<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
------------------------
Commission File Number: 0-18108
------------------------
FINET HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of
incorporation or organization)
3021 CITRUS CIRCLE
WALNUT CREEK, CA 94598
(Address of principal executive office)
94-3115180
(IRS Employer Identification Number)
(510) 988-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
filing requirements within the past 90 days.
Yes 'X' No.
The number of shares outstanding of each of the issuer's classes of common
stock was 30,536,684 shares of common stock, par value $.01, as of March
10, 1998.
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<PAGE> 2
FINET HOLDINGS CORPORATION
INDEX
<TABLE>
Item Description
Page
- ---- -------------------------------------------------------------------
- ----
<S> <C>
<C>
PART I - FINANCIAL INFORMATION
1. Financial Statements
Balance Sheets........................ ............................
3
January 31, 1998 (unaudited)and April 30, 1997
Unaudited Statements of Operations
Three Months Ended January 31, 1998 and 1997.....................
4
Nine Months Ended January 31, 1998 and 1997......................
5
Unaudited Statements of Cash Flow
Nine Months Ended January 31, 1998 and 1997......................
6
Notes to Unaudited Financial Statements............................
8
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................
15
PART II - OTHER INFORMATION
1. Legal Proceedings..................................................
22
2. Changes in Securities..............................................
22
4. Submission of Matters to a Vote of Security Holders................
22
5. Other Information..................................................
22
6. Exhibits and Reports on Form 8-K...................................
23
Signatures.........................................................
23
<PAGE> 3
PART I. FINANCIAL INFORMATION
</TABLE>
<TABLE>
FINET HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
January 31,
April 30,
1998
1997
(unaudited)
(audited)
------------ ------
- ------
<S> <C> <C>
ASSETS
Cash.................................................. $ 2,201,700 $
603,300
Accounts receivable from sales of mortgage
loans and servicing rights.......................... 6,879,500
3,453,200
Mortgage loan servicing advances and
other receivables (Note 5).......................... 764,800
644,100
Accounts receivable from affiliates................... 18,600
- -
Notes receivable...................................... 72,000
247,000
Notes receivable - officers........................... 129,100
144,300
Mortgages held for sale, net.......................... 12,403,100
7,268,900
Mortgage servicing rights (Note 6).................... 4,450,500
579,000
Furniture, fixtures and equipment, net of
accumulated depreciation of $1,776,200 & $1,712,800. 1,114,900
1,096,700
Intangible assets..................................... 2,204,600
- -
Other assets (Notes 4 & 7)............................ 195,300
213,400
------------ ------
- ------
Total assets...................................... $30,434,100
$14,249,900
============
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line of credit (Note 8) .................... $18,529,300
$10,209,200
Accounts payable...................................... 4,120,500
720,900
Revolving line of credit ............................. 845,000
100,000
Note payable and capitalized leases (Note 8) ......... 809,400
1,017,900
Accrued expenses and other liabilities................ 446,400
686,300
Liabilities subject to compromise..................... 441,700
474,500
------------ ------
- ------
Total liabilities................................. 25,192,300
13,208,800
------------ ------
- ------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value, (100,000 shares
authorized, none issued and outstanding)............ -
- -
Common stock, $.01 par value, (60,000,000 shares
authorized, 30,511,709 & 24,763,030 shares issued
and outstanding..................................... 371,400
312,400
Common stock subscribed (3,991,250 shares)............ -
39,900
Paid in capital....................................... 11,405,600
5,814,200
Less: Stock subscription receivable (2,991,250 shares) -
(2,693,000
Accumulated deficit................................... (6,535,200)
(2,432,400)
------------ ------
- ------
Total stockholders' equity........................ 5,241,800
1,041,100
------------ ------
- ------
Total liabilities and stockholders' equity......... $30,434,100
$14,249,900
============
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
<TABLE>
FINET HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
January 31,
-------------------------
- -
1998 1997
------------ -----------
- -
<S> <C> <C>\
REVENUES
Gain on sale of mortgage loans and
servicing rights.............................. $ 967,100 $ 448,100
Gain on bulk sale of servicing rights (Note 5).. - 581,800
Interest income................................. 359,400 339,900
Loan servicing fees, net........................ 13,700 167,500
Service center loan brokerage fees.............. 89,600 11,400
Sale of mortgage leads.......................... (9,400) 40,600
Membership fees................................. 39,000 -
Other........................................... 14,300
(3,000)
------------ -----------
- -
Total revenues.............................. 1,473,700 1,586,300
EXPENSES
Compensation and employee benefits.............. 1,201,900 767,700
General & Administrative........................ 458,100 271,800
Interest expense................................ 378,200 345,300
Professional fees............................... 328,300 142,500
Marketing....................................... 177,300 164,500
Depreciation and amortization................... 77,900 112,900
Other........................................... 81,200 330,300
------------ -----------
- -
Total expenses.............................. 2,702,900 2,135,000
------------ -----------
Loss before income taxes and extraordinary gain. (1,229,200)
(548,700)
Income tax...................................... - -
Extraordinary gain on liabilities subject to
compromise, net of taxes....................... - 33,000
------------ -----------
- -
NET LOSS........................................ $(1,229,200) $
(515,700)
============
============
NET LOSS PER SHARE BEFORE EXTRAORDINARY GAIN.... $ (.04) $
(.04)
EXTRAORDINARY GAIN ON LIABILITIES SUBJECT TO
COMPROMISE.................................... $ -- $ --
------------ -----------
- -
NET LOSS PER COMMON SHARE (Note 3) ............. $ (.04) $
(.04)
============
============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING................................... 30,074,897 13,605,900
============
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
<TABLE>
FINET HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
January 31,
-------------------------
- -
1998 1997
------------ -----------
- -
<S> <C> <C>
REVENUES
Gain on sale of mortgage loans and
servicing rights.............................. $ 2,030,200 $ 1,121,800
Gain on bulk sale of servicing rights (Note 5).. 182,200 601,500
Interest income................................. 1,085,100 927,900
Loan servicing fees, net........................ 267,000 529,800
Service center loan brokerage fees.............. 173,900 30,800
Sale of mortgage leads.......................... 87,700 18,400
Membership fees................................. 39,000 -
Other........................................... 79,900 62,800
------------ -----------
- -
Total revenues.............................. 3,945,000 3,293,000
EXPENSES
Compensation and employee benefits.............. 3,312,400 2,059,100
General & administrative........................ 1,406,800 950,000
