<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
Registration Statement No.333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMN FINANCIAL CORP
(Name of small business issuer as specified in its charter)
Delaware
(State of Incorporation)
11-2558192
(IRS Employer I.D. No.)
6162
(Primary Standard Industrial
Classification Code No.)
520 Broadhollow Road
Melville, New York 11746
(516) 844-9805
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Edward R. Capuano, President
IMN Financial Corp
520 Broadhollow Road
Melville, New York 11746
(516) 844-9805
(Name, address and telephone number of agent for service)
--------------
Copies to:
Jay M. Kaplowitz, Esq.
GERSTEN, SAVAGE, KAPLOWITZ &
FREDERICKS, LLP
101 East 52nd Street
New York, New York 10022
(212) 752-9700
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Title of Each Class Proposed
of Securities Being Maximum Proposed Maximum
Registered Amount Being Offering Price Aggregate Amount of
Registered Per Security(1) Offering Price(2) Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,567,651 $4.031 $6,319,201.10 $1,914.91
par value $.001 per
share
- ------------------------------------------------------------------------------------------------------
Common Stock 450,000 $4.031 $1,813,950 $ 549.69
issuable upon
exercise of warrants
- ------------------------------------------------------------------------------------------------------
Total Registration Fee $2,464.60
- ------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee, based upon the last reported sales price of the
Registrant's common stock of the same class as quoted on the OTC Electronic
Bulletin Board on April 9, 1998.
(2) Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered such indeterminate number of additional shares of Common Stock
as may be issuable upon conversion of the Convertible Preferred Stock
described herein and pursuant to the provisions of the Convertible
Preferred Stock regarding determination of the applicable conversion price
and dividend rate.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION
DATED APRIL , 1998
PROSPECTUS
2,017,651 Shares of Common Stock
IMN FINANCIAL CORP
All of the shares of Common Stock (the "Security Holders Shares"), par
value $.001 per share, of IMN Financial Corp, a Delaware corporation (the
"Company") offered hereby are being offered by the selling security holders
named herein under the caption "Selling Security Holders" (the "Selling Security
Holders"). Such shares may be sold by the Selling Security Holders who will
acquire such shares from the Company upon conversion of 3,150 shares of Series B
Convertible Preferred Stock (the "Convertible Preferred Stock") of the Company,
issued in connection with private placements completed by the Company in
February and March 1998 (the "Private Placements") and upon the exercise of
300,000 warrants to purchase common stock (the "Warrants"). In addition, this
Prospectus relates to the shares of Common Stock issuable upon conversion of an
additional 1,575 shares of Series B Preferred Stock and those issuable upon the
exercise of 150,000 warrants to purchase Common Stock to be issued to two
Selling Security Holders in a transaction which must close prior to six months
from the effective date of this Registration Statement, subject to certain
conditions. The shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock, upon exercise of the Warrants and as dividends on
the Convertible Preferred Stock are referred to as the "Shares." The number of
shares of common stock issuable upon conversion of the Convertible Preferred
Stock is subject to adjustment and could be more or less than the estimated
amount depending upon factors which cannot be predicted at this time, including,
among others, the future market price of the common stock. If, however, the
average closing bid price of the Common Stock for the five trading days
preceding April 7, 1998 were used to determine the number of shares issuable as
of the first date on which the Convertible Preferred Stock may be converted the
Company would be obligated to issue a total of 2,017,651 shares of common stock
if all shares of Convertible Preferred Stock were converted and all Warrants
exercised on such date. The Company will not receive any of the proceeds from
sales of the Selling Security Holders shares, although the Company would receive
approximately $2,178,000 upon exercise of all of the Warrants. See "Selling
Security Holders" and "Plan of Distribution." The Company has agreed with the
Selling Security Holders to register the Selling Security Holders' shares
offered hereby. The Company has also agreed to pay certain fees and expenses
incident to such registration.
The Company's common stock is traded on the OTC Electronic Bulletin
Board ("Bulletin Board"). On April 9, 1998, the last reported sales price of
the common stock was $4.031.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
------------------
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a registration statement on Form SB-2 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act, for the registration of the securities
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the Registration Statement. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
may be inspected without charge at the principal office of the Commission, 450
Fifth Street, NW, Washington, D.C., 20549, and copies of the material contained
therein may be obtained from the Commission upon payment of applicable copying
charges. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements, and other information with the Commission. Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC,
20549, and at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7
World Trade Center, New York, New York, 10048. Copies of such materials can also
be obtained by written request to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed
rates, or via the Internet Web site (http://www.sec.gov) maintained by the
Commission.
(2)
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by, and must be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" refers to IMN
Financial Corp and its wholly-owned subsidiaries Island Mortgage Network Inc.,
formerly Donald Henig Inc., a New York corporation, First Equities Commercial
Corp., a New York corporation, First Equities Service Corp., a New York
corporation, Greenshield Mortgage Corporation, a New Jersey corporation,
Citizens Mortgage Service Company, a Pennsylvania corporation, Senko Financial
Services, Inc., a Maryland corporation, American National Mortgage Corp., a New
Jersey corporation, First Potomac Mortgage Corp., a Virginia corporation, and
First Equities Marketing Group, Inc., a Delaware corporation, unless otherwise
indicated.
The Company
IMN Financial Corp., a Delaware corporation, (the "Company") is a
holding company which through its subsidiaries provides financial services such
as mortgage brokerage and mortgage banking services. The Company's main
subsidiary, Island Mortgage Network, Inc. ("Island Mortgage") formerly Donald
Henig Inc., is engaged in the business of originating and selling mortgage loans
secured primarily by one- to four-family residences. Island Mortgage originates
loans through its 42 branch offices located in 17 states throughout the United
States and the District of Columbia. The majority of Island Mortgage's loans are
made for the purchase of new homes or the refinancing of existing homes. Island
Mortgage targets its lending to middle market individuals, although it has
mortgage programs which cover the entire spectrum of mortgage lending. Island
Mortgage focuses its lending in the FHA Government guaranteed loan market.
Approximately 50% of Island Mortgage's loans are FHA and VA loans. A division of
Island Mortgage focuses on lending to individuals who have impaired or
unsubstantiated credit histories and/or unverifiable income and to individuals
with higher loan to value ratios. As a result, Island Mortgage's customers
generally are not averse to paying the higher interest rates charged for these
type of loan programs as compared to the interest rates charged by conventional
loans. This type of loan is generated through the use of direct mail and
telemarketing efforts.
(3)
<PAGE>
The Company strives to process each loan application received from
potential borrowers as quickly as possible in accordance with the Company's loan
application approval procedures. Accordingly, most loan applications receive
preliminary decisions within 24 hours of receipt and most accepted applications
are funded within 30-45 days thereafter. As the Company has expanded the
channels through which it originates loans, it has also broadened the types of
loans it offers. The Company offers a wide range of loan products, including
traditional residential mortgage loans for refinancing, educational, home
improvement and debt consolidation purposes, mortgage loans on small
multi-family and mixed-use properties, sub-prime loans, adjustable rate mortgage
loans and jumbo and super jumbo loans. The Company originates Title I home
improvement loans partially insured by the US Department of Housing and Urban
Development.
Island Mortgage sells its loans primarily in the secondary market on a
whole loan basis in order to maximize profitability, reduce its exposure to
fluctuations in interest rates and to achieve greater liquidity. Through 1997,
the Company sold virtually all of its loan production on a whole loan sale basis
in private placements to a variety of institutional purchasers. The Company
funds its originations through warehouse lines of credit and a standby facility.
The Company intends to continue to sell loans primarily through whole loan
sales.
The Company sells all paper loans which it originates on a flow basis
and all sub-prime loans on a bulk basis, each on a service-released basis, which
maximizes revenues because the Company receives the service-release premium at
the time the loan is sold. Since the Company sells all loans which it originates
on a service released basis, the Company does not maintain a loan portfolio or a
servicing loan portfolio, and has not experienced any material loan losses to
date.
The Company's business strategy includes (i) geographic expansion
throughout the US, (ii) growth through selected acquisitions, (iii) internal
growth and (vii) introduction and expansion of new products.
History
NGT Enterprises, Inc. was formed under the laws of the state of
Delaware on November 14, 1980 as Nuclear & Genetics Technology, Inc. On April
24, 1981, NGT Enterprises, Inc. changed its name to Nuclear & Genetic
Technology, Inc. On December 6, 1989 the name was changed back to NGT
Enterprises, Inc. On May 5, 1997, NGT Enterprises, Inc. amended its certificate
of incorporation to change its name to IMN Financial Corp. The predecessor
company was considered to be a development stage company until May 5, 1997 when
it acquired all of the assets of Island Mortgage Network, Inc., formerly Donald
Henig, Inc. and additional assets. On May 5, 1997, the predecessor company
acquired all of the capital stock of Island Mortgage Network, Inc., First
Equities Commercial Corp. and First Equities Service Corp., and holdings in the
Aristocrat Endeavor
(4)
<PAGE>
Fund from IMN Equities Inc. for 20,221,700 shares of its common stock at a value
of $.21 per share. Donald Henig Inc. was incorporated under the laws of the
state of New York on December 1, 1992.
The Company's principal executive offices are located at 520
Broadhollow Road, Suite 200, Melville, New York 11747 (516) 844-9805.
(5)
<PAGE>
THE OFFERING
Common Stock Offered............... 2,017,651 shares of Common Stock, which
are being offered for sale by the
Selling Security Holders, which may be
issued upon conversion of the
Convertible Preferred Stock and upon
exercise of the Warrants. The number of
shares of Common Stock issuable upon the
conversion of the Convertible Preferred
Stock and upon exercise of the Warrants,
are subject to adjustment in the event
of a merger, stock split, stock dividend
and similar transactions. See
"MANAGEMENT" - "DESCRIPTION OF CAPITAL
STOCK" and "SELLING SECURITY HOLDERS."
