number of common shares issuable by
the Company from 100 million to 250 million and the number of
preferred shares issued by the Company from 1 million to 20 million.
In connection with the merger between Victormaxx and Sonoma Holding
Corporation, the Company issued 12,108,558 shares of common stock and
100,000 shares of its convertible preferred stock ("Preferred Stock")
to the stockholders of Sonoma. This issuance was considered to be a
recapitalization of Sonoma. Each share of Preferred Stock was
convertible into 300 shares of common stock. In June 1998, 70,000
shares of Preferred Stock were converted into 21,000,000 shares of
common stock. In July 1998, 30,000 shares of Preferred Stock were
converted into 9,000,000 shares of common stock. 7,791,442 shares of
stock issued the shareholders of Victormaxx were shown as being issued
at a zero cost because Victormaxx had no monetary assets at the time of
the merger.
On June 18, 1998, the Company sold all of its interest in its
wholly-owned subsidiaries U.S. Dell, Inc., Brighton Hill Enterprises,
Inc., Northstar Petroleum, Inc., Randall Road Corp., and Sonoma
Management Co. ("Sold Subsidiaries") to Fleetmax Corporation and a
related party, who is a shareholder, officer and director.
Consideration paid by the purchaser was 5.5 million shares of the
Company's common stock and debt assumption of $353,867. The
transaction was valued at historical cost to the Company of $679,060.
In May, 1998, Payday entered into an agreement with a third party
which allegedly owned 20% of 1825 Corp., a former Payday subsidiary
which owned and operated several Payday stores. Pursuant to the
agreement, such third party was to sell and assign all of its 20%
interest to Payday in consideration of certain payments by Payday
consisting of cash and stock in the Company. Part of the
consideration was delivered to and accepted by such third party, and
part of the consideration was rejected. The parties were in dispute
as to whether the contract was breached and by whom. The third party
commenced litigation in the Circuit Court of Will County, Illinois,
Case Number 99 L 596. On September 20, 2000, the third party and the
Company entered into a settlement agreement pursuant to which the
third party released its claims in exchange for the issuance of
450,000 shares of the Company's stock and the payment of an
aggregate of $125,000 on an installment basis plus attorneys fees of
$6,000. The agreement further provides that a default in payments
will accelerate all amounts due.
During 1999, the Company issued 8,965,067 shares for $1,000,435 in
cash.
During 1999, the Company issued 1,924,341 shares for services valued at
$295,991.
During 2000, the Company issued 7,760,556 shares of its common stock
for $655,555 in cash.
During 2000, the Company issued 7,841,947 shares of its common stock to
various individuals and companies for services rendered in its behalf
and compensation. These shares were issued from prices ranging from
$.03 to $.16 per share.
During 2000, the Company issued 3,844,069 shares to holders of various
notes in the amount of $279,066, while creditors accepted 2,020,464
shares as settlement of $227,964 that the Company owed.
On February 28, 2000, a former director of the Company completed a
sale of a majority of the stock owned or contributed by such former
director to Midwest Investor Group of Illinois, LLC ("MIG"), a
related party as it is owned by family members of the President and
a former Chairman and CEO. Concurrently with the consummation of the
sale, the former director resigned his position on the Board. In
connection with the buyout of the former director, and subsequent
transactions related thereto, MIG made contributions to the Company
in an aggregate amount of $527,690. As part of those contributions,
the MIG agreed to convert all of such amount into common stock of
the Company at a price of $.10 per share. Based on the number of
shares outstanding at the time of the subject transactions, MIG
agreed to allow the Company to deliver the shares after and subject
to an increase in the number of shares the Company is authorized to
issue. Such authorization and increase took place in the first
quarter of 2001.
NOTE 6 -- STOCK OPTIONS AND WARRANTS
In July 1995, the Company's Board of Directors and a majority of the
Company's shareholders approved the 1995 Stock Option Plan (the "Stock
Option Plan") covering up to 750,000 shares of the Company's common
stock, pursuant to which, officers and key employees of the Company are
eligible to receive incentive and/or non-qualified stock options. The
Stock Option Plan expires on January 31, 2005. As of December 31,2000
and 1999, options for 749,254 shares were outstanding under the plan.
These options were issued in 1995 at an exercise price of $6.00 per
share and vest at one, two, and three year anniversary dates from the
date of grant. Options issued under the Stock Option Plan expire
September 8, 2003. In May 1996, the Company modified the outstanding
non-qualified stock options. All options became immediately vested, and
the exercise
23
price was reset to $2.00 per share for current employees. The exercise
prices on all other options remain as originally issued.
A summary of the status of the Company's non-qualified stock options as
of December 31, 2000 and 1999, and changes during the years then ended
is presented as follows:
2000 1999
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ---------------- ------- ----------------
Outstanding at beginning of year 749,254 $2.00 749,254 $2.00
Granted 26,000,000 0.03 -- --
Exercised -- -- --
Canceled -- -- -- --
--------------- -------
Outstanding at end of year 26,749,254 $0.52 749,254 $2.00
=============== ================ ======= ==============
Options exercisable at year-end 26,749,254 749,254
=============== =======
Weighted-average fair value of
options granted during the year
(unaudited) $0.03 $ --
================ ==============
At December 31, 2000, the weighted average remaining contractual life
was 7.30 years.