Interest expense................................ 1,090,400 953,800
Professional fees............................... 1,026,500 338,300
Marketing....................................... 443,800 269,800
Depreciation and amortization................... 310,200 295,700
Loss on disposition of assets................... 39,300 -
Other........................................... 421,400 366,100
------------ -----------
- -
Total expenses.............................. 8,050,800 5,232,800
------------ -----------
Loss before income taxes and extraordinary gain. (4,105,800)
(1,939,800)
Income tax expense.............................. - -
Extraordinary gain on liabilities subject to
compromise, net of taxes....................... 3,000 33,000
------------ -----------
- -
NET LOSS........................................ $(4,102,800)
$(1,906,800)
============
============
NET LOSS PER SHARE BEFORE EXTRAORDINARY GAIN.... $ (.14) $
(.19)
EXTRAORDINARY GAIN ON LIABILITIES SUBJECT TO
COMPROMISE.................................... $ .00 $ .00
------------ -----------
- -
NET LOSS PER COMMON SHARE (Note 3).............. $ (.14) $
(.19)
============
============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING................................... 29,200,211 10,135,304
============
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
<TABLE>
FINET HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
January 31,
1998
1997
------------- --------
- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (4,102,800)
(1,906,800)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization..................... 310,200
295,700
Extraordinary gain on liabilities subject to
compromise........................................ (3,000)
(33,000)
Provision for losses on loans and real
estate owned..................................... 44,100
49,400
Amortization of owned servicing rights............ 173,100
- -
Loss on disposition of property, plant and
equipment......................................... 39,300
9,000
Gain on sale of purchased mortgage servicing rights (47,500)
- -
Expense paid through the issue of common stock.... 157,600
- -
Changes in operating assets and liabilities:
(Increase) decrease in receivables from sales
of mortgage loans and loan servicing rights...... (3,426,500)
7,286,000
Mortgage loans originated......................... (285,017,300)
(278,512,500)
Mortgage loans sold............................... 279,839,000
282,173,400
Increase in originated mortgage
servicing rights, net............................ (582,300)
(829,100)
(Increase) decrease in mortgage loan servicing
advances and other receivables................... (120,700)
181,200
Decrease in notes receivable - officers........... 15,300
- -
Increase (decrease) in prepaids and other assets.. 18,100
(430,600)
Increase (decrease)in accounts payable, accrued
Expenses and other liabilities.................. 3,316,000
(155,600)
------------- --------
- -----
Net cash (used) provided by operating activities (9,387,400)
8,127,100
------------- --------
- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights.............. (3,490,100)
(286,300)
Proceeds of sale of purchased servicing rights..... 75,300
- -
Proceeds of sale of life insurance to officer...... -
165,600
Purchase of furniture, fixtures and equipment...... (289,600)
(54,400)
Repurchase of common stock......................... -
(180,000)
Proceeds of sale of furniture, fixtures
and equipment..................................... 400
- -
Purchase of intangible assets...................... (721,600)
- -
Settlements of liabilities subject to compromise... (7,500)
- -
Creditors' settlements paid with cash.............. -
(26,300)
Advances to affiliates............................. (18,600)
- -
Cash acquired with acquisition..................... -
50,200
------------- --------
- -----Net cash used by investing activities............... (4,451,700)
(331,200)
------------- --------
- -----
<PAGE> 7
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............. 6,581,800
2,825,000
Proceeds from exercise and sale of
common stock warrants............................. 22,900
- -
Reimbursement of short swing profits............... 61,300
- -
Net increase (decrease) in warehouse borrowings.... 8,320,100
(8,976,200)
Proceeds from advances on note payable and
line of credit.................................... 1,150,000
1,850,000
Principal payments on note payable and line of
credit............................................ (698,600)
(2,208,400)
Proceeds of life insurance cash surrender value
loan............................................. -
159,000
Repayment of life insurance cash surrender value
loan............................................. -
(159,000)
Proceeds from notes payable to officer............ -
724,200
Repayment of notes payable to officers............ -
(709,200)
Cash distributions to former shareholders......... -
(1,040,000)
Proceeds of pre-acquisition advances to affiliates -
(1,377,300)
Repayment of pre-acquisition advances repaid by
affiliates....................................... -
660,100
------------ -------
- -----
Net cash provided (used) by financing activities 15,437,500
(8,251,800)
------------ -------
- -----
Increase (decrease) in cash....................... 1,598,400
(455,900)
Cash at beginning of period....................... 603,300
672,700
------------- -------
- -----
Cash at end of period............................. $ 2,201,700 $
216,800
============
============
Supplemental cash flow information (Note 11)
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE > 8
FINET HOLDINGS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
REPORTING ENTITY
Finet Holdings Corporation ("Finet" or the "Company") acquired Monument
Mortgage, Inc. ("MMI") on December 31, 1996. The transaction was accounted
for as a reverse acquisition whereby MMI is considered the acquiring
corporation for accounting and financial statement presentation purposes
and MMI's historical financial statements are deemed to be the historical
financial statements of the reporting entity.
BUSINESS
Finet is engaged in electronic commerce (EC) in the residential real estate
industry and organized around two EC groups: Technology Systems and
Services (TS&S) and Homeowner Services (HS). With the exception of
occasional bulk purchase or sale of servicing rights, the Company's TS&S
and HS revenues are derived from activities that are fully or materially
conducted electronically, and thus are considered electronic commerce
revenues.
TS&S develops and distributes systems and services that link businesses to
consumers and other businesses over the Internet. TS&S includes the
Property Transaction Network (PTN), an Internet-based realty services
provider and distributor of Agent Connector Internet software for realtors,
and the iQualify Internet service enabling consumers to receive a loan
decision from Fannie Mae automated underwriting system.
The HS group conducts electronic wholesale and retail commerce. It includes
Monument Mortgage, Inc., Finet's highly automated mortgage banking unit
that provides and services prime and sub prime home loans,
PreferenceAmerica Mortgage Network (PAMN), an electronic mortgage broker
representing many mortgage lenders, and the Finet Service Center, where
salaried counselors assist consumers in selecting appropriate solutions to
their homeowner related needs. The Company also owns several inactive
corporations.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions of Form 10-QSB and
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation of the results for the interim period have been
included. Operating results for the quarter and nine months ended January
31, 1998 are not necessarily indicative of the results that may be expected
for the fiscal year ending April 30, 1998.
