SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 5, 1997
IMN FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-28666 14-1702188
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
520 Broad Hollow Road, Melville, New York 11746
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 747-3354
NGT Enterprises, Inc.
100 Garden City Plaza, Suite 200 Garden City, New York 11530
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report
<PAGE>
Item 1. Changes in Control of Registrant
Pursuant to the acquisition agreement between the Registrant and IMN
Equities, Inc., (the "Acquisition Agreement") Edward Capuano was appointed as a
director and the former directors resigned as of the date of the Acquisition
Agreement, May 5, 1997.
In addition, the shareholders of the Registrant, pursuant to the
Acquisition Agreement, exchanged four shares of common stock, $.0001 par value
each, for one share of common stock, $.001 par value each.
Subsequent to this reverse recapitalization, the Registrant issued an
aggregate of 20,221,700 shares of common stock representing approximately 95% of
the issued and outstanding shares of common stock to IMN Equities, Inc. in
exchange for all the capital stock of its subsidiary Donald Henig, Inc. and
other additional assets specified in the Acquisition Agreement.
Director
--------
Edward R. Capuano, Chief Executive Officer, President and Director of the
Registrant serves as President of Donald Henig, Inc.. a wholly-owned subsidiary
of the Registrant, a New York State licensed mortgage banker with 25 retail and
two wholesale branches in eight states. He was previously employed as Senior
Vice President of Barclays Bank PLC in charge of its North American Treasury
Operation.
Other Officers and Key Employees of the Registrant
-------------------------------------------------
Edward Capuano, as sole director, appointed the following as officers or
key employees of the Registrant:
James Richmond, Executive Vice President, has more than 27 years experience
in the mortgage banking industry. His professional designations include FNMA
Underwriter, FHA Direct Endorser, Underwriter, and Veterans' Administration
Automatic Approval Underwriter. He was President of the New Jersey Mortgage
Bankers Association from 1994 to 1995.
Jeffrey Skulsky, Director of New Jersey Banking Operations, served as
operations head for the Northeast region of United Capital Mortgage Corp. He
served as Vice President of Finance for Amfac Distribution Company which had
three divisions and three hundred locations. In his years with Amfac, he
negotiated and closed over one hundred mergers and acquisitions.
Pargie Raiola, Senior Vice President, has over 30 years' experience in the
mortgage and financial services industry, including service as Senior Lending
Officer at Republic National Bank. He was instrumental in pioneering the
"Personal Banking" concept at Irving Trust Company and was Vice President
responsible for developing and implementing positive sales philosophies at
Chemical Bank. In addition, he served on the Advisory Board of National
Westminster Bank.
Cindy L. Eisele, Chief Financial Officer and Treasurer, has been employed
as Chief Financial Officer for Donald Henig, Inc. d/b/a Island Mortgage Network
for one year. Previously, she served in various capacities at MidCoast Mortgage
Corporation for eight years including Vice President and Controller.
<PAGE>
James Britton, Senior Vice President, has been a leader in the Mortgage
Banking Industry for over twelve years as an originator, branch manager and
regional manager. Mr. Britton has trained in excess of 100 loan officers, 15 of
whom are currently branch or regional managers. Mr. Britton served as Director
of Marketing for 1980 Winter Olympics.
Gareth D. Keene, Esq., Vice President, Secretary and General Counsel, has
been involved with mortgage and other asset securitization as well as secondary
mortgage investment products including CMOs, REMICs and REITs since the early
1980's as an associate in the corporate real estate and structured finance
department of the New York City law firm of Cadwalader, Wickersham & Taft. He
joined PaineWebber, Inc. and built and managed a highly successful mortgage
securitization trading desk until 1987. Thereafter, he became engaged in
transactions in emerging markets with special emphasis on Latin America and
securitization of assets and other transactions in these emerging countries. He
is a graduate of the University of Pennsylvania Law School and a member of the
New York and New Jersey Bars.
Item 2. Acquisition or Disposition of Assets
Pursuant to the Acquisition Agreement, the Registrant acquired all the
capital stock of Donald Henig, Inc. ("DHI"), First Equities Commercial Corp.,
First Equities Service Corp., 141,146.47 shares in the Aristocrat Endeavor Fund
(a publicly traded Bermuda mutual fund).
DHI is a licensed mortgage banker in eight states with 25 retail branch
offices and two wholesale branch offices. Presently there are more than 200 full
and part-time employees who along with its completely automated mortgage
processing facility help expedite the large volume of loans originated on a
daily basis. There are separate departments for each area of business each with
its own managers, processors and underwriters. The various departments are "A"
loans, Government and "B" and "C" credit loans. In early 1996 management decided
to put into place plans of expansion by opening new branch offices and acquiring
branch offices from other mortgage banks and mortgage brokers. DHI has
successfully opened 23 branches, bringing the retail branch total to 25.
DHI is presently licensed as a mortgage banker in New York, New Jersey,
Connecticut, Florida, Missouri, Alaska, North Carolina, Pennsylvania and New
Mexico. Management has targeted a number of additional states to apply for
licenses. The branch network is now producing monthly originations in excess of
$25 million and is growing rapidly as each of the new branches become
established. It is company policy not to open up a branch unless an experienced
branch manager is available for the particular location. Because of the method
it has adopted for expansion, the cost of opening new branches and promoting
them is reasonable. Each of the branches, when warranted, has its own processing
unit with final underwriting and supervision by DHI management. All quality
control is likewise performed by DHI management.
First Equities Commercial Corp. is a mortgage banking firm which
specializes in the financing of commercial properties on a national basis, and
First Equities Service Corp. intends to sell mortgage life insurance utilizing
the DHI's customer base.
<PAGE>
Item 7. Financial Statements and Exhibits
1. Pro-forma financial statements
2. Financial statements of Donald Henig, Inc. as of December 31, 1996
3. Financial statements of Donald Henig, Inc. as of December 31, 1995
4. Acquisition Agreement by and between NGT Enterprises, Inc. and IMN
Equities, Inc.
5. Financial statements of Donald Henig, Inc. as of March 31, 1997
6. Financial statements of Donald Henig, Inc. as of March 31, 1996
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IMN FINANCIAL CORP.
(Registrant)
By:/s/Edward Capuano
----------------
Edward Capuano,
President and Principal
Executive Officer and
Principal Financial Officer
Dated: July 31, 1997
4
NGT ENTERPRISES, INC.
Pro Forma Consolidated Condensed Financial Statements
(Unaudited)
The following unaudited pro forma combined consolidated condensed financial
statements present a combined balance sheet and related statements of
operations, cash flows and stockholders' equity NGT Enterprises, Inc., and its
subsidiary, Donald Henig, Inc. et al, giving effect to the reverse acquisition
and using the purchase method of accounting for the proposed combination
pursuant to a Stock Purchase Agreement.
The combination with Donald Henig, Inc. et al is reflected using the
purchase method of accounting, whereby NGT Enterprises, Inc. issued an aggregate
of 20,221,700 common shares in exchange for all of the outstanding common shares
of Donald Henig, Inc. et al.
The pro forma combined consolidated condensed balance sheet as of March
31,1997 and the related statements of operations for the interim period ended
March 31, 1997, the proforma consolidated statement of stockholders equity for
the forty two months ended March 31, 1997 and the proforma consolidated
statements of operations and cash flows for the year ended September 30, 1996
(December 31, 1996 for Donald Henig, Inc. et al) give effect to the transactions
as if they had been in effect throughout the periods presented. The information
shown is based upon numerous assumptions and estimates and is not necessarily
indicative of the results of future operations of the combined entities or the
actual results that would have occurred had the transaction been consummated
during the periods indicated . These statements should be read in conjunction
with the consolidated financial statements of NGT Enterprises, Inc. and the
financial statements of Donald Henig, Inc. et al included herein.
PF-1
<PAGE>
NGT ENTERPRISES, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
Assets
<TABLE>
<CAPTION>
NGT Enterprises, Donald Henig, NGT
Inc. Inc. et al Adjustments Enterprises, Inc.
