FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Qtr. Ended: June 30, 1998 File No.: 2-72849-NY
IMN FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2558192
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
520 BROADHOLLOW ROAD MELVILLE NEW YORK 11746
(Address of principal executive offices)
(516) 844-9805
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
stock as of August 15, 1998:
Common stock, $.001 par value - 24,764,201 shares outstanding.
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10-QSB
-----------
INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1998 and June 30, 1997 3-4
Condensed Consolidated Statement of Income -
Six Months Ended June 30, 1998 and June 30, 1997 5
Condensed Consolidated Statement of Income -
Three Months Ended June 30, 1998 and June 30, 1997 6
Condensed Consolidated Statement of Cash Flows -
Three Months Ended June 30, 1998 and June 30, 1997 7-8
Condensed Consolidated Statement of Retained Earnings 9
Notes to Financial Statements 10-11
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS 12-13
PART II - OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 16
2
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10 - QSB
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
6/30/98 6/30/97
Unaudited Unaudited
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 2,905,908 $ 232,333
Mortgage inventory 59,839,563 16,253,149
Points and fees receivable 4,396,093 368,100
Stock subscription receivable 0 6,600,000
Other current receivables 754,310 144,967
Investments 7,356,558 5,660,293
Prepaid expenses 4,727,117 1,798,493
Property and equipment - net 1,583,210 489,795
Notes and mortgages receivable 4,219,964 2,296,229
Intangible assets - net 4,377,447 694,649
Other assets 85,167 69,994
----------- -----------
TOTAL ASSETS $90,245,337 $34,608,002
=========== ===========
</TABLE>
3
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10 - QSB
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CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
6/30/98 6/30/97
Unaudited Unaudited
------------ ------------
LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 4,794,209 $ 1,902,274
Warehouse lines of credit 59,258,693 15,880,615
Borrowers escrow funds 272,393 364,621
Capital lease obligations 191,054 146,470
Notes payable 585,586 0
Due to related party 7,098,595 2,196,436
Deferred income 1,175,540 280,809
Deferred income taxes 415,019 0
Other liabilities 0 5,374
------------ ------------
Total Liabilities 73,791,089 20,776,599
STOCKHOLDERS' EQUITY
Preferred stock - authorized 5,000,000 shares
$.001 par value per share, the number of
shares outstanding at June 30, 1998 and
June 30, 1997 - 4,250 and -0-, respectively 4 0
Common stock - authorized 45,000,000 shares,
$.001 par value per share, the number of
shares outstanding at June 30, 1998 and
June 30, 1997 - 31,764,201 and
23,686,700, respectively 31,858 2,369
Paid-in capital 20,548,166 13,639,304
Stock subscription receivable (3,766,666) 0
Unrealized Gain on Available-for-Sale
Securities 253,129 0
Retained earnings (612,243) 189,730
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,454,248 13,831,403
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,245,337 $ 34,608,002
============ ============
</TABLE>
4
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/98 6/30/97
------------ ----------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 11,352,545 $ 2,296,774
Interest Income 1,593,150 150,138
------------ ------------
Total Operating Income 12,945,695 2,446,912
------------ ------------
OPERATING EXPENSES
General and Administrative Expenses 9,932,347 2,013,874
Interest Expense 2,210,085 171,480
Depreciation 135,904 25,316
Amortization of Acquisition Goodwill 84,006 0
Other Amortization 51,247 29,219
------------ ------------
Total Operating Expenses 12,413,589 2,239,889
------------ ------------
Income from Operations 532,106 207,023
Income (loss) from Subsidiary (77,038) 0
------------ ------------
Income before Provision for Income Taxes 455,068 207,023
Provision for Income Taxes 50,523 0
------------ ------------
Net Income $ 404,545 $ 207,023
============ ============
Weighted Average Number of Shares Outstanding 31,764,157 5,503,629
============ ============
Basic Earnings per share $ 0.0127 $ 0.0376
============ ============
Diluted Earnings per share $ 0.0127 $ 0.0376
============ ============
</TABLE>
5
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
6/30/98 6/30/97
------------ -----------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 6,062,085 $ 2,296,774
Interest Income 957,292 150,138
----------- -----------
Total Operating Income 7,019,377 2,446,912
----------- -----------
OPERATING EXPENSES
General and Administrative Expenses 5,156,486 2,012,374
Interest Expense 1,318,295 171,480
Depreciation 70,889 25,316
