-----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, BGl7M4wg51M1DPKl0S0vznceqdguWKKI0+6qxSrTxTEK7P84Pytg9ApT/+8bL0uw kczO9JMNQu+nW4ucC9G6Eg== 0000085149-99-000014.txt : 19991117 0000085149-99-000014.hdr.sgml : 19991117 ACCESSION NUMBER: 0000085149-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSES HOLDINGS INC CENTRAL INDEX KEY: 0000085149 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 562043000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00631 FILM NUMBER: 99755581 BUSINESS ADDRESS: STREET 1: 150 EAST 52ND STREET 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128131500 MAIL ADDRESS: STREET 1: 150 EAST 52ND ST STREET 2: 21ST FL CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: ROSES STORES INC DATE OF NAME CHANGE: 19920703 10-Q 1 WEBFINANCIAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission File Number 0-631 WEBFINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 56-2043000 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 East 52nd Street, 21st Floor New York, New York 10022 (Address and zip code of principal executive offices) 877-431-2942 (Registrant's telephone number, including area code) 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 ( ) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. CLASS OUTSTANDING AT NOVEMBER 8, 1999 Common Stock, par value $.001 4,430,964 Shares WEBFINANCIAL CORPORATION AND SUBSIDIARIES FORM 10-Q INDEX PAGE PART I--FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Operations for the three months ended September 30, 1999 and the thirteen weeks ended October 31, 1998 4 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999 and the thirty-nine weeks ended October 31, 1998 5 Condensed Consolidated Statements of Cash Flow for the nine months ended September 30, 1999 and the thirty-nine weeks ended October 31, 1998 6 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II--OTHER INFORMATION Item 1. Legal Proceedings 17 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 Exhibits Index 19 Exhibit 11 20 PART I--FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Amounts in thousands except per share amounts) WEBFINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited)
September 30, December 31, 1999 1998 ---------------------- Assets: Cash and cash equivalents .............................. $ 7,142 $ 8,681 Cash restricted in escrow .............................. 331 2,018 Investment securities available for sale ............... 1,236 2,081 Investment securities held to maturity ................. 38 -- Prepaid expenses ....................................... 73 33 Commercial loans, net of allowance for loan losses of $144 and $0 ............................... 9,829 1,081 Accrued interest receivable ............................ 92 41 Property and equipment, net ............................ 87 116 Other assets ........................................... 416 196 Goodwill, net of accumulated amortization of $138 and $41 ..................................... 1,636 1,733 -------- -------- $ 20,880 $ 15,980 ======== ======== Liabilities: Demand deposits ........................................ $ 250 $ 105 Time deposits .......................................... 5,436 -- Accounts payable and accrued expenses .................. 394 326 Income taxes payable to subsidiary's former parent ..... 310 309 -------- -------- Total liabilities before minority interests ................ 6,390 740 Minority interests ......................................... 483 553 Stockholders' Equity: Preferred stock, authorized 10,000 shares; none issued .................................. -- -- Common stock, authorized 50,000 shares; $.001 par value; issued 4,431 & 4,310, at 9/30/99 & 12/31/98, respectively .................. 4 4 Paid-in capital ....................................... 36,903 36,155 Deferred compensation ................................. (65) -- Accumulated deficit ................................... (22,835) (21,472) -------- -------- Total stockholders' equity ................................. 14,007 14,687 -------- -------- $ 20,880 $ 15,980 ======== ========
See accompanying notes to condensed consolidated financial statements. WEBFINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share amounts) (Unaudited)
For the Three For the Thirteen Months Ended Weeks Ended September 30, October 31, 1999 1998 ------------------------ Interest and fees on commercial loans .................... $ 167 $ -- Interest on cash and cash equivalents .................... 135 162 Interest on investment securities available for sale ..... 50 -- ------- ------- Total interest income ............................ 352 162 Interest expense ......................................... 67 -- ------- ------- Net interest income before loan loss provision ... 285 162 Loan loss provision ...................................... 88 -- ------- ------- Net interest income after loan loss provision .... 197 162 Operating income: Gain on sale of commercial loans ..................... 67 -- Loan servicing income ................................ 131 -- Other income ......................................... 136 -- ------- ------- Total operating income ........................... 334 -- Operating expenses: Salaries ............................................. 382 -- Occupancy ............................................ 47 -- Goodwill amortization ................................ 32 -- Selling, general and administrative .................. 481 297 ------- ------- Total operating expenses ......................... 942 297 Loss before minority interests ................... (411) (135) ------- ------- Loss attributable to minority interests .................. 21 27 ------- ------- Net loss ......................................... $ (390) $ (108) ======= ======= Basic and diluted net loss per share ..................... $ (.09) $ (.02) Weighted average number of common shares and common share equivalents, basic and diluted ............ 4,432 4,328