In 1995, the Company granted certain additional options to purchase
3,375 shares of common stock by certain shareholders and creditors.
These options became fully vested at the date of grant and were
immediately exercisable. These options expired unexercised during 1998
and 1999. These options are not reflected in the schedule above.
The Company has made a commitment to a former Chairman and CEO to grant
him an option to purchase five million shares of Common stock as
compensation for his guarantee on certain loans made by the Company.
The specific details and terms of this option have not been determined
as of March 2001.
At various times during the year, the Company granted options to
certain individuals, which included the President and a former Chairman
and CEO. Options to purchase 26 million shares were granted at $.03 per
share with immediate vesting and a 10 year period to exercise. This
resulted in a charge of $22,000 to the income statement for 2000.
WARRANTS -- In connection with its 1995 initial public offering, the
Company issued warrants to purchase 3,489,700 shares of common stock.
The warrants expired unexercised on August 10, 2000.
On June 18, 1998, the Company sold all of its interest in its
wholly-owned subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises,
Inc., Northstar Petroleum, Inc., Randall Road Corp., and Sonoma
Management Co. ("Sold Subsidiaries") to Fleetmax Corporation and a
related party, who is a shareholder, officer and director.
Consideration paid by the purchaser was 5.5 million shares of the
Company's common stock and debt assumption of $353,867. Concurrently
with the surrender of the 5,500,000 shares, such shareholder, officer
and director of the Company was granted a warrant to purchase up to
5,500,000 shares of the Company's common stock at $.21 per share.
Included in the warrant is the
24
right of such shareholder, officer and director to vote all of the
underlying shares with respect to all matters presented to the
shareholders for a vote.
The Company applies APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related Interpretations in accounting for its plans. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of FASB Statement 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net loss and
loss per share would have been increased to the pro forma amounts
indicated below:
2000 1999
--------------- ----------------
Net Loss As reported $ (3,794,952) $ (2,202,471)
Pro forma $ (5,050,952) $ (2,202,471)
=============== ================
Net Loss per Share As reported $ (.04) $ (0.03)
Pro forma $ (.06) $ (0.03)
=============== ==============
NOTE 7--NOTES PAYABLE
Notes payable at December 31, 2000 and 1999 consisted of the following:
2000 1999
------------- ------------
Line of credit payable to a bank, bearing interest at
Prime + 1/4 of 1%; requiring monthly interest only payments;
due November 1999-extended through June 2001; secured by
company assets 945,000 995,000
Line of credit payable to a bank, bearing interest at 8.75%;
unsecured; requiring minimum interest only
payments; due upon demand. 30,000 30,000
Note payable in 2000 and 1999; unsecured; requiring monthly
interest only payments; due August 2000 -- 50,000
Note payable to bank; bearing interest at 8.75%;
secured by vehicle; requiring monthly payments
of $698; due September 2001 9,623 15,286
Note payable to bank; bearing interest at 8.75%;
secured by vehicle; requiring monthly payments
of $697; due October 2001 6,176 14,069
Note payable to bank; bearing interest at 8.25%
secured by vehicle; requiring monthly payments
of $583; due April 2000 -- 6,395
25
Note payable to bank, bearing interest at 20%;
individual; due February 2001 24,962 --
Note payable to Company, bearing interest at 9%;
unsecured; due on demand 47,000 --
Note payable to Company bearing interest at 10%;
unsecured; due on demand 15,000 --
Note payable to individual; unsecured;
monthly payments of $5,000; due November 2002 116,000 125,000
Note payable to individual bearing interest at 14%;
unsecured; requiring monthly interest only
payments; due on demand 30,000 30,000
Note payable to individual bearing interest at 8.75%;
unsecured; due on demand 125,100 125,100
Note payable to individual bearing interest at 8.75%;
unsecured; due on demand -- 125,100
Notes payable to former owners of Money Market; bearing interest
at 8%; unsecured; requiring monthly
payments of $ 667; due 2002 48,933 52,853
Note payable to individual bearing interest at 10%;
unsecured; requiring monthly interest only
payments; due on demand 12,000 15,000
Note payable to individual bearing interest at 10%;
unsecured; requiring monthly interest only
payments; due on demand 15,000 15,000
Note payable to individual bearing interest at 10%;
unsecured; requiring monthly interest only
payments; due on demand 15,000 15,000
Notes payable to officers; unsecured;
no stated interest rate; due upon demand -- 25,700
Note payable to trust bearing interest at 18%;
unsecured; due on demand -- 87,477
Note payable to a trust bearing interest at 18%;
unsecured; requiring monthly interest only
payments; due on demand 250,000 100,000
Note payable to individual bearing at 10%;
unsecured; requiring monthly interest only
payments; due on demand 20,000 90,000
26
Note payable to individual bearing interest at 10%;
unsecured; requiring monthly interest only
payments; due July 2000 -- 20,000
Note payable to individual bearing interest at 12%;
unsecured; requiring principal and interest payments
monthly; due October 2002 100,000 --
Note payable to individual; 12%;
unsecured; requiring principal and interest payments
monthly; due October 2002 500,000 --
Loan from individual; no interest rate stated;
unsecured; no maturity date 150,000 --
Note payable to individual; no interest rate stated;
unsecured; due on demand 60,000 --
Note payable to individual bearing interest at 12%;
unsecured; due on demand 90,000 --
Note payable to individual bearing interest at 15%;
unsecured; due on demand 10,000 --
------------- ------------
TOTAL NOTES PAYABLE 2,619,794 1,936,980
Less Current portion of Notes Payable (2,269,109) (1,875,394)
------------- -----------
Long-Term Portion of Notes Payable $ 350,685 $ 61,586
============== ===========
The Company has granted five noteholders the option to convert all or
part of the principal due them into common shares at per share prices
ranging from $.03 to $.10, based on the shareholders' approval of an
increase in the number of authorized Common shares. This approval was
obtained in January 2001. With the approval, $747,000 of the notes
payable at December 31, 2000 could be converted into Common shares. If
this amount were converted, approximately 18.5 million shares would be
issued.
