SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-KSB
(Mark One)
[X] Annual Report to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________to______________
Commission File No. 2-72849-NY
IMN FINANCIAL CORP.
-------------------
(Exact name of registrant as specified in its character)
Delaware 11-2558192
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Broadhollow Road Melville, New York 11747
- - --------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 844-9805
-------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
- - ------------------- -----------------------------------------
Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or
<PAGE>
for such shorter prior that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10- KSB or any
amendment to this Form 10-KSB. Yes No X
--- ---
The issuer's net sales for the most recent fiscal year were $.
The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on March 27, 1998 was approximately $ 33,103,657.
As of March 27, 1998 there were 25,188,686 shares of Common Stock,
par value $.001 per share, outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
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 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
<PAGE>
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.
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 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.
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.
ITEM 2. PROPERTIES
The following list sets forth the location of the Company's facilities:
<TABLE>
<CAPTION>
<S> <C> <C>
- - ---------------------------------------------------------------------------------------------
Location Terms
- - ---------------------------------------------------------------------------------------------
Albany Month to month, 60 day notice $600.00
- - ---------------------------------------------------------------------------------------------
4
<PAGE>
- - ---------------------------------------------------------------------------------------------
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
- - ---------------------------------------------------------------------------------------------
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>
5
<PAGE>
ITEM 3. 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.
American National Mortgage Corporation, a subsidiary of the Company,
is a defendant in a breach of contract lawsuit initiated by an associate of
American National Mortgage Corporation seeking $47,000 in unpaid commissions.
American National Mortgage Corporation claims to have signed a general release
from the plaintiff and intends to vigorously defend the action.
First Potomac Corp., a subsidiary of the Company, has been requested
to buy back a loan purchased by an investor in First Potomac Corp., which fell
into default. The Company believes the claim to be speculative and has indicated
that the total claim to First Potomac Corp. Should not exceed approximately
$105,600 plus expenses.
Other than the above claims, the Company has no notice of any pending
or threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report,
the Company did not submit any matters to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
As of the date hereof, the Company has outstanding 25,188,686 of its Common
Stock $.001 par value ("Common Stock"). 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.The high and low sale prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions
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 March 27, 1998) $ 5.00 $ 3.00
On March 27, 1998, there were approximately 761 holders of record of
the Company's 25,188,686
6
<PAGE>
outstanding shares of Common Stock.
On March 27, 1998, the last sale price of the Common Stock as reported
on the Bulletin Board was $4.343.
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.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMN FINANCIAL CORP. AND SUBSIDIARIES
- - ------------------------------------
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB and in future filings by the Company with
the Securities and Exchange commission, the words or phrases "will likely
result" and "the company expects," "will continue", "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements." The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
RESULTS OF OPERATIONS - DECEMBER 31, 1997 vs. DECEMBER 31, 1996
The increase of revenue, operating expenses, gross profit, general and
administrative expenses and net income (loss) for the year ended December 31,
1997 and the year ended December 31. 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) - DECEMBER 31, 1997 vs. DECEMBER 31, 1996
The increase of revenue, operating expenses, gross profit, general and
administrative expenses and net income (loss) for the proforma year ended
December 31, 1997, versus the proforma year ended December 31, 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. In February 1998, the Company sold an
aggregate of 150 shares of Series B Preferred Stock resulting in gross proceeds
to the Company of $1,500,000.
IMN FINANCIAL CORP. AND SUBSIDIARIES
(FORMERLY N G T ENTERPRISES, INC.)
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
The pro forma statement of income presented herein reflects the historical
results of operations for:
IMN Financial Corp.
Island Mortgage Network, Inc.
Green Shield Mortgage Corp.
Citizens Mortgage Service Company
First Equities Commercial Corp.
First Equities Service Corp.
American National Mortgage Corp.
1st Potomac Mortgage Corp.
These companies were acquired at various times during the year as disclosed
in the Company's financial statements for the year ended December 31, 1997.
The pro forma financial has been prepared as if the related acquisitions
had occurred on the first day of 1997. The pro forma adjustments reflect the
amortization of acquisition goodwill derived from the foregoing acquisitions.
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATING CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
Island Citizens First
IMN Mortgage Green Shield Mortgage Equities
Financial Network, Mortgage Service Commercial
Corp. Inc. Corp. Company Corp.
<S> <C> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $0 $13,869,207 $1,504,856 $1,820,054 $349,024
Interest Income 527,500 1,128,965 130,713 136,522 0
-------------------------------------------------------------------------------
Total Operating Income 527,500 14,998,172 1,635,569 1,956,576 349,024
Operating Expenses
General and Administrative Expenses 543,692 13,310,152 2,639,614 2,780,734 643,645
Interest Expense 1,387,929 179,438 134,682
Depreciation 131,726 33,357 49,205
Amortization of Acquisition Goodwill 115,669 30,360
-------------------------------------------------------------------------------
Total Operating Expenses 659,361 14,860,167 2,852,409 2,964,621 643,645
Income (Loss) from Operations (131,861) 138,005 (1,216,840) (1,008,045) (294,621)
Equity in Income (Loss) of Investee
Other Income (Loss) (866,134) 0 0 (134,608) 0
-------------------------------------------------------------------------------
Income (Loss) before Provision
for Income Taxes (997,995) 138,005 (1,216,840) (1,142,653) (294,621)
Provision (Recovery) for Income Taxes 0 4,047 786 0 325
-------------------------------------------------------------------------------
Net Income (Taxes) ($997,995) $133,958 ($1,217,626) ($1,142,653) ($294,946)
===============================================================================
</TABLE>
<TABLE>
First American Ist
Equities National Potomac
Service Mortgage Mortgage
Corp. Corp. Corp. Adjustments Consolidated
<S> <C> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $7,200 $4,547,572 $5,332,362 27,430,275
Interest Income 0 596,928 14,134 2,534,762
----------------------------------------------------------------
Total Operating Income 7,200 5,144,500 5,346,496 0 29,965,037
Operating Expenses
General and Administrative Expenses 574 5,683,419 5,674,154 31,275,984
Interest Expense 632,615 111,188 2,445,852
Depreciation 35,356 28,344 277,988
Amortization of Acquisition Goodwill 797,865 943,894
0
----------------------------------------------------------------
Total Operating Expenses 574 6,351,390 5,813,686 797,865 34,943,718
Income (Loss) from Operations 6,626 (1,206,890) (467,190) (797,865) (4,978,681)
Equity in Income (Loss) of Investee 80,392
Other Income (Loss) 0 0 18,442 0 (982,300)
----------------------------------------------------------------
Income (Loss) before Provision
for Income Taxes 6,626 (1,206,890) (368,356) (797,865) (5,960,981)
Provision (Recovery) for Income Taxes 325 (8,600) (150,717) 0 0
----------------------------------------------------------------
Net Income (Taxes) $6,301 ($1,198,290) ($217,639) ($797,865) ($5,960,981)
================================================================
</TABLE>
Item 7. FINANCIAL STATEMENTS
IMN FINANCIAL CORP. AND SUBSIDIARIES
(FORMERLY NGT ENTERPRISES, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
TABLE OF CONTENTS
DECEMBER 31, 1997
Independent Auditor's Report 1
FINANCIAL STATEMENTS:
Exhibit
A Consolidated Statement of Financial Position 2-3
B Consolidated Statements of Income 4
C Consolidated Statements of Stockholders' Equity 5-7
D Consolidated Statements of Cash Flows 8-10
Notes to Consolidated Financial Statements 11-32
<PAGE>
<PAGE>
35 Roosevelt Avenue, Syosset, New York 11791-3058 516-921-0077
Fax 516-921-0154
Joseph J. Casuccio, Jr., CPA Richard F. Moses, CPA, MS
Patricia A. Dima, CPA / Henry Werblin, CPA, NY-Fl
WERBLIN, CASUCCIO & MOSES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
IMN Financial Corp. and Subsidiaries
We have audited the accompanying consolidated statement of financial position of
IMN Financial Corp. (formerly NGT Enterprises, Inc.) and Subsidiaries as of
December 31, 1997 and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1997 and
1996. 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 IMN Financial Corp.
and Subsidiaries as of December 31, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
WERBLIN, CASUCCIO & MOSES, P.C.