<S> <C> <C> <C> <C>
Current assets
Cash $-0- 112,687 112,687
Mortgage inventory 9,567,331 9,567,331
Points and fees receivable 247,104 247,104
Other current receivables 19,548 19,548
Marketable securities 5,000,000 5,000,000
Investments 660,293 660,293
Prepaid expenses 1,298,620 1,298,620
Mortgage receivable 2,298,115 2,298,115
Property and equipment-net 459,135 459,135
Intangible assets-net 514,716 514,716
Other assets 71,511 71,511
---- ----------- -----------
Total assets $-0- $20,249,060 $20,249,060
==== =========== ===========
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Current liabilities
Accounts payable and
accrued expenses $1,500 $1,567,545 $1,569,045
Warehouse lines of credit 9,284,115 9,284,115
Borrowers escrow funds 178,317 178,317
Capital lease obligations 150,473 150,473
Due to related party 1,561,993 1,561,993
Other liabilities 14,765 14,765
Deferred income 316,810 316,810
------- ---------- ----------
Total liabilities 1,500 13,074,018 13,075,518
Stockholders' Equity
Preferred stock 110 (110)
Common stock-authorized 12,000,000
shares, $.0001 par value per share,
the proforma number of shares
outstanding at March 31, 1997 was
21,286,000 1,000 (1,000)
426 1,703 2,129
Additional paid in capital 16,867 7,298,111 (7,298,111) 7,190,206
7,173,339
Accumulated profit during
development stage (18,793) (124,179) 124,179 (18,793)
-------- --------- ----- ------------
Total stockholders' equity (1,500) 7,175,042 -0- 7,173,542
------- --------- ----- ------------
Total liabilities and
stockholders' equity $-0- $20,249,060 $-0- $20,249,060
==== =========== ==== ===========
</TABLE>
See accompanying notes to proforma financial statements.
PF-2
<PAGE>
N G T ENTERPRISES, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE INTERIM PERIOD MARCH 31, 1997
<TABLE>
<CAPTION>
NGT Donald Henig, Adjustments NGT Enterprises,
Enterprises, Inc. Inc. et al Inc.
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $-0- $2,035,528 $2,035,528
Interest Income 190,360 190,36
Total Operating Income $-0- 2,225,888 2,225,888
Operating Expenses
Field and Direct Expenses 894,842 894,842
Interest Expense 202,233 202,233
Total Operating Expenses 1,097,075 1,097,075
Gross Profit 1,128,813 1,128,813
General and Administrative Expenses 1,500 1,269,477 1,270,977
Income (Loss) from Operations (1,500) (140,664) (142,164)
Other Income and (Expenses)
Income before Provision for Income Taxes (1,500) (140,664) (142,164)
Income Tax Provision
Net Income (Loss) $(1,500) (140,664) (142,164)
Net income per share $(.00) $-0- $-0-
Total number of shares outstanding 21,286,000 21,286,000 21,286,000
========== ========== ===========
</TABLE>
See accompanying notes to proforma financial statements.
PF-3
<PAGE>
N G T ENTERPRISES, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(DECEMBER 31, 1996 FOR DONALD HENIG, INC. et al)
<TABLE>
<CAPTION>
NGT Donald Henig, Adjustments NGT Enterprises,
Enterprises, Inc. Inc. et al Inc.
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $-0- $5,554,241 $5,554,241
Interest Income 440,890 440,890
Total Operating Income $-0- 5,995,131 5,995,131
Operating Expenses
Field and Direct Expenses 3,375,700 3,375,700
Interest Expense 542,781 542,781
Total Operating Expenses 3,918,481 3,918,481
Gross Profit 2,076,650 2,076,650
General and Administrative Expenses 16,900 2,859,276 2,876,176
Income (Loss) from Operations (16,900) (782,626) (799,526)
Other Income and (Expenses)
Interest Expense (3,677) (3,677)
Net gain on Sale of Subsidiaries 856,232 856,232
Total Other Income and (Expenses) 852,555 852,555
Income before Provision for Income Taxes (16,900) 69,929 53,029
Income Tax Provision (8,642) (8,642)
Net Income (Loss) $(16,900) $61,287 $44,387
Net income per share $(.00) $-0- $-0-
Total number of shares outstanding 21,286,000 21,286,000 21,286,000
========== ========== ===========
</TABLE>
See accompanying notes to proforma financial statements.
PF-4
<PAGE>
N G T ENTERPRISES, INC.
PROFORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(DECEMBER 31, 1996 FOR DONALD HENIG, INC. ET AL)
<TABLE>
<CAPTION>
NGT Donald Adjustments NGT
Enterprises, Henig, Inc. Enterprises,
Inc. et al Inc.
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(16,900) $61,287 $59,787
Adjustments to reconcile net income
to net cash provided by
operating activities:
Amortization 98,362 98,362
Depreciation 50,942 50,942
Realized gain on sale of subsidiaries (856,232) (856,232)
Change in assets and liabilities
Increase in points and fees receivable (194,385) (194,385)
Increase in prepaid expenses (632,207) (632,207)
Increase in other assets (82,312) (82,312)
Increase in other current receivables (14,548) (14,548)
Increase in accounts payable 898,285 898,285
Increase in other liabilities 105,340 105,340
Increase in deferred income 198,537 198,537
Total adjustments (428,218) (428,218)
Net cash provided (used) by operating activities (16,900) (366,931) (383,831
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (190,627) (190,627)
Purchase of intangible assets (492,971) (492,971)
Mortgages originated (Net) (83,698,098) (83,698,098)
Mortgages sold 75,800,226 75,800,226
Net cash provided (used) by investing activities (8,581,470) (8,581,470)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 16,900 16,900
Advances from parent 124,160 124,160
Proceeds from warehouse line of credit 85,179,479 85,179,479
Repayments of warehouse line of credit (76,287,784) (76,287,784)
Collection of notes receivable 52,331 52,331
Reduction of capital lease obligations (20,755) (20,755)
Net cash provided (used) by financing activities 16,900 9,047,431 9,064,331
Net increase (decrease) in cash and equivalents 99,030 99,030
CASH BALANCE BEGINNING OF PERIOD 65,744 65,744
CASH BALANCE END OF PERIOD $164,774 $164,774
======== ========
</TABLE>
See accompanying notes to proforma financial statements
PF-5
<PAGE>
N G T ENTERPRISES, INC.
PROFORMA CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Common Stock Common Stock Preferred Preferred Additional Retained
Date Stock stock paid in Earnings Total
capital
<S> <C> <C> <C> <C> <C> <C> <C>
10-01-1993 3,930,926 $393 $-0- $(393) $-0-
9-30-1994 273
9-30-1994 3,931,199 393 (393)
-0- -0-
9-30-1995 3,931,199 393 (393)
-0- -0-
9-30-1996 326,000 33 16,867 16,900
9-30-1996 Net loss (16,900) (16,900)
9-30-1996 4,257,199 426 16,867 (17,293) -0-
3-31-1997 Net loss (1,500) (1,500)
5-05-1997(1) (3,192,899) (319) 319
5-05-1997(2) 20,221,700 2,022 7,173,020 7,175,042
21,286,000 2,129 -0- $-0- 7,190,206 (18,793) 7,173,362
========== ========== ===== ==== ==== ========= ======= =========
</TABLE>
(1) Stock split preceding transaction.
(2) Common shares issued for acquisition valued at $.21 per share.
See accompanying notes to proforma financial statements.
PF-6
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
MARCH 31, 1997
Note 1. Organization of Company and Issuance of Common Stock
a. Creation of the Company
NGT Enterprises, Inc. (the "Company") was formed under the laws of the
state of Delaware on November 14, 1980 as Nuclear & Genetics Technology, Inc.
The Company was authorized to issue 100,000,000 shares of common stock, $.001
par value each. On April 24, 1981, the name of the Company was changed to
Nuclear & Genetic Technology, Inc. On May 27, 1981, the par value of the common
stock was changed to $.0001 per share. On December 6, 1989, the Company's name
was changed to NGT Enterprises, Inc. and the number of authorized shares was
increased to 800,000,000 shares of common stock, $.0001 par value per share.
Also, on that date, the Company filed an additional certificate of amendment to
decrease the number of authorized shares to 8,000,000 $.0001 par value per share
to effect a reverse recapitalization of 200:1. On April 8, 1991, the Company
amended its certificate of incorporation to increase the number of authorized
shares to 12,000,000 shares of common stock, $.0001 par value each. On May 1,
1997, the Company amended its certificate of incorporation to change the number
of authorized shares to 45,000,000 shares of common stock, $.001 par value each
and authorize the issuance of 5,000,000 shares of preferred stock, $.001 par
value each. On May 5, 1997, the Company amended its certificate of incorporation
to change its name to IMN Financial Corp.
b. Description of the Company
The Company was considered to be a development stage company until May 5,
1997 when the Company acquired all the capital stock of Donald Henig, Inc. et al
("DHI") and additional assets. DHI is a licensed mortgage banker in eight states
with 25 retail branch offices and two wholesale branch offices. DHI has formed
two subsidiaries, First Equities Commercial Corp., ("Commercial"), a mortgage
banking firm which intends to specialize in the financing of commercial
properties on a national basis, and First Equities Service Corp. ("Service")
which intends to sell mortgage life insurance utilizing the DHI's customer base.
c. Issuance of Common Stock
On September 30, 1996, the Company issued 326,000 shares of its common
stock in consideration for the payment of $16,900 in expenses by the Company's
President on its behalf.
On May 5, 1997, the Company acquired all the capital stock of DHI,
Commercial, Service, and holdings in the Aristocrat Endeavor Fund from IMN
Equities Inc. ("IMN Equities") for 20,221,700 shares of its common stock with a
value of $.21 per share.
