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, 1999 File No.: 2-72849-NY
APPONLINE.COM, INC.
(Formerly Known As 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 20, 1999:
Common stock, $.001 par value - 29,953,905 shares outstanding.
Preferred stock, $.001 par value - 5,960 shares outstanding.
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IMN FINANCIAL CORP. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1999 and June 30, 1998 3-4
Condensed Consolidated Statement of Income -
Six Months Ended June 30, 1999 and June 30, 1998 5
Condensed Consolidated Statement of Income -
Three Months Ended June 30, 1999 and June 30, 1998 6
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and June 30, 1998 7-8
Condensed Consolidated Statement of Retained Earnings 9
Notes to Financial Statements 10
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS 11-13
PART II - OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 16
2
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
ASSETS
------
6/30/99 6/30/98
Unaudited Unaudited
---------------------- ---------------------
ASSETS
<S> <C> <C>
Cash $ 3,277,342 $ 2,905,908
Mortgage inventory 75,542,872 59,839,563
Points and fees receivable 8,334,353 4,396,093
Other current receivables 1,696,419 754,310
Investments 7,639,504 7,356,558
Prepaid expenses 5,811,057 4,727,117
Property and equipment - net 2,829,730 1,583,210
Notes and mortgages receivable 3,242,701 4,219,964
Intangible assets - net 4,552,140 4,377,447
Other assets 860,099 85,167
----------------- ----------------
TOTAL ASSETS $ 113,786,217 $ 90,245,337
================= ================
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
6/30/99 6/30/98
Unaudited Unaudited
---------------------- ---------------------
LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 5,048,982 $ 4,794,209
Warehouse lines of credit 74,360,144 59,258,693
Borrowers escrow funds 454,005 272,393
Capital lease obligations 130,440 191,054
Notes payable 388,965 585,586
Due to related party 14,559,314 7,098,595
Deferred income 1,227,778 1,175,540
Deferred income taxes 444,910 415,019
Corporate taxes payable 356,616 0
Other liabilities 7,096 0
---------------- ----------------
Total Liabilities 96,978,250 73,791,089
STOCKHOLDERS' EQUITY
Preferred stock - authorized 5,000,000 shares $.001 par
value per share, the number of shares outstanding
at June 30, 1999 and June 30, 1998 - 5,960 and
4,250, respectively 6 4
Common stock - authorized 45,000,000 shares,
$.001 par value per share, the number of
shares outstanding at June 30, 1999 and
June 30, 1998 - 29,953,905 and
31,764,201, respectively 29,955 31,858
Paid-in capital 22,669,262 20,548,166
Stock subscription receivable (5,916,100) (3,766,666)
Unrealized gain on available-for-sale
securities 449,376 253,129
Retained deficit (424,532) (612,243)
-------------- ------------------
Total Stockholders' Equity 16,807,967 16,454,248
-------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 113,786,217 $ 90,245,337
============== ==================
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Six Months Six Months
Ended Ended
6/30/99 6/30/98
------------------ ----------------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 16,320,568 $ 11,352,545
Interest Income 2,214,785 1,593,150
------------------ ----------------
Total Operating Income 18,535,353 12,945,695
------------------ ----------------
OPERATING EXPENSES
General and Administrative Expenses 6,468,676 4,337,801
Interest Expense 2,619,818 2,210,085
Field and Direct Expenses 8,342,778 5,594,546
Depreciation 217,039 135,904
Amortization of Acquisition Goodwill 246,409 84,006
Other Amortization 147,021 51,247
------------------ ----------------
Total Operating Expenses 18,041,741 12,413,589
------------------ ----------------
Income from Operations 493,612 532,106
Loss from Subsidiary 43,573 77,038
------------------ ----------------
Income before Provision for Income Taxes 450,039 455,068
Provision for Income Taxes 132,016 50,523
------------------ ----------------
Net Income 318,023 404,545
OTHER COMPREHENSIVE INCOME
Unrealized Gain on Available -for-Sale Securities
(Net of Income Tax) 52,800 18,635
------------------ ----------------
COMPREHENSIVE INCOME $ 370,823 $ 423,180
================== ================
Weighted Average Number of Shares 29,100,501 31,764,157
Outstanding ================== ================
Basic Earnings per share $ 0.01 $ 0.01
================== ================
Diluted Earnings per share $ 0.01 $ 0.01
================== ================
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Three Months
Ended Ended
6/30/99 6/30/98
----------------------- -----------------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 8,711,213 $ 6,062,085
