<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 2, 1997
IMN FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 2-72849 11-2558192
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
520 Broad Hollow Road, Melville, New York 11746
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 844-9805
<PAGE>
Item 2. Acquisition or Disposition of Assets
(a)(i) On December 2, 1997, the Registrant and American National Mortgage
Corp. ("ANM") executed and delivered a stock purchase agreement (the
"Agreement") pursuant to which the registrant agreed to acquire from ANM 100% of
the issued and outstanding shares of capital stock.
(ii) The amount and source of consideration used by the Registrant was:
1)at the closing, one million five hundred thousand dollars ($1,500,000) worth
of the Registrant's common stock, valued at three dollars twenty five cents
($3.25), subject to Rule 144, in the name of Kenneth Barash (the Principal of
ANM); 2) on January 2, 1998, a check payable to the Principal in the amount of
one hundred thousand dollars ($100,000); 3) eight (8) monthly checks in the
amount of sixteen thousand two hundred fifty dollars ($16,250) each, starting
one (1) month after the Closing Date, and continue until eight (8) months after
the Closing Date; 4) for a period of eighteen (18) months after the Closing
Date, up to one million five hundred thousand dollars worth of the Registrant's
common stock, (valued at three dollars twenty five cents ($3.25), based upon a
goal of average cumulative quarterly mortgage closings of thirty million
($30,000,000) per quarter for operations under the Principal's control.
(iii) The principle followed in determining the amount of such
consideration was based upon negotiation of the parties.
(b) The assets acquired by the Registrant were 100% of the issued and
outstanding capital stock of ANM. The business of ANM is mortgage banking. The
Registrant expects that ANM will remain a subsidiary of the registrant and that
ANM's business will continue in a manner in which it was conducted prior to the
acquisition.
(C) On January 23rd, 1998, paragraph 1.3(ii) of the agreement was amended
as to the $100,000 payment to the Principal. The $100,000 sum is to be paid in
six (6) checks in the amount of $15,000, and one (1) check for $10,000, payable
in monthly installments starting February 15, 1998 and August 15, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of the businesses acquired
(b) Pro forma financial information
(C) Exhibits
(1) The December 31, 1996 pro forma financial statements of
IMN Financial Corp. (incorporated by reference to the Registrant's
Form 8-KA, dated May 5, 1997.)
(2) Stock Purchase agreement between the Registrant and ANM
dated December 2, 1997 (incorporated by reference to the
Registrant's Form 8-K, dated December 2, 1997).
(3) The September 30, 1997 financial statements of IMN
Financial Corp. (incorporated by reference to Registrant's Form 10Q,
dated November 17, 1997)
(4) January 23, 1998 amendment to the Stock Purchase
Agreement, originally dated December 2, 1997.
2
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed combined balance sheet as of September
30, 1997, and the pro forma condensed combined statement of income for the year
ended December 31, 1996 and for the nine months ended September 30, 1997 give
effect to the acquisition of 100% of the outstanding common shares of American
National Mortgage Corp. ("ANMC") by IMN Financial Corp. ("IMN"). The pro forma
information is based on the historical financial statements of IMN and ANMC
giving effect to the transaction under the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma financial
statements. The IMN statement of income for the year ended December 31, 1996 is
the pro forma statement presented as reflected in the Registrant's Form 8K,
dated May 5, 1997. The IMN statement of income for the nine months ended
September 30, 1997 is the pro forma statement presented as reflected in the
Registrant's Form 10Q dated November 17, 1997.
The pro forma financial statements have been prepared by IMN management
based upon the financial statements of ANMC included elsewhere herein. These pro
forma financial statements may not be indicative of the results that actually
would have occurred if the combination had been in effect on the dates indicated
or which may be obtained in the future. The pro forma financial statements
should be read in conjunction with the audited financial statements and notes of
IMN and ANMC contained elsewhere herein.