Note 2. Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The proforma consolidated financial statements of the Company presented at
March 31, 1997 consist of the balance sheet of the Company and the balance sheet
of DHI as of March 31, 1997, and the related statements of operations for the
period then ended. In addition, the proforma consolidated financial statements
include the statement of operations and cash flows of the Company for the year
ended September 30, 1996 and, of DHI, for the year ended December 31, 1996.
Lastly the proforma consolidated financial statements include the statement of
stockholders equity for the forty two months ended March 31, 1997.
PF-7
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
MARCH 31, 1997
b. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
c. Mortgage Inventory
The Company presents its mortgage inventory at the lower of cost or market.
As of the date of this report, substantially all of the March 31, 1997 mortgage
inventory has been sold. Mortgage inventory secures the related warehouse lines
of credit.
d. Accounts Receivable
Management has analyzed accounts receivable at March 31, 1997 and considers
all accounts to be currently collectible. Therefore, no provision has been made
for uncollectible accounts. As of the date of this report, substantially all of
the accounts receivable have been collected.
e. Deferred Costs
All direct processing costs associated with mortgages in the DHI's pipeline
at March 31, 1997 have been deferred. These costs include commissions,
processing salaries and related expenses, appraisal fees, credit costs, and
other direct expenses.
Commissions paid under a "draw against commission" arrangement have been
deferred when the draw exceeds the commission earned.
f. Property and Equipment
Property and equipment contributed to DHI are stated at the appraised fair
market values at the date of contribution. Property and equipment purchased by
the corporation are stated at cost.
Depreciation is calculated using straight-line and accelerated methods over
the estimated useful lives of the assets. Depreciation charged to operations,
which includes amortization of capital lease obligations, for the period ended
March 31, 1997, was $23,576.
g. Intangible Assets
Intangible assets consist of goodwill, acquired from UCMC Consulting Corp.,
in the amount of $150,000, and a franchise fee paid to Mortgage Tech Group,
Ltd., purchased in 1994 for $6,000, and organization costs in the amount of
$492,972, incurred in 1996 for the start up of new branches. These items are
being amortized over fifteen, five and three years, respectively. The total
amortization expense charged to operations for the period ended March 31, 1997
was $29,219.
h. Revenue Recognition
All fees are earned and recognized as revenue when the related mortgages
close. Premium income is recognized when the related mortgage closes and a
binding purchase agreement is effectuated, or after title is transferred,
whichever occurs first.
Certain application, commitment and other fees associated with the
Company's pipeline as of March 31, 1997, collected during loan processing, give
rise to the liability account "deferred income".
PF-8
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
MARCH 31, 1997
i. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due. Tax returns (as
well as the financial statements) are prepared using the accrual method of
accounting.
DHI is filing New York State and other foreign state corporation tax
returns on a separate company basis.
j. Earnings per share
Earnings per share have been computed on the basis of total number of
shares outstanding. The total number of shares outstanding at March 31, 1997 was
21,286,000.
k. Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 3 - Acquisitions
a. Acquisition of Donald Henig, Inc. et al
On May 5, 1997, among other assets, the Company acquired all the capital
stock of DHI, a New York corporation, a wholly owned subsidiary of IMN Equities,
for 20,221,700 shares of common stock with a per share value of $.21. The
transaction has been accounted for as a reverse acquisition and using the
purchase method of accounting with historic costs being the basis of valuation,
and accordingly, the accompanying proforma consolidated financial statements
include the consolidated balance sheet for the Company and DHI as of March 31,
1997 and for the Company the results of operations for the period ended March
31, 1997 as if the entities had been consolidated during the periods presented.
DHI was incorporated under the laws of the State of New York on December 1,
1992. It operates under the names "Island Mortgage Network" and "Reliance
Mortgage Network". Its principal business activity is that of a licensed
mortgage banker. Presently, all mortgages are either table funded or funded
through the Company's warehouse lines of credit. Those funded using the
warehouse lines of credit are closed subject to a binding purchase agreement
with an investor and sold shortly after closing. The Company does not perform
any loan servicing activities. The Company received its New York State mortgage
banker's license on May 12, 1994. It holds additional licenses in the states of
Connecticut, New Jersey, New Mexico, Pennsylvania, Florida, Texas, North
Carolina, and Missouri. As of the date of this report, the Company has applied
for its mortgage banking licenses in a number of additional states. It is the
Company's intention to continue its expansion nationally.
b. Reorganization
Pursuant to an agreement dated September 1, 1995, between DHI, the existing
corporate shareholder, and certain investors, a complete change in ownership of
the Company was effectuated. In accordance with the agreement, the Company
entered into employment contracts with the existing president and exchanged
certain corporate receivables for a 5 percent interest in Mortgage Tech Group
Ltd.
PF-9
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
MARCH 31, 1997
In September of 1996, DHI, its shareholders and First Equities Corp.
(formerly Cenna Communications, Inc.) entered into an agreement wherein a
reverse acquisition was effectuated. As a result of the transactions the
shareholders of DHI received shares of First Equities Corp. on a pro-rata basis,
in exchange for their shares in DHI. This transaction did not change control of
DHI as the principal shareholders retained in excess of 90% of the outstanding
stock of the parent.
In May, 1996, the capital stock of DHI was transferred to IMN Equities.
c. Mergers, Acquisitions, and Disposals
Pursuant to an agreement between DHI and C. S. Amsterdam Realty, Inc.,
dated September 1, 1995, DHI received as a contribution to capital, one hundred
percent of the outstanding stock of C. S. Amsterdam Realty, Inc. On January 2,
1996, the Company sold its entire interest in C. S. Amsterdam Realty, Inc.
Pursuant to an agreement between DHI and The Best Mortgage Services of
America, Inc. ("Best"), dated December 27, 1995, the Company acquired ninety
three percent of the voting rights of Best. The agreement provided for the
acquisition of preferred stock in Best, which has a par value of $1,400,000, in
exchange for 110,000 shares of DHI preferred stock. On December 14, 1996, the
Company sold its entire interest in Best.
On February 17, 1996, DHI initiated a branch office operation in Syracuse,
New York. In conjunction with this office, DHI entered into an asset purchase
agreement with Patriot Mortgage Company, L.P. Under this agreement, DHI is
obligated to remit as the purchase price, a share of certain income with respect
to the acquired mortgage pipeline. These costs have been expensed as incurred.
Note 4 - Investments
DHI owns a 5% interest in Mortgage Tech Group, Ltd. This investment was
acquired in conjunction with the reorganization of DHI in 1995. The investment
is reflected at cost, as no market value information is available.
DHI owns 100,000 shares of Wireless Mexicano, Inc., a related party. The
investment was acquired in a stock for stock exchange on December 30, 1996,
between DHI's parent, First Equities Corp., and Wireless Mexicano, Inc.
Simultaneously, the stock was donated by First Equities Corp. to HI, its
subsidiary. DHI accounted for this purchase utilizing recent sales of said
securities to estimate market value at $500,000. This accounts for the increase
in paid in capital.
Note 5 - Notes Receivable
On October 16, 1995, DHI sold its Rochester branch for $118,556. The
initial terms of the sale provided for a down payment of $31,225 and monthly
principal payments of $12,500 for six months, with a final payment of $12,331
the following month.
Interest was payable on the unpaid balance, monthly, at 8.75% per annum.
The loan is personally guaranteed by the shareholder of the corporate buyer. On
October 16, 1996, the terms of the sale were amended, to provide for four equal
monthly payments of $5,000 each, commencing November 15, 1996.
PF-10
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-F0RMA FINANCIAL STATEMENTS
MARCH 31, 1997
Note 6 - Mortgage Receivable
In conjunction with the sale of The Best Mortgage Company of America, Inc.,
one of the Company's subsidiaries, DHI took back a mortgage (on the underlying
vacant land) in the amount of $2,300,000. It should be noted that the land is
encumbered by certain security interests totaling approximately $735,000 (for a
related party liability), which until satisfied, reduces the value of the
collateral.
The terms of the mortgage provide for equal monthly payments of $15,301.96,
which includes interest thereon at a rate of 7% per annum, for a term of 5
years, based on a 30 year amortization. The unpaid balance shall be due and
payable with the sixtieth monthly payment.
Aggregate maturities required on the mortgage receivable at December 31,
1996 are as follows:
Year ending:
12/31/97 $ 23,364
12/31/98 25,053
12/31/99 26,864
12/31/00 28,806
12/31/01 2,195,913
$2,300,000
Note 7 - Property and Equipment
The major categories of property and equipment at March 31, 1997 are as
follows:
Furniture, Fixtures & Equipment $ 340,099
Furniture, Fixtures & Equipment under Capital leases 191,339
Leasehold Improvements 49,392
Total 580,830
Less: Accumulated Deprecation (121,695)
Total Property & Equipment $ 459,135
Certain items of the assets secure the related financing.
