SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORMS 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 29, 1999
American Home Mortgage Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-27081 13-4066303
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(State of other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
12 East 49th Street New York, NY 10017
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (212) 755-8600
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
EXPLANATORY NOTE
This Current Report on Form 8-K/A amends and restates in its entirety Item
7 of the Current Report on Form 8-K of American Home Mortgage Holdings, Inc.
(the "Company"), filed with the Securities and Exchange Commission on January
12, 2000 (the "Original 8-K").
FORWARD-LOOKING STATEMENTS
This Form 8-K/A contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. The words "believe," "will be able," or
similar words are intended to identify forward-looking statements. Such
statements involve risks and uncertainties that exist in the Company's
operations and business environment that could render actual outcomes and
results materially different than predicted. The Company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, general volatility of the capital markets; changes in the real
estate market, interest rates or the general economy of the markets in which the
Company operates; economic, technological or regulatory changes affecting the
use of the Internet and changes in government regulations that are applicable to
the Company's regulated brokerage and property management businesses. These and
other factors are more fully discussed in the Company's prospectus filed with
the Securities and Exchange Commission as part of its Registration Statement on
Form S-1 (Registration No. 333-82409). While the Company believes that its
assumptions are reasonable at the time forward-looking statements were made, it
cautions that it is impossible to predict the actual outcome of numerous factors
and, therefore, readers should not place undue reliance on such statements.
Forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update such statements in light of new
information or future events.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
-----------------------------------------------------
(a) Financial Statements of Business Acquired
The audited balance sheets of Marina and its subsidiary as of December
31, 1999, 1998 and 1997 and the related consolidated statements of
income, retained earnings and cash flows for the years then ended
appear as Exhibit 99.2 to this Form 8-K/A and are incorporated herein
by reference.
(b) Pro Forma Financial Information
The pro forma financial information for the years ended December 31,
1999, 1998 and 1997 appear as Exhibit 99.3 to this Form 8-K/A and are
hereby incorporated by reference.
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<PAGE>
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.1* Agreement and Plan of Merger, dated as of
January 17, 2000, by and among American Home
Mortgage Holdings, Inc., American Home
Mortgage Sub II, Inc., First Home Mortgage
Corp., Inc., and the Stockholders of First
Home Mortgage Corp., Inc. listed on the
signature pages thereto.
10.1* Employment Agreement, dated January 17,
2000, between John A. Manglardi and American
Home Mortgage Holdings, Inc.
10.2* Employment Agreement, dated January 17,
2000, between Vincent Manglardi and American
Home Mortgage Holdings, Inc.
10.3* Employment Agreement, dated January 17,
2000, between Jeffrey L. Lake and American
Home Mortgage Holdings, Inc.
10.4* Employment Agreement, dated January 17,
2000, between Thomas J. Fiddler and American
Home Mortgage Holdings, Inc.
10.5* Non-Competition Agreement, dated January 17,
2000, between John A. Manglardi and American
Home Mortgage Holdings, Inc.
10.6* Non-Competition Agreement, dated January 17,
2000, between Vincent Manglardi and American
Home Mortgage Holdings, Inc.
10.7* Non-Competition Agreement, dated January 17,
2000, between Jeffrey L. Lake and American
Home Mortgage Holdings, Inc.
10.8* Non-Competition Agreement, dated January 17,
2000, between Thomas J. Fiddler and American
Home Mortgage Holdings, Inc.
23.1 Consents of Forman, Richter & Rubin,
Certified Public Accountants.
99.1* Press Release of the Registrant dated
January 18, 2000.
99.2 Marina Mortgage Company, Inc. audited
financial statements for the years ended
December 31, 1999, 1998 and 1997.
99.3 Pro forma financial information for the
years ended December 31, 1999, 1998, 1997.
* = Previously filed with the Original 8-K on January 12, 2000 with the
SEC.
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<PAGE>
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.
AMERICAN HOME MORTGAGE
HOLDINGS, INC.
March 14, 2000
By: /s/ Michael Strauss
--------------------------------------
Michael Strauss
-4-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1* Agreement and Plan of Merger, dated as of January 17,
2000, by and among American Home Mortgage Holdings,
Inc., American Home Mortgage Sub II, Inc., First Home
Mortgage Corp., Inc., and the Stockholders of First Home
Mortgage Corp., Inc. listed on the signature pages
thereto.
10.1* Employment Agreement, dated January 17, 2000, between
John A. Manglardi and American Home Mortgage Holdings,
Inc.
10.2* Employment Agreement, dated January 17, 2000, between
Vincent Manglardi and American Home Mortgage Holdings,
Inc.
10.3* Employment Agreement, dated January 17, 2000, between
Jeffrey L. Lake and American Home Mortgage Holdings,
Inc.
10.4* Employment Agreement, dated January 17, 2000, between
Thomas J. Fiddler and American Home Mortgage Holdings,
Inc.
10.5* Non-Competition Agreement, dated January 17, 2000,
between John A. Manglardi and American Home Mortgage
Holdings, Inc.
10.6* Non-Competition Agreement, dated January 17, 2000,
between Vincent Manglardi and American Home Mortgage
Holdings, Inc.
10.7* Non-Competition Agreement, dated January 17, 2000,
between Jeffrey L. Lake and American Home Mortgage
Holdings, Inc.
10.8* Non-Competition Agreement, dated January 17, 2000,
between Thomas J. Fiddler and American Home Mortgage
Holdings, Inc.
23.1 Consents of Forman, Richter & Rubin, Certified Public
Accountants.
99.1* Press Release of the Registrant dated January 18, 2000.
99.2 Marina Mortgage Company, Inc. audited financial
statements for the years ended December 31, 1999, 1998
and 1997.
99.3 Pro forma financial information for the years ended
December 31, 1999, 1998 and 1997.
* = Previously filed with the Original 8-K on January 12, 2000 with the SEC.
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[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
CONSENT OF INDEPENDENT AUDITORS'
We consent to the use of our reports dated February 23, 2000, with respect to
the consolidated financial statements of MARINA MORTGAGE COMPANY, INC., AND
SUBSIDIARY that is made part of this Current Report on Form 8-K.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
COVINA, CALIFORNIA
MARCH 10, 2000
<PAGE>
[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
We consent to the use of our reports dated March 17, 1999, with respect to the
consolidated financial statements of MARINA MORTGAGE COMPANY, INC., AND
SUBSIDIARY that is made part of this Current Report on Form 8-K.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
COVINA, CALIFORNIA
MARCH 10, 2000
MARINA MORTGAGE COMPANY, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
---------------------------------------
DECEMBER 31, 1999 AND 1998
<PAGE>
MARINA MORTGAGE COMPANY, INC.