3
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
IMN ANMC Pro Forma Pro Forma
(Historical) (Historical) Adjustments Combined
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash $ 725,620 $ 289,743 $ (100,000) (1) $ 915,363
Mortgage inventory 23,170,998 11,652,391 34,823,389
Points and fees receivable 671,113 443,902 1,115,015
Subscription receivable 4,894,488 4,894,488
Other current receivables 477,916 477,916
Marketable securities 5,000,000 5,000,000
Investments 660,293 660,293
Prepaid expenses 2,142,222 2,142,222
Property and equipment-net 989,613 211,573 1,201,186
Mortgage receivable 2,290,574 2,290,574
Intangible assets-net 5,657,874 (2)
2,155,735 (660,086) (3) 7,153,523
Other assets 91,869 29,669 121,538
Investment in ANMC 3,230,000 (1)
0 (3,230,000) (2) 0
------------ ------------- ------------ -------------
Total assets $ 43,270,441 $ 12,627,278 $ 4,897,788 $ 60,795,507
============ ============= ============ =============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
4
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
IMN ANMC Pro Forma Pro Forma
(Historical) (Historical) Adjustments Combined
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Liabilities
Accounts payable and
accrued expenses $ 2,405,325 $ 460,940 $ 2,866,265
Warehouse lines of credit 22,563,966 11,426,579 33,990,545
Notes payable 0 0 130,000 (1) 130,000
Borrowers escrow funds 306,930 266,413 573,343
Capital lease obligations 330,740 0 330,740
Due to related party 2,504,488 0 2,504,488
Deferred income 348,259 62,683 410,942
Deferred income taxes 0 9,600 2,828,937 (2) 2,838,537
Other liabilities 966 0 966
------------ ------------- ------------- -------------
Total Liabilities 28,460,674 12,226,215 2,958,937 43,645,826
Stockholders' Equity
Preferred stock-authorized
5,000,000 shares, $.0001
per share 0 0 0
Common stock-authorized
45,000,000 shares,
$.0001 per share, the
proforma number of
shares outstanding at
September 30, 1997 was 92 (1)
24,880,994 2,396 1,000 (1,000) (2) 2,488
2,999,908 (1)
Additional paid in capital 14,715,858 371,500 (371,500) (2) 17,715,766
(660,086) (3)
Retained earnings 91,513 (69,779) 69,779 (2) (568,573)
Subordinated Debt 0 98,342 (98,342) (2) 0
------------ ------------- ------------- -------------
Total Stockholders' Equity 14,809,767 401,063 1,938,851 17,149,681
------------ ------------- ------------- -------------
Total Liabilities and
Stockholders' Equity $ 43,270,441 $ 12,627,278 $ 4,897,788 $ 60,795,507
============ ============= ============= =============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
5
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE INTERIM PERIOD SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IMN
(Per Pro
Forma 10Q - ANMC Pro Forma Pro Forma
9/30/97) (Historical) Adjustments Combined
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and
Premium Income $ 6,757,052 $ 3,401,099 $ 0 $ 10,158,151
Interest Income 702,909 456,687 0 1,159,596
------------- -------------- ------------- -------------
Total Operating Income 7,459,961 3,857,786 0 11,317,747
------------- -------------- ------------- -------------
Operating Expenses
Field and Direct Expenses 2,243,605 2,705,113 0 4,948,718
Interest Expenses 693,035 429,122 0 1,122,157
------------- -------------- ------------- -------------
Total Operating Expenses 2,936,640 3,134,235 0 6,070,875
------------- -------------- ------------- -------------
Gross Profit 4,523,321 723,551 0 5,246,872
General and Administrative
Expenses 4,414,515 1,122,615 282,894 5,820,024
------------- -------------- ------------- -------------
Income (Loss) from Operations 108,806 (399,064) (282,894) (573,152)
Other Income (Expenses) 0 0 0 0
------------- -------------- ------------- -------------
Income (Loss) before Provision
for Income Taxes 108,806 (399,064) (282,894) (573,152)
Provision for Income Taxes 0 0 0 0
------------- -------------- ------------- -------------
Net Income (Loss) $ 108,806 $ (399,064) $ (282,894) $ (573,152)
============= ============== ============= =============
Weighted Average Number of
Shares Outstanding 23,274,319
=============
Net Income per Share (Basic) -0.0246
=============