Future maturities of Notes Payable for the next five years are as
follows:
2001 2,269,109
2002 350,685
2003 -
2004 -
2005 -
-----------
Total $ 2,619,794
===========
27
NOTE 8 -- LEASES
The Company leases its store facilities under operating leases expiring
in various years through 2004, which require the Company to pay base
rents and certain additional amounts for its pro rata share of building
operating costs.
Minimum future rental payments under non-cancelable operating leases as
of December 31, 2000, for each of the next five years and in the
aggregate are:
YEAR ENDED AMOUNT
---------- ------
2001 $ 499,275
2002 191,289
2003 117,511
2004 5,386
2005 --
---------------
Total Future Minimum Rental Payments $ 813,461
===============
Certain operating leases provide renewal options for periods of three
years at their fair rental value at the time of renewal. In the normal
course of business, operating leases are generally renewed or replaced
by other leases.
Rent expense for 2000 and 1999 was $630,301 and $768,100, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
In May 1998, the Company and certain of its officers entered into a
settlement agreement with a former president, CEO and director to
settle all claims and issues between the parties. The terms of the
agreement provided for certain payments to be made by or on behalf
of the Company to the former president, CEO and director in exchange
for the delivery and release to an escrow agent and voting trust of
12,632,568 shares of Company stock held by the former president, CEO
and director. A third party ultimately delivered $650,000,
representing the Company's obligation to the escrow agent, and in
exchange for such funds, was assigned the Company's rights in and to
certain of the escrowed shares. In November, 1999, the former
president, CEO and director filed a motion in the United States
District Court for the Eastern District of Illinois, Case No. 98 C
1697, seeking to compel distribution of the remaining escrowed
shares and alleging that he may be entitled to certain additional
shares of the Company's stock based on alleged anti-dilution
provisions contained in the settlement agreement. In the fourth
quarter of 2000, the Company and the former president, CEO and
director and the Company entered into a subsequent settlement
agreement that provides for: (i) distribution of the shares which
remained in escrow and (ii) the issuance of approximately 1,300,000
shares of the Company's common stock in exchange for a dismissal of
the litigation and complete and mutual release of any and all
claims between the parties. The shares were issued in February 2001
and the case has been dismissed.
In a related matter, during the second quarter of 2000, the Company
negotiated a settlement agreement with its prior counsel (and escrow
agent under the aforementioned settlement agreement) pursuant to
which such prior counsel resigned as escrow agent and returned
1,000,000 shares of the Company's stock to the Company which had
previously been issued to such counsel in exchange for execution of a
mutual general release of claims and payment of $20,000 for fees
incurred in acting as escrow agent in the above matter.
Sonoma owns 80% of the outstanding capital stock of Payday. Prior to
January 1999, the remaining 20% was held by Argent Enterprises, Inc.,
an Illinois corporation ("Argent"). Sonoma and Argent are parties to an
agreement restricting transfer of the Payday stock. Such agreement
grants each party the right of first refusal to purchase any stock of
Payday before any such stock may be transferred by a shareholder to any
third party. In January 1999, Sonoma and Payday received notice from a
third party that such third party was a 20% shareholder of Payday based
on a transaction with Argent whereby it acquired such interest. The
Company and Payday are currently in the process of investigating such
purported transaction in order to determine whether such third party is
a shareholder of Payday and whether such purported transaction violated
the terms of the shareholders' agreement.
28
In May 1998, Payday entered into an agreement with a third party which
allegedly owned 20% of 1825 Corp., a former Payday subsidiary which
owned and operated several Payday stores. Pursuant to the agreement,
such third party was to sell and assign all of its 20% interest to
Payday in consideration of certain payments by Payday consisting of
cash and stock of the Company. Part of the consideration was delivered
to and accepted by such third party, and part of the consideration was
rejected. The parties were in dispute as to whether the contract was
breached and by whom. The third party commenced litigation in the
Circuit Court of Will County, Illinois, case number 99 L 596. On
September 20, 2000, the third party and the Company entered into a
settlement agreement pursuant to which the third party released its
claims in exchange for the issuance of 450,000 shares of the
Company's stock and the payment of an aggregate of $125,000 on an
installment basis plus attorneys fees of $6,000. The agreement
further provides that a default in payments will accelerate all
amounts due.
