FORM 10-Q
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, 2000 File No.: 2-72849-NY
APPONLINE.COM, INC.
(Formerly Known As IMN FINANCIAL CORP.)
(Exact name of registrant as specified in its charter)
DELAWARE 11-3437280
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
520 BROADHOLLOW ROAD MELVILLE NEW YORK 11747
(Address of principal executive offices)
(631) 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 17, 2000:
Common stock, $.001 par value - 44,843,907 shares outstanding.
Preferred stock, $.001 par value - 5,000 shares outstanding.
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10-Q
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INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3-4
Condensed Consolidated Statement of Operations and
Comprehensive Income (Loss) -
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statement of Accumulated Deficit 6
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 7-8
Notes to Financial Statements 9-11
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS 12-14
.
PART II - OTHER INFORMATION 15
SIGNATURES 16
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 17
2
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
3/31/00 12/31/99
-------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,089,516 $ 3,548,137
Mortgage inventory 112,398,709 96,731,181
Points and fees receivable 2,093,686 1,975,354
Investments 6,809,995 6,188,083
Prepaid expenses 8,190,904 6,517,350
Property and equipment - net 5,693,685 4,822,326
Intangible assets - net 15,789,347 6,573,400
Other assets 1,474,397 836,989
-------------- --------------
TOTAL ASSETS $ 158,540,239 $ 127,192,820
============== ==============
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APPONLINE.COM, INC. AND SUBSIDIARIES
FORM 10 - Q
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY
(Unaudited)
3/31/00 12/31/99
------------- -------------
LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 8,084,966 $ 6,327,306
Warehouse lines of credit 110,788,128 95,510,116
Borrowers escrow funds 756,756 704,706
Capital lease obligations 182,263 135,043
Notes payable 973,145 750,180
Due to related party 8,329,006
Deferred income 1,155,242 185,436
Corporate taxes payable 9,525
Other liabilities 37,140
------------- -------------
Total Liabilities 130,306,646 103,622,312
STOCKHOLDERS' EQUITY
Preferred stock - 5,000,000 shares, $.001
par value authorized; 5,000 and 7,000
shares issued and outstanding at March 31, 2000
and December 31, 1999, respectively 5 7
Common stock - 45,000,000 shares, $.001
par value authorized; 44,843,907 and
41,206,346 shares issued and outstanding
at March 31, 2000 and December 31,
1999, respectively 44,844 41,206
Paid-in capital 54,703,428 46,331,932
Unrealized gain on available-for-sale
securities 693,243 629,517
Accumulated deficit (27,207,927) (23,432,154)
------------- -------------
Total Stockholders' Equity 28,233,593 23,570,508
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 158,540,239 $ 127,192,820
============= =============
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Three Months
Ended Ended
3/31/00 3/31/99
------------ -------------
OPERATING INCOME
<S> <C> <C>
Points, Fees and Premium Income $ 9,325,664 $ 7,609,355
Interest Income 1,363,968 1,165,928
Other Income 345,225 4,552
------------ ------------
Total Operating Income 11,034,857 8,779,835
------------ ------------
OPERATING EXPENSES
General and Administrative Expenses 6,502,041 2,990,127
Field and Direct Expenses 6,108,295 4,091,445
Interest Expense 1,978,697 1,226,003
Depreciation and Amortization 532,708 282,992
------------ ------------
Total Operating Expenses 15,121,741 8,590,567
------------ ------------
Income (Loss) from Operations (4,086,884) 189,268
Benefit (Provision) for Income Taxes 335,186 (75,707)
------------ ------------
Net Income (Loss) (3,751,698) 113,561
Preferred Dividends Paid 24,075
------------ ------------
Net Income (Loss) Available to Common
Stockholders $ (3,775,773) $ 113,561
============ ============
OTHER COMPREHENSIVE INCOME
Unrealized Gain on Available-for-Sale Securiites
(Net of Income Tax) $ 63,726 $ 9,318
------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (3,687,972) $ 122,879
============ ============
EARNINGS (LOSS) PER SHARE
Basic Earnings (Loss) Per Share $ (0.09) $ 0.00
============ ============
Diluted Earnings (Loss) Per Share $ (0.09) $ 0.00
============ ============
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
(Unaudited)
<S> <C>
ACCUMULATED DEFICIT - January 1, 2000 $ (23,432,154)
Net Loss (3,751,698)
Dividends Paid (24,075)
----------------
ACCUMULATED DEFICIT - MARCH 31, 2000 $ (27,207,927)