The consolidated financial statements of the Company include the accounts
of all wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
3. NET LOSS PER COMMON SHARE
Net loss per common share is computed based on the weighted average number
of shares outstanding during the periods. The effects of common stock
equivalents have not been included because they would have been anti-
dilutive during all periods reported.
<PAGE> 9
4 . ACQUISITIONS
In December 1997, the Company completed the purchase of substantially all
of the assets of Real Estate Office Software, Inc. ("REOS"), a Nevada
corporation. REOS is a software development and marketing company whose
primary product was a proprietary Realtor productivity tool called the Real
Estate Office. The total price paid was $1,140,772, of which $640,772 was
paid in cash. The remaining $500,000 is to be paid in the form of Company
stock which has not yet been issued. Two hundred thousand shares of common
stock will be issued at a price of $2.50 per share. The stock will be
placed in an escrow account and portions released to the seller
periodically as certain audits are performed. The issuance value of the
stock will be adjusted downward for any adverse changes in the value and
content of the net assets purchased, as determined by the audits.
On January 10, 1998 the Company entered into a letter of intent with
Coastal Federal Mortgage Company ("Coastal"), a New Jersey corporation, for
the purpose of Finet acquiring all of the issued and outstanding stock of
Coastal. Coastal is a mortgage banking firm operating in 16 eastern states
and specializing in sub prime lending. In 1997, Coastal had revenues of
$5.9 million and after tax net income of $0.8 million (unaudited). The
parties have agreed to complete a formal closing of the transaction before
April 15, 1998.
5. MORTGAGE LOAN SERVICING
The Company's servicing portfolio is comprised primarily of conventional
mortgage loans. The outstanding principal balance of serviced loans was
$553.4 million, representing 4,403 loans, at January 31, 1998, an increase
of 305% from $136.6 million representing 1,017 loans reported for the prior
quarter ended October 31, 1997. The increase resulted from both retention
of servicing rights on some originated mortgages and the bulk purchase of
servicing rights. The majority of loans are securitized through Fannie Mae
and Freddie Mac programs on a nonrecourse basis whereby foreclosure losses
are generally the responsibility of the investor and not the Company. In
connection with mortgage loan servicing activities, the Company segregates
escrow and custodial funds in a separate trust account and excludes this
balance of $1.9 million at January 31, 1998 from the accompanying balance
sheet. The Company is required to maintain separate accounting records for
its escrow and custodial cash account and the related liabilities.
In addition to the ongoing sale of most servicing rights for originated
mortgages, the Company also had bulk sales of servicing rights which were
originated and retained in the servicing portfolio in prior fiscal years.
Bulk sales of loans with outstanding principal of $44.9 million were sold
during the nine months ended January 31, 1998, compared to $71.7 million
sold in the same period of the prior year. These sales of prior fiscal year
originations resulted in a net gain of $182,200 for the nine months ended
January 31, 1998, as compared to a gain of $601,500 for the prior year
period. Servicing rights to loans with an unpaid principal balance of
approximately $553.4 million were pledged as collateral to lenders as of
January 31, 1998.
The Company has issued various representations and warranties associated
with whole loan and bulk servicing sales which are standard in the
industry. These representations and warranties may require the Company to
repurchase defective loans as defined per the applicable servicing and
sales agreements. The Company experienced losses of $130,000 and $0 from
the repurchase of defective loans during the nine months ended January 31,
1998 and 1997 respectively.
As a routine part of servicing operations, the servicing portfolio contains
a number of loans that are in the process of foreclosure, or that have been
foreclosed upon by the Company (real estate owned). The dollar amount of
loans in foreclosure and real estate owned represented 1.1% of the
outstanding servicing portfolio balance as of January 31, 1998. The losses
to the Company arising from the foreclosed loans and real estate owned were
$74,219 and $49,407 for the nine months ended January 31, 1998 and 1997,
respectively.
<PAGE> 10
The Company carried fidelity bond coverage of $950,000 and errors and
omission coverage of $950,000 as of January 31, 1998.
6. OWNED SERVICING RIGHTS, NET
Owned servicing rights, net of amortization, at January 31, 1998 and April
30, 1997,consisted of the following:
<TABLE>
January 31,1998 April 30,
1997
<S> <C> <C>
Originated mortgage servicing rights: $ 891,700 $ 332,300
Purchased mortgage servicing rights: 3,558,800 246,700
------------ ----------
- -
Total owned servicing rights $4,450,500 $ 579,000
============
===========
</TABLE>
7. PURCHASE OF INTANGIBLE ASSETS
On May 29, 1997, the Company and NDS Software, Inc. ("NDS"), a generic
software development company and operator of a nationwide multiple listing
of homes for sale Internet site, entered into an agreement whereby the
Company purchased certain rights to NDS' customer list, programming
services and mortgage leads for $1,010,000, in the form of $202,000 in cash
and 202,000 shares of its common stock valued at $4.00 per share. The
common stock was issued on June 5, 1997. The agreement terms require an
adjustment to the share consideration if the market price of the Company's
shares is not at or above $4.00 per share on the earlier of the Company's
registration of the common shares issued to NDS or June 3, 1998, to
maintain a value equal to $808,000 at the time, subject to a maximum
additional shares issuable of 1,414,000 shares.
On January 16, 1998, the Company entered into a second agreement with NDS
to form a company and share equally the net revenues of a new intranet
website for buyer agents called CityNet.com., which combines the home
listing of Homeseekers.com with the Company's iQualify system. Finet
contributed the functionality of its iQualify system, NDS contributed
certain hardware, Internet connectivity and 300,000 shares of NDS stock.
Finet has the right to withdraw a pro rata amount of 100,000 shares of that
stock annually for three years to the extent that NDS fails to meet certain
obligations to bring traffic to the site.
The Company is evaluating the ultimate realizable value of the asset
recorded from the May 29, 1997 agreement, based on its expected future
benefits and its relationship to the January 16, 1998 agreement.