The Company will not receive any
proceeds from the sale of the Common
Stock by the Selling Security Holders,
but will receive the proceeds of the
exercise of any Warrants exercised by
the Selling Security Holders.
Common Stock Outstanding(1)........ 25,188,686
Common Stock Symbols............... OTC Electronic Bulletin Board: IMNF
Use of Proceeds.................... The Company will not receive any
proceeds from the sale of the Common
Stock by the Selling Security Holders
but will receive the proceeds of the
exercise of any Warrants exercised by
the Selling Security Holders which will
be applied to working capital, if any.
See "USE OF PROCEEDS."
Risk Factors....................... An investment in the Company's Common
Stock involves a high degree of risk and
should be made only after a careful
consideration of the significant risk
factors that may affect the Company.
Such risks include special risks
concerning the Company and its
(6)
<PAGE>
business. See "RISK FACTORS."
(1) Does not include (i) 2,017,651 shares issuable upon conversion of the
outstanding preferred stock, preferred stock to be issued, exercise of the
Warrants and exercise of the warrants to be issued, based on the average
closing bid price of the Common Stock for the five trading days preceding
April 7, 1998, (ii) 75,000 shares issuable upon exercise of options granted
in connection with services rendered to the Company (iii) shares issuable
upon conversion of the Series A Convertible Preferred Stock, and (iv)
88,000 warrants to purchase shares of Common Stock, each exercisable at
$3.60 per warrant. See "Management - Stock Option Plans" and "Description
of Securities."
(7)
<PAGE>
Summary Financial Data
(In thousands, except per share data)
The summary financial information set forth below is qualified by and
should be read in conjunction with the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended
December 31
1997 1996(1)
---- -------
<S> <C> <C>
Statement of Income
Total Operating Income $ 12,787,797 $ -0-
Total Operating Expense 13,757,793 18,400
------------- -------------
Gross Profit (969,996) -0-
General and Administrative
Expenses 11,451,884 -0-
------------- -------------
Income (Loss) from Operations (969,996) (18,400)
Total Other Income -0- -0-
Income Before Provision
for Income Taxes (969,996) (18,400)
Income Taxes 27,999 -0-
Net Income (997,995) (18,400)
============= =============
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996 (1)
<S> <C> <C>
Balance Sheet Data
Cash.................................... $ 2,027,738 $ -0-
Total assets............................ 72,682,309 -0-
Total liabilities....................... 59,760,345 1,500
Stockholders Equity..................... 12,921,964 (1,500)
</TABLE>
- ---------------------
(1) The Summary Financial Data for December 31, 1996 represents the Financial
condition of NGT Enterprises, Inc. which had no operations. See "Prospectus
Summary--History" and "Pro-forma Statement of Income."
(8)
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors,
in addition to the other information contained in this Prospectus, in connection
with investments in the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus. An investment
in the securities offered hereby involves a high degree of risk.
AVAILABILITY OF FUNDING SOURCES
The Company funds substantially all of the loans which it originates
through borrowings under warehouse facility lines of credit. These borrowings
are in turn repaid with the proceeds received by the Company from selling such
loans through whole loan sales. Any failure to renew or obtain adequate funding
under these credit or warehouse facilities, or other borrowings, or any
substantial reduction in the size of or pricing in the markets for the Company's
loans, could have a material adverse effect on the Company's operations. To the
extent that the Company is not successful in maintaining or replacing existing
financing, it would have to curtail its loan production activities, which would
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The type, timing and terms of financing selected by the Company will be
dependent upon the Company's cash needs, the availability of financing sources
and the prevailing conditions in the financial markets. There can be no
assurance that any sources will be available to the Company at any given time or
as to the favorability of the terms on which such sources may be available.
ECONOMIC CONDITIONS
General
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home
(9)
<PAGE>
equity to support borrowings. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions.
The Company is exposed to the risk of loan delinquencies and defaults
upon the closing of the loan. After a loan has been originated by the Company,
the loan is held as part of a portfolio of loans subject to sale on a whole loan
basis. During the period a loan is so held, the Company is at risk for loan
delinquencies and defaults. Following the sale of the loan on a whole loan
basis, the Company's direct risk with respect to loan delinquency or default on
such loan is limited to those circumstances in which it is required to
repurchase such loan due to a breach of a representation or warranty in
connection with the sale. See "-- Contingent Risks" and "Business."
Interest Rates
Profitability may be directly affected by the level of and fluctuations
in interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of borrowings. The profitability of
the Company is likely to be adversely affected during any period of unexpected
or rapid changes in interest rates. A substantial and sustained increase in
interest rates could adversely affect the ability of the Company to originate
loans and could reduce the gain on sale recognized by the Company when loans are
sold. Fluctuating interest rates also may affect the interest paid by the
Company for funds borrowed under the Company's warehouse facilities. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the profitability of the Company because the loans pooled and sold by
the Company generally have long-term rates.
RECENT EXPANSION AND PRODUCT EXTENSION
The Company's significant growth and expansion have placed substantial
new and increased pressures on the Company's personnel and systems. In order to
support the growth of its business, the Company has added a significant number
of new operating procedures, facilities and personnel. Although the Company
believes the addition of new operating procedures and personnel will be
sufficient to enable it to meet its growing operating needs, there can be no
assurance that this will be the case. Failure by the Company to manage its
growth effectively, or to sustain its historical levels of performance in credit
analysis and transaction structuring with respect to the increased loan
origination could have a material adverse effect on the Company's results of
operations and financial condition.
DEPENDENCE ON FUNDING SOURCE
(10)
<PAGE>
The Company funds substantially all of its loan origination and working
capital requirements through loan sales pursuant to mortgage loan purchase
agreements that include its working capital facility. The Company will then
resell these loans through whole loan sales. To the extent that the Company is
not successful in maintaining or replacing existing financing, it would have to
curtail its loan production activities or sell loans earlier than is optimal,
thereby adversely affecting the Company's results of operations and financial
condition.. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CONTINGENT RISKS
Although the Company sells all loans which it originates on a
nonrecourse basis, the Company retains some degree of credit risk on
substantially all loans sold. During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers.
In the ordinary course of its business, the Company is subject to
claims made against it by borrowers and private investors arising from, among
other things, losses that are claimed to have been incurred as a result of
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions of employees, officers and agents of the Company (including its
appraisers), incomplete documentation and failures by the Company to comply with
various laws and regulations applicable to its business. The Company believes
that liability with respect to any currently asserted claims or legal actions is
not likely to be material to the Company's consolidated results of operations or
financial condition; however, any claims asserted in the future may result in
legal expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
GEOGRAPHIC CONCENTRATION OF OPERATIONS
The vast majority of the Company's loan origination and purchase volume
for the nine months ended September 30, 1997 was derived from the state of New
York. Although the Company is licensed or registered in 17 states and may
continue to expand into other markets, it is expected that the State of New York
will continue to provide a substantial portion of its loan origination activity.
Consequently, the Company's results of operations and financial condition are
largely
(11)
<PAGE>
dependent upon general trends in the New York economy and its residential real
estate market.
COMPETITION
As a marketer of mortgage loans, the Company faces intense competition,
primarily from mortgage banking companies, commercial banks, credit unions,
thrift institutions, credit card issuers and finance companies. Many of these
competitors in the financial services business are substantially larger and have
more capital and other resources than the Company. Furthermore, certain large
national finance companies and conforming mortgage originators in the US have
announced their intention to adapt their conforming origination programs and
allocate resources to the origination of non-conforming loans. In addition,
certain of these larger mortgage companies and commercial banks have begun to
offer products similar to those offered by the Company, targeting customers
similar to those of the Company. The entrance of these competitors into the
Company's market could have a material adverse effect on the Company's financial
condition and results of operations.
Competition can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels and interest rates.
Competition may be affected by fluctuations in interest rates and general
economic conditions. During periods of rising rates, competitors that have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit the Company's customers to refinance
their loans. During economic slowdowns or recessions, the Company's borrowers
may have new financial difficulties and may be receptive to offers by the
Company's competitors.
The Company depends largely on its own loan officers and uses its
financial contacts, such as lawyers and accountants, for its originations of new
loans. The Company's competitors also seek to establish relationships with the
Company's contacts and sources of loan origination.
LEGISLATIVE AND REGULATORY RISKS
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because a portion of the Company's loans are made to
borrowers for the purpose of consolidating consumer debt or financing other
consumer needs, the competitive advantages of tax deductible interest, when
compared with alternative sources of financing, could be eliminated or seriously
impaired by such government action. Accordingly, the reduction or elimination of
these tax benefits could have a material adverse
(12)
<PAGE>
effect on the demand for loans of the kind offered by the Company.
The Company's business is subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and is
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. The Company's
consumer lending activities are subject to the Federal Truth-in-Lending Act and
Regulation Z (including the Home Ownership and Equity Protection Act of 1994),
the Federal Equal Credit Opportunity Act and Regulation B, as amended ("ECOA"),
the Fair Credit Reporting Act of 1970, as amended, the Federal Real Estate
Settlement Procedures Act ("RESPA") and Regulation X, the Home Mortgage
Disclosure Act, the Federal Debt Collection Practices Act and the National
Housing Act of 1934, as well as other federal and state statutes and regulations
affecting the Company's activities. The Company is also subject to the rules and
regulations of, and examinations by, the Department of Housing and Urban
Development ("HUD") and state regulatory authorities with respect to
originating, processing, underwriting and selling loans. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, demands for
indemnifications or mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive. See "Business -- Regulation."