Syosset, New York
March 24, 1998
<PAGE>
Page 2
Exhibit A
<TABLE>
<CAPTION>
Exhibit A
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Financial Position
December 31,
1997 1996
-------------------- -----------------
ASSETS
<S> <C> <C>
Cash $ 2,027,738 $ 0
Mortgage Inventory 44,152,619 0
Points, Fees and Other Receivables 2,496,389 0
Subscription Receivable 2,000,000 0
Investments 7,705,025 0
Prepaid Expenses 1,982,735 0
Mortgage Receivable 2,276,636 0
Property and Equipment (Net of $228,636
Accumulated Depreciation) 1,315,080 0
Intangible Assets (Net of $312,621
Accumulated Amortization) 8,458,395 0
Other Assets 267,692 0
-------------------- -----------------
TOTAL ASSETS $ 72,682,309 $ 0
==================== =================
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 3
Exhibit A
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Financial Position
December 31,
1997 1996
-------------------------- --------------------
LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 5,219,984 $ 0
Warehouse Lines of Credit 43,652,500 0
Borrowers Escrow Funds 777,364 0
Capital Lease Obligations 211,662 0
Notes Payable 1,133,317 0
Deferred Income 590,081 0
Due to Related Party 4,920,813 1,500
Deferred Income Taxes 3,254,624 0
--------------------- --------------------
TOTAL LIABILITIES 59,760,345 1,500
STOCKHOLDERS' EQUITY
Preferred Stock - 5,000,000 shares, $.001 par
value authorized, 1,100 shares outstanding 1 0
Common Stock - 45,000,000 shares, $.001 par
value authorized; 31,764,107 shares outstanding 31,764 426
Paid-in Capital 17,693,293 16,867
Stock subscription receivable (4,141,600) 0
Unrealized Gain on Available-for-Sale
Securities 355,294 0
Retained Earnings (1,016,788) (18,793)
--------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 12,921,964 (1,500)
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 72,682,309 $ 0
EQUITY
===================== ====================
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 4
Exhibit B
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Income
Years Ended December 31,
1997 1996
--------------------------- ---------------------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 11,419,801 $ 0
Interest Income 1,367,996 0
--------------------------- ---------------------
Total Operating Income 12,787,797 0
OPERATING EXPENSES
General and Administrative Expenses 11,451,884 18,400
Interest Expense 1,044,281 0
Depreciation 142,998 0
Amortization of Acquisition Goodwill 146,029 0
Acquisition Expenses 972,601 0
--------------------------- ---------------------
Total Operating Expenses 13,757,793 0
--------------------------- ---------------------
INCOME (LOSS) FROM OPERATIONS (969,996) (18,400)
PROVISION FOR INCOME TAXES 27,999 0
--------------------------- ---------------------
NET INCOME (LOSS) $ (997,995) $ (18,400)
=========================== =====================
Basic Earnings (Loss) per share (0.0986) (0.0173)
=========================== =====================
Diluted Earnings (Loss) per share (0.0986) (0.0173)
=========================== =====================
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 5
Exhibit C
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
COMMON COMMON PREFERRED PREFERRED ADDITIONAL
STOCK STOCK STOCK STOCK PAID-IN
DATE (SHARES) ($) (SHARES) ($) CAPITAL
TOTAL
- - ------------------- --------------------- --------------- ---------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
1/1/96 3,931,199 $ 393 0
9/30/96 Net loss
9/30/96 326,000 33 16,867
---------------- --------------- ---------- ------------ -------------------
4,257,199 426 16,867
12/31/96 Net loss 0
---------------- --------------- ---------- ------------ -------------------
4,257,199 426 16,867
(1) 5/05/97 (3,192,900) 638 (638)
(2) 5/05/97 20,221,700 20,222 6,727,582
(3) 5/19/97 1,100,000 1,100 3,298,900
(4) 6/04/97 200,000 200 (200)
(3) 6/24/97 1,100,000 1,100 3,298,900
(5) 8/01/97 144,906 145 961,017
(6) 9/16/97 110,344 110 399,887
(7) 9/18/97 16,667 17 63,484
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE-
STOCK FOR
DATE SUBSCRIPTION SALE RETAINED
RECEIVABLE SECURITIES EARNINGS TOTALS
- - ------------------ ---------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1/1/96 $ (393) $ 0
9/30/96 Net Loss (16,900) (16,900)
9/30/96 16,900
0 0 (17,293) 0
12/31/96 Net Loss (1,500) (1,500)
0 0 (18,793) (1,500)
1) 5/05/97 0
2) 5/05/97 6,747,804
3) 5/19/97 3,300,000
4) 6/04/97 0
3) 6/24/97 3,300,000
5) 8/01/97 961,162
6) 9/16/97 399,997
7) 9/18/97 63,501
</TABLE>
<PAGE>
Page 6
Exhibit C
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
COMMON COMMON PREFERRED PREFERRED ADDITIONAL
STOCK STOCK STOCK STOCK PAID-IN
DATE (SHARES) ($) (SHARES) ($) CAPITAL
TOTAL
- - --------------------- ------------------ --------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
(8) 12/02/97 461,538 462 1,383,658
(9) 12/22/97 11,320 11 36,779
(10) 12/17/97 7,000,000 7,000 (7,000)
(11) 12/30/97 333,333 333 999,667
(12) 12/31/97 1,100 1 1,099,999
(13) (636,500)
(14) 50,891
(15) 0
(16) 0
12/31/97 Net loss 0
------------------- ------------- --------------- ------------- ----------------
31,764,107 $ 31,764 1,100 $ 1 $ 17,693,293
=================== ============== =============== ============= ================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE-
STOCK FOR
DATE SUBSCRIPTION SALE RETAINED
RECEIVABLE SECURITIES EARNINGS TOTALS
- - -------------------- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1,384,120
36,790
(8) 12/02/97 0
(9) 12/22/97 1,000,000
(10) 12/17/97 1,100,000
(11) 12/30/97 (636,500)
(12) 12/31/97 50,891
(13) 355,294 355,294
(14) (4,141,600) (4,141,600)
(15) Net Loss (997,995) (997,995)
(16) ------------------- -------------------- ------------------- -------------------
12/31/97
$ (4,141,600) $ 355,294 $(1,016,788) $ 12,921,964
=================== ==================== =================== ===================
See accompanying independent auditor's report and notes.
</TABLE>
<PAGE>
Page 7
Exhibit C
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
NOTES
- - -----
(1) Stock split preceding transaction #2 (below).
(2) Common shares issued, valued at book value (Note 2), Island
Mortgage Network, Inc. acquisition.
