-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MXcyBI2p+LrODEp38eqNHSoZbV4UE56qBdfqsgq4LEb+4c3tqWtYV5aV0/MmgMr3 SAmoZkFMZlCeZk5NNVgXtA== 0000890566-97-000994.txt : 19970501 0000890566-97-000994.hdr.sgml : 19970501 ACCESSION NUMBER: 0000890566-97-000994 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTMARK GROUP HOLDINGS INC CENTRAL INDEX KEY: 0000820771 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 133784149 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-18945 FILM NUMBER: 97592372 BUSINESS ADDRESS: STREET 1: 355 N E FIFTH AVE STREET 2: STE 4 CITY: DELRAY BEACH STATE: FL ZIP: 33483 BUSINESS PHONE: 5612438010 MAIL ADDRESS: STREET 1: 355 N E FIFTH AVE STREET 2: STE 4 CITY: DELRAY BEACH STATE: FL ZIP: 33483 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK FINANCIAL SERVICES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK REAL ESTATE OF CALIFORNIA INC DATE OF NAME CHANGE: 19920623 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE VENTURE ACQUISITIONS INC DATE OF NAME CHANGE: 19900620 10QSB/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File SEPTEMBER 30, 1996 NO. 0-18945 WESTMARK GROUP HOLDINGS, INC. DELAWARE 84-1055077 (State of Incorporation) (I.R.S. Employment Identification No.) 355 N.E. Fifth Avenue Delray Beach, Florida 33483 (407)243-8010 (Address of Principal Executive Offices. Including Zip Code and Telephone Number) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK AS OF SEPTEMBER 30, 1996 WAS 4,370,876. [X] TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT. 1 WESTMARK GROUP HOLDINGS, INC. FORM 10-QSB REPORT INDEX 10-QSB PART AND ITEM NO. PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated balance sheet as of September 30, 1996 and December 31, 1995..............4,5 Consolidated statement of operations for the nine months ended September 30, 1996 and 1995..............6 Consolidated statement of cash flows for the nine months ended September 30, 1996.......................7 Notes to consolidated financial statements............3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................8 PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS............................................14 ITEM 2. CHANGES IN SECURITIES........................................17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........17 ITEM 5. OTHER INFORMATION............................................17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................17 SIGNATURES...........................................................18 2 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310b of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's audited annual report on Form 10-KSB for the year ended December 31, 1995. NOTE 2: THIRD QUARTER FINANCING ACTIVITY The Company received $150,000 from Red River Cattle Company ("Red River"). $100,000 of which was reported as having been received from Heart Labs of America ("HLOA") in the second quarter of 1996. $20,000 of the Red River debt was repaid along with $40,000 to HLOA. New placements were made for $170,001 in the third quarter of 1996 from various sources for working capital. $200,000 was received from GTB Company as part of the purchase agreement for Green World Technologies, Inc ("Green World"). 3 PART I FINANCIAL INFORMATION WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
SEPT 30, DECEMBER 31, 1996 1995 (UNAUDITED) (AUDITED) ASSETS Current Assets: Cash and cash equivalent ....................... $ 60,534 $ 311,916 Accounts receivable, net of reserve ........... 131,511 8,004 Inventory ...................................... 28,770 Note receivable - stock sale ................... 374,222 Mortgage loans held for sale ................... 7,787,287 19,480,029 Other current assets .......................... 109,748 2,202 ------------ ------------ Total Current Assets ........................... 8,117,850 20,176,373 ------------ ------------ Fixed Assets: Property and equipment .............................. 851,396 820,588 Equipment under lease ............................... 16,477 16,477 ------------ ------------ 867,873 837,065 Less Accumulated Depreciation .................. (511,391) (434,411) ------------ ------------ Total fixed assets .................................. 356,482 402,654 ------------ ------------ Other Assets: Investment Real Estate ........................ 1,000,000 2,115,000 Investment Preferred Stock .................... 2,000,000 2,000,000 Investment Green World stock .................. 21,925 Goodwill, net of amortization ................. 711,646 785,833 Green World Goodwill, net of amortization ..... 1,033,155 Deposits and other assets ..................... 32,418 30,298 ------------ ------------ Total other assets .................................. 4,799,144 4,931,131 TOTAL ASSETS ........................................ 13,273,476 25,510,158 ============ ============