On November 4, 1998, an investor in the Company filed a lawsuit seeking
$250,000 in damages. The plaintiff asserts that he exercised a "put"
option with respect to 1,000,000 shares owned by plaintiff, which would
allegedly entitle him to "put" such shares to the Company in exchange
for $250,000. The plaintiff claimed that the Company breached an
agreement between the parties by failing to honor the put and pay
$250,000 to plaintiff and received a judgment to such effect in May
2000. The parties entered into a settlement agreement pursuant to
which the Company agreed to deliver to such party, in exchange for a
release of all claims, $100,000 and 1,500,000 shares of the
Company's common stock. The Company performed its obligations under
the settlement agreement and the case has been dismissed.
Payday was a defendant in a number of federal class action cases
asserting various violations of the Truth in Lending Act, 15 U.S.C.,
Section 1601, et seq. ("TILA"), Fair Debt Collection Practices Act
("FDCPA"), state consumer fraud claims and unconscionability claims,
Sandra Brown et al. v. Payday Check Advance Incorporated, et al.,
United States District Court Case No. 99 C 2074, 7th Circuit Case
No. 99-3110; Marquerite Mitchem v. Payday Check Advance, Inc. et al.,
United States District Court Case No. 99 C 1869 7th Circuit Case
No. 99-3110; Earl Terry v. Payday Check Advance, Inc., et al., Case
No. 99 C 2486; Lizabeth Maccagno, et al. v. Payday Check Advance, LLC,
et al. Case No. 99 C 2579; Latanda Allen, et al. v. Payday Check
Advance, Inc. Case No. 99 C 7656. The cases have all been settled and
dismissed for an aggregate amount of $21,600.
29
In April 1999, the Company entered into a settlement agreement with a
creditor of the Company, Circuit Court of Cook County, Illinois,
Case No. 99 CM 00625, pursuant to which, the Company was obligated to
make installment payments in the aggregate amount of $100,000 to the
creditor, with all remaining sums due on or before October 15, 1999. In
addition, the Company issued 10,000 shares of common stock to the
creditor as part of the settlement. On May 12, 2000, the parties
entered into a second settlement agreement pursuant to which the
Company issued 990,000 shares of the Company's common stock in
exchange for a full release of claims (including the judgment) and
the return of the 10,000 shares previously delivered to the judgment
creditor. These 10,000 shares were subsequently cancelled by the
Company.
The Company filed, and subsequently withdrew, a lien suit against
a former director seeking the return of 3 million shares of the
Company's common stock which the Company alleged was issued in error
to such former director as part of a comprehensive buyout of such
director's shares. The former director claims the shares were not
issued in error. The parties have commenced a dialogue to determine
whether any such shares should be returned to the Company. To date,
the Company agrees that 500,000 shares were properly issued, leaving
2.5 million shares in dispute. In the event that the parties cannot
reach resolution of this matter, the Company may reinstitute the
lawsuit.
During 2000 and 2001, the Company received funds totaling $400,000 from
a shareholder. The Company and the shareholder never reached an
agreement as to the nature, terms and documentation of the funding. On
April 10, 2001, the shareholder made demands on the Company in
connection with the funding based on alleged defaults. It is unclear
from the demands what the nature of the alleged defaults are or the
remedies sought. Management is currently investigating this matter to
determine whether a default has occurred and cannot predict with any
certainty the outcome of the demands made by the shareholder.
In the first quarter of 2001, a creditor of the Company, on behalf
of itself and a group of related creditors, made a demand for
payment of certain promissory notes issued by the Company
aggregating approximately $250,000 plus accrued interest. The
Company is attempting to negotiate a repayment plan or an extension
of the maturity of the notes. Management cannot say whether they will
successfully negotiate an acceptable repayment plan or an extension
of the maturity of the notes.
NOTE 10 -- ACQUISITIONS
During May 1999, the Company acquired Money Market, Inc. ("Money
Market") in a business combination accounted for as a purchase. Money
Market is primarily engaged in the payday loan business in the State of
Indiana. The results of operations of Money Market are included in the
accompanying consolidated financial statements since the date of
acquisition. The total value of the acquisition was $140,000, which
exceeded the fair value of the net assets of Money Market by $23,851.
The Company elected to expense this amount during the year ended
December 31, 1999.
Under the terms of the purchase agreement, at closing, the Company paid
$60,000 in cash, issued 167,000 of common stock valued at $.15 per
share, and signed promissory notes for the remaining $55,000, which
bear interest at 8% and require monthly payments of $667 though 2003
with a balloon payment due. As of December 31, 2000, the principal
balance of these notes was $48,933.
The following summarized pro-forma (unaudited) information assumed the
acquisition of Money Market had occurred on January 1, 1999.
1999
----
Net Sales $ 3,055,856
=============
Net Loss $ (2,133,069)
=============
Basic and diluted loss per share $ (0.03)
=============
Weighted Average Shares 69,024,620
=============
NOTE 11 -- SUBSEQUENT EVENTS (unaudited)
Since January 1, 2001, the Company has issued approximately 9.9
million shares of common stock. The following unaudited amounts
indicate the purpose of the issuances, approximate number of shares,
and approximate amount of consideration: conversion of debt, 5.3
million shares for $165,000; and, settlement with creditors, 4.6
million shares for $165,400.
30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
The following table lists the name and age of each director of the
Company, his business experience during the past five (5) years, his positions
with the Company and certain directorships.
