U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ______________
Commission file number: 1-14219
Transnational Financial Network, Inc
(Exact name of small business issuer as specified in its charter)
California 94-2964195
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 Taraval Street, San Francisco, CA 94116
(Address of principal executive offices) (Zip Code)
(415) 242-7800
(Registrant's telephone number)
Transnational Financial Corporation
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,279,310
<PAGE>
TRANSNATIONAL FINANCIAL NETWORK, INC.
JUNE 30, 1999
UNAUDITED
TABLE OF CONTENTS PAGE NUMBER
PART 1 ITEM 1 FINANCIAL INFORMATION
Condensed Balance Sheet as of June 30, 1999
And December 31, 1998 2
Condensed Statement of Operations
For the Three and Six Months
Ended June 30, 1999 and 1998 3
Statement of Cash Flows for the
Three Months Ended June 30, 1999 and 1998 4
Notes to Condensed Financial Statements 5
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION 12
- 1 -
<PAGE>
TRANSNATIONAL FINANCIAL NETWORK, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 500,309 $ 990,115
Mortgage loans held for sale, pledged (net of allowance for
loan losses: June 30, 1999, $42,500; December 31, 1998, $0) 14,248,823 62,540,846
Accrued interest receivable 48,513 45,524
Notes receivable 135,819 135,819
Real estate held for investment, net 192,989 195,308
Property and equipment, net 480,298 271,441
Other assets 657,842 287,342
----------------- ----------------
TOTAL ASSETS $ 16,264,593 $ 64,466,395
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse notes payable $ 6,432,923 $ 53,587,740
Accrued interest payable 159,159 462,487
Real estate mortgage 142,041 143,975
Accounts payable and accrued liabilities 328,963 1,026,378
Distributions payable to "S" corporation stockholders 0 65,742
----------------- ----------------
TOTAL LIABILITIES $ 7,063,086 $ 55,286,322
================= ================
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 2,000,000 shares
authorized, no shares issued or outstanding $ 0 $ 0
Common stock, no par value: 10,000,000 shares
authorized: 3,700,000 shares issued and outstanding, 8,453,059 8,453,059
Retained earnings 748,448 727,014
----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $ 9,201,507 $ 9,180,073
================= ================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,264,593 $ 64,466,395
================= ================
</TABLE>
See accompanying notes to condensed financial statements.
- 2 -
<PAGE>
TRANSNATIONAL FINANCIAL NETWORK, INC.
CONDENSED STATEMENTS OF OPERATIONS
JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME
Net gain from sales of mortgage loans $ 1,013,571 $ 1,126,844 $ 2,730,998 $ 1,879,857
Interest Income 483,216 823,558 1,512,747 1,460,316
Production Income 415,814 820,770 1,108,110 1,343,238
Other (2,145) 3,946 7,710 9,472
--------------- -------------- --------------- --------------
$ 1,910,456 $ 2,775,118 $ 5,359,565 $ 4,692,883
--------------- -------------- --------------- --------------
EXPENSES
Interest Expense $ 349,073 $ 1,135,876 $ 1,349,231 $ 1,921,382
Salaries and Benefits 1,378,108 775,234 2,809,183 1,288,707
General and Administrative 555,809 431,223 978,702 744,306
Office Occupancy 94,427 48,212 186,028 87,254
--------------- -------------- --------------- --------------
$ 2,377,417 $ 2,390,545 $ 5,323,144 $ 4,041,649
--------------- -------------- --------------- --------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES $( 466,961) $ 384,573 $ 36,421 $ 651,234
PROVISION (BENEFIT) FOR INCOME TAXES ( 196,433) 75,610 14,987 79,610
--------------- -------------- --------------- --------------
NET INCOME (LOSS) $( 270,528) $ 308,963 $ 21,434 $ 571,624
=============== ============== =============== ==============
EARNINGS (LOSS) PER SHARE
Basic $( .07) $ .12 $ .01 $ .22
Diluted $( .07) $ .12 $ .01 $ .22
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3,700,000 2,592,308 3,700,000 2,546,409
Diluted 3,700,000 2,592,308 3,700,000 2,546,409
PRO FORMA
Historical income before taxes on income $ 384,573 $ 651,234
Pro forma provision for income taxes 153,829 260,494
--------------- -------------- --------------- --------------
PRO FORMA NET INCOME $ 230,744 $ 390,740
=============== ============== =============== ==============
PRO FORMA EARNINGS PER SHARE
Basic $ .09 $ .15
Diluted $ .09 $ .15
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,592,308 2,546,409
Diluted 2,592,308 2,546,409
</TABLE>
See accompanying notes to condensed financial statements
- 3 -
<PAGE>
TRANSNATIONAL FINANCIAL NETWORK, INC.
