United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________ to __________
Commission File Number 000-26787
Mortgage.com, Inc.
Exact name of registrant as specified in its charter
Florida 65-0435281
--------- -------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1643 North Harrison Parkway, Sunrise, FL 33323
(Address of principal executive offices)
(954) 838-5000
(Issuer's telephone number)
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 ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class On May 10, 2000
----- ---------------
Common Stock, $ .01 par value 44,280,263
<PAGE>
MORTGAGE.COM, INC.
INDEX TO FORM 10-Q
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 (Unaudited)...................................3
Consolidated Statements of Operations for the three month
periods ended March 31, 2000 and 1999 (Unaudited)...............4
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2000 and 1999 (Unaudited)...............5
Notes to Consolidated Financial Statements......................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.....19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................21
ITEM 2. Changes in Securities and Use of Proceeds......................21
ITEM 3. Defaults Upon Senior Securities................................21
ITEM 4. Submission of Matters to a Vote of Securities Holders..........21
ITEM 5. Other Information..............................................22
ITEM 6. Exhibits and Reports on Form 8-K...............................22
Signature ...........................................................23
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
<TABLE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
<CAPTION>
March 31, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents ............................................... $ 21,996 $ 7,537
Mortgage loans available for sale, net .................................. 99,182 93,120
Property and equipment, net ............................................. 14,965 16,408
Capitalized software development costs, net ............................. 3,277 2,817
Goodwill and other intangible assets, net ............................... 9,375 9,780
Other assets ............................................................ 7,726 8,413
---------------- ----------------
Total assets ....................................................... $ 156,521 $ 138,075
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Warehouse and other notes payable ....................................... $ 96,590 $ 88,399
Accounts payable, accrued expenses and other liabilities ................ 5,375 13,691
Capital lease obligations................................................ 3,346 2,409
---------------- ----------------
Total liabilities .................................................. 105,311 104,499
---------------- ----------------
Minority interest ....................................................... 170 249
Shareholders' equity:
Preferred stock of Opernclose.com, Inc. subsidiary, $.01 par value.
Authorized 10,000,000 shares; issued and outstanding 3,000,000
and no shares respectively ......................................... 30 --
Preferred stock, $.01 par value. Authorized 15,000,000 shares;
no shares issued and outstanding ................................... -- --
Common stock, $.01 par value. Authorized 210,000,000 shares; issued
and outstanding 44,001,992 and 43,221,964 shares, respectively ..... 440 432
Additional paid-in capital ........................................... 136,944 107,011
Unearned compensation ................................................ (8,326) (8,860)
Accumulated deficit .................................................. (78,048) (65,256)
---------------- ----------------
Total shareholders' equity ......................................... 51,040 33,327
---------------- ----------------
Total liabilities and shareholders' equity ......................... $ 156,521 $ 138,075
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
------------------
March 31
--------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Revenues:
Secondary marketing revenue, net ........................... $ 5,488 $ 8,600
Loan production and processing fees, net ................... 2,292 2,598
Management, technology and other fees ...................... 714 1,991
Interest income ............................................ 1,673 2,677
------------- --------------
Total revenues ................................................ 10,167 15,866
------------- --------------
Expenses:
Compensation and employee benefits ......................... 11,989 9,645
Marketing and advertising................................... 1,123 1,536
Research and development ................................... 418 777
Depreciation and amortization .............................. 2,029 698
General and administrative ................................. 5,773 3,759
Interest expense ........................................... 1,706 2,650
------------- --------------
Total expenses ................................................ 23,038 19,065
------------- --------------
Loss before minority interest ................................. (12,871) (3,199)
Minority interest ............................................. 79 --
------------- --------------
Net loss ...................................................... $ (12,792) $ (3,199)
============= ==============
Net loss ................................................... $ (12,792) $ (3,199)
Preferred stock dividends:
Paid ..................................................... -- (179)
Cumulative unpaid ........................................ -- (750)
------------- --------------
Net loss available to common shareholders ..................... $ (12,792) $ (4,128)
============= ==============
Net loss per share - basic and diluted $ (.30) $ (.44)
============= ==============
Weighted average number of shares.............................. 43,385 9,492
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
------------------
March 31
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net cash flows from operating activities:
Net loss ............................................................. $ (12,792) $ (3,199)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Amortization and depreciation ...................................... 2,029 698
Amortization of unearned compensation .............................. 534 193
Provision for losses ............................................... 158 111
Loss on disposal of property and equipment ......................... 121 --
Minority interest................................................... (79) --
(Increase) decrease in mortgage loans available for sale, net ........ (6,289) 10,232
Changes in other assets and liabilities:
Decrease (increase) in other assets................................. 642 (1,311)
(Decrease) increase in accounts payable, accrued expenses and other
liabilities......................................................... (7,533) 419
Decrease in deferred revenue........................................ -- (1,012)
---------------- ----------------
Net cash (used in) provided by operating activities ..................... (23,209) 6,131
---------------- ----------------
Net cash flows from investing activities:
Additions to capitalized software development costs .................. (839) (501)
Additions to property and equipment................................... (553) (110)
Proceeds from sale and leaseback of property and equipment............ 1,293 --
Purchase of companies, net of cash acquired .......................... -- (91)
Additions to intangible assets ....................................... -- (234)
---------------- ----------------
Net cash used in investing activities ................................... (99) (936)
---------------- ----------------
Net cash flows from financing activities:
Net proceeds (repayments) from warehouse notes payable ............... 8,193 (12,127)
Proceeds from issuance of subordinated debentures..................... -- 10,000
Proceeds from other notes payable .................................... -- 100
Payment of other notes payable ....................................... (2) (2)
Payment of capital lease obligations ................................. (394) (148)
Proceeds from issuance of common stock ............................... -- 1
Costs of issuance of preferred stock ................................. -- (2)
Proceeds from exercise of stock options .............................. 255 --
Proceeds from exercise of warrants ................................... 427 --
Proceeds from sale of interest in subsidiary ......................... 30,000 --
Costs of sale of interests in subsidiary ............................. (710) --
Dividends paid ....................................................... -- (179)
---------------- ----------------
Net cash provided by (used in) financing activities ..................... 37,767 (2,357)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents .................... 14,459 2,838
Cash and cash equivalents at beginning of period......................... 7,537 3,413
---------------- ----------------
Cash and cash equivalents at end of period............................... $ 21,996 $ 6,251
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............................. $ 1,960 $ 2,738
================ ================
Cash paid during the period for income taxes ......................... $ 4 $ 1
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
MORTGAGE.COM, INC.