Net Income per Share (Diluted) -0.0246
=============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
6
<PAGE>
IMN FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IMN
(Per Pro
Forma 8K - ANMC Pro Forma Pro Forma
5/5/97) (Historical) Adjustments Combined
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Income
Points, Fees and
Premium Income $ 5,554,241 $ 5,253,396 $ 0 $ 10,807,637
Interest Income 440,890 505,908 0 946,798
------------- -------------- ------------- -------------
Total Operating Income 5,995,131 5,759,304 0 11,754,435
------------- -------------- ------------- -------------
Operating Expenses
Field and Direct Expenses 3,375,700 2,358,226 0 5,733,926
Interest Expenses 542,781 502,576 0 1,045,357
------------- -------------- ------------- -------------
Total Operating Expenses 3,918,481 2,860,802 0 6,779,283
------------- -------------- ------------- -------------
Gross Profit 2,076,650 2,898,502 0 4,975,152
General and Administrative
Expenses 2,876,176 2,743,222 377,192 5,996,590
------------- -------------- ------------- -------------
Income (Loss) from Operations (799,526) 155,280 (377,192) (1,021,438)
Other Income (Expenses)
Interest expense (3,677) 0 0 (3,677)
Gain on Sale of Subsidiaries 856,232 0 0 856,232
------------- -------------- ------------- -------------
Income (Loss) before Provision
for Income Taxes 53,029 155,280 (377,192) (168,883)
Provision for Income Taxes (8,642) (5,400) 0 (14,042)
------------- -------------- ------------- -------------
Net Income (Loss) $ 44,387 $ 149,880 $ (377,192) $ (182,925)
============= ============== ============= =============
Weighted Average Number of
Shares Outstanding 22,209,077
=============
Net Income per Share (Basic) -0.0082
=============
Net Income per Share (Diluted) -0.0082
=============
</TABLE>
See Notes to Pro forma Condensed Combined Financial Statements.
7
<PAGE>
IMN FINANCIAL CORP.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 2, 1997, IMN acquired 100% of the outstanding common stock of
ANMC for a total consideration of $3,230,000. The pro forma financial statements
combine the assets and liabilities of the two companies at September 30, 1997
and their results of operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997. In combining the entities, the following
pro forma adjustments have been made.
(1) Reflects the acquisition of ANMC as follows:
Cash $ 100,000
Note payable 130,000
Issuance of common stock
923,076 shares @ $.0001 per share 92
Additional paid in capital 2,999,908
------------
Total consideration $ 3,230,000
============
(2) To eliminate the Investment in ANMC.
Goodwill $ 5,657,874
Deferred income taxes (2,828,937)
Common stock 1,000
Additional paid in capital 371,500
Retained earnings (69,779)
Subordinated debt 98,342
------------
Total Investment in ANMC $ 3,230,000
============
(3) For purposes of presenting the pro forma condensed combined statement
of income, the following adjustment (which is expected to be recurring) has been
made:
Nine Months Year
Ended Ended
9/30/97 12/31/96
------------- -------------
Increase (decrease) in income:
Amortization of goodwill (15 yrs.) $ (282,984) $ (377,192)
============= =============
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IMN FINANCIAL CORP.
(Registrant)
------------------------------------
By: s/Edward Capuano
Edward Capuano,
President and Principal
Executive Officer and
Principal Financial Officer
Dated: January 23, 1998
9
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1996:
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-7
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION 8
ADDITIONAL INFORMATION:
Schedule of General and Administrative Expenses 9
<PAGE>
Caruso
Company P.C.
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American National Mortgage Corp.
Totowa, New Jersey
We have audited the accompanying balance sheet of American National Mortgage
Corp. as of December 31, 1996 and the related statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American National Mortgage
Corp. as of December 31, 1996, and the results of its operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Caruso & Company P.C.