4 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEET
SEPT 30, DECEMBER 31, 1996 1995 (UNAUDITED) (AUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ................................................................ $ 612,949 $ 1,234,199 Warehouse line of credit ........................................................ 7,628,734 18,625,866 Interest Payable ................................................................ 196,311 227,619 Settlement liability ............................................................ 407,560 419,348 Other notes payable ............................................................. 1,173,001 717,818 Payroll taxes payable .......................................................... 68,329 141,329 Other current liabilities ....................................................... 479,548 854,452 Total Current Liabilities ........................................................... 10,566,432 22,220,631 ------------ ------------ Long-Term Liabilities: Notes payable .................................................................. 1,000,000 Short term debt expected to be refinanced ...................................... 533,323 698,323 ------------ ------------ Total Long Term Liabilities .......................................................... 533,323 1,698,323 ------------ ------------ Total Liabilities .................................................................... 11,099,755 23,918,954 ------------ ------------ STOCKHOLDERS EQUITY Preferred stock, no par value, 10,000,000 shares authorized; 648,750 shares issued and outstanding at Sept 30, 1996 .......................... 2,675,000 Common stock, no par value, 50,000,000 shares authorized; 4,370,876 shares issued and outstanding at June 30, 1996, 2,632,772 shares issued and outstanding as of December 31, 1995 ......................................................... 4,833 23,165,937 Common stock, issued but unearned .................................................... (1,187,656) Additional Paid in Capital from outstanding options and warrants ..................................................................... 24,475,989 1,153,688 Accumulated deficit .................................................................. (24,272,912) (22,728,421) ------------ ------------ Total Stockholder Equity ............................................................. 2,173,721 1,591,204 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... 13,273,476 25,510,158 ============ ============
5 Westmark Group Holdings, Inc. Consolidated Statements of Operations (unaudited)
Three Months Ended Nine Months Ended Sept 30, Sept 30, Sept 30, Sept 30, 1996 1995 1996 1995 Revenues: Loan origination and gain on sales .................. $ 717,142 $ 1,172,665 $ 2,036,589 $ 2,492,479 Product sales ...................................... 29,252 29,252 Interest - Preferred Stock .......................... 35,000 105,000 Other Income ........................................ 9,572 15,759 20,897 40,491 ----------- ----------- ----------- ----------- TOTAL REVENUES ......................................... 790,966 1,188,424 2,191,738 2,532,970 ----------- ----------- ----------- ----------- EXPENSES: Loan origination costs .............................. 47,200 67,240 185,309 289,733 Cost of goods sold .................................. 11,343 11,343 Servicing sale adjustment ........................... (70,000) General and administrative .......................... 1,313,159 1,529,378 3,480,385 4,614,102 Marketing and advertising ........................... 1,805 7,456 33,858 33,870 Goodwill amortization ............................... 69,649 24,729 119,107 74,187 Depreciation ........................................ 25,974 24,834 73,598 74,230 ----------- ----------- ----------- ----------- TOTAL EXPENSES ......................................... 1,469,130 1,653,727 3,833,600 5,086,122 ----------- ----------- ----------- ----------- Loss before income tax .............................. (678,164) (465,213) (1,641,862) (2,553,152) Provision for income tax ............................ 0 0 ----------- ----------- ----------- ----------- NET INCOME (LOSS) BEFORE ............................... (678,164) (465,213) (1,641,862) (2,553,152) EXTRAORDINARY ITEM Gain on sale of subsidiary ......................... 97,371 97,371 NET INCOME ( LOSS) ..................................... (580,793) (465,213) (1,544,491) (2,553,152) =========== =========== =========== =========== NET LOSS PER SHARE Loss before extraordinary item ............................................... ($ 0.09) ($ 0.40) ($ 0.42) ($ 2.71) Extraordinary item ................................. .02 .02 NET INCOME (LOSS) ...................................... ($ 0.07) ($ 0.40) ($ 0.40) ($ 2.71) =========== =========== =========== =========== WEIGHTED AVERAGE OF .................................... 3,660,000 1,166,394 3,660,000 941,827 =========== =========== =========== =========== SHARES OUTSTANDING