CONDENSED STATEMENTS OF CASH FLOWS
ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1999 1998
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,434 $ 571,624
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale mortgage loans (2,755,973) (1,879,857)
Provision for loan losses (42,500) 0
Depreciation and amortization 54,943 16,391
Mortgage loans originated for sale (455,000,613) (384,195,839)
Proceeds from sales of mortgage loans 505,966,813 404,838,565
Net effect of changes in:
Net deferred loan fees 124,296 685,641
Accrued interest receivable (2,989) 41,496
Other assets (370,499) (5,833)
Accounts payable and accrued liabilities (697,416) 269,278
Accrued interest payable (303,328) ( 88,118)
--------------- ----------------
Net cash provided by operating activities 46,994,168 20,253,348
--------------- ----------------
Cash flows from investing activities:
Proceeds from sales and maturities of certificates of deposit 0 1,774
Purchase of property and equipment (261,481) (34,973)
--------------- ----------------
Net cash used by investing activities (261,481) (33,199)
--------------- ----------------
Net cash flows from financing activities:
Borrowings on warehouse notes payable 444,939,897 407,983,307
Payments on warehouse notes payable (492,094,714) (427,734,026)
Net proceeds from issuance of common stock 0 7,618,336
Payments on distribution payable to "S" corporation stockholders (65,742) (493,180)
Borrowings on note payable, subordinated 0 1,000,000
Receipt of note receivable, stockholders 0 250,000
Payments on real estate mortgage (1,934) (1,345)
Payment of note payable, subordinated 0 (1,000,000)
--------------- ----------------
Net cash used by financing activities $ (47,222,493) $ (12,376,908)
--------------- ----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (489,806) 7,843,241
--------------- ----------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 990,115 482,558
--------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 500,309 $ 8,325,799
=============== ================
CASH PAID DURING THE PERIOD FOR
Interest paid $ 1,652,559 $ 2,009,499
=============== ================
Income taxes paid $ 515,016 $ 0
=============== ================
</TABLE>
See accompanying notes to condensed financial statements
- 4 -
<PAGE>
TRANSNATIONAL FINANCIAL NETWORK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
NOTE 1 The accompanying financial statements of Transnational
Financial Network, Inc. (the "Company") are unaudited and
have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission.
Certain information and financial disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations.
Accordingly, these unaudited condensed financial statements
should be read in conjunction with the audited financial
statements included in the Company's Form 10-KSB for the
year ended December 31, 1998. These statements include all
adjustments consisting only of normal recurring accruals,
which are, in the opinion of management considered necessary
for a fair presentation of financial position and results of
operations.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 The results of operations of the Company for the six month
periods ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
NOTE 3 On June 24, 1998, the Company completed an initial public
offering of its common stock, which became listed on the
American Stock Exchange under the symbol TFN. 1,200,000
shares were sold for net proceeds of $7,419,719.
NOTE 4 On April 30, 1998, the Company changed its corporate charter
from an "S" Corporation to that of a "C" Corporation for
taxation purposes.