March 19, 1997
51 Mt. Bethel Road
Warren, NJ 07059
Tel (908) 668-5100
Fax (908) 668-5203
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
BALANCE SHEET
DECEMBER 31. 1996
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 107,898
Cash held in trust 932,388
Marketable securities 63,138
Mortgage loans held for sale 8,377,362
Mortgage fees receivable 388,544
Prepaid expenses and other assets 398
Property and equipment, net 215,281
------------
$ 10,085,009
============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Warehouse loans payable $ 7,850,224
Accounts payable and accrued expenses 404,043
Mortgage fees collected not earned 41,475
Mortgage proceeds held in escrow 938,713
Income taxes payable 5,800
Loan payable - stockholder 142,970
------------
Total liabilities 9,383,225
============
STOCKHOLDER'S EQUITY:
Capital stock at no par value;
2,500 shares authorized;
100 shares issued and outstanding l,000
Additional paid-in capital 371,500
Retained earnings 329,284
------------
701,784
------------
$ 10,085,009
============
See notes to financial statements.
2
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
REVENUES:
Loan origination $ 5,253,396
Interest income 505,908
------------
Total revenues 5,759,304
------------
EXPENSES:
General and administrative expenses 5,066,785
Depreciation 34,663
Interest 502,576
------------
Total expenses 5,604,024
------------
INCOME BEFORE NCOME TAXES 155,280
STATE INCOME TAXES 5,400
------------
NET INCOME 149,880
RETAINED EARNINGS, BEGINNING OF YEAR 179,404
------------
RETAINED EARNINGS, END OF YEAR $ 329,284
============
See notes to financial statements.
3
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 149,880
--------------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 34,663
Changes in assets and liabilities: (846,438)
(Increase) in cash held in trust (6,108,795)
(Increase) in mortgage loans held for sale (247,281)
(Increase) in mortgage fees receivable 30,327
Decrease in prepaid expenses and other assets 3,537
Decrease in deposits 400
Decrease in deferred income taxes 229,002
Increase in accounts payable and accrued expenses 35,750
Increase in mortgage fees collected not earned 876,409
Increase in mortgage proceeds held in escrow 2,300
Increase in income taxes payable --------------
Net cash used in operating activities (5,840,246)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (13,707)
Net purchases of marketable securities (10,784)
--------------
Net cash used in investing activities (24,491)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on warehouse loans, net 5,653,0ll
Loan from stockholder 142,970
--------------
Net cash provided by financing activities 5,795,981
--------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (68,756)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 176,654
--------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 107,898
==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 444,451
==============
Income taxes $ 1,463
==============
See notes to financial statements.
4
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. GENERAL
Nature of Operation - American National Mortgage Corp. (the Company) is
engaged in the business of mortgage banking. The Company is licensed to do
business in eight states, primarily in the Eastern United States.
Use of Estimates in the Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mortgage Loans Held For Sale - Mortgage loans are collateralized by first
mortgages on single family and other residential property and are carried
at the lower of cost or market value. Generally, mortgage loans are
committed for sale at closing. Revenue from the disposition of closed
mortgage loans is recognized when the mortgage loans are committed to a
permanent investor. Accordingly, mortgage loans held for sale are carried
at the commitment price which approximates fair value.
Marketable Securities - All of the Company's investments in marketable
securities have been classified as available for sale. As a result, these
investments are stated at fair value: Fair values are based on publicly
quoted market prices.
Equipment - Equipment is recorded at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the assets.
Repairs and maintenance are charged to expense as incurred.
Income Taxes - The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the
Company does not pay federal corporate income taxes on its taxable income.
Instead, the stockholder is liable for Federal income taxes on the
Company's income or loss. The Company may be subject to state income tax
based on the tax codes in the various states in which the Company conducts
business.
Deferred income taxes result from temporary differences in reporting income
for financial statement and tax basis, primarily arising from differences
in depreciation of assets and the use of the cash basis method of
accounting, whereby income is recognized when received and expenses are
recognized when paid.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid
investments with a maturity of three months or less when purchased. Cash
and cash equivalents are stated at cost plus accrued Interest, which
approximates market.
5
<PAGE>
3. EQUIPMENT
Furniture and fixtures $ 34,505
Office equipment 275,224
Transportation equipment 25,800
----------
335,529
Less accumulated depreciation 120,248
----------
Equipment, net $ 215,281
==========
4. WAREHOUSE LOANS PAYABLE
The Company has warehouse lines of credit agreements with its lenders
totaling $23,000,000. Under the terms of the agreements, which expire
through July 24, 1997, amounts borrowed bear interest at the lender's prime
rate to the lender's prime rate plus 1% and at the commercial paper rate
plus 2.6%. Borrowings at December 31, 1996 were $7,850,224. These
warehousing agreements are collateralized by mortgage loans held for sale
of $8,377,362 at December 31, 1996 and the personal guarantee of the
Company's stockholder.