AND SUBSIDIARY
CONTENTS
--------
PAGE
----
Independent Auditors' Report 1
Consolidated Financial Statements
Balance Sheet 2
Income and Retained Earnings 3
Cash Flows 4 - 5
Notes 6 - 11
Additional Information
Independent Auditors' Report on Additional Information 12
Statement of Income 13 - 14
Auditors' Statement on Scope of Examination 15
<PAGE>
[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
INDEPENDENT AUDITORS' REPORT
------------------------------------------------
TO THE BOARD OF DIRECTORS
MARINA MORTGAGE COMPANY, INC.
AND SUBSIDIARY
We have audited the accompanying balance sheets of MARINA MORTGAGE COMPANY,
INC., AND SUBSIDIARY, as of December 31, 1999 and 1998, and the related
consolidated statements of income, retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MARINA MORTGAGE COMPANY, INC.,
AND SUBSIDIARY as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
COVINA, CALIFORNIA
FEBRUARY 23, 2000
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
---------------------------------------------
DECEMBER 31, 1999 AND 1998
A S S E T S
-----------
(SEE NOTE 1)
------------
1999 1998
---- ----
Cash (Note 6) $ 1,917,734 $ 1,949,802
Mortgage loans held for sale (Notes 2
and 4) 12,577,549 37,226,183
Real estate owned 141,080 -
Accounts receivable 122,415 752,218
Advances 80,189 150,225
Prepaid expenses and deposits 187,920 853,503
Fixed assets (Notes 1, 3 and 5) 864,233 1,057,226
Deferred taxes (Note 8) 62,637 -
Income tax refund receivable 352,467 -
------------ ------------
TOTAL ASSETS $ 16,306,224 $ 41,989,157
============ ============
L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses
(Note 7) $ 2,044,608 $ 2,544,522
Warehouse lines of credit (Note 4) 11,469,032 35,858,560
Mortgage payable (Note 5) 67,939 69,890
Impounds 96,245 264,783
Income taxes - currently payable - 115,585
------------ ------------
TOTAL LIABILITIES 13,677,824 38,853,340
------------ ------------
S T O C K H O L D E R S' E Q U I T Y
------------------------------------
CAPITAL CONTRIBUTED
Common stock, no par value , authorized
200,000 shares, issued and outstanding
34,600 shares 180,000 180,000
Additional paid in capital 914,681 914,681
Retained earnings 1,533,719 2,041,136
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,628,400 3,135,817
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 16,306,224 $ 41,989,157
============ ============
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
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<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
-------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE NOTE 1)
------------
1999 1998
---- ----
REVENUE
Interest income $ 2,250,265 $ 4,251,579
Interest expense 2,088,477 3,963,345
------------ ------------
Net interest margin 161,788 288,234
Provision for REO losses 175,000 330,000
------------ ------------
Net interest margin after provision for
REO losses (13,212) (41,766)
Loan administration 2,339,027 -
Loan origination fees 9,552,636 1,162,110
Gain on sale of mortgages, securities
and others 2,544,603 10,111,714
Service release premium 5,907,238 7,681,218
Appraisal, credit, document and
miscellaneous fees, net 50,915 (157,470)
------------ ------------
TOTAL REVENUES 20,381,207 18,755,806
------------ ------------
EXPENSES
Payroll 15,606,874 11,886,945
Selling 814,083 870,751
Occupancy 1,209,153 1,031,478
General and administrative expenses 3,598,067 3,711,943
------------ ------------
TOTAL EXPENSES 21,228,177 17,501,117
------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES (846,970) 1,254,689
INCOME TAXES (NOTE 8) 339,553 533,041
------------ ------------
NET INCOME (LOSS) (507,417) 721,648
RETAINED EARNINGS, beginning of year 2,041,136 1,319,488
------------ ------------
TOTAL RETAINED EARNINGS $ 1,533,719 $ 2,041,136
============ ============
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
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<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE NOTE 1)
------------
1999 1998
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (507,417) $ 721,648
Adjustments to reconcile net income (loss)
to net cash from operations:
Depreciation and amortization 378,538 334,255
Provision for REO losses 175,000 330,000
Decrease in mortgage loans held for
sale 25,828,140 3,425,209
(Increase) decrease in accounts
receivable 629,803 (617,867)
(Increase) decrease in advances 70,036 (44,980)
(Increase) decrease in prepaid expenses
and deposits 457,667 (569,054)
(Increase) in deferred taxes (62,637) -
(Increase) in income tax refund
receivable (352,467) -
Increase (decrease) in accounts payable
and accrued expenses (499,914) 775,055
(Decrease) in warehouse lines of credit (24,389,528) (3,090,795)
(Decrease) in mortgage payable (1,951) (1,488)
Increase (decrease) in impounds (168,538) 97,740
(Decrease) in income taxes payable (115,585) (17,017)
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,441,147 $ 1,342,706
------------ ------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 4 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT)
------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE NOTE 1)
------------
1999 1998
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets $ (185,545) $ (688,433)
Purchase of trust deeds held for sale (1,250,548) -
Proceeds from sale of trust deeds 103,958 -
Purchase of REO (141,080) -
------------ ------------
CASH USED BY INVESTING ACTIVITIES (1,473,215) (688,433)
------------ ------------
NET INCREASE (DECREASE) IN CASH (32,068) 654,273
Cash balance, - beginning of the year 1,949,802 1,295,529
------------ ------------
CASH AND CASH EQUIVALENT,
END OF YEAR $ 1,917,734 $ 1,949,802
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 2,066,547 $ 4,024,898
Income taxes $ 39,764 $ 549,615
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 5 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
MARINA MORTGAGE COMPANY, INC., AND MARINA INSURANCE SERVICES, INC., a
wholly owned subsidiary, are California Corporations formed September
22, 1987 and February 19, 1997, respectively. MARINA MORTGAGE COMPANY,
INC., is engaged in origination, marketing and servicing of mortgage
loans. The Company is approved by the US Department of Housing and
Urban Development, FANNIE MAE, FREDDIE MAC and various other investors
as a seller/servicer of mortgage loans. MARINA INSURANCE SERVICES, INC.,
was organized for the purpose of engaging in soliciting life and
disability insurance policies. This wholly owned subsidiary has been
dormant since its inception.
Effective December 30, 1999, the Company was purchased by American Home
Mortgage. Under the merger plan, the Company will continue to operate as a
subsidiary of American Home Mortgage.
The Company conducts their business primarily in the general area of
California and has authorization to conduct business in various other
states.
THE SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE COMPANY ARE SUMMARIZED
BELOW:
DEPRECIATION OF FIXED ASSETS - Depreciation of office furniture and
equipment is computed by the accelerated and straight-line methods over
useful lives of 3 - 7 years. Depreciation of leasehold improvements is
computed by the straight-line method over useful lives of 7 years.
Depreciation of rental property is computed by the straight-line method
over useful lives of 27.5 years.