6 WESTMARK GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPT 30, SEPT 30, 1996 1995 (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Consolidated net loss ............................................................ ($ 1,544,491) ($ 2,553,152) Adjustments to reconcile consolidated net (loss) to net cash used by operating activities: Depreciation ................................................................. 73,598 74,230 Stock issued for services .................................................... 792,347 410,115 Stock issued for settlement of litigation .................................... 174,250 Goodwill Amortization ........................................................ 119,107 74,187 ------------ ------------ Cash used in operations before working capital changes ........................... (559,439) (1,820,370) ============ ============ (Increase)/Decrease in accounts receivable .................................... (123,507) 424,434 (Increase)/Decrease in current assets ........................................ (107,546) (987,082) (Increase)/Decrease in mortgage loans held for sale ........................... 11,692,742 (11,110,742) (Increase)/Decrease in REO loan ............................................. 62,050 (Increase)/Decrease in Inventory ............................................. (28,770) (Increase)/Decrease in other assets .......................................... 2,120 (Increase)/Decrease in Long term assets ...................................... 15,000 314,319 Increase/(Decrease)in Accounts payable ....................................... (621,250) 17,632 Increase/(Decrease)in Interest payable ....................................... (31,308) 58,329 Increase/(Decrease)in Other current liabilities .............................. (459,692) 166,025 Increase/(Decrease)in Long Term Notes payable ................................ (1,000,000) Increase/(Decrease)in Other notes payable .................................... 446,183 0 ------------ ------------ Net cash used after working capital changes ...................................... 9,779,732 12,875,405) ------------ ------------ Cash used in operating activities ................................................ 9,220,293 (14,695,775) INVESTING ACTIVITIES Purchase of fixed assets and improvements .................................... (30,808) (144,141) ------------ ------------ Cash provided/(used) in investing activities ..................................... (30,808) (144,141) ------------ ------------ FINANCING ACTIVITIES Net Increase/(Decrease) in warehouse line of credit ......................... (10,997,132) 10,977,515 Investment related party .................................................... 2,388,593 Payment of notes receivable - stock sale ................................... 374,222 Repayments of notes payable ............................................... 657,000 Repurchase of stock ......................................................... (700,000) Sale of stock for cash ..................................................... 10,000 1,204,995 Increase/(Decrease) in notes payable - short term .......................... 125,000 ------------ ------------ Cash provided/(used) by financing activities ..................................... (8,924,317) 12,964,510 ------------ ------------ Net increase/(decrease) in cash .................................................. 265,168 55,036 Cash and cash equivalents, beginning period ...................................... 325,702 107,573 Cash and cash equivalent, end of period .......................................... 60,534 52,537 Cash paid for interest .......................................................... 477,260 761,477 ============ ============ Cash paid for income tax ......................................................... 1,600 0 ============ ============