(3) Common shares issued, valued at $3.00 per share (Note 9), options
exercised.
(4) Common shares issued, valued at par, expenses related to (2) above.
(5) Common shares issued, valued at $6.63 (Note 2), Green Shield
Mortgage Corp. acquisition.
(6) Common shares issued, valued at $3.63 (Note 2), Bay City Mortgage
Corp. acquisition.
(7) Common shares issued, valued at $3.81 (Note 2), Senko Financial
Services acquisition.
(8) Common shares issued, valued at $3.00 (Note 2), American National
Mortgage Corp. acquisition.
(9) Common shares issued, valued at $3.25 (Note 2), Jefferson Financial
Corp. acquisition.
(10) Issuance of Treasury Stock to the Company at par value.
(11) Common shares issued, valued at $3.06 (Note 2), 1st Potomac
Mortgage Corp. acquisition.
(12) Issuance of Preferred Shares, sold at $1,000 per share.
(13) Consulting fees on items (3) and (12) above.
(14) Options valued - SFAS Statement No. 123.
(15) Market value adjustment - SFAS Statement No. 115
(16) Restatement of subscriptions receivable - Common stock.
<PAGE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 8
Exhibit D
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (loss) $ (997,995) $ (18,400)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 439,909 0
Value of options 50,891 0
Market value adjustment on foreclosed real estate 63,750 0
Change in assets and liabilities:
Increase in points, fees and other receivables (1,385,116) 0
Increase in prepaid expenses (485,646) 0
Increase in other assets (237,270) 0
Decrease in accounts payable and accrued expenses (1,308,427) 0
Increase in borrowers escrow funds 124,211 0
Increase in deferred income 66,978 0
------------------ -----------------
Total adjustments (2,670,720) 0
------------------ -----------------
Net cash provided (used) by operating activities (3,668,715) (18,400)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate development partnership (25,000) 0
Purchase of property and equipment (282,377) 0
Mortgages originated (net of those sold) (2,508,157) 0
Advances (or allocations) to related parties (net) (1,734,373) 0
Disbursement of cash for acquisitions (1,516,672) 0
Receipt of cash through acquisitions 1,720,555 0
------------------ -----------------
Net cash provided (used) by investing activities (4,346,024) 0
------------------ -----------------
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 9
Exhibit D
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
-------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Sale of common stock 0 18,400
Underwriting expenses (636,500) 0
Sale of preferred stock 1,100,000 0
Payment of notes payable and capital leases (42,989) 0
Collection of stock subscriptions 458,400 0
Net proceeds from warehouse line of credit 9,142,087 0
Collection of mortgage receivable 21,479 0
-------------------- ---------------------
Net cash provided (used) by financing activities 10,042,477 18,400
-------------------- ---------------------
Net increase (decrease) in cash and equivalents 2,027,738 0
CASH AND CASH EQUIVALENTS - JANUARY 1 0 0
-------------------- ---------------------
CASH AND CASH EQUIVALENTS - DECEMBER 31 2,027,738 $ 0
==================== =====================
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 10
Exhibit D
<TABLE>
<CAPTION>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
-------------------- -----------------
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Interest Paid $ 1,417,930 $ 0
==================== =================
Income Taxes Paid $ 6,306 $ 0
==================== =================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired through capital lease obligations $ 100,246 $ 0
==================== =================
Stock issued for subscriptions $ 6,600,000 $ 0
==================== =================
Stock and assets used for acquisitions $ 10,739,317 $ 0
==================== =================
Increase in Market Value of Available-for-Sale Securities $ 355,294 $ 0
==================== =================
</TABLE>
See accompanying independent auditor's report and notes.
<PAGE>
Page 11
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The financial statements presented herein are of IMN Financial Corp. (formerly
NGT Enterprises Inc.) and Subsidiaries.
IMN Financial Corp. (the Company) was incorporated under the laws of the State
of Delaware on October 13, 1982 as Nuclear & Genetic Technology, Inc. The
Company changed its name to NGT Enterprises Inc. and then to IMN Financial
Corp., in conjunction with the reorganization described below. The Company was
considered to be a development stage company since December 1, 1992, with no
operating history. After its reorganization, the Company began operating in the
financial services field, through its subsidiaries, as described in the
following paragraphs.
Island Mortgage Network, Inc. ("Island"), a wholly owned subsidiary acquired on
May 5, 1997, was incorporated under the laws of the State of New York on
December 1, 1992. It operates under the D/B/As "Island Mortgage Network" and
"Reliance Mortgage Network". Its principal business activity is the origination
and sale of residential mortgage loans. Presently, all mortgages are either
table funded, funded through company resources or funded through the Company's
warehouse lines of credit. Virtually all loans 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, Missouri, Virginia, Maryland, Georgia, Illinois
and California. 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. The Company is approved to
participate in FHA and Freddie Mac programs.
Green Shield Mortgage Corp. ("Green Shield") , a wholly owned subsidiary
acquired on August 1, 1997, was incorporated under the laws of the State of New
Jersey on December 3, 1996. Its principal business activity is that of a
mortgage banker, consisting of the origination and sale of residential mortgage
loans secured by one to four family residences. It holds mortgage bankers'
licenses in the states of New Jersey and Pennsylvania. Green Shield is approved
to participate in FHA programs.
Citizens Mortgage Service Company ("Citizens"), a wholly owned subsidiary
acquired on September 5, 1997, was incorporated under the laws of the State of
Pennsylvania on April 10, 1973. Its principal business activity is that of a
full service mortgage banker, consisting of the origination and sale of
residential mortgage loans secured by one to four family residences. It holds
mortgage bankers' licenses in the states of New Jersey, Pennsylvania and
Delaware. Citizens is approved to participate in FHA, Fannie Mae, GNMA and
Freddie Mac programs.
<PAGE>
Page 12
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
ORGANIZATION (CONT'D)
First Equities Service Corp. ("Service") , a wholly owned subsidiary acquired on
May 5, 1997, was incorporated under the laws of the State of New York on January
24, 1997. Its principal business activity is participation in real estate
development projects through financing efforts. It is presently servicing the
same states serviced by Island Mortgage Network, Inc.
First Equities Commercial Corp. ("Commercial") , a wholly owned subsidiary
acquired on May 5, 1997, was incorporated under the laws of the State of New
York on January 23, 1997. Its principal business activity is that of a
commercial real estate broker. It is presently servicing the same states
serviced by Island Mortgage Network, Inc.
1st Potomac Mortgage Corporation ("Potomac"), a wholly owned subsidiary acquired
on December 30, 1997, was incorporated under the laws of the State of Virginia
on December 28, 1989. Its principal business activity is that of a mortgage
banker, consisting of the origination and sale of residential mortgage loans
secured by one to four family residences. It holds mortgage bankers' licenses in
the states of Virginia, North Carolina and Maryland. Potomac is approved to
participate in FHA programs.
American National Mortgage Corporation ("ANMC") , a wholly owned subsidiary
acquired on December 2, 1997, was incorporated under the laws of the State of
New Jersey on May 18, 1990. Its principal business activity is that of a
mortgage banker, consisting of the origination and sale of residential mortgage
loans secured by one to four family residences. ANMC is approved to participate
in FHA and Fannie Mae programs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of IMN
Financial Corp. and its wholly owned subsidiaries, Island Mortgage Network, Inc.
