FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Qtr. Ended: March 31, 1999 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 May 13, 1999:
Common stock, $.001 par value - 29,911,905 shares outstanding.
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------
FORM 10-QSB
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INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1999 and March 31, 1998 3-4
Condensed Consolidated Statement of Income and Comprehensive Income -
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1999 and 1998 6-7
Condensed Consolidated Statement of Retained Earnings 8
Notes to Financial Statements 9-10
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
------
<TABLE>
<CAPTION>
3/31/99 3/31/98
Unaudited Unaudited
---------- ---------
ASSETS
<S> <C> <C>
Cash $ 3,092,264 $ 1,563,963
Mortgage inventory 71,300,341 52,648,777
Points and fees receivable 6,649,598 4,542,229
Stock subscription receivable 0 1,125,066
Other current receivables 1,739,743 0
Investments 7,644,147 7,585,300
Prepaid expenses 4,582,590 2,386,162
Property and equipment - net 2,523,862 1,350,856
Notes and mortgages receivable 2,248,357 3,616,367
Intangible assets - net 4,654,368 3,943,052
Other assets 802,585 276,606
------------ ------------
TOTAL ASSETS $105,237,855 $ 79,038,378
============ ============
</TABLE>
3
<PAGE>
IMN FINANCIAL CORP. AND SUBSIDIARIES
FORM 10 - QSB
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
3/31/99 3/31/98
Unaudited Unaudited
---------- ---------
LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 5,255,766 $ 4,151,805
Warehouse lines of credit 70,192,877 52,133,131
Borrowers escrow funds 1,011,476 452,393
Capital lease obligations 134,488 191,691
Notes and mortgages payable 179,088 266,071
Due to related party 12,695,651 5,483,627
Deferred income 860,455 664,346
Deferred income taxes 444,910 1,330,804
Corporate taxes payable 340,281 0
Other liabilities 29,840 0
------------- -------------
Total Liabilities 91,144,832 64,673,868
STOCKHOLDERS' EQUITY
Preferred stock - authorized 5,000,000 shares
$.001 par value per share, the number of shares
outstanding at March 31, 1999 and March 31, 1998 -
5,960 and 4,250, respectively
Respectively 6 4
------------- -------------
Common stock - authorized 45,000,000 shares,
$.001 par value per share, the number of
shares outstanding at March 31, 1999 and
March 31, 1998 - 28,661,905 and
31,764,107, respectively 28,663 31,764
PAID-IN CAPITAL 20,203,554 18,968,260
STOCK SUBSCRIPTION RECEIVABLE (5,916,100) (4,141,600)
UNREALIZED GAIN ON AVAILABLE-FOR-SALE
SECURITIES 405,894 374,118
RETAINED DEFICIT (628,994) (868,036)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,093,023 14,364,510
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 105,237,855 $ 79,038,378
============= =============
</TABLE>
4
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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 AND COMPREHENSIVE
INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/99 3/31/98
------------ ------------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 7,609,355 $ 5,290,460
Interest Income 1,165,928 635,858
----------- -----------
Total Operating Income 8,775,283 5,926,318
----------- -----------
OPERATING EXPENSES
General and Administrative Expenses 2,990,127 2,030,522
Interest Expense 1,226,003 891,790
Field and Direct Expenses 4,091,445 2,632,422
Depreciation 97,588 65,015
Amortization of Acquisition Goodwill 122,855 154,920
Other Amortization 62,549 24,649
----------- -----------
Total Operating Expenses 8,590,567 5,799,318
----------- -----------
Income from Operations 184,716 127,000
Income from Subsidiary 4,552 30,715
----------- -----------
Income before Provision for Income Taxes 189,268 157,715
Provision for Income Taxes 75,707 8,963
----------- -----------
Net Income 113,561 148,752
OTHER COMPREHENSIVE INCOME
Unrealized Gain on Available-for-Sale Securiites
(Net of Income Tax) 9,318 374,118
----------- -----------
COMPREHENSIVE INCOME $ 122,879 $ 522,870
=========== ===========
Weighted Average Number of Shares 28,661,905 31,764,107
Outstanding
=========== ===========
Basic Earnings per share $ 0.00 $ 0.00
=========== ===========
Diluted Earnings per share $ 0.00 $ 0.00
=========== ===========
</TABLE>
5
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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>
Three Months Three Months
Ended Ended
3/31/99 3/31/98
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 113,561 $ 148,752
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization 185,404 179,569
Depreciation 97,588 65,015
Income from subsidiary (4,552) (30,715)
Changes in assets and liabilities (2,990,006) (2,141,136)
------------- -------------
Net cash used by operating activities (2,598,005) (1,778,515)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (395,821) (100,791)
Purchase of intangible assets (129,076) (3,315)
Mortgages originated - net (189,426,876) (133,432,375)
Mortgages sold 192,236,297 124,936,217
------------- -------------
Net cash provided (used ) by investing activities 2,284,524 (8,600,264)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of preferred stock 0 1,274,970
Notes receivable advanced 0 (1,345,387)
Advances from related parties 2,255,873 624,200
Proceeds from warehouse line of credit 186,585,473 130,764,000
Repayments of warehouse line of credit (189,737,541) (122,283,369)
Repayment of capital lease obligations (1,329) 0
Repayment of notes and mortgages payable (148,929) 0
Collection of stock subscriptions 0 874,934
Collection of notes receivable 5,656 5,656
------------- -------------
Net cash provided (used) by financing activities (1,040,797) 9,915,004
------------- -------------
Net decrease in cash and equivalents (1,354,278) (463,775)
Cash - January 1 4,446,542 2,027,738
------------- -------------
Cash - March 31 $ 3,092,264 $ 1,563,963
============= =============
</TABLE>
6
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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>
Three Months Three Months
Ended Ended
3/31/99 3/31/98
------------ ------------
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Interest expense paid $1,226,003 $ 891,790
========== ==========
Income taxes paid $ 46,076 $ 27,999
========== ==========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Increase in market value of available-for-sale
Securities $ 9,318 $ 18,824
========== ==========
Decrease in assets and liabilities in conjunction with
previous sale of subsidiary $ 384,357 $ 0
========== ==========
</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 RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
RETAINED DEFICIT - JANUARY 1, 1999 $(742,555)
Net Income 113,561
---------
RETAINED DEFICIT - MARCH 31, 1999 $(628,994)
=========
</TABLE>
8
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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 three months ended March 31, 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 March 31, 1999 and 1998.