8. DEBT
The following table and comments present summary information regarding the
Company's debt as of January 31, 1998 and April 30, 1997:
<TABLE>
<CAPTION>
Jan 31, 1998 Interest
Facility Balance Rate
Expires or Due
- -------------------------------- -------------- -------------- --------
- -----------
<S> <C> <C> <C>
REVOLVING/CURRENT
Warehouse line of credit $ 18,529,300 LIBOR + 2.00; December
31, 1998
($10 million committed, $25 LIBOR + 2.25
million uncommitted gestation) for sub-prime
Revolving line of credit 845,000 Prime plus December
31, 1998
($1 million committed) 0.625%
------------
Total revolving/current debt 19,374,300
------------
<PAGE> 11
LONG TERM
Note payable 541,600 Prime plus April
30, 2000
($1 million original note) 0.625%
Capitalized leases 267,800 1999 to
2000
------------
Total long term debt 809,400
------------
Total debt $ 20,183,700
============
<CAPTION>
Apr 30, 1997 Interest
Facility Balance Rate
Expires or Due
- -------------------------------- -------------- -------------- --------
- -----------
<S> <C> <C> <C>
REVOLVING/CURRENT
Warehouse line of credit $ 10,209,200 LIBOR + 2.00; August
31, 1997
($10 million committed, $25 LIBOR + 2.25
million uncommitted gestation) for sub-prime
Revolving line of credit 100,000 Prime plus August
31, 1997
($1 million committed) 0.625%
------------
Total revolving/current debt 10,309,200
------------
LONG TERM
Note payable 729,200 Prime plus April
30, 2000
($1 million original note) 0.625%
Capitalized leases 288,700 1999 to
2000
------------
Total long term debt 1,017,900
------------
Total debt $ 11,327,100
============
</TABLE>
COLLATERAL
The warehouse line of credit, the revolving line of credit and the note
payable have been with the same lender for eight years. The collateral for
these obligations is a combination of mortgages held for sale, receivables
from sales of mortgage loans, servicing assets, other assets of the
Company, and Finet's corporate guarantee. These facilities were granted to
MMI prior to its December 31, 1996 acquisition.
The collateral for the capitalized leases is the equipment thereby
financed.
DEBT COVENANTS
The Borrowing Agreements (Agreements) for the warehouse line of credit, the
revolving line of credit and the note payable contain various financial
covenants including net worth computed in accordance with generally
accepted accounting principles, current ratio and tangible net worth
leverage ratio requirements. Should an event of default occur, as defined
in the Agreements, outstanding principal and interest on all three of the
Company's credit facilities technically would be due on demand.
9. COMMITMENTS AND CONTINGENCIES
LOAN SALE COMMITMENTS
The Company has entered into optional and mandatory forward commitments to
deliver mortgage loans of $50 million as of January 31, 1998.
<PAGE> 12
MORTGAGE LOAN APPLICATIONS IN PROCESS
The Company has open short-term commitments to fund mortgage loan
applications in process subject to credit approval. Such commitments,
which had interest rates that were committed to the borrower, amount to
$77.2 million as of January 31, 1998. Commitments to fund loans are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Interest rate risk is mitigated by
the use of forward contracts to sell loans to investors.
GUARANTEES
Subsequent to fiscal year end April 30, 1997, Finet issued to Residential
Funding Corporation ("RFC") on behalf of its wholly owned subsidiary, MMI,
a corporate guarantee of all MMI's borrowing agreements with RFC (See Note
8).
Under the terms of an agreement with NDS, the Company has a contingent
obligation to adjust the share consideration of that agreement if the
market price of the Company's common shares is not at or above $4.00 per
share on the earlier of the Company's registration of NDS' shares or June
3, 1998 (See Note 7).
10. ISSUANCE OF COMMON STOCK
In October, 1997, a total of 1,300,000 shares of the Company's common stock
were subscribed in a private placement under Regulation D for total
proceeds of $3,900,000, of which $1.4 million was received and 466,667
common shares and warrants to purchase 466,667 common shares at an exercise
price of $5.00 per share and expiring in 2002 were issued. Of these
proceeds, $1,175,000 are designated and used for investment purposes. As
agreed, the Company received the final subscription proceeds in the amount
of $2,500,000 on December 29, 1997 and issued 833,333 common shares and
warrants to purchase 833,333 common shares under the same terms.
Additionally, during the nine months ended January 31, 1998 a total of
228,917 shares and warrants expiring in 2002 to purchase 2,237,494 common
shares at exercise prices of $1.50 to $4.00 per share were issued to
fulfill the terms of various agreements. A further 9,100 common shares
were issued to 133 employees and consultants as a year-end bonus in amounts
of 25, 50 or 100 shares, depending on their length of service with the
Company. At January 31, 1998 a total of 30,511,709 common shares,
10,438,197 warrants and 748,249 options were outstanding.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents supplemental investing and financing
activities for the nine month periods ended January 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
- -
<S> <C> <C>
Cash paid during the period for:
Interest on line of credit and other borrowings $1,063,900 $
965,500
Income taxes - -
Common stock issued for:
Expenses 157,600 -
Settlement of liabilities subject to compromise 22,300 -
Settlement of accrued liabilities 149,700 -
Purchase of intangible assets 1,308,000 -
Distributions to prior shareholders:
Distributions declared to prior shareholders -
740,700
Distributions paid to shareholders -
(1,040,000)
----------- --------
- ---
Change in distributions payable to shareholders
(299,300)
Assets and lease obligations capitalized -
165,200
Common stock issued for creditor settlements -
115,000
Common stock issued for interest and lender fees -
259,600
Common stock issued in exchange for debt -
1,170,000
Assets acquired in acquistions:
Cash -
50,200
Furniture, fixtures and equipment -
246,300
Other assets -
279,700
Accounts payable and other accrued expenses -
(1,609,400)
Debt -
(1,389,200)
Liabilities subject to compromise -
(968,700)
Accumulated deficit -
3,391,200
</TABLE>
12. SUBSEQUENT EVENTS
NEW STOCK OPTION PLANS
On February 18, 1997, the Company's Board of Directors unanimously resolved
to replace the Company's 1989 Stock Option Plan with a new 10 year
qualified incentive stock option plan, to form a separate non-qualified
stock option for non-employee directors, and to form a stock bonus plan.
The number of shares reserved for these three plans were 2,000,000, 500,000
and 875,000, respectively. Currently granted and unexercised options to
acquire 748,249 shares under the 1989 plan are unaffected by the new plan.
