<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMN FINANCIAL CORP
(Name of small business issuer as specified in its charter)
Delaware
(State of Incorporation)
11-2558192
(IRS Employer I.D. No.)
6162
(Primary Standard Industrial
Classification Code No.)
520 Broadhollow Road
Melville, New York 11746
(516) 844-9805
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Edward R. Capuano, President
IMN Financial Corp
520 Broadhollow Road
Melville, New York 11746
(516) 844-9805
(Name, address and telephone number of agent for service)
--------------
Copies to:
Jay M. Kaplowitz, Esq.
GERSTEN, SAVAGE, KAPLOWITZ &
FREDERICKS, LLP
101 East 52nd Street
New York, New York 10022
(212) 752-9700
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- - ------------------------------------------------------------------------------------------------------
Title of Each Class Proposed
of Securities Being Maximum Proposed Maximum
Registered Amount Being Offering Price Aggregate Amount of
Registered Per Security(1) Offering Price(2) Registration Fee
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 351,465 $4.094 $1,438,897.70 $ 436.03
par value $.001 per
share
- - ------------------------------------------------------------------------------------------------------
Common Stock 88,000 $4.094 $ 360,272.00 $ 109.18
issuable upon
exercise of warrants
- - ------------------------------------------------------------------------------------------------------
Total Registration $ 545.21
Fee
- - ------------------------------------------------------------------------------------------------------
</TABLE>
- - ------------
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee, based upon the last reported sales price of the
Registrant's common stock of the same class as quoted on the OTC Electronic
Bulletin Board on February 5, 1998.
(2) Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered such indeterminate number of additional shares of Common Stock
as may be issuable upon conversion of the Convertible Preferred Stock
described herein and pursuant to the provisions of the Convertible
Preferred Stock regarding determination of the applicable conversion price
and dividend rate.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION
DATED FEBRUARY 11, 1998
PROSPECTUS
439,465 Shares of Common Stock
IMN FINANCIAL CORP
All of the shares of Common Stock (the "Security Holders Shares"), par
value $.001 per share, of IMN Financial Corp, a Delaware corporation (the
"Company") offered hereby are being offered by the selling security holders
named herein under the caption "Selling Security Holders" (the "Selling Security
Holders"). Such shares may be sold by the Selling Security Holders who will
acquire such shares from the Company upon conversion of 1,100 shares of Series A
Convertible Preferred Stock (the "Convertible Preferred Stock") of the Company,
issued in connection with a private placement by the Company in December 1997
(the "December 1997 Private Placement") and upon the exercise of 88,000 warrants
to purchase common stock (the "Warrants"). The number of shares of common stock
issuable upon conversion of the Convertible Preferred Stock is subject to
adjustment and could be more or less than the estimated amount depending upon
factors which cannot be predicted at this time, including, among others, the
future market price of the common stock. If, however, the market price referred
to below were used to determine the number of shares issuable as of the first
date on which the Convertible Preferred Stock may be converted the Company would
be obligated to issue a total of approximately 439,465 shares of common stock if
all shares of Convertible Preferred Stock were converted and all Warrants
exercised on such date. The Company will not receive any of the proceeds from
sales of the Selling Security Holders shares, although the Company would receive
approximately $316,800 upon exercise of all of the Warrants. See "Selling
Security Holders" and "Plan of Distribution."
The Company has agreed with the Selling Security Holders to register
the Selling Security Holders' shares offered hereby. The Company has also agreed
to pay certain fees and expenses incident to such registration.
The Company's common stock is traded on the OTC Electronic Bulletin
Board ("Bulletin Board"). On February 11, 1998, the last reported sales price of
the common stock was $4.094.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
------------------
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a registration statement on Form SB-2 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act, for the registration of the securities
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the Registration Statement. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
may be inspected without charge at the principal office of the Commission, 450
Fifth Street, NW, Washington, D.C., 20549, and copies of the material contained
therein may be obtained from the Commission upon payment of applicable copying
charges. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements, and other information with the Commission. Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC,
20549, and at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7
World Trade Center, New York, New York, 10048. Copies of such materials can also
be obtained by written request to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed
rates, or via the Internet Web site (http://www.sec.gov) maintained by the
Commission.
(2)
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by, and must be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" refers to IMN
Financial Corp and its wholly-owned subsidiaries Island Mortgage Network Inc.,
formerly Donald Henig Inc., a New York corporation, First Equities Commercial
Corp., a New York corporation, First Equities Service Corp., a New York
corporation, Greenshield Mortgage Corporation, a New Jersey corporation,
Citizens Mortgage Service Company, a Pennsylvania corporation, Senko Financial
Services, Inc., a Maryland corporation, American National Mortgage Corp., a New
Jersey corporation, First Potomac Mortgage Corp., a Virginia corporation, and
First Equities Marketing Group, Inc., a Delaware corporation, unless otherwise
indicated.
The Company
IMN Financial Corp., a Delaware corporation, (the "Company") is a
holding company which through its subsidiaries provides financial services such
as mortgage brokerage and mortgage banking services. The Company's main
subsidiary, Island Mortgage Network, Inc. ("Island Mortgage") formerly Donald
Henig Inc., is engaged in the business of originating and selling mortgage loans
secured primarily by one- to four-family residences. Island Mortgage originates
loans through its 42 branch offices located in 17 states throughout the United
States and the District of Columbia. The majority of Island Mortgage's loans are
made for the purchase of new homes or the refinancing of existing homes. Island
Mortgage targets its lending to middle market individuals, although it has
mortgage programs which cover the entire spectrum of mortgage lending. Island
Mortgage focuses its lending in the FHA Government guaranteed loan market.
Approximately 50% of Island Mortgage's loans are FHA and VA loans. A division of
Island Mortgage focuses on lending to individuals who have impaired or
unsubstantiated credit histories and/or unverifiable income and to individuals
with higher loan to value ratios. As a result, Island Mortgage's customers
generally are not averse to paying the higher interest rates charged for these
type of loan programs as compared to the interest rates charged by conventional
loans. This type of loan is generated through the use of direct mail and
telemarketing efforts.
(3)
<PAGE>
The Company strives to process each loan application received from
potential borrowers as quickly as possible in accordance with the Company's loan
application approval procedures. Accordingly, most loan applications receive
preliminary decisions within 24 hours of receipt and most accepted applications
are funded within 30-45 days thereafter. As the Company has expanded the
channels through which it originates loans, it has also broadened the types of
loans it offers. The Company offers a wide range of loan products, including
traditional residential mortgage loans for refinancing, educational, home
improvement and debt consolidation purposes, mortgage loans on small
multi-family and mixed-use properties, sub-prime loans, adjustable rate mortgage
loans and jumbo and super jumbo loans. The Company originates Title I home
improvement loans partially insured by the US Department of Housing and Urban
Development.
Island Mortgage sells its loans primarily in the secondary market on a
whole loan basis in order to maximize profitability, reduce its exposure to
fluctuations in interest rates and to achieve greater liquidity. Through 1997,
the Company sold virtually all of its loan production on a whole loan sale basis
in private placements to a variety of institutional purchasers. The Company
funds its originations through warehouse lines of credit and a standby facility.
The Company intends to continue to sell loans primarily through whole loan
sales.
The Company sells all paper loans which it originates on a flow basis
and all sub-prime loans on a bulk basis, each on a service-released basis, which
maximizes revenues because the Company receives the service-release premium at
the time the loan is sold. Since the Company sells all loans which it originates
on a service released basis, the Company does not maintain a loan portfolio or a
servicing loan portfolio, and has not experienced any material loan losses to
date.
The Company's business strategy includes (i) geographic expansion
throughout the US, (ii) growth through selected acquisitions, (iii) internal
growth and (vii) introduction and expansion of new products.
History
NGT Enterprises, Inc. was formed under the laws of the state of
Delaware on November 14, 1980 as Nuclear & Genetics Technology, Inc. On April
24, 1981, NGT Enterprises, Inc. changed its name to Nuclear & Genetic
Technology, Inc. On December 6, 1989 the name was changed back to NGT
Enterprises, Inc. On May 5, 1997, NGT Enterprises, Inc. amended its certificate
of incorporation to change its name to IMN Financial Corp. The predecessor
company was considered to be a development stage company until May 5, 1997 when
it acquired all of the assets of Island Mortgage Network, Inc., formerly Donald
Henig, Inc. and additional assets. On May 5, 1997, the predecessor company
acquired all of the capital stock of Island Mortgage Network, Inc., First
Equities Commercial Corp. and First Equities Service Corp., and holdings in the
Aristocrat Endeavor
(4)
<PAGE>
Fund from IMN Equities Inc. for 20,221,700 shares of its common stock at a value
of $.21 per share. Donald Henig Inc. was incorporated under the laws of the
state of New York on December 1, 1992.
The Company's principal executive offices are located at 520
Broadhollow Road, Suite 200, Melville, New York 11747 (516) 844-9805.
(5)
<PAGE>
THE OFFERING
Common Stock Offered............... 439,465 shares of Common Stock, which
are being offered for sale by the
Selling Security Holders, which may be
issued upon conversion of the
Convertible Preferred Stock and upon
exercise of the Warrants. The number of
shares of Common Stock issuable upon the
conversion of the Convertible Preferred
Stock and upon exercise of the Warrants,
are subject to adjustment in the event
of a merger, stock split, stock dividend
and similar transactions. See
"MANAGEMENT" - "DESCRIPTION OF CAPITAL
STOCK" and "SELLING SECURITY HOLDERS."