CASH AND CASH EQUIVALENT - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with an initial
maturity of three months or less to be cash equivalent.
GAIN ON SALE OF MORTGAGES - The Company has realized gains and losses from
changing financial conditions (principally fluctuating interest rates)
between the dates of loan origination and sale. Gains are recognized at the
time of sale of the subject loan to the investor and losses are recognized
as anticipated, based on prevailing interest rates and investor commitments
to purchase such loans.
MORTGAGE LOANS HELD FOR SALE - Mortgage loans held for sale are stated at
the lower of cost or market determined on an aggregate basis.
Non refundable fees and direct costs associated with the origination of
mortgage loans are deferred and recognized when the loans are sold.
- 6 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT)
-------------------------------------------------------
COMMITMENT FEES - The Company paid and received certain commitment fees
during the period to guarantee the funding of mortgage loans. Such fees are
deferred and recognized as the loans are funded or when the commitment
expires.
USE OF ESTIMATES - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
and the reported revenues and expenses. Actual results could vary from the
estimates that were utilized in preparing the financial statements.
2. MORTGAGE LOANS HELD FOR SALE
----------------------------
Mortgage loans held for sale consist of the following at December 31, 1999
and 1998:
1999 1998
---- ----
Principal balance outstanding $ 13,156,257 $ 37,834,201
Loss reserve (521,042) (450,000)
Deferred loan fees (57,666) (158,018)
------------ ------------
TOTAL $ 12,577,549 $ 37,226,183
============ ============
All mortgage loans held for sale are collateralized by trust deeds on
underlying real properties.
3. FIXED ASSETS
------------
1999 1998
---- ----
Fixed assets consist of the following:
COST
Office furniture & equipment $ 2,195,344 $ 2,009,799
Leasehold Improvements 25,131 25,131
Rental Property 100,500 100,500
------------ ------------
TOTAL COST 2,320,975 2,135,430
Accumulated depreciation 1,456,742 1,078,204
------------ ------------
NET FIXED ASSETS $ 864,233 $ 1,057,226
============ ============
The depreciation policies followed by the Company are described in Note (1).
The rental property secures a trust deed further described in Note (5).
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<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
4. WAREHOUSE LINES OF CREDIT
-------------------------
As of December 31, 1999 and 1998, the Company has two lines of credit with
financial institutions, secured by mortgage loans held for sale in the
amount $11,890,079.
The first line of credit permits the Company to borrow a maximum of
$45,000,000 and $30,000,000 at December 31, 1999 and 1998, respectively at
FED plus 1.5%. Interest is due monthly. As of December 31, 1999 and 1998,
there was $ 11,469,032 and $25,446,594 outstanding, respectively. The
Company is required to maintain the following financial conditions: Minimum
tangible net worth of $2,650,000, and current ratio to be at least 1 to 1
and leverage ratio not to exceed 18.0 to 1.0.
The second line of credit permits the Company to borrow a maximum of
$25,000,000 at December 31, 1999 and 1998, respectively, at a rate of
commercial paper plus 2%. Interest is payable monthly. As of December 31,
1999 and 1998 there was $ -0- and $10,411,966 outstanding. The Company is
required to maintain the following financial conditions: Minimum tangible
net worth $1,500,000; and leverage ratio 17:1. As of December 31, 1999 this
line was terminated.
5. MORTGAGE PAYABLE
----------------
Mortgage payable, secured by real estate investments, (rented property),
due in monthly installments of $419 for principal and interest payable at a
variable interest rate.
- 8 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
6. LEASE COMMITMENTS AND CONTINGENCIES
-----------------------------------
The following is a schedule of future minimum least payments (for leases
with initial or remaining terms in excess of one year) as of December 31,
1999:
2000 $ 1,075,595
2001 779,122
2002 264,211
2003 75,769
2004 and thereafter 31,000
-----------
TOTAL $ 2,225,697
===========
The Company is responsible for taxes, maintenance, and insurance. Total
rent expense under leases with a term in excess of one month was $1,043,735
and $990,994 in 1999 and 1998 respectively. The Company has an option to
renew an office lease upon expiration at fair market value.
As of December 31, 1999 and 1998, the Company has deposits in a bank, which
exceeded the FDIC insured limit of $100,000.
The Company is subject to various claims and legal proceedings arising out
of the normal course of business, none of which, in the opinion of
management, is expected to have a material effect on the Company's
financial position.
7. COMPENSATED ABSENCES
--------------------
The Company provides paid time off to employees depending on length of
service and other factors. The Company is to accrue the cost of such
compensated absences. As of December 31, 1999 and 1998 accrued paid time
off was $91,071 and $152,010 respectively, which is included as a component
of accounts payable and accrued expenses.
- 9 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
8. INCOME TAXES
------------
The provision for income taxes consist of the following:
1999 1998
---- ----
Federal $ (341,539) $ 394,707
California 800 130,944
Other states 1,186 7,390
------------ ------------
TOTAL INCOME TAXES $ (339,553) $ 533,041
============ ============
Deferred taxes result from timing differences in the recognition of certain
accrued expenses for financial reporting purposes and not for tax reporting
purposes.
For federal tax purposes, the Company has net operating losses of $820,300
which has been carried back to years ending December 31, 1996 and 1997. The
Company also has contributions carryover of $2,518 which expires December
31, 2005.
For state tax purposes, the Company has net operating losses of $318,740
which can be carried forward to years ending no later than December 31,
2005.
9. PROFIT SHARING PLAN
-------------------
The Company has a 401(k) profit-sharing plan covering substantially all of
its full-time employees. Payments under a contributory plan are
administered by an independent trustee for the benefit of participating
employees. In addition, the Company can contribute to the employees 401(k)
plan a maximum of the employee contribution. Employers' contributions for
the years ended December 31, 1999 and 1998 were $ -0- and $97,000,
respectively.
- 10 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
10. LOAN SERVICING
--------------
Mortgage loans serviced aggregated approximately $153,408 and $226,551 at
December 31, 1999 and 1998, respectively.
These loans are serviced by an independent contractor pursuant to a loan
sub-servicing agreement between the independent contractor and the Company.
The independent contractor was audited by other auditors on all loans they
service. The Company complied with all the requirements of the Uniform
Single Audit Program for Mortgage Bankers.
Escrow funds are held in trust for mortgages at various financial
institutions and are not included in the accompanying balance sheet.
At December 31, 1999 and 1998 the Company has errors and omissions
insurance coverage in the amount of $3,000,000.
11. FINANCIAL INSTRUMENT RISK
-------------------------
The Company is obligated to repurchase mortgage loans if an investor
determines that a borrower, or the property, did not meet certain financial
criteria that have been pre-established for each type of loan. Management
intends to resell these loans at a discount. However, if a repurchased loan
is or becomes non-performing the Company would have the right to foreclose
and resell the property.