Note 8 - Warehousing Lines of Credit
DHI has four warehouse and security agreements under which certain lines of
credit have been established for funding mortgage loans. As of March 31, 1997,
DHI had total credit lines of $17,000,000 from the participating lenders. All of
the agreements call for interest computed at either prime plus two or LIBOR plus
four and collateralize each advance with the related mortgage. As of March 31,
1997, DHI owed $9,284,115 under these agreements.
Note 9 - Sales of Subsidiaries
On January 2, 1996, DHI sold its entire interest in C. S. Amsterdam Realty,
Inc. to a related party for $1. The subsidiary was inactive and had no
significant assets. DHI incurred a loss of $43,768 from this transaction.
On December 24, 1996, DHI sold its interest in Best to Beckerville Pines
Associates, LLC for $2,300,000. Under the terms of this sale, DHI will hold a
mortgage of $2,300,000. The mortgage is more fully explained in Note 4. DHI
recorded a profit of $900,000 from this transaction.
PF-11
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-F0RMA FINANCIAL STATEMENTS
MARCH 31, 1997
Note 10 - Profit Sharing Plan
DHI adopted a 401(k) pension plan covering substantially all employees.
While DHI may elect to match employee contributions, it did not do so in 1996.
<PAGE>
Note 11 - Related Party Transactions
a. Managerial and financial control
On May 5, 1997, the Company acquired all the capital stock of DHI from IMN
Equities for 20,421,700 shares of common stock. This acquisition enables IMN
Equities to have majority managerial and financial control in the decision
making process of the Company.
b. Issuance of stock
On September 30, 1996, the Company issued 326,000 shares of common stock in
consideration for the payment on its behalf of $16,900 in expenses by its
president.
c. Leased Office Space
As of March 31, the Company occupied office space of an affiliate of its
president at 100 Garden City Plaza , Suite 200, Garden City, New York 11530 on a
month to month basis at a rent of $500 per month.
d. Sale of C. S. Amsterdam Realty, Inc.
DHI sold C. S. Amsterdam Realty, Inc., one of its subsidiaries to a related
party. The related party is a minority shareholder (less than 5% non-voting) of
the parent company.
The collateral underlying a company asset is encumbered by a security
interest for a liability of a related party. The related party is a minority
shareholder (less than 5% non-voting) of the parent company.
DHI was involved in advances to and from the following related entities. In
addition, many of these companies were charged for their share of administrative
costs, which totaled $218,032.
1) C. S. Amsterdam Realty, Inc. - Owned by a minority shareholder (less
than 5% non-voting) of the parent company.
2) The Best Mortgage Services of America, Inc. - Was a subsidiary of DHI
until December 24, 1996.
3) UCMC Consulting Corp. - Owned by a majority shareholder of the parent
and an employee of DHI.
4) First Equities Corp. - Formerly parent of DHI.
5) Edward Capuano - Majority shareholder of DHI.
6) Wireless Mexicano, Inc. - Owned by a minority shareholder (less than 5%
non-voting) of DHI.
7) Network Title Agency Corporation - 75% owned by a minority shareholder
(less than 5% non-voting) of DHI.
PF-12
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-F0RMA FINANCIAL STATEMENTS
MARCH 31, 1997
Note 11 - Related Party Transactions (Cont'd)
8) The Skulsky Trust - The trustee is an employee of DHI and the trust's
beneficiary is a minority shareholder (less than 5% non-voting) of DHI.
DHI and these related parties agreed to an assignment of their intercompany
balances. As of March 31, 1997, DHI owed $1,561,993 to the Skulsky Trust.
Note 12 - Operating Leases
DHI is obligated under a number of operating leases for its main and branch
office facilities. The leases expire on various dates through March 31, 2003.
The rent obligations (including those under leases signed in 1997, as
described in Note 15, subsequent events) are as follows:
Year ending: 12/31/97 $ 395,324
12/31/98 277,226
12/31/99 153,174
12/31/00 136,589
12/31/01 57,732
Thereafter 72,165
----------
Total $1,092,210
Note 13 - Capital Lease Obligations
DHI leases certain equipment with lease terms through September 2001.
Obligations under capital leases have been recorded in the accompanying
financial statements at the present value of future minimum lease payments,
discounted at interest rates ranging from 8.4% to 18%.
The future minimum lease payments under capital leases and the net present
value of the future minimum lease payments, are due as follows for the years
ended
December 31:
1997 $ 57,685
1998 52,107
1999 39,084
2000 20,113
2001 19,669
Total minimum lease payments 188,658
Less: Amounts representing interest 32,278
Present value of net minimum
lease payments $156,380
Note 14 - Other Commitments and Contingencies
DHI entered into certain contracts with the former president of DHI, as
disclosed in the reorganization section of Note 1. The first contract
(employment) expired August 31, 1996 and called for annual compensation of
$100,000. Thereafter, a two-year consulting agreement commenced which calls for
total compensation of $130,000, payable monthly at $5,416.67.
PF-13
<PAGE>
NGT ENTERPRISES, INC.
NOTES TO PRO-F0RMA FINANCIAL STATEMENTS
MARCH 31, 1997
Note 15 - Concentration of Credit Risk
DHI maintains cash balances at several financial institutions. The Federal
Deposit Insurance Corporation secures balances at each institution up to
$100,000. Uninsured balances aggregated $1,382 at December 31, 1996.
Note 16 - Development Stage Company
For the year ended September 30, 1996 and for the three months ended March
31, 1997, the Company was considered to be a development stage company since
December 1,1992 with no operating history.
Note 17 - Litigation
For the years ended September 30, 1995 and 1996, and the period ended March
31, 1997 DHI has not been involved in litigation nor, is any litigation pending.
DHI is involved in the following lawsuits: Patriot Mortgage Company, LP against
Donald Henig, Inc. claiming damages for an alleged breach of contract;
counterclaim by Donald Henig against Donald Henig, Inc. and Edward Capuano
claiming approximately $270,00 in damages for alleged breaches of contract.
Note 18 - Subsequent Events
a. Capital Contribution
On January 24, 1997, the Company's parent, First Equities Corp., entered
into agreement to exchange stock for stock, with Aristocrat Endeavor Fund, Ltd.,
a publicly traded (Bermuda Stock Exchange) investment fund. Under the terms of
the agreement, the companies exchanged 235,294.11 shares of Aristocrat stock for
5,000 shares of First Equity convertible preferred stock. Based on the market
value of the Aristocrat stock acquired by the parent, the value of the exchange
was $5,000,000. On March 27, 1997, First Equities Corp. donated 94,117.64 shares
of Aristocrat stock to DHI. The effect of this transaction increases the
Company's net worth by $2,000,000.
On February 1, 1997, DHI entered into a lease agreements for an office
facility in Tampa, Florida. The obligation under this leases is included in the
obligations set forth in Note 13.
b. Formation of Subsidiaries
Subsequent to the date of the financial statements, DHI formed First
Equities Commercial Corp. as a mortgage banking firm specializing in the
financing of commercial properties on a national basis.
Subsequent to the date of the financial statements, DHI formed First
Equities Service Corp. which will sell mortgage life insurance utilizing the
customer base of DHI.
c. Change of Company Name and Authorized Capital Structure
On May 1, 1997, the Company amended its certificate of incorporation to
change the number of authorized shares to 45,000,000 shares of common stock,
$.001 par value each and authorize the issuance of 5,000,000 shares of preferred
stock, $.001 par value each. On May 5, 1997, the Company amended its certificate
of incorporation to change its name to IMN Financial Corp.
PF-14
<PAGE>
DONALD HENIG, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
DONALD HENIG. INC.
Table of Contents December 31, 1996
Page
Independent Auditor's Report 1
FINANCIAL STATEMENTS:
Exhibit
A Statement of Financial Position 2
B Statement of Income 3
C Statement of Retained Earnings 4
D Statement of Cash Flows 5-6
Notes to Financial Statements 7-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders Donald Henig, Inc.
We have audited the accompanying statement of financial position of Donald
Henig, Inc. (a New York corporation) as of December 31, 1996 and the related
statements of income, stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 audit provides 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 Donald Henig, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Werblin, Casuccio & Moses, P.C.
March 28, 1997
F-1
<PAGE>
DONALD HENIG, INC.