Item 1. Notes To Unaudited Consolidated Financial Statements
1. Description of Business
-----------------------
Mortgage.com, Inc. (the "Company"), is incorporated in Florida and
provides online mortgage services to consumers and to other businesses. The
Company has developed state-of-the-art technology to support its own loan
origination, processing, underwriting, closing and secondary marketing of
mortgage loans and is using this technology as a platform to enable other
industry participants to improve the efficiency and effectiveness of their
operations.
The Company commenced operations in 1994 as a wholesale mortgage lender
providing independent mortgage brokers with various support services, including
processing and closing services, as well as a source of funding for their loans.
In 1995, the Company acquired a software system designed to support mortgage
origination, processing, underwriting and closing operations. This system was
enhanced and became known as CLOser, a proprietary platform that supports all of
the services that the Company offers. The Company uses the CLOser software
system to enable financial institutions and non-traditional mortgage originators
such as realtors and homebuilders to originate mortgages as an ancillary
service. The Company also uses the CLOser platform to provide management
processing and back-office services to those customers on an outsourced basis
and also provides funding for the mortgages originated by them.
In January 1999, the Company changed its name from First Mortgage
Network, Inc. to Mortgage.com, Inc.
2. Unaudited Interim Consolidated Financial Statements
---------------------------------------------------
The consolidated financial statements as of March 31, 2000 and for the
three month periods ended March 31, 2000 and 1999 are unaudited. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and should be read in conjunction with
the Company's audited consolidated financial statements as of and for the year
ended December 31, 1999 as set forth in the Company's Annual Report on Form
10-K. In the opinion of management, all adjustments of a recurring nature which
are necessary to present a fair statement of results for the interim periods
have been made. The unaudited results of operations for the interim periods are
not necessarily indicative of the results for the full year or any future
period.
All share and per share amounts, and additional paid-in capital, have
been restated to reflect a seven-for-one common stock split effective August 11,
1999.
3. Use of Estimates
----------------
In preparation of the consolidated financial statements, management has
considered all events and/or transactions that are subject to reasonable and
normal methods of estimation, and the financial statements reflect that
consideration. Management of the Company has made a
6
<PAGE>
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
4. Other Assets
------------
The Company entered into an agreement in 1996 to sell internally
developed software to an investment firm. As a condition to the agreement, the
Company entered into a ten-year distribution and profit sharing agreement for
the software with the same investment firm. The purchase price of the software
was $10,800,000 of which $1.61 million was received in cash. Due to certain
contract contingencies, the proceeds from the transaction, net of related costs,
were recorded as deferred revenue to be recognized when the contingencies were
satisfied. The related note was included in accounts and notes receivable on the
balance sheet at December 31, 1998 at its discounted net present value and, due
to the contingencies affecting collectibility, was fully reserved for at
December 31, 1998. On March 31, 1999, this software profit sharing agreement was
sold to an unrelated company as part of a sale of a subsidiary of the Company.
The Company was relieved of any further obligations. As a result, the $1.01
million in deferred revenue was recorded as management, technology and other
fees income in the three months ended March 31, 1999.
5. Shareholders' Equity
--------------------
(a) Common Stock Transactions
During January 1999, the Company issued 140,000 shares of common stock
at a value of $4.61 per share in connection with the acquisition of the Internet
domain name www.mortgage.com as described in Note 5.
Options to purchase 185,028 shares of common stock were exercised
during the three month period ending March 31, 2000.
(b) Stock Warrant Transactions
During the three month period ending March 31, 2000, 595,000 common
stock warrants were exercised.
On January 1, 2000, the Company issued warrants to purchase 233,331
shares of common stock to John Rodgers, Andrew Heller and Kyle Meyer as earn-out
consideration in connection with our merger with American Finance & Investment
in 1998. The exercise price of the warrants is $1.071. The issuance of these
warrants is exempt pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering.
On March 27, 2000, the Company issued warrants to purchase 332,060
shares of common stock to Ladenburg Thalmann & Co., Inc. in consideration of
certain investment banking services performed in connection with an equity line
of credit we entered into with Sugarplum Investments Limited. The exercise price
of the warrants is $2.4092. The issuance of
7
<PAGE>
these warrants is exempt pursuant to Section 4(2) as a transaction by an issuer
not involving a public offering.
On March 27, 2000, the Company issued warrants to purchase 332,060
shares of common stock to Sugarplum Investments Limited in consideration of
Sugarplum providing us with an equity line of credit. The exercise price of the
warrants is $2.4092. The issuance of these warrants is exempt pursuant to
Regulation S under the Securities Act of 1933. Ladenburg Thalmann & Co. Inc.
acted as placement agent in connection with the issuance of these warrants and
received warrants to purchase 332,060 shares of common stock as partial
compensation for its services.
(c) Openclose.com, Inc. Subsidiary
On January 27, 2000, the Company contributed certain assets
constituting the Company's "Openclose" division to a newly formed corporation,
Openclose.com, Inc., in exchange for $24 million in cash and common stock of
Openclose.com representing 51 percent of its outstanding securities.
Simultaneously with this contribution, certain accredited investors contributed
$30 million in cash to Openclose.com in exchange for convertible preferred stock
representing the remaining 49 percent of its outstanding securities. The assets
contributed by the Company consisted primarily of the www.openclose.com Internet
web site, the programming and computer code, and certain customer contracts
pertaining to the web site. These contributed assets were carried on the
Company's balance sheet at a nominal amount. The Company has accounted for the
transaction as a capital contribution.
(d) Additional Financing
On March 27, 2000, the Company entered into a common stock purchase
agreement with an investor granting the Company an option to sell stock to that
investor over the next 24 months, commencing on the effective date of a
registration statement. Under this commitment, the Company will be able to sell,
subject to certain conditions, up to a total of $40 million of its unissued
common stock.
(e) Unearned Compensation
Unearned compensation resulted when stock options were granted in 1998
and 1999 at prices that were subsequently determined to be less than their
estimated fair value. The Company recorded an estimate of the excess of fair
value over the exercise price of approximately $16.6 million as a separate
component of shareholders' equity. During the three month periods ended March
31, 2000 and 1999, the Company amortized approximately $534,000 and $193,000 to
compensation and employee benefits expense, respectively. As the Company's stock
option plan has a five-year vesting requirement, the remaining deferred
compensation cost is being amortized on a straight line basis over the vesting
period. Stock-based compensation is a non-cash expense.
8
<PAGE>
6. Income Taxes
------------
No current or deferred provision for income taxes was recorded for the
three month periods ended March 31, 2000 and 1999 due to the Company's operating
losses in the respective periods.