TERM EXPIRING AT NEXT STOCKHOLDERS' MEETING AT WHICH DIRECTORS ARE ELECTED
NAME AGE POSITIONS AND EXPERIENCE
---- --- ------------------------
Terrence L. Donati 49 Director and President from 1998 to October 1999 and since
January 2000, a Director and President of Sonoma since 1997
John A. Annerino 59 Vice President, Commercial Division, Peerless Fence Co.
since 1999, Director and President of American Marine
Construction from 1992-1999, Director of SHC Corp. since
2001
Michael Pyle 61 Sales Manager of Challenger Gray & Christmas from 1995-
1997, Managing Director of IMCOR from 1997 to 1999;
Associate of Total Telecommunications Technologies since
1999, Director of the Company since 2001.
31
MANAGEMENT
INFORMATION REGARDING EXECUTIVE OFFICERS
Set forth below is information concerning the executive officers and other key
employees of the Company who were in office or employed as of the date of this
Form 10-KSB.
NAME AGE POSITION
---- --- --------
Terrence L. Donati 49 President and Secretary
John A. Annerino 59 Chief Executive Officer
Terrence L. Donati, President of the Company. See "Information Concerning
Directors" above for a description of Mr. Donati's relevant business experience.
John A. Annerino, Chief Executive Officer. See "Information Concerning
Directors" above for a description of Mr. Annerino's relevant business
experience. In 1999 a final order of voluntary bankruptcy was entered in
connection with American Marine Construction, of which Mr. Annerino was then
the President and owner.
Currently, no person is a party to an employment contract with the Company.
Officers are appointed by the board of directors of the Company and its
subsidiaries and serve at the pleasure of each respective board. There are no
family relationships among the executive officers and/or directors, nor are
there any arrangements or understandings between any officer and another person
pursuant to which he was appointed to office except as may be hereinafter
described.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers, directors, and certain shareholders to file reports of
ownership and changes of ownership of the Common Stock with the Securities and
Exchange Commission. To the Company's knowledge, based on a review of the copies
of such reports furnished to the Company, during the Company's twelve (12) month
period ending December 31, 2000, management believes all Section 16(a) filing
requirements have been complied with. Some of the requisite filings were not
filed on a timely basis.
On February 28, 2000, a former director of the Company completed a sale of a
majority of the stock owned or contributed by such former director to Midwest
Investor Group of Illinois, LLC ("MIG"), a related party as it is owned by
family members of the President and a former Chairman and CEO. Concurrently
with the consummation of the sale, the former director resigned his position
on the Board. In connection with the buyout of the former director, and
subsequent transactions related thereto, MIG made contributions to the
Company in an aggregate amount of $527,690. As part of those contributions,
the MIG agreed to convert all of such amount into common stock of the Company
at a price of $.10 per share. Based on the number of shares outstanding at
the time of the subject transactions, MIG agreed to allow the Company to
deliver the shares after and subject to an increase in the number of shares
the Company is authorized to issue. Such authorization and increase took
place in the first quarter of 2001.
ITEM 10. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Presently, directors, whether employees of the Company or not, are not
compensated for serving as directors.
32
EXECUTIVE OFFICER COMPENSATION
The following table sets forth compensation paid to executive officers of the
Company during the fiscal year ended December 31, 2000:
SUMMARY COMPENSATION TABLE
---------------------------------------------------
Long-Term Compensation
---------------------------------------------------
Awards Payouts
---------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-------------------------------------------------------------------------------------------------------------------
Other Annual Restricted LTIP All other
Name and Principal Position Year Salary Bonus Compensation Stock Award(s) Options/SARs Payouts compensation
($) (#) ($) ($)
-------------------------------------------------------------------------------------------------------------------
Terrence L. Donati,
President 2000 0 0 0 0 13,000,000 0 89,000(1)
--------------------------------------------------------------------------------------
1999 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------
1998 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------------
D. Desmond Paden 2000 0 0 0 0 12,000,000 0 52,500(2)
--------------------------------------------------------------------------------------
1999 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------
1998 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------------
(1) Includes $11,000 for consulting services, $18,000 for commissions, and
2,000,000 shares of Company stock valued at $60,000, all delivered to
JJT Properties, Inc. a company, owned by Mr. Donati's wife.
(2) Includes $21,500 paid as commissions and 1,000,000 shares of Company
common stock valued at $30,000 paid to Total Source Financing, a company
affiliated with Mr. Paden.
The Board of Directors has agreed to consider reviewing the
compensation of certain officers, directors and key employees and anticipates
commencing a review of relevant information for such purpose. The review will
include compensation for guarantees of Company debt raising equity in order for
the Company to have operating capital and other benefits provided by such
persons to the Company. It is intended that the Company will ultimately provide
appropriate compensation to such persons in the future.
