<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
------------------------
COMMISSION FILE NUMBER: 0-18108
------------------------
FINET.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of incorporation or organization)
2527 CAMINO RAMON, SUITE 200
SAN RAMON, CA 94583
(Address of Principal Executive Office)
94-3115180
(IRS Employer Identification Number)
(925) 242-6500
(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 / / No / /
As of December 9, 1999 93,432,564 shares of the Registrant's Common
Stock, $.01 par value were issued and outstanding.
1
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
---- ----------- ----
<S> <C> <C>
1. Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets
October 31, 1999 and April 30, 1999 3
Unaudited Condensed Consolidated Statements of Operations
Six Months and Three Months Ended October, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash Flow
Six Months Ended October 31, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
3. Quantitative and Qualitative Analysis of Market Risk 19
PART II - OTHER INFORMATION
1. Legal Proceedings 19
2. Changes in Securities 20
4. Submission of Matters to a Vote of Security Holders 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31 APRIL 30
1999 1999
------------ ----------
(AMOUNTS IN THOUSANDS)
ASSETS (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents ................................................... $ 27,993 $ 4,202
Marketable equity securities ................................................ 2,700 -
Accounts receivable, net of allowances of $1,121 and $2,150 ................. 2,888 2,245
Mortgages held for sale, net of allowances of $2,701 and $3,851 ............. 42,280 33,438
Mortgage servicing rights ................................................... - 2,693
Furniture, fixtures & equipment, net ........................................ 3,475 1,575
Goodwill .................................................................... 1,704 -
Other assets ................................................................ 3,425 1,102
---------- ----------
Total assets ................................................................ $ 84,465 $ 45,255
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse and other lines of credit ......................................... 37,925 $ 33,038
Accounts payable ............................................................ 137 517
Notes payable and capitalized leases ........................................ 182 481
Accrued expenses and other liabilities ...................................... 5,895 4,531
---------- ----------
Total liabilities .................................................. 44,139 38,567
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share (150,000 shares authorized, 93,392 and
78,638 shares issued and outstanding at October 31 and April 30, 1999,
respectively) ............................................................... 933 786
Additional paid-in capital ................................................. 100,966 53,782
Accumulated deficit ........................................................ (62,452) (47,880)
Other comprehensive income ................................................. 879 -
---------- ----------
Total stockholders' equity ................................................. 40,326 6,688
---------- ----------
Total liabilities and