The Company will not receive any
proceeds from the sale of the Common
Stock by the Selling Security Holders,
but will receive the proceeds of the
exercise of any Warrants exercised by
the Selling Security Holders.
Common Stock Outstanding(1)........ 25,188,686
Common Stock Symbols............... OTC Electronic Bulletin Board: IMNF
Use of Proceeds.................... The Company will not receive any
proceeds from the sale of the Common
Stock by the Selling Security Holders
but will receive the proceeds of the
exercise of any Warrants exercised by
the Selling Security Holders which will
be applied to working capital, if any.
See "USE OF PROCEEDS."
Risk Factors....................... An investment in the Company's Common
Stock involves a high degree of risk and
should be made only after a careful
consideration of the significant risk
factors that may affect the Company.
Such risks include special risks
concerning the Company and its
(6)
<PAGE>
business. See "RISK FACTORS."
(1) Does not include (i) 439,465 shares issuable upon conversion of the
outstanding preferred stock and exercise of the Warrants, based on the last
sale price of the common stock on February 11, 1998 and (ii) 75,000 shares
issuable upon exercise of options granted in connection with services
rendered to the Company. See "Management - Stock Option Plans" and
"Description of Securities."
(7)
<PAGE>
Summary Financial Data
(In thousands, except per share data)
The summary financial information set forth below is qualified by and
should be read in conjunction with the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Year Ended
September 30 December 31
1997 1996 1996 1995
---- ---- ---- ----
Statement of Income
<S> <C> <C> <C> <C>
Total Operating Income $7,459,961 -0- $5,995,131 $3,475,401
Total Operating Expense 2,936,640 -0- 3,918,481 2,314,071
--------- --- ----------- ----------
Gross Profit 4,523,321 -0- 2,076,650 1,161,330
General and Administrative
Expenses 4,414,515 16,900 2,859,276 1,294,026
--------- --------- ---------- ----------
Income (Loss) from Operations 108,806 (16,480) (782,626) (132,696)
Total Other Income -0- -0- 852,555 148,969
Income Before Provision
for Income Taxes 108,806 (16,900) 69,929 16,273
Income Taxes -0- -0- 8,642 7,848
Net Income 108,806 (16,900) 61,287 8,425
======= ======== ========== ==========
<CAPTION>
Nine Months Year Ended
September 30, 1997 December 31, 1996
<S> <C> <C>
Balance Sheet Data
Cash.......................................................... $ 725,620 $ 164,774
Total assets.................................................. 43,270,441 15,798,557
Total liabilities............................................. 28,460,674 13,482,852
Stockholders Equity........................................... 14,809,767 2,315,705
</TABLE>
(8)
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors,
in addition to the other information contained in this Prospectus, in connection
with investments in the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus. An investment
in the securities offered hereby involves a high degree of risk.
AVAILABILITY OF FUNDING SOURCES
The Company funds substantially all of the loans which it originates
through borrowings under warehouse facility lines of credit. These borrowings
are in turn repaid with the proceeds received by the Company from selling such
loans through whole loan sales. Any failure to renew or obtain adequate funding
under these credit or warehouse facilities, or other borrowings, or any
substantial reduction in the size of or pricing in the markets for the Company's
loans, could have a material adverse effect on the Company's operations. To the
extent that the Company is not successful in maintaining or replacing existing
financing, it would have to curtail its loan production activities, which would
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The type, timing and terms of financing selected by the Company will be
dependent upon the Company's cash needs, the availability of financing sources
and the prevailing conditions in the financial markets. There can be no
assurance that any sources will be available to the Company at any given time or
as to the favorability of the terms on which such sources may be available.
ECONOMIC CONDITIONS
General
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home
(9)
<PAGE>
equity to support borrowings. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions.
The Company is exposed to the risk of loan delinquencies and defaults
upon the closing of the loan. After a loan has been originated by the Company,
the loan is held as part of a portfolio of loans subject to sale on a whole loan
basis. During the period a loan is so held, the Company is at risk for loan
delinquencies and defaults. Following the sale of the loan on a whole loan
basis, the Company's direct risk with respect to loan delinquency or default on
such loan is limited to those circumstances in which it is required to
repurchase such loan due to a breach of a representation or warranty in
connection with the sale. See "-- Contingent Risks" and "Business."
Interest Rates
Profitability may be directly affected by the level of and fluctuations
in interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of borrowings. The profitability of
the Company is likely to be adversely affected during any period of unexpected
or rapid changes in interest rates. A substantial and sustained increase in
interest rates could adversely affect the ability of the Company to originate
loans and could reduce the gain on sale recognized by the Company when loans are
sold. Fluctuating interest rates also may affect the interest paid by the
Company for funds borrowed under the Company's warehouse facilities. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the profitability of the Company because the loans pooled and sold by
the Company generally have long-term rates.
RECENT EXPANSION AND PRODUCT EXTENSION
The Company's significant growth and expansion have placed substantial
new and increased pressures on the Company's personnel and systems. In order to
support the growth of its business, the Company has added a significant number
of new operating procedures, facilities and personnel. Although the Company
believes the addition of new operating procedures and personnel will be
sufficient to enable it to meet its growing operating needs, there can be no
assurance that this will be the case. Failure by the Company to manage its
growth effectively, or to sustain its historical levels of performance in credit
analysis and transaction structuring with respect to the increased loan
origination could have a material adverse effect on the Company's results of
operations and financial condition.
DEPENDENCE ON FUNDING SOURCE
(10)
<PAGE>
The Company funds substantially all of its loan origination and working
capital requirements through loan sales pursuant to mortgage loan purchase
agreements that include its working capital facility. The Company will then
resell these loans through whole loan sales. To the extent that the Company is
not successful in maintaining or replacing existing financing, it would have to
curtail its loan production activities or sell loans earlier than is optimal,
thereby adversely affecting the Company's results of operations and financial
condition.. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CONTINGENT RISKS
Although the Company sells all loans which it originates on a
nonrecourse basis, the Company retains some degree of credit risk on
substantially all loans sold. During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers.
In the ordinary course of its business, the Company is subject to
claims made against it by borrowers and private investors arising from, among
other things, losses that are claimed to have been incurred as a result of
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions of employees, officers and agents of the Company (including its
appraisers), incomplete documentation and failures by the Company to comply with
various laws and regulations applicable to its business. The Company believes
that liability with respect to any currently asserted claims or legal actions is
not likely to be material to the Company's consolidated results of operations or
financial condition; however, any claims asserted in the future may result in
legal expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
GEOGRAPHIC CONCENTRATION OF OPERATIONS
The vast majority of the Company's loan origination and purchase volume
for the nine months ended September 30, 1997 was derived from the state of New
York. Although the Company is licensed or registered in 17 states and may
continue to expand into other markets, it is expected that the State of New York
will continue to provide a substantial portion of its loan origination activity.
Consequently, the Company's results of operations and financial condition are
largely
(11)
<PAGE>
dependent upon general trends in the New York economy and its residential real
estate market.
COMPETITION
As a marketer of mortgage loans, the Company faces intense competition,
primarily from mortgage banking companies, commercial banks, credit unions,
thrift institutions, credit card issuers and finance companies. Many of these
competitors in the financial services business are substantially larger and have
more capital and other resources than the Company. Furthermore, certain large
national finance companies and conforming mortgage originators in the US have
announced their intention to adapt their conforming origination programs and
allocate resources to the origination of non-conforming loans. In addition,
certain of these larger mortgage companies and commercial banks have begun to
offer products similar to those offered by the Company, targeting customers
similar to those of the Company. The entrance of these competitors into the
Company's market could have a material adverse effect on the Company's financial
condition and results of operations.
Competition can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels and interest rates.
Competition may be affected by fluctuations in interest rates and general
economic conditions. During periods of rising rates, competitors that have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit the Company's customers to refinance
their loans. During economic slowdowns or recessions, the Company's borrowers
may have new financial difficulties and may be receptive to offers by the
Company's competitors.
The Company depends largely on its own loan officers and uses its
financial contacts, such as lawyers and accountants, for its originations of new
loans. The Company's competitors also seek to establish relationships with the
Company's contacts and sources of loan origination.
LEGISLATIVE AND REGULATORY RISKS
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because a portion of the Company's loans are made to
borrowers for the purpose of consolidating consumer debt or financing other
consumer needs, the competitive advantages of tax deductible interest, when
compared with alternative sources of financing, could be eliminated or seriously
impaired by such government action. Accordingly, the reduction or elimination of
these tax benefits could have a material adverse
(12)
<PAGE>
effect on the demand for loans of the kind offered by the Company.
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and is
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. The Company's
consumer lending activities are subject to the Federal Truth-in-Lending Act and
Regulation Z (including the Home Ownership and Equity Protection Act of 1994),
the Federal Equal Credit Opportunity Act and Regulation B, as amended ("ECOA"),
the Fair Credit Reporting Act of 1970, as amended, the Federal Real Estate
Settlement Procedures Act ("RESPA") and Regulation X, the Home Mortgage
Disclosure Act, the Federal Debt Collection Practices Act and the National
Housing Act of 1934, as well as other federal and state statutes and regulations
affecting the Company's activities. The Company is also subject to the rules and
regulations of, and examinations by, the Department of Housing and Urban
Development ("HUD") and state regulatory authorities with respect to
originating, processing, underwriting and selling loans. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, demands for
indemnifications or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive. See "Business -- Regulation."