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto. FINANCIAL RESULTS OF OPERATIONS On a consolidated basis, total revenues decreased to $790,966 in the quarter ended September 30, 1996 from $1,188,424 in the quarter ended September 30, 1995, a decrease of 33%. The decrease is a result of downsizing the Conforming "A" Division ("A"), whose profit margins are approximately 1/5 of the Non-Conforming B/C Division ("B/C"). Additionally, the frequency of B/C Bulk Sales have reduced the interest income as the loans have remained on the warehouse line for a reduced period. This causes a reduction in both interest income and interest expense. Expenses for the Quarter ended September 30, 1996 decreased 11% to $1,469,130 from $1,653,727 for the quarter ended September 30, 1995. Loan origination costs decreased 30% to $47,200 for the current quarter from $67,240 in the comparable prior year quarter ending September 30, 1995. General and Administrative expenses decreased 14% to $1,313,159 from $1,529,378 for the quarter ended September 30, 1995. Marketing and Advertising expense decreased 75% to $1,805 from $7,456 for the quarter ended September 30, 1996. A net loss resulted for the current quarter of $678,164 or $0.09 per share as compared to a net loss of $465,213 or $.40 per share for the quarter ended September 30, 1995. This increased loss is due to the loss for the period of Green World which did not exist in 1995 as well as the reduction in net revenues. The loss breakdown is as follows: Westmark Mortgage Corporation (.05), Green World (.02) Other WGHI (.02). BUSINESS OPERATIONS During the third quarter of 1996, the Company continued increasing loan volumes in B/C paper. B/C loan fundings increased from $8.26 million in the 3 months ending September 30, 1995 to $11.90 million for the three months ended September 30, 1996, an increase of 44%. For the nine months ending September 30, 1996, total B/C production increased 44% to $25.3 million verses $17.6 million in period ending 8 September 30, 1995. Total production including "A" paper was $57.3 million for nine months ending September 30, 1996. The Company expanded its B/C lending program through bulk sales during the first three quarters of 1996. B/C loans are for borrowers with credit histories that fall below the guidelines set forth by Fannie Mae and Freddie Mac. The B/C division is only 21 months old and 56% of the Company's loan fundings during the third quarter of 1996 were from B/C loans and over 80% of revenues realized were from B/C loans. The Company is focusing its marketing efforts in the B/C loan market due to the enhanced returns. The increase in the B/C loans has come primarily from an increased market share in Florida. Management intends to continue its marketing strategy in additional states, including California, Georgia, Missouri, Arizona and Illinois and the Northwestern United States. The Company continues to sell loan origination's on a "servicing-released" basis to investors in the normal course of business. The Company's bulk sales program for B/C paper in which loans are pooled and sold in packages ranging from $500,000 to $3,500,000 remains an integral key to future growth. During the third quarter, the bulk sales delivery was completed successfully with institutional investors, such as Household Financial Services, purchasing Westmark non-conforming originations. LIQUIDITY AND CAPITAL RESOURCES The Company uses its cash flow from whole loan sales, loan origination fees, net interest income and borrowings under its warehouse line of credit to meet its working capital needs. The Company's cash requirements include the funding of loan originations, purchases, payment of interest expenses, operating expenses, taxes and capital expenditures, along with settlement agreements negotiated during the first quarter. On September 30, 1996, total stockholders equity was $2,173,721. Adequate credit facilities and other sources of funding, including the ability of the Company to sell loans, are essential to the continuation of the Company's ability to originate and purchase loans. The Company borrows funds on a short term basis to support the accumulation of loans prior to sale. These short term borrowings are made under a warehouse line of credit with Princap Mortgage, Inc. ("Warehouse Facility"). Pursuant to the Warehouse Facility, the Company has available a secured revolving credit line of $15 million to finance the Company's origination or purchase of loans, pending sale to investors. The line of credit, pursuant to the Warehouse Facility, has collateral of the assignment and pledge of eligible mortgage loans, bears interest at an annual rate of 2% above prime, payable at the time of purchase by the permanent investor. The Warehouse Facility provides for a transaction charge of $140 per loan and requires the Company to possess a minimum net worth of $250,000 and a compensating cash balance on deposit in the amount of $5,000. On September 30, 1996, the balance outstanding , pursuant to this Warehouse Facility, totaled $7,787,287. The Company does not have any other external lines of credit for financing. 