================
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
3/31/00 3/31/99
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $(3,751,698) $ 113,561
----------- -----------
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 532,708 282,992
Value of compensatory options granted to
non-employees 35,373
Income from unconsolidated subsidiary (4,552)
Changes in assets and liabilities (882,626) (3,332,653)
----------- -----------
Total adjustments (314,545) (3,054,213)
----------- -----------
Net cash used by operating activities (4,066,243) (2,940,652)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (610,045) (395,821)
Purchase of intangible assets (1,707,242) (129,076)
Investment in real estate development
partnership (23,000)
Receipt of cash through acquisitions 689,799
Collection of mortgage receivable 5,656
----------- -----------
Net cash used by investing activities (1,650,488) (519,241)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from related parties 8,309,772 2,255,873
Payment of notes payable and capital leases (51,662) (150,258)
----------- -----------
Net cash provided by financing activities 8,258,110 2,105,615
----------- -----------
Net increase (decrease) in cash and cash
equivalents 2,541,379 (1,354,278)
CASH AND CASH EQUIVALENTS - JANUARY 1 3,548,137 4,446,542
----------- -----------
CASH AND CASH EQUIVALENTS - MARCH 31 $ 6,089,516 $ 3,092,264
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
3/31/00 3/31/99
------------ ------------
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Interest expense paid $2,254,538 $ 1,226,003
========== ===========
Income taxes paid $ 43,688 $ 46,076
========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in market value of available-for-sale
securities $ 398,912 $ 9,318
========== ===========
Common stock issued in conjunction with
acquisitions $8,287,817
========== ===========
Equipment acquired through capital lease
obligations $ 22,786
========== ===========
Common stock acquisition closing adjustments $ 46,800
========== ===========
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
- --------------------
The condensed financial statements include, on a consolidated basis, the
accounts of AppOnline.com, Inc. and subsidiaries in which it has a greater than
50% interest, collectively the "Company". All significant balances and
transactions have been eliminated in consolidation. Investments in affiliates
that are not majority owned and where the Company does not exercise control are
reported using the equity method.
The Condensed Consolidated Financial Statements at March 31, 2000 and December
31, 1999 and for the three months ended March 31, 2000 and March 31, 1999 are
unaudited and reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, considered necessary for a
fair presentation of financial condition and results of operation. Interim
figures are subject to year end audit adjustments and may not be indicative of
results to be realized for the year ended December 31, 2000. The Condensed
Consolidated Financial Statements and notes thereto should be read in
conjunction with management's discussion and analysis of financial condition and
results of operation, contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
USE OF ESTIMATES
- ----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported assets and liabilities, and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - EARNINGS PER SHARE
Earnings per share has been computed on the basis of the total weighted average
number of shares outstanding.
MARCH 31, MARCH 31,
2000 1999
---------- ------------
Weighted Average Number of Shares
Outstanding - Basic 42,379,061 28,661,905
Outstanding Convertible Preferred Stock,
Options and Warrants 1,267,330
----------- -----------
Weighted Average Number of Shares
Outstanding - Diluted 42,379,061 29,929,235
=========== ===========
9
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - EARNINGS PER SHARE (CONTINUED)
The weighted average number of shares diluted is the same as basic At March 31,
2000 because, including the calculated number of additional shares through the
conversion of warrants, options and convertible preferred shares would be
antidilutive.
NOTE 3 - ACQUISITIONS
Pursuant to an acquisition agreement dated March 7, 2000, the Company acquired
100% of the issued and outstanding capital stock of Western National Funding,
Inc. (Western). The consideration for this acquisition was 750,000 shares of the
Company's common stock valued at $2,390,625 and $297,000 in cash. In addition,
Western received one irrevocable five year option to purchase 100,000 shares of
the Company's common stock at $1.60 per share.