POSSIBLE ENVIRONMENTAL LIABILITIES
Although the Company has no current plans to, in the course of its
business, the Company may acquire in the future, properties securing loans which
are in default. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up hazardous or toxic substances
or chemical releases at such property, and may be held liable to a governmental
entity or to third parties for
(13)
<PAGE>
property damage, personal injury and investigation and cleanup costs incurred by
such parties in connection with the contamination. Such laws typically impose
cleanup responsibility and liability which, under such laws, has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate such property, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not the facility is owned or operated by such person. In addition,
the owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently managed by a small number of key management
and operating personnel, whose efforts will largely determine the Company's
success. The loss of key management, particularly Edward Capuano, President and
a director of the Company, could delay or prevent the efforts of the Company to
achieve its goals and have a material adverse effect on the Company. The Company
does not currently have an employment agreements with Mr. Capuano. See
"Management."
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS.
The Company's principal shareholders, directors and officers
beneficially own approximately 69.7% of the Company's voting stock. See
"Principal Stockholders." As such, the Company's principal stockholders,
officers and directors are able to exercise control over the outcome of all
matters submitted to the shareholders for approval, including the election of
directors of the Company, and as a result will be able to control the Company's
affairs and management. The Company's articles of incorporation do not provide
shareholders with cumulative voting rights.
OUTSTANDING OPTIONS AND OTHER CONVERTIBLE SECURITIES; REGISTRATION RIGHTS
As of the date of this Prospectus, the Company has outstanding the
following options and other convertible securities: (i) 1,100 shares of Series A
Preferred Stock, convertible by its terms into
(14)
<PAGE>
shares of the Company's Common Stock which is convertible into Common Stock at
78% of the market price for the Common Stock at the time of conversion, and
3,150 shares of Series B Preferred Stock which is convertible into Common Stock
at the lesser of (a) 75% of the closing bid price for the Common Stock for the
five trading days preceding the date of conversion or (b) $4.85, (ii) 75,000
shares of common stock issuable upon the exercise of stock options granted in
connection with certain consulting services, (iii) 88,000 warrants to purchase
Common Stock and (iv) 300,000 warrants to purchase Common Stock (the
"Warrants"). See "Description of Securities." There is no provision granting
the Company the right to redeem any of the above-mentioned convertible
securities. To the extent that such securities are exercised, dilution to the
interest of the Company's shareholders will occur. Moreover, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Convertible Preferred Stock, options
and the Warrants can be expected to exercise them, to the extent they are able
to, at a time when the Company would, in all likelihood, be able to obtain any
needed capital on terms more favorable to the Company than those provided in the
options or preferred stock. In addition, certain of the above mentioned
securities are subject to certain demand and/or piggyback registration rights.
The shares of Common Stock issuable upon conversion of the Series B Preferred
Stock and upon the exercise of the Warrants is being registered herein. Such
registration rights could result in substantial expense to the Company and
adversely affect any future equity or debt financing. The sale of Common Stock
or other securities held by or issuable to the holders of registration rights or
merely the potential of such sales, could have an adverse effect on the market
price of the Company's securities.
NO DIVIDEND
The Company has not paid any cash dividends on its shares of common
stock and it does not anticipate paying such dividends in the foreseeable
future. The payment of dividends by the Company is within the discretion of its
Board of Directors and depends upon the Company's earnings, capital
requirements, financial condition and requirements, future prospects,
restrictions in future financing agreements, business conditions and other
factors deemed relevant by the Board. The Company intends to retain earnings, if
any, to finance its operations. See "Dividend Policy."
POSSIBLE VOLATILITY OF STOCK PRICE; STOCK MARKET VOLATILITY
There have been periods of extreme volatility in the stock market
that, in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of affected securities. General market
price declines or volatility in the future could adversely affect the price
of the Common Stock. There can be no assurance that the Common Stock will
maintain its current market price. Short-term trading strategies of certain
investors can have a significant effect on the price of specific securities.
(15)
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future sales
of Common Stock will have on the market price of Common Stock. Of the Company's
shares of Common Stock currently outstanding, 17,566,384 are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended ("Act"), and under certain circumstances may be sold without
registration pursuant to that rule. Subject to compliance with the notice and
manner of sale requirements of Rule 144 and provided that the Company is current
in its reporting obligations under the Securities Exchange Act of 1934, as
amended, a person who beneficially owns restricted shares for a period of at
least one year is entitled to sell, within any three month period, shares equal
to the greater of 1% of the then outstanding shares of Common Stock, or if the
Common Stock is quoted on the NASDAQ System, the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of the
required notice of sale with the Securities and Exchange Commission. As of the
date of this Prospectus, 17,566,384 shares of Common Stock, held by beneficial
owners, are eligible for sale pursuant to Rule 144. In addition to the
Convertible Preferred Stock, the Company has an aggregate of 1,100 shares of
Series A Preferred Stock outstanding which are convertible into shares of Common
Stock. See "Description of Securities--Series A Convertible Preferred Stock."
The Company has filed a registration statement under the Act, registering the
shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock. The Company is unable to predict the effect that sales made
under Rule 144 or otherwise may have on the market price of the Common Stock
prevailing at the time of any sales. Nevertheless, sales of substantial amounts
of the restricted shares of Common Stock in the public market could adversely
affect the then prevailing market for the Common stock and could impair the
Company's ability to raise capital through the sale of its equity securities.
See "Shares Eligible For Future Sale."
OTC ELECTRONIC BULLETIN BOARD.
The Common Stock is traded on the OTC Electronic Bulletin Board
("Bulletin Board") an NASD-sponsored and operated inter-dealer automated
quotation system for equity securities not included in the NASDAQ SmallCap
Market or NASDAQ National Market. Generally, securities traded on the Bulletin
Board experience less liquidity than securities traded on the New York or
American Stock Exchanges, or on the NASDAQ National or SmallCap Markets. There
can be no assurance that an active public trading market for the Common Stock
will continue.
RISKS OF LOW-PRICED STOCKS; POSSIBLE ADVERSE EFFECTS OF "PENNY STOCK" RULES
The Common Stock currently trades in the over-the-counter market on the
OTC Electronic Bulletin Board. As a consequence, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. The Securities Enforcement and Penny
(16)
<PAGE>
Stock Reform Act of 1990 requires additional disclosure relating to the market
for penny stocks. The SEC regulations generally define a penny stock to be any
equity security that has a market price or exercise price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include any equity
security listed on NASDAQ, and any equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three (3) years, (ii) net tangible assets of at least
$5,000,000 if such issuer has been in continuous operation for less than three
(3) years, or (iii) average annual revenue of at least $6,000,000 during such
issuer's last three years of operations. Unless such an exception is available,
the regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith. Furthermore, in connection with any transaction in a penny
stock, brokers must also provide investors with current bid and offer quotations
therefor, the compensation of the broker and its salesperson in connection
therewith and monthly account statements showing the market value of each penny
stock in the investor's account.
In addition, if the Common Stock is not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange "Act") for non-Nasdaq and non-exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that, by reason
of the Company's net tangible assets of at least $5,000,000, that such security
will be outside the definitional scope of a penny stock. In the event the
Company's Common Stock were subsequently to become characterized as a penny
stock, the market liquidity for such securities could be adversely affected. In
such an event, the regulations on penny stocks could limit the ability of
broker/dealers to sell the Common Stock, and thus the ability of purchasers of
the Common Stock to sell such securities in the secondary market would be
adversely affected.
(17)
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Selling
Security Holders Shares. All proceeds from the sale of the Selling Security
Holders Shares will be for the account of the Selling Security Holders described
below. See "Selling Security Holders." In the event that the Warrants are
exercised the Company will receive an aggregate of $2,178,000 which will be
utilized for working capital. There can be no assurance that any such Warrants
will be exercised.
(18)
<PAGE>
CERTAIN MARKET INFORMATION
The Company's Common Stock is traded on the OTC Electronic Bulletin
Board of the National Association of Securities Dealers, Inc. ("Bulletin
Board") under the symbol "IMNF." The following table sets forth the high and
low sale prices for Common Stock as reported by on the Bulletin Board.
<TABLE>
<CAPTION>
Common Stock
------------
Fiscal 1997 High Low
- ----------- ---- ---
<S> <C> <C>
Second (from May 5, 1997) $7.74 $3.00
Third 7.00 2.75
Fourth 3.93 2.25
Fiscal 1998
First $5.00 $3.00
Second (through April 9, 1998) $4.125 $4.00
</TABLE>
On April 6, 1998, there were approximately 750 holders of record of
the Company's 25,188,686 outstanding shares of Common Stock.
On April 9, 1998, the last sale price of the Common Stock as
reported on the Bulletin Board was $4.031.
(19)
<PAGE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common
Stock. The payment of cash dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors. The Company intends, for the foreseeable future, to retain future
earnings for use in the Company's business.
(20)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
Results of Operations - December 31, 1997 vs. December 31, 1996
The increase of revenue, operating expenses, gross profit, general and
administrative expenses and net income (loss) for both 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
and March 1998, the Company sold an aggregrate of 3,000 shares of its Series B
Preferred Stock resulting in gross proceeds of $3,000,000.
(21)
<PAGE>
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 Serrvice 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.
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATING CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Island Citizens First First
IMN Mortgage Green Shield Mortgage Equities Equities
Financial Network, Mortgage Service Commercial Service
Corp. Inc. Corp. Company Corp. Corp.