9 Historically, the Company has obtained financing through the issuance of its common stock and borrowings on a negotiated basis. During the third quarter of 1996, the Company issued 1,761,996 shares and canceled 519,242 shares of stock for a net change of 1,242,754. The increase in the number outstanding was attributable to: A) shares issued to HLOA (138,000) in accordance with the anti-dilution provision of the Stock Purchase Agreement. The provision expired retroactive to July 29, 1996 pending future receipt of $500,000; B) Prepaid management expense of the Palm Beach County real estate (252,000); C) Professional fees for other legal services (163,000); and D) Consulting agreements for services provided in areas of leasing, public relations, acquisitions, secondary marketing, insurance and computers(690,000). In May and June 1995, the Company raised $600,000 cash through the issuance of convertible promissory notes in the principal amount of $600,000 and the warrants entitling holders to purchase certain securities ("Bridge Financing"). In April 1996, the Company and all these investors agreed to restructure the investment and the Company paid such investors an aggregate amount of $600,000 and issued such investors 300,000 shares of Series B Preferred Stock ("Series B Preferred Stock") with a stated value of $600,000. The Series B Preferred Stock has a liquidation preference of $600,000, plus accrued and unpaid dividends, is redeemable by the Company at a redemption price of $600,000, plus accrued and unpaid dividends from the date of redemption, subject to adjustment in the event of certain circumstances, and is convertible into shares of Common Stock at a conversion price equal to the lessor of $2.00 or 84% of the closing bid price prior to the date of conversion (subject to further adjustment). In the second quarter of 1996, HLOA has advanced $1,638,593. Total advanced for the six month period ending June 30, 1996 was $2,428,593. $40,000 of the advance was paid back in the third quarter. These fundings were utilized to discharge outstanding debts and for working capital purposes. The Company's internally generated cash flows from operations has historically been and continue to be insufficient for its cash needs. It is expected that internal sources of liquidity will improve when net cash is provided by operating activities and, until such time, the Company will rely on external sources for liquidity. During the third quarter, a subsidiary, Westmark Mortgage Corporation ("WMC") approached cash flow break-even from daily operations. However, additional holding company and subsidiary expenses continue to require additional capital be raised until WMC produces enough revenue to offset these expenses. The Company has not established any other lines of credit or other similar financial arrangements with any lenders. If it appears at any time in the future that the Company is again approaching a condition of cash deficiency, the Company will be required to seek additional debt or equity financing or bring cash flows in balance. If such action is required, there is no assurance that the Company will be successful in any such effort 10 RECENT TRANSACTIONS On June 10, 1996, the Company filed an SB-2 Registration Statement with the Securities and Exchange Commission. The Prospectus relates to the issuance by the Company of shares of Company Common Stock, $.001 par value ("Common Stock"), to fund debt settlements. This Prospectus also relates to the resale of 2,373,787 shares of Common Stock which may be sold by the holders thereof ("Selling Stockholders") from time to time as market conditions permit in the market, or otherwise, at prices and terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The shares of Common Stock to be resold include 666,526 shares currently issued and outstanding and up to 1,707,261 shares to be issued upon (I) exercise of warrants outstanding to purchase an aggregate of 666,666 shares ("Warrants"), (ii) exercise of options outstanding to purchase an aggregate of 331,995 shares ("Options"), and (iii) conversion of 418,750 outstanding shares of the Company's Series A and Series B Preferred Stock to adjustment (collectively, "Preferred Stock") presently convertible to purchase an aggregate of 708,690 shares, subject to adjustment. On July 10, 1996, the Company sold all of its capital stock of Network Capital Group, Inc. to PBF Land Company ("PBF") in exchange for various parcels of real property in Florida with a market value appraised at $1,298,000 (Parcel A). In addition, PBF placed an attorney's opinion letter of title for Quit Claim Deeds for additional parcels (Parcel B) valued at up to $5 million in to escrow. In exchange for the additional property, the Company placed preferred stock with a stated fair market value of $5 million into escrow. The preferred stock may be convertible into common stock beginning April 1, 1997. The minimum conversion price is $1 and no more than a cumulative total of $100,000 worth of preferred stock may be converted per quarter. Further due diligence regarding appraisal, title and legal are necessary in order for the