POSSIBLE ENVIRONMENTAL LIABILITIES
Although the Company has no current plans to, in the course of its
business, the Company may acquire in the future, properties securing loans which
are in default. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up hazardous or toxic substances
or chemical releases at such property, and may be held liable to a governmental
entity or to third parties for
(13)
<PAGE>
property damage, personal injury and investigation and cleanup costs incurred by
such parties in connection with the contamination. Such laws typically impose
cleanup responsibility and liability which, under such laws, has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such property, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not the facility is owned or operated by such person. In addition,
the owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently managed by a small number of key management
and operating personnel, whose efforts will largely determine the Company's
success. The loss of key management, particularly Edward Capuano, President and
a director of the Company, could delay or prevent the efforts of the Company to
achieve its goals and have a material adverse effect on the Company. The Company
does not currently have an employment agreements with Mr. Capuano. See
"Management."
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS.
The Company's principal shareholders, directors and officers
beneficially own approximately 69.7% of the Company's voting stock. See
"Principal Stockholders." As such, the Company's principal stockholders,
officers and directors are able to exercise control over the outcome of all
matters submitted to the shareholders for approval, including the election of
directors of the Company, and as a result will be able to control the Company's
affairs and management. The Company's articles of incorporation do not provide
shareholders with cumulative voting rights.
OUTSTANDING OPTIONS AND OTHER CONVERTIBLE SECURITIES; REGISTRATION RIGHTS
As of the date of this Prospectus, the Company has outstanding the
following options and other convertible securities: (i) 1,100 shares of Series A
Preferred Stock, convertible by its terms into
(14)
<PAGE>
shares of the Company's Common Stock which is convertible into Common Stock at
78% of the market price for the Common Stock at the time of conversion, (ii)
75,000 shares of common stock issuable upon the exercise of stock options
granted in connection with certain consulting services and (iii) 88,000 warrants
to purchase Common Stock (the "Warrants"). There is no provision granting the
Company the right to redeem any of the above-mentioned convertible securities.
To the extent that such securities are exercised, dilution to the interest of
the Company's shareholders will occur. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the Convertible Preferred Stock, options and the
Warrants can be expected to exercise them, to the extent they are able to, at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
options or preferred stock. In addition, certain of the above mentioned
securities are subject to certain demand and/or piggyback registration rights.
The shares of Common Stock issuable upon conversion of the Series A Preferred
Stock and upon the exercise of the Warrants is being registered herein. Such
registration rights could result in substantial expense to the Company and
adversely affect any future equity or debt financing. The sale of Common Stock
or other securities held by or issuable to the holders of registration rights or
merely the potential of such sales, could have an adverse effect on the market
price of the Company's securities.
NO DIVIDEND
The Company has not paid any cash dividends on its shares of common
stock and it does not anticipate paying such dividends in the foreseeable
future. The payment of dividends by the Company is within the discretion of its
Board of Directors and depends upon the Company's earnings, capital
requirements, financial condition and requirements, future prospects,
restrictions in future financing agreements, business conditions and other
factors deemed relevant by the Board. The Company intends to retain earnings, if
any, to finance its operations. See "Dividend Policy."
POSSIBLE VOLATILITY OF STOCK PRICE; STOCK MARKET VOLATILITY
There have been periods of extreme volatility in the stock market
that, in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of affected securities. General market
price declines or volatility in the future could adversely affect the price
of the Common Stock. There can be no assurance that the Common Stock will
maintain its current market price. Short-term trading strategies of certain
investors can have a significant effect on the price of specific securities.
(15)
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future sales
of Common Stock will have on the market price of Common Stock. Of the Company's
shares of Common Stock currently outstanding, 17,566,384 are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended ("Act"), and under certain circumstances may be sold without
registration pursuant to that rule. Subject to compliance with the notice and
manner of sale requirements of Rule 144 and provided that the Company is current
in its reporting obligations under the Securities Exchange Act of 1934, as
amended, a person who beneficially owns restricted shares for a period of at
least one year is entitled to sell, within any three month period, shares equal
to the greater of 1% of the then outstanding shares of Common Stock, or if the
Common Stock is quoted on the NASDAQ System, the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of the
required notice of sale with the Securities and Exchange Commission. As of the
date of this Prospectus, 17,566,384 shares of Common Stock, held by beneficial
owners, are eligible for sale pursuant to Rule 144. The Company is unable to
predict the effect that sales made under Rule 144 or otherwise may have on the
market price of the Common Stock prevailing at the time of any sales.
Nevertheless, sales of substantial amounts of the restricted shares of Common
Stock in the public market could adversely affect the then prevailing market for
the Common stock and could impair the Company's ability to raise capital through
the sale of its equity securities. See "Shares Eligible For Future Sale."
OTC ELECTRONIC BULLETIN BOARD.
The Common Stock is traded on the OTC Electronic Bulletin Board
("Bulletin Board") an NASD-sponsored and operated inter-dealer automated
quotation system for equity securities not included in the NASDAQ SmallCap
Market or NASDAQ National Market. Generally, securities traded on the Bulletin
Board experience less liquidity than securities traded on the New York or
American Stock Exchanges, or on the NASDAQ National or SmallCap Markets. There
can be no assurance that an active public trading market for the Common Stock
will continue.
RISKS OF LOW-PRICED STOCKS; POSSIBLE ADVERSE EFFECTS OF "PENNY STOCK" RULES
The Common Stock currently trades in the over-the-counter market on the
OTC Electronic Bulletin Board. As a consequence, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. The Securities Enforcement and Penny
(16)
<PAGE>
Stock Reform Act of 1990 requires additional disclosure relating to the market
for penny stocks. The SEC regulations generally define a penny stock to be any
equity security that has a market price or exercise price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include any equity
security listed on NASDAQ, and any equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three (3) years, (ii) net tangible assets of at least
$5,000,000 if such issuer has been in continuous operation for less than three
(3) years, or (iii) average annual revenue of at least $6,000,000 during such
issuer's last three years of operations. Unless such an exception is available,
the regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith. Furthermore, in connection with any transaction in a penny
stock, brokers must also provide investors with current bid and offer quotations
therefor, the compensation of the broker and its salesperson in connection
therewith and monthly account statements showing the market value of each penny
stock in the investor's account.
In addition, if the Common Stock is not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange "Act") for non-Nasdaq and non-exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that, by reason
of the Company's net tangible assets of at least $5,000,000, that such security
will be outside the definitional scope of a penny stock. In the event the
Company's Common Stock were subsequently to become characterized as a penny
stock, the market liquidity for such securities could be adversely affected. In
such an event, the regulations on penny stocks could limit the ability of
broker/dealers to sell the Common Stock, and thus the ability of purchasers of
the Common Stock to sell such securities in the secondary market would be
adversely affected.
(17)
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Selling
Security Holders Shares. All proceeds from the sale of the Selling Security
Holders Shares will be for the account of the Selling Security Holders described
below. See "Selling Security Holders." In the event that the Warrants are
exercised the Company will receive an aggregate of $316,800 which will be
utilized for working capital. There can be no assurance that any such Warrants
will be exercised.
(18)
<PAGE>
CERTAIN MARKET INFORMATION
The Company's Common Stock is traded on the OTC Electronic Bulletin
Board of the National Association of Securities Dealers, Inc. ("Bulletin
Board") under the symbol "IMNF." The following table sets forth the high and
low sale prices for Common Stock as reported by on the Bulletin Board.
Common Stock
------------
Fiscal 1997 High Low
- - ----------- ---- ---
Second (from May 5, 1997) $7.74 $3.00
Third 7.00 2.75
Fourth 3.93 2.25
Fiscal 1998
First (through February 11, 1998) $4.25 $3.00
On February 11, 1998, there were approximately 761 holders of record of
the Company's 25,188,686 outstanding shares of Common Stock.
On February 11, 1998, the last sale price of the Common Stock as
reported on the Bulletin Board was $4.094.
(19)
<PAGE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common
Stock. The payment of cash dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors. The Company intends, for the foreseeable future, to retain future
earnings for use in the Company's business.
(20)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
Results of Operations - September 30, 1997 vs. September 30, 1996
The increase of revenue, operating expenses, gross profit, general and
administrative expenses and net income (loss) for both the year ended
September 30, 1997 and the three months ended September 30, 1997, versus the
same periods in 1996, are completely due to the acquisition by the Company
of Donald Henig Inc., in May of 1997, and other subsequent subsidiary
acquisitions.
Results of Operations (Pro Forma) - September 30, 1997 vs. September 30, 1996
The increase of revenue, operating expenses, gross profit, general and
administrative expenses and net income (loss) for the proforma nine months
ended September 30, 1997, versus the proforma nine months ended September
30, 1996 was due to the Company's expansion program. Under this program, the
Company opened several new branch offices in New York State as well as
expanding into several new states.
Results of Operations - December 31, 1996 vs. December 31, 1995
The increase of revenue, expenses, gross profit, general and administrative
expenses and net income for the year ended December 31, 1996 versus the same
period in 1995, were due to the Company's expansion program.
Liquidity and Capital Resources
The Company believes that current operations will provide adequate cash flow
to meet current obligations. The Company has marketable securities of
$5,000,000 as its present capital resources. Management believes that these
resources provide adequate working capital for the Company. In December
1997, the Company sold an aggregate of 1,100 shares of Series A Preferred
Stock resulting in gross proceeds to the Company of $1,100,000.