Statement of Financial Position
December 31, 1996
ASSETS
Cash $ 164,774
Mortgage Inventory 10,386,660
Points and Fees Receivable 262,614
Other Current Receivables 14,548
Investments 660,293
Prepaid Expenses 924,898
Notes Receivable 10,000
Mortgage Receivable 2,300,000
Property and Equipment (Net of $95,418 439,870
Accumulated Depreciation)
Intangible Assets (Net of $101,737 547,234
Accumulated Amortization)
Other Assets 87,666
----------
TOTAL ASSETS $ 15,798,557
=============
LIABILITIES
Accounts Payable and Accrued Expenses $ 1,461,991
Warehouse Lines of Credit 10,240,904
Borrowers Escrow Funds 111,409
Capital Lease Obligations 156,380
Advances from Parent 124,160
Due to Related Party 1,007,859
Other Liabilities 99,340
Deferred Income 280,809
-------
TOTAL LIABILITIES 13,482,852
STOCKHOLDERS' EQUITY
Preferred Stock - 1,000,000 shares, $.001 par value
authorized; 110,000 shares outstanding 110
Common Stock - 5,000,000 shares, $.001 par value
authorized; 1,000,000 shares outstanding 1,000
Paid in Capital 2,298,111
Retained Earnings 16,484
---------
TOTAL STOCKHOLDERS' EQUITY 2,315,705
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,798,557
============
See accompanying independent auditor's report and notes.
F-2
<PAGE>
DONALD HENIG, INC.
Statement of Income
For the Year Ended December 31, 1996
OPERATING INCOME
Points, Fees and Premium Income $ 5,554,241
Interest Income 440,890
---------
Total Operating Income 5,995,131
OPERATING EXPENSES
Field and Direct Expenses ( 3,375,700)
Interest Expense ( 542,781)
-------------
Total Operating Expenses ( 3,918,481)
-------------
GROSS PROFIT 2,076,650
GENERAL AND ADMINISTRATIVE EXPENSES ( 2,859,276)
-------------
INCOME (LOSS) FROM OPERATIONS ( 782,626)
OTHER INCOME AND (EXPENSES)
Interest Expense ( 3,677)
Net Gain on Sale of Subsidiaries 856,232
-------------
Total Other Income and (Expenses) 852,555
-------------
INCOME BEFORE PROVISION FOR INCOME TAXES 69,929
Income Tax Provision ( 8,642)
-------------
NET INCOME (LOSS) $ 61,287
==============
See accompanying independent auditor's report and notes.
F-3
<PAGE>
DONALD HENIG, INC.
Statement of Retained Earnings
For the Year Ended December 31, 1996
RETAINED EARNINGS - January 1 $ ( 44,803)
Net Income (Loss) 61,287
-------------
RETAINED EARNINGS - December 31 $ 16,484
=============
See accompanying independent auditor's report and notes.
F-4
<PAGE>
DONALD HENIG, INC.
Statement of Cash Flows
For the Year Ended December 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 61,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 98,362
Depreciation 50,942
Realized gain on sale of subsidiaries ( 856,232)
Change in assets and liabilities:
Decrease in points and fees receivable ( 194,385)
Increase in prepaid expenses ( 632,207)
Increase in other assets ( 82,312)
Increase in other current receivables ( 14,548)
Increase in accounts payable 898,285
Increase in other liabilities 105,340
Increase in deferred income 198,537
-------------
Adjustments ( 428,218)
-------------
Net cash provided (used) by operating activities ( 366,931)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 190,627)
Purchase of intangible assets ( 492,971)
Mortgages originated (Net) ( 83,698,098)
Mortgages sold 75,800,226
-------------
Net cash provided (used) by investing activities ( 8,581,470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from parent 124,160
Proceeds from warehouse line of credit 85,179,479
Repayments of warehouse line of credit ( 76,287,784)
Collection of notes receivable 52,331
Reduction of capital lease obligations ( 20,755)
-------------
Net cash provided (used) by financing activities 9,047,431
-------------
Net increase (decrease) in cash and equivalents 99,030
CASH AND CASH EQUIVALENTS - January 1 65,744
--------------
CASH AND CASH EQUIVALENTS - December 31 $ 164,774
==============
SUPPLEMENTAL DISCLOSURES:
Interest expense $ 520,741
===============
Income taxes $ 3,336
===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired through capital lease obligations $ 143,318
==============
Investment donated by parent company $500,000
========
See accompanying independent auditor's report and notes.
F-5
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements presented herein are of Donald Henig, Inc., a
subsidiary of First Equities Corp. (formerly Cenna Communications, Inc.).
Donald Henig, Inc. was incorporated under the laws of the State of New York
on December 1, 1992. It operates under the D/B/A's "Island Mortgage Network" and
"Reliance Mortgage Network". Its principal business activity is that of a
licensed mortgage banker. Presently, all mortgages are either table funded or
funded through the Company's warehouse lines of credit. Those funded using the
warehouse lines of credit are closed subject to a binding purchase agreement
with an investor and sold shortly after closing. The Company does not perform
any loan servicing activities. The Company received its New York State mortgage
banker's license on May 12, 1994. It holds additional licenses in the states of
Connecticut, New Jersey, New Mexico, Pennsylvania, Florida, Texas, North
Carolina, and Missouri. As of the date of this report, the Company has applied
for its mortgage banking licenses in a number of additional states. It is the
Company's intention to continue its expansion nationally.
Reorganization
Pursuant to an agreement dated September 1, 1995, between Donald Henig,
Inc., the existing corporate shareholder, and certain investors, a complete
change in ownership of the Company was effectuated. In accordance with the
agreement, the Company entered into employment contracts with the existing
president (Note 13) and exchanged certain corporate receivables for a 5 percent
interest in Mortgage Tech Group Ltd. (Note 2).
F-6
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D.)
Reorganization (Cont'd)
In September of 1996, the Company, its shareholders and First Equities
Corp. (formerly Cenna Communications, Inc.) entered into an agreement wherein a
reverse acquisition was effectuated. As a result of the transactions the
shareholders of the Company received shares of First Equities Corp. on a
pro-rata basis, in exchange for their shares in the Company. This transaction
did not change control of the Company as the principal shareholders retained in
excess of 90% of the outstanding stock of the parent.
Mergers, Acquisitions, and Disposals
Pursuant to an agreement between Donald Henig, Inc., and C. S. Amsterdam
Realty, Inc., dated September 1, 1995, Donald Henig Inc. received as a
contribution to capital, one hundred percent of the outstanding stock of C. S.
Amsterdam Realty, Inc. On January 2, 1996, the Company sold its entire interest
in C. S. Amsterdam Realty, Inc. (Notes 8 and 10).
Pursuant to an agreement between Donald Henig, Inc. and The Best Mortgage
Services of America, Inc. (Best), dated December 27, 1995, the Company acquired
ninety three percent of the voting rights of Best. The agreement provided for
the acquisition of preferred stock in Best, which has a par value of $1,400,000,
in exchange for 110,000 shares of Donald Henig, Inc. preferred stock (Note 7).
On December 14, 1996, the Company sold its entire interest in Best (Notes 8 and
10 ).
F-7
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Mergers, Acquisitions, and Disposals (Cont'd)
On February 17, 1996, the Company initiated a branch office operation in
Syracuse, New York. In conjunction with this office, the Company entered into an
asset purchase agreement with Patriot Mortgage Company, L. P. Under this
agreement, the Company is obligated to remit as the purchase price, a share of
certain income with respect to the acquired mortgage pipeline. These costs have
been expensed as incurred.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
Mortgage Inventory
The Company presents its mortgage inventory at the lower of cost or market.
As of the date of this report, substantially all of the December 31, 1996
mortgage inventory has been sold. Mortgage Inventory secures the related
warehouse lines of credit (Note 6).
Accounts Receivable
Management has analyzed accounts receivable at December 31, 1996 and
considers all accounts to be currently collectible. Therefore, no provision has
been made for uncollectible accounts. As of the date of this report,
substantially all of the accounts receivable have been collected.
F-8
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Deferred Costs
All direct processing costs associated with mortgages in the Company's
pipeline at December 31, 1996 have been deferred. These costs include
commissions, processing salaries and related expenses, appraisal fees, credit
costs, and other direct expenses.
Commissions paid under a "draw against commission" arrangement have been
deferred when the draw exceeds the commission earned.
Property and Equipment
Property and equipment contributed to the corporation by the sole
shareholder are stated at the appraised fair market values at the date of
contribution. Property and equipment purchased by the corporation are stated at
cost.
Depreciation is calculated using straight-line and accelerated methods over
the estimated useful lives of the assets. Depreciation charged to operations,
which includes amortization of capital lease obligations, for the year ended
December 31, 1996, was $50,942.
Intangible Assets
Intangible assets consist of goodwill, acquired from UCMC Consulting Corp.,
in the amount of $150,000, and a franchise fee paid to Mortgage Tech Group,
Ltd., purchased in 1994 for $6,000, and organization costs in the amount of
$492,972, incurred in 1996 for the start up of new branches. These items are
being amortized over fifteen, five and three years, respectively. The total
amortization expense charged to operations during 1996 was $98,362.
F-9
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Revenue Recognition
All fees are earned and recognized as revenue when the related mortgages
close. Premium income is recognized when the related mortgage closes and a
binding purchase agreement is effectuated, or after title is transferred,
whichever occurs first.