Company to exercise the option to acquire the additional parcels. Whitehall Financial Services, Inc. ("Whitehall") claimed a third party beneficial interest in and to the PBF agreement. PBF agreed to return 88,963 shares of Company common stock to the Company which was then issued to Whitehall in full and final settlement of all claims. Effective July 21, 1996, the Company and GTB Company entered into an agreement whereby the Company acquired all of the issued and outstanding capital stock of Green World in consideration for (I) 130,000 shares of Class E Convertible Preferred Stock, stated fair market value $10.00 per share ("Preferred Stock:), which Preferred Stock is convertible into Common Stock at the option of the holder at any time within one year of issuance at a conversion price of $.45 per share of Common stock, and (ii) payment of royalties of 14% of the gross sales of Green World for a period of two years from the date of this agreement, which payments are to be made on a quarterly basis. Green World is a nationwide marketer of the Talon Refrigerant Management System("Talon"), an energy-saving add-on to air-cooled condensers found in air conditioners, heat pumps and refrigeration systems. Green World has been establishing a dealer network and currently has commitments from nine dealers on the West Coast, 11 plus Hawaii and the Pacific Basin, from the Marshall to the Fiji Island. Green World has executed an exclusive contract for the sales of its Talon with Trane Specialty A/C Products ("Trane"). The contract calls for Trane to purchase no less than 7,125 units over the next 24 months, with 2,535 units in the first 12 months and 4,800 the remaining 12 months and is renewable for an additional 24 months. Additionally, the contract allows the distributor the exclusive right to market in 16 California counties including those counties in the San Francisco Bay area. The Talon unit has an average payback from energy savings of eight months and is regarded as one of the premier energy saving devices being marketed The Company has entered into a number of settlement agreements with various vendors and consultants of the Company, which settlements include the registration and issuance of 294,934 shares of common stock of the Company. Upon registration and issuance of said shares, the creditors will be allowed to sell shares on a monthly basis for a period of two to twelve months to satisfy the obligations in full. The specific creditors and the number of shares to be registered in the name of each creditor are set forth in the Registration Statement on file with the Securities & Exchange Commission ("SEC") or in the amendment thereto. Said settlement shares have been included in a Form SB-2 Registration Statement filed with the SEC on or about June 6, 1996 or will be included to said registration statement. The Company has been unable to comply with the terms and conditions of the settlement agreements with respect to the registration and issuance of shares in view of the fact that the aforementioned Form SB-2 Registration Statement is not effective. As a result of the default, three of the settlement creditors have entered judgment against the Company as follows: Brentwood Credit Corporation - $38,264.00, Bowne of Los Angeles - $11,514.00 and Cohen, Brame & Smith - $26,278.00. The Company is in the process of negotiating a modification to the various settlement agreements, extending the time for registration and issuance of shares to a date that the Company anticipates the SB-2 Registration Statement will be effective. SUBSEQUENT EVENTS CONVERTIBLE PREFERRED A In February 1996, the Company received a letter from Drew Hollenbeck alleging irregularities concerning his investment in the equity and convertible debt securities of the Company, and various disputed matters with the former directors and officers of the Company in connection with that investment. In March 1996, the Company entered into a settlement agreement with Mr. Hollenbeck, pursuant to which the Company agreed, among other things, to issue to Mr. Hollenbeck 100,000 shares of convertible preferred stock redeemable upon written notice to the Company six months following the 12 execution of the settlement agreement for the sum of $400,000 plus any accrued interest. In addition, the settlement agreement provided that the Company pay Mr. Hollenbeck's legal fees in connection with the matter in the sum of $50,000. Mr. Hollenbeck has made demand on the Company for the repurchase of the stock and the payment of the legal fees. The Company and Mr. Hollenbeck are currently in negotiations to resolve the matter. PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in ROBERT J. CONOVER VS. GREENTREE MORTGAGE CO., L.P. AND GREENTREE MANAGEMENT CORPORATION (COLLECTIVELY, "GREENTREE"), WESTMARK