(21)
<PAGE>
BUSINESS
The following summary is qualified in its entirety by, and must be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" refers to IMN
Financial Corp and its wholly-owned subsidiaries Island Mortgage Network Inc.,
formerly Donald Henig Inc., a New York corporation, First Equities Commercial
Corp., a New York corporation, First Equities Service Corp., a New York
corporation, Greenshield Mortgage Corporation, a New Jersey corporation,
Citizens Mortgage Service Company, a Pennsylvania corporation, Senko Financial
Services, Inc., a Maryland corporation, American National Mortgage Corp., a New
Jersey corporation and First Potomac Mortgage Corp., a Virginia corporation,
First Equities Marketing Group, Inc., a Delaware corporation unless otherwise
indicated.
IMN Financial Corp., a Delaware corporation, (the "Company") is a
holding company which through its subsidiaries provides financial services such
as mortgage brokerage and mortgage banking services. The Company's main
subsidiary, Island Mortgage Network, Inc. ("Island Mortgage") formerly Donald
Henig Inc., is engaged in the business of originating and selling mortgage loans
secured primarily by one- to four-family residences. Island Mortgage originates
loans through its 42 branch offices located in 17 states throughout the United
States and the District of Columbia. The majority of Island Mortgage's loans are
made for the purchase of new homes or the refinancing of existing homes. Island
Mortgage targets its lending to middle market individuals, although it has
mortgage programs which cover the entire spectrum of mortgage lending. Island
Mortgage focuses its lending in the FHA Government guaranteed loan market.
Approximately 50% of Island Mortgage's loans are FHA and VA loans. A division of
Island Mortgage focuses on lending to individuals who have impaired or
unsubstantiated credit histories and/or unverifiable income and to individuals
with higher loan to value ratios. As a result, Island Mortgage's customers
generally are not averse to paying the higher interest rates charged for these
type of loan programs as compared to the interest rates charged by conventional
loans. This type of loan is generated through the use of direct mail and
telemarketing efforts.
The Company strives to process each loan application received from
potential borrowers as quickly as possible in accordance with the Company's loan
application approval procedures. Accordingly, most loan applications receive
preliminary decisions within 24 hours of receipt and most accepted applications
are funded within 30-45 days thereafter. As the Company has expanded the
channels through which it originates loans, it has also broadened the types of
loans it offers. The Company offers a wide range of loan products, including
traditional residential mortgage loans for refinancing, educational, home
improvement and debt consolidation purposes, mortgage loans on small
multi-family and mixed-use properties, sub-prime loans, adjustable rate mortgage
loans and
(22)
<PAGE>
jumbo and super jumbo loans. The Company originates Title I home improvement
loans partially insured by the US Department of Housing and Urban Development.
Island Mortgage sells its loans primarily in the secondary market on a
whole loan basis in order to maximize profitability, reduce its exposure to
fluctuations in interest rates and to achieve greater liquidity. Through 1997,
the Company sold virtually all of its loan production on a whole loan sale basis
in private placements to a variety of institutional purchasers. The Company
funds its originations through warehouse lines of credit and a standby facility.
The Company intends to continue to sell loans primarily through whole loan
sales.
The Company sells all paper loans which it originates on a flow basis
and all sub-prime loans on a bulk basis, each on a service-released basis, which
maximizes revenues because the Company receives the service-release premium at
the time the loan is sold. Since the Company sells all loans which it originates
on a service released basis, the Company does not maintain a loan portfolio or a
servicing loan portfolio, and has not experienced any loan losses to date.
The Company's business strategy includes (i) geographic expansion
throughout the US, (ii) growth through selected acquisitions, (iii) internal
growth and (vii) introduction and expansion of new products.
Employees
As of February 5, 1998, the Company had 585 full time employees and 15
part time employees. None of the employees are covered by a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
Properties and Facilities
The following list sets forth the location of the Company's facilities:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
MONTHLY
LOCATION TERMS RENT
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALBANY Month to month, 60 day notice $600.00
- - -------------------------------------------------------------------------------------------------------
ALBUQUERQUE 3 years ending 2/28/00 2,574.00
- - -------------------------------------------------------------------------------------------------------
ANNAPOLIS 5 years ending 7/31/02 3,121.13
- - -------------------------------------------------------------------------------------------------------
ATLANTA Month to month 250.00
- - -------------------------------------------------------------------------------------------------------
AVON Nine months ending 6/30/98 575.00
- - -------------------------------------------------------------------------------------------------------
(23)
<PAGE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BINGHAMTOM Month to month, 60 days notice 200.00
- - -------------------------------------------------------------------------------------------------------
BUFFALO 7/1/97 - 01/31/00 1,400.00
- - -------------------------------------------------------------------------------------------------------
CAPE CORAL Six month renewals w/o notice 1,550.00
- - -------------------------------------------------------------------------------------------------------
CARLSBAD 90 days notice prior to 09/30/00 1,710.00
- - -------------------------------------------------------------------------------------------------------
CHICAGO Month to month 1,750.00
- - -------------------------------------------------------------------------------------------------------
CITIZENS Term expires 03/31/98 6,433.33
- - -------------------------------------------------------------------------------------------------------
COLUMBIA Term expires 03/31/98, 60 day notice 2,425.00
- - -------------------------------------------------------------------------------------------------------
COMMERCIAL; SUITE B103 &B104 15 Years ending 03/13/03 4,582.26
- - -------------------------------------------------------------------------------------------------------
CONGERS 1 year 650.00
- - -------------------------------------------------------------------------------------------------------
DEPTFORD-GREENSHIELD 5 years 5,175.00
- - -------------------------------------------------------------------------------------------------------
FAIRFAX 5 years ending 06/30/98 15,000.00
- - -------------------------------------------------------------------------------------------------------
FAIRFIELD 3 years 3,170.25
- - -------------------------------------------------------------------------------------------------------
GAITHERSBURG 1 year ending 09/30/98 676.00
- - -------------------------------------------------------------------------------------------------------
GREENSBORO 1 year ending 03/31/98 1,085.00
- - -------------------------------------------------------------------------------------------------------
HAZLET 5 years 3,000.00
- - -------------------------------------------------------------------------------------------------------
ISLANDIA; SUITE B101 & B102 3 years ending 09/30/98 2,500.00
- - -------------------------------------------------------------------------------------------------------
JEFFERSON 2 years ending 08/31/99 1,800.00
- - -------------------------------------------------------------------------------------------------------
MELVILLE (ADMIN) 01/22/97-08/31/02 9,658.33
- - -------------------------------------------------------------------------------------------------------
MELVILLE (OPERATIONS) 09/20/96-12/31/99, 3 years 2 months 9,560.20
- - -------------------------------------------------------------------------------------------------------
QUEENS VILLAGE 1 Year, term exp 04/30/98 1,400.00
- - -------------------------------------------------------------------------------------------------------
RICHMOND HILL Term exp 03/31/98 1,400.00
- - -------------------------------------------------------------------------------------------------------
RICHMOND, VA 3 Year, term exp 07/31/99 2,730.00
- - -------------------------------------------------------------------------------------------------------
ROCHESTER 3 Year, term exp 06/30/00 600.00
- - -------------------------------------------------------------------------------------------------------
SAN ANTONIO Month to Month 750.00
- - -------------------------------------------------------------------------------------------------------
SCHENECTADY Exp. 01/14/98 1,200.00
- - -------------------------------------------------------------------------------------------------------
SELECTIVE Month to month, 60 day notice 600.00
- - -------------------------------------------------------------------------------------------------------
SOUTHINGTON 3 Years, term exp 04/30/98 950.00
- - -------------------------------------------------------------------------------------------------------
SUNRISE 3 Years, term exp 04/30/00 1,780.95
- - -------------------------------------------------------------------------------------------------------
SYRACUSE 3 Years, 90 day notice 2,400.00
- - -------------------------------------------------------------------------------------------------------
TAMPA 3 Years, 90 day notice 918.00
- - -------------------------------------------------------------------------------------------------------
TARRYTOWN 18 Months 2,132.29
- - -------------------------------------------------------------------------------------------------------
TITLE 1; SUITE 300 33 Months ending 11/28/98 1,650.00
- - -------------------------------------------------------------------------------------------------------
TOTOWA 1 Year 4,777.87
- - -------------------------------------------------------------------------------------------------------
TREMONT 2 Years, term exp 08/31/98 1,600.00
- - -------------------------------------------------------------------------------------------------------
UTICA 3 Years, 90 day notice 1,100.00
- - -------------------------------------------------------------------------------------------------------
WILMINGTON Month to month, 60 day notice 425.00
- - -------------------------------------------------------------------------------------------------------
</TABLE>
(24)
<PAGE>
Legal Proceedings
In connection with the acquisition of Donald Henig, Inc., which now
operates as Island Mortgage, Island Mortgage claims that the sellers of Donald
Henig, Inc., Donald and Joan Henig, are in breach of the acquisition agreement.
Island Mortgage's claim is for $178,763 and the defendants cross-claim is for
$261,452. Island Mortgage intends to vigorously defend such cross-claim. This
lawsuit was initiated in the New York State Supreme Court in Nassau County on
March 7, 1997.
Island Mortgage is a defendant in a breach of contract lawsuit
initiated by Leads Express, Inc. The plaintiff, Leads Express, Inc. is seeking
approximately $150,000 in damages alleging breach of contract. This proceeding
was initiated in the Federal Circuit Court for Howard County in Baltimore,
Maryland filed on January 21, 1998. The Company believes that it has meritorious
defenses and plans to vigorously defend the action.
Other than the above claims, the Company has no notice of any pending
or threatened litigation.