During the first four months of 1998, the Company
distributed Subchapter "S" earnings in the form of cash
dividends to its existing stockholders of $493,180. On April
30, 1998, the termination date of the subchapter "S"
election, the Company's stockholders' equity contained
dividends of $286,028 to which existing shareholders, as of
April 30, were entitled. These dividends were paid during
the remainder of 1998, except for $65,742 which was paid in
1999.
- 5 -
<PAGE>
NOTE 5 Pro Forma Information
Income Taxes - Effective April 30, 1998, the Company
terminated its S corporation status and became a C
corporation for tax purposes. The Company is now subject to
federal and state income taxes and recognizes deferred taxes
in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS
No. 109 requires companies subject to income taxes to adjust
their deferred tax assets and liabilities based on temporary
differences between financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
For information purposes, the condensed statements of
operations include an unaudited pro forma income tax
provision on income before income taxes for financial
reporting purposes using federal and state rates that would
have resulted if the Company had filed corporation tax
returns during the period in which the Company was an S
corporation.
Earnings (Loss) Per Share - Pro forma earnings (loss) per
share is computed by dividing pro forma net income (loss) by
the pro forma number of shares of common stock outstanding
during the respective period.
NOTE 6 Net Income (Loss) Per Share
Basic net (loss) income per share is computed by dividing
net income (loss) by the weighted average common shares
outstanding during the period. Diluted net income (loss) per
share is computed based on the weighted average number of
common shares outstanding adjusted for the common stock
equivalents, which include stock options. The following
table presents a reconciliation of basic and diluted net
income (loss) per share for the six months ended June 30,
1999 and 1998. For the six months ended June 30, 1999 and
1998, the effect of including outstanding options in the
calculation of diluted earnings (loss) per share would be
antidilutive. As a result, the effect of those outstanding
options has not been included in the calculations.
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30 June 30
1999 1998 1999 1998
(pro forma) (pro forma)
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Calculation of Basic Net Income (Loss) Per Share:
Numerator - net income (loss) $ (270,528) $ 230,744 $ 21,434 $ 390,740
Denominator -
Weighted average common shares outstanding 3,700,000 2,592,308 3,700,000 2,546,409
----------- ----------- ----------- ---------
Basic net income (loss) per share $ (0.07) $ 0.09 $ 0.01 $ 0.15
======= ===== ===== =====
Calculation of Diluted Net Income (Loss) Per Share:
Numerator - net income (loss) $ (270,528) $ 230,744 $ 21,434 $ 390,740
Denominator -
Weighted average common shares outstanding 3,700,000 2,592,308 3,700,000 2,546,409
----------- ----------- ----------- -----------
Dilutive effect of outstanding options - - - -
Diluted net income (loss) per share $ (0.07) $ 0.09 $ 0.01 $ 0.15
======= ===== ===== =====
</TABLE>
- 6 -
<PAGE>
NOTE 7 Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. The statement establishes accounting
and reporting standards for derivative instruments and
hedging activities. The statement is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. The
Company is in the process of determining the impact of SFAS
No. 133 on the Company's financial statements.
NOTE 8 Subsequent Event
On July 29, 1999, the Company acquired all of the issued and
outstanding stock of LRS, Inc., a Silicon Valley based
mortgage banking Company. Under the terms of the agreement,
the Company paid $3.6 million consisting of $1.5 million in
cash and 579,310 shares of Common Stock valued at $2.1
million. In addition, the Company may pay the former
stockholders of LRS, Inc. an aggregate of $3.2 million based
on the subsequent profitability of LRS, Inc. In 1998 LRS,
Inc. produced more than $1.0 billion in conforming mortgage
loans.
- 7 -
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements and the notes thereto
included as Item 1 of this Report. The discussion of results and
trends does not necessarily imply that these results and trends
will continue.
Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition
and Results of Operations and other sections of the Form 10-QSB
contain forward-looking information. The forward-looking
information involves risks and uncertainties that are based on
current expectations, estimates, and projections about the
Company's business, management's beliefs and assumptions made by
management. Words such as "expects", "anticipates", "intends",
"plans", "believes", "seeks", "estimates", and variations of such
words and similar expressions are intended to identify such
forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or
forecasted in such forward-looking information due to numerous
factors, including, but not limited to, availability of financing
for operations, successful performance of internal operations,
impact of competition and other risks detailed below as well as
those discussed elsewhere in this Form 10-QSB and from time to
time in the Company's Securities and Exchange Commission filings
and reports. In addition, such statements could be affected by
general economic and market conditions and growth rates.
GENERAL
Transnational Financial Network, Inc. ("TFN" or the "Company") is
a wholesale and retail mortgage banker which originates, funds
and sells mortgage loans secured by one to four family
residential properties in the San Francisco Bay area and Southern
California. During the second quarter of 1999, the Company opened
additional loan production offices in Houston, Texas and Phoenix,
Arizona.
The Company's results of operations is strongly affected by
interest rates. Throughout 1998 interest rates on 30 year
treasuries declined and have increased thus far throughout 1999.
In January, 1998, interest rates on 30 year treasuries were
approximately 5.85% and at the end of 1998 were approximately
5.1% after reaching a low of about 4.7% in October 1998. From
approximately 5.1% in January 1999, interest rates on 30 year
treasuries increased to approximately 6.0% at the end of June
1999, reaching almost 6.2% earlier that month.
Yields on mortgage loans closely parallel yields on treasury
securities, and increasing interest rates increase the cost of
home ownership resulting in diminished demand for mortgage loans.
The Company saw its volume of mortgage loans generally increase
throughout 1998, reaching a peak in February 1999, with mortgage
loan production averaging $98,954,931 in the first quarter of
1999. The Company's volume of mortgage loans dropped thereafter,
averaging $68,762,547 per month in the second quarter of 1999.
- 8 -
<PAGE>
Since May 1995, the Company's growth has been focused and driven
by the wholesale loan division. The following table sets forth
the Company's mortgage loan production for the first two quarters
of 1999 and 1998:
<TABLE>
<CAPTION>
Mortgage Loan Volume
for
Six Months of
1999 1998
First Quarter Second Quarter TOTAL First Quarter Second Quarter TOTAL
<S> <C> <C> <C> <C> <C> <C>
Wholesale $269,810,903 $185,189,710 $455,000,613 $166,206,275 $217,989,563 $384,195,838
Retail 27,053,889 21,097,932 48,151,821 28,328,830 28,711,820 57,040,650
------------- ------------- ------------- ------------- --------------------------
TOTAL $296,864,792 $206,287,642 $503,152,434 $194,535,105 $246,701,383 $441,236,488
</TABLE>
Overall, the Company's mortgage loan volume grew by 14.0% for the
first six months of 1999 when compared to the first six months of
1998 with wholesale mortgage loan production increasing by 18.4%
and retail mortgage loan production decreasing by 15.6%. However,
total mortgage loan production declined in the second quarter of
1999 when compared to the second quarter of 1998 by 16.4%, with
both wholesale and retail mortgage loan production declining in
the 1999 three month period, wholesale mortgage loan production
by 15.0% and retail mortgage loan production by 26.5%.
The Company has taken steps to increase wholesale mortgage loan
production with the opening of new offices in Houston, Texas and
Phoenix, Arizona, both of which will contribute production
beginning in the third quarter of 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the six month period ended June 30, 1999, the Company had net
income of $21,434 compared to pro forma net income of $390,740
for the same period in 1998. While the growth in revenues in 1999
generally match the increase in mortgage loan production, the
results for the six month period hide the declines in revenues
that occurred in the second quarter of 1999. (See "Three Months
Ended June 30, 1999 Compared to Three Months Ended June 30,
1998.") The overall increase in revenues for the six months ended
June 30, 1998, when compared to the same period in 1998, are more
than offset by increased expenses the Company incurred in the
1999 period.