GROUP HOLDINGS, INC., WESTMARK MORTGAGE CORPORATION AND MICHAEL F. MORRELL, Superior Court of New Jersey, Chancery Division, Burlington County, filed September 25, 1995. The plaintiff served as president and chief financial officer of Greentree pursuant to an employment agreement between the plaintiff and Greentree. Plaintiff was discharged from those positions in September 1995. Plaintiff brought this action for compensatory damages based upon alleged breach of such employment agreement. Plaintiff seeks, among other things, damages against Westmark and Mr. Morrell based upon an allegation of intentional interference with contractual obligations and a third party beneficiary claim with respect to the Company. Mr. Morrell is indemnified by the Company. On October 27, 1995, the plaintiff sought a temporary restraining order and preliminary injunction enjoining the Company from acquiring Greentree. Such request was denied as the Court found that, among other things, the applicable test requiring plaintiff to show a likelihood of success on the merits was not met. The Company has terminated negotiations with Greentree. Greentree has agreed to maintain a minimum net worth of $1,000,000. Management believes that this obligation does not transfer in any way to the Company in connection with its attempted purchase of certain assets of Greentree. Greentree disputes the allegations of the complaint. The Company believes that there is not legal justification for the joinder of the Company and Mr. Morrell as defendants in the pending dispute between the plaintiff and Greentree, and intends to vigorously defend this allegation. Extensive discovery has been undertaken by plaintiff and defendants and the Company anticipates filing a Motion for Summary Judgment within the next two weeks. The Company does not anticipate any liability with respect to this litigation. In the matter of SAXON MORTGAGE V. WESTMARK, Saxon Mortgage obtained a judgment in the amount of $469,348 in connection with various repurchase obligations. 13 An amount of $61,788 has been paid, and the remaining liability of $407,560 is accrued at December 31, 1995. The Company has reached a settlement which calls for monthly payments of $11,788 for 36 months. Counsel for the Company anticipates a further amendment to the stipulated judgment wherein all monthly payments are suspended in consideration for which the Company will secure the obligation to Saxon Mortgage with a portion of the real property acquired from PBF. The Company would remain obligated for the full payment of $407,560 on July 15, 1998 and would be entitled to a full release and final settlement upon payment of the sum of $318,261 on or before June 27, 1997. The Company is a defendant in CONWAY ET AL V. DANNA, NETWORK FINANCIAL SERVICES, INC., ET AL. The suit alleges Unfair Practices, Fraud (Negligent Misrepresentations; Intentional Misrepresentations; Concealment); Breach of Written Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; Common Count; and Breach of California Securities Statutes against Network Financial Services, Inc. (a.k.a. Westmark Group Holdings, Inc.) and others. The Company considers the risk of loss in this matter to be remote and, consequently, no amount has been accrued as of December 31, 1995. Plaintiffs were recently sanctioned by the Superior Court for failing to file appropriate pleadings and until such time as Plaintiff's Amended Complaint is filed, no discovery will be undertaken. The Company remains confident that there is only a remote possibility of liability. The Company is plaintiff in NETWORK FINANCIAL SERVICES, INC. V. MCCURDY, RAICHE, RYALS, NASH & MOSS LAND COMPANY, filed March 1993 in Monterey County, California Superior Court. The plaintiff alleges fraud, negligent misrepresentation, breach of fiduciary duty, negligence, quiet title, RICO violations and conversion. Defendant McCurdy initiated a cross-complaint naming, among others, the Company as a cross defendant. The cross-complaint seeks damages for breach of a stock option agreement, breach of contract, and declaratory relief. The Company has finalized a settlement with defendants Raiche and Ryals, wherein defendants Raiche and Ryals transferred 7,166 shares of the Company's Common Stock to the Company in addition to one-half (1/2) interest in certain property. The balance of the pending litigation involving defendant and cross-complaint McCurdy and others is unaffected by the Raiche/Ryals settlement. Management intends to vigorously defend this cross-complaint. A settlement has been negotiated wherein and whereby both the Complaint and Cross-Complaint will be dismissed and no monetary compensation paid by either party. 