The plans will be submitted to shareholders for approval.
PURCHASE OF MORTGAGE SERVICING RIGHTS
During February 1998, the Company entered an agreement to purchase the
rights to service approximately 1,000 Freddie Mac and Fannie Mae mortgage
loans with a total principal balance of approximately of $100 million for
approximately $1.14 million. The transaction closed on February 28, 1998.
<PAGE> 14
PENDING ACQUISITION
On March 4, 1998 Finet entered into a letter of intent with MICAL Mortgage,
Inc. ("MICAL"), a California corporation, for the purpose of Finet
acquiring all of the issued and outstanding stock of MICAL. MICAL is a full
service mortgage banker operating in 18 states and specializing in FHA and
VA loans. MICAL currently originates approximately $70 million in loans per
month, of which approximately 65% are higher margin FHA and VA loans. The
parties have agreed to complete a formal closing of the transaction before
March 31, 1998.
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995 and as such may involve known and unknown risks and
uncertainties and other factors that may cause the actual results,
performance, or achievements of the Company to be materially different from
any future results, performance, or achievements expressed or implied by
such forward-looking statements. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of anticipated or unanticipated events.
RESULTS OF OPERATIONS
REPORTING ENTITY
The acquisition of Monument Mortgage, Inc. (MMI) by Finet on December 31,
1997 was accounted for as a reverse acquisition whereby MMI is considered
the acquiring corporation for accounting and financial statement reporting
purposes and MMI's historical financial statements are deemed to be the
historical financial statements of the reporting entity. The consolidated
financial statements at January 31, 1998 include the financial statements
of Finet's wholly owned subsidiaries MMI, PreferenceAmerica Mortgage
Network (PAMN) and Property Transaction Network (PTN). The Company has
established the following Internet websites: www.finetholdings.com,
www.monument.com, www.pamn.com, www.theptn.com, and www.iqualify.com. Finet
also owns several inactive corporate entities. All material intercompany
transactions and amounts have been eliminated in consolidation. All
references herein to a year (e.g. 1998) refer to the fiscal year ended
April 30 of that year.
BUSINESS
Finet is engaged in electronic commerce in the residential real estate
industry and is organized around two electronic commerce (EC) groups:
Technology Systems and Services (TS&S) and Homeowner Services (HS).
HS operates in the EC business commerce sector providing wholesale and
retail real estate financing and transaction related services. The start up
phase TS&S group, formed in 1997, operates in the EC sector that provides
software and services that link businesses and customers over the Internet.
With the exception of occasional bulk purchase or sale of servicing rights,
the Company's TS&S and HS revenues are derived from activities that are
fully or materially conducted electronically, and thus are considered
electronic commerce revenues.
TS&S currently offers two unique, first-to-market Internet software
systems: iQualify for consumers and Agent Connector for realtors who become
members of Finet's Property Transaction Network (PTN). Each of these
products were nominated for several awards for technological innovation and
consumer empowerment, including iQualify and Fannie Mae being jointly
nominated for the prestigious Computerworld Smithsonian Award.
With Finet's iQualify.com Website, consumers can submit a mortgage loan
application to Fannie Mae's automated underwriting system over the Internet
and receive a decision in minutes. With the decision comes instructions for
closing and the ability to connect to the Finet service center or
participating lenders to close the loan.
Agent Connector software, including its realtor customized contact manager
features, is provided free to PTN Realtor members, who pay membership fees
of $9.95 per month to enable all its Internet features. These features
enable Realtors to maintain a virtual electronic office, post and edit
personal websites and home listings to the Internet, exchange e-mail,
conduct video home tours, and electronically connect directly to Finet loan
counselors, all from a laptop computer.
<PAGE> 16
COMPARISON OF QUARTERS ENDED JANUARY 31, 1998 AND 1997
The Company's primary source of revenues were from activities related to
providing homeowner financing solutions, either through Monument Mortgage,
the Company's highly automated mortgage banking unit, through Monument
Acceptance Corporation, the Company's sub prime lending unit, or by
brokering loans to other lenders who provide a competitive product for the
particular type of loan required.
Currently, more than 60% of the Company's loans are completed through
electronic means, compared to less than 10% a year ago. The efficiencies of
conducting the majority of its loan origination activities electronically
has enabled the Company to significantly increase its monthly loan volume
without a corresponding increase in loan operations personnel. Loan volume
of $102.7 million for the quarter was up 21% from $85.9 million in the same
quarter of 1997.
The Company has continued to invest in personnel and technology to develop
TS&S into a capable computer and Internet systems development and delivery
unit. The TS&S group was in the start-up phase during the quarter. It
introduced the Agent Connector and iQualify software systems and recorded
its first revenues in third quarter 1998.
The table below summarizes the relative contributions of these two
operating groups during the quarter:
<TABLE>
<CAPTION>
Corporate Gain on
HS Group TS&S Group Support Services Bulk Sales Finet Totals
----------- ---------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,444,100 $ 39,000 $ (9,400) $ 0 $ 1,473,700
Expense 1,491,500 377,200 834,200 0 2,702,900
----------- --------- ---------- ---------- -----------
Net loss $ 47,400 $ 338,200 $ 843,600 $ 0 1,229,200
</TABLE>
Net loss from the Company's electronic commerce activities for third
quarter 1998 was $1.2 million compared to $1.8 million in the immediately
prior quarter and $1.1 million in the same quarter of 1997.
There were no bulk sales of servicing rights in the 1998 quarter and a gain
from the bulk sale of servicing rights of $581,800 in the 1997 quarter. The
Company has implemented a Purchased Mortgage Servicing Rights ("PMSR")
acquisition strategy, and rights to service four loan portfolios totalling
$486.5 million were purchased on December 31, 1997.
Consolidated net loss for the 1998 quarter was $1.2 million, compared to
$0.5 million reported for the same quarter of 1997. Both before and after
extraordinary gains, loss per share was $.04 for the 1998 quarter and $.04
for the same quarter of 1997, based on shares used to compute earnings per
share of 30,074,897 and 13,605,912 in 1998 and 1997, respectively.
A special projects division was established during the quarter. It will
focus on providing customized homebuyer financing solutions to major home
builder organizations and relocation companies.