12. FINANCIAL STATEMENT PRESENTATION
--------------------------------
Certain amounts in 1999's financial statements have been reclassified to
conform to industry standards.
- 11 -
<PAGE>
[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
----------------------------------------------------------------
TO THE BOARD OF DIRECTORS
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information that follows on pages 13
- - 14 is presented for the purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, the information is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
FEBRUARY 23, 2000
COVINA, CALIFORNIA
- 12 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
ADDITIONAL INFORMATION - CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
OPERATING EXPENSES
1999 1998
---- ----
PAYROLL
Salaries and commissions $ 14,502,611 $ 10,517,225
Payroll taxes 1,038,070 1,176,852
Employee welfare 66,193 192,868
------------ ------------
TOTAL PAYROLL 15,606,874 11,886,945
------------ ------------
SELLING
Advertising 703,010 683,025
Auto 97,341 150,893
Meetings and seminars 13,732 36,833
------------ ------------
TOTAL SELLING 814,083 870,751
------------ ------------
OCCUPANCY
Rent 1,089,985 990,994
Repairs 72,166 17,335
Storage 19,014 12,599
Utilities 27,988 10,550
------------ ------------
TOTAL OCCUPANCY $ 1,209,153 $ 1,031,478
------------ ------------
SEE INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- 13 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
ADDITIONAL INFORMATION - CONSOLIDATED STATEMENT OF INCOME
-------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
GENERAL & ADMINISTRATIVE EXPENSES
Computer supplies $ 95,775 $ 96,305
Contributions 2,518 650
Depreciation 375,435 334,255
Dues and subscriptions 21,734 27,733
Employee recruitment/relocation 26,971 -
Entertainment and promotion 66,321 64,055
Equipment rent 232,296 211,407
Equipment repairs 61,268 53,955
Insurance - health 359,075 328,570
Insurance - other 122,828 103,713
Office supplies 388,534 410,345
Outside services 252,807 163,676
Postage and delivery 377,684 581,432
Printing 120,015 173,370
Professional fees 206,660 74,037
Profit sharing - 97,000
Rental expense, net (4,158) 606
REO expenses 5,556 5,748
Taxes and licenses 104,285 63,669
Telephone and pagers 638,401 793,499
Travel 144,062 127,918
------------ ------------
TOTAL GENERAL & ADMINISTRATIVE
EXPENSES 3,598,067 3,711,943
------------ ------------
TOTAL OPERATING EXPENSES $ 21,228,177 $ 17,501,117
============ ============
SEE INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- 14 -
<PAGE>
AUDITORS' STATEMENT ON SCOPE OF EXAMINATION
The scope of our examination included all generally accepted auditing procedures
considered by us to be necessary in relation to our evaluation of internal
control. Information as to scope, with respect to certain items as required by
various agencies and investors, is provided as follows:
CASH AND ESCROW FUND
- --------------------
All of the Company's operating bank accounts were satisfactorily reconciled with
the account records maintained by the Company. All such bank accounts were
confirmed directly by banks, and detail was compared with "cut-off" statements
of a date subsequent to that of the latest available statements as of our audit.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
Details of mortgage loans held for sale were reconciled with controls and
individually matched with liabilities as confirmed by respective banks.
GENERAL
- -------
All other recorded assets and liabilities were determined by generally accepted
accounting principals, and tests were made to determine the nature and extent of
any material unrecorded or over-recorded items. Any such items have been
adjusted in the accompanying statements and are being recorded in the books of
account.
Income and expense accounts were reviewed and the general propriety of
classification were determined. The Company's accounts follow classification
recommended by Mortgage Bankers' Association of America.
LOAN SERVICING
- --------------
The Company services loans aggregating approximately $153,408 and $226,551 at
December 31, 1999 and 1998, respectively. These loans were serviced under sub
servicing agreements between independent contractors and the Company. We
conducted tests in all areas of loan servicing. The audits were conducted in
accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers. Our opinion concludes that the Company complied with all
requirements.
- 15 -
<PAGE>
MARINA MORTGAGE COMPANY, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
---------------------------------------
DECEMBER 31, 1998 AND 1997
<PAGE>
MARINA MORTGAGE COMPANY, INC.
AND SUBSIDIARY
CONTENTS
--------
PAGE
----
Independent Auditors' Report 1
Consolidated Financial Statements
Balance Sheet 2
Income and Retained Earnings 3
Cash Flows 4 - 5
Notes 6 - 11
Additional Information
Independent Auditors' Report on Additional Information 12
Statement of Income 13 - 14
Auditors' Statement on Scope of Examination 15
<PAGE>
[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
INDEPENDENT AUDITORS' REPORT
------------------------------------------------
TO THE BOARD OF DIRECTORS
MARINA MORTGAGE COMPANY, INC. AND SUBSIDIARY
We have audited the accompanying balance sheets of MARINA MORTGAGE COMPANY,
INC., AND SUBSIDIARY, as of December 31, 1998 and 1997, and the related
consolidated statements of income, retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MARINA MORTGAGE COMPANY, INC.,
AND SUBSIDIARY as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
COVINA, CALIFORNIA
MARCH 17, 1999
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
---------------------------------------
DECEMBER 31, 1998 AND 1997
A S S E T S
-----------
(SEE NOTE 1)
1998 1997
---- ----
Cash (Note 5) $ 1,949,802 $ 1,295,529
Mortgage loans held for sale (Note 3)
net of allowance for REO losses of
$450,000 in 1998 and $120,000 in 1997 37,384,201 41,362,221
Accounts receivable 752,218 134,351
Advances 150,225 105,245
Prepaid expenses and deposits 853,503 284,449
Fixed assets (Notes 1, 2 and 4) 1,057,226 703,048
------------ ------------
TOTAL ASSETS $ 42,147,175 $ 43,884,843
============ ============
L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses $ 2,544,522 $ 1,769,467
Warehouse lines of credit (Note 3) 35,858,560 38,949,355
Mortgage payable (Note 4) 69,890 71,378
Deferred income 158,018 380,829
Impounds 264,783 167,043
Income taxes - currently payable 115,585 132,602
------------ ------------
TOTAL LIABILITIES 39,011,358 41,470,674
------------ ------------
S T O C K H O L D E R S' E Q U I T Y
CAPITAL CONTRIBUTED
Common stock, no par value , authorized
200,000 shares, issued and outstanding
34,600 shares 180,000 180,000
Additional paid in capital 914,681 914,681
Retained earnings 2,041,136 1,319,488
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,135,817 2,414,169
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 42,147,175 $ 43,884,843
============ ============
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 2 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
-------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
(SEE NOTE 1)
1998 1997
---- ----
REVENUE
Interest income $ 4,251,579 $ 2,024,689
Interest expense 3,963,345 1,945,499
------------ ------------
Net interest margin 288,234 79,190
Provision for loss REO losses 330,000 105,000