--------- ----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $0 $13,869,207 $1,504,856 $1,820,054 $349,024 $7,200
Interest Income 527,500 1,128,965 130,713 136,522 0 0
--------- ----------- ---------- ---------- -------- ------
Total Operating Income 527,500 14,998,172 1,635,569 1,956,576 349,024 7,200
Operating Expenses
General and Administrative Expenses 543,692 13,310,152 2,639,614 2,780,734 643,645 574
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 2,964,621 643,645 574
Income (Loss) from Operations (131,861) 138,005 (1,216,840) (1,008,045) (294,621) 6,626
Equity in Income (Loss) of Investee
Other Income (Loss) (866,134) 0 0 (134,608) 0 0
--------- ----------- ---------- ---------- -------- ------
Income (Loss) before Provision
for Income Taxes (997,995) 138,005 (1,216,840) (1,142,653) (294,621) 6,626
Provision (Recovery) for Income Taxes 0 4,047 786 0 325 325
--------- ----------- ---------- ---------- -------- ------
Net Income (Taxes) ($997,995) $133,958 ($1,217,626) ($1,142,653) ($294,946) $6,301
========= =========== ========== ========== ======== ======
<CAPTION>
American 1st
National Potomac
Mortgage Mortgage
Corp. Corp. Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and Premium Income $4,547,572 $5,332,362 27,430,275
Interest Income 596,928 14,134 2,534,762
---------- ---------- ---------- ----------
Total Operating Income 5,144,500 5,346,496 0 29,965,037
Operating Expenses
General and Administrative Expenses 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 6,351,390 5,813,686 797,865 34,943,718
Income (Loss) from Operations (1,206,890) (467,190) (797,865) (4,978,681)
Equity in Income (Loss) of Investee 80,392
Other Income (Loss) 0 18,442 0 (982,300)
---------- ---------- ---------- ----------
Income (Loss) before Provision
for Income Taxes (1,206,890) (368,356) (797,865) (5,960,981)
Provision (Recovery) for Income Taxes (8,600) (150,717) 0 0
---------- ---------- ---------- ----------
Net Income (Taxes) ($1,198,290) ($217,639) ($797,865) ($5,960,981)
========== ========== ========= ==========
</TABLE>
<PAGE>
BUSINESS
The following summary is qualified in its entirety by, and must be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" refers to IMN
Financial Corp and its wholly-owned subsidiaries Island Mortgage Network Inc.,
formerly Donald Henig Inc., a New York corporation, First Equities Commercial
Corp., a New York corporation, First Equities Service Corp., a New York
corporation, Greenshield Mortgage Corporation, a New Jersey corporation,
Citizens Mortgage Service Company, a Pennsylvania corporation, Senko Financial
Services, Inc., a Maryland corporation, American National Mortgage Corp., a New
Jersey corporation and First Potomac Mortgage Corp., a Virginia corporation,
First Equities Marketing Group, Inc., a Delaware corporation unless otherwise
indicated.
IMN Financial Corp., a Delaware corporation, (the "Company") is a
holding company which through its subsidiaries provides financial services such
as mortgage brokerage and mortgage banking services. The Company's main
subsidiary, Island Mortgage Network, Inc. ("Island Mortgage") formerly Donald
Henig Inc., is engaged in the business of originating and selling mortgage loans
secured primarily by one- to four-family residences. Island Mortgage originates
loans through its 42 branch offices located in 17 states throughout the United
States and the District of Columbia. The majority of Island Mortgage's loans are
made for the purchase of new homes or the refinancing of existing homes. Island
Mortgage targets its lending to middle market individuals, although it has
mortgage programs which cover the entire spectrum of mortgage lending. Island
Mortgage focuses its lending in the FHA Government guaranteed loan market.
Approximately 50% of Island Mortgage's loans are FHA and VA loans. A division of
Island Mortgage focuses on lending to individuals who have impaired or
unsubstantiated credit histories and/or unverifiable income and to individuals
with higher loan to value ratios. As a result, Island Mortgage's customers
generally are not averse to paying the higher interest rates charged for these
type of loan programs as compared to the interest rates charged by conventional
loans. This type of loan is generated through the use of direct mail and
telemarketing efforts.
The Company strives to process each loan application received from
potential borrowers as quickly as possible in accordance with the Company's loan
application approval procedures. Accordingly, most loan applications receive
preliminary decisions within 24 hours of receipt and most accepted applications
are funded within 30-45 days thereafter. As the Company has expanded the
channels through which it originates loans, it has also broadened the types of
loans it offers. The Company offers a wide range of loan products, including
traditional residential mortgage loans for refinancing, educational, home
improvement and debt consolidation purposes, mortgage loans on small
multi-family and mixed-use properties, sub-prime loans, adjustable rate mortgage
loans and
(22)
<PAGE>
jumbo and super jumbo loans. The Company originates Title I home improvement
loans partially insured by the US Department of Housing and Urban Development.
Island Mortgage sells its loans primarily in the secondary market on a
whole loan basis in order to maximize profitability, reduce its exposure to
fluctuations in interest rates and to achieve greater liquidity. Through 1997,
the Company sold virtually all of its loan production on a whole loan sale basis
in private placements to a variety of institutional purchasers. The Company
funds its originations through warehouse lines of credit and a standby facility.
The Company intends to continue to sell loans primarily through whole loan
sales.
The Company sells all paper loans which it originates on a flow basis
and all sub-prime loans on a bulk basis, each on a service-released basis, which
maximizes revenues because the Company receives the service-release premium at
the time the loan is sold. Since the Company sells all loans which it originates
on a service released basis, the Company does not maintain a loan portfolio or a
servicing loan portfolio, and has not experienced any loan losses to date.
The Company's business strategy includes (i) geographic expansion
throughout the US, (ii) growth through selected acquisitions, (iii) internal
growth and (vii) introduction and expansion of new products.
Employees
As of April 6, 1998, the Company had 585 full time employees and 15
part time employees. None of the employees are covered by a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
Properties and Facilities
The following list sets forth the location of the Company's facilities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MONTHLY
LOCATION TERMS RENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALBANY Month to month, 60 day notice $600.00
- -------------------------------------------------------------------------------------------------------
ALBUQUERQUE 3 years ending 2/28/00 2,574.00
- -------------------------------------------------------------------------------------------------------
ANNAPOLIS 5 years ending 7/31/02 3,121.13
- -------------------------------------------------------------------------------------------------------
ATLANTA Month to month 250.00
- -------------------------------------------------------------------------------------------------------
AVON Nine months ending 6/30/98 575.00
- -------------------------------------------------------------------------------------------------------
(23)
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BINGHAMTOM Month to month, 60 days notice 200.00
- -------------------------------------------------------------------------------------------------------
BUFFALO 7/1/97 - 01/31/00 1,400.00
- -------------------------------------------------------------------------------------------------------
CAPE CORAL Six month renewals w/o notice 1,550.00
- -------------------------------------------------------------------------------------------------------
CARLSBAD 90 days notice prior to 09/30/00 1,710.00
- -------------------------------------------------------------------------------------------------------
CHICAGO Month to month 1,750.00
- -------------------------------------------------------------------------------------------------------
CITIZENS Term expires 03/31/98 6,433.33
- -------------------------------------------------------------------------------------------------------
COLUMBIA Term expires 03/31/98, 60 day notice 2,425.00
- -------------------------------------------------------------------------------------------------------
COMMERCIAL; SUITE B103 &B104 15 Years ending 03/13/03 4,582.26
- -------------------------------------------------------------------------------------------------------
CONGERS 1 year 650.00
- -------------------------------------------------------------------------------------------------------
DEPTFORD-GREENSHIELD 5 years 5,175.00
- -------------------------------------------------------------------------------------------------------
FAIRFAX 5 years ending 06/30/98 15,000.00
- -------------------------------------------------------------------------------------------------------
FAIRFIELD 3 years 3,170.25
- -------------------------------------------------------------------------------------------------------
GAITHERSBURG 1 year ending 09/30/98 676.00
- -------------------------------------------------------------------------------------------------------
GREENSBORO 1 year ending 03/31/98 1,085.00
- -------------------------------------------------------------------------------------------------------
HAZLET 5 years 3,000.00
- -------------------------------------------------------------------------------------------------------
ISLANDIA; SUITE B101 & B102 3 years ending 09/30/98 2,500.00
- -------------------------------------------------------------------------------------------------------
JEFFERSON 2 years ending 08/31/99 1,800.00
- -------------------------------------------------------------------------------------------------------
MELVILLE (ADMIN) 01/22/97-08/31/02 9,658.33
- -------------------------------------------------------------------------------------------------------
MELVILLE (OPERATIONS) 09/20/96-12/31/99, 3 years 2 months 9,560.20
- -------------------------------------------------------------------------------------------------------
QUEENS VILLAGE 1 Year, term exp 04/30/98 1,400.00
- -------------------------------------------------------------------------------------------------------
RICHMOND HILL Term exp 03/31/98 1,400.00
- -------------------------------------------------------------------------------------------------------
RICHMOND, VA 3 Year, term exp 07/31/99 2,730.00
- -------------------------------------------------------------------------------------------------------
ROCHESTER 3 Year, term exp 06/30/00 600.00
- -------------------------------------------------------------------------------------------------------
SAN ANTONIO Month to Month 750.00
- -------------------------------------------------------------------------------------------------------
SCHENECTADY Exp. 01/14/98 1,200.00
- -------------------------------------------------------------------------------------------------------
SELECTIVE Month to month, 60 day notice 600.00
- -------------------------------------------------------------------------------------------------------
SOUTHINGTON 3 Years, term exp 04/30/98 950.00
- -------------------------------------------------------------------------------------------------------
SUNRISE 3 Years, term exp 04/30/00 1,780.95
- -------------------------------------------------------------------------------------------------------
SYRACUSE 3 Years, 90 day notice 2,400.00
- -------------------------------------------------------------------------------------------------------
TAMPA 3 Years, 90 day notice 918.00
- -------------------------------------------------------------------------------------------------------
TARRYTOWN 18 Months 2,132.29
- -------------------------------------------------------------------------------------------------------
TITLE 1; SUITE 300 33 Months ending 11/28/98 1,650.00
- -------------------------------------------------------------------------------------------------------
TOTOWA 1 Year 4,777.87
- -------------------------------------------------------------------------------------------------------
TREMONT 2 Years, term exp 08/31/98 1,600.00
- -------------------------------------------------------------------------------------------------------
UTICA 3 Years, 90 day notice 1,100.00
- -------------------------------------------------------------------------------------------------------
WILMINGTON Month to month, 60 day notice 425.00
- -------------------------------------------------------------------------------------------------------
</TABLE>
(24)
<PAGE>
Legal Proceedings
In connection with the acquisition of Donald Henig, Inc., which now
operates as Island Mortgage, Island Mortgage claims that the sellers of Donald
Henig, Inc., Donald and Joan Henig, are in breach of the acquisition agreement.