7. Segment Information
-------------------
The Company operates in two reportable business segments: the Direct to
Consumer reportable Segment, which includes the Mortgage.com Internet web site
which originates mortgage loans that are subsequently sold in the secondary
market; and the Business to Business reportable Segment, which includes
back-office mortgage services for lenders, realtors, homebuilders and software
and Internet conduits, technology platform licenses to mortgage industry
participants and the Openclose.com web site that enables brokers, lenders and
insurance companies to conduct their business through a neutral Internet site
with selected financial institutions using automated underwriting capabilities
provided by the Federal National Mortgage Association. The Business to Business
reportable Segment generates revenues by charging fees for these services or by
funding and selling loans originated through a business customer in the
secondary market. These segments are characterized by the nature of their
customers and represent components of the Company about which separate financial
information is available that is evaluated by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. Summarized
financial information concerning the business segments is shown in the following
table: (Certain expenses that are not directly attributable to the business
channels have not been allocated to segments in these tables.)
<TABLE>
<CAPTION>
(In Thousands) Business to Direct to
Total Business Consumer
--------------- -------------- --------------
<S> <C> <C> <C>
Three months ended March 31, 2000
Revenues:
Secondary marketing revenue, net .................... $ 5,488 $ 5,077 $ 411
Loan production and processing fees, net ............ 2,292 2,050 242
Management, technology and other fees ............... 714 709 5
Interest income ..................................... 1,673 1,486 187
--------------- -------------- --------------
Total revenues ........................................ 10,167 9,322 845
9
<PAGE>
Expenses:
Compensation and employee benefits .................. 10,021 9,526 495
Marketing and advertising........................... 1,118 1,115 3
Depreciation and amortization ....................... 1,539 1,487 52
General and administrative .......................... 3,737 3,523 214
Interest expense .................................... 310 289 21
--------------- -------------- --------------
Total segment expenses ................................ 16,725 15,940 785
-------------- --------------
Segment loss .......................................... $ (6,618) $ 60
-------------- --------------
Research and development not allocated to segments .... 418
Expenses not allocated to segments .................... 5,895
---------------
Total expenses ........................................ 23,038
---------------
Loss before minority interest ......................... (12,871)
Minority interest ..................................... 79
---------------
Net loss .............................................. $ 5,895
===============
Segment assets at March 31, 2000 ......................... $ 99,182 $ 84,690 $ 14,492
-------------- --------------
Other assets not allocated to segments ................... 57,339
---------------
Total assets ............................................. $ 156,521
===============
Three Months ended March 31, 1999
Revenues:
Secondary marketing revenue, net .................... $ 8,600 $ 6,147 $ 2,453
Loan production and processing fees, net ............ 2,598 2,065 533
Management, technology and other fees ............... 1,991 1,991 --
Interest income ..................................... 2,677 2,155 522
--------------- -------------- --------------
Total revenues ........................................ 15,866 12,358 3,508
--------------- -------------- --------------
Expenses
Compensation and employee benefits .................. 8,753 6,246 2,508
Marketing and advertising........................... 1,349 998 351
Depreciation and amortization ....................... 385 293 91
General and administrative .......................... 2,988 2,482 506
Interest expense .................................... 2,507 2,005 502
----------- -------------- --------------
Total segment expenses ................................ 15,982 12,025 3,957
-------------- --------------
Segment loss .......................................... $ 333 $ (449)
-------------- --------------
Research and development not allocated to segments .... 776
Expenses not allocated to segments .................... 2,307
---------------
Total expenses ........................................ 19,065
---------------
Net loss ............................................. $ (3,199)
===============
10
<PAGE>
Segment assets at March 31, 1999 ......................... $ 166,149 $ 113,713 $ 52,436
Other assets not allocated to segments ................... 22,656
---------------
Total assets ............................................. $ 188,805
===============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the financial condition and results of
operations of Mortgage.com, Inc. should be read in conjunction with the
Financial Statements and the related Notes included in this Form 10-Q. This
discussion contains, in addition to historical information, "forward-looking"
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believe," "expect,"
"future," "plan" and "intend," and similar expressions, to identify
forward-looking statements. You should be aware that actual results may differ
materially from our expressed expectations because of risks and uncertainties
inherent in future events, and you should not unduly rely on these forward
looking statements.
Overview
- --------
We are a provider of mortgage services to consumers and to businesses
and a leading provider of such services on the Internet. We have developed
state-of-the-art technology to support the origination, processing,
underwriting, closing and secondary marketing of mortgage loans. We use this
technology as a platform to provide mortgage financing directly to borrowers and
to enable our clients, such as mortgage brokers, mortgage banks, Realtors and
homebuilders, to improve the efficiency and effectiveness of their operations.
We provide origination, processing, underwriting, closing, funding and
post-closing mortgage services, and the technology to support these services,
to other mortgage industry participants through our business-to-business
channels. We enable these business clients to efficiently conduct the mortgage
process by providing them with:
o private label mortgage services, where we provide mortgage
services that our clients can market under their own brand names;
o co-branded mortgage services, where we provide mortgage services
that we and our clients jointly market under both of our brand
names;
o back office services, where we provide the behind-the-scenes
administrative and operational portions of the mortgage process
for our clients and licenses of our proprietary technology,
including CLOser and its Internet interface.
We provide similar services for mortgages originated directly with
borrowers through our direct-to-consumer channels. We originate mortgages
directly with borrowers through
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<PAGE>
www.mortgage.com and several other web sites and through our loan counselors
stationed at the point-of-sale of homes. In February 2000, we initiated plans to
convert our loan officer point of sale originations to the installation of
various web-based solutions in the offices of our Realtor and homebuilder
clients. We have also enabled our loan officers to market point of sale Internet
solutions to real estate and other companies.
We also developed www.openclose.com, a web site where participating
mortgage lenders, brokers and loan correspondents pay for the opportunity to
exchange lender product and pricing information, automated underwriting data,
mortgage insurance certificates and borrower application information in an
online environment. The www.openclose.com web site became available for
commercial use in 1999 and over 1,160 brokers and 24 lenders have agreed to
participate in the program as of May 10, 2000.
On January 27, 2000, we contributed assets associated with the
www.openclose.com business to a newly formed subsidiary, Openclose.com, Inc., in
exchange for $24 million in cash and common stock representing 51% of the
subsidiary's outstanding securities. The remainder of the outstanding securities
of Openclose.com were purchased by accredited investors that contributed $30
million in cash to Openclose.com in exchange for convertible preferred stock.
Among the assets contributed were co-ownership of the www.openclose.com Internet
web site, the programming and computer code used exclusively in connection with
the site, trade rights associated with this programming and code and ownership
of certain customer contracts pertaining to www.openclose.com. The assets
contributed had been carried on our balance sheet at a nominal amount.
Loans that we originate directly from borrowers or through our business
clients generate loan origination fees. Loans that we fund, including loans
originated by our business partners and clients, generate gains or losses when
we sell the loans to independent mortgage investors in the secondary market.