------------ ------------
Net interest margin after
provision for loss REO losses (41,766) (25,810)
Loan origination fees 1,162,110 1,440,602
Gain on sale of mortgages,
securities and others 10,111,714 6,840,361
Service release premium 7,681,218 3,930,782
Appraisal, credit, document and
miscellaneous fees, net (157,470) 96,599
------------ ------------
TOTAL REVENUES 18,755,806 12,282,534
------------ ------------
EXPENSES
Salaries, commissions and employee
benefits 11,886,945 7,146,187
Selling 870,751 694,866
Occupancy 1,031,478 684,659
General and administrative expenses 3,711,943 2,784,901
------------ ------------
TOTAL EXPENSES 17,501,117 11,310,613
------------ ------------
INCOME BEFORE INCOME TAXES 1,254,689 971,921
INCOME TAXES (NOTE 7) 533,041 397,710
------------ ------------
NET INCOME 721,648 574,211
RETAINED EARNINGS, beginning of year 1,319,488 745,277
------------ ------------
TOTAL RETAINED EARNINGS $ 2,041,136 $ 1,319,488
============ ============
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 3 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
(SEE NOTE 1)
1998 1997
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 721,648 $ 574,211
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 334,255 258,183
Provision for REO losses 330,000 105,000
(Increase) decrease in mortgage loans
held for sale 3,648,020 (25,439,972)
(Increase) in accounts receivable (617,867) (120,966)
(Increase) in advances (44,980) (72,377)
(Increase) in prepaid expenses
and deposits (569,054) (126,787)
Increase in accounts payable and
accrued expenses 775,055 1,264,518
Increase (decrease) in warehouse lines
of credit (3,090,795) 24,179,762
(Decrease) in mortgage payable (1,488) (426)
Increase (decrease) in deferred income (222,811) 362,259
Increase (decrease) in impounds 97,740 (49,585)
Increase (decrease) in income taxes
payable (17,017) 146,497
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,342,706 $ 1,080,317
------------ ------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 4 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT)
------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
(SEE NOTE 1)
------------
1998 1997
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets $ (688,433) $ (482,408)
Proceeds from second trust deeds - 199,529
------------ ------------
CASH (USED) BY
INVESTING ACTIVITIES (688,433) (282,879)
------------ ------------
NET INCREASE IN CASH 654,273 797,438
Cash balance, - beginning of the year 1,295,529 498,091
------------ ------------
CASH AND CASH EQUIVALENT,
END OF YEAR $ 1,949,802 $ 1,295,529
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 4,024,898 $ 1,727,649
Income taxes $ 549,615 $ 251,213
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS STATEMENT.
- 5 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
MARINA MORTGAGE COMPANY, INC., AND MARINA INSURANCE SERVICES, INC., a
wholly owned subsidiary, are California Corporations formed September
22, 1987 and February 19, 1997, respectively. MARINA MORTGAGE COMPANY,
INC., is engaged in origination, marketing and servicing of mortgage
loans. The Company is approved by the US Department of Housing and
Urban Development, FANNIE MAE, FREDDIE MAC and various other investors
as a seller/servicer of mortgage loans. MARINA INSURANCE SERVICES,
INC., was organized for the purpose of engaging in soliciting life and
disability insurance policies. This wholly owned subsidiary has been
dormant since its inception.
The Company conducts their business primarily in the general area of
California and has authorization to conduct business in various other
states.
THE SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE COMPANY ARE SUMMARIZED
BELOW:
DEPRECIATION OF FIXED ASSETS - Depreciation of office furniture and
equipment is computed by the accelerated and straight-line methods over
useful lives of 3 - 7 years. Depreciation of leasehold improvements is
computed by the straight-line method over useful lives of 7 years.
Depreciation of rental property is computed by the straight-line method
over useful lives of 27.5 years.
CASH AND CASH EQUIVALENT - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with an initial
maturity of three months or less to be cash equivalent.
GAIN ON SALE OF MORTGAGES - The Company has realized gains and losses from
changing financial conditions (principally fluctuating interest rates)
between the dates of loan origination and sale. Gains are recognized at the
time of sale of the subject loan to the investor and losses are recognized
as anticipated, based on prevailing interest rates and investor commitments
to purchase such loans.
MORTGAGE LOANS HELD FOR SALE - Mortgage loans held for sale are stated at
the lower of cost or market determined on an aggregate basis.
Non refundable fees and direct costs associated with the origination of
mortgage loans are deferred and recognized when the loans are sold.
- 6 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT)
-------------------------------------------------------
COMMITMENT FEES - The Company paid and received certain commitment fees
during the period to guarantee the funding of mortgage loans. Such fees are
deferred and recognized as the loans are funded or when the commitment
expires.
USE OF ESTIMATES - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
and the reported revenues and expenses. Actual results could vary from the
estimates that were utilized in preparing the financial statements.
2. FIXED ASSETS
------------
1998 1997
---- ----
Fixed assets consist of the following:
COST
Office furniture & equipment $ 2,009,799 $ 1,346,497
Leasehold Improvements 25,131 -
Rental Property 100,500 100,500
------------ ------------
TOTAL COST 2,135,430 1,446,997
Accumulated depreciation 1,078,204 743,949
------------ ------------
NET FIXED ASSETS $ 1,057,226 $ 703,048
============ ============
The depreciation policies followed by the Company are described in Note
(1).
The rental property secures a trust deed further described in Note (4).
- 7 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
3. WAREHOUSE LINES OF CREDIT
-------------------------
As of December 31, 1998 and 1997, the Company has two lines of credit with
financial institutions, secured by mortgage loans held for sale.
The first line of credit permits the Company to borrow a maximum of
$30,000,000 and $20,000,000 at December 31, 1998 and 1997, respectively at
FED plus 1.75%. Interest is due monthly. As of December 31, 1998 and 1997,
there was $25,446,594 and $17,441,565 outstanding, respectively. The
Company is required to maintain the following financial conditions: Minimum
tangible net worth of $2,400,000, and current ratio to be at least 1.1 to 1
and leverage ratio not to exceed 20.0 to 1.0.
The second line of credit permits the Company to borrow a maximum of
$25,000,000 at December 31, 1998 and 1997, respectively, at a rate of
commercial paper plus 2%. Interest is payable monthly. As of December 31,
1998 and 1997 there was $10,411,966 and $21,507,790 outstanding. The
Company is required to maintain the following financial conditions: Minimum
tangible net worth $1,500,000; and Leverage ratio 17:1.
4. MORTGAGE PAYABLE
----------------
Mortgage payable, secured by real estate investments, (rented property),
due in monthly installments of $419 for principal and interest payable at a
variable interest rate.