Certain application, commitment and other fees associated with the
Company's pipeline as of December 31, 1996, collected during loan processing,
give rise to the liability account "deferred income".
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due. Tax returns (as
well as the financial statements) are prepared using the accrual method of
accounting.
The Company's taxable income or losses are to be included in the
consolidated federal income tax return of First Equities Corp. (the parent). The
Company is filing New York State and other foreign state corporation tax returns
on a separate company basis.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-10
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 2 - INVESTMENTS
The Company owns a 5% interest in Mortgage Tech Group, Ltd. This investment
was acquired in conjunction with the reorganization of the Company in 1995. The
investment is reflected at cost, as no market value information is available.
The Company owns 100,000 shares of Wireless Mexicano, Inc., a related party
(Note 10). The investment was acquired in a stock for stock exchange on December
30, 1996, between the Company's parent, First Equities Corp. and Wireless
Mexicano, Inc. Simultaneously, the stock was donated by First Equities Corp. to
Donald Henig, Inc., its subsidiary. The Company accounted for this purchase
utilizing recent sales of said securities to estimate market value at $500,000.
This accounts for the increase in paid in capital.
NOTE 3 - NOTES RECEIVABLE
On October 16, 1995, the Company sold its Rochester branch for $118,556.
The initial terms of the sale provided for a down payment of $31,225 and monthly
principal payments of $12,500 for six months, with a final payment of $12,331
the following month.
Interest was payable on the unpaid balance, monthly, at 8.75% per annum.
The loan is personally guaranteed by the shareholder of the corporate buyer. On
October 16, 1996, the terms of the sale were amended, to provide for four equal
monthly payments of $5,000 each, commencing November 15, 1996. As of December
31, 1996, the outstanding balance was $10,000 and is included herein in other
receivables.
F-11
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 4 - MORTGAGE RECEIVABLE
In conjunction with the sale of The Best Mortgage Company of America, Inc.,
one of the Company's subsidiaries (Note 8), the Company took back a mortgage (on
the underlying vacant land) in the amount of $2,300,000. It should be noted that
the land is encumbered by certain security interests totaling approximately
$735,000 (for a related party liability), which until satisfied, reduces the
value of the collateral.
The terms of the mortgage provide for equal monthly payments of $15,301.96,
which includes interest thereon at a rate of 7% per annum, for a term of 5
years, based on a 30 year amortization. The unpaid balance shall be due and
payable with the sixtieth monthly payment.
Aggregate maturities required on the mortgage receivable at December 31,
1996 are as follows:
Year ending: 12/31/97 $ 23,364
12/31/98 25,053
12/31/99 26,864
12/31/00 28,806
12/31/01 2,195,913
----------
$2,300,000
===========
F-12
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 5 - PROPERTY AND EQUIPMENT
The major categories of property and equipment at December 31, 1996 are as
follows:
Furniture, Fixtures & Equipment $ 298,656
Furniture, Fixtures & Equipment
under Capital leases 191,339
Leasehold Improvements 45,293
---------
Total 535,288
Less: Accumulated Deprecation (95,418)
---------
Total Property & Equipment $ 439,870
========
Certain items of the assets secure the related financing.
NOTE 6 - WAREHOUSING LINES OF CREDIT
The Company has four warehouse and security agreements under which certain
lines of credit have been established for funding mortgage loans. As of December
31, 1996, the Company had total credit lines of $17,000,000 from the
participating lenders. All of the agreements call for interest computed at
either prime plus two or LIBOR plus four and collateralize each advance with the
related mortgage. As of December 31, 1996, the Company owed $10,240,904 under
these agreements.
NOTE 7 - PREFERRED STOCK
As of December 31, 1996 there were 110,000 shares of preferred stock
outstanding. The shares are non-voting, convertible to common stock on a one for
one basis, and redeemable at $12.72 per share.
F-13
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 8 - SALES OF SUBSIDIARIES
On January 2, 1996, the Company sold its entire interest in C. S. Amsterdam
Realty, Inc. to a related party (Note 10) for $1. The subsidiary was inactive
and had no significant assets. The Company incurred a loss of $43,768 from this
transaction.
On December 24, 1996, the Company sold its interest in Best to Beckerville
Pines Associates, LLC for $2,300,000. Under the terms of this sale, the Company
will hold a mortgage of $2,300,000. The mortgage is more fully explained in Note
4. The Company recorded a profit of $900,000 from this transaction.
NOTE 9 - PROFIT SHARING PLAN
The Company adopted a 401(k) pension plan covering substantially all
employees. While the Company may elect to match employee contributions, it did
not do so in 1996.
NOTE 10 - RELATED PARTY TRANSACTIONS
During 1996, the Company was involved in the following related party
transactions:
The Company sold C. S. Amsterdam Realty, Inc., one of its subsidiaries
(Note 1), to a related party. The related party is a minority shareholder (less
than 5% non-voting) of the parent company.
The collateral underlying a company asset is encumbered by a security
interest for a liability of a related party. The related party is a minority
shareholder (less than 5% non-voting) of the parent company.
F-14
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 10 - RELATED PARTY TRANSACTIONS (CONT'D)
The Company was involved in advances to and from the following related
entities. In addition, many of these companies were charged for their share of
administrative costs, which totaled $218,032.
1) C. S. Amsterdam Realty, Inc. - Owned by a minority shareholder (less
than 5% non-voting) of the parent company.
2) The Best Mortgage Services of America, Inc. - Was a subsidiary of the
Company until December 24, 1996.
3) UCMC Consulting Corp. - Owned by a majority shareholder of the parent
and an employee of the Company.
4) First Equities Corp. - Parent of the Company.
5) Edward Capuano - Majority shareholder of the Company.
6) Wireless Mexicano, Inc. - Owned by a minority shareholder (less than 5%
non-voting) of the Company.
7) Network Title Agency Corporation - 75% owned by a minority shareholder
(less than 5% non-voting) of the Company.
8) The Skulsky Trust - The trustee is an employee of the Company and the
trust's beneficiary is a minority shareholder (less than 5% non-voting) of the
Company.
The Company and these related parties agreed to an assignment of their
intercompany balances. As of December 31, 1996, the Company owed $1,007,859 to
the Skulsky Trust.
NOTE 11 - OPERATING LEASES
The Company is obligated under a number of operating leases for its main
and branch office facilities. The leases expire on various dates through March
31, 2003.
F-15
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 11 - OPERATING LEASES (CONT'D)
The rent obligations (including those under the leases signed in 1997, as
described in Note 15, subsequent events) are as follows:
Year ending: 12/31/97 $ 395,324
12/31/98 277,226
12/31/99 153,174
12/31/00 136,589
12/31/01 57,732
Thereafter 72,165
-----------
Total $1,092,210
===========
NOTE 12 - CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment with lease terms through September
2001. Obligations under capital leases have been recorded in the accompanying
financial statements at the present value of future minimum lease payments,
discounted at interest rates ranging from 8.4% to 18%.
The future minimum lease payments under capital leases and the net present
value of the future minimum lease payments, are due as follows for the years
ended December 31:
1997 $ 57,685
1998 52,107
1999 39,084
2000 20,113
2001 19,669
-------
Total minimum lease payments 188,658
Less: Amounts representing interest 32,278
-------
Present value of net minimum
lease payments $156,380
=======
F-16
<PAGE>
DONALD HENIG, INC.
Notes to Financial Statements
December 31, 1996
NOTE 13 - OTHER COMMITMENTS AND CONTINGENCIES
The Company entered into certain contracts with the former president of the
Company, as disclosed in the reorganization section of Note 1. The first
contract (employment) expired August 31, 1996 and called for annual compensation
of $100,000. Thereafter, a two-year consulting agreement commenced which calls
for total compensation of $130,000, payable monthly at $5,416.67.
NOTE 14 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions. The
Federal Deposit Insurance Corporation secures balances at each institution up to
$100,000. Uninsured balances aggregated $1,382 at December 31, 1996.
NOTE 15 - SUBSEQUENT EVENTS
On January 24, 1997, the Company's parent, First Equities Corp., entered
into agreement to exchange stock for stock, with Aristocrat Endeavor Fund, Ltd.,
a publicly traded (Bermuda Stock Exchange) investment fund. Under the terms of
the agreement, the companies exchanged 235,294.11 shares of Aristocrat stock for
5,000 shares of First Equity convertible preferred stock. Based on the market
value of the Aristocrat stock acquired by the parent, the value of the exchange
was $5,000,000. On March 27, 1997, First Equities Corp. donated 94,117.64 shares
of Aristocrat stock to the Company. The effect of this transaction increases the
Company's net worth by $2,000,000.
On February 1, 1997, the Company entered into a lease agreements for an
office facility in Tampa, Florida. The obligation under this leases is included
in the obligations set forth in Note 11.