OPTION GRANTS IN 1999 AND 2000
There were no grants of options made in 1999. The following table sets forth the
options that the Company granted in 2000:
STOCK OPTION GRANTS
---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
% of Total
Options
Granted to Market price
Name and Number of Employees per Share on Expiration
Principal Position Year Stock Options during 2000 Date of Grant Exercise Price Date
---------------------------------------------------------------------------------------------------------------
Terrence L. Donati,
President 2000 13,000,000 50 $.04 $0.03 10/16/10
-----------------------------------------------------------------------------------------
1999 0 - - - -
-----------------------------------------------------------------------------------------
1998 0 - - - -
-----------------------------------------------------------------------------------------
D. Desmond Paden,
CEO 2000 12,000,000 48 $.04 $.03 10/16/10
-----------------------------------------------------------------------------------------
1999 0 - - - -
-----------------------------------------------------------------------------------------
1998 0 - - - -
---------------------------------------------------------------------------------------------------------------
STOCK OPTION EXERCISES
---------------------------------------------------------------------------------------------------------------
Spread on unexercised
Name and Date of No. Value No. unexercised options options held at Fiscal
Principal Position Year Exercise Exercised Realized held at Fiscal Year End Year End ($)
---------------------------------------------------------------------------------------------------------------
Terrence L. Donati,
President 2000 - - - 13,000,000 16,250
-----------------------------------------------------------------------------------------
1999 - - - - -
-----------------------------------------------------------------------------------------
1998 - - - - -
-----------------------------------------------------------------------------------------
D. Desmond Paden 2000 - - - 12,000,000 15,000
-----------------------------------------------------------------------------------------
1999 - - - - -
-----------------------------------------------------------------------------------------
1998 - - - - -
---------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1999 AND 2000 AND OPTION VALUES AS OF
DECEMBER 31, 2000 AND 1999
In July 1995, the Company's Board of Directors and a majority of the
Company's shareholders approved the 1995 Stock Option Plan (the "Stock Option
Plan") covering up to 750,000 shares of the Company's common stock, pursuant
to which, officers and key employees of the Company are eligible to receive
incentive and/or non-qualified stock options. The Stock Option Plan expires
on January 31, 2005. As of December 31,1999 and 1998, options for 749,254
shares were outstanding under the plan. These options were issued in 1995 at
an exercise price of $6.00 per share and vest at one, two, and three year
anniversary dates from the date of grant. Options issued under the Stock
Option Plan expire September 8, 2003. In May 1996, the Company modified the
outstanding non-qualified stock options. All options became immediately
vested, and the exercise price was reset to $2.00 per share for current
employees. The exercise prices on all other options remain as originally
issued.
A summary of the status of the Company's non-qualified stock options as of
December 31, 2000 and 1999, and changes during the years then ended is
presented as follows:
33
2000 1999
---------------- ----------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------ ---------------- ------ ----------------
Outstanding at beginning of year 749,254 $2.00 749,254 $2.00
Granted 26,000,000 .03 -- --
Exercised -- -- -- --
Cancelled -- -- -- --
----------- -------
Outstanding at end of year 26,749,254 $.52 749,254 $2.00
=========== ===== ======= =====
Options exercisable at year-end 26,749,254 749,254
========== =======
Weighted-average fair value of
options granted during the year
(unaudited) $.03 $ --
===== ======
At December 31, 2000, the weighted average remaining contractual life was 7.3
years.
The Company has made a commitment to a former Chairman and CEO to grant him
an option to purchase five million shares of Common stock as compensation for
his guarantee on certain loans made by the Company. The specific details and
terms of this option have not been determined as of March 2001.
At various times during the year, the Company granted options to certain
individuals, which included the President and a former Chairman and CEO.
Options to purchase 26 million shares were granted at $.03 per share with
immediate vesting and a 10 year period to exercise. This resulted in a charge
of $22,000 to the income statement for 2000.
WARRANTS -- In connection with its 1995 initial public offering, the Company
issued warrants to purchase 3,489,700 shares of common stock. The warrants
expired unexercised on August 10, 2000.
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, which is a
shareholder, officer, and director. Consideration paid by the purchaser was 5.5
million shares of the Company's common stock and debt assumption of $353,867.
Concurrently with the surrender of the 5,500,000 shares, such shareholder,
officer and director of the Company was granted a warrant to purchase up to
5,500,000 shares of the Company's common stock at $.21 per share. Included in
the warrant is the right of such shareholder, officer and director to vote all
of the underlying shares with respect to all matters presented to the
shareholders for a vote.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2000, there were 97,032,287 shares of Common Stock
issued and outstanding. The following table sets forth the number and percentage
of Common Stock known by management of the Company to be beneficially owned as
of December 31, 2000 by (i) all shareholders known by management of the Company
to own 5% or more of the Company's Common Stock; (ii) all directors of the
Company; (iii) each executive officer included in the Summary Compensation
Table; and (iv) all directors, executive officers and other key employees of the
Company as a group (4 persons). Unless stated otherwise, each person so named
exercises sole voting and investment power as to the shares of Common Stock so
indicated.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
------------------------ ---------------- -------
Terrence L. Donati (1)(2) 23,130,044 20.0
John Annerino (2) 0 0
D. Desmond Paden (3) 14,900,000 13.2
Michael Pyle (4) 1,180,000 1.2
(1) Mr. Terrence Donati's business address is 40 Skokie Blvd., Suite 450,
Northbrook, IL 60118. Of the 21,130,044 shares beneficially owned by Mr.
Donati, 10,130,044 shares are owned by Cortona, LLC, a limited liability
company and 13,000,000 are owned by Mr. Donati in the form of stock options.
Of the 10,130,044 shares, 5,500,000 are in the form of a warrant to purchase
common stock, including the right to vote such shares whether the warrant is
exercised or not.