See accompanying notes to condensed consolidated financial statements. WEBFINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share amounts) (Unaudited)
For the Nine For the Thirty-nine Months Ended Weeks Ended September 30, October 31, 1999 1998 ----------------------- Interest and fees on commercial loans ..................... $ 265 $ -- Interest on cash and cash equivalents ..................... 381 555 Interest on investment securities available for sale ...... 130 -- ------- ------- Total interest income ............................. 776 555 Interest expense .......................................... 116 -- ------- ------- Net interest income before loan loss provision..... 660 555 Loan loss provision ....................................... 144 -- ------- ------- Net interest income after loan loss provision...... 516 555 Operating income: Gain on sale of commercial loan ....................... 303 -- Loan servicing income ................................. 131 -- Other income .......................................... 260 -- ------- ------- Total operating income ............................ 694 -- Operating expenses: Salaries .............................................. 1,185 -- Occupancy ............................................. 148 -- Goodwill amortization ................................. 97 -- Selling, general and administrative ................... 1,243 841 ------- ------- Total operating expenses .......................... 2,673 841 Loss before minority interests ............................ (1,463) (286) ------- ------- Loss attributable to minority interests ................... 100 27 ------- Net loss ......................................... $ (1,363) $ (259) ======== ======= Basic and diluted net loss per share ...................... $ (.31) $ (.06) Weighted average number of common shares and common share equivalents, basic and diluted ............. 4,381 4,328
See accompanying notes to condensed consolidated financial statements. WEBFINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (Amounts in thousands)
For the Nine For the Thirty-nine Months Ended Weeks Ended September 30, October 31, 1999 1998 ------------------------- Cash flows from operating activities: Net loss ................................................... $ (1,363) $ (259) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Minority interest ........................................ (100) (27) Depreciation and amortization ............................ 46 9 Loan loss provision ...................................... 144 -- Amortization of loan premiums ............................ 18 12 Amortization of goodwill ................................. 97 18 Amortization of premiums for available-for-sale securities -- 10 Amortization of premiums for held-to-maturity securities . 1 -- Amortization of deferred gains on sale of loans .......... (6) -- Amortization of servicing assets ......................... 2 -- Amortization of deferred compensation on stock options ... 61 -- Common stock granted in lieu of cash ..................... 23 -- Gain on sale of commercial loans ......................... (303) -- Net changes in: Cash restricted in escrow .............................. 1,687 -- Prepaid expenses ....................................... (40) (22) Accrued interest receivable ............................ (51) (8) Other assets ........................................... (100) (152) Accounts payable and accrued expenses .................. 68 19 -------- -------- Net cash provided by (used in) operating activities .. 184 (400) -------- -------- Cash flows from investing activities: Purchase of subsidiary ..................................... -- (2,848) Principal payments received on available-for-sale securities 1,050 -- Purchase of available-for-sale securities .................. (205) -- Payments on held-to-maturity securities .................... 10 -- Purchase of held-to-maturity securities .................... (49) -- Purchase of property, plant and equipment .................. (17) (26) Principal payments received on loans ....................... 62 -- Funding and purchases of commercial loans .................. (16,372) -- Proceeds on sale of commercial loans ....................... 7,554 Deferred loan origination fees ............................. 155 -- Servicing asset on sale of commercial loans ................ (122) -- -------- -------- Net cash used in investing activities ................ (7,934) (2874) -------- --------
WEBFINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONT'D) (Amounts in thousands) (Unaudited)