14 The Company is defendant in KNIGHT V. LOMAS MORTGAGE U.S.A. AND WESTMARK MORTGAGE CORPORATION. The complaint is based upon a contention by the Plaintiff that Lomas Mortgage U.S.A. as the servicing agent wrongfully impaired the credit rating of Plaintiff and breached the written agreement between the parties. A preliminary determination indicates that the basis for the dispute is between Lomas U.S.A. and the Plaintiff, but the Company has been named as a third party defendant in view of the original contractual relationship between the Plaintiff and Westmark. The Company considers the risk of loss in this matter to be remote, and consequently, no amount has been accrued as of December 31,1995. The Company and plaintiffs entered into an agreement wherein and whereby the subject litigation was dismissed without prejudice. The case was refiled in Orange County, California Superior Court on October 29, 1996. The Company does not anticipate any liability with respect to this litigation. The Company is a defendant in ORTEGA V. MICHAEL SANTA MARIA ET AL filed in Orange County Superior Court of the State of California. The complaint is based upon a contention by the Borrower Ortega that Santa Maria, individually and as a owner/manager/broker of Bann Cor Mortgage made false presentations of material fact to plaintiffs. The Company acquired this loan from Bann Cor and subsequently sold the loan to Imperial Credit Industries. A preliminary determination indicates that the basis for the dispute is between Santa Maria and Bann Cor. However, the Company has been named as a party defendant. Westmark generally and specifically denies each and every allegation contained in the complaint. The Company considers the risk of loss in this matter to be minimal and fully intends to defend this action. The Company has recently filed a Demurrer to plaintiff's Complaint, which Demurrer was sustained on or about October 11, 1996. Although plaintiff has been allowed time to file an Amended Complaint, it is anticipated that plaintiff will dismiss the company from the pending litigation. One of the Company's wholly owned subsidiaries, Green World has been named, together with other defendants, in a suit action SHAPE UP AMERICA V. PHILLIPPE ET AL., filed in Alameda County, California Superior Court on August 19, 1996. The Complaint alleges breach of contract, conspiracy, fraud, and quantum meruit. The basic premise to plaintiff's Complaint is that plaintiff claims to be entitled to various forms of compensation based upon the sale of certain licensing, patent and marketing rights to the Talon Refrigerant Management System. It is anticipated that venue for this action will be transferred to Sacramento County and to date, no discovery has been undertaken. Based upon a preliminary review of relevant documentation, the Company does not anticipate any liability. From time to time the Company is a defendant (actual or threatened) in certain lawsuits encountered in the ordinary course of its business, the resolution of which, in the opinion of management, should not have a material adverse affect on the Company's financial position. 15 ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES In October 1996, Drew Hollenbeck, holder of Series A preferred stock noticed the Company to redeem his shares of convertible preferred stock and the Company is in default with respect to this request. The Company and Mr. Hollenbeck are currently in negotiations to resolve the matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION The Company completed redomiciling in Delaware pursuant to the affirmative vote of the shareholders at the recent annual meeting. The common stock now has a par value of $.001. The balance sheet now reflects the change to the par value method by moving the value of the common stock to Additional Paid in Capital pursuant to Generally Accepted Accounting Principles (GAAP). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Effective June 14, 1996, Mark Schaftlein was appointed Chief Financial Officer of the Company. On September 10, 1996, Norman Birmingham resigned as President of the Company. Mr. Birmingham remains Chairman of the Board and retains his role as Principal Accounting Officer. Subsequently, Mr. Schaftlein was named Chief Operations Officer on September 11, 1996. Financial Statements for the Green World acquisition will be filed within 30 days. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WESTMARK GROUP HOLDINGS, INC. BY: /C/ NORMAN J. BIRMINGHAM NORMAN J. BIRMINGHAM, DIRECTOR, CHAIRMAN, ( PRINCIPAL ACCOUNTING OFFICER & DULY AUTHORIZED DIRECTOR OF THE REGISTRANT) BY: /C/ MARK D. SCHAFTLEIN MARK D. SCHAFTLEIN, DIRECTOR & PRESIDENT OF WESTMARK MORTGAGE CORPORATION, CHIEF OPERATING OFFICER OF WESTMARK GROUP HOLDINGS, INC. (DULY AUTHORIZED DIRECTOR & OFFICER OF THE REGISTRANT) DATED: APRIL 29, 1997 17 -----END PRIVACY-ENHANCED MESSAGE-----