(25)
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about the
directors and executive officers and key employees of the Company:
Name Age Position
---- --- --------
Edward R. Capuano 52 Chief Executive Officer, Chairman,
President and Director
Cindy L. Eisle 33 Chief Financial Officer and Treasurer
James Richmond 52 Executive Vice President
Pargie Raiola 56 Senior Vice President
James Britton 51 Senior Vice President
Patrick A. Reilly 41 Secretary and General Counsel
Edward R. Capuano is the Chief Executive Officer, President, Chairman
and sole director of the Company.From 1995 to present Mr. Capuano has served as
the President of Island Mortgage. From 1993 to 1995 Mr. Capuano served as the
Northeastern Regional Director of United Capital Mortgage Corp. Mr. Capuano
earned a B.A. in Business Administration from Manhattan College in 1967.
Cindy L. Eisle is the Chief Financial Officer and Treasurer of the
Company. From 1996 to May 1997 Ms. Eisle has served as the CFO of Island
Mortgage. From 1993 to 1996 Ms. Eisle served as the Assistant controller of
Midcoast Mortgage Corporation. Ms. Eisle earned a B.S. in Accounting in 1986
from the State University of New York at Binghamton and an M.B.A. in 1992 from
Dowling College.
James Richmond is an Executive Vice President of the Company. From 1996
to May 1997 Mr. Richmond served as an Executive Vice President of Island
Mortgage Network. From 1995 to 1996 Mr. Richmond served as an Executive Vice
President of New Jersey Lenders Corp. From 1993 to 1995 Mr. Richmond served as
an Executive Vice President of Globe Mortgage Co. Mr. Richmond has more than 27
years experience in the mortgage
(26)
<PAGE>
banking industry. Mr. Richmond served as the President of the New Jersey
Mortgage Bankers Association from 1994 to 1995. Mr. Richmond earned a B.A. in
History from the State University of New York at StonyBrook in 1969.
Pargie Raiola has served as a Senior Vice President of the Company
since May 1997. From 1993- May 1997 Mr. Raiola served as a Senior Vice President
of Island Mortgage Network. Mr. Raiola has over 30 years experience in the
mortgage banking and financial services industry. Mr. Raiola earned a B.A. in
Economics from New York University in 1984
James Britton has served as a Senior Vice President of the Company
since May 1997. From 1996 to May 1997 Mr. Britton served as a Senior Vice
President of Island Mortgage Network. From 1994 to 1996 Mr. Britton served as
Regional Manager of Patriot Mortgage Co. From 1993 to 1994 Mr. Britton served as
Regional Manager of Affinity National Mortgage.
Patrick A. Reilly has served as the Secretary and General Counsel of
the Company since 1997. From 1993 to 1996 Mr. Reilly worked as an attorney for
Avis, Inc. specializing in environmental, employment and discrimination
litigation, divestiture and mergers and acquisitions. Mr. Reilly graduated from
Hofstra University School of Law in 1982.
Directors of the Company are elected for one year terms or until their
successors are elected, and officers serve at the pleasure of the Board of
Directors.
Compensation of Directors
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
(27)
<PAGE>
Executive Compensation
The following table sets forth certain information regarding
compensation paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each of the Company's executive
officers who earned in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
- - -------------------------------------------------------------------------------------------------------------
Annual Long Term
Compensa- Compensa-
tion tion
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
Securities
Other Restricted Underlying
annual stock Options/ LTIP
Name and Bonus ($) compensation award(s) SARs (#) Payouts
principal position Year Salary ($) ($) ($)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward Capuano 1997 $170,170 0 0 0 0 0
CEO 1996 $ 52,000 0 0 0 0 0
1995 $ 0 0 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Option Plans
1997 Non-Statutory Stock Option Plan
The Company established a non-qualified stock option plan providing for
the issuance of up to 4,000,000 shares of Common Stock to its directors,
officers, key employees and consultants (the "1997 Plan"). To date, the Company
has granted directors, officers and key employees an aggregate of 2,200,000
non-qualified stock options, which have been exercised to date, and 75,000
non-qualified stock options to consultants of the Company, at an exercise price
of $6.50 per share. Future grants could have an adverse affect on the market
price of the Company's securities.
Employee Pension Plan
The Company does not currently have an employee pension plan. The Company does
maintain a 401(k) plan which it does not contribute to.
PRINCIPAL STOCKHOLDERS
(28)
<PAGE>
The following table sets forth certain information, as of February 5,
1998, and as adjusted to give effect to the Offering, regarding the beneficial
ownership of the Common Stock by (i) each beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director of the Company, and
each executive officer of the Company, and (iii) by all executive officers,
directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Number of Shares(2) Percentage Percentage
Address(1) Beneficially Owned Before Offering After Offering
- - ---------- ------------------ --------------- --------------
<S> <C> <C> <C>
Edward R. Capuano 17,563,057 69.7% 68.5%
Cindy L. Eisle 2,164 * *
James Richmond 1,163 * *
Pargie Raiola -0- -0- -0-
James Britton -0- -0- -0-
Patrick A. Reilly -0- -0- -0-
All officers and directors
as a group (6 persons) 17,566,384 69.7% 68.5%
</TABLE>
* less than one percent
- - ------
(29)
<PAGE>
CERTAIN TRANSACTIONS
Managerial and Financial Control
On May 5, 1997, the Company acquired all the capital stock of Donald
Henig, Inc. ("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.
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.
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
adminstrative 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.
(30)
<PAGE>
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.
(31)
<PAGE>
DESCRIPTION OF SECURITIES
The following description of certain matters relating to the securities
of the Company does not purport to be complete and is subject in all respects to
applicable Delaware law and to the provisions of the Company's articles of
incorporation ("Articles of Incorporation") and bylaws (the "Bylaws").
General
The Company is authorized by its Articles of Incorporation to issue an
aggregate of 50,000,000 shares of Common stock, $.001 par value per share, and
up to 5,000,000 shares of preferred stock (the "Preferred Stock"). As of the
date of this Prospectus, an aggregate of 25,188,686 shares of Common Stock were
issued and outstanding. One thousand one hundred (1,100) shares of the
authorized Preferred Stock are issued and outstanding as Series A Convertible
Preferred Stock. All outstanding shares of Common Stock are of the same class,
and have equal rights and attributes.
Common Stock
The Company is authorized to issue 45,000,000 shares of Common Stock,
$.001 par value per share. As of the date of this Prospectus there are
25,188,686 shares of Common Stock outstanding. Each share of Common Stock
entitles the holder thereof to one vote on all matters submitted to a vote of
the shareholders. Since the holders of Common Stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of the directors of the Company and holders of the remaining shares by
themselves cannot elect any directors. The holders of Common Stock do not have
preemptive rights or rights to convert their Common Stock into other securities.
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
the Common Stock outstanding and to be outstanding upon completion of this
offering are and will be fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of "blank
check" preferred stock. The Company issued 1,100 shares of Series A Convertible
Preferred Stock which is currently outstanding. As of the date hereof, the
Company and its Board of Directors have no immediate plans to issue any
additional shares of Preferred Stock. Preferred Stock may be issued in the
future in connection with acquisitions, financings or such other matters as the
Board of Directors deems to be appropriate. In the event that any such shares of
Preferred Stock shall be issued, a Certificate of Designation, setting forth the
series of such Preferred Stock and the relative rights, privileges and
designations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of
(32)
<PAGE>
such Preferred Stock is that the Company's Board of directors alone may
authorize the issuance of preferred stock which could have the effect of making
more difficult or discouraging an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or other means.
Section 203 of the Delaware Corporation Law prohibits a publicly held
Delaware corporation form engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
Series A Preferred Stock
The Company has 1,100 shares of Series A Convertible Preferred Stock
outstanding. Each share of Series A Convertible Preferred Stock is convertible
into shares of Common stock at 78% of the average closing bid price of a share
of Common Stock as quoted on the OTC Electronic Bulletin Board at any time after
April 10, 1998 at the option of the holder. The Series A Preferred Stock is
automatically convertible into Common Stock on December 31, 1999. The Series A
Preferred Stock pays a 6% annual dividend, payable quarterly in arrears, cash or
freely tradeable Common Stock at the option of the Company. Each share has a
liquidation value of $1,000 plus any accrued but unpaid dividends. The shares
rank senior to all classes of stock unless otherwise approved by the holders of
a majority of Series A holders or to a class of Preferred Stock issued in a
transaction which results in aggregate cash proceeds of $3 million, except as
otherwise required by law or expressly provided herein, shares of Series A
Preferred Stock shall not be entitled to vote on any matter. The affirmative
vote or consent of the holders of a majority of the outstanding shares of the
Series A Preferred Stock, voting separately as a class, will be required for (1)
any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the Company's Restated Certificate of Incorporation if the
amendment, alteration, or repeal materially and adversely affects the powers,
preferences, or special rights of the Series A Preferred Stock, or (2) the
creation and issuance of any senior stock or Parity stock unless the shares
thereof are issued in a transaction which results in aggregate cash proceeds to
the Company from the sale of such shares equal to at least $3 million. In
addition, the holders of the Series A Convertible Preferred Stock have piggyback
and demand registration rights with respect to the Common stock
(33)
<PAGE>
issuable upon exercise of the Series A Convertible Preferred Stock.
Delaware Anti-Takeover Law
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election), (ii) prior to
such date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the corporation that
is not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
Personal Liability of Directors
The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the personal liability of a director to the corporation for
monetary damages arising from certain breaches of fiduciary duties as a
director. The Company's Certificate of Incorporation includes such a provision
eliminating the personal liability of directors to the Company and its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) any breach of a director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for any
transaction from which the director derived an improper personal benefit; or
(iv) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law.