On January 10, 1998, Finet entered into a letter of intent with Coastal
Federal Mortgage Company ("Coastal"), a New Jersey corporation, for the
purpose of the Registrant acquiring 100% of the issued and outstanding
stock of Coastal. Coastal is a mortgage banking firm operating in 16
eastern states and specializing in sub prime lending.
As the Company's operations are expanding and its various electronic
commerce revenue sources and volumes are increasing, management believes
the results of operations for the quarter ended January 31, 1998 are not
indicative of results that can be expected in future periods.
<PAGE> 17
REVENUES
Revenues from electronic commerce activities for the quarter ended January
31, 1998 increased 50% to $1.5 million from the $1.0 million reported on
the same basis for the same period last year and increased 25% from $1.2
million in the immediately prior quarter. This increase in revenues was
attributable to a 55% increase in the net gain on the ongoing (or "flow" as
opposed to "bulk") sale of mortgage loans and servicing rights, offset by a
decrease in net servicing revenue from a smaller portfolio of serviced
loans. No bulk sales of mortgage servicing rights occurred during the 1998
quarter, but 1997 quarterly revenues included a gain of $0.6 million from
the bulk sale of loan servicing rights.
Loan revenues are comprised of loans originated by MMI's wholesale network,
whose mortgage brokers increasing use Fannie Mae's Desktop
Originator/Desktop Underwriter automated loan approval system, and loans
originated through Finet's retail service center. Additionally, the service
center earns fees from brokering loans to other lenders. Such fees, which
are included in the revenue totals above, increased to $89,600 in third
quarter 1998 as a result of increased service center activity.
In fiscal 1998, the Company started offering mortgage loans to borrowers
with credit ratings below the "A" level ("sub prime borrowing"). While the
volume of these loans is lower ($1.0 million of sub prime loans were
originated in January 1998, compared to $36 million of A level loans), the
margin is significantly higher than the margin on "A" quality loans. These
higher margins, plus improved pricing strategies, resulted in the overall
margin earned on sales of mortgage loans/servicing rights increasing from
53 basis points in 1997 to 94 basis points in 1998.
Loan servicing fee net revenues decreased to $13,700 in the quarter ended
January 31, 1998 from $167,500 in the prior year's third quarter. The
portfolio balance declined from the prior year's quarter due to the routine
payoff of serviced loans and the bulk sales of servicing assets. The
servicing portfolio was not materially replenished with newly originated
loans during this period as most originated loans were sold with servicing
rights attached. Amortization of PMSR purchased in December 1997 also
reduced net servicing revenue. Servicing cash flow is expected to increase
by approximately $1.1 million annually from the Company's recent purchase
of servicing rights described herein, however after amortization and
financing expense the increase in net income will not be significant.
The Company's telemarketing unit, Mortgage Marketing Concepts, generates
mortgage leads from a variety of sources and in various states, sometimes
including states in which the Company is not currently licensed. These
leads may be used by the Finet service center and/or sold to other non-
affiliated mortgage brokers. Revenue from the sale of mortgage leads
decreased from $40,600 in 1997 to $(9,400) in 1998 as a result of diverting
the flow of leads to the Finet service center to increase its loan volume
in 1998.
During the quarter, the startup phase TS&S group, which was formed in mid-
1997 and introduced the Agent Connector and iQualify systems in November
1997, earned its first revenues of $39,000 from PTN realtor membership fees
and iQualify usage fees. The Company expects TS&S to become a material
contributor to revenues as its products and services gain wider acceptance
and use. The Company is in discussions with several national real estate
firms interested in participating in the distribution of these products.
EXPENSES
Compensation and employee benefits expenses increased 56% to $1.2 million
for the quarter ended January 31, 1998 from $767,700 for the quarter ended
January 31, 1997. The increase is due primarily to increasing the TS&S
staff and additional management and administrative personnel as the Company
implemented its growth plan. Prior year expenses are primarily for MMI
only.
General & administrative expense increased 64% from $271,800 to $458,100
primarily as a result of leasing and insuring office facilities in Nevada
that house the PTN and the Company's telemarketing unit, and the purchase
of directors and officers liability coverage.
<PAGE> 18
Professional fees increased 130% from $142,500 in 1997 to $328,300 in 1998.
The increase is attributable primarily to the Company's acquisitions and
expansion and related consulting services for developing new technologies
as part of the Company's business development activities and consulting
services provided by a former MMI owner.
Other expenses declined 75% from $330,300 in 1997 to $81,200 in 1998. The
decrease is due primarily to nonrecurring expenses incurred by MMI in the
1997 quarter prior to its acquisition by Finet.
COMPARISON OF YEAR TO DATE PERIODS ENDED JANUARY 31, 1998 AND 1997
The Company is currently implementing a comprehensive business development
plan to expand the scope of its services. The 1998 periods include costs
related to this plan. The Company's strategic focus has been to develop and
grow additional revenue sources as rapidly as possible and secondarily to
gradually decrease monthly operating losses to zero in 1998.
Accordingly, monthly loan volume gradually increased over calendar 1997
from $20 million in January 1997 and began to accelerate more rapidly in
December 1997, reaching $36 million in January 1998, $71 million in
February and is currently tracking even higher for March. Finet's service
center loan originations were $1.2 million in January 1998, $2.6 million in
February, and by mid-March had reached $6.4 million month-to-date. As
expected, third quarter operating losses declined 32% from the second
quarter as favorable interest rates and results from the Company's business
development activities and introduction of new products began to show their
effect, and are expected to decline further in the current quarter.
For the nine month periods ended January 31, 1998 and 1997, electronic
commerce revenues increased 41% to $3.8 million from $2.7 million,
respectively, as total loan volume increased to $285 million from $278
million and the margin earned on sales of mortgage loans/servicing rights
increased from 40 basis points to 71 basis points.
Finet's net loss from electronic commerce activities for the first nine
months of 1998 was $4.3 million, compared to $2.5 million reported for
MMI's results in the corresponding period of 1997.
1998 and 1997 revenues also included $0.2 million and $0.6 million,
respectively, from one-time bulk sales of loan servicing rights. Including
these gains, consolidated net loss for the first nine months of 1998 was
$4.1 million, compared to $1.9 million for the corresponding period of
1997. Rights to service four loan portfolios totalling $486.5 million were
purchased on December 31, 1997 and will increase net servicing revenue in
fourth quarter 1998 as these loans are audited and delivered.