Island Mortgage's claim is for $178,763 and the defendants cross-claim is for
$261,452. Island Mortgage intends to vigorously defend such cross-claim. This
lawsuit was initiated in the New York State Supreme Court in Nassau County on
March 7, 1997.
Island Mortgage is a defendant in a breach of contract lawsuit
initiated by Leads Express, Inc. The plaintiff, Leads Express, Inc. is seeking
approximately $150,000 in damages alleging breach of contract. This proceeding
was initiated in the Federal Circuit Court for Howard County in Baltimore,
Maryland filed on January 21, 1998. The Company believes that it has meritorious
defenses and plans to vigorously defend the action.
American National Mortgage Corporation, a subsidiary of the Company,
is a defendent 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.
(25)
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about the
directors and executive officers and key employees of the Company:
Name Age Position
---- --- --------
Edward R. Capuano 52 Chief Executive Officer, Chairman,
President and Director
Cindy L. Eisle 33 Chief Financial Officer and Treasurer
James Richmond 52 Executive Vice President
Pargie Raiola 56 Senior Vice President
James Britton 51 Senior Vice President
Patrick A. Reilly 41 Secretary and General Counsel
Edward R. Capuano is the Chief Executive Officer, President, Chairman
and sole director of the Company.From 1995 to present Mr. Capuano has served as
the President of Island Mortgage. From 1993 to 1995 Mr. Capuano served as the
Northeastern Regional Director of United Capital Mortgage Corp. Mr. Capuano
earned a B.A. in Business Administration from Manhattan College in 1967.
Cindy L. Eisle is the Chief Financial Officer and Treasurer of the
Company. From 1996 to May 1997 Ms. Eisle has served as the CFO of Island
Mortgage. From 1993 to 1996 Ms. Eisle served as the Assistant controller of
Midcoast Mortgage Corporation. Ms. Eisle earned a B.S. in Accounting in 1986
from the State University of New York at Binghamton and an M.B.A. in 1992 from
Dowling College.
James Richmond is an Executive Vice President of the Company. From 1996
to May 1997 Mr. Richmond served as an Executive Vice President of Island
Mortgage Network. From 1995 to 1996 Mr. Richmond served as an Executive Vice
President of New Jersey Lenders Corp. From 1993 to 1995 Mr. Richmond served as
an Executive Vice President of Globe Mortgage Co. Mr. Richmond has more than 27
years experience in the mortgage
(26)
<PAGE>
banking industry. Mr. Richmond served as the President of the New Jersey
Mortgage Bankers Association from 1994 to 1995. Mr. Richmond earned a B.A. in
History from the State University of New York at StonyBrook in 1969.
Pargie Raiola has served as a Senior Vice President of the Company
since May 1997. From 1993- May 1997 Mr. Raiola served as a Senior Vice President
of Island Mortgage Network. Mr. Raiola has over 30 years experience in the
mortgage banking and financial services industry. Mr. Raiola earned a B.A. in
Economics from New York University in 1984
James Britton has served as a Senior Vice President of the Company
since May 1997. From 1996 to May 1997 Mr. Britton served as a Senior Vice
President of Island Mortgage Network. From 1994 to 1996 Mr. Britton served as
Regional Manager of Patriot Mortgage Co. From 1993 to 1994 Mr. Britton served as
Regional Manager of Affinity National Mortgage.
Patrick A. Reilly has served as the Secretary and General Counsel of
the Company since 1997. From 1993 to 1996 Mr. Reilly worked as an attorney for
Avis, Inc. specializing in environmental, employment and discrimination
litigation, divestiture and mergers and acquisitions. Mr. Reilly graduated from
Hofstra University School of Law in 1982.
Directors of the Company are elected for one year terms or until their
successors are elected, and officers serve at the pleasure of the Board of
Directors.
Compensation of Directors
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
(27)
<PAGE>
Executive Compensation
The following table sets forth certain information regarding
compensation paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each of the Company's executive
officers who earned in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------
Annual Long Term
Compensa- Compensa-
tion tion
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Securities
Other Restricted Underlying
annual stock Options/ LTIP
Name and Bonus ($) compensation award(s) SARs (#) Payouts
principal position Year Salary ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward Capuano 1997 $170,170 0 0 0 0 0
CEO 1996 $ 52,000 0 0 0 0 0
1995 $ 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Option Plans
1997 Non-Statutory Stock Option Plan
The Company established a non-qualified stock option plan providing for
the issuance of up to 4,000,000 shares of Common Stock to its directors,
officers, key employees and consultants (the "1997 Plan"). To date, the Company
has granted directors, officers and key employees an aggregate of 2,200,000
non-qualified stock options, which have been exercised to date, and 75,000
non-qualified stock options to consultants of the Company, at an exercise price
of $6.50 per share. Future grants could have an adverse affect on the market
price of the Company's securities.
Employee Pension Plan
The Company does not currently have an employee pension plan. The Company does
maintain a 401(k) plan which it does not contribute to.
PRINCIPAL STOCKHOLDERS
(28)
<PAGE>
The following table sets forth certain information, as of April 6,
1998, and as adjusted to give effect to the Offering, regarding the beneficial
ownership of the Common Stock by (i) each beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director of the Company, and
each executive officer of the Company, and (iii) by all executive officers,
directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Number of Shares(2) Percentage Percentage
Address(1) Beneficially Owned Before Offering After Offering
- ---------- ------------------ --------------- --------------
<S> <C> <C> <C>
Edward R. Capuano 17,563,057 69.7% 68.5%
Cindy L. Eisle 2,164 * *
James Richmond 1,163 * *
Pargie Raiola -0- -0- -0-
James Britton -0- -0- -0-
Patrick A. Reilly -0- -0- -0-
All officers and directors
as a group (6 persons) 17,566,384 69.7% 68.5%
</TABLE>
* less than one percent
- ------
(29)
<PAGE>
CERTAIN TRANSACTIONS
Managerial and Financial Control
On May 5, 1997, the Company acquired all the capital stock of Donald
Henig, Inc. ("DHI") from IMN Equities for 20,421,700 shares of common stock.
This acquisition enables IMN Equities to have majority managerial and financial
control in the decision making process of the Company.
Issuance of Stock
On September 30, 1996, the Company issued 326,000 shares of common
stock in consideration for the payment on its behalf of $16,900 in expenses by
its president.
Sale of C.S. Amsterdam Realty, Inc.
DHI sold C.S. Amsterdam Realty, Inc., one of its subsidiaries to a
related party. The related party is a minority shareholder (less than 5%
non-voting) of the parent company.
The collateral underlying a company asset is encumbered by a security
interest for a liability of a related party. The related party is a minority
shareholder (less than 5% non-voting) of the parent company.
DHI was involved in advances to and from the following related
entities. In addition, many of these companies were charged for their share of
adminstrative costs, which totaled $218,032.
1) C.S. Amsterdam Realty, Inc. - Owned by a minority shareholder
(less than 5% non-voting) of the parent company.
2) The Best Mortgage Services of America, Inc. - Was a subsidiary of
DHI until December 24, 1996.
3) UCMC Consulting Corp. - Owned by a majority shareholder of the
parent and an employee of DHI.
4) First Equities Corp. - Formerly parent of DHI.
5) Edward Capuano - Majority shareholder of DHI.
6) Wireless Mexicano, Inc. - Owned by a minority shareholder (less
than 5% non-voting) of DHI.
7) Network Title Agency Corporation - 75% owned by a minority
shareholder (less than 5% non-voting) of DHI.
(30)
<PAGE>
8) The Skulsky Trust - The trustee is an employee of DHI and the
trust's beneficiary is a minority shareholder (less than 5%
non-voting) of DHI.
DHI and these related parties agreed to an assignment of their
intercompany balances. As of March 31, 1997, DHI owed $1,561,993 to the Skulsky
Trust.
(31)
<PAGE>
DESCRIPTION OF SECURITIES
The following description of certain matters relating to the securities
of the Company does not purport to be complete and is subject in all respects to
applicable Delaware law and to the provisions of the Company's articles of
incorporation ("Articles of Incorporation") and bylaws (the "Bylaws").
General
The Company is authorized by its Articles of Incorporation to issue an
aggregate of 50,000,000 shares of Common stock, $.001 par value per share, and
up to 5,000,000 shares of preferred stock (the "Preferred Stock"). As of the
date of this Prospectus, an aggregate of 25,188,686 shares of Common Stock were
issued and outstanding. One thousand one hundred (1,100) shares of the
authorized Preferred Stock are issued and outstanding as Series A Convertible
Preferred Stock. Three thousand one hundred and fifty (3,150) shares of the
authorized Preferred Stock are issued and outstanding as Series B Convertible
Preferred Stock. The Company intends to issue an additional 1,575 shares of
Series B Convertible Preferred Stock. All outstanding shares of Common Stock are
of the same class, and have equal rights and attributes.