Cash flows from financing activities: Demand deposits ............................................ 145 -- Net increase in time deposits .............................. 5,436 -- Minority interest .......................................... 30 611 Stock options exercised .................................... 416 -- Contribution of capital .................................... 184 -- -------- -------- Net cash provided by financing activities ............ 6,211 611 -------- -------- Net decrease in cash and cash equivalents .................... (1,539) (2,663) Cash and cash equivalents at beginning of period ............. 8,681 15,385 -------- -------- Cash and cash equivalents at end of period ................... $ 7,142 $ 12,722 ======== ======== Supplemental disclosure of additional cash activities: Cash paid for interest ..................................... $ 101 $ --
See accompanying notes to condensed consolidated financial statements. WEBFINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation--The accompanying interim condensed consolidated financial statements of WebFinancial Corporation (formerly Rose's Holdings, Inc. and subsidiaries) (the "Company") are unaudited and have been prepared in conformity with the requirements of Regulations S-X promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), particularly Rule 10-01 thereof, which governs the presentation of interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying interim condensed consolidated financial statements should be read in conjunction with the Company's significant accounting policies as set forth in Note 1 to the consolidated financial statements in the 1998 Annual Report on Form 10-K. In the opinion of management, all adjustments are comprised of normal recurring accruals necessary for the fair presentation of the interim financial statements. Operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The preparation of 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ORGANIZATION AND RELATIONSHIPS The Company was incorporated in August 1997. In December 1997, the Company consummated the sale of all the outstanding capital stock of Rose's Stores, Inc. ("Stores"), then the Company's only operating subsidiary, to Variety Wholesalers, Inc. ("Variety"). Currently, the Company owns 100% of WebFinancial Holding Corporation (an intermediary holding company), which owns 90% of WebBank Corporation ("WebBank"), a Utah-chartered industrial loan corporation, 90% of Praxis Investment Advisors, Inc. ("Praxis"), a California-based company that operates primarily as an investment advisor, providing research and development of financial products, 100% of Web Financial Government Lending, Inc. ("Lending"), a specialty lending company designed to compliment and support the government lending activities of WebBank, and 100% of Web Film Finance, Inc., a specialty company which was formed to focus on investment grade financial products serving the film production and distribution industry. The Company is a party to a management agreement with Praxis and Andrew Winokur, the owner of the remaining 10% interests in WebBank and Praxis, under which Praxis has agreed to provide management services to the Company in connection with its interest in WebBank. Mr. Winokur serves as the president and chief executive officer of Praxis pursuant to an employment agreement. 3. COMPREHENSIVE INCOME (LOSS) The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," effective January 1, 1998. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. For the periods ended September 30, 1999 and October 31, 1998 comprehensive loss was equal to the net loss as presented in the accompanying statements of operations. 4. LOSS PER COMMON SHARE Loss per common share was the same for both the basic and diluted calculations. Common stock equivalents (stock options and warrants) of approximately 2,585,000 shares outstanding during the three and nine month period ended September 30, 1999 and 2,547,000 shares outstanding during the thirteen and thirty-nine weeks ended October 31, 1998 that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented. 5. OPERATING SEGMENT The Company is engaged in the banking and specialty finance business and in its current state considers its operations to be a single reporting segment. Financial results of this reportable segment are presented in the accompanying financial statements. 6. CONTINGENCIES As a result of the sale of Stores to Variety, the Company was relieved of liability for claims against Stores except to the extent of its indemnification obligation with respect to certain claims. On March 2, 1999 all claims were settled and the balance of the escrowed amount of $2,041 was disbursed to the Company. In the opinion of management and counsel, all contingencies are either adequately covered by insurance or are without merit. On January 20, 1999 an escrow account in the amount of $331 was established to provide funds to buy back shares from holders of less than 250 shares. To date no shares have been bought. 