Directors are also not insulated from liability for claims arising under the
federal securities laws. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
(34)
<PAGE>
The Company's Certificate of Incorporation also provides that the
Company shall indemnify its directors, officers and agents to the fullest extent
permitted by the Delaware General Corporation Law. The Company does not have
directors' and officers' liability insurance but may secure such insurance in
the future. Furthermore, the Company may enter into indemnity agreements with
its directors and officers for the indemnification of and advancing of expenses
to such persons to the fullest extent permitted by law.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is American
Stock Transfer & Trust Company.
(35)
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future
sales of Common Stock will have on the market price of Common Stock. Of the
Company's shares of Common Stock currently outstanding, 17,566,384 are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended ("Act"), and under certain circumstances
may be sold without registration pursuant to that rule. Subject to
compliance with the notice and manner of sale requirements of Rule 144 and
provided that the Company is current in its reporting obligations under the
Securities Exchange Act of 1934, as amended, a person who beneficially owns
restricted shares for a period of at least one year is entitled to sell,
within any three month period, shares equal to the greater of 1% of the then
outstanding shares of Common Stock, or if the Common Stock is quoted on the
NASDAQ System, the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of the required notice of sale
with the Securities and Exchange Commission. As of the date of this
Prospectus, 17,566,384 shares of Common Stock, held by beneficial owners,
are eligible for sale pursuant to Rule 144. The Company is unable to predict
the effect that sales made under Rule 144 or otherwise may have on the
market price of the Common Stock prevailing at the time of any sales.
Nevertheless, sales of substantial amounts of the restricted shares of
Common Stock in the public market could adversely affect the then prevailing
market for the Common stock and could impair the Company's ability to raise
capital through the sale of its equity securities.
(36)
<PAGE>
SELLING SECURITY HOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Security Holders and as adjusted to
give effect to the sale of the Shares offered herein.
On December 31, 1997 Precision Capital Investors Limited Partnership I
("Precision"), acquired 1,100 shares of Preferred Stock and 88,000 Warrants.
Each share of Preferred Stock is convertible into the number of shares of Common
Stock equal to the quotient obtained by dividing (a) the sum of (i) $1,000, (ii)
accrued and unpaid dividends and (iii) accrued and unpaid interest on dividends
by (b) 78% of the average closing bid price of a share of Common Stock for the
five consecutive days ending on the trading day prior to the date of conversion.
The foregoing conversion price is subject to adjustment in certain
circumstances. The Warrants are exercisable at $3.60 per share.
<TABLE>
<CAPTION>
Beneficial Ownership Shares of Beneficial Ownership
of Common Stock Common Stock of Common Stock
Selling Security Holders Prior to Sale (1) to be sold (1) After Sale (2)
- - ------------------------ ----------------- -------------- --------------
<CAPTION>
<S> <C> <C> <C>
Precision Capital Investors
Limited Partnership I 404,853 404,853 -0-
International Holding
Company, Ltd. 10,000 10,000 -0-
William F. Palla 10,000 10,000 -0-
RJJ Capital Consultants, Inc. 13,000 13,000 -0-
</TABLE>
- - ---------
(1) The number of shares of Common Stock shown as beneficially owned and
offered by the Selling Security Holders represents the number of shares
which the Company has initially agreed to register. Pursuant to Rule 416
under the Securities Act, the number of shares of Common Stock offered by
the Selling Security Holders hereby and included in the Registration
Statement of which this Prospectus is a part also includes such presently
indeterminate number of additional shares as may be issued on conversion of
the Preferred Stock and in payment of dividends thereon pursuant to the
provisions of the Statement of Rights and Preferences of the Preferred
Stock regarding determination of the applicable conversion price and the
dividend calculation rate. Accordingly, the actual number of shares of
Common Stock issued or issuable upon the conversion of the Preferred Stock
and the payment of dividends thereon is subject to adjustment depending
upon factors which cannot be predicted by the Company at this time,
including, among others, the future market prices of the Common Stock and
the payment of dividends on the Preferred Stock in additional shares of
Common Stock. Pursuant to the terms of the Statement of Rights and
Preferences governing the Preferred Stock,
(37)
<PAGE>
the Preferred Stock is convertible by each holder thereof and dividends are
payable in Common Stock only to the extent that the number of shares of
Common Stock then beneficially owned by such holder and its related persons
(not including shares underlying unconverted shares of Preferred Stock)
would not exceed 4.9% of the then outstanding shares of Common Stock as
determined in accordance with Sections 13(d) and 16 of the Exchange Act.
Accordingly, the number of shares of Common Stock set forth for the Selling
Security Holder may exceed the actual number of shares of Common Stock that
the Selling Security Holder could own beneficially at any given time
through its ownership of the Preferred Stock. The above number assume that
the Selling Security Holders will exercise the Warrants for cash. If the
Selling Security Holders use the cashless exercise alternative, the actual
number of shares of Common Stock issued will be fewer, depending on the
market value of the underlying shares of Common Stock immediately prior to
exercise.
(2) Assumes all of the Shares offered are sold.
The Selling Security Holders and their respective officers and
directors have not held any positions or office or had any other material
relationship with the Company or any of its affiliates within the past three
years.
In recognition of the fact that the Selling Security Holders may wish
to be legally permitted to sell its Shares when it deems appropriate, the
Company agreed with the Selling Security Holders to file with the Commission,
under the Securities Act, a Registration Statement on Form SB-2, of which this
Prospectus forms a part, with respect to the resale of the Shares, and has
agreed to prepare and file such amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement effective until
the Shares are no longer required to be registered for the sale thereof by the
Selling Security Holders.
(38)
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holders may be sold
from time to time by the Selling Security Holders, or by pledgees, donees,
transferees or other successors in interest. Such sales may be made on one or
more exchanges or in the over-the-counter market (including the OTC Electronic
Bulletin Board), in privately negotiated transactions, through the writing
private options on the Shares, or otherwise at market prices then prevailing or
at prices related to the then-current market price, at fixed prices that may be
changed, or at negotiated prices. The Shares may be sold to or through brokers
or dealers, who may act as agent or principal, or in direct transactions between
the Selling Security Holders and purchasers. In addition, the Selling Security
Holders may, from time to time, sell short the common stock, and in such
instances, this Prospectus may be delivered in connection with such short sale
and the Shares offered hereby may be used to cover such short sale.
Transactions involving brokers or dealers may include, without
limitation, (a) ordinary brokerage transactions, (b) transactions in which the
broker or dealer solicits purchasers, (c) block trades in which the broker or
dealer will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, and (d)
purchases by a broker or dealer as a principal and resale by such broker or
dealer for its account. In effecting sales, brokers and dealers engaged by the
Selling Security Holders or the purchasers of the Shares may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of the Shares for whom such broker or dealer may act as agent or
to whom they may sell as principal, or both (which compensation as to a
particular broker or dealer may be in excess of customary commissions). The
Selling Security Holders and such brokers and dealers who act in connection with
the sale of Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit on any
resale of the Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company is bearing all costs relating to the registration of the
Shares other than certain fees and expenses, if any, of counsel or other
advisors to the Selling Security Holders. Any commissions, discounts or other
fees payable to brokers or dealers in connection with any sale of the Shares
will be borne by the Selling Security Holders, the purchasers participating in
such transaction, or both. None of the proceeds from the sale of the Shares by
the Selling Security Holders will be received by the Company, except for the
exercise price of the Warrants. The Company and the Selling Security Holders
each have agreed to indemnify the other against certain liabilities, including
liabilities arising under the Securities Act.
Any shares covered by this Prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act of 1933 may be sold under such Rule rather
than pursuant to this Prospectus.
(39)
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered by this Prospectus will be
passed upon for the Company by Gersten, Savage, Kaplowitz & Fredericks, LLP, New
York, New York.
EXPERTS
The consolidated financial statements of IMN Financial Corp.'s,
formerly Donald Henig, Inc. at December 31, 1996, and for each of the two years
in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Werblin, Cassucio & Moses, P.C.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
under the Act with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement and the
exhibits thereto, and references is made to the Registration Statement and the
exhibits thereto for further information with respect to the Company and the
Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois upon payment of the prescribed fees.
Electronic registration statements made through the Electronic Data Gathering
Analysis and Retrieval system are publicly available through the Commission's
web site at http://www.sec.gov.
(40)
<PAGE>
INDEMNIFICATION FOR ACT LIABILITIES
The Certificate of Incorporation and By-laws of the Company provide
that the Company shall indemnify to the fullest extent permitted by Delaware law
any person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Company. Such indemnification (other than as ordered
by a court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. Such determination shall be made by a majority vote
of a quorum consisting of disinterested directors, or by independent legal
counsel or by the stockholders. In addition, the Certificate of Incorporation
provides for the elimination, to the extent permitted by Delaware law, of
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Company proposes to obtain a directors and officers insurance and
company reimbursement policy. The policy, if obtained, would insure directors
and officers against unindemnified losses arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
The Company has also agreed to indemnify each director and executive
officer pursuant to an Indemnification Agreement with each such director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken while such director or executive officer was acting in his
capacity as a director, officer, employee or agent of the Company.
Insofar as indemnification for liabilities arising under the Act may be
provided to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(41)
<PAGE>
IMN FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditor's.............................................................
Balance Sheet -- Donald Henig, Inc. -- December 31, 1996....................................