When we sell a loan in the secondary market, we achieve a net gain, or suffer a
net loss, equal to the difference between the amount we funded or paid for the
loan and the price at which the loan is sold to the secondary market investor.
Typically, we obtain commitments from investors to buy loans on a loan-by-loan
basis at the same time we lock an interest rate for the borrower. We have sold
and intend to continue to sell all loans, together with the associated servicing
rights, in the secondary market. Origination fees, or "points," and secondary
marketing gains or losses are recorded as "Secondary marketing revenue, net" in
our financial statements.
Other services, including loan underwriting and processing, and
obtaining appraisals and credit reports, generate fees payable by the borrower
at closing. These fees are offset against amounts paid to third parties for the
provision of some of these services and, along with underwriting and closing
fees, are reflected in "Loan production and processing fees, net" in our
financial statements.
Fees for the use of our technology and related support services,
including technology licensing and maintenance fees and fees earned from
creating and maintaining private label web sites, are reflected in "Management,
technical and other fees" in our financial statements.
12
<PAGE>
The cost of funds under our financing arrangements is based on
short-term interest rates, while the rates we charge borrowers on mortgage loans
are based generally on intermediate-term interest rates. We generate net
interest income on mortgage loans if the intermediate-term interest rate paid by
the borrower on the mortgage loan exceeds the short-term interest rate we are
charged under our financing arrangements. Conversely, we suffer net interest
losses if the short-term interest rate under our financing arrangements exceeds
the intermediate-term interest rate paid by the borrower on the mortgage loan.
We try to minimize the length of time between closing of the loan and delivery
of the loan to secondary market investors, which is especially important when
intermediate-term rates have declined to the levels of short-term rates. The
interest we earn on the loans we fund is recorded as "Interest income", and the
interest we pay under our financing arrangements, along with other interest
incurred on debt obligations, is recorded as "Interest expense" in our financial
statements.
We have experienced substantial losses since inception and, as of
March 31, 2000, have an accumulated deficit of $78.0 million. These net
losses and the accumulated deficit are a result of investments in our technology
infrastructure and personnel in anticipation of growth in loan volumes from both
our business-to-business and direct-to-consumer channels and from a $10 million
advertising campaign in 1999 to increase the awareness of the Mortgage.com brand
name. We do not expect to be profitable until at least the latter half of 2002.
Our plan to achieve profitability includes:
o a reduction in our costs per loan through economies of scale we
achieve from higher loan volumes;
o developing the recognized standard technology platform for
originating, underwriting, processing, closing and selling
mortgages over the Internet;
o increased automation of the loan process, which will reduce our
cost to produce each loan; and
o improved terms of sale on loans we sell in the secondary market.
We will be able to realize improved terms on sales in the secondary
market because our negotiating leverage increases as our loan volumes increase.
We also are working to improve our risk management and are considering hedging
strategies to help manage the risk.
We have completed our brand advertising campaign and plan to use our
marketing and technology infrastructure to enhance loan production volumes
through partnerships and business alliances with business partners. We expect to
raise additional funds in the private and public capital markets and intend to
invest available funds heavily in developing these new partnerships and
strategic alliances, our operating infrastructure and supporting
www.openclose.com. Our operations have historically been centered in Florida and
California. This is partially due to the state of our incorporation and the
states where we have acquired businesses, and partially because Florida and
California represent two of the largest real estate markets in the United
States. We intend to use the Internet to expand our geographic scope to every
potential mortgage borrower in the United States.
13
<PAGE>
On October 7, 1999, we terminated our agreement with Intuit Lender
Services, Inc. ("ILSI") for the provision of conforming loan mortgage services
to the Quicken mortgage.com web site. Upon notice of termination, we were
immediately relieved of certain exclusivity restrictions, and minimum loan
obligations specified in the agreement will be reduced by 1/12 per month over a
12-month period. We processed 631 loans from the agreement in the quarter ended
March 31, 2000, and we anticipate the reduced loan volume from this termination
will be replaced by new co-branded Internet channels on better economic terms
for the Company. In addition, on November 9, 1999, ILSI terminated a second
agreement concerning the provision for sub-prime mortgage services. Upon notice
of termination, we were immediately relieved of certain exclusivity restrictions
and minimum loan obligations specified in the agreement will be reduced by 1/9
each month over a period of nine months. We processed 26 loans from this
agreement in the quarter ended March 31, 2000, and accordingly, do not
anticipate that the termination of this agreement will have a material adverse
effect on the Company's sub-prime loan business.
Our limited operating history makes it difficult to forecast future
operating results. Although our revenue has grown significantly in recent years,
we cannot assure you that we will be able to sustain revenue growth or achieve
and maintain profitability. Even if we were to achieve profitability, we expect
material fluctuations in quarterly revenue and earnings to result from a number
of factors, including:
o changes in interest rates;
o loss of strategic relationships;
o changes in competitive pressures on pricing or quality of service;
o seasonal variations in demand for mortgages;
o general economic conditions;
o system failures or Internet down time;
o changes in state or federal government regulations and their
interpretations, especially with respect to the mortgage and
Internet industries;
o our ability to enhance our information technology to keep pace
with changes in the industry; and
o changes in attitudes of consumers doing business over the
Internet.
As a result, we do not believe that our historical results are
necessarily indicative of results to be expected in any future period.
Results of Operations
- ---------------------
The following table sets forth the percentage of total revenue
of selected line items included in our statement of operations for the periods
indicated:
14
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited) March 31,
----------------------------------
2000 1999
-------------- -----------------
<S> <C> <C>
Revenue:
Secondary marketing revenue, net .................................. 54.0 % 54.2 %
Loan production and processing fees, net .......................... 22.5 16.4
Management, technology and other fees ............................. 7.0 12.5
Interest income.................................................... 16.5 16.9
--------------- ----------------
Total revenue ........................................................ 100.0 100.0
--------------- ----------------
Expenses:
Compensation and employee benefits ................................ 117.9 60.8
Marketing and advertising.......................................... 11.0 9.7
Research and development .......................................... 4.1 4.9
Depreciation and amortization ..................................... 20.0 4.4
General and administrative ........................................ 56.8 23.7
Interest expense .................................................. 16.8 16.7
--------------- ----------------
Total expenses ....................................................... 226.6 120.2
--------------- ----------------
Loss before minority interest ........................................ (126.6) (20.2)
Minority interest .................................................... 0.8 -
--------------- ----------------
Net loss ............................................................. (125.8) % (20.2) %
=============== ================
</TABLE>
Comparison of Three Months Ended March 31, 2000 to March 31, 1999
Revenue
- -------
Total revenue decreased 36% to $10.2 million for the three months ended
March 31, 2000 from $15.9 million in the comparable period in 1999. The total
dollar amount of closed loans that we originated was $571 million for the three
month period ended March 31, 2000, $484 million from purchase-money mortgages
and $87 million from refinances. In the comparable period in 1999, we originated
$752 million in dollar amount of closed loans, $353 million from purchase-money
mortgages and $399 million from refinances. From these originations, we funded
and sold in the secondary market $383 million for the three month period ended
March 31, 2000 as compared to $606 million in the comparable period last year.