7. DEPOSITS Deposits are summarized as follows (in thousands): September 30, 1999 December 31, 1998 ------------------ ----------------- Weighted Weighted Average Average Interest Carrying Interest Carrying Rate Value Rate Value -------- -------- -------- -------- Non-interest bearing-demand 0.00% $ 250 0.00% $ 105 Interest-bearing time certificates of deposit 4.44% 5,436 -- -------- -------- $ 5,686 $ 105 ======== ======== Aggregate amounts of accounts over $100,000 were $1,901 and $0 at September 30, 1999 and December 31, 1998, respectively. The table below sets forth the range of stated interest rates at September 30, 1999: Interest-bearing-time certificates of deposit 2.50% - 5.65% At September 30, 1999, certificates by maturity are as follows: Maturities within three months $ 3,936 Over three months to one year 1,500 --------- $ 5,436 ========= WEBFINANCIAL CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the interim condensed consolidated financial statements of the Company and the Notes thereto. OVERVIEW Business Description WebFinancial Corporation, formerly Rose's Holdings, Inc., (the "Company") is a holding company headquartered in New York, NY. As of September 30, 1999, the Company holds $7,142,000 in cash, has no long term debt, and owns 100% of WebFinancial Holding Corporation ("Holding"), an intermediary holding company, which owns 90% of WebBank Corporation ("WebBank"), 90% Praxis Investment Advisors, Inc. ("Praxis"), 100% of Web Financial Government Lending Corporation ("Lending"), and 100% of Web Film Financial, Inc. ("Film"). Andrew Winokur is President and CEO of Holding and owns the other 10% of WebBank and Praxis. WebBank, located in Park City, Utah, is a Utah chartered Industrial Loan Corporation ("ILC") regulated by the Federal Deposit Insurance Corporation ("FDIC") and Utah Department of Financial Institutions and has recently become a member of the Seattle Federal Home Loan Bank Board. The ILC charter has the ability to attract FDIC insured deposits (but not demand deposits if total assets are greater than $100 million), underwrite insurance, and export Utah's favorable interest rates and terms to 48 of the other states. At present, WebBank has one office and has no plan to open any other offices. Due to the benefits and powers of the Utah ILC charter, WebBank is uniquely positioned to develop loan products and provide other banking services that could be distributed throughout the United States. WebBank was purchased in August 1998 from H & R Block. WebBank's business plan contains three facets: Portfolio Income, Origination of USDA B&I loans and SBA loans (as defined below), and Sourcing Partnerships. Portfolio Income--WebBank is acquiring assets for its portfolio, which will include loans funded under U.S. Government credit enhancement programs such as USDA Rural Development Business and Industry Loans ("USDA B&I"), Small Business Administration loans ("SBA"), and investment grade securities. Deposits accessed from strategic partners, and certificates of deposit ("CD's") acquired through a brokered CD program fund the purchases of these assets. At present, WebBank has about $11.6 million of assets and $5.6 million dollars of deposits, and believes it will be able to grow its asset base to $40 million without any additional equity. Origination of USDA B&I loans and SBA loans--These loan programs are sponsored by U.S. Government agencies that encourage lending to small businesses by guaranteeing a portion of the loan (up to 90%) and has the full faith and credit guarantee of the United States Government. In fiscal year 1999, the USDA B&I loan guarantee program has the authority to guarantee up to $1 billion dollars, and since 1994 this program has guaranteed about $3.5 billion dollars of B & I loans. Generally, USDA B&I loans tend to be for amounts less than $10 million, and WebBank has been able to structure these loans with prepayment penalties, adjustable rates, and other features to enhance the safety and marketability of the loans. To date, WebBank has funded $10.4 million of these loans, and has signed commitment letters for about $4.4 million of additional loans of which it expects to close all $4.4 million in the next 3 months. In general, the company will sell the guaranteed portions of the loans while retaining the unguaranteed portions and servicing rights to the loans. Sourcing Partnerships--Sourcing Partnerships are joint ventures in which WebBank works with certain specialty loan originators. WebBank's Utah Industrial Loan Charter allows the originator greater flexibility regarding loan structure, terms and/or conditions. In general, WebBank and its Sourcing Partner ("Partner") will jointly agree on underwriting criteria. The Partner will agree contractually to purchase loans WebBank originates under the program and to directly reimburse WebBank for any and all costs of origination, including legal, compliance, management oversight, and audit costs. WebBank's Partners will contribute marketing, sales, in-depth industry knowledge and an origination network. WebBank will approve the credit and establish underwriting standards and originate qualifying loans presented by the Partners. WebBank may resell the specialized loan to the Partner, thereby minimizing portfolio and credit risk and securing an attractive fee. WebBank believes these arrangements can generate consistent fee based income streams without any significant risks to WebBank or depositors and with minimal incremental expense to WebBank (since all expenses will be reimbursed). Additionally, the Partners will place a deposit in WebBank in excess of the daily production of their loan program, with WebBank's right to offset any losses against these deposits. At present, WebBank has three Sourcing Partnerships that are producing loans: Peachtree Settlement Funding located in Atlanta, Georgia, is in the structured settlement and lottery refinance business; CheckStop, located in Salt Lake City, Utah, is in the single payment loan business; and, First Cash Financial Services located Arlington, Texas is a loan sourcer and servicer. WebBank is currently negotiating with other specialty loan and credit card issuers. Praxis Investment Advisors--Praxis is headquartered in