Interest Income 1,048,857 957,292
----------------- -----------------
Total Operating Income 9,760,070 7,019,377
----------------- -----------------
OPERATING EXPENSES
General and Administrative Expenses 3,478,549 2,252,017
Interest Expense 1,393,815 1,318,295
Field and Direct Expenses 4,251,333 2,904,469
Depreciation 119,451 70,889
Amortization of Acquisition Goodwill 123,554 42,003
Other Amortization 84,472 26,598
----------------- -----------------
Total Operating Expenses 9,451,174 6,614,271
----------------- -----------------
Income from Operations 308,896 405,106
Loss from Subsidiary 48,125 107,715
----------------- -----------------
Income before Provision for Income Taxes 260,771 297,391
Provision for Income Taxes 56,309 41,560
----------------- -----------------
Net Income 204,462 255,831
OTHER COMPREHENSIVE INCOME
Unrealized Gain on Available -for-Sale Securities
(Net of Income Tax) 43,482 6,211
----------------- -----------------
COMPREHENSIVE INCOME $ 247,944 $ 262,042
================= =================
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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)
Six Months Six Months
Ended Ended
6/30/99 6/30/98
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 318,023 $ 404,545
Adjustments to reconcile net income to net
cash used by operating activities:
Amortization 393,430 135,253
Depreciation 217,039 135,904
Loss from subsidiary 43,573 77,038
Changes in assets and liabilities (6,251,442) (4,503,949)
---------------------- ----------------------
Net cash used by operating activities (5,279,377) (3,751,209)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (675,158) (294,128)
Purchase of intangible assets (204,149) (3,315)
Mortgages originated - net (388,216,240) (288,222,964)
Mortgages sold 386,783,130 272,536,020
Cash acquired in conjunction with acquisition 5,872 0
Notes receivable advanced (1,000,000) (1,954,639)
Collection of notes receivable 11,312 11,311
---------------------- ----------------------
Net cash used by investing activities (3,295,233) (17,927,715)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of preferred stock 0 2,554,970
Sale of common stock 2,320,000 0
Advances from related parties 4,249,091 2,020,997
Proceeds from warehouse line of credit 382,392,996 269,810,659
Repayments of warehouse line of credit (381,377,797) (254,204,466)
Repayment of capital lease obligations (5,377) 0
Repayment of notes and mortgages payable (173,503) 0
Collection of stock subscriptions 0 2,374,934
---------------------- ----------------------
Net cash provided by financing activities 7,405,410 22,557,094
---------------------- ----------------------
Net increase (decrease) in cash (1,169,200) 878,170
Cash - January 1 4,446,542 2,027,738
---------------------- ----------------------
Cash - June 30 $ 3,277,342 $ 2,905,908
====================== ======================
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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)
Six Months Six Months
Ended Ended
6/30/99 6/30/98
----------------- -----------------
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Interest expense $ 1,393,815 $ 2,210,085
================= =================
Income taxes $ 86,713 $ 69,559
================= =================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Increase in Market Value of Available-for-Sale Securities $ 52,800 $ 18,635
================ =================
Assets distributed to reduce debt $ 0 $ 4,339,089
================ =================
Stock issued in conjunction with acquisitions $ 147,000 $ 300,000
================ =================
Notes payable issued in conjunction with acquisitions $ 0 $ 394,710
================ =================
Decrease in assets and liabiliites in conjunction with
previous sale of subsidiary $ 384,357 $ 0
================ =================
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IMN FINANCIAL CORP. AND SUBSIDIARIES
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FORM 10 - QSB
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CONDENSED CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Unaudited)
<S> <C>
RETAINED DEFICIT - JANUARY 1, 1999 $ (742,555)
Net Income 318,023
--------------------------
RETAINED DEFICIT - JUNE 30, 1999 $ (424,532)
==========================
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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
and with the instructions and item 310 (b) of Regulations 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. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999. For
further information, refer to the financial statements and footnotes thereto
included in the Company's 1998 annual report filed on form 10-KSB.