Under the terms of one of the warehousing agreements, the Company is
required to satisfy certain financial tests including an adjusted net worth
and leverage ratio, as defined. At December 31, 1996, the Company was not
in compliance with one of its tangible net worth requirements. The lender
has waived compliance with such covenant through April 30, 1997, and has
agreed to amend the terms of the agreement to include the subordination of
the loan payable - stockholder.
5. STATE INCOME TAXES
Current income taxes $ 5,800
Deferred income taxes (400)
----------
$ 5,400
==========
The income tax benefit differs from the statutory tax rates primarily due
to the reversal of federal and state deferred income taxes which are no
longer payable by the Company as a result of an election by the Shareholder
to be taxed as an S corporation for federal and state tax purposes. The
deferred taxes are primarily attributable to the use of the cash basis of
accounting for income tax purposes and the tax basis depreciation expense
on equipment in excess of financial statement expenses.
6. LOAN PAYABLE - STOCKHOLDER
During 1996, the Company's stockholder loaned $142,970 to the Company. The
Company has not established any repayment terms with respect to the loan.
7. RETIREMENT PLAN
In 1996, the Company established a 401(k) profit sharing plan which covers
all employees. The Company may make profit sharing contributions at the
discretion of the Board of Directors. There were no profit sharing
contributions for the year ended December 31, 1996.
6
<PAGE>
8. COMMITMENTS
The Company leases office space under month-to-month arrangements. The
monthly lease payments include utilities and common area costs.
9. CONCENTRATIONS OF CASH
The Company maintains cash in major banks. At December 3l, 1996, 96% of the
Company's cash was deposited in one bank.
7
<PAGE>
Caruso
Company p.c.
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
To the Board of Directors
American National Mortgage Corp.
Totowa, New Jersey
We have audited the financial statements of American National Mortgage Corp. for
the year ended December 31, 1996 and our report thereon appears on Page 1. Our
audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The additional information listed in the foregoing
table of contents is presented for the purposes of additional analysis and is
not a required part of the financial statements. The additional information is
the responsibility of the Company's management Such additional information has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects when considered In relation to the basic financial statements taken as
a whole.
Caruso & Company P.C.
March 19, 1997
51 Mt. Bethel Road
Warren, NJ 07059
Tel (908) 668-5100
Fax (908) 668-5203
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Independent originators salaries and fees $ 1,668,525
Office salaries 1,004,392
Mortgage processing fees and costs 643,811
Officers salaries 313,068
Rent and utilities 246,685
Payroll taxes 243,177
Telephone 129,275
Advertising 112,909
Professional fees 101,877
Office expense 97,026
Travel and entertainment 89,679
Insurance 69,412
Messenger fees 61,475
Miscellaneous 49,269
Printing 49,078
Equipment leases 46,717
Broker fees 43,475
Repairs and maintenance 36,750
Licenses and fees 24,750
Postage 21,101
Temporary services 8,104
Warehouse fees 2,415
Conventions 2,050
Computer consultant 1,855
----------
$5,066,785
==========
9
<PAGE>
Caruso &
Company P.C.
AMERICAN NATIONAL MORTGAGE CORP.
FINANCIAL STAEMENTS AND
SUPPLEMENTAL INFORMATION
FOR THE YEAR ENDED
DECMBER 31, 1995
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
FOR THE YEAR ENDED DECEMBER 3l, 1995
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance sheet 2
Statement of income and retained earnings 3
Statement of cash flows 4 - 5
Notes to financial statements 6 - 8
SUPPLEMENTAL INFORMATION:
Supplemental information as required by
Chapter 7 of the consolidated audit
guide for audits of HUD programs 9
<PAGE>
Caruso
Company P.C.
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American National Mortgage Corp.