Amortization of Acquisition Goodwill 42,003 0
Other Amortization 26,598 29,219
----------- -----------
Total Operating Expenses 6,614,271 2,238,389
----------- -----------
Income from Operations 405,106 208,523
Income (loss) from Subsidiary (107,715) 0
----------- -----------
Income before Provision for Income Taxes 297,391 208,523
Provision for Income Taxes 41,560 0
----------- -----------
Net Income $ 255,831 $ 208,523
=========== ===========
</TABLE>
6
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/98 6/30/97
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 404,545 $ 207,023
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 135,253 29,219
Depreciation 135,904 25,316
Loss from subsidiary 77,038 0
Changes in assets and liabilities (4,503,949) (5,424,085)
------------- -------------
Net cash (used in) operating activities (3,751,209) (5,162,527)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (294,128) (31,515)
Purchase of intangible assets (3,315) (209,153)
Mortgages originated - net (288,222,964) (35,195,259)
Mortgages sold 272,536,020 37,743,126
------------- -------------
Net cash provided by (used in) investing activities (15,984,387) 2,307,199
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of preferred stock 2,554,970 0
Notes receivable advanced (1,954,639) 0
Advances from related parties 2,020,997 492,533
Proceeds from warehouse line of credit 269,810,659 34,843,306
Repayments of warehouse line of credit (254,204,466) (32,366,825)
Collection of stock subscriptions 2,374,934 0
Collection of notes receivable 11,311 1,886
------------- -------------
Net cash provided by financing activities 20,613,766 2,970,900
------------- -------------
Net increase (decrease) in cash and equivalents 878,170 115,572
Cash Balance at Beginning of Period 2,027,738 116,761
------------- -------------
Cash Balance at End of Period $ 2,905,908 $ 232,333
============= =============
</TABLE>
7
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/98 6/30/97
---------- ----------
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Interest expense $2,210,085 $ 171,480
=========== ==========
Income taxes $ 69,559 $ 0
=========== ==========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in Market Value of Available-for-Sale
Securities $ 102,165 $ 0
=========== ==========
Assets distributed to reduce debt $4,339,089 $ 0
=========== ==========
Stock issued in conjunction with acquisitions $ 300,000 $ 0
=========== ==========
Notes payable issued in conjunction with
acquisitions $ 394,710 $ 0
=========== ==========
</TABLE>
8
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF RETAINED EARNINGS
-----------------------------------------------------
(Unaudited)
RETAINED EARNINGS - JANUARY 1, 1998 $(1,016,788)
Net Income 404,545
-----------
RETAINED EARNINGS - JUNE 30, 1998 $ (612,243)
===========
9
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information as set forth in Article 10 of Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
NOTE 2 - EARNINGS PER SHARE
Earnings per share have been computed on the basis of the total
weighted average number of shares outstanding at June 30, 1998 and 1997.
JUNE 30, JUNE 30,
1998 1997
----------- -----------
Number of shares outstanding - Start Up Period 31,764,107 5,503,629
Increases of shares 94 0
----------- -----------
Number of shares outstanding - End of period 31,764,201 5,503,629
=========== ===========
Weighted Average Number of Shares
Outstanding 31,764,150 5,503,629
=========== ===========
NOTE 3 - 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., Citizens Mortgage Service Company, First Equities
Service Corp. and First Equities Commercial Corp. All significant intercompany
balances and transactions have been eliminated in consolidation.
NOTE 4 - SALE OF SUBSIDIARIES
The Company sold Green Shield Mortgage Corp., 1st Potomac Mortgage
Corporation and American National Mortgage Corporation (former subsidiaries)
during the first quarter of 1998. Preceding the sales, the Company removed
certain assets pertaining to the business operations, which will be continued by
the Company's subsidiary, Island Mortgage Network, Inc. These subsidiaries were
sold for book value, resulting in no gain or loss to the Company.
10
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
NOTE 5 - PREFERRED STOCK
On February 20, and March 31, 1998, respectively, the Company entered
into two Securities Purchase Agreements. Under the terms of the agreements, the
buyers would receive 8% Convertible Preferred Stock and warrants to purchase
additional shares. The gross proceeds to the Company were $3,000,000. 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 March 31, 2003
and are exercisable at $2.00 per share. The Company issued additional warrants
to the convertible preferred stockholders' which expire on July 15, 2003 and
exercisable at $2.00 per share.