Other mortgage lenders funded the loans that we originated but chose not to
fund. The decrease in revenue resulted primarily from lower volumes of loans
originated due to the effect of higher interest rates on mortgage demand in
2000.
Secondary marketing revenue, net. Gains and other revenue from the
origination and secondary marketing of mortgage loans decreased 36% to $5.5
million for the three month period ended March 31, 2000 from $8.6 million in the
comparable period in 1999. The decrease resulted primarily from the decreases in
the total dollar amount of loans we originated, funded and sold due to the
effect of higher interest rates on loan demand in 2000, especially on refinanced
loans.
Loan production and processing fees, net. Total loan production and
processing fees, less amounts paid to third parties for processing services,
decreased 12% to $2.3 million for the three
15
<PAGE>
months ended March 31, 2000 from $2.6 million in the comparable period in 1999.
The decrease in production and processing fees resulted from an overall decrease
in loan volume. Approximately 26.5% and 17.0% of these fees came from ILSI
during the three month periods ended March 31, 2000 and 1999, respectively. Fees
from ILSI in the three months ended March 31, 2000 included $420,000 from the
settlement of outstanding fees in the termination of the contracts. Fees from
this source will cease in future periods with the phase-out of the ILSI
contract.
Management, technology and other fees. Total revenue from management,
technology and other fees decreased 64% to $714,000 for the three month period
ended March 31, 2000 from $2.0 million in the comparable period in 1999. The
1999 amount includes recognition of $1.0 million in previously deferred revenue
from the sale of software that we no longer use in our business. Also, specific
software development and projects for others that generated income in 1999 were
completed prior to 2000.
Interest income. Interest income decreased 37% to $1.7 million for the
three month period ended March 31, 2000 from $2.7 million in the comparable
period in 1999. The decrease was primarily related to lower volume of originated
loans and of loans earning interest prior to sale.
Expenses
- --------
Total expenses increased 2% to 23.0 million in the three months ended
March 31, 2000 from $19.1 million in the comparable period in 1999. This
increase reflects the overall growth that has occurred throughout 1999 to
initiate and develop our business-to-business strategy. The personnel,
occupancy, equipment and other costs have been incurred to position us to
accomplish this strategy.
Compensation and employee benefits. Compensation and employee benefits
consist primarily of management and employee salaries, bonuses and commissions
and related costs as well as the cost of personnel from temporary agencies.
Total compensation and benefit costs increased 25% to $12.0 million for the
three month period ended March 31, 2000 from $9.6 million in the comparable
period in 1999. Compensation and benefits represents 117.9% of revenues in the
three months ended March 31, 2000 and 60.8% of revenues in the comparable period
in 1999. The dollar increase in total compensation and benefit costs resulted
primarily from an increase in personnel from 594 at March 31, 1999 to 658 at
March 31, 2000 to support our Internet expansion and related technical and
administrative support services. We expect total compensation and employee
benefits to decrease in absolute dollars as we have initiated a restructuring of
operations to fully develop our business to business strategy. This initiative
combines operational responsibilities into more effective units requiring fewer
personnel than we had at December 31, 1999, when we employed 776 personnel. We
also expect efficiencies to result from our use of technological advancements to
reduce the time and paper trail used in originating mortgages. Total
compensation and benefit costs increased as a percentage of revenue due to the
reduced revenue level discussed above.
Included in "Compensation and employee benefits" is the amortization of
unearned compensation which resulted when stock options we granted during 1998
and 1999 were
16
<PAGE>
subsequently deemed to have exercise prices less than the estimated fair market
value of our common stock at the time of grant. In 1999, we recorded
approximately $16.6 million in unearned compensation, and we amortized
approximately $534,000 and $193,000 of that amount to expense in the three month
periods ended March 31, 2000 and 1999, respectively. The remaining balance will
be amortized on a straight line basis over the remaining vesting periods of the
underlying options. Stock-based compensation is a non-cash expense.
Marketing and advertising. Marketing and advertising expenses consist
primarily of leads generated through Internet marketing and distribution
agreements or co-branding arrangements, as well as the cost of trade-show
participation. Marketing and advertising expenses also include fees paid to
other web sites and business partners for lead generation. Marketing and
advertising expenses decreased 27% to $1.1 million for the three month period
ended March 31, 2000, or 11.0% of revenue, from $1.5 million in the comparable
period in 1999, or 9.7% of revenue. The decrease was directly related to the
reduced levels of co-branding costs with the termination of the ILSI contracts.
We believe that marketing and advertising expenses will increase as we expand
our strategic partnerships with other web sites to drive more traffic to our web
site. There were no expenses related to the 1999 branding advertising campaign
in either period.
Research and development. Research and development costs consist
primarily of compensation and benefit costs of development personnel, materials,
computer equipment and supplies consumed in software development and related
facility costs. Research and development expenses decreased 46% to $418,000 for
the three months ended March 31, 2000, or 4.1% of revenue, from $777,000 in the
comparable period in 1999, or 4.9% of revenue. These expenses primarily include
product development to integrate CLOser with newly-acquired Internet technology
and third-party software and web platforms. During the three months ended March
31, 2000, development personnel directed their attention to projects that were
capitalizable, reducing the current research and development expense. We believe
additional investment in research and development is essential to our success
and we expect these expenses will increase in future periods.
Depreciation and amortization. Depreciation and amortization consists
of depreciation of capital equipment, amortization of goodwill related to
acquisitions, amortization of the Mortgage.com domain name intangible asset and
amortization of capitalized software development costs. Depreciation and
amortization expenses increased 187% to $2.0 million for the three months ended
March 31, 2000, or 20.0% of revenue, from $698,000 in the comparable period in
1999, or 4.4% of revenue. The increase was a result of increased expenditures
for an expansion of our Internet infrastructure, consolidation of our Florida
facilities into our new home office in January 2000, acquisition of capital
equipment to support call center operations, additions to goodwill from the AFI
acquisition and payments relating to the Online Capital and Mortgage.com name
acquisitions. During the three months ended March 31, 2000, $290,000 was
amortized on the intangible asset compared to $6,000 in the comparable period in
1999.