Net gain on the sale of mortgage loans in the 1999 period
increased 45.3%. While mortgage loan production grew by 14.0%,
the increase in net gain on sale can be partially attributable to
more effective sales to investors and management of risk between
the funding of a mortgage loan by the Company and its eventual
sale.
- 9 -
<PAGE>
Production income declined by 17.5% in the 1999 period when
compared to the 1998 period. Production income is primarily
derived from loan fees from both wholesale and retail production.
Interest income is derived from payments received on mortgage
loans during the period prior to the mortgage loan being sold by
the Company. Interest expense is incurred under the Company's
warehouse line of credit when the Company is required to borrow
to fund mortgage loans. During the 1998 period, the cost of
borrowing exceeded the interest received by the Company on the
mortgage loans funded by the Company resulting in a net interest
expense of $461,066. In the 1999 period, the Company's borrowing
costs were much lower resulting in net interest income of
$163,516. The borrowing costs were lower because the Company
entered into a new warehouse line of credit in August 1998 that
had a lower interest rate than the previous warehouse line of
credit.
The increase in office occupancy costs of 113.2% is due to the
Company moving its San Francisco office to new office space in
September, 1998, to handle the increase in loan volume and during
the month of May, 1999 opening new loan production offices in
Houston and Phoenix.
Although revenues were up 14.2%, expenses increased 31.8%.
Excluding interest expense, expenses increased 87.4% with
occupancy expenses increasing 113.2%, general and administrative
expenses increasing 31.5% and salaries and benefits increasing
118.0%. These increased expenses reflect the Company's building
of corporate infrastructure to support a larger business,
although some of the increase in salaries and benefits reflects
compensation to the Company's Chief Executive Officer and
President who were compensated in the first part of 1998 through
dividends when the Company was an S corporation. Some of the
increase in salaries and benefits also reflects the Company's
hiring of senior management. Expenses incurred in the second
quarter of 1999 such as increased advertising expense, expenses
relating to opening the Phoenix and Houston offices and expenses
relating to software development for mortgage loan production to
occur on the internet further increased general and
administrative expenses in the first half of 1999 when compared
to the first half of 1998.
The Company is planning for mortgage loan volume to increase from
the present levels. These increases, if not the result of
interest rate declines, are anticipated to come through the
opening of additional offices and through acquisitions.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
The Company incurred a loss of $270,528 for the three months
ended June 30, 1999 compared to pro forma net income of $230,744
for the three months ended June 30, 1998. Revenues declined 31.0%
in the 1999 period when compared to the 1998 period with mortgage
loan production declining 16.4%. The net gain on sale of mortgage
loans declined in the later period by 10.1%, and production
income declined 49.3%.
Net interest income and expense was more favorable in the second
quarter of 1999 than the second quarter of 1998. In the second
quarter of 1998, the Company incurred net interest expense of
$312,318 compared to net interest income in the second quarter of
1999 of $134,143. The favorable result in 1999 reflects not only
the lower cost of borrowing discussed above but a smaller portion
of the mortgage loans funded by the Company coming from the
warehouse line of credit as opposed to the Company's own funds.
- 10 -
<PAGE>
The expense trends discussed above are reflected in results for
the second quarter of 1999. Excluding interest expense, expenses
increased 61.7% with office occupancy increasing 95.9%, general
and administrative expense increasing 28.9% and salaries and
benefits increasing 77.8%. Most of the increase in general and
administrative expenses relate to expenses of being publicly
held, expenses of increased advertising for the Company's retail
operations and expenses attributable to establishing the Phoenix
and Houston offices as well as expenses associated with the
Company's development of electronic commerce technology.
LIQUIDITY AND CAPITAL RESOURCES
On June 24, 1998 the Company successfully completed an Initial
Public Offering adding net proceeds of $7,419,719 to its
stockholders' equity to provide the capital infusion necessary to
facilitate additional growth of the wholesale division as well as
to lower the Company's overall cost of borrowing.