, Green Shield Mortgage Corp., Citizens Mortgage Service Company, First Equities
Service Corp., First Equities Commercial Corp., 1st Potomac Mortgage Corporation
and American National Mortgage Corporation. All significant intercompany
balances and transactions have been eliminated in consolidation.
REORGANIZATION
In September 1996, Island, its shareholders and First Equities Corp. ("First
Equities") entered into an agreement wherein a reverse acquisition was
effectuated. As a result, the shareholders of Island received shares of First
Equities Corp. on a pro-rata basis, in exchange for their shares in Island, and
Island became a subsidiary of First Equities.
<PAGE>
Page 13
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REORGANIZATION (CONT'D)
On April 1, 1997, First Equities entered into an agreement with IMN Equities,
Inc. whereby First Equities transferred certain assets (100% of the outstanding
stock of Island, 100% of the outstanding stock of Service and 100% of the
outstanding stock of Commercial, along with 141,176 shares of Aristocrat
Endeavor Fund, Ltd.) to IMN Equities, Inc., in exchange for 16,760,628 shares of
IMN Equities, Inc. common stock and 5,001 shares of IMN Equities, Inc.
preferred stock.
On May 5, 1997, IMN Equities, Inc. entered into an agreement with the Company,
whereby IMN Equities Inc. transferred certain assets (100% of the outstanding
stock of Island, 100% of the outstanding stock of Service, 100% of the
outstanding stock of Commercial, and its holdings in the Aristocrat Endeavor
Fund, Ltd.) to IMN, in exchange for 20,221,700 shares of the Company's common
stock with a value equal to the book value of the assets received, in accordance
with SEC reverse acquisition rules.
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 as discussed in "Fair Value of
Financial Instruments". As of the date of this report, substantially all of the
December 31, 1997 mortgage inventory has been sold. Mortgage inventory secures
the related warehouse lines of credit (Note 7).
ACCOUNTS RECEIVABLE
Management has analyzed accounts receivable at December 31, 1997 and considers
all accounts to be currently collectible. Therefore, no provision has been made
for uncollectible accounts. As of the date of this report, substantially all of
the accounts receivable have been collected.
INVESTMENT SECURITIES
Management determines the appropriate classification of investment securities at
the time they are acquired, and evaluates the appropriateness of such
classification at each balance sheet date. The classification of those
securities and the related accounting policies are as follows:
Trading securities: Trading securities are held for resale in anticipation of
short-term (generally 90 days or less) fluctuations in market prices. Trading
securities, consisting primarily of actively traded equity securities, are
stated at fair value. Realized and unrealized gains and losses are included in
income.
<PAGE>
Page 14
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
INVESTMENT SECURITIES (CONT'D)
Available-for-sale securities: For the year ended December 31, 1997, the Company
has adopted Financial Accounting Standards Board Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS 115). Under the
provisions of SFAS 115, certain marketable securities are considered
available-for-sale securities. Available-for-sale securities are stated at fair
value, and unrealized holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders' equity.
Dividends on marketable equity securities are recognized in income when
declared. Realized gains and losses are included in income. Realized gains and
losses are determined on the basis of the actual cost of the securities sold.
See Note 3 for further details of the Company investments.
DEFERRED COSTS
All direct processing costs associated with mortgages in the Company's pipeline
at December 31, 1997 have been deferred. These costs include commissions,
processing salaries and related expenses, appraisal fees, credit costs, and
other direct expenses.
Commissions paid under a "draw against commission" arrangement have been
deferred when the draw exceeds the commission earned.
PROPERTY AND EQUIPMENT
Property and equipment contributed to the Company by a former shareholder are
stated at the appraised fair market values at the date of contribution. Property
and equipment purchased by the Company are stated at cost.
Depreciation is calculated using straight-line and accelerated methods over the
estimated useful lives of the assets.
ACQUISITION GOODWILL
Acquisition Goodwill represents the cost in excess of fair value of identifiable
assets of acquired businesses, and is being amortized on a straight line basis
over 10 years. The Company annually evaluates whether events and circumstances
have occurred subsequent to its acquisition, which may indicate that the
remaining useful life of goodwill warrants revision, or that the remaining
balance of goodwill may not be recoverable. To make a determination as to
whether goodwill has been impaired, the Company estimates the related business
segment's discounted future cash flows, and compares it to the remaining life of
the goodwill.
<PAGE>
Page 15
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
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, 1997, collected during loan processing, give rise to
the liability account "deferred income".
INCOME TAXES
The Company does not anticipate filing a consolidated income tax return with its
subsidiaries, however, Island intends to file consolidated tax returns with one
or more of its subsidiaries. Therefore, the provision for income taxes provided
for herein reflects those taxes currently due on both an individual entity and
consolidated basis. The Company and some subsidiaries are changing their tax
year-end to December 31, so that consolidated tax returns may be filed in future
periods. Deferred tax assets and liabilities with respect to all entities
contained herein are described below, and are valued at $0. Therefore, the
foregoing tax provision is for current taxes only.
The significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31, 1997
----------------
Deferred tax assets:
Net operating loss carry forwards $ 1,770,174
Valuation allowance (1,770,174)
-----------
Net deferred tax assets $ 0
===========
The acquisitions discussed in Note 2 have been accounted for under the purchase
method of accounting. The appreciated assets purchased give rise to the account
"Deferred Income Taxes Payable".
<PAGE>
Page 16
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments, whether or not
recognized in the statement of financial position, for which it is practicable
to estimate that value. In cases where quoted market prices are not available,
fair values are based upon estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions and
estimates used, including the discount rate and the estimated future cash flows.
In that regard, the resulting fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized by
immediate settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts do not represent the underlying
fair value of the Company.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate fair
value:
CASH AND CASH EQUIVALENTS: The carrying amount of cash on hand and money market
funds is considered to be a reasonable estimate of fair value.
MORTGAGE INVENTORY: The fair values of mortgage loans held for sale were
estimated by using the actual cost of the loan, as virtually all of the
inventory held at December 31, 1997 was sold as of the date of this report.
Consistent with the Company's policy on revenue recognition and mandatory
commitments to sell, gains or losses are reflected in revenue as presented
herein.
MORTGAGE RECEIVABLE: As disclosed in Note 4, the mortgage is collateralized and
carries an adjustable interest rate which varies with prime. Therefore, the
carrying amount is considered to be a reasonable estimate of fair value.
WAREHOUSE FINANCING FACILITIES: This facility has an original maturity of less
than 120 days and, therefore, the carrying value is a reasonable estimate of
fair value.
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.
<PAGE>
Page 17
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
RECENT PRONOUNCEMENTS
The Company has complied with all recent pronouncements which have effective
dates preceding the dates relating to these financial statements.
SFAS Statement No. 130, relating to reporting of comprehensive income, and SFAS
Statement No. 131, relating to the segments of an enterprise and related
information, are both effective for financial statements with years beginning
after December 15, 1997. Had SFAS Statement No. 130 been in effect for the year
ended December 31, 1997, the Company would have presented a "Statement of
Comprehensive Income" along with the statements presented herein. The statement
would reflect the unrealized gain on available-for-sale securities of $355,294,
as reflected in the stockholders' equity section of the statement of financial
position presented herein. SFAS Statement No. 131 would have no effect on the
statements presented herein.
EARNINGS PER SHARE
In accordance with SFAS No. 128, the Company computes basic earnings (loss) per
share on a daily weighted average basis, as described in Note 11. Non-diluting
earnings (loss) per share are unchanged from basic, as the consideration of any
and all options or convertible securities are dilutive.