General and administrative. General and administrative costs include
telephone and communication costs, rent and other occupancy costs, equipment
leases, loan transfer fees and consulting and professional expenses. General and
administrative expenses increased 53% to $5.8 million for the three months ended
March 31, 2000, or 56.8% of revenue, from $3.8 million
17
<PAGE>
in the comparable period in 1999, or 23.7% of revenue. The increase in general
and administrative expenses resulted from additional rent, communication costs
and other expenses related to call center operations, the new home office and
the effect of the personnel increase. We expect general and administrative
expenses to increase in absolute dollars at a slower rate as we continue to grow
but decrease as a percentage of revenue as mortgage loan volume increases.
Interest expense. Interest expense, which includes interest on
subordinated debt and on capital lease obligations, decreased 37% to $1.7
million in the three month period ended March 31, 2000, compared to $2.7 million
in the comparable period in 1999. The decrease was a result of the interest on
the $40.5 million in subordinated debt issued in February 1999 and the effect of
reduced loan originations on warehouse lines in 2000. 5.
Liquidity And Capital Resources
- -------------------------------
On August 11, 1999, we completed an initial public offering in
which we sold 7,062,500 shares of common stock. Subsequently, the underwriters
of the public offering exercised an option to purchase an additional 379,375
shares of common stock to cover over-allotments of shares. The gross proceeds
from these transactions were $59.5 million, or $55.4 million net of underwriter
discounts. A portion of the proceeds was used to repay $40.5 million of
subordinated debt and $433,000 was used to redeem certain warrants.
From the Company's inception until the initial public offering in
August 1999, operations were funded primarily through net cash proceeds from
private issuances of preferred stock. In February 1999, we also received gross
proceeds from the issuance of subordinated notes totaling $10.0 million. All
preferred stock converted into common stock at the date of the public offering
in August, and the subordinated debt was repaid with the proceeds of the public
offering
Our primary need for operating capital is for the funding of mortgage
loans between closing and eventual delivery to secondary market investors. We
fund these loans through warehouse lines of credit and collateralized loan
purchase agreements with banks and other financial institutions. We currently
have a single syndicated line of credit for $110 million and loan purchase
agreements with Greenwich Capital and Superior Bank of $50 million and $10
million, respectively. These financing arrangements generally provide between
97% and 99% of the principal amounts needed to fund mortgage loans and are
collateralized by the underlying mortgages. The average time between funding
closed mortgages and receipt of loan sale proceeds from investors was
approximately 17 days during the three months ended March 31, 2000.
As of March 31, 2000, we had cash and cash equivalents of $22.0
million. Excess cash has been temporarily deposited against the warehouse
balances to enhance our return on cash. In January 2000, we raised $24.0 million
in cash by contributing the assets of www.openclose.com to a newly formed
subsidiary, Openclose.com, Inc. Openclose.com raised $30.0 million in cash from
the sale of preferred stock representing 49% of the outstanding voting stock of
Openclose.com, $24.0 million of which was paid to us in connection with our
contribution of the Openclose.com assets.
18
<PAGE>
Net cash used in operating activities for the three months ended March
31, 2000 totaled $23.1 million. This cash was used primarily to fund losses,
increase the mortgage loans available for sale and reduce other liabilities.
Net cash used in investing activities in the three months ended March
31, 2000 totaled $88,000 primarily for costs related to software development,
offset by disposals of property and equipment in locations vacated in the move
to the new home office.
Net cash provided by financing activities for the three months ended
March 31, 2000 totaled $37.6 million, as $30.0 million in proceeds from sale of
interest in the Openclose.com subsidiary was used partly to reduce warehouse and
other notes payable.
Currently, we have net operating loss carryforwards of approximately
$57.7 million available to reduce future taxable income, which carryforwards
expire on various dates from 2008 to 2019.
Since inception, we have significantly increased our operating
costs and we anticipate that we will continue to experience significant
increases in our operating costs for the foreseeable future. In addition, we may
use cash resources, including a portion of the remaining net proceeds of our
initial public offering, to fund acquisitions or investments in joint ventures,
businesses, technologies and products or services complementary to our business.
Increased loan volume also requires additional cash to fund the loans. On March
27, 2000, we entered into a common stock purchase agreement with an investor
granting the Company an option to sell stock to that investor over the next 24
months, commencing on the effective date of a registration statement. Under this
commitment the Company will be able to sell, subject to certain conditions, up
to a total of $40 million of its unissued common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate movements significantly impact our volume of
closed loans. Interest rate movements represent the primary component of market
risk to us. In a higher interest rate environment, borrower demand for mortgage
loans, particularly refinancing of existing mortgages, declines. Interest rate
movements affect the interest income earned on loans we hold for sale in the
secondary market, interest expense on our warehouse lines, the value of mortgage
loans we hold for sale in the secondary market and ultimately the gain on the
sale of those mortgage loans. In addition, in an increasing interest rate
environment, the volume of mortgage loans that our clients originate declines.
We originate mortgage loans and manage the market risk related to these
loans by pre-selling them on a best efforts basis to the anticipated secondary
market investors at the same time that we establish the borrowers' interest
rates. If we can deliver mortgage loans within the time frames established by
the secondary market investors, we have no interest rate risk exposure on those
loans. However, if the loan closes but we cannot deliver the loan within those
time frames, and if interest rates increase, we may experience a reduced gain or
may even incur a loss on the sale of the loan.
19
<PAGE>
Management is currently evaluating hedging strategies to protect us
against the risk we incur with sales of mortgage loans in the secondary market
when interest rates rise and fall. We have retained Tuttle & Co., an
unaffiliated advisory firm, to help us manage our interest rate risks. We are
considering engaging Tuttle to also assist us with a hedging strategy. Hedging
strategies involve buying and selling mortgage-backed securities so that if
interest rates increase or decrease sharply and we expect to suffer a loss on
the sale of those loans, our buying and selling of mortgage-backed securities
will offset the loss. We would analyze the probability that a group of loans we
have originated will not close, and try to match our purchases and sales of
mortgage-backed securities to the amount we expect will close.
An effective hedging strategy is complex and no hedging strategy can
completely eliminate our risk. Part of this is because the prices of mortgage-
backed securities do not necessarily move in tandem with the prices of loans we
originate and close. To the extent the two prices do not move in tandem, our
hedging strategy may not work, and we may experience losses on our sales of
mortgage loans in the secondary market. The other key factor is whether our
probability analysis properly estimates the number of loans that will actually
close. To the extent that we implement a hedging strategy but are unable to
effectively match our purchases and sales of mortgage-backed securities with
the sale of the closed loans we have originated, our gains on sales of mortgage
loans will be reduced, or we will experience a net loss on those sales.
We currently sell more than 90% of the loans sold through best efforts
commitments, which means we do not suffer a penalty if the loans do not close.