As a result of the public offering, during the third quarter of
1998, the Company began the use of new warehouse lines of credit
with the execution of a facility syndicated with several banks
providing up to $105 million and agented by Guaranty Federal Bank
of Dallas. In addition, the Company has been able to secure a
Whole Loan Purchase and Sales Agreement ("Gestation Repo Line")
with Greenwich Capital for $30 million and as additional Whole
Loan Purchases and Sales Agreement ("Gestation Repo Line") with
Gateway Bank for $50 million. These new credit facilities have
begun to reduce the Company's interest expense beginning in the
third month of the third quarter of 1998 due to its borrowings
now being based on LIBOR plus 1.50% for the warehouse line and
LIBOR plus 1% on the Gestation Repo lines, both of which have
reduced interest expense compared to the Company's warehouse line
in the first half of 1998 which charged LIBOR plus 2.75%.
YEAR 2000
The Company recognizes the need to ensure its operations will not
be adversely impacted by Year 2000 software failures. The
Company's internal computer operations are run on IBM compatible
person computers running recently released standard software
certified as complying with Y2K standards or recently purchased
software, similarly certified. The Company does not use
minicomputers or mainframes using software developed several
years ago. The focus of the Company's software purchases has been
on the implementation of systems necessary to support the
Company's growth, making certain that additional software
purchases or developed internally comply with Year 2000 issues.
Accordingly, the Company believes that there is little risk that
its computers or software will fail after December 31 of this
year and the Company has not adopted contingency plans based on
its assessment of those risks. Since the Year 2000 issue has been
addressed in the context of expansion of the Company's business,
the Company has not identified separately costs associated with
compliance with of Y2K issues.
In addition to the Company's internal computer systems, the
Company depends upon the effective operations of the financial
institutions with which the Company deals as well as of the
United States financial system as administered by the United
States Federal Reserve Board. The Company has representations
from the institutions with which it deals that the Year 2000 does
not pose a risk to those institution's operations.
- 11 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS OF VOTE TO SECURITY HOLDERS
On May 12, 1999, the registrant held its annual meeting of shareholders. At
that meeting, directors were re-elected, the name of the corporation was
changed, the number of shares authorized under the registrant's incentive
stock plan were increased from 300,000 to 500,000 and the appointment of
Deloitte & Touche LLP as the registrant's independent auditors was
ratified. The results of the voting was as follows:
Directors:
Name FOR AGAINST
Joseph Kristul 3,275,425 198,360
Maria Kristul 3,275,425 198,360
Eugene Kristul 3,275,425 198,360
Hilary Whitley 3,275,425 198,360
Robert A. Shuey 3,275,425 198,360
Robert A. Forrester 3,275,425 198,360
Increase in the number of shares authorized under the 1998 Incentive Stock
Option Plan:
FOR AGAINST ABSTAIN
2,476,431 256,100 4,800
Change the name of the Corporation to Transnational Financial Network,
Inc.:
FOR AGAINST ABSTAIN
3,476,485 4,200 2,100
Ratification of Deloitte & Touche LLP as independent auditors:
FOR AGAINST ABSTAIN
3,472,425 1,260 100
- 12 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Transnational Financial Corporation
August 16, 1999 /s/ Joseph Kristul
--------------------------------------------
Joseph Kristul, Chief Executive Officer
And Principal Financial Officer
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 500,309
<SECURITIES> 14,248,823
<RECEIVABLES> 184,332
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 480,298
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,264,593
<CURRENT-LIABILITIES> 0
<BONDS> 6,432,923
0
0
<COMMON> 9,201,507
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,264,593
<SALES> 5,359,565
<TOTAL-REVENUES> 5,359,565
<CGS> 0
<TOTAL-COSTS> 5,323,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,421
<INCOME-TAX> 14,987
<INCOME-CONTINUING> 21,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,434
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