- 8 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
5. LEASE COMMITMENTS AND CONTINGENCIES
-----------------------------------
The following is a schedule of future minimum least payments (for leases
with initial or remaining terms in excess of one year) as of December 31,
1998:
1999 $ 611,582
2000 448,755
2001 234,514
2002 728,671
2003 12,122
-----------
TOTAL $ 2,035,644
===========
The Company is responsible for taxes, maintenance, and insurance. Total
rent expense under leases with a term in excess of one month was $990,994
and $646,680 in 1998 and 1997 respectively. The Company has an option to
renew an office lease upon expiration at fair market value.
As of December 31, 1998 and 1997, the Company has deposits in a bank, which
exceeded the FDIC insured limit of $100,000.
The Company is subject to various claims and legal proceedings arising out
of the normal course of business, none of which, in the opinion of
management, is expected to have a material effect on the Company's
financial position.
6. COMPENSATED ABSENCES
--------------------
The Company provides paid time off to employees depending on length of
service and other factors. The Company's is to accrue the cost of such
compensated absences. As of December 31, 1998 and 1997 accrued paid time
off was $152,010 and $103,221 respectively, which is included as a
component of accounts payable and accrued expenses.
- 9 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
7. INCOME TAXES
------------
The provision for income taxes consist of the following:
1998 1997
---- ----
Federal $ 394,707 $ 310,370
State - net of $-0- and $9,814
Los Angeles Revitalization
Zone tax credit 130,944 87,340
Other states 7,390 -
------------ ------------
TOTAL INCOME TAXES $ 533,041 $ 397,710
============ ============
8. PROFIT SHARING PLAN
-------------------
The Company has a 401(k) profit-sharing plan covering substantially all of
its full-time employees. Payments under a contributory plan are
administered by an independent trustee for the benefit of participating
employees. In addition, the Company can contribute to the employees 401(k)
plan a maximum of the employee contribution. Employers' contributions for
the years ended December 31, 1998 and 1997 were $97,000 and $80,000,
respectively.
9. LOAN SERVICING
--------------
Mortgage loans serviced aggregated approximately $226,551 and $543,184 at
December 31, 1998 and 1997, respectively.
These loans are serviced by an independent contractor pursuant to a loan
sub-servicing agreement between the independent contractor and the Company.
The independent contractor was audited by other auditors on all loans they
service. The Company complied with all the requirements of the Uniform
Single Audit Program for Mortgage Bankers.
Escrow funds are held in trust for mortgages at various financial
institutions and are not included in the accompanying balance sheet.
At December 31, 1998 and 1997 the Company has errors and omissions
insurance coverage in the amount of $3,000,000.
- 10 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
10. FINANCIAL INSTRUMENT RISK
-------------------------
The Company is obligated to repurchase mortgage loans if an investor
determines that a borrower, or the property, did not meet certain financial
criteria that have been pre-established for each type of loan. Management
intends to resell these loans at a discount. However, if a repurchased loan
is or becomes non-performing the Company would have the right to foreclose
and resell the property.
11. IMPACT OF YEAR 2000 (UNAUDITED)
-------------------------------
During 1998, the Company addressed the potential problem that could impact
users of automated information systems. Many computer systems process
transactions based on the last two digits of the year of transactions,
rather than all four digits. These computer systems may not operate
properly when the last two digits of the year become "00," as will occur on
January 1, 2000. The problem could affect a wide variety of automated
systems, such as mainframe applications, personal computers, communications
systems, environmental systems, and other information systems.
The Company identified areas of operations critical to the delivery of its
products and services and has made necessary changes to its computer
equipment and software. The majority of the programs/applications used in
the Company's operations are purchased from outside vendors. The vendors
providing the software are responsible for maintenance of the systems and
modifications to enable uninterrupted usage after December 31, 1999. The
Company implemented a program to test all systems during 1998, and
anticipates that it will be fully compliant prior to December 31, 1999.
Furthermore, the Company has identified potential problems by performing an
inventory of all software applications and is in process of obtaining
certification of compliance from third parties, and testing all of the
impacted applications. Contingency plans, if any are needed, will be
developed during 1999 to address potential problems that are identified.
The Company's plan includes reviewing any potential risks associated with
the loan and investment portfolios due to the Year 2000 issue and be fully
complaint before the end of the year.
Based on currently available information, management does not anticipate
that the costs to address the Year 2000 issues will have a materially
adverse impact on the Company's financial condition or results of
operations.
- 11 -
<PAGE>
[LETTERHEAD OF FORMAN, RICHTER & RUBIN]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
----------------------------------------------------------------
TO THE BOARD OF DIRECTORS
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information that follows on pages 13
- - 14 is presented for the purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, the information is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
/s/ Forman, Richter & Rubin
----------------------------------------
FORMAN, RICHTER & RUBIN
AN ACCOUNTANCY CORPORATION
MARCH 17, 1999
COVINA, CALIFORNIA
- 12 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
ADDITIONAL INFORMATION - CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
OPERATING EXPENSES
1998 1997
---- ----
PAYROLL
Salaries and commissions $ 10,517,225 $ 6,286,522
Payroll taxes 1,176,852 806,737
Employee welfare 192,868 52,928
------------ ------------
TOTAL PAYROLL 11,886,945 7,146,187
------------ ------------
SELLING
Advertising 683,025 556,646
Auto 150,893 92,230
Meetings and seminars 36,833 45,990
------------ ------------
TOTAL SELLING 870,751 694,866
------------ ------------
OCCUPANCY
Rent 990,994 646,680
Repairs 17,335 16,975
Storage 12,599 8,616
Utilities 10,550 12,388
------------ ------------
TOTAL OCCUPANCY $ 1,031,478 $ 684,659
------------ ------------
SEE INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- 13 -
<PAGE>
MARINA MORTGAGE COMPANY, INC., AND SUBSIDIARY
ADDITIONAL INFORMATION - CONSOLIDATED STATEMENT OF INCOME
-------------------------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
OTHER EXPENSES
Computer supplies $ 96,305 $ 26,853
Contributions 650 713
Depreciation 334,255 258,183
Dues and subscriptions 27,733 62,734
Entertainment and promotion 64,055 27,076
Equipment rent 211,407 156,291
Equipment repairs 53,955 33,160
Insurance - health 328,570 279,888
Insurance - other 103,713 69,391
Office supplies 410,345 312,175
Other - 15,174
Outside services 163,676 88,759
Postage and delivery 581,432 430,692
Printing 173,370 210,536
Professional fees 74,037 34,356
Profit sharing 97,000 80,000
Rental expense, net 606 2,702
REO expenses 5,748 10,008
Taxes and licenses 63,669 43,748
Telephone and pagers 793,499 611,687
Travel 127,918 30,775
------------ ------------
TOTAL OTHER EXPENSES 3,711,943 2,784,901
------------ ------------
TOTAL OPERATING EXPENSES $ 17,501,117 $ 11,310,613
============ ============
SEE INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- 14 -
<PAGE>
AUDITORS' STATEMENT ON SCOPE OF EXAMINATION
The scope of our examination included all generally accepted auditing procedures
considered by us to be necessary in relation to our evaluation of internal
control. Information as to scope, with respect to certain items as required by
various agencies and investors, is provided as follows:
CASH AND ESCROW FUND
- --------------------
All of the Company's operating bank accounts were satisfactorily reconciled with
the account records maintained by the Company. All such bank accounts were
confirmed directly by banks, and detail was compared with "cut-off" statements
of a date subsequent to that of the latest available statements as of our audit.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
Details of mortgage loans held for sale were reconciled with controls and
individually matched with liabilities as confirmed by respective banks.