Western is principally engaged in originating wholesale mortgages for single
family residences of one to four units. Their primary focus is FHA, VA, freddie
Mac and Fannie Mae loans. Western closed approximately $250 million in wholesale
loans in 1999.
Pursuant to an acquisition agreement dated March 7, 2000, the Company acquired
100% of the issued and outstanding capital stock of Cyber Media Group, Inc.
(Cyber). The consideration for this acquisition was 1,750,000 shares of the
Company's common stock valued at $5,578,125 and one five year option to purchase
1,250,000 shares of the Company's common stock at $1.75 per share.
Cyber is a leading developer of e-finance solutions and has developed premier
web sites that provide consumers with financial services including residential
mortgages, commercial loans and credit reports. Management believes that Cyber
will present new opportunities to expand the Company's business beyond mortgage
lending into the broader financial services arena and Cyber's expertise in
online advertising will complement the Company's print and broadcast campaign.
In addition, Cyber will play an integral role in the Company's plan to spin-off
its Internet mortgage operations (see Internet Market caption in Management's
Discussion and Analysis section).
The Company made additional acquisitions, the consideration for these
acquisitions was 196,349 shares of the Company's common stock valued at $319,067
and $535,922 in cash. Underwriting fees aggregating $863,483 were incurred in
connection with all of the aforementioned acquisitions.
The acquisitions were not considered material and were accounted for using the
"purchase" method of accounting.
10
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - RECLASSIFICATION
Certain amounts in the March 31, 1999 financial statements have been
reclassified to conform with the current period's financial statement
presentation.
11
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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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, 2000 VS.
- -------------------------------------------------------------------
MARCH 31, 1999
- --------------
Total revenues for the three months ended March 31, increased to
$11,034,857 as compared to $8,779,835 for the same period in 1999, an increase
of 26%. The Company attributes this increase to entry into the Internet Market
(see Internet Market caption), as well as several acquisitions in 1999.
Total general and administrative expenses for the three months
ended March 31, increased to $6,502,041 as compared to $2,990,127 for the same
period in 1999, an increase of 117%. The Company attributes this significant
increase primarily to additional costs associated with entry into the Internet
Market (see Internet Market caption), as well as several acquisitions in 1999.
Total interest expense for the three months ended March 31,
increased to $1,978,697 as compared to $1,226,003 for the same period in 1999,
an increase of 61%. The Company attributes this increase to an increase in
interest rates as well as to the fluctuation in the average balance of the
warehouse lines of credit.
Total field and direct expenses for the three months ended March
31, increased to $6,108,295 as compared to $4,091,445 for the same period in
1999, an increase of 49%. The Company attributes this significant increase
primarily to additional costs associated with entry into the Internet Market
(see Internet Market caption), as well as several acquisitions in 1999.
We incurred a net loss for the three months ended March 31, 2000 of
$4,086,884 as compared to a net income of $113,561 for the same period in 1999.
The Company attributes this significant decrease primarily to additional costs
associated with entry into the Internet Market (see Internet Market caption).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company believes that current operations will provide adequate
cash flow to meet current obligations. As of March 31, 2000, the Company's
capital resources consisted of $6,089,516 in cash, $2,093,686 in points and fees
receivable, investments of $6,809,995, and revolving lines of credit of $209
million, $111 million of which was outstanding. Management believes that these
resources provide adequate working capital for the Company.
12
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
When used herein, the terms "expect, plan, anticipate, believe" or
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements.
The Company has included certain forward-looking statements in this
Management's Discussion and Analysis of Results of Operations, Cash Flow and
Financial Condition. These statements are based on current expectations,
estimates and projections about the industries in which the Company operates,
management's beliefs and various assumptions made by management which are
difficult to predict. Among the factors that could affect the outcome of the
statements are general industry, market conditions and growth rates. Therefore,
actual outcomes and their impact on the Company may differ materially from what
is expressed or forecasted. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
INTERNET MARKET
- ---------------
To date, the Company has been successful in expanding its operations
through acquisitions of other Mortgage Banking Companies. Recently, the Company
has focused its expansion efforts through entry into the internet market and
management anticipates being successful in this area of business.
Late in 1999, the Company intensified its expansion in the internet
market. Indicative of this strategy, the Company changed its name to
AppOnline.com, Inc. Increases in costs and revenues associated with the internet
are reflected in the Company's March 31, 2000 financial statements.