Common Stock
The Company is authorized to issue 45,000,000 shares of Common Stock,
$.001 par value per share. As of the date of this Prospectus there are
25,188,686 shares of Common Stock outstanding. Each share of Common Stock
entitles the holder thereof to one vote on all matters submitted to a vote of
the shareholders. Since the holders of Common Stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of the directors of the Company and holders of the remaining shares by
themselves cannot elect any directors. The holders of Common Stock do not have
preemptive rights or rights to convert their Common Stock into other securities.
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
the Common Stock outstanding and to be outstanding upon completion of this
offering are and will be fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of "blank
check" preferred stock. The Company issued 1,100 shares of Series A Convertible
Preferred Stock and 3,150 shares of Series B Convertible Preferred Stock all of
which is currently outstanding. The Company intends to issue an additional 1,575
shares of Series B Convertible Preferred Stock. Preferred Stock may be issued in
the future in connection with acquisitions, financings or such other matters as
the Board of Directors deems to be appropriate. In the event that any such
shares of Preferred Stock shall be issued, a Certificate of Designation, setting
forth the series of such Preferred Stock and the relative rights, privileges and
designations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of
(32)
<PAGE>
such Preferred Stock is that the Company's Board of directors alone may
authorize the issuance of preferred stock which could have the effect of making
more difficult or discouraging an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or other means.
Section 203 of the Delaware Corporation Law prohibits a publicly held
Delaware corporation form engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
Series A Preferred Stock
The Company has 1,100 shares of Series A Convertible Preferred Stock
outstanding. Each share of Series A Convertible Preferred Stock (based on a
value of $1,000 per share plus accrued dividends and interest thereon) is
convertible into shares of Common stock at 78% of the average closing bid price
for the five consecutive trading days prior to the conversion date of a share of
Common Stock as quoted on the OTC Electronic Bulletin Board at any time after
April 10, 1998 at the option of the holder. The Series A Preferred Stock is
automatically convertible into Common Stock on December 31, 1999. The Series A
Preferred Stock pays a 6% annual dividend, payable quarterly in arrears, cash or
freely tradeable Common Stock at the option of the Company. Each share has a
liquidation value of $1,000 plus any accrued but unpaid dividends. The shares
rank senior to all classes or series of stock unless otherwise approved by the
holders of a majority of the Series A Convertible Preferred Stock holders or
such class or series of stock is issued in a transaction which results in
aggregate cash proceeds of $3 million, except as otherwise required by law or
expressly provided herein, shares of Series A Preferred Stock shall not be
entitled to vote on any matter. The affirmative vote or consent of the holders
of a majority of the outstanding shares of the Series A Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Company's
Restated Certificate of Incorporation if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series A Preferred Stock, or (2) the creation and issuance of any senior
stock or Parity stock unless the shares thereof are issued in a transaction
which results in aggregate cash proceeds to the Company from the sale of such
shares equal to at least $3 million. In addition, the holders of the Series A
Convertible Preferred Stock
have piggyback and demand registration rights with respect to the Common stock
(33)
<PAGE>
issuable upon exercise of the Series A Convertible Preferred Stock.
Series B Preferred Stock
The Company has 3,150 shares of Series B Convertible Preferred Stock
outstanding. Each share of Series B Convertible Preferred Stock (based on a
value of $1,000 per share plus accrued dividends and interest thereon) is
convertible into shares of Common Stock at the lesser of (a) 75% of the average
closing bid price of the Common Stock during the period of five trading days
immediately preceding the date of conversion, or (b) $4.85 per share of Common
Stock. 1,575 shares of the Series B Convertible Preferred Stock is automatically
convertible into Common Stock on February 20, 2000, and 1,575 shares on March
31, 2000. The Series B Preferred Stock pays an 8% annual dividend payable
semi-annually and shall be payable in cash or shares of Common Stock at the
Company's option. Each share has a liquidation value of $1,000 plus accrued but
unpaid dividends. The Series B Preferred Stock holders shall have no right to
vote on any matter affecting the Company, except as provided by law. The Company
is taking steps to amend the Certificate of Designation of the Series B
Convertible Preferred Stock to provide for the issuance of an additional 1,575
shares.
Warrants
The Company has an aggregate of 388,000 warrants outstanding, of which
88,000 are exercisable at $3.60 per share, 150,000 are exercisable at $4.80 per
share and 150,000 are exercisable at $4.92 per share. The Company intends to
issue an additional 150,000 Warrants exercisable at $4.80 per Warrant. All of
the warrants are exercisable for a period of three years commencing between
January 1, 1999 and April 1, 1999.
Delaware Anti-Takeover Law
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election), (ii) prior to
such date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the corporation that
is not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
Personal Liability of Directors
The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the personal liability of a director to the corporation for
monetary damages arising from certain breaches of fiduciary duties as a
director. The Company's Certificate of Incorporation includes such a provision
eliminating the personal liability of directors to the Company and its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) any breach of a director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for any
transaction from which the director derived an improper personal benefit; or
(iv) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law.
Directors are also not insulated from liability for claims arising under the
federal securities laws. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
(34)
<PAGE>
The Company's Certificate of Incorporation also provides that the
Company shall indemnify its directors, officers and agents to the fullest extent
permitted by the Delaware General Corporation Law. The Company does not have
directors' and officers' liability insurance but may secure such insurance in
the future. Furthermore, the Company may enter into indemnity agreements with
its directors and officers for the indemnification of and advancing of expenses
to such persons to the fullest extent permitted by law.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is American
Stock Transfer & Trust Company.
(35)
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future
sales of Common Stock will have on the market price of Common Stock. Of the
Company's shares of Common Stock currently outstanding, 17,566,384 are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended ("Act"), and under certain circumstances
may be sold without registration pursuant to that rule. Subject to compliance
with the notice and manner of sale requirements of Rule 144 and provided that
the Company is current in its reporting obligations under the Securities
Exchange Act of 1934, as amended, a person who beneficially owns restricted
shares for a period of at least one year is entitled to sell, within any three
month period, shares equal to the greater of 1% of the then outstanding shares
of Common Stock, or if the Common Stock is quoted on the NASDAQ System, the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of the required notice of sale with the Securities and
Exchange Commission. As of the date of this Prospectus, 17,566,384 shares of
Common Stock, held by beneficial owners, are eligible for sale pursuant to Rule
144. In addition to the Convertible Preferred Stock, the Company has an
aggregate of 1,100 shares of Series A Preferred Stock outstanding which are
convertible into shares of Common Stock. See "Description of Securities--Series
A Convertible Preferred Stock." The Company has filed a registration
statement under the Act, registering the shares of Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock. The Company is unable to
predict the effect that sales made under Rule 144 or otherwise may have on the
market price of the Common Stock prevailing at the time of any sales.
Nevertheless, sales of substantial amounts of the restricted shares of Common
Stock in the public market could adversely affect the then prevailing market for
the Common stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
(36)
<PAGE>
SELLING SECURITY HOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Security Holders and as adjusted to
give effect to the sale of the Shares offered herein.
On February 20, 1998 Sovereign Partners LP and Settendown Capital
acquired 1,500 and 75 shares of Series B Convertible Preferred Stock,
respectively, and 75,000 Warrants each, each Warrant exercisable at $4.80 per
Warrant. On March 31, 1998 Thomas Kernaghan & Co., Ltd., Gerald Alexander and
William F. Palla acquired 1,540, 20 and 15 shares of Series B Convertible
Preferred Stock, respectively. On March 31, 1998 Excaliber Limited Partnership,
Dominion Capital Fund Ltd., Canadian Advantage Limited Partnership, Gerald
Alexander and William F. Palla acquired 33,333, 46,667, 20,000, 25,000 and
25,000 Warrants, respectively, exercisable at $4.92 per Warrant. The shares of
Preferred Stock issued on February 20, 1998 are convertible after May 6, 1998,
and the shares of Preferred Stock issued on March 31, 1998 are convertible after
June 14, 1998, each into the number of shares of Common Stock equal to the
quotient obtained by dividing (i) the sum of $1,000, (ii) accrued and unpaid
dividends, and (iii) accrued and unpaid interest on dividends by (a) 75% of the
average closing bid price of a share of Common Stock for the five consecutive
trading days ending on the trading day prior to the date of conversion, or (b)
$4.85 per share, whichever is less. The foregoing conversion price is subject to
adjustment in certain circumstances. In addition Sovereign Partners LP and
Settendown Capital intend to acquire 1,500 and 75 shares of Series B Convertible
Preferred Stock, respectively, and 75,000 Warrants each, each Warrant
exercisable at $4.80 per Warrant.