NOTE 2 - ACQUISITIONS
Pursuant to an acquisition agreement dated August 1, 1997, the Company acquired
100% of the issued and outstanding capital stock of Green Shield. The
consideration for this acquisition was 144,906 shares of the Company's common
stock, the distribution of a Green Shield note valued at approximately $147,000
and cash of $350,000.
Pursuant to an acquisition agreement dated September 5, 1997, the Company
acquired 100% of the issued and outstanding capital stock of Citizens. The
consideration for this acquisition was cash of $376,237.
Pursuant to an acquisition agreement dated December 30, 1997, the Company
acquired 100% of the issued and outstanding capital stock of Potomac. The
consideration for this acquisition was $1,000,000 of the Company's common stock.
Pursuant to an acquisition agreement dated December 2, 1997, the Company and
Island acquired 100% of the issued and outstanding capital stock of ANMC. The
consideration for this acquisition was 461,538 shares of the Company's common
stock, plus short-term financing totaling $230,000 (Note 15).
<PAGE>
Page 18
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 2 - ACQUISITIONS (CONT'D)
Pursuant to several other acquisition agreements, the Company acquired 100% of
the issued and outstanding stock of Bay City Mortgage Corp. ("Bay City"), Senko
Financial Services Corp. ("Senko"), and Jefferson Financial Corporation
("Jefferson"). The consideration for these acquisitions was 110,344 shares,
16,667 shares, and 11,320 shares of the Company's common stock, respectively.
All of the acquisitions were liquidated into the Company, and the operating
assets and liabilities transferred to Island.
The Company has not completed its valuation of these purchases (due to certain
contingencies), and the purchase price allocations are subject to change when
further information becomes available. All acquisitions were accounted for using
the "purchase " method of accounting. The results of operations of the acquired
entities is included in the statement of income, from the date of acquisition,
to December 31, 1997.
The total purchase price of all the acquisitions is allocated as follows:
Cash and equivalents $ 1,441,081
Mortgage inventory 21,904,705
Accounts receivable 661,628
Prepaid expenses 147,896
Investments 1,664,459
Property and equipment 595,140
Goodwill 8,235,157
Other assets 183,833
Accounts payable and accrued expenses (2,793,066)
Warehouse line of credit (21,449,095)
Deferred income (67,949)
Notes payable (831,336)
Deferred income taxes payable (3,254,623)
Other liabilities (434,027)
--------------------------
Total allocation of purchase price $ 6,003,803
==========================
<PAGE>
Page 19
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 2 - ACQUISITIONS (CONT'D)
The pro forma unaudited results of operations for the years ended December 31,
1997 and 1996, assuming the acquisitions had occurred on January 1, 1996, are as
follows:
Year Ended Year Ended
12/31/97 12/31/96
------------------ --------------
Revenues $ 29,965,037 $ 18,037,250
Expenses (34,982,124) (19,895,884)
Acquisition Goodwill Amortization (823,515) (823,515)
------------------ --------------
Net Income (Loss) $ (5,840,602) $ (2,682,149)
================== ==============
NOTE 3 - INVESTMENTS
CLOSELY-HELD 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
(see Note 19 - "Subsequent Events").
The Company owns 100,000 shares of Wireless Mexicano, Inc. ("Wireless"), a
related party (Note 13). The investment was acquired in a stock for stock
exchange on December 30, 1996, between the Company's former parent, First
Equities Corp. and Wireless Mexicano, Inc. The Company valued this exchange
utilizing sales of Wireless securities on or about December 30, 1996, to arrive
at a market value of $500,000.
The Company owns common and preferred stock of Seasons Mortgage Group, Inc.
("Seasons"). By agreement, this amounts to a 31.25% ownership interest. The
Company acquired this stock as part of its acquisition of Potomac. The stock
ownership has been transferred to the Company. In conjunction with purchase
accounting rules, the stock has been valued at market value at acquisition date.
It will be accounted for utilizing the equity method of accounting thereafter.
<PAGE>
Page 20
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 3 - INVESTMENTS (CONT'D)
AVAILABLE-FOR-SALE SECURITIES
The Company owns 235,294 shares of Aristocrat Endeavor Fund, Ltd. The carrying
amount of this investment is its fair market value, which is based on the quoted
market price at December 31, 1997. The total unrealized holding gain for the
year ended December 31, 1997 was $355,294 and is reported as a separate
component of stockholders' equity.
NOTE 4 - MORTGAGE RECEIVABLE
In conjunction with the sale of The Best Mortgage Company of America, Inc., one
of Island's former subsidiaries, Island holds a mortgage of $2,300,000 on the
underlying vacant land.
The terms of the mortgage provide for equal monthly payments of $15,302, 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 is due with the sixtieth
monthly payment.
Aggregate maturities of the mortgage receivable at December 31, 1997 are as
follows:
Year ending: 12/31/98 $ 25,053
12/31/99 26,864
12/31/00 28,806
12/31/01 2,195,913
-------------------
$ 2,276,636
===================
NOTE 5 - PROPERTY AND EQUIPMENT
The major categories of property and equipment at December 31, 1997 are as
follows:
FURNITURE, FIXTURES AND EQUIPMENT $ 1,376,989
FURNITURE, FIXTURES AND EQUIPMENT UNDER CAPITAL LEASES 321,489
LEASEHOLD IMPROVEMENTS 292,776
----------------
TOTAL 1,991,254
LESS: ACCUMULATED DEPRECATION (676,174)
----------------
TOTAL PROPERTY AND EQUIPMENT $ 1,315,080
================
<PAGE>
Page 21
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 5 - PROPERTY AND EQUIPMENT (CONT'D)
Depreciation charged to operations, which includes amortization of capital lease
obligations, for the year ended December 31, 1997, was $142,988.
Equipment under Capital Leases of $321,489 secure the related financing (see
Note 16 - "Capital Lease Obligations").
NOTE 6 - INTANGIBLE ASSETS
The major categories of intangible assets at December 31, 1997 are as follows:
Acquisition Goodwill $ 8,235,160
Other Goodwill 150,000
Organization Costs 496,106
Franchise Fee 6,000
-----------
Total 8,887,266
Less: Accumulated Amortization (428,871)
-----------
Total Intangible Assets $ 8,458,395
===========
AMORTIZATION EXPENSE CHARGED TO OPERATIONS DURING 1997 WAS $296,153.
NOTE 7 - WAREHOUSE LINES OF CREDIT
The Company has the following warehouse and security agreements:
ISLAND MORTGAGE NETWORK, INC.
Island has six warehouse and security agreements under which lines of credit
have been established for funding mortgage loans. As of December 31, 1997, the
Company had total credit lines of $46,000,000 from the participating lenders.
The agreements call for interest to be calculated from a range of prime plus .5%
to LIBOR plus 4%. The related mortgages collateralize each advance. As of
December 31, 1997, the Company owed $28,549,995 under these agreements.
AMERICAN NATIONAL MORTGAGE CORP.
ANMC has three warehouse and security agreements under which lines of credit
have been established for funding mortgage loans. As of December 31, 1997, the
Company had total credit lines of $23,000,000 from the participating lenders.
The agreements call for interest to be calculated at prime plus 1%, and at the
commercial paper rate plus 2.6%. The related mortgages collateralize each
advance. As of December 31, 1997, the Company owed $10,735,874 under these
agreements.