(2) Mr. John Annerino's business address is 40 Skokie Blvd., Suite 450,
Northbrook, IL 60118.
(3) Mr. Desmond Paden's business address is 580 Milwaukee, Suite 307,
Libertyville, IL 60048. Shares include an option to purchase up to
12,000,000 shares provided certain price per share conditions are met. This
total does not include the commitment of the Company to issue 5,000,000
additional options to Mr. Paden in exchange for his personal guarantee of
certain indebtedness of the Company. The Company and Mr. Paden have not yet
agreed on the specific terms for such options.
(4) Mr. Michael Pyle's business address is 40 Skokie Blvd., Suite 450,
Northbrook, IL 60118. Of the 1,180,000 shares beneficially owned by Pyle,
480,000 shares are directly owned. 500,000 are owned be him as trustee of
a living trust for the benefit a relative, and 200,000 are owned by his
spouse.
34
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 24, 1997, the Company entered into an agreement to acquire all of
the outstanding stock of Sonoma. The transaction, which closed on January 9,
1998, has been accounted for as a reverse acquisition of VictorMaxx by Sonoma
using the purchase method of accounting. In connection with the acquisition, the
Company issued 12,108,558 shares of its common stock and 100,000 shares of its
preferred stock to the shareholders of Sonoma. The former President, Chief
Executive Officer and a Director of the Company is a beneficiary of a profit
sharing plan and trust that is a shareholder of Sonoma. The preferred shares
were convertible into 30,000,000 shares of Common Stock of the Company, and have
subsequently been so converted. Additionally, the Company has issued or will
issue 1,550,000 shares of its Common Stock to certain creditors of the Company
in full satisfaction of their claims against the Company. The creditor group
includes the former President, Chief Executive Officer and a Director of the
Company and certain former officers and directors of the Company. In addition,
the Company has issued or will issue 615,000 shares of its common stock to a
group of individuals as a settlement of various employment claims and as
compensation for assisting in the consummation of the transaction. Included in
this group are certain former officers and directors of the Company.
In May 1998, the Company and certain of its officers entered into a
settlement agreement with a former president, CEO and director to settle all
claims and issues between the parties. The terms of the agreement provided
for certain payments to be made by or on behalf of the Company to the former
president, CEO and director in exchange for the delivery and release to an
escrow agent and voting trust of 12,632,568 shares of Company stock held by
the former president, CEO and director. A third party ultimately delivered
$650,000 representing the
35
Company's obligation to the escrow agent, and in exchange for such funds was
assigned the Company's rights in and to certain of the escrowed shares. In
November 1999, the former president, CEO and director filed a motion in the
United States District Court for the Eastern District of Illinois, case
number 98 C 1697, seeking to compel distribution of the remaining escrowed
shares and alleging that he may be entitled to certain additional shares of
the Company's stock based on alleged anti-dilution provisions contained in
the Settlement Agreement. In the fourth quarter of 2000, the Company and the
former president, CEO and director and the Company entered into a subsequent
settlement agreement that provides for: (i) distribution of the shares which
remained in escrow and (ii) the issuance of approximately 1,300,000 shares of
the Company's common stock in exchange for a dismissal of the litigation and
complete and mutual release of any and all claims between the parties. The
shares were issued in February 2001 and the case has been dismissed
On June 18, 1998, the Company sold all of its interest in its wholly-owned
subsidiaries, U.S. Dell, Inc., Brighton Hill Enterprises, Inc., Northstar
Petroleum, Inc., Randall Road Corp., and Sonoma Management Co. ("Sold
Subsidiaries") to Fleetmax Corporation and a related party, who is a
shareholder, officer and director. Consideration paid by the purchaser was 5.5
million shares of the Company's common stock and debt assumption of $353,867.
Concurrently with the surrender of the 5,500,000 shares, such shareholder,
officer and director of the Company was granted a warrant to purchase up to
5,500,000 shares of the Company's common stock at $.21 per share. Included in
the warrant is the right of such shareholder, officer and director to vote all
of the underlying shares with respect to all matters presented to the
shareholders for a vote.
The Board of Directors has agreed to consider reviewing the compensation of
certain officers, directors and key employees and anticipates commencing a
review of relevant information for such purpose. It is intended that the Company
will ultimately provide appropriate compensation to such persons in the future.
See Item 10 for further description.
On February 28, 2000, a former director of the Company completed a sale of a
majority of the stock owned or contributed by such former director to Midwest
Investor Group of Illinois, LLC ("MIG"), a related party as it is owned by
family members of the President and a former Chairman and CEO. Concurrently
with the consummation of the sale, the former director resigned his position
on the Board. In connection with the buyout of the former director, and
subsequent transactions related thereto, MIG made contributions to the
Company in an aggregate amount of $527,690. As part of those contributions,
the MIG agreed to convert all of such amount into common stock of the Company
at a price of $.10 per share. Based on the number of shares outstanding at
the time of the subject transactions, MIG agreed to allow the Company to
deliver the shares after and subject to an increase in the number of shares
the Company is authorized to issue. Such authorization and increase took
place in the first quarter of 2001.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
2.1 Agreement and Plan of Reorganization, dated September 24, 1997 between
Victormaxx Technologies, Inc. and Sonoma Holding Corp. (1)
3.1 Certificate of Incorporation for VictorMaxx Technologies, Inc., a
Delaware corporation. (1)
3.2 Articles of Amendment and Restated Articles to the Articles of
Incorporation for Victormaxx Technologies, Inc., an Illinois
corporation, incorporated on March 22, 1994. (1)
3.3 Articles of Amendment to the Articles of Incorporation of Victormaxx
Technologies, Inc., an Illinois corporation, filed March 31, 1998. (1)
3.4 Articles of Amendment to the Articles of Incorporation for SHC Corp.,
an Illinois corporation, filed January 31, 2001.