F-17
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
DONALD HENIG. INC. AND SUBSIDIARIES
Table of Contents
December 31, 1995
Page
Independent Auditor's Report 1
FINANCIAL STATEMENTS:
Exhibit
A Consolidated Statement of Financial Position 2
B Consolidated Statement of Income 3
C Consolidated Statement of Stockholders Equity 4
D Consolidated Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-18
Schedule
1 Computation of Adjusted Consolidated Net Worth 19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Donald Henig, Inc. and Subsidiaries
We have audited the accompanying consolidated statement of financial
position of Donald Henig, Inc. (a New York corporation) and subsidiaries as of
December 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Donald
Henig, Inc. and subsidiaries as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Werblin, Casuccio & Moses, P.C.
March 20, 1996
F-1
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Position
December 31, 1995
ASSETS
Cash $ 65,744
Mortgage Inventory 1,383,769
Points and Fees Receivable 68,229
Investments 160,293
Prepaid Expenses 292,693
Notes Receivable 62,331
Land 1,471,300
Property and Equipment (Net of $95,418 156,867
Accumulated Depreciation)
Intangible Assets (Net of $101,737 152,625
Accumulated Amortization)
Other Assets 19,811
----------
TOTAL ASSETS $ 3,833,662
============
LIABILITIES
Accounts Payable and Accrued Expenses $ 594,657
Warehouse Lines of Credit 1,349,209
Borrowers Escrow Funds 8,249
Capital Lease Obligations 33,817
Loans and Exchanges 14,457
Deferred Income 82,272
-------
TOTAL LIABILITIES 2,082,661
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES 13,688
STOCKHOLDERS' EQUITY
Preferred Stock - 1,000,000 shares,
$.001 par value authorized;
110,000 shares outstanding 110
Common Stock - 5,000,000 shares,
$.001 par value authorized;
1,000,000 shares outstanding 1,000
Paid in Capital 1,781,004
Retained Earnings (44,801)
---------
TOTAL STOCKHOLDERS' EQUITY 1,737,313
----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,833,662
==========
See accompanying independent auditor's report
and notes.
F-2
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Consolidated Statement of Income
For the Year Ended December 31, 1995
OPERATING INCOME
Points, Fees and Premium Income $ 3,415,149
Interest Income 60,252
---------
Total Operating Income 3,475,401
OPERATING EXPENSES
Field and Direct Expenses ( 2,254,290)
Interest Expense ( 59,781)
-------------
Total Operating Expenses ( 2,314,071)
-------------
GROSS PROFIT 1,161,330
GENERAL AND ADMINISTRATIVE EXPENSES ( 1,294,026)
-------------
INCOME (LOSS) FROM OPERATIONS ( 132,696)
OTHER INCOME AND (EXPENSES)
Interest Expense ( 5,036)
Real Estate Investment Activities ( 19,462)
Gain on Sale of Assets 173,467
-------------
Total Other Income and (Expenses) 148,969
-------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 16,273
Income Tax Provision ( 7,848)
-------------
NET INCOME (LOSS) $ 8,425
==============
See accompanying independent auditor's report and notes.
F-3
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
# of Common # of Preferred Paid in Retained
Shares Stock Shares Stock Capital Earnings Total
------ ------ ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1995 $250,000 $131,114 $(16,438) $364,676
Net Income for the Year Ended
December 31, 1995 8,425 8,425
Acquisition of Subsidiaries:
C. S. Amsterdam Realty, Inc. 1,000 1,000
The Best Mortgage Services of
America, Inc. 300 110,000 $ 110 1,399,890 (23,400) 1,376,900
Exchange of NPV for Par
Value Common Stock 1,000,000 (249,000) 249,000 0
Minority Interest ( 300) (13,388) (13,688)
Balance-December 31,1995 1,000,000 $ 1,000 110,000 $ 110 $1,781,004 $(44,801) $1,737,313
</TABLE>
See accompanying independent auditor's report and notes.
F-4
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 8,425
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 3,075
Depreciation 25,963
Loss on sale of real estate 5,077
Gain on sale of branch office ( 87,331)
Change in assets and liabilities:
Decrease in points and fees receivable 555
Increase in prepaid expenses ( 178,962)
Increase in other assets ( 13,492)
Increase in accounts payable 378,887
Increase in other liabilities 23,009
Increase in deferred income 82,272
-------------
Adjustments 239,053
-------------
Net cash provided (used) by operating activities 247,478
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 78,739)
Purchase of intangible assets ( 150,000)
Mortgages originated (Net) ( 3,752,482)
Mortgages sold 2,368,713
Proceeds from sale of real estate 33,623
-------------
Net cash provided (used) by investing activities ( 1,578,885)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to related parties ( 27,101)
Proceeds from warehouse line of credit 3,645,796
Repayments of warehouse line of credit ( 2,296,587)
Collection of notes receivable ( 25,000)
Reduction of capital lease obligations ( 10,371)
-------------
Net cash provided (used) by financing activities 1,286,737
-------------
Net increase (decrease) in cash and equivalents ( 44,670)
CASH AND CASH EQUIVALENTS - January 1 110,414
--------------
CASH AND CASH EQUIVALENTS - December 31 $ 65,744
==============
See accompanying independent auditor's report and notes.
F-5
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1995
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest expense $ 520,741
===============
Income taxes $ 3,336
===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Mortgage payable assumed on the sale of real estate $ 161,377
==============
Preferred stock issued to acquire subsidiary $ 1,400,000
==============
Subsidiary common stock donated to Company $ 1,000
==============
Certain receivables converted to equity investment $ 160,293
==============
Note receivable extended on sale of branch office $ 87,331
==============
See accompanying independent auditor's report and notes.
F-6
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements presented herein consolidate Donald
Henig Inc., and its subsidiaries, C. S. Amsterdam Realty, Inc. and The Best
Mortgage Services of America, Inc. All intercompany transactions have been
eliminated.
Donald Henig, Inc. was incorporated under the laws of the State of New York
on December 1, 1992. It operates under the D/B/A's "Island Mortgage Network" and
"Reliance Mortgage Network." Its principal business activity is that of a
licensed mortgage banker. Presently, all mortgages are either table funded or
sold shortly after closing. The Company does not perform any loan servicing
activities. The Company received its New York State mortgage banker's license on
May 12, 1994. During 1995 the Company obtained additional mortgage banking
licenses in the states of Connecticut, New Jersey and Florida. As of the date of
this report the Company has applied for its mortgage banking licenses in a
number of additional states. It is the Company's intention to continue its
expansion nationally.
C. S. Amsterdam Realty, Inc. was incorporated under the laws of the State
of New York on October 14, 1992. The Company provides management services to
various clients, in New Jersey and New York. It became a wholly owned subsidiary
of Donald Henig, Inc. on September 1, 1995.
The Best Mortgage Services of America, Inc. was incorporated under the laws
of the State of New Jersey on May 20, 1993. The Company operates as a New Jersey
real estate holding company. It became a subsidiary (93% parent controlled) of
Donald Henig, Inc. on December 27, 1995.
F-7
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
Reorganization
Pursuant to an agreement dated September 1, 1995, between Donald Henig,
Inc., the existing corporate shareholder, and certain investors, a complete
change in ownership of the Company was effectuated. In accordance with the
agreement, the Company entered into employment contracts with the existing
president (Note 11) and exchanged certain corporate receivables for a 5 percent
interest in Mortgage Tech Group Ltd. (Note 8).
Mergers and Acquisitions
Pursuant to an agreement between Donald Henig, Inc., and C. S. Amsterdam
Realty, Inc. (Note 8), dated September 1, 1995, Donald Henig Inc. received as a
contribution to capital, one hundred percent of the outstanding stock of
C. S. Amsterdam Realty, Inc.
Pursuant to an agreement between Donald Henig, Inc. and UCMC Consulting
Corp. (Note 8), dated September 1, 1995, the Company acquired goodwill (a branch
marketing network and a pipeline of mortgage loans) and certain furniture,
fixtures and equipment. The agreement provides for a purchase price of $200,000,
payable in 120 days, without interest.
Pursuant to an agreement between Donald Henig, Inc. and The Best Mortgage
Services of America, Inc. (Best) (Note 8), dated December 27, 1995, the Company
acquired ninety three percent of the voting rights of Best. The agreement
provided for the acquisition of preferred stock in Best, which has a par value
of $1,400,000, in exchange for 110,000 shares of Donald Henig, Inc. preferred
stock (Note 6).
F-8
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
Mergers and Acquisitions - (contd.)
Subsequent to December 31, 1995 (February 17, 1996), the Company initiated
a branch office operation in Syracuse, New York. In conjunction with this
office, the Company entered into an asset purchase agreement with Patriot
Mortgage Company, L. P. The agreement calls for the purchase of furniture,
fixtures, leasehold interests and improvements, certain contracts and the
seller's mortgage pipeline. The Company is obligated to remit (in payment of the
purchase price), weekly after closings, a share of certain income with respect
to the acquired mortgage pipeline.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
Mortgage Inventory
The Company presents its mortgage inventory at the lower of cost or market.