NOTE 6 - SUBSEQUENT EVENTS
In July 1998, the Company retired 7,000,000 shares of treasury stock
previously issued in conjunction with loan negotiations which were concluded
without consequence.
11
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10 - QSB
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
consolidated financial statements.
RESULTS OF OPERATIONS - SIX MONTH PERIOD ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Total revenues for the six months ended June 30, increased to
$12,945,695 as compared to $2,446,912 for the same period in 1997, an increase
of 429%. The Company attributes the increase to the various acquisitions since
August 1, 1997.
Total general and administrative expenses for the six months ended June
30, increased to $9,967,787 as compared to $2,013,874 for the same period in
1997, an increase of 395%. The Company attributes the increase to the increase
of sales volume mentioned above. This increase is 34% less than the increase in
sales due to ongoing acquisitions related cost reductions.
Total interest expense for the six months ended June 30, increased to
$2,210,085 as compared to $171,480 for the same period in 1997, an increase of
1188%. The Company attributes the increase to the increase of sales volume
mentioned above.
Total net income for the six months ended June 30, increased to
$404,545 as compared to $207,023 for the same period in 1997, an increase of
95%. The Company attributes the increase to the increase of sales volume
mentioned above.
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Total revenues for the three months ended June 30, increased to
$7,019,377 as compared to $2,446,912 for the same period in 1997, an increase of
187%. The Company attributes the increase to the various acquisitions since
August 1, 1997.
Total general and administrative expenses for the three months ended
June 30, increased to $5,191,926 as compared to $2,012,374 for the same period
in 1997, an increase of 158%. The Company attributes the increase to the
increase of sales volume mentioned above. This increase is 29% less than the
increase in sales due to ongoing acquisitions related cost reductions.
Total interest expense for the three months ended June 30, increased to
$1,318,295 as compared to $171,480 for the same period in 1997, an increase of
669%. The Company attributes the increase to the increase of sales volume
mentioned above.
12
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED JUNE 30, 1998 VS.
JUNE 30, 1997 (CONT'D)
Total net income for the three months ended June 30, increased to
$255,831 as compared to $208,523 for the same period in 1997, an increase of
23%. The Company attributes the increase to the increase of sales volume
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that current operations will provide adequate cash
flow to meet current obligations. The Company has $4,396,093 in points and fees
receivable and investments of $7,356,558 as its present capital resources.
Management believes that these resources provide adequate working capital for
the Company.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The exhibits filed as part of this report are listed below.
DESCRIPTION
A) EXHIBITS
27 Financial Data Schedule
B) REPORTS
* Form 8-K dated May 5, 1997
* Form 8-K-A dated August 1,1997
* Form 8-K dated September 16, 1997
* Form 10QSB - For the Quarter Ended March 31, 1997
* Form 10QSB - For the Quarter Ended June 30, 1997
* Form 10QSB - For the Quarter Ended September 30, 1997
Form 10QT - For the Transition Period October 1, 1996 to
* December 31, 1996
* Form 10KSB - For the Year Ended December 31, 1997
* Form 10QSB - For the Quarter Ended March 31, 1998
* Incorporated by reference.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMN FINANCIAL CORP. AND SUBSIDIARIES.
Dated: August 15, 1998
EDWARD CAPUANO - President, Principal
Executive Officer and Principal Financial
Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains certain summary information extracted from the
financial statements dated June 30, 1998 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,905,908
<SECURITIES> 7,340,558
<RECEIVABLES> 5,150,403
<ALLOWANCES> 0
<INVENTORY> 59,839,563
<CURRENT-ASSETS> 79,979,549
<PP&E> 1,583,210
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,245,337
<CURRENT-LIABILITIES> 73,791,089
<BONDS> 0
<COMMON> 31,858
0
4
<OTHER-SE> 16,422,386
<TOTAL-LIABILITY-AND-EQUITY> 90,245,337
<SALES> 0
<TOTAL-REVENUES> 12,945,695
<CGS> 0
<TOTAL-COSTS> 10,203,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,210,085
<INCOME-PRETAX> 455,068
<INCOME-TAX> 50,523
<INCOME-CONTINUING> 404,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 404,545
<EPS-PRIMARY> 0.047
<EPS-DILUTED> 0.047
</TABLE>