We sell some loans, including sub-prime loans, on a mandatory delivery basis.
Selling on a mandatory delivery basis means we are required to sell the loans
to a secondary market investor at a price we agree upon, regardless of whether
the loans close. This potentially generates greater revenue for us because
secondary market investors are willing to pay more for a mandatory delivery
commitment from us. However, it also exposes us to greater losses if the loans
do not close.
Management is considering selling a greater number of loans on a
mandatory delivery basis so that we can generate greater gains on the sales of
loans. Our hedging strategy of buying and selling mortgage-backed securities
would help us manage the additional risk we would incur when more loans are sold
on a mandatory delivery basis. However, because hedging strategies are not
perfect, our hedging strategy may not completely offset the additional risk, and
we may suffer losses on loans sold on a mandatory delivery basis.
We also do not currently maintain a trading portfolio. As a result, we
are not exposed to market risk as it relates to trading activities. Our entire
loan portfolio is held for sale. Accordingly, we must perform market valuations
of our pipeline, our mortgage portfolio held for sale and the related sale
commitments in order to properly record the portfolio and the pipeline at the
lower of cost or market. Therefore, we measure the interest rates of our loan
portfolio against prevailing interest rates in the market.
Because we pre-sell our mortgage loan commitments, we believe that a 1%
increase or decrease in long-term interest rates would not have a significant
adverse effect on our earnings from interest rate sensitive assets. We pay off
warehouse lines when the loans are sold in the secondary market. Because the
loans are held in the warehouse lines for a short period of time, we do not
expect to incur significant losses from an increase in interest rates on the
warehouse
20
<PAGE>
lines. However, since a significant percentage of our closed loan volume is from
refinancing mortgage loans, our future operating results may be more sensitive
to interest rate movements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material litigation.
Item 2. Changes in Securities and Use of Proceeds
On January 1, 2000, we issued warrants to purchase 233,331
shares of common stock to John Rodgers, Andrew Heller and Kyle
Meyer as earn-out consideration in connection with our merger
with American Finance & Investment in 1998. The exercise price
of the warrants is $1.071. The issuance of these warrants is
exempt pursuant to Section 4(2) as a transaction by an issuer
not involving a public offering.
On March 27, 2000, we issued warrants to purchase 332,060
shares of common stock to Ladenburg Thalmann & Co., Inc. in
consideration of certain investment banking services performed
in connection with an equity line of credit we entered into
with Sugarplum Investments Limited. The exercise price of the
warrants is $2.4092. The issuance of these warrants is exempt
pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering.
On March 27, 2000, we issued warrants to purchase 332,060
shares of common stock to Sugarplum Investments Limited in
consideration of Sugarplum providing us with an equity line of
credit. The exercise price of the warrants is $2.4092. The
issuance of these warrants is exempt pursuant to Regulation S
under the Securities Act of 1933. Ladenburg Thalmann & Co.
Inc. acted as placement agent in connection with the issuance
of these warrants and received warrants to purchase 332,060
shares of common stock as partial compensation for its
services.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
21
<PAGE>
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1* Common Stock Purchase Agreement dated March 27, 2000,
between the Company and Sugarplum Investments Limited
2.2* Registration Rights Agreement dated March 27, 2000, between
the Company and Sugarplum Investments Limited
2.3* Escrow Agreement dated as of March 27, 2000, among the
Company, Sugarplum Investments Limited and Epstein Becker &
Green, P.C.
2.4* Letter Agreement dated February 23, 2000, between the
Company and Ladenburg Thalmann & Co. Inc.
*(a) Amendment to Letter Agreement
2.5* Stock Purchase Warrant dated March 28, 2000, issued to
Ladenburg Thalmann & Co. Inc.
2.6* Stock Purchase Warrant dated March 28, 2000, issued to
Sugarplum Investments Limited
10.1** Termination Agreement dated February 29, 2000, between the
Company and Intuit Lender Services, Inc.
10.2* Second Amendment to Master Lease Agreement No. 10571 dated
February 16, 2000, between Dominion Ventures, Inc. and the
Company
10.3** Administrative Services and Technology Sharing Agreement
dated as of January 27, 2000, between the Company and
Openclose.com, Inc.
10.4** Contribution Agreement dated as of January 27, 2000, among
the Company, Openclose.com, Inc. and certain investors
listed therein
10.5 Second Amendment to Second Amended and Restated Warehousing
Credit and Security Agreement among the Company,
Residential Funding Corporation and certain other Lenders
dated March 17, 2000
27 Financial Data Schedule
---------------------------
* Incorporated by reference from the registrant's Form S-1 (333-34444)
** Incorporated by reference from the registrant's Form 10-K for
December 31, 1999 (000-26787)
22
<PAGE>
(b) Reports on Form 8-K
A Form 8-K was filed on January 27, 2000 related to the
contribution of assets from a division of the Company to a
newly-formed corporation, Openclose.com, Inc., in exchange for
$24 million in cash and common stock of Openclose.com, Inc.
representing 51% of its outstanding securities.
Simultaneously, certain accredited investors contributed $30
million in cash to Openclose.com, Inc. in exchange for
convertible preferred stock representing the remaining 49
percent of its outstanding securities.
A Form 8-K was filed on March 28, 2000 related to a common
stock purchase agreement with an investor granting the Company
an option to sell stock to that investor over the next 24
months, commencing on the effective date of a registration
statement. Under this commitment, the Company will be able to
sell, subject to certain conditions, up to a total of $40
million of its unissued common stock.
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.
MORTGAGE.COM, INC.
Registrant
Dated: May 12, 2000
/s/ Edwin D. Johnson
----------------------------------------------
Edwin D. Johnson, its duly authorized officer,
Executive Vice President-Chief Financial
Officer
EXHIBIT 10.5
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SYNDICATED AGREEMENT)
-----------------------------------------
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AND
SECURITY AGREEMENT (SYNDICATED AGREEMENT) ("Amendment") is entered into as of
this 17th day of March 2000, by and among MORTGAGE.COM, INC., a Florida
corporation, (the "Company"), RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation ("RFC"), and BANK UNITED, a federal savings bank ("Bank United")
(RFC, Bank United and any Additional Lender that may from time to time here-
after become party hereto are hereafter referred to as the "Lenders"), and RFC
as credit agent for the Lenders (in such capacity, the "Credit Agent").
WHEREAS, the Company, the Lenders and the Credit Agent have entered into a
revolving warehouse facility with a present Credit Limit of $90,000,000 (the
"Commitment"), as evidenced by a Second Amended and Restated Warehousing Credit
and Security Agreement (Syndicated Agreement) dated November 12, 1999, as the
same may have been amended or supplemented (the "Agreement");
WHEREAS, the Company has requested that the Lenders increase the Credit
Limit, increase the Maximum Commitments of each of the Lenders and amend certain
other terms of the Agreement, and the Lenders have agreed to such increases and
amendment subject to the terms and conditions of this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
covenants, agreements and conditions hereinafter set forth and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall have
their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date") of this Amendment shall be
March 20, 2000, the date on which the Company has complied with all the terms
and conditions of this Amendment.