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, 1999 and 1998.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
------------------- -----------------
<S> <C> <C>
Number of shares outstanding - Start Up Period 28,661,905 31,764,107
Increases of shares 1,292,000 94
------------------- -----------------
Number of shares outstanding - End of period 29,953,905 31,764,201
=================== =================
Weighted Average Number of Shares
Outstanding 29,100,501 31,764,150
=================== =================
</TABLE>
NOTE 3 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of AppOnline.com, Inc. and its wholly owned subsidiaries, Island
Mortgage Network, Inc., Citizens Mortgage Service Company, First Equities
Service Corp., First Equities Commercial Corp. and Queen City Mortgage Co.. All
significant intercompany balances and transactions have been eliminated in
consolidation.
10
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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
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, 1999 VS. JUNE 30,
- -------------------------------------------------------------------------
1998
- ----
Total revenues for the six months ended June 30, increased to
$18,535,353 as compared to $12,945,695 for the same period in 1998, an increase
of 43%. The Company attributes the increase to several acquisitions in 1998, as
well as entry into the internet market.
Total general and administrative expenses for the six months ended
June 30, increased to $6,468,676 as compared to $4,337,801 for the same period
in 1998, an increase of 49%. This increase is 6% greater than the increase in
total revenues due to additional costs related to several recent acquisitions.
Total interest expense for the six months ended June 30, increased
to $2,619,818 as compared to $2,210,085 for the same period in 1998 an increase
of 19%. This increase is due to the fluctuation in the average balance of the
warehouse lines of credit, as well as the average duration of the balance before
being repaid.
Total field and direct expenses for the six months ended June 30,
increased to $8,342,778 as compared to $5,594,546 for the same period in 1998,
an increase of 49%. This increase is 6% greater than the increase in total
revenues due to additional costs related to several recent acquisitions.
Total net income for the six months ended June 30, decreased to
$318,023 as compared to $404,545 for the same period in 1998, a decrease of 21%.
The Company attributes the decrease to additional costs related to several
recent acquisitions and declining profit margins resulting from rising interest
rates.
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED JUNE 30, 1999 VS. JUNE
- -----------------------------------------------------------------------
30, 1998
- --------
Total revenues for the three months ended June 30, increased to
$9,760,070 as compared to $7,019,377 for the same period in 1998, an increase of
39%. The Company attributes the increase to several acquisitions in 1998, as
well as entry into the internet market.
Total general and administrative expenses for the three months
ended June 30, increased to $3,478,549 as compared to $2,252,017 for the same
period in 1998, an increase of 54%. This increase is 15% greater than the
increase in total revenues due to additional costs related to several recent
acquisitions.
11
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IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
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, 1999 VS. JUNE
- -----------------------------------------------------------------------
30, 1998 (CONTINUED)
- --------------------
Total interest expense for the three months ended June 30, increased to
$1,393,815 as compared to $1,318,295 for the same period in 1998, an increase of
6%. This increase is due to the fluctuation in the average balance of the
warehouse lines of credit, as well as the average duration of the balance before
being repaid.
Total field and direct expenses for the three months ended June 30,
increased to $4,251,333 as compared to $2,904,469 for the same period in 1998,
an increase of 46%. This increase is 7% greater than the increase in total
revenues due to additional costs related to several recent acquisitions.
Total net income for the three months ended June 30, decreased to
$204,462 as compared to $255,831 for the same period in 1998, a decrease of 20%.