MARCH 31, MARCH 31,
1999 1998
--------- ----------
Number of shares outstanding - Start of period 28,661,905 31,764,107
Decreases 0 0
Increases 0 0
---------- ----------
Number of shares outstanding - End of period 28,661,905 31,764,107
========== ==========
Weighted Average Number of Shares
Outstanding 28,661,905 31,764,107
========== ==========
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.
9
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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 4 - SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company issued an additional 1,250,000
shares of common stock for gross proceeds of $2,320,000.
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 - THREE MONTH PERIOD ENDED MARCH 31, 1999 VS.
- -------------------------------------------------------------------
MARCH 31, 1998
- --------------
Total revenues for the three months ended March 31, increased to
$8,775,283 as compared to $5,926,318 for the same period in 1998, an increase of
48%. 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 March 31, increased to $2,990,127 as compared to $2,030,522 for the same
period in 1998, an increase of 47%. The Company attributes the increase to the
increase in the aforementioned sales volume.
Total interest expense for the three months ended March 31,
increased to $1,226,003 as compared to $891,790 for the same period in 1998, an
increase of 37%. The Company attributes the increase to the increase in the
aforementioned sales volume.
Total field and direct expenses for the three months ended March 31,
increased to $4,091,445 as compared to $2,632,422 for the same period in 1998,
an increase of 55%. The Company attributes the increase to the increase in the
aforementioned sales volume.
Total net income for the three months ended March 31, decreased to
$113,561 as compared to $148,752 for the same period in 1998, a decrease of 24%.
The Company attributes the decrease to an increase in the provision for income
taxes as a percent of pretax income from 6% in 1998 to 40% in 1999. The tax rate
in 1998 was low due to the net operating loss carryforward available for which a
100% valuation allowance was provided.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company believes that current operations will provide adequate
cash flow to meet current obligations. The Company has $6,649,598 in points and
fees receivable and investments of $7,644,147 as its present capital resources.
In addition, the Company sold common stock (Note 4) during the second quarter
resulting in proceeds of $2,320,000 to the Company. Management believes that
these resources provide adequate working capital for the Company.
11
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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
YEAR 2000
- ---------
THE COMPANY'S STATE OF READINESS
- --------------------------------
85% of the Company's information technology systems are presently year
2000 compliant, including having been tested as to their compliance. The
remaining 15% of the systems are expected to be upgraded and tested within the
next several months, resulting in year 2000 compliance by mid 1999. 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.
Year 2000 compliance of the Company's non-information technology systems
has not yet been addressed. The year 2000 compliance of these systems is
expected to be addressed and in place by mid 1999.
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 presently developing questionnaires to be answered by the third
parties regarding 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 is in the process of replacing the remaining outdated
information technology systems within the next several months. This replacement
encompasses the remaining 20% of the systems which are presently year 2000
noncompliant. Therefore, there will be no costs directly associated with making
the systems year 2000 compliant, as the cost to be incurred is in connection
with the routine upgrade of the systems.
The estimated year 2000 costs in connection with the non-information
technology systems and third party compliance is not expected to exceed $15,000.
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.
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
YEAR 2000 (CONT'D.)
- -------------------
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES (CONT'D)
- ----------------------------------------------------
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.
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 8-K dated September 10, 1998
* Form 8-K dated November 2, 1998
* 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
* 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: May 14, 1999 --------------------------------
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 March 31, 1999 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,902,264
<SECURITIES> 7,644,147
<RECEIVABLES> 8,389,341
<ALLOWANCES> 0
<INVENTORY> 71,300,341
<CURRENT-ASSETS> 91,236,093
<PP&E> 2,523,862
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,237,855
<CURRENT-LIABILITIES> 77,660,855
<BONDS> 0
<COMMON> 28,663
0
6
<OTHER-SE> 14,064,354
<TOTAL-LIABILITY-AND-EQUITY> 105,237,855
<SALES> 7,609,355
<TOTAL-REVENUES> 8,775,283
<CGS> 0
<TOTAL-COSTS> 7,364,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,226,003
<INCOME-PRETAX> 189,268
<INCOME-TAX> 75,707
<INCOME-CONTINUING> 113,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,561
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