We have audited the accompanying balance sheet of American National Mortgage
Corp. (the "Company") as of December 31, 1995 and the related statements of
income and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American National Mortgage
Corp. as of December 31, 1995, and the results of their operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U. S. Department of Housing and
Urban Development, we have also issued a report dated May 1, 1996, on our
consideration of the Company's internal control structure and a report dated May
1, 1996, on the Company's compliance with specific requirements applicable to
major HUD programs.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information shown on page 9 is presented for purposes of additional analysis and
is not a required part of the basic financial statements of the Company. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Caruso & Company P.C.
Certified Public Accountant
May 1, 1996
51 Mt. Bethel Road
Warren, NJ 07059
Tel (908) 668-5100
Fax (908) 668-5203
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Assets:
Cash and cash equivalents $ 176,654
Cash held in trust 85,950
Marketable securities 52,354
Mortgage loans held for sale 2,268,567
Mortgage fees receivable 141,263
Prepaid income taxes 22,000
Prepaid expenses 30,625
Property and equipment, at cost,
net of depreciation of $85,585 236,237
Deposits 3,537
-----------
Total assets $ 3,017,187
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Warehouse loans payable, bank $ 2,197,213
Accounts payable and accrued expenses 175,041
Mortgage fees collected not earned 5,725
Mortgage proceeds held in escrow 62,304
Income taxes payable 21,500
Deferred income taxes 3,500
Commitments --
-----------
Total liabilities 2,465,283
-----------
Stockholder's equity:
Capital stock at no par value;
2,500 shares authorized;
100 shares issued and outstanding 1,000
Additional paid-in capital 371,500
Retained earnings 179,404
-----------
Total stockholder's equity 551,904
-----------
Total liabilities and stockholder's
equity $ 3,017,187
===========
See accompanying notes.
Page 2
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenues $ 1,469,966
-----------
Operating Costs and Expenses:
General and administrative expenses 1,387,498
Depreciation 31,858
-----------
Total operating costs and expenses
1,419,356
Income from operations
50,610
Interest and dividend income
Gain on sale of securities 133,951
Interest expense 11,956
(138,520)
-----------
Income before income taxes 57,997
Income tax provision 16,900
-----------
Net income
41,097
Retained earnings - beginning
138,307
-----------
Retained earnings - ending $ 179,404
===========
See accompanying notes.
Page 3
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
Fee receipts $ 1,366,504
Interest receipts 147,748
Salaries and wages (904,242)
Processing fees and costs (91,358)
Other administrative costs (300,838)
Interest paid (124,543)
Income taxes paid (11,000)
Other (68,257)
-----------
Net cash provided by
operating activities 14,014
-----------
Cash flows from investing activities:
Purchases of property and equipment (26,728)
Sales and write down of marketable 157,131
securities ------------
Net cash provided by
investing activities 130,403
-----------
Net increase in cash 144,417
and cash equivalents
Cash and cash equivalents at
beginning of the year 32,237
-----------
Cash and cash equivalents
at end of the year $ 176,654
===========
See accompanying notes.
Page 4
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
STATEMENT OF CASH FLOWS
(continued)
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 41,097
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 31,858
Changes in assets and liabilities:
(Increase) in cash held in trust (54,140)
(Increase) in mortgage loans held (1,395,006)
for sale
(Increase) in mortgage fees (96,499)
receivable
(Increase) in prepaid income taxes (6,000)
(Increase) in prepaid expenses (30,625)
Decrease in deposits 2,355
Increase in warehouse loans 1,350,988
payable, bank
Increase in accounts payable 135,148
and accrued expenses
(Decrease) in mortgage fees (6,963)
collected not earned
Increase in mortgage proceeds held 29,901
in escrow
Increase in income taxes payable 21,500
(Decrease) in deferred income taxes (9,600)
----------
Net cash provided by
operating activities $ 14,014
==========
See accompanying notes.
Page 5
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. Summary of Significant Accounting Policies
Nature of Operation
American National Mortgage Corp. (the Company) is engaged in the business
of mortgage banking. The Company is licensed to do business in New Jersey,
New York, Pennsylvania, Florida and Ohio.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Cash and Cash Equi1ivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased. Cash and cash equivalents are stated
at cost plus accrued interest, which approximates market.