As of the date of this report, all of the December 31, 1995 mortgage inventory
has been sold. Mortgage Inventory secures the related warehouse line of credit
(Note 5).
Accounts Receivable
Management has analyzed accounts receivable at December 31, 1995 and
considers all accounts to be currently collectible. Therefore, no provision has
been made for uncollectible accounts. As of the date of this report,
substantially all of the accounts receivable have been collected.
F-9
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
Deferred Costs
All direct processing costs associated with mortgages in the Company's
pipeline at December 31, 1995 have been deferred. These costs include
commissions, processing salaries and related expenses, appraisal fees, credit
costs, and other direct expenses.
Property and Equipment
Property and equipment contributed to the corporation by the sole
shareholder are stated at the appraised fair market values at the date of
contribution. Property and equipment purchased by the corporation are stated at
cost.
Depreciation is calculated using straight-line and accelerated methods over
the estimated useful lives of the assets. Depreciation charged to operations,
which includes amortization of capital lease obligations, for the year ended
December 31, 1995, was $25,963.
Intangible Assets
Intangible assets consist of goodwill, acquired from UCMC Consulting Corp.,
as described under the mergers and acquisitions section of Note 1, in the amount
of $150,000, and a franchise fee, paid to Mortgage Tech Group, Ltd., a related
party, purchased in 1994, for $6,000. These items are being amortized over forty
and five years, respectively. The total amortization expense charged to
operations during 1995 was $3,075.
Revenue Recognition
All fees are earned and recognized as revenue when the related mortgages
close. Certain application, commitment and other fees collected during loan
processing give rise to the liability account "deferred income." Premium income
is recognized when title in the related mortgage is transferred to the
purchaser.
F-10
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Income Taxes
Initially, the Company elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code, under which the corporate income or
loss is passed through to the shareholders. Effective September 1,1995, this
election was terminated.
Tax returns (as well as the financial statements) are prepared using the
accrual method of accounting.
New York State recognizes the Subchapter S provision in lieu of its
corporate franchise tax, but requires a corporate franchise tax on certain S
corporations, when income levels make it applicable.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-11
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 2 - NOTES RECEIVABLE
On October 16, 1995, the Company sold its Rochester branch for $118,556.
The terms of the sale provided for a down payment of $31,225 and monthly
principal payments of $12,500 for six months, with a final payment of $12,331
the following month. Interest is payable on the unpaid balance, monthly, at
8.75% per annum. The loan is personally guaranteed by the shareholder of the
corporate buyer. As of December 31, 1995, the outstanding balance was $62,331.
NOTE 3 - PROPERTY AND EQUIPMENT
The major categories of property and equipment at December 31, 1995 are as
follows:
Furniture, Fixtures & Equipment $ 138,216
Furniture, Fixtures & Equipment
under Capital leases 48,022
Leasehold Improvements 15,106
Total 201,344
Less: Accumulated Deprecation (44,477)
Total Property & Equipment $ 156,867
Certain items of the assets secure the related financing.
NOTE 4 - VACANT LAND
Vacant land in New Jersey was contributed to The Best Mortgage Services of
America, Inc. in 1994 in exchange for 100% of the common stock of Best. The land
is stated at appraised fair market value at the date of contribution (Note 11).
F-12
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 5 - WAREHOUSING LINE OF CREDIT
The Company has three warehouse and security agreements under which certain
lines of credit have been established for funding mortgage loans. As of December
31, 1995, the Company had total credit lines of $3,500,000 from participating
lenders. All of the agreements call for interest computed at either prime plus
two or LIBO plus four and collateralize each advance with the related mortgage.
As of December 31, 1995, the Company owed $1,349,209 under these agreements.
NOTE 6 - PREFERRED STOCK
As of December 31, 1995 there were 110,000 shares of preferred stock
outstanding. These were issued in conjunction with the acquisition of the
Company's subsidiary, The Best Mortgage Services of America, Inc. (Note 1). The
shares are non voting, convertible to common stock on a one for one basis, and
redeemable at $12.72 per share.
NOTE 7 - PROFIT SHARING PLAN
The Company adopted a 401(k) pension plan covering substantially all
employees. While the Company may elect to match employee contributions, it did
not do so in 1995.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company obtained an interest in Mortgage Tech Group, Ltd., as described
under the reorganization section of Note 1. The former shareholder of the
Company (through August 31, 1995) owns Mortgage Tech Group, Ltd. The Company has
a 5 percent investment interest presented at its cost of $160,293.
The Company entered into an agreement, with C. S. Amsterdam Realty, Inc.,
as described under the mergers and acquisitions section of Note 1. As of the
date of the agreement, the stock of C. S. Amsterdam Realty, Inc. was owned by
one of the shareholders of the Company.
The Company entered into an agreement with The Best Mortgage Services of
America, Inc., as described under the mergers and acquisitions section of Note
1. As of the date of the agreement, the stock of Best was owned by a trust for
the benefit of a portion of the investors described under the reorganization
section of Note 1.
F-13
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 8 - RELATED PARTY TRANSACTIONS - (CONT'D.)
The Company entered into an agreement with UCMC Consulting Corp. (UCMC) as
described under the mergers and acquisitions section of Note 1. As of the date
of the agreement, some of the investors (described under the reorganization
section of Note 1) owned the stock of UCMC.
A Company asset is encumbered by a security interest for a liability of a
family member of certain shareholders (Note 11).
NOTE 9 - OPERATING LEASES
The Company is obligated under a number of operating leases for its main
and branch office facilities. The leases expire on various dates through March
31, 2003.
The rent obligations (including those under the leases signed in 1996, as
described in Note 13, subsequent events) are as follows:
Year ending: 12/31/96 $ 101,437
12/31/97 79,468
12/31/98 73,134
12/31/99 54,984
12/31/00 13,746
Thereafter 57,737
Total $380,506
F-14
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 10 - CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment with lease terms through April 1999.
Obligations under capital leases have been recorded in the accompanying
financial statements at the present value of future minimum lease payments,
discounted at interest rates ranging from 11.941% to 14.046%.
The future minimum lease payments under capital leases and the net present
value of the future minimum lease payments, are due as follows for the years
ended December 31:
1996 $15,408
1997 14,208
1998 7,971
1999 2,657
2000 0
Total minimum lease payments $ 40,244
Less: Amounts representing interest 6,427
Present value of net minimum
lease payments $ 33,817
Less: Current Portion 11,805
Long-term Portion $ 22,012
F-15
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 11 - OTHER COMMITMENTS AND CONTINGENCIES
The Company entered into certain contracts with the president of the
Company, as disclosed in the reorganization section of Note 1. The first
contract (employment) expires August 31, 1996 and calls for annual compensation
of $100,000. Thereafter, a two-year consulting agreement commences which calls
for total compensation of $130,000, payable monthly at $5,416.67.
This obligation is further described in the mergers and acquisitions
section of Note 1.
The asset "Land" presented on the statement of financial position is
encumbered by certain security interests (for a related party liability - Note
8). The encumbrance affects one half of the asset, thereby presenting a
potential negative impact to the Company's equity of $735,650.
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions. The
Federal Deposit Insurance Corporation secures balances at each institution up to
$100,000. Uninsured balances aggregated $9,300 at December 31, 1995.
NOTE 13 - SUBSEQUENT EVENTS
On February 17,1996, the Company entered into an agreement with Patriot
Mortgage Company, L. P. This transaction is more fully described in the mergers
and acquisitions section of Note 1.
On January 15, 1996, February 15, 1996 and February 17, 1996 the Company
entered into lease agreements for office facilities in Stuart, Florida, Rye, New
York and Syracuse, New York respectively. The obligations under these leases are
included in the obligations set forth in Note 9.
F-16
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Computation of Adjusted Consolidated Net Worth to Determine
Compliance with HUD Requirements
December 31, 1995
Audited Net Worth as of December 31, 1995 $ 1,737,313
Less:
(a) Assets pledged to secure obligations of another
person or entity, other than the company 0
(b) Assets due from officers, shareholders or other
related parties 0
(c) Portion of marketable securities not shown at lower
of cost or market 0
(d) Amounts in excess of lower of cost or market value of
presented in mortgages in foreclosure, construction
loans, or property acquired through foreclosures 0
(e) Amounts shown on the balance sheet in a joint venture,
subsidiaries, affiliates, and/or related companies
which is greater than the value of said assets at
equity 0
(f) Goodwill or value placed in insurance renewals or
property management contract renewals or similar
intangibles 152,625
(g) Organizations costs 0
(h) Servicing contracts not valued in accordance with
FASB 65 0
(i) "Other Assets" 19,811
Total Adjustment 172,436
Adjusted Net Worth as of December 31, 1995 $1,564,877
F-17