Loss per share before and after extraordinary gains was $.14 for the first
nine months of 1998, versus $.19 for the same period of 1997, based on
shares used to compute earnings per share of 29,200,211 and 10,135,304 in
the first nine months of 1998 and 1997, respectively.
The most significant expense category increases were in compensation and
employee benefits and general and administrative expenses resulting from
staff increases from acquisitions and implementing the business development
plan, with related increases in facilities and professional fees.
REVENUES
Revenues from electronic commerce activities for the nine months ended
January 31, 1998 increased 41 percent to $3.8 million from the $2.7 million
reported on the same basis for the same period last year. The increase in
revenues was attributable to an increase in the net gain on sale of
mortgage loans and service center loan brokerage fees which more than
offset a decline in servicing fees from a smaller portfolio of serviced
loans.
<PAGE> 19
Loan servicing fee revenues decreased 50% to $267,000 in the quarter ended
January 31, 1998 from $529,800 in the prior year's third quarter. The
portfolio balance declined from the prior year due to the payoff of
serviced loans and the bulk
sales of servicing assets. The servicing portfolio was not materially
replenished with newly originated loans during this period as most
originated loans were sold with servicing rights attached. Amortization of
PMSR purchased in December 1997 also reduced net servicing revenue. The
servicing rights purchased during the quarter will, in succeeding periods,
add approximately $1.1 million to annual cash flow and a small increase in
net servicing revenue after amortization and financing costs.
EXPENSES
Compensation and employee benefits expenses increased 61% to $3.3 million
for the nine months ended January 31, 1998 from $2.1 million for the same
period in the prior year. The increase is due primarily to increasing the
TS&S staff and modest increases in loan operations personnel, as well as
the impact of consolidating the operating results of Finet and its
operating subsidiaries. Prior year results are primarily for MMI only.
General and administrative expense increased 48% from $950,000 to
$1,406,800, as a result of the Company's expansion.
Professional fees increased 203% from $338,300 in the first nine months of
fiscal 1997 to $1.0 million in the same period in 1998. The increase is
attributable primarily to the Company's acquisitions and expansion. Audit
and accounting fees increased $167,600 due to the increase in complexity
arising from being a single private company during most of 1997 and being a
public company with three subsidiaries in 1998. The remainder of the
increase relates to consulting fees, primarily due to expenses related to
developing new technologies as part of the Company's business development
activities and the consulting services of a former MMI owner.
Marketing expense increased from $269,800 in fiscal 1997 to $443,800 in
fiscal 1998, an increase of 64%. The increase was due to the Company's
expenditures for marketing its technology services, particularly the Agent
Connector software.
Loss on disposition of assets increased to $39,300 from $0 in 1998 as the
result of the disposition of obsolete equipment.
CAPITAL EXPENDITURES, LIQUIDITY AND CAPITAL RESOURCES
The Company's normal cash requirements are to meet operating expenses,
including sales and marketing activities, to fund further expansion of the
Company's technology related business activities, to satisfy accrued
liabilities and accounts payable, and to satisfy other liabilities as they
become due.
CASH FLOWS
The Company experienced an increase in cash of $1.6 million in the first
nine months of 1998, compared to a decrease in cash of $456 thousand in the
same period of the prior year.
Cash Flow From Operations
With TS&S in the startup phase, the Company's cash flows are primarily
reflect the volume of mortgage loans originated and sold by HS during the
period. Loan originations increased from $279 million to $285 million in
the first nine months of 1998 and the amount of loans and servicing rights
in inventory increased by $3.4 million. These increases were financed by an
$8.3 million increase in warehouse borrowings.
The funding and inventory increases and the Company's $4.1 million
operating loss used $13.5 million in cash from operations. Use of cash was
offset primarily by an increase in accounts payable, accrued expenses and
other liabilities of $3.3 million. Of these increases, payables increased
$2.7 million as a result of the purchase of four servicing rights
portfolios on December 31, 1997.
<PAGE> 20
Cash Used for Investing Activities
The Company began to implement its business growth strategy in fiscal 1998.
Mortgage servicing rights were purchased ($3.5 million), intangible assets
were purchased from NDS ($202,000 in cash and $808,000 in common stock
issued) and from REOS ($641,000 in cash, of which $104,000 was disbursed
after January 1998, and $500,000 in common stock to be issued). Thus,
investing activities overall used $4,451,700 in cash in 1998 compared to
using $331,300 in 1997.
Cash Provided by Financing Activities
The Company experienced a $15.4 million increase in cash provided by
financing activities in 1998, compared to cash used by financing activities
of $8.3 million in 1997. Due to the increase in loan funding volumes and
loans in inventory in 1998 as compared to the same period in the prior
year, warehouse line of credit borrowings increased $8.3 million in 1998,
compared to a decrease of $9.0 million in 1997. The Company also received
$6.6 million in cash proceeds in 1998 from stock issued during the nine
months ended January 31, 1998, compared to $2.8 million received in 1997.
Management intends to use these funds primarily for investments, including
acquisitions of servicing rights and the development and marketing of TS&S
products and services.
LIQUIDITY AND CAPITAL RESOURCES
The Company has maintained a $35 million warehouse borrowing facility
capable of supporting a monthly loan funding volume of $80 million or so,
given current loan sales and settlement turnaround times. With the
introduction of Agent Connector and iQualify and increased staffing of
Finet's service center, loan volumes increased to $36 million in January
and $71 million in February and are expected to increase further in March.
Accordingly, the Company has obtained a temporary increase of its facility
to $85 million while its request for a higher permanent increase is
reviewed. The pending acquisitions of Coastal and MICAL, each of whom have
similar mortgage warehouse borrowing facilities, will need to be integrated
as well upon completion. The Company's current lender, RFC, recommends that
the additional warehouse lending facility the Company requires be obtained
through a syndicate of lenders led by RFC.
Funded loans are immediately sold to investors in the secondary market with
the proceeds used to reduce warehouse balances. The Company also maintains
a $1 million working capital line of credit at competitive borrowing rates.