St. Helena, California, and has an office in Washington, D.C. Praxis is a developer of specialty financing products and programs. The first program is with Greenwich NatWest. Praxis is currently identifying the guaranteed portions of USDA loans through a program that is funded by Greenwich. Upon reaching critical mass the program envisions securitizing these loans. Praxis is receiving fee income from Greenwich for procuring and managing these loans, and upon securitization will receive an additional fee as well as 50% of the profits net of the cost of financing the program. Since this program began in April 1999, it has acquired $47 million of these assets with another $7 million committed to settle in early January. With about $3.5 billion of these loans in the marketplace and another $1 billion being created in 2000, Praxis believes its goal of $100 million per year is achievable. Web Financial Government Lending, Inc.--In late June 1999, the Company funded Lending to compliment and support the government lending activities of WebBank. Web Film Finance, Inc.--In September 1999 for the purpose of focusing on investment grade financial products serving the film production and distribution industry, Lending and the Company funded Film. On December 31, 1998, the Company had net operating loss carryforwards of approximately $37 million that are scheduled to expire during the years ending 2010 through 2018. The Company has treated net operating losses incurred prior to April 28, 1995 (the "Effective Date").in accordance with Section 382(l)(5) of the Internal Revenue Code. As a result, there is approximately $27 million in net operating losses incurred prior to the Effective Date as well as $10 million incurred subsequent to the Effective Date available as carryovers. At the June 26, 1997 annual meeting the Company's shareholders approved an amendment to the Corporation's Certificate of Incorporation to prohibit purchases of more than 5% of the Company's shares. The purpose of this limitation is to help assure that the consolidated corporation's substantial tax benefits (in the form of net operating loss carry-forwards) will continue to be available to offset future taxable income. RESULTS OF OPERATIONS Revenue--The Company reported net interest income after loan loss provision for the three and nine months ended September 30, 1999 of $197,000 and $516,000, respectively, primarily as a result of interest earned on investments. Servicing income and other income totaled $334,000 and $694,000, respectively, for the three and nine months ended September 30, 1999. The Company had no operating revenue for the thirteen and thirty-nine weeks ended October 31, 1998 since operation of WebBank began September 1, 1998. Interest income on cash and cash equivalents for the thirteen and thirty-nine weeks ended October 31, 1998 was $162,000 and $555,000, respectively. Costs and Expenses--Operating expenses totaled $942,000 and $2,673,000, respectively, for the three and nine months ended September 30, 1999 and consisted primarily of salary and benefits, facilities rentals, and professional fees. Operating expenses for the thirteen and thirty-nine weeks ended October 31, 1998 included selling, general, and administrative expenses and totaling $297,000 and $841,000, respectively. The increase in operating expenses in 1999 reflects the culmination of operating activities resulting from the acquisition of the Company's subsidiaries. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999 the Company's cash and cash equivalents totaled approximately $7,142,000. As of December 31, 1998 the Company had cash and cash equivalents totaling approximately $8,681,000. Cash utilized by WebBank for loan activity offset by increased time deposits are the major factors affecting the cash and cash equivalent decrease. . Management believes that the Company's current cash and cash equivalent balances and expected operating cash flows are adequate to meet its liquidity needs. The Company continues to actively seek acquisition transactions. There can be no assurance that the Company will be able to locate or purchase an additional business, or that any such business, will be profitable. In order to finance an acquisition, the Company may be required to incur or assume indebtedness or issue securities. YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Any of the Company's computer programs or other information systems that have time-sensitive software or embedded microcontrollers may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations. During fiscal 1998, the Company completed an initial review of its information and non- information technology systems. This review included its existing and planned computer software and hardware. The Company and its subsidiaries have made initial determinations, based on initial review, that the costs and/or consequences associated with the Year 2000 issue are not expected to have a material effect on its business, operations or future financial condition. A second, more in-depth analysis was also conducted, and included the testing of information systems. Based on these reviews, the Company presently believes that the Year 2000 Issue will not pose significant operational problems for its computer and other information systems. If required, the Company will utilize both internal and external resources to reprogram, or replace, and test the software and systems for Year 2000 modifications. If such