<PAGE>
Page 22
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 7 - WAREHOUSE LINES OF CREDIT (CONT'D)
1ST POTOMAC MORTGAGE CORP.
Potomac has five warehouse and security agreements under which lines of credit
have been established for funding mortgage loans. As of December 31, 1997, the
Company had total credit lines of $14,700,000 from the participating lenders.
The agreements call for interest to be calculated from a range of prime plus 1%
to LIBOR plus 3.5%. The related mortgages collateralize each advance. As of
December 31, 1997, the Company owed $4,366,631 under these agreements.
NOTE 8 - 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
1997.
NOTE 9 - STOCK BASED COMPENSATION
As of the date of these financial statements, there were no stock options
outstanding issued to employees of the Company under the Company's Employee
Stock Option Plan.
Stock options issued for services (see Note 10 - "Options and Warrants" ) are
accounted for in accordance with SFAS No. 123. The Company values such stock
options using the Black Scholes option valuation model, and expenses the value
over the expected life of the option. The amount charged to the current period
was $50,891.
NOTE 10 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
On December 31, 1997, the Company entered into a subscription agreement under
which investors agreed to purchase 1100 shares of Series A Convertible Preferred
Stock, $.001 par value, for $1,000 per share. The total consideration paid was
$1,100,000.
The preferred shares are convertible beginning 100 days from issuance, and
ending on the mandatory conversion date, two years from issuance. The number of
common shares to be exchanged upon conversion is based upon a formula utilizing
the market price of the common stock on or about the conversion date, among
other things.
<PAGE>
Page 23
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 10 - STOCKHOLDERS' EQUITY (CONT'D)
PREFERRED STOCK (CONT'D)
The preferred stock will rank senior to all common stock, now or hereafter
issued, and also to any additional preferred stock, now or hereafter issued, as
to payment of dividends, distribution of assets upon liquidation, dissolution,
or winding up of the corporation, voluntary or involuntary, unless approved by
the preferred shareholders, or for a transaction wherein the company receives
proceeds of at least $3 million.
The preferred stock shall receive dividends of $60.00 per share per quarter, and
no more, which shall be fully cumulative, shall accrue without interest (except
those in arrears) from the date of issuance, and shall be payable quarterly in
cash or Company stock.
The preferred stock subscription agreement also provides for warrants which are
more fully described under "Options and Warrants" below.
There is no mandatory redemption required on the part of the investors or the
Company, and no sinking fund requirements.
PAID-IN CAPITAL AND COMMON STOCK
On May 13, 1997, the Company issued 20,221,700 shares in connection with the
acquisition of certain assets from IMN Equities, Inc. This transaction resulted
in an increase in the equity of the Company of $6,667,066, based on the book
value of the assets acquired (a reverse acquisition).
On May 13, 1997, the Company issued 200 shares in connection with the foregoing
transaction to certain unrelated individuals, as expenses related to the
transaction. The shares were valued at the book value as stated above, and then
offset as an expense, resulting in no change to the equity of the Company.
On May 13, 1997, the Company issued 1,100,000 options each to two consulting
companies (total options issued - 2,200,000) for services rendered to the
Company. The exercise price of $3.00 per share was equal to the market price of
the underlying stock on that day. The options were exercised simultaneously,
resulting in an increase in equity of $6,600,000.
On August 1, 1997, the Company issued 144,906 shares in connection with the
acquisition of Green Shield. The transaction resulted in an increase in the
equity of the Company of $961,162, based upon the market price of the stock on
the acquisition date.
On August 1, 1997, the Company issued options to purchase shares of the Company
stock to a consultant (see "Options and Warrants"). These options were valued in
accordance with SFAS 123 (see Note 9 - "Stock Based Compensation"), and a
portion was charged to expense and paid-in capital in the amount of $50,891.
This transaction had no effect on the equity of the Company.
<PAGE>
Page 24
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 10 - STOCKHOLDERS' EQUITY (CONT'D)
PAID IN CAPITAL AND COMMON STOCK (CONT'D)
On September 16, 1997, the Company issued 110,344 shares in connection with the
acquisition of Bay City. The transaction resulted in an increase in the equity
of the Company of $399,997, based upon the market price of the stock on the
acquisition date.
On September 18, 1997, the Company issued 16,667 shares in connection with the
acquisition of Senko. The transaction resulted in an increase in the equity of
the Company of $63,501, based upon the market price of the stock on the
acquisition date.
On December 2, 1997, the Company issued 461,538 shares in connection with the
acquisition of AMNC. The transaction resulted in an increase in the equity of
the Company of $1,384,120, based upon the market price of the stock on the
acquisition date.
On December 22, 1997, the Company issued 11,320 shares in connection with the
acquisition of Jefferson. The transaction resulted in an increase in the equity
of the Company of $36,790, based upon the market price of the stock on the
acquisition date.
On December 30, 1997, the Company issued 333,333 shares in connection with the
acquisition of Potomac. The transaction resulted in an increase in the equity of
the Company of $1,000,000, based upon the market price of the stock on the
acquisition date.
On December 31, 1997, the Company issued preferred stock as described above (see
"Preferred Stock" above). The transaction resulted in an increase in the equity
of the Company of $1,100,000.
In conjunction with the foregoing sales of shares, the Company paid consulting
fees and incurred expenses which were charged to paid-in capital, and resulted
in a decrease in the equity of the Company of $635,500.
On December 17, 1997, the Company issued 7,000,000 shares of treasury stock for
future use. The shares are held in the corporate name and are unencumbered.
OPTIONS AND WARRANTS
On May 13, 1997, the Company implemented and registered in form S-8, a
nonstatutory stock option plan. Under the terms of the plan, the Company can
issue up to 4,000,000 stock options, which, upon exercise, are unrestricted
shares. The plan calls for issuance of options until December 31, 1999. As
indicated above, the Company issued 2,200,000 of these options on May 13, 1997,
all of which were exercised.
<PAGE>
Page 25
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 10 - STOCKHOLDERS' EQUITY (CONT'D)
OPTIONS AND WARRANTS (CONT'D)
On August 1, 1997, the Company issued options to a consultant as indicated
above. The options grant the right to purchase 75,000 shares at $6.625 until
August 1, 1999. There are restrictions as to the number of shares which may be
purchased during specific time periods.
On December 31, 1997, in connection with the Preferred Stock subscription
agreement described above, the Company issued warrants to purchase 88,000 shares
of common stock, which expire December 31, 2000. The strike price is $3.60 per
share. There are certain restrictions regarding the exercise which relate to the
total stock ownership of the holder, among other things.
SUBSCRIPTIONS TO COMMON STOCK
On May 13, 1997, the Company issued 2,200,000 shares of common stock upon the
exercise of stock options described above in the Paid-In capital section. In
consideration for the stock, the shareholders executed promissory notes to the
Company. The notes are due on or before May 13, 2002. The notes bear interest at
5% per annum, and a financing fee of $330,000 was charged upon the issuance. As
of December 31, 1997, total payments against the notes were $458,400. Subsequent
to December 31, 1997, (see Note 19 - "Subsequent Events") and prior to the date
of this report, one of the consulting companies obtained approximately
$3,000,000 in financing of which it has allocated a minimum of $2,000,000 to be
paid against the subscription receivable. Therefore, $2,000,000 is presented
herein as an asset, while the balance of the subscription is presented as an
adjustment to stockholders' equity.