GENERAL
- -------
All other recorded assets and liabilities were determined by generally accepted
accounting principals, and tests were made to determine the nature and extent of
any material unrecorded or over-recorded items. Any such items have been
adjusted in the accompanying statements and are being recorded in the books of
account.
Income and expense accounts were reviewed and the general propriety of
classification were determined. The Company's accounts follow classification
recommended by Mortgage Bankers' Association of America.
LOAN SERVICING
- --------------
The Company services loans aggregating approximately $226,551 and $543,184 at
December 31, 1998 and 1997, respectively. These loans were serviced under sub
servicing agreements between independent contractors and the Company. We
conducted tests in all areas of loan servicing. The audits were conducted in
accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers. Our opinion concludes that the Company complied with all
requirements.
- 15 -
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
American Home
-------------------------------------------
American Proforma
Home Marina (d) Year Ended December 31, 1999
----------------- ----------------- -------------------------------------------
Year Ended Year Ended Combined
December 31, December 31, Proforma December 31,
1999 1999 Adjustments 1999
----------------- ----------------- -------------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,496,283 $ 1,917,734 $ - 3,414,017
Mortgage loans held for sale, net 52,537,807 12,577,549 - 65,115,356
Mortgage loans held for investment, net 153,534 - - 153,534
Real estate owned - 141,080 (28,215)(a) 112,865
Accounts receivable 7,649,942 202,604 (750,000)(c) 7,102,546
Mortgage servicing rights, net 34,470 - - 34,470
Premises and equipment 2,555,460 864,233 - 3,419,693
Prepaid expenses and security deposits 1,719,470 603,024 (300,000)(b) 2,022,494
Goodwill - - 4,497,537 (a)(b) 4,497,537
------------ --------------- ----------- -------------
Total assets $ 66,146,966 $ 16,306,224 $ 3,419,322 $ 85,872,512
============ =============== =========== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Warehouse lines of credit $ 48,649,555 $ 11,469,032 $ - $ 60,118,587
Notes payable - - 1,947,578 (a) 1,947,578
Accrued expenses and other 3,711,230 2,208,792 (750,000)(c) 5,170,022
Deferred income tax liability 625,000 - - 625,000
------------ -------------- ------------ -------------
Total liabilities 52,985,785 13,677,824 1,197,578 67,861,187
MINORITY INTEREST 23,372 - 23,372
STOCKHOLDERS' EQUITY
Common stock 75,000 180,000 (172,466)(a) 82,534
Additional paidin capital 12,406,780 914,681 3,927,929 (a) 17,249,390
Retained earnings 656,029 1,533,719 (1,533,719)(a) 656,029
------------ -------------- ------------ -------------
Total stockholders' equity 13,137,809 2,628,400 2,221,744 17,987,953
------------ -------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 66,146,966 $ 16,306,224 $ 3,419,322 $ 85,872,512
============ =============== ============ ============
</TABLE>
See notes to unaudited proforma combined consolidated balance sheet.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED
BALANCE SHEET
(1) The pro forma adjustments reflected in the unaudited pro forma combined
consolidated balance sheet of American Home Including Marina as of December 31,
1999 give effect to the following adjustments:
(a) Stockholders' equity of Marina has been adjusted to give effect to the
exchange of 34,600 shares of Marina Common Stock for 753,420 shares of
shares of American Home Common Stock. Pro forma adjusting entry is as
follows:
DEBIT CREDIT
----- ------
Goodwill 4,197,537
Common Stock 180,000
Additional paid-in capital 914,681
Retained Earnings 1,533,719
Real Estate Owned 28,215
Notes Payable 1,947,578
Common Stock 7,534
Additional paid-in capital 4,842,610
(b) Merger-related Expenses. Merger-related expenses anticipated to be recorded
by American Home are included in the pro forma combined consolidated
balance sheet as of December 31, 1999. Merger-related expenses expected to
be recorded by American Home are summarized in the following table:
DEBIT CREDIT
----- ------
Goodwill 300,000
Capitalized expenses 300,000
(c) Elimination entry for intercompany balances as of December 31, 1999 is as
follows:
DEBIT CREDIT
----- ------
Intercompany payable 750,000
Intercompany receivable 750,000
(d) The pro forma financial information of Marina has been reclassified to
conform with the American Home presentation.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
-----------------------------------
AMERICAN PROFORMA
HOME MARINA (5) YEAR ENDED DECEMBER 31, 1999
---------------- ---------------- -----------------------------------
YEAR ENDED YEAR ENDED COMBINED
DECEMBER 31, DECEMBER 31, PROFORMA DECEMBER 31,
1999 1999 ADJUSTMENTS 1999
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 21,957,076 $ 14,579,977 $ - $ 36,537,053
Interest income, net 1,703,498 161,788 - 1,865,286
Other 1,201,436 50,915 - 1,252,351
---------------- ---------------- ---------------- ---------------
Total revenues 24,862,010 14,792,680 - 39,654,690
---------------- ---------------- ---------------- ---------------
EXPENSES:
Salaries, commissions and benefits, net 11,611,275 9,843,347 (2,242,996)(1) 19,211,626
Marketing and promotion 1,774,169 703,010 - 2,477,179
Occupancy and equipment 2,428,870 1,878,152 - 4,307,022
Data processing and communications 1,132,970 734,176 - 1,867,146
Provision for loss 27,967 175,000 - 202,967
Amortization of goodwill - - 224,877 (2) 224,877
Other 2,549,636 2,305,965 - 4,855,601
---------------- ---------------- ---------------- ---------------
Total expenses 19,524,887 15,639,650 (2,018,119) 33,146,418
---------------- ---------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 5,337,123 (846,970) 2,018,119 6,508,272
INCOME TAXES 1,441,125 (339,553) - 1,101,572
---------------- ---------------- ---------------- ---------------
INCOME BEFORE MINORITY INTEREST 3,895,998 (507,417) 2,018,119 5,406,700
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE 35,112 - 35,112
---------------- ---------------- ---------------- ---------------
NET INCOME $ 3,860,886 $ (507,417) $ 2,018,119 $ 5,371,588
================ ================ ================ ===============