<TABLE>
<CAPTION>
Beneficial Ownership Shares of Beneficial Ownership
of Common Stock Common Stock of Common Stock
Selling Security Holders (3) Prior to Sale (1) to be sold (1) After Sale (2)
- ---------------------------- ----------------- -------------- --------------
<S> <C> <C> <C>
Excaliber Limited Partnership 33,333 33,333 -0-
Canadian Advantage
Limited Partnership 20,000 20,000 -0-
Dominion Capital Fund Ltd. 46,667 46,667 -0-
Thomas Kernaghan & Co., Ltd. 510,938 510,938 -0-
Gerald Alexander 6,635 6,635 -0-
William F. Palla 4,976 4,976 -0-
Sovereign Partners LP (4) 1,145,334 1,145,334 -0-
Settendown Capital (4) 199,766 199,766 -0-
</TABLE>
- ---------
(1) The number of shares of Common Stock shown as beneficially owned and
offered by the Selling Security Holders represents the number of shares
which the Company has initially agreed to register. Pursuant to Rule 416
under the Securities Act, the number of shares of Common Stock offered by
the Selling Security Holders hereby and included in the Registration
Statement of which this Prospectus is a part also includes such presently
indeterminate number of additional shares as may be issued on conversion of
the Preferred Stock and in payment of dividends thereon pursuant to the
provisions of the Certificate of Designations of the Preferred
Stock regarding determination of the applicable conversion price and the
dividend calculation rate. Accordingly, the actual number of shares of
Common Stock issued or issuable upon the conversion of the Preferred Stock
and the payment of dividends thereon is subject to adjustment depending
upon factors which cannot be predicted by the Company at this time,
including, among others, the future market prices of the Common Stock and
the payment of dividends on the Preferred Stock in additional shares of
Common Stock. Pursuant to the terms of the Certificate of Designations
governing the Preferred Stock,
(37)
<PAGE>
the Preferred Stock is convertible by each holder thereof and dividends are
payable in Common Stock only to the extent that the number of shares of
Common Stock then beneficially owned by such holder and its related persons
(not including shares underlying unconverted shares of Preferred Stock or
unexercised Warrants) would not exceed 4.9% of the then outstanding shares
of Common Stock as determined in accordance with Sections 13(d) and 16 of
the Exchange Act. Accordingly, the number of shares of Common Stock set
forth for the Selling Security Holder may exceed the actual number of
shares of Common Stock that the Selling Security Holder could own
beneficially at any given time through its ownership of the Preferred
Stock and the Warrants. The above number assume that the Selling Security
Holders will exercise the Warrants for cash. If the Selling Security
Holders use the cashless exercise alternative, the actual number of shares
of Common Stock issued will be fewer, depending on the market value of the
underlying shares of Common Stock immediately prior to exercise.
(2) Assumes all of the Shares offered are sold.
(3) Although certain of the Selling Security Holders share a common advisor,
they each disclaim beneficial ownership of the securities held by the other
Selling Security Holders. Sovereign Partners L.P. waived their right of
first refusal to purchase an additional 1,500 shares of Series B
Convertible Preferred Stock for the transaction effected on March 31, 1998.
The parties have agreed to amend the Certificate of Designations of the
Series B Convertible Preferred Stock to provide for an additional 1,575
shares. The shares of Common Stock underlying such additional 1,575
shares as well as the 150,000 Warrants are being registered herein.
(4) Includes 1,500 and 75 shares of Series B Convertible Preferred Stock which
Sovereign Partners L.P. and Settendown Capital intend to acquire,
respectively, and 75,000 Warrants each.
The Selling Security Holders and their respective officers and
directors have not held any positions or office or had any other material
relationship with the Company or any of its affiliates within the past three
years.
In recognition of the fact that the Selling Security Holders may wish
to be legally permitted to sell its Shares when it deems appropriate, the
Company agreed with the Selling Security Holders to file with the Commission,
under the Securities Act, a Registration Statement on Form SB-2, of which this
Prospectus forms a part, with respect to the resale of the Shares, and has
agreed to prepare and file such amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement effective until
the Shares are no longer required to be registered for the sale thereof by the
Selling Security Holders.
(38)
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holders may be sold
from time to time by the Selling Security Holders, or by pledgees, donees,
transferees or other successors in interest. Such pledges, donees, transferees
and other successors in interest will be deemed "Selling Security Holders" for
purposes of this Prospectus. Such sales may be made on one or more exchanges or
in the over-the-counter market (including the OTC Electronic Bulletin Board), in
privately negotiated transactions, through the writing of private options on the
Shares, or otherwise at market prices then prevailing or at prices related to
the then-current market price, at fixed prices that may be changed, or at
negotiated prices. The Shares may be sold to or through brokers or dealers, who
may act as agent or principal, or in direct transactions between the Selling
Security Holders and purchasers. In addition, the Selling Security Holders may,
from time to time, sell short the common stock, and in such instances, this
Prospectus may be delivered in connection with such short sale and the Shares
offered hereby may be used to cover such short sale.
Transactions involving brokers or dealers may include, without
limitation, (a) ordinary brokerage transactions, (b) transactions in which the
broker or dealer solicits purchasers, (c) block trades in which the broker or
dealer will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, and (d)
purchases by a broker or dealer as a principal and resale by such broker or
dealer for its account. In effecting sales, brokers and dealers engaged by the
Selling Security Holders or the purchasers of the Shares may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of the Shares for whom such broker or dealer may act as agent or
to whom they may sell as principal, or both (which compensation as to a
particular broker or dealer may be in excess of customary commissions). The
Selling Security Holders and such brokers and dealers who act in connection with
the sale of Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit on any
resale of the Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company is bearing all costs relating to the registration of the
Shares other than certain fees and expenses, if any, of counsel or other
advisors to the Selling Security Holders. Any commissions, discounts or other
fees payable to brokers or dealers in connection with any sale of the Shares
will be borne by the Selling Security Holders, the purchasers participating in
such transaction, or both. None of the proceeds from the sale of the Shares by
the Selling Security Holders will be received by the Company, except for the
exercise price of the Warrants. The Company and the Selling Security Holders
each have agreed to indemnify the other against certain liabilities, including
liabilities arising under the Securities Act.
Any shares covered by this Prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act of 1933 may be sold under such Rule rather
than pursuant to this Prospectus.
(39)
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered by this Prospectus will be
passed upon for the Company by Gersten, Savage, Kaplowitz & Fredericks, LLP, New
York, New York.
EXPERTS
The consolidated financial statements of IMN Financial Corp.,
formerly NGT Enterprises, Inc. and its Subsidiaries at December 31, 1997, and
for the period ended December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Werblin, Cassucio & Moses, P.C.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
under the Act with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement and the
exhibits thereto, and references is made to the Registration Statement and the
exhibits thereto for further information with respect to the Company and the
Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois upon payment of the prescribed fees.
Electronic registration statements made through the Electronic Data Gathering
Analysis and Retrieval system are publicly available through the Commission's
web site at http://www.sec.gov.
(40)
<PAGE>
INDEMNIFICATION FOR ACT LIABILITIES
The Certificate of Incorporation and By-laws of the Company provide
that the Company shall indemnify to the fullest extent permitted by Delaware law
any person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Company. Such indemnification (other than as ordered
by a court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. Such determination shall be made by a majority vote
of a quorum consisting of disinterested directors, or by independent legal
counsel or by the stockholders. In addition, the Certificate of Incorporation
provides for the elimination, to the extent permitted by Delaware law, of
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Company proposes to obtain a directors and officers insurance and
company reimbursement policy. The policy, if obtained, would insure directors
and officers against unindemnified losses arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
The Company has also agreed to indemnify each director and executive
officer pursuant to an Indemnification Agreement with each such director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken while such director or executive officer was acting in his
capacity as a director, officer, employee or agent of the Company.
Insofar as indemnification for liabilities arising under the Act may be
provided to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(41)
<PAGE>
IMN FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditor's........................................................... F-2
Consolidated Statement of Financial Position - December 31, 1997.......................... F-3
Consolidated Statements of Income for the years ended December 31, 1997
December 31, 1996...................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and December 31, 1996................................................ F-6
Consolidated Statement of Cash Flows for the years ended December 31, 1997
and December 31, 1996.................................................................. F-9
Notes to Consolidated Financial Statements................................................ F-12
</TABLE>
F-1
<PAGE>
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
F-2
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Financial Position
December 31,
1997 1996
----------- ----
ASSETS
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
=========== ==
See accompanying independent auditor's report and notes.
F-3
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Financial Position
December 31,
1997 1996
----------- --------
LIABILITIES
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' EQUITY $72,682,309 $ 0
=========== ========
See accompanying independent auditor's report and notes.
F-4
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Income
Years Ended December 31,
1997 1996
----------- --------
OPERATING INCOME
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) $(18,400)
=========== ========
Basic Earnings (Loss) per share (0.0986) (0.0173)
=========== ========
Diluted Earnings (Loss) per share (0.0986) (0.0173)
=========== ========
See accompanying independent auditor's report and notes.
F-5
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gain on
Common Common Preferred Preferred Additional Stock Available-
Stock Stock Stock Stock Paid-In Subscription For Sale Retained
Date (Shares) ($) (Shares) ($) Capital Receivable Securities Earnings Totals
- ----------- ---------- ------- --------- --------- ---------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/96 3,931,199 $ 393 $ 0 $ (393) $ 0
9/30/96 Net Loss Net Loss (16,900) (16,900)
9/30/96 326,000 33 16,867 16,900
---------- ------- --------- --------- ---------- -------- ---- -------- ----------
4,257,199 426 16,867 0 0 (17,293) 0
12/31/96 Net Loss 0 Net Loss (1,500) (1,500)
---------- ------- --------- --------- ---------- -------- ---- -------- ----------
4,257,199 426 16,867 0 0 (18,793) (1,500)
(1) 5/05/97 (3,192,900) 638 (638) 0
(2) 5/05/97 20,221,700 20,222 6,727,582 6,747,804
(3) 5/19/97 1,100,000 1,100 3,298,900 3,300,000
(4) 6/04/97 200,000 200 (200) 0
(3) 6/24/97 1,100,000 1,100 3,298,900 3,300,000
(5) 8/01/97 144,906 145 961,017 961,162
(6) 9/16/97 110,344 110 399,887 399,997
</TABLE>
See accompanying independent auditor's report and notes.