The Company mitigates its mortgage banking risks through several common
industry practices. The first is to purchase and originate mortgage
servicing rights. When loan originations decline as interest rates rise,
servicing rights increase in value and can provide a predictable source of
earnings and/or cash flow. The second is to offset unfavorable interest
rate movements when funding loans by hedging the interest rate locks. The
Company has been informed by Tuttle & Co., its hedging advisor that, using
Finet's proprietary hedging software, in calendar 1997 it achieved the best
hedging performance of any Tuttle & Co. client.
The Company's business development activities are focused on diversifying
and increasing the revenues of both TS&S and HS. The Company is currently
expending cash resources to support TS&S business development activities.
For example, although Agent Connector version 1.0 was introduced in
November 1997, a combination of user feedback regarding this unique product
and continued rapid advances in technology have resulted in continuous
innovation, with version 4.3 just released. The Company expects in calendar
1998 that all business units will generate revenues sufficient to cover
their respective operating expenses. Management believes it has sufficient
cash and short term financing alternatives to finance operations until they
reach positive cash flow.
<PAGE> 21
CAPITAL EXPENDITURES
The Company completed its purchase of certain assets and liabilities of
Real Estate Office Software, Inc. for a total purchase price of $1,140,800
in the form of $640,800 in cash and $500,000 in common stock to be issued.
The Company purchased $1,010,000 in intangible assets from NDS Software
(NDS) for $202,000 in cash and $808,000 in common stock issued. The assets
consisted of software, contract programming services, mortgage leads and
marketing access to certain NDS customers.
In third quarter 1997, the Company implemented a Purchased Mortgage
Servicing Rights ("PMSR") acquisition strategy. To date, rights to service
$486.5 million in loans have been purchased. On February 28, 1998, the
Company entered into an agreement to acquire PMSR for an additional $100
million of loans for $1.1 million. These net PMSR additions to the
Company's servicing portfolio are expected to increase its net monthly cash
flow, commencing in fourth quarter 1998.
As resources permit, the Company plans to retain a higher percentage of
Originated Mortgage Servicing Rights ("OMSR") than in 1997 and to acquire
additional PMSRs in 1998 to increase its servicing portfolio to over $1
billion before April 30, 1999. The PMSR's may be acquired directly or
through an open market auction process. Prices vary for servicing rights,
however this plan represents a total investment of approximately $10
million, some of which the Company plans to finance on a secured basis. The
Company has begun discussions to arrange the financing required for these
planned investments. The Company's ability to acquire this additional
servicing is dependent on the servicing available on the market, the
Company's success in pricing and bidding, and the ability to arrange the
credit facilities to do so. Accordingly, the remaining potential capital
expenditures are not assured.
<PAGE> 22
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the reporting period, the Company was not involved in any material
legal proceedings. The Company was involved in routine litigation that is
incidental to its business.
Item 2. CHANGES IN SECURITIES
During the quarter ended January 31, 1998, a total of 842,433 shares of the
Company's common stock and 833,333 warrants to purchase shares were issued,
as follows:
An individual agreed to purchase 1,000,000 common shares and warrants
to purchase 1,000,000 common shares at an exercise price of $5.00 per
share which expire in 2002 for $3,000,000 under Regulation D. Of these
shares, 166,667 were purchased for $500,000 and 166,667 warrants were
issued during the prior quarter. The remainder of the purchase was
completed on December 29, 1997.
9,100 common shares were issued to 133 employees and consultants as a
holiday bonus in amounts of 25, 50 or 100 shares, depending on their
length of service with the Company.
Pursuant to the acquisition of certain assets and liabilities of REOS, the
Company is obligated to, but has not yet issued
200,000 shares of its common stock. (See Note 4)
In May, 1997 the Company applied to have its Common Stock listed on the
Nasdaq SmallCap Market. In November, 1997 its application was approved.
Accordingly, on November 11, 1997 trading of shares of its Common Stock
under the symbol FNHC commenced on the Nasdaq SmallCap Market.
The following table sets forth the range of high, low and average closing
prices per share of the Common Stock and total number of shares traded
during the period since April 30, 1997.
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER MONTHLY
PERIOD: HIGH/ASK LOW/BID CLOSE/AVG AVG VOL
- ---------------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter $ 6.375 $ 2.188 $ 2.875 454,900
Second Quarter 8.000 2.875 7.250 1,105,900
Third Quarter 7.375 3.563 4.000 1,495,100
Fourth Quarter (thru 3/10) 4.125 3.625 N/A
</TABLE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable
<PAGE> 23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
EX-27 Financial Data Schedule
REPORTS ON FORM 8-K
On January 6, 1998 the Company filed a report on Form 8-K under item 5
announcing that effective December 31, 1997, the Company completed four
separate purchases of residential mortgage loan servicing rights totalling
3,460 loans with a current loan balance outstanding of $427 million. The
servicing rights were acquired by Monument Mortgage, Inc., Finet's mortgage
banking subsidiary. These acquisitions are part of a previously announced
plan to more fully employ Monument's servicing capacity by increasing its
total loan servicing portfolio in excess of $1 billion during 1998. The
acquired loans were all Fannie Mae or Freddie Mac approved conforming
loans.
On January 15, 1998 the Company filed a report on Form 8-K under items 2
and 7 announcing its signing of a letter of intent to acquire Coastal
Federal Mortgage Company. No financial statements or information were
included in the report.
On March 4, 1998 the Company filed a report on Form 8-K under items 2 and 7
announcing its signing of a letter of intent to acquire MICAL Mortgage,
Inc. No financial statements or information were included in the report.
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FINET HOLDINGS CORPORATION
Date: March 17, 1998 /s/ L. Daniel Rawitch
L. Daniel Rawitch
(CEO and Principal Executive
Officer)
Date March 17, 1998 /s/ George P. Winkel
George P. Winkel
(CFO and Principal Financial
Officer)
</TEXT?
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's audited financial reports and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 2,201,700
<SECURITIES> 0
<RECEIVABLES> 7,864,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,891,100
<DEPRECIATION> 1,776,200
<TOTAL-ASSETS> 30,434,100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 371,400
<OTHER-SE> 4,870,400
<TOTAL-LIABILITY-AND-EQUITY> 30,434,100
<SALES> 0
<TOTAL-REVENUES> 3,945,000
<CGS> 0
<TOTAL-COSTS> 8,050,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090,400
<INCOME-PRETAX> (4,105,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,105,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,000
<CHANGES> 0
<NET-INCOME> (4,102,800)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