Revenue, per mortgage, for internet originated mortgages, for
competitive reasons is significantly lower than traditional mortgages. Revenues
for internet originated mortgages are generally 75-80% of traditionally
originated mortgages. In addition, the Company has not required an application
fee on internet generated leads, while it does on traditional leads. The Company
is in the process of changing this policy to offset costs associated with
unsuccessful leads and to discourage borrowers who are not serious in their
intentions to obtain a mortgage.
Field and direct expenses were significantly greater as a result of
processing costs related to increased volume of leads generated through internet
sources. These leads do not provide success rates comparable to traditional
leads. Internet mortgage closings as a percent of leads obtained are
approximately 5% compared to traditional rates of 85%. The field and direct
costs have also been impacted by the costs related to the Internet search
engines.
13
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APPONLINE.COM, INC. AND SUBSIDIARIES
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FORM 10 - Q
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTERNET MARKET (CONTINUED)
- ---------------------------
Management anticipates that the Company will continue to experience
losses similar to or greater than those described above relative to the
Internet, during the current period, including significant increases in its
advertising campaign. Management believes that the advertising campaign is
necessary to build its "brand" and that only a few Online Mortgage Companies
that are successful in building their brand will reap the benefits of this line
of business, which may become the primary route for obtaining mortgages in the
near future. Management anticipates that, in the future, when its internet
operations have matured, the costs associated with internet originated mortgages
will be less than traditionally originated mortgages. As a result, this line of
the business would gradually become profitable.
SPIN-OFF
- --------
On March 16, 2000, the Company announced plans to spin-off its Internet
mortgage operations through an initial public offering of a newly formed
Internet subsidiary, ApplyOnline, Inc. (ApplyOnline). ApplyOnline essentially
represents all of the Company's online operations, which commenced in 1999 and
have grown significantly to date.
Management believes that the new structure will enable both the Company
and ApplyOnline to build market leadership positions by allowing each company to
independently focus on growth opportunities in both the Internet and traditional
mortgage market. When the spin- off occurs as planned, it will reduce the loss
incurred by the Company in the current year.
The Company anticipates the initial public offering for its Internet
mortgage banking and brokerage subsidiary to be completed by early this summer,
and intends to subsequently spin- off the balance of the shares of the newly
publicly traded company to the Company's shareholders. Under this plan, the
Company's shareholders will ultimately own shares in both companies.
YEAR 2000 PREPARATION
- ---------------------
Many computer systems and software products worldwide and throughout all
industries were not expected to function properly as the year 2000 approached
unless changed, due to a once common programming standard that represents years
using two-digits. This is the "Year 2000 problem" that has received considerable
media coverage.
Management has not experienced any significant failure of the Company's
systems or any problems associated with any of its vendors or other third-party
providers' systems.
14
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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
* Form 10QSB - For the Quarter Ended March 31, 1999
* Form 10QSB - For the Quarter Ended June 30, 1999
* Form 8-A dated September 3, 1999
* Form 10QSB - For the Quarter Ended September 30, 1999
* Form 10K - For the Year Ended December 31, 1999
* Form 8-K dated January 27, 2000
* Incorporated by reference.
15
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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.
APPONLINE.COM, INC. AND SUBSIDIARIES.
Dated: May 17, 2000
EDWARD CAPUANO - President, Principal
Executive Officer and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains certain summary information extracted from the
financial statements dated March 31, 2000 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,089,516
<SECURITIES> 6,809,995
<RECEIVABLES> 2,093,686
<ALLOWANCES> 0
<INVENTORY> 112,398,709
<CURRENT-ASSETS> 0
<PP&E> 5,693,685
<DEPRECIATION> 0
<TOTAL-ASSETS> 158,540,239
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
5
<COMMON> 44,844
<OTHER-SE> 28,188,744
<TOTAL-LIABILITY-AND-EQUITY> 158,540,239
<SALES> 9,325,664
<TOTAL-REVENUES> 11,034,857
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,978,697
<INCOME-PRETAX> (4,086,884)
<INCOME-TAX> 335,186
<INCOME-CONTINUING> (3,751,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,751,698)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