F-6
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gain on
Available-
Common Common Preferred Preferred Additional Stock For
Stock Stock Stock Stock Paid-In Subscription Sale Retained
Date (Shares) ($) (Shares) ($) Capital Receivable Securities Earnings Totals
- ------------- ---------- ------- --------- --------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(7) 9/18/97 16,667 17 63,484 63,501
(8) 12/02/97 461,538 462 1,383,658 1,384,120
(9) 12/22/97 11,320 11 36,779 36,790
(10) 12/17/97 7,000,000 7,000 (7,000) 0
(11) 12/30/97 333,333 333 999,667 1,000,000
(12) 12/31/97 1,100 1 1,099,999 1,100,000
(13) (636,500) (636,500)
(14) 50,891 50,891
(15) 0 355,294 355,294
(16) 0 (4,141,600) (4,141,600)
12/31/97 Net Loss 0 Net Loss (997,995) (997,995)
---------- ------- ----- -- ----------- ----------- -------- ----------- -----------
31,764,107 $31,764 1,100 $1 $17,693,293 $(4,141,600) $355,294 $(1,016,788) $12,921,964
========== ======= ===== == =========== =========== ======== =========== ===========
</TABLE>
See accompanying independent auditor's report and notes.
F-7
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statement 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.
See accompanying independent auditor's report and notes.
F-8
<PAGE>
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:
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
----------- --------
See accompanying independent auditor's report and notes.
F-9
<PAGE>
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:
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
=========== =======
See accompanying independent auditor's report and notes.
F-10
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
(formerly NGT Enterprises, Inc.)
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996
----------- ----
SUPPLEMENTAL DISCLOSURES:
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
=========== ==
See accompanying independent auditor's report and notes.
F-11
<PAGE>
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.
F-12
<PAGE>
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.
F-13
<PAGE>
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.
F-14
<PAGE>
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.
F-15
<PAGE>
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".
F-16
<PAGE>
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.
F-17
<PAGE>
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).
F-18
<PAGE>
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
============
F-19
<PAGE>
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.
F-20
<PAGE>
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
===========
F-21
<PAGE>
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.
F-22
<PAGE>
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.
F-23
<PAGE>
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.
F-24
<PAGE>
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.
F-25
<PAGE>
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.
December 31, December 31,
1997 1996
------------ ------------
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
========== =========
F-26
<PAGE>
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).
F-27
<PAGE>
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.
F-28
<PAGE>
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%.
F-29
<PAGE>
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
F-30
<PAGE>
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.
F-31
<PAGE>
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.
F-32
<PAGE>
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.
F-33
<PAGE>
================================================================================
No dealer, salesman or any other
person has been authorized to give any
information or to make any representations IMN FINANCIAL CORP.
other than those contained in this
Prospectus, and, if given or made, such
information or representations must not be
relied upon as having been authorized by the
Company. This Prospectus does not constitute
an offer to sell, or a solicitation of an 2,017,651 shares of Common Stock
offer to buy, any of the securities offered
hereby in any jurisdiction to any person to
whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any
offer, solicitation or sale made hereunder
shall under any circumstances create any
implication that there has been no change in
the affairs of the Company since the date
hereof or that the information herein is
correct as of any time subsequent to the date
of this Prospectus.
------------------------------- -----------------
Prospectus
Page -----------------
Prospectus Summary ..........................
Use of Proceeds .............................
Certain Market Information ..................
Dividend Policy .............................
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ......................
Business ....................................
Management ..................................
Principal Stockholders ......................
Certain Transactions ........................
Description of Securities ...................
Shares Eligible for Future Sale .............
Selling Security Holder .....................
Plan of Distribution ........................
Legal Matters ...............................
Experts .....................................
Additional Information ......................
Indemnification for Securities , 1998
Act Liabilities ............................ ---------------
Financial Statements .......................F-1
Until , 1998 (25 days
------------------
after the date of this Prospectus), all dealers
effecting transactions in the registered securities,
whether or not participating in this distribution,
may be required to deliver a Prospectus. This is
<PAGE>
in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, among other
things, and subject to certain conditions, authorizes the Company to indemnify
its officers and directors against certain liabilities and expenses incurred by
such persons in connection with claims made by reason of their being such an
officer or director. The restated Certificate of Incorporation and By-laws of
the Company provide for indemnification of its officers and directors to the
full extent authorized by law.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses to be paid by
the Company in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC Registration Fee* $ 2,464.60
Legal Fees and Expenses* $ 10,000.00
Miscellaneous* $ 1,000.00
Total* $ 13,464.60
----- ------------
</TABLE>
* estimate
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Company has sold unregistered
securities as described below. There were no underwriters involved in the
transactions and there were no underwriting discounts or commissions paid in
connection therewith, except as disclosed below. The issuances of these
securities were considered to be exempt from registration under Section 4(2) of
the Act, as amended, and the regulations promulgated thereunder. The purchasers
of the securities in such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transaction. The purchasers of
the securities in the transactions had adequate access to information about the
Registrant.
On May 13,1997, the Company issued 20,221,700 shares of common to existing
shareholders of the predecessors
II-1
<PAGE>
of IMN Financial.
All of the following issuances were made pursuant to Section 4(2) of the
Securities Act of 1933, as amended:
On May 13, 1997, the Company issued: 150,000 shares of common stock to Joel
Pensley, Esq., 50,000 shares of common stock to Steven Gutstein in recognition
of services rendered, 1,100,000 options to purchase common stock at $3.00 per
share to C.S. Amsterdam Realty, Inc. of 1,100,000 options to purchase common
stock at $3.00 per share, 1,100,000 options to purchase common stock at $3.00
per share to Vinay Consulting Corp. On August 1, 1997, the Company issued
144,906 shares of common stock to Larry Enright, in partial consideration for
the purchase of Green Shield Mortgage Corporation's stock, 75,000 options to
purchase shares of common stock at $6.625 per share to William T. Schor. On
September 16, 1997, the Company issued 55,172 shares of common stock to Larry
Vecchio and 55,172 shares of common stock to The Catherine Mirabelli Trust in
consideration for the purchase of Bay City Mortgage Corporation's stock. On
December 2, 1997, the Company issued 461,538 shares of common stock to Kenneth
Barash in consideration for the purchase of American National Mortgage
Corporation.
On December 17, 1997, the corporation issued 7,000,000 shares of treasury stock.
These were pledged to Merrill Lynch later in December in exchange for a
$7,000,000 line of credit. On December 22, 1997, the Company issued 11,320
shares of common stock to Salvatore Benigno in partial consideration for the
purchase of Jefferson Penn Mortgage Corporation's stock. On December 30, 1997,
the Company issued of 333,333 shares of common stock to Michael Roche in
consideration of the purchase of 1st Potomac Mortgage Corporation's Seasons
Mortgage Group Inc.'s stock. On December 31, 1997, the Company issued 1,100
shares of preferred stock to Precision Capital Investors Limited Partnership I,
10,000 Warrants to purchase shares of common stock at $3.60 per share to
International Holding Company, Ltd., 10,000 Warrants to purchase shares of
common stock at $3.60 per share to William F. Palla and 13,000 Warrants to
purchase shares of common stock at $3.60 per share to Rjj Capital Consultants,
Inc. On Janaury 16, 1998, the Company issued 26,925 shares of common stock to
Joseph Jandura. On February 20, and March 31, 1998 the Company issued an
aggregate of 3,150 shares of Series B preferred stock to the following entities
Canadian Advantage Limited Partnership, Dominion Capital Fund Ltd., Excalibur
Limited Partnership and Sovereign Partners L.P. The Company issued an aggregate
of 300,000 warrants in connection with the sale of the Series B Convertible
Preferred Stock.
Item 27. Exhibits
Exhibit
Number Description
- ----- -----------
5.1* Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
23.1* Consent of Werblin, Cassuccio & Moses
23.2* Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (continued as
part of Exhibit 5.1)
* filed herewith
Item 28. Undertakings
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law contract arrangements statute,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to suit information in the
registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall
be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
(4) For determining any liability under the Act, treat the
information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the small business
issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as
part of this registration statement as of the time the Commission
declared it effective.
II-3
<PAGE>
(5) For determining any liability under the Act, treat each post-effective
amendment that contains a form of Prospectus as a new registration
statement at that time as the initial bona fide Offering of those
securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that
it has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on April 16, 1998.
IMN FINANCIAL CORP.
By: /s/ Edward R. Capuano
----------------------------------
Edward R. Capuano, President
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Edward R. Capuano, President, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C>
/s/ Edward R. Capuano
---------------------- Chief Executive Officer, April 16, 1998
Edward R. Capuano President and Director
/s/ Cindy L. Eisle
---------------------- Chief Financial Officer April 16, 1998
Cindy L. Eisle
/s/ Patrick A. Reilly
---------------------- Secretary April 16, 1998
Patrick A. Reilly
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ----- -----------
5.1* Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
23.1* Consent of Werblin, Cassuccio & Moses
23.2* Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (continued as
part of Exhibit 5.1)
* filed herewith
<PAGE>
Exhibit 5.1
April 16, 1998
IMN Financial Corp.
520 Broadhollow Road, Suite 200
Melville, New York 11747
Gentlemen:
We have acted as counsel to IMN Financial Corp. (the "Company") in
connection with its filing of a registration statement on Form SB-2
(Registration No. 333- , the "Registration Statement") covering 2,017,651
shares of common stock $.001 par value (the "Common Stock") to be sold by
selling security holders ("Selling Security Holders").
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and
the minutes and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we
have assumed conformity with the original documents of all documents submitted
to us as conformed or photostatic copies, the authenticity of all documents
submitted to us as originals and the genuineness of all signatures on all
documents submitted to us.
On the basis of the foregoing, we are of the opinion that:
The shares of Common Stock covered by this Registration
Statement have been validly authorized and will when sold as contemplated by
the Registration Statement, be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting the Registration Statement.
Very truly yours,
/s/ GSKF
Gersten, Savage, Kaplowitz &
Fredericks, LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 24, 1997, in the Registration Statement (Form
SB-2) and related prospectus of IMN Financial Corp. for the registration of
2,017,651 shares of its common stock.
/s/ Werblin, Casuccio & Moses
Werblin, Casuccio & Moses, P.C.
Syosset, New York
April 16, 1998