3. Section 1.1 of the Agreement is amended to delete the following
definitions in their entirety, replacing them with the following definitions:
"Credit Limit" means at any date the sum of the Maximum Commitments
of the Lenders at such date, with the Credit Limit as of March 17, 2000,
being $110,000,000.
-1-
<PAGE>
4. Section 2.7 of the Agreement is amended to add the following section
immediately after Section 2.7(i):
2.7(j) The Company may, from time to time, prepay a portion of the
Advances pursuant to this Section 2.7(j) (any such prepayment is hereafter
referred to as a "Buydown"). A Buydown shall not, except as set forth
below, be deemed a prepayment of any particular Advances, and shall not
entitle the Company to the release of any Collateral. If a Default or an
Event of Default has occurred and is continuing, the Lenders shall be
entitled to retain any portion of the Buydown. All or any portion of a
Buydown may be reborrowed hereunder, provided no Default or Event of
Default has occurred and is continuing, upon written notice to the Credit
Agent no later than 9:30 a.m. on the Business Day that the Company desires
to reborrow such amount. In the event the Lenders receive a payment of
Advances that would, as a result of the Buydown, reduce the outstanding
principal balance of the Advances to an amount less than zero, the Buydown,
or a portion thereof equal to such excess, shall be re-advanced to the
Company. The Company will provide RFC 1 Business Day advance notice of
each Buydown. Each request for a Buydown must be on the corporate
letterhead of the Company, and must be in an amount of not less than
$1,000,000. No more than 2 Buydowns will occur in any 1 week period.
5. All references to the Company's address in the Loan Documents shall be
amended to refer to the Company's new address, 1643 North Harrison Parkway,
Building H, Sunrise, FL 33323.
6. Upon execution of this Amendment, the Company agrees to pay to the
Credit Agent for the benefit of the lenders, the pro rata Commitment Fee on the
increased Maximum Commitment amount for each of the Lenders for the time period
from the Effective Date to and including March 31, 2000.
7. The Warehousing Promissory Notes are amended and restated in their
entirety as set forth in the First Amended and Restated Warehousing Promissory
Notes. All references in this Amendment and in the Agreement to the Warehousing
Promissory Note shall be deemed to include to the First Amended and Restated
Warehousing Promissory Notes.
-2-
<PAGE>
8. The Exhibit B attached to the Agreement is hereby deleted in its
entirety and replaced with the new Exhibit B attached to this Amendment. All
references in the Agreement to Exhibit B shall be deemed to refer to the new
Exhibit B.
9. The Exhibit M attached to the Agreement is hereby deleted in its
entirety and replaced with the new Exhibit M attached to this Amendment. All
references in the Agreement to Exhibit M shall be deemed to refer to the new
Exhibit M.
10. The Company shall deliver to the Credit Agent (a) an original of this
Amendment, executed by the Company, the Lenders and the Credit Agent, (b) an
executed original of RFC's First Amended and Restated Warehousing Promissory
Note in the form attached hereto as Exhibit A-1; (c) an executed original of
Bank United's First Amended and Restated Warehousing Promissory Note in the form
attached hereto as Exhibit A-2; (d) an executed Certificate of Secretary with
corporate resolutions, (e) modification fees in the amount of $500, each payable
to Bank United and RFC; (f) the Commitment Fee on the amount of the increase in
each Lender's Maximum Commitment for the period from the Effective date through
March 31, 2000; and (g) a documentation fee in the amount of $350 payable to the
Credit Agent.
11. The Company represents, warrants and agrees that (a) the Loan
Documents continue to be the legal, valid and binding agreements and obligations
of the company enforceable in accordance with their terms, as modified herein,
(b) the lenders are not in default under any of the Loan Documents and the
Company has no offset or defense to their performance or obligations under any
of the Loan Documents, (c) the representations contained in the Loan Documents
remain true and accurate in all respects, and (d) there have been no material
adverse change in the financial condition of the Company from the date of the
Agreement to the date of this Amendment.
12. Except as hereby expressly modified, the Agreement shall otherwise be
unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
13. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the Company and the Lenders have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
COMPANY:
MORTGAGE.COM, INC.,
a Florida corporation,
By: /s/ Seth Werner
-------------------------------------
Its: Chairman/CEO
Notice Address:
Mortgage.Com, Inc.
1643 North Harrison Parkway
Harrison, FL 33323
Attention: Edwin Johnson
Telecopier No.: (877) 224-9071
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On March 17, 2000 before me, a Notary Public, personally appeared Seth
Werner, the Chairman/CEO of MORTGAGE.COM, INC., a Florida corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. von dem Hagen
----------------------------------------
Notary Public
(SEAL) My Commission Expires: October 15, 2001
-4-
<PAGE>
CREDIT AGENT:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
-------------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
LENDERS:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
-------------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On March 17, 2000 before me, a Notary Public, personally appeared Jim
Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. von dem Hagen
----------------------------------------
Notary Public
(SEAL) My Commission Expires: October 15, 2001
-5-
<PAGE>
BANK UNITED,
a federal savings bank
By: /s/ Michael McAuley
-------------------------------------
Its: Managing Director
Notice Address:
1629 Indian River Drive
Cocoa, FL 32922
Attention: Melanie Carrington
Telecopier No.: (407) 638-3399
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On March 17, 2000 before me, a Notary Public, personally appeared Michael
McAuley, the Managing Director of BANK UNITED, a federal savings bank,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. von dem Hagen
----------------------------------------
Notary Public
(SEAL) My Commission Expires: October 15, 2001
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
consolidated financial statements of MORTGAGE.COM, INC. as of and for the
THREE months ended MARCH 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,996
<SECURITIES> 0
<RECEIVABLES> 99,821
<ALLOWANCES> 639
<INVENTORY> 0
<CURRENT-ASSETS> 128,904
<PP&E> 21,762
<DEPRECIATION> 6,797
<TOTAL-ASSETS> 156,521
<CURRENT-LIABILITIES> 101,965
<BONDS> 0
0
0
<COMMON> 137,414
<OTHER-SE> (86,374)
<TOTAL-LIABILITY-AND-EQUITY> 156,521
<SALES> 0
<TOTAL-REVENUES> 10,167
<CGS> 0
<TOTAL-COSTS> 1,123
<OTHER-EXPENSES> 21,757
<LOSS-PROVISION> 158
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,792)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