PRO FORMA INCOME TAXES (3) $ 878,875 $ 878,875
PRO FORMA NET INCOME $ 2,982,011 $ 4,492,713
Pro forma earnings per share - basic $ 0.40 $ 0.54
Pro forma earnings per share - diluted $ 0.39 $ 0.54
Weighted average number of shares - basic (4) 7,533,334 8,286,754
Weighted average number of shares - diluted (4) 7,564,776 8,318,196
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN HOME
AMERICAN PROFORMA
HOME MARINA (5) YEAR ENDED DECEMBER 31, 1998
---------------- ---------------- -----------------------------------
YEAR ENDED YEAR ENDED COMBINED
DECEMBER 31, DECEMBER 31, PROFORMA DECEMBER 31,
1998 1998 ADJUSTMENTS 1998
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 18,980,534 $ 18,707,166 $ - $ 37,687,700
Interest income, net 734,179 288,234 - 1,022,413
Other 502,223 90,406 - 592,629
---------------- ---------------- ---------------- ---------------
Total revenues 20,216,936 19,085,806 - 39,302,742
---------------- ---------------- ---------------- ---------------
EXPENSES:
Salaries, commissions and benefits, net 9,430,382 11,886,945 (2,036,802)(1) 19,280,525
Marketing and promotion 1,236,461 683,025 - 1,919,486
Occupancy and equipment 1,653,709 1,031,478 - 2,685,187
Data processing and communications 951,508 889,804 - 1,841,312
Provision for loss 152,955 330,000 - 482,955
Amortization of goodwill - - 224,877 (2) 224,877
Other 1,542,997 3,009,865 - 4,552,862
---------------- ---------------- ---------------- ---------------
Total expenses 14,968,012 17,831,117 (1,811,925) 30,987,204
---------------- ---------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 5,248,924 1,254,689 1,811,925 8,315,538
INCOME TAXES 328,209 533,041 - 861,250
---------------- ---------------- ---------------- ---------------
INCOME BEFORE MINORITY INTEREST 4,920,715 721,648 1,811,925 7,454,288
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE 50,760 - - 50,760
---------------- ---------------- ---------------- ---------------
NET INCOME $ 4,869,955 $ 721,648 $ 1,811,925 $ 7,403,528
================ ================ ================ ===============
PRO FORMA INCOME TAXES (3) $ 1,982,000 $ 1,982,000
PRO FORMA NET INCOME $ 2,887,955 $ 5,421,528
Pro forma earnings per share - basic $ 0.38 $ 0.65
Pro forma earnings per share - diluted $ 0.38 $ 0.65
Weighted average number of shares - basic (4) 7,533,334 8,286,754
Weighted average number of shares - diluted (4) 7,564,776 8,318,196
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
American Home
-------------------------------------------
American Proforma
Home Marina(5) Year Ended December 31, 1997
----------------- ----------------- -------------------------------------------
Year Ended Year Ended Combined
December 31, December 31, Proforma December 31,
1997 1997 Adjustments 1997
----------------- ----------------- -------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of mortgage loans $ 10,596,604 $ 12,211,745 $ - $ 22,808,349
Interest income, net 368,808 79,190 - 447,998
Other 356,018 96,599 - 452,617
----------------- ----------------- -------------------- ------------------
Total revenues 11,321,430 12,387,534 - 23,708,964
----------------- ----------------- -------------------- ------------------
EXPENSES:
Salaries, commissions and benefits, net 5,315,732 7,146,187 (812,022)(1) 11,649,897
Marketing and promotion 962,475 556,646 - 1,519,121
Occupancy and equipment 909,216 684,659 - 1,593,875
Data processing and communications 611,699 638,540 - 1,250,239
Provision for loss 116,837 105,000 - 221,837
Amortization of goodwill - - 224,877 (2) 224,877
Other 946,270 2,284,581 - 3,230,851
----------------- ----------------- -------------------- ------------------
Total expenses 8,862,229 11,415,613 (587,145) 19,690,697
----------------- ----------------- -------------------- ------------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 2,459,201 971,921 587,145 4,018,267
INCOME TAXES 139,887 397,710 - 537,597
----------------- ----------------- -------------------- ------------------
INCOME BEFORE MINORITY INTEREST 2,319,314 574,211 587,145 3,480,670
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE - - - -
----------------- ----------------- -------------------- ------------------
NET INCOME $ 2,319,314 $ 574,211 $ 587,145 $ 3,480,670
================= ================= ==================== =================
PRO FORMA INCOME TAXES (3) $ 942,000 $ 942,000
PRO FORMA NET INCOME $ 1,377,314 $ 2,538,670
Pro forma earnings per share basic $ 0.18 $ 0.31
Pro forma earnings per share diluted $ 0.18 $ 0.31
Weighted average number of shares basic (4) 7,533,334 8,286,754
Weighted average number of shares diluted (4) 7,564,776 8,318,196
</TABLE>
See notes to unaudited proforma combined consolidated statements of income.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED
STATEMENTS OF INCOME
(1) Pro forma adjustment for salaries in excess of current employment contracts
and duplicative efforts resulting from the merger.
(2) Program adjustment for goodwill amortization, over a 20-year period.
(3) Per Share Data is calculated using pro forma net income, which accounts for
American Home Mortgage's S-Corporation status prior to their Initial Public
Offering.
1999 1998 1997
AMERICAN HOME
Pro forma income taxes $ 878,875 $ 1,982,000 $ 942,000
Prior to the fourth quarter of 1999, American Home had elected to be taxed
as an S-Corporation. Pro forma taxes reflect an additional provision for
taxes as if American Home had been a C-Corporation for the entire year in
1999, 1998 and 1997. The provision in 1999 excludes a $625,000 one-time
non-cash, non-recurring tax expense resulting from the conversion from the
S-Corporation to C-Corporation status.
(4) Average common shares used to calculate net income per common share for the
each of the years ended December 31, 1999, 1998 and 1997 were calculated
using the following information:
<TABLE>
<CAPTION>
1999 1998 1997
AMERICAN HOME
<S> <C> <C> <C>
Primary 7,533,334 7,533,334 7,533,334
Dilutive effect of stock options 31,442 31,442 31,442
Fully diluted 7,564,776 7,564,776 7,564,776
PRO FORMA INCLUDING MARINA
Primary 8,286,754 8,286,754 8,286,754
Dilutive effect of stock options 31,442 31,442 31,442
Fully diluted 8,318,196 8,318,196 8,318,196
(5) The pro forma financial information of Marina has been reclassified to
conform with the American Home presentation.
</TABLE>