Statement of Income -- Donald Henig Inc. for the year ended
December 31, 1996........................................................................
Statement of Retained Earnings -- Donald Henig, Inc. for the
Year ended December 31, 1996.............................................................
Statement of Cash Flows -- Donald Henig, Inc. for the year
Ended December 31, 1996..................................................................
Notes to the Financial Statements...........................................................
Report of Independent Auditor's.............................................................
Balance Sheet -- Donald Henig, Inc. -- December 31, 1995....................................
Statement of Income -- Donald Henig Inc. for the year ended
December 31, 1995........................................................................
Statement of Retained Earnings -- Donald Henig, Inc. for the
Year ended December 31, 1995.............................................................
Statement of Cash Flows -- Donald Henig, Inc. for the year
Ended December 31, 1995..................................................................
Notes to the Financial Statements...........................................................
Unaudited Financial Statements
ProForma Condensed Combined Financial Statements............................................
ProForma Condensed Combined Balance Sheet -- September 30, 1997.............................
ProForma Condensed Combined Statement of Operations for the period
</TABLE>
<PAGE>
<TABLE>
<S> <C>
September 30, 1997.......................................................................
ProForma Condensed Combined Statement of Operations
for the year ended December 31, 1996.....................................................
Notes to ProForma Condensed Combined Financial Statements...................................
</TABLE>
<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)
---------------
F-5
<PAGE>
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 auditors report and notes.
F-6
<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-7
<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 IO).
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-8
<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-9
<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-10
<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-11
<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 I 00,000 shares of Wireless Mexicano, Inc., a related
party (Note IO). 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-12
<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-13
<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-14
<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-15
<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 11I - 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-16
<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-17
<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 23 5,294.1 1 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 II.
F-18
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1995
F-19
<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
C Consolidated Statement of Stockholders Equity 4
D Consolidated Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-18
Schedule
Computation of Adjusted Consolidated Net Worth 19
F-20
<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-21
<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
F-22
<PAGE>
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-23
<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 auditors report and notes.
F-24
<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 Total
Shares Stock Shares Stock Capital Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1995 $250,000 $131,114 $(16,438) $364,676
Net Income for the Year 8,425 8,425
Ended December 31, 1995
Acquisition of Subsidiaries:
C.S. Amsterdam Realty, Inc.
The Best Mortgage Services 1,000 1,000
of America, Inc. 300 110,000 $110 1,399,890 (23,400) 1,376,900
Exchange of NPV for Par 1,000,000 (249,000) 249,000 0
Value Common Stock
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>
F-25
<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
F-26
<PAGE>
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-27
<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-28
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 3 1, 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 nwnber 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-29
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES(CONT'D.)
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 I 1) 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-30
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Mergers and Acquisitions - (CONT'D.)
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-31
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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-32
<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-33
<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-34
<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 LIBOR 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 3 1, 1995 there were 11 0,000 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 4Ol(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-35
<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-36
<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 II. 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-37
<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-38
<PAGE>
DONALD HENIG, INC. AND SUBSIDIARIES
Computation of Adjusted Consolidated Net Worth to Determine
Compliance with HUD Requirements
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F-39
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed combined balance sheet as of
September 30, 1997, and the pro forma condensed combined statement of income
for the year ended December 31, 1996 and for the nine months ended September
30, 1997 give effect to the acquisition of 100% of the outstanding common
shares of American National Mortgage Corp. ("ANMC") by IMN Financial Corp.
("IMN"). The pro forma information is based on the historical financial
statements of IMN and ANMC giving effect to the transaction under the purchase
method of accounting and the assumptions and adjustments in the accompanying
notes to the pro forma financial statements. The IMN statement of income for
the year ended December 31, 1996 is the pro forma statement presented as
reflected in the Registrant's Form 8K, dated May 5, 1997. The IMN statement of
income for the nine months ended September 30, 1997 is the pro forma statement
presented as reflected in the Registrant's Form 10Q dated November 17, 1997.
The pro forma financial statements have been prepared by IMN
management based upon the financial statements of ANMC included elsewhere
herein. These pro forma financial statements may not be indicative of the
results that actually would have occurred if the combination had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the audited
financial statements and notes of IMN and ANMC contained elsewhere herein.
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
IMN ANMC Pro Forma Pro Forma
(Historical) (Historical) Adjustments Combined
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Cash $ 725,620 $ 289,743 $ (100,000)(1) $ 915,363
Mortgage inventory 23,170,998 11,652,391 34,823,389
Points and fees receivable 671,113 443,902 1,115,015
Subscription receivable 4,894,488 4,894,488
Other current receivables 477,916 477,916
Marketable securities 5,000,000 5,000,000
Investments 660,293 660,293
Prepaid expenses 2,142,222 2,142,222
Property and equipment-net 989,613 211,573 1,201,186
Mortgage receivable 2,290,574 2,290,574
Intangible assets-net 5,657,874 (2)
2,155,735 (660,086)(3) 7,153,523
Other assets 91,869 29,669 121,538
Investment in ANMC 3,230,000 (1)
0 (3,230,000)(2) 0
---------------- ---------------- -------------- ---------------
Total assets $ 43,270,441 $ 12,627,278 $ 4,897,788 $ 60,795,507
================ ================ ============== ===============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
IMN ANMC Pro Forma Pro Forma
(Historical) (Historical) Adjustments Combined
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Liabilities
Accounts payable and
accrued expenses $ 2,405,325 $ 460,940 $ 2,866,265
Warehouse lines of credit 22,563,966 11,426,579 33,990,545
Notes payable 0 0 130,000(1) 130,000
Borrowers escrow funds 306,930 266,413 573,343
Capital lease obligations 330,740 0 330,740
Due to related party 2,504,488 0 2,504,488
Deferred income 348,259 62,683 410,942
Deferred income taxes 0 9,600 2,828,937(2) 2,838,537
Other liabilities 966 0 966
--------------- ---------------- --------------- ---------------
Total Liabilities 28,460,674 12,226,215 2,958,937 43,645,826
Stockholders' Equity
Preferred stock-authorized
5,000,000 shares, $.0001
per share 0 0 0
Common stock-authorized
45,000,000 shares,
$.0001 per share, the
proforma number of
shares outstanding at
September 30, 1997 was 92 (1)
24,880,994 2,396 1,000 (1,000)(2) 2,488
2,999,908 (1)
Additional paid in capital 14,715,858 371,500 (371,500)(2) 17,715,766
(660,086)(3)
Retained earnings 91,513 (69,779) 69,779 (2) (568,573)
Subordinated Debt 0 98,342 (98,342)(2) 0
--------------- ---------------- --------------- ---------------
Total Stockholders' Equity 14,809,767 401,063 1,938,851 17,149,681
--------------- ---------------- --------------- ---------------
Total Liabilities and
Stockholders' Equity $ 43,270,441 $ 12,627,278 $ 4,897,788 $ 60,795,507
=============== ================ =============== ===============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE INTERIM PERIOD SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IMN
(Per Pro
Forma 10Q - ANMC Pro Forma Pro Forma
9/30/97) (Historical) Adjustments Combined
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and
Premium Income $ 6,757,052 $ 3,401,099 $ 0 $ 10,158,151
Interest Income 702,909 456,687 0 1,159,596
--------------- ---------------- ---------------- ----------------
Total Operating Income 7,459,961 3,857,786 0 11,317,747
--------------- ---------------- ---------------- ----------------
Operating Expenses
Field and Direct Expenses 2,243,605 2,705,113 0 4,948,718
Interest Expenses 693,035 429,122 0 1,122,157
--------------- ---------------- ---------------- ----------------
Total Operating Expenses 2,936,640 3,134,235 0 6,070,875
--------------- ---------------- ---------------- ----------------
Gross Profit 4,523,321 723,551 0 5,246,872
General and Administrative
Expenses 4,414,515 1,122,615 282,894 5,820,024
--------------- ---------------- ---------------- ----------------
Income (Loss) from Operations 108,806 (399,064) (282,894) (573,152)
Other Income (Expenses) 0 0 0 0
--------------- ---------------- ---------------- ----------------
Income (Loss) before Provision
for Income Taxes 108,806 (399,064) (282,894) (573,152)
Provision for Income Taxes 0 0 0 0
--------------- ---------------- ---------------- ----------------
Net Income (Loss) $ 108,806 $ (399,064) $ (282,894) $ (573,152)
=============== ================ ================ ================
Weighted Average Number of
Shares Outstanding 23,274,319
================
Net Income per Share (Basic) -0.0246
================
Net Income per Share (Diluted) -0.0246
================
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IMN
(Per Pro
Forma 8K - ANMC Pro Forma Pro Forma
5/5/97) (Historical) Adjustments Combined
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and
Premium Income $ 5,554,241 $ 5,253,396 $ 0 $ 10,807,637
Interest Income 440,890 505,908 0 946,798
--------------- ---------------- ---------------- ----------------
Total Operating Income 5,995,131 5,759,304 0 11,754,435
--------------- ---------------- ---------------- ----------------
Operating Expenses
Field and Direct Expenses 3,375,700 2,358,226 0 5,733,926
Interest Expenses 542,781 502,576 0 1,045,357
--------------- ---------------- ---------------- ----------------
Total Operating Expenses 3,918,481 2,860,802 0 6,779,283
--------------- ---------------- ---------------- ----------------
Gross Profit 2,076,650 2,898,502 0 4,975,152
General and Administrative
Expenses 2,876,176 2,743,222 377,192 5,996,590
--------------- ---------------- ---------------- ----------------
Income (Loss) from Operations (799,526) 155,280 (377,192) (1,021,438)
Other Income (Expenses)
Interest expense (3,677) 0 0 (3,677)
Gain on Sale of Subsidiaries 856,232 0 0 856,232
--------------- ---------------- ---------------- ----------------
Income (Loss) before Provision
for Income Taxes 53,029 155,280 (377,192) (168,883)
Provision for Income Taxes (8,642) (5,400) 0 (14,042)
--------------- ---------------- ---------------- ----------------
Net Income (Loss) $ 44,387 $ 149,880 $ (377,192) $ (182,925)
=============== ================ ================ ================
Weighted Average Number of
Shares Outstanding 22,209,077
================
Net Income per Share (Basic) -0.0082
================
Net Income per Share (Diluted) -0.0082
================
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
<PAGE>
IMN FINANCIAL CORP.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 2, 1997, IMN acquired 100% of the outstanding common
stock of ANMC for a total consideration of $3,230,000. The pro forma financial
statements combine the assets and liabilities of the two companies at
September 30, 1997 and their results of operations for the year ended December
31, 1996 and the nine months ended September 30, 1997. In combining the
entities, the following pro forma adjustments have been made.