NOTE 11 - EARNINGS PER SHARE
Earnings per share has been computed on the basis of the total weighted average
number of shares outstanding.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------------- ----------------------
<S> <C> <C>
Number of shares outstanding - Start of Period 1,064,300 1,064,217
Increase in shares outstanding 30,699,807 83
--------------------- ----------------------
Number of shares outstanding - End of period 31,764,107 1,064,300
===================== ======================
Weighted Average Number of Shares
Outstanding 30,562,402 1,064,258
===================== ======================
</TABLE>
<PAGE>
Page 26
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 12- ACQUISITION RELATED EXPENSES
This item includes expenses incurred by certain acquired corporations. The
results of operations of these companies is included in the statement of income
of the Company, effective with the acquisition date. Certain mortgages in
process at the acquisition date were completed in the acquired company, which
gives rise to these expenses.
NOTE 13- RELATED PARTY TRANSACTIONS
During 1997, the Company was involved in the following related party
transactions:
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 and direct expenses (paid on their behalf) and management
fees, which totaled $2,952,813.
1) Network Title Agency Corporation - 75% owned by a minority
shareholder (less than 5%) of the Company, under common administration
2) C.S. Amsterdam Realty, Inc. - Owned by a minority shareholder (less
than 5%) of the Company, under common administration.
3) UCMC Consulting Corp. - Owned by a majority shareholder of the
parent and an employee of the Company, under common administration.
4) Wireless Mexicano, Inc. - Partially owned by a minority shareholder
(less than 5%) of the Company, under common administration.
5) Edward Capuano - Majority shareholder of the Company.
6) The Skulsky Trust - The trustee is an employee of the Company, and
the trust's beneficiary is a minority shareholder (less than 5%) of the
Company.
7) Seasons Mortgage Group, Inc. - Acquired by Company as part of
Potomac acquisition.
The Company and these related parties agreed to an assignment of their
intercompany balances to the Skulsky Trust. As of December 31, 1997, the Company
owed $4,920,813 to the Skulsky Trust. The debt is interest free with no set
repayment terms (see Note 19 - "Subsequent Events"). As of December 31, 1997,
Potomac owed Seasons $68,888 (see Notes 3 and 15).
<PAGE>
Page 27
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 14 - 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 1998, as
described in Note 19, "Subsequent Events"), are as follows:
Year ending: 12/31/98 $ 1,070,457
12/31/99 778,923
12/31/00 462,527
12/31/01 289,593
12/31/02 114,185
Thereafter 14,433
----------------
Total $ 2,730,118
================
NOTE 15 - NOTES PAYABLE
IMNF AND ISLAND
In conjunction with the acquisition of ANMC on December 2, 1997 (Note 2), the
Company is indebted to the former shareholder of ANMC in the amount of $230,000.
The terms of the note provide for a downpayment of $130,000 in January 1998, and
monthly principal payments of $15,000 for six months, with a final payment of
$10,000 the following month. The note is non-interest bearing. As of December
31, 1997, the outstanding balance was $230,000.
In conjunction with the assignment of the operating assets and liabilities of
Bay City from the parent, the Company is indebted to various parties for
$83,321. The entire balance is due within twelve months.
GREEN SHIELD MORTGAGE CORP.
Green Shield is indebted to a bank in the amount of $169,111. The obligation is
an installment note, with a due date of December 10, 2001. It is payable in
monthly installments of $4,109, which includes interest at 7.75%. It is secured
by property owned by the former Green Shield shareholder and, per the
acquisition agreement, is to be replaced by Company collateral.
1ST POTOMAC MORTGAGE CORP.
Potomac is indebted to a bank in the amount of $199,190. The obligation is a
line of credit, and is due in the next twelve months. It bears interest at the
rate of prime plus 2%, and is secured by substantially all of the assets of
Potomac.
<PAGE>
Page 28
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 15 - NOTES PAYABLE (CONT'D)
1ST POTOMAC MORTGAGE CORP.(CONT'D)
Potomac is indebted to a bank in the amount of $184,811. The obligation is an
installment note, with a due date of September 20, 2000. It is payable in
monthly installments of $2,079, which includes interest at 9.25%. It is also
secured by substantially all of the assets of Potomac.
Potomac is indebted to a former shareholder in connection with a stock
redemption in the amount of $134,748. The note is payable in monthly
installments of $5,000, including imputed interest at 5.75%, plus certain lump
sum payments. The note is due December 30, 1998. The related stock is being held
in escrow as collateral.
Potomac is indebted to various other parties in the amount of $132,137. The
debts are due at various times, ending in the year 2000. They carry interest
rates which range from 9.5% to 10.99%. These loans are unsecured.
Principal payments are due in accordance with the following schedule, for the
years ending December 31:
1998 $ 818,295
1999 85,068
2000 182,659
2001 47,295
---------------------------
Total $ 1,133,317
===========================
NOTE 16- CAPITAL LEASE OBLIGATIONS
The Company leases equipment with lease terms expiring through August 2002.
Obligations under capital leases are reflected in the accompanying financial
statements at the present value of future minimum lease payments, discounted at
interest rates ranging from 8.4% to 18%.
<PAGE>
Page 29
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 16- CAPITAL LEASE OBLIGATIONS (CONT'D)
The future minimum lease obligations under capital leases, and the net present
value of the future minimum lease payments, are due as follows, for the years
ending December 31,
1998 $ 80,167
1999 66,980
2000 48,173
2001 44,483
2002 14,284
--------------
Total minimum lease payments 254,087
Less: Amounts representing interest 42,425
--------------
Present value of net minimum
lease payments $ 211,662
==============
NOTE 17- COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with certain senior members of
management. Some agreements renew automatically on an annual basis, and others
continue until December 2000. Some include provisions for bonuses based on
volume at particular locations.
The following schedule presents the minimum amounts due for the next five years
under these contracts, assuming the contract continues to renew:
Years ending December 31,
1998 $452,000
1999 $452,000
2000 $452,000
2001 $100,000
2002 $100,000
<PAGE>
Page 30
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 17- COMMITMENTS AND CONTINGENCIES (CONT'D)
MORTGAGES
In the normal course of business, the Company enters into commitments to extend
mortgages to borrowers whose loans have not closed at year end. On December 31,
1997, those commitments totaled $83,425,596.
Also in the normal course of business, the Company enters into commitments to
sell mortgages to investors. These commitments include loans closed before year
end, which are currently in inventory, as well as loans closed after year end.
On December 31, 1997, those commitments amounted to $94,207,977.
LITIGATION (IMN FINANCIAL CORP.)
In connection with one of the Company's acquisitions, the seller brought an
action for breach of contract, seeking specific performance with regard to
replacement of collateral of approximately $180,000. The Company has several
counterclaims, and corporate counsel has indicated that no determination
regarding the outcome of the actions can be made at this time.
LITIGATION (ISLAND MORTGAGE NETWORK, INC.)
Island Mortgage Network, Inc. has been sued by a marketing consultant in a
breach of contract action arising out of Island's cancellation of a marketing
contract. The plaintiff seeks $160,000 in damages. Management is vigorously
contesting the action. Corporate counsel has indicated that no determination
regarding the outcome of this case can be made at this time.
Island Mortgage Network, Inc. was also a party to litigation arising from
disputes relating to the acquisition of the Company by its major shareholder,
and certain related employment contracts. This action has been settled (see Note
19 - "Subsequent Events").