Marketable Securities
Marketable securities are stated at the lower of fair market value or cost.
Mortgage Loans Held For Sale
Mortgage loans are collateralized by first mortgages on single family and
other residential property and are carried at the lower of cost or market
value.
Page 6
<PAGE>
Property and Equipment
Assets are carried at cost. Capital additions, improvements and major
renewals are capitalized. When such assets are retired or otherwise
disposed of, the related carrying value and accumulated depreciation are
cleared from their respective accounts, and the net difference, adjusted by
any amounts received from disposition, is reflected in earnings.
Maintenance and repairs are charged against earnings when incurred.
Depreciation of property and equipment will be provided over the estimated
useful lives of the respective assets, which range from seven to ten years
using the straight-line method.
2. Income Taxes
The provision for income taxes or the (benefit) arising from the carryback
of losses consist of the following:
1995
----
Current:
Federal $ 24,900
State --
--------
Total current . 24,900
--------
Deferred:
Federal (8,000)
State --
--------
Total deferred (8,000)
--------
Total $ 16,900
========
3. Mortgage Loans Held For Sale and Warehouse Loans Payable - Bank
Mortgage loans held for sale of $2,268,567 at December 31, 1995 were
pledged as collateral for warehouse loans payable in the amount of
$2,197,213.
The Company has warehouse lines of credit agreements with its banks
totaling $6,000,000 that bear interest at rates ranging from .75 to 1.0 per
cent over the banks' prime rate. The agreements generally require repayment
when the related mortgage loan is sold.
Page 7
<PAGE>
4. Commitments
The Company leases office space under a month to month arrangement. The
monthly lease payment of $11,410 includes utilities and other common area
costs.
Page 8
<PAGE>
AMERICAN NATIONAL MORTGAGE CORP.
SUPPLEMENTAL INFORMATION AS REQUIRED BY
CHAPTER 7 OF THE CONSOLIDATED AUDIT GUIDE FOR
AUDITS OF HUD PROGRAMS
DECEMBER 31, 1995
1. Servicing portfolio FYE $ 0
2. Add:
Origination 14,734,679
Purchased from loan correspondents 0
-----------
Subtotal 14,734,679
-----------
3. Less:
Servicing retained 0
Loan correspondents purchase retained 0
-----------
Subtotal 0
-----------
4. Total $ 14,734,679
===========
5. Net worth required $ 250,000
===========
Stockholders equity (net worth)
per balance sheet $ 551,904
Less unacceptable assets 0
-----------
Adjusted net worth requirement
for HUD purposes 551,904
===========
Adjusted net worth above amount required $ 301,904
===========
Page 9
<PAGE>
AMENDMENT NUMBER 1
TO THE STOCK PURCHASE AGREEMENT
DATED DECEMBER 2,1997
This Amendment to the Stock Purchase Agreement ("Agreement") made and dated
as of December 2,1997, between IMN Financial Corp., Island Mortgage Network
Inc., American National Mortgage Corp., and Kenneth Barash, is made as of this
23rd day of January, 1998.
Paragraph 1.3 (ii) of the Agreement is amended to read as follows:
(ii) the sum of $100,000, in six (6) checks in the amount of $15,000, and one
(1) check for $ 10,000, payable in monthly installments starting February 15,
1998 and ending August 15, 1998.
All the other terms and conditions of the Agreement made and dated as of
December 2, 1997 shall remain in full force and effect and are hereby confirmed
and ratified. All capitalized terms used herein have the same meaning as in the
Agreement.
In witness whereof; the parties have executed this Amendment Number 1 this
23rd day of January, 1998.
IMN FINANCIAL CORP. AMERICAN NATIONAL MORTGAGE CORP.
By: /S/ Edward R.Capuano By: /S/ Kenneth Barash
----------------------------- ------------------------------
Edward R. Capuano, President Kenneth Barash, President
ISLAND MORTGAGE NETWORK INC. PRINCIPAL
By: /S/ Edward R.Capuano By: /S/ Kenneth Barash
----------------------------- ------------------------------
Edward R. Capuano, President Kenneth Barash