3.5 Bylaws of Victormaxx Technologies, Inc. (1)
4.1 Warrant to purchase 5,500,000 shares of Common Stock of SHC Corp (f/k/a
Victormaxx Technologies, Inc.) dated June 17, 1999. (1)
5.1 Voting Trust Agreement, dated March 25, 1999, between Ralph Mauro and
Bryan G. Barrish. (1)
5.2 Voting Trust and Escrow Agreement, dated May 1998, between Kevin Koy,
Maureen H. Koy and Chicago Mortgage and Financial Service, Inc. Profit
Sharing Plan & Trust. (1)
10.1 Resignation Letter Agreement dated October 16, 2000, between SHC Corp.
and D. Desmond Paden.
10.2 Amendment to Resignation Letter Agreeement, dated December 7, 2000,
between SHC Corp. and D. Desmond Paden.
10.3 Demand Promissory Note, dated October 20, 1999, between Sonoma
Financial Corp. as Maker and Frank Anthony Contaldo a Payee for the
principal amount of $125,100.00. (1)
10.4 Investment Agreement, dated April 14, 1998, between PayDay Check
Advance, Inc. and Terrence L. Donati. (1)
10.5 Attorney/Client Agreement, dated February 1999, between Terrence Donati,
Frank A. Contaldo, SHC Corp. f/k/a Victormaxx Technologies, Inc. and
Kwiatt & Ruben, Ltd. (1)
10.6 Amendment to Attorney/Client Agreement, dated December 26, 2000.
10.7 Release and Settlement Agreement, dated May 12, 2000, between Robert
Hartwig Family Limited Partnership, Frank Anthony Contaldo, Terrence L.
Donati and SHC Corp. (1)
10.8 Settlement Agreement and Mutual General Release, dated April 2, 2000,
between Stuart D. Perlman, Stuart D. Perlman Pension Plan & Trust, SHC
Corp., Sonoma Holding Corp. Terrence L. Donati and Frank A. Contaldo.
(1)
10.9 Shareholder's Agreement, dated June 1, 1997, between Argent
Enterprises, Inc., The Sonoma Co. and the shareholders of Pay Day Check
Advance, Inc. (1)
10.10 Terms of Investment between Dan Mazzie and Sonoma Holding Corp, dated
September 24, 1998 executed in connection with the Company's proposed
purchase of the Bagel Factory. (1)
10.11 Mutual Undertakings between Dan Mazzie and SHC Corp., dated October 31,
2000.
10.12 Subordinated Promissory Note, dated May 24, 1999, between SHC Corp. and
Scott Tracy, in the amount of $27,500.00. (1)
10.13 Subordinated Promissory Note, dated May 24, 1999, between SHC Corp. and
Scott Clark, in the amount of $27,500.00. (1)
10.14 Loan Agreement, dated November 24, 1998, between Brickyard Bank and Pay
Day Check Advance, Inc. (1)
10.15 Promissory Note, dated November 24, 1998, between Brickyard Bank and
Pay Day Check Advance, Inc. used in connection with $1,000,000 Loan
Agreement. (1)
10.16 Settlement Agreement, dated May 15, 1998, between Kevin E. Koy, Maureen
H. Koy, Chicago Mortgage and Financial Services, Inc., Chicago Mortgage
and Financial Services, Inc. Profit Sharing Plan & Trust; Cambridge
Financial Services, Inc.; CorCapital Financial Partners L.L.C., SHC
Corp., Sonoma Holding Corp. Terrence L. Donati and Frank A. Contaldo.
(1)
10.17 Agreement, dated May 8, 1998, between Douglas E. Macklin and Payday
Check Advance, Inc. (1)
10.18 Settlement Agreement between Douglas E. Macklin and Sonoma Financial
Corporation, dated September 20, 2000.
10.19 Settlement Agreement and Mutual General Release
21. List of Subsidiaries
22. Proxy Statement file January 9, 2001 in connection with Annual Meeting
for Shareholders on January 26, 2001. (2)
(1) Incorporated herein by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.
(2) Incorporated herein by reference from the Company's Definitive Proxy
Statement on form DefA14A for the January 26, 2001 annual meeting of the
shareholders.
36
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
-----------------------------------------------
SHC CORP. (f/k/a VictorMaxx Technologies, Inc.)
By: /s/ Terrence L. Donati
--------------------------------------------------
Terrence L. Donati, President, Principal
Financial Officer and Principal Accounting Officer
Date: April 17, 2001
By: /s/ Terrence L. Donati
--------------------------------------------------
Terrence L. Donati, Director
By: /s/ John A. Annerino
--------------------------------------------------
John A. Annerino, Director
By: /s/ Michael Pyle
--------------------------------------------------
Michael Pyle, Director
37