The Company attributes the decrease to additional costs related to several
recent acquisitions and declining profit margins resulting from rising interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company believes that current operations will provide adequate cash
flow to meet current obligations. The Company has $8,334,353 in points and fees
receivable and investments of $7,639,504 as its present capital resources.
Management believes that these resources provide adequate working capital for
the Company.
YEAR 2000
- ---------
THE COMPANY'S STATE OF READINESS
- --------------------------------
All of the Company's information technology systems are presently year
2000 compliant, including having been tested as to their compliance. In
addition, the Company is regulated by the NYS Banking Department, which is
overseeing the year 2000 compliance of the systems through various
questionnaires. Thus, far, the Company is in compliance with the oversight of
the NYS Banking Department.
All of the Company's non-information technology systems are also
presently year 2000 compliant.
There are currently several third parties whose year 2000 compliance is
important to the Company's continuing operation. These include banks and other
financial institutions which provide the Company's operational financing. The
Company is
12
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IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10 - QSB
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
- ---------------------
THE COMPANY'S STATE OF READINESS (CONTINUED)
- --------------------------------------------
currently in the process of confirming their level of year 2000 compliance. In
addition, the NYS Banking Department is overseeing the year 2000 compliance of
the systems of all of the third parties.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
- ---------------------------------------------------
The company has replaced the remaining outdated information technology
systems. This replacement encompassed the remaining systems which were year 2000
noncompliant. Therefore, there have been no costs directly associated with
having made the systems year 2000 compliant, as the costs incurred were in
connection with the routine upgrade of the systems.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
- -------------------------------------------
The most likely worst case scenario with regard to the Company's
information technology and non-information technology systems would be in
connection with several small branches which operate independently. Should there
be a problem with their systems, the operations could be carried on from the
main location in the interim. The potential lost revenue from such an event
would be immaterial in amount.
The most likely worst case scenario with regard to the third parties
would be in connection with their ability to provide timely financing. The
Company has lines of credit with several different financial institutions in
order to provide financing. In the event that one or more were to be affected by
year 2000 issues, the remaining available lines of credit should provide the
financing necessary to continue the normal day to day operations of the
business. The potential lost revenue in connection with the aforementioned
scenario should be minimal.
THE COMPANY'S CONTINGENCY PLANS
- -------------------------------
Presently, the contingency plans that exist are discussed above in "The
risks of the Company's year 2000 issues" section. Over the next several months,
the Company will evaluate the current contingency plans to determine if any
modifications are necessary.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The exhibits filed as part of this report are listed below.
13
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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
* Form 10QSB - For the Quarter Ended June 30, 1998
* Form 10QSB - For the Quarter Ended September 30, 1998
* Form 10KSB - For the Year Ended December 31, 1998
* Form 10QSB - For the Quarter Ended March 31, 1999
* Incorporated by reference.
14
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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 20, 1999
--------------------------------------
EDWARD CAPUANO - President, Principal
Executive Officer and Principal
Financial Officer
15
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<ARTICLE> 5
<LEGEND>
This schedule contains certain summary information extracted from
the financial statements dated June 30, 1999 and is qualified in
its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,277,342
<SECURITIES> 7,639,504
<RECEIVABLES> 10,030,772
<ALLOWANCES> 0
<INVENTORY> 75,542,872
<CURRENT-ASSETS> 102,301,547
<PP&E> 2,829,730
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,786,217
<CURRENT-LIABILITIES> 81,447,525
<BONDS> 0
0
6
<COMMON> 29,955
<OTHER-SE> 16,778,006
<TOTAL-LIABILITY-AND-EQUITY> 113,786,217
<SALES> 16,320,568
<TOTAL-REVENUES> 18,535,353
<CGS> 0
<TOTAL-COSTS> 15,421,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,619,818
<INCOME-PRETAX> 450,039
<INCOME-TAX> 132,016
<INCOME-CONTINUING> 318,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,023
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