(1) Reflects the acquisition of ANMC as follows:
Cash $ 100,000
Note payable 130,000
Issuance of common stock
923,076 shares @ $.0001 per share 92
Additional paid in capital 2,999,908
---------------
Total consideration $ 3,230,000
===============
(2) To eliminate the Investment in ANMC.
Goodwill $ 5,657,874
Deferred income taxes (2,828,937)
Common stock 1,000
Additional paid in capital 371,500
Retained earnings (69,779)
Subordinated debt 98,342
---------------
Total Investment in ANMC $ 3,230,000
===============
(3) For purposes of presenting the pro forma condensed combined
statement of income, the following adjustment (which is expected to be
recurring) has been made:
Nine Months Year
Ended Ended
9/30/97 12/31/96
------------- ------------
Increase (decrease) in income:
Amortization of goodwill (15 yrs.) $ (282,984) $ (377,192)
============= ============
<PAGE>
<TABLE>
<CAPTION>
================================================================================
<S> <C>
No dealer, salesman or any other person
has been authorized to give any information or to
make any representations other than those IMN FINANCIAL CORP.
contained in this Prospectus, and, if given or
made, such information or representations must
not be relied upon as having been authorized by
the Company. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, 439,465 shares of Common Stock
any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any
offer, solicitation or sale made hereunder shall
under any circumstances create any implication
that there has been no change in the affairs of
the Company since the date hereof or that the
information herein is correct as of any time
subsequent to the date of this Prospectus.
------------------------------- -----------------
Page Prospectus
Prospectus Summary ...........................3 -----------------
Risk Factors .................................9
Use of Proceeds .............................18
Certain Market Information ..................19
Dividend Policy .............................20
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ......................21
Business ....................................22
Management ..................................26
Principal Stockholders ......................29
Certain Transactions ........................30
Description of Securities ...................32
Shares Eligible for Future Sale .............36
Selling Security Holder .....................37
Plan of Distribution ........................39
Legal Matters ...............................40
Experts .....................................40
Additional Information ......................40 , 1998
---------------
Indemnification for Securities
Act Liabilities ............................41
Financial Statements .......................F-1
</TABLE>
Until , 1998 (25 days
------------------
after the date of this Prospectus), all dealers
effecting transactions in the registered securities,
whether or not participating in this distribution,
may be required to deliver a Prospectus. This is
<PAGE>
in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, among other
things, and subject to certain conditions, authorizes the Company to indemnify
its officers and directors against certain liabilities and expenses incurred by
such persons in connection with claims made by reason of their being such an
officer or director. The restated Certificate of Incorporation and By-laws of
the Company provide for indemnification of its officers and directors to the
full extent authorized by law.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses to be paid by
the Company in connection with the issuance and distribution of the securities
being registered:
SEC Registration Fee* $ 534.85
Legal Fees and Expenses* $ 10,000.00
Miscellaneous* $ 1,000.00
Total* $ 11,534.85
----- ------------
* estimate
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Company has sold unregistered
securities as described below. There were no underwriters involved in the
transactions and there were no underwriting discounts or commissions paid in
connection therewith, except as disclosed below. The issuances of these
securities were considered to be exempt from registration under Section 4(2) of
the Act, as amended, and the regulations promulgated thereunder. The purchasers
of the securities in such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transaction. The purchasers of
the securities in the transactions had adequate access to information about the
Registrant.
On May 13,1997, the Company issued 20,221,700 shares of common to existing
shareholders of the predecessors
II-1
<PAGE>
of IMN Financial.
All of the following issuances were made pursuant to Section 4(2) of the
Securities Act of 1933, as amended:
On May 13, 1997, the Company issued: 150,000 shares of common stock to Joel
Pensley, Esq., 50,000 shares of common stock to Steven Gutstein in recognition
of services rendered, 1,100,000 options to purchase common stock at $3.00 per
share to C.S. Amsterdam Realty, Inc. of 1,100,000 options to purchase common
stock at $3.00 per share, 1,100,000 options to purchase common stock at $3.00
per share to Vinay Consulting Corp. On August 1, 1997, the Company issued
144,906 shares of common stock to Larry Enright, in partial consideration for
the purchase of Green Shield Mortgage Corporation's stock, 75,000 options to
purchase shares of common stock at $6.625 per share to William T. Schor. On
September 16, 1997, the Company issued 55,172 shares of common stock to Larry
Vecchio and 55,172 shares of common stock to The Catherine Mirabelli Trust in
consideration for the purchase of Bay City Mortgage Corporation's stock. On
December 2, 1997, the Company issued 461,538 shares of common stock to Kenneth
Barash in consideration for the purchase of American National Mortgage
Corporation.
On December 17, 1997, the corporation issued 7,000,000 shares of treasury stock.
These were pledged to Merrill Lynch later in December in exchange for a
$7,000,000 line of credit. On December 22, 1997, the Company issued 11,320
shares of common stock to Salvatore Benigno in partial consideration for the
purchase of Jefferson Penn Mortgage Corporation's stock. On December 30, 1997,
the Company issued of 333,333 shares of common stock to Michael Roche in
consideration of the purchase of 1st Potomac Mortgage Corporation's Seasons
Mortgage Group Inc.'s stock. On December 31, 1997, the Company issued 1,100
shares of preferred stock to Precision Capital Investors Limited Partnership I,
10,000 Warrants to purchase shares of common stock at $3.60 per share to
International Holding Company, Ltd., 10,000 Warrants to purchase shares of
common stock at $3.60 per share to William F. Palla and 13,000 Warrants to
purchase shares of common stock at $3.60 per share to Rjj Capital Consultants,
Inc. On Janaury 16, 1998, the Company issued 26,925 shares of common stock to
Joseph Jandura.
Item 27. Exhibits
Exhibit
Number Description
- - ----- -----------
5.1* Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
23.1* Consent of Werblin, Cassuccio & Moses
23.2* Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (continued as
part of Exhibit 5.1)
* filed herewith
Item 28. Undertakings
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law contract arrangements statute,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to suit information in the
registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall
be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
(4) For determining any liability under the Act, treat the
information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the small business
issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as
part of this registration statement as of the time the Commission
declared it effective.
II-3
<PAGE>
(5) For determining any liability under the Act, treat each post-effective
amendment that contains a form of Prospectus as a new registration
statement at that time as the initial bona fide Offering of those
securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that
it has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 11, 1998.
IMN FINANCIAL CORP.
By: /s/ Edward R. Capuano
----------------------------------
Edward R. Capuano, President
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Edward R. Capuano, President, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
/s/ Edward R. Capuano
---------------------- Chief Executive Officer, February 11, 1998
Edward R. Capuano President and Director
/s/ Cindy L. Eisle
---------------------- Chief Financial Officer February 11, 1998
Cindy L. Eisle
/s/ Patrick A. Reilly
---------------------- Secretary February 11, 1998
Patrick A. Reilly
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- - ----- -----------
5.1* Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
23.1* Consent of Werblin, Cassuccio & Moses
23.2* Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (continued as
part of Exhibit 5.1)
* filed herewith
<PAGE>
Exhibit 5.1
February 11, 1998
IMN Financial Corp.
520 Broadhollow Road, Suite 200
Melville, New York 11747
Gentlemen:
We have acted as counsel to IMN Financial Corp. (the "Company") in
connection with its filing of a registration statement on Form SB-2
(Registration No. 333-__________, the "Registration Statement") covering
439,465 shares of common stock $.001 par value (the "Common Stock") to be sold
by selling security holders ("Selling Security Holders").
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and
the minutes and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we
have assumed conformity with the original documents of all documents submitted
to us as conformed or photostatic copies, the authenticity of all documents
submitted to us as originals and the genuineness of all signatures on all
documents submitted to us.
On the basis of the foregoing, we are of the opinion that:
The shares of Common Stock covered by this Registration
Statement have been validly authorized and will when sold as contemplated by
the Registration Statement, be lgally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting the Registration Statement.
Very truly yours,
/s/ GSKF
Gersten, Savage, Kaplowitz &
Fredericks, LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 20, 1996 and March 28, 1997, in the
Registration Statement (Form SB-2) and related prospectus of IMN Financial
Corp. For the registration of 439,465 shares of its common stock.
Werblin, Casuccio & Moses, P.C.
Syosset, New York
February 11, 1998