modifications, conversions and/or replacements are not made, are not completed timely, or if any of the Company's suppliers or customers do not successfully deal with the Year 2000 Issue, the Year 2000 Issue could have a material impact on the operations of the Company and/or its subsidiaries. The severity of these possible problems would depend on the nature of the problem and how quickly it could be corrected or an alternative implemented, which is unknown at this time. While management has not yet specifically determined the costs associated with its Year 2000 readiness efforts, monitoring and managing the Year 2000 Issue will result in additional direct and indirect costs to the Company. Direct costs include potential charges by third-party software vendors for product enhancements, costs involved in testing software products for Year 2000 compliance and any resulting costs for developing and implementing contingency plans for critical software products which are not enhanced. Indirect costs will principally consist of the time devoted by existing employees in monitoring software vendor progress, testing enhanced software products and implementing any necessary contingency plans. Such costs have not been material to date. Both direct and indirect costs of addressing the Year 2000 Issue will be charged to earnings as incurred. After evaluating its internal compliance efforts as well as the compliance of third parties the Company has developed appropriate contingency plans to address situations in which various systems of the Company, or of third parties with which the Company does business, are not year 2000 compliant. Some risks of the Year 2000 Issue, however, are beyond the control of the Company and its suppliers and customers. For example, no preparations or contingency plan will protect the Company from a downturn in economic activity caused by the possible ripple effect throughout the entire economy caused by the Year 2000 Issue. FORWARD-LOOKING STATEMENTS The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report of Form 10-Q and presented elsewhere by management. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, general economic conditions, changes in interest rates, the company's ability to attract deposits, and the Company's ability to control costs. Because of these and other factors, past financial performance should not be considered an indication of future performance. The Company's future quarterly operating results may vary significantly. Investors should not use historical trends to anticipate future results and should be aware that the trading price of the Company's common stock may be subject to wide fluctuations in response to quarterly variations in operating results and other factors, including those discussed above. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company maintains an investment portfolio and participates in commercial loans. Both of these activities are subject to specific policies that are focused on preserving principal, maintaining proper liquidity to meet operating needs, and maximizing yields. The Company's operations may be subject to a variety of market risks, the most material of which is the risk of changing interest rates. Most generally, interest rate risk is the volatility in financial performance attributable to changes in market interest rates, which may result in either fluctuation of net interest income or changes to the economic value of the equity of the Company. WEBFINANCIAL CORPORATION AND SUBSIDIARIES PART II--OTHER INFORMATION Item 1. Legal Proceedings. The registrant is not a party to any material legal proceedings. Item 2. Changes in Securities. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information On July 14, 1999, the Company informed one of its directors that short swing profits had been generated by his transactions pursuant to Section 16(b) of the Securities and Exchange Act of 1934, as amended. On August 26, 1999, the director paid to the Company short swing profits of $189,750 that were generated by the director's transaction. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 11 Statement Regarding Computation of Net Loss Per Share 27 Financial Data Schedule (filed as part of the electronic filing only) (b) Reports on Form 8-K. None WEBFINANCIAL CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEBFINANCIAL CORPORATION By /s/ Warren G. Lichtenstein Warren G. Lichtenstein President By /s/ Jack L. Howard Jack L. Howard Vice President Date: November 15, 1999 WEBFINANCIAL CORPORATION AND SUBSIDIARIES EXHIBIT INDEX 11 Statement Regarding Computation of Net Loss Per Share 27 Financial Data Schedule (filed as part of the electronic filing only) Exhibit 11 WEBFINANCIAL CORPORATION AND SUBSIDIARIES Statement Regarding Computation of Net Loss Per Share For the Nine For the Thirty-nine Months Ended Weeks Ended September 30, October 31, 1999 1998 --------------------------------- Net loss $ (1,363,000) $ (259,000) Basic and diluted weighted average common shares outstanding 4,381,000 4,316,000 Shares used in computation 4,381,000 4,328,000 Net loss per share $ (.31) $ (.06) EX-27 2
9 0000085149 WebFinancial Corporation 1,000 DOLLARS 9-MOS DEC-31-1999 JAN-1-1999 SEP-30-1999 1 7,142 0 0 0 0 1,236 1,236 9,892 144 20,880 5,436 250 704 0 0 0 4 14,003 20,880 265 130 0 776 381 116 660 144 303 2,673 (1,363) (1,363) 0 0 (1,363) (.31) (.31) 0 0 0 0 0 0 0 0 0 0 0 0
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