LITIGATION (AMERICAN NATIONAL MORTGAGE CORPORATION)
An associate of ANMC has brought an action for breach of contract, seeking
$47,000 in unpaid commissions. The Company claims to have a signed general
release from the plaintiff, and intends to vigorously contest the action.
Corporate counsel has indicated that no determination regarding the outcome of
this action can be made at this time.
<PAGE>
Page 31
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 17- COMMITMENTS AND CONTINGENCIES (CONT'D)
ENCUMBRANCES
Potomac, acquired on December 29, 1997 (Note 2), owes $774,490 in back payroll
taxes to the IRS. The IRS filed a federal tax lien against Potomac on February
2, 1998. Total assets of the Potomac, included herein, potentially exposed to a
claim relating to this matter, are $5,523,214, including $4,366,631 of mortgage
inventory pledged against the Company's warehouse line advances. In 1998, the
Company entered into an agreement with the IRS to make payments of $15,000 per
month, until the obligation is satisfied.
CONTINGENCIES - OFF BALANCE SHEET RISK
Service is a general partner in a real estate development company, Thunder
Development LTD, Co. The partnership has obligations, under mortgages and
promissory notes, to various parties, which total $1,428,777. The total assets
of the Service, included herein, potentially exposed to a claim relating to
these items, are $1,032,284.
A certificate of deposit of Potomac, totaling $500,000, is pledged as collateral
for a personal obligation of the former shareholders of Potomac.
OTHER COMMITMENTS
In connection with the acquisitions described above, and the related employment
agreements, the Company has agreed to issue additional shares of stock, should
certain volume levels be achieved. The agreements state specific numbers of
shares (110,000) in some instances , dollar amounts ($1,525,000) to be divided
by market value in other instances, and formulas for both dollar amounts and
number of shares in still other instances.
OTHER CONTINGENCIES
Potomac redeemed the stock of a former shareholder (see Note 15). Under the
terms of the agreement, the underlying stock is to be held in escrow, as
collateral for payment on the related note payable. The balance of that note,
included herein, is $134,748. Should the Potomac default on the note, the stock
could revert back to the former shareholder.
NOTE 18 - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at several financial institutions. The
Federal Deposit Insurance Corporation insures balances at each institution up to
$100,000. Uninsured balances aggregated $1,819,941 at December 31, 1997.
<PAGE>
Page 32
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997
NOTE 19 - SUBSEQUENT EVENTS
On March 1, 1998, the Company entered into a lease agreement for an office
facility in Fort Washington, Pennsylvania. The obligation under this lease is
included in the obligations set forth in Note 14.
On March 13, 1998, a settlement agreement was executed between Donald Henig and
the Company's major shareholder, among others, including Island Mortgage
Network, Inc. Under the agreement, Donald Henig received $100,000 and the
transfer of ownership of common stock (a 5% interest) in Mortgage Tech Group,
Ltd. The cash and stock were corporate assets of Island Mortgage Network, Inc.
The major shareholder has agreed that the Company thereby satisfied his
(personal) obligation under the settlement agreement, and that he is indebted to
the Company in the amount of $260,293 ($100,000 cash and stock valued at
$160,293).
On February 20, 1998, the Company entered into a Securities Purchase Agreement.
Under the terms of the agreement, the buyer would receive 8% Convertible
Preferred Stock and warrants to purchase additional shares. The proceeds to the
Company were $1,500,000. The agreement provided for the issuance of preferred
shares and warrants. The shares are convertible at 75% of the average closing
bid prices of the Company's common stock as quoted by Bloomberg, LP for the
five-day trading period (the "Average Price") ending on the day prior to the
date of the conversion (the "Conversion Price"). The Conversion Price may not be
greater than 120% of the Average Price on the closing date (the "Maximum
Price"). The warrants expire on February 20, 2001 and are exercisable at 120% of
the market price on the date of exercise.
In March 1998, one of the consulting companies owing the stock subscription
receivable to the Company obtained approximately $3,000,000 in financing. The
consulting company has allocated $2,000,000 of those funds to be paid against
the subscription receivable. The Company intends to reduce its debt to the
Skulsky Trust by the same $2,000,000.
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company's Accountants on
accounting or financial disclosures.
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Directors, Executive Officers and Key Employees
The Directors, Executive Officers and Key Employees of the Company are as
follows:
NAME AGE POSITION
---- --- --------
7
<PAGE>
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 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.
8
<PAGE>
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.
SECTION 16(A) REPORTING
Under the securities laws of the United States, the Company's
directors, its executive (and certain other) officers, and any persons holding
ten percent or more of the Company's Common Stock must report on their ownership
of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission and to the National Association of Securities
Dealers, Inc.'s Automated Quotation System. Specific due dates for these reports
have been established. During the year ended December 31, 1997, the Company does
not believe any reports required to be filed by Section 16(a) were filed on a
timely basis, if at all.
ITEM 10. 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 $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long
Compensa- Term
tion Compensa
9
<PAGE>
-tion
Securities
Other Restrict- Underly-
annual ed stock ing LTIP
Name and Bonus compen- award(s) Options/ Payouts
principal position Year Salary ($) ($) sation ($) SARs (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Edward Capuano 1997 $170,170 0 0 0 0 0
CEO 1996 $ 0 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.
LIMITATION ON LIABILITY OF DIRECTOR
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.
10
<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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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%
<FN>
- - -----------
* less than one percent
(1) Unless otherwise indicated each person's address is 520 Broadhollow Road,
Mellville, New York 11747.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
11
<PAGE>
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.
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,
12
<PAGE>
1997, DHI owed $1,561,993 to the Skulsky Trust.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(A) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B).
EXHIBIT
NO. DESCRIPTION
--- -----------
*27 Financial Data Schedule
- - -----------------
* Filed herewith
(b) Reports on Form 8-K. The Registrant filed two reports on Form 8-K for
reportable events dated October 1, 1997, which reported contained
information relating to Item 4, Item 7 and Item 8, and on December
10, 1997 which report contained information relating to Item 2 and
Item 7.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
IMN Financial Corp
By: /s/ Edward Capuano
Edward Capuano, Chief Executive
Officer and Chairman of the Board
In accordance with the Exchange Act, this report has been signed
below by the following persons and in the capacities and on the dates indicated.
/s/Edward R. Capuano Chief Executive Officer, March 31, 1998
Edward R. Capuano President and Director
/s/ Cindy L. Eisle Chief Financial Officer March 31, 1998
Cindy L. Eisle
/s/ Patrick A. Reilly Secretary March 31, 1998
Patrick A. Reilly
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JAN-01-1997
<PERIOD-START> DEC-31-1997
<CASH> 2,027,738
<SECURITIES> 0
<RECEIVABLES> 4,496,389
<ALLOWANCES> 0
<INVENTORY> 44,152,619
<CURRENT-ASSETS> 60,364,506
<PP&E> 1,315,080
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,682,309
<CURRENT-LIABILITIES> 59,760,345
<BONDS> 0
<COMMON> 0
0
31,764
<OTHER-SE> 12,890,200
<TOTAL-LIABILITY-AND-EQUITY> 72,682,309
<SALES> 0
<TOTAL-REVENUES> 12,787,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,713,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,044,281
<INCOME-PRETAX> (969,996)
<INCOME-TAX> 27,999
<INCOME-CONTINUING> (997,995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (997,995)
<EPS-PRIMARY> (0.099)
<EPS-DILUTED> (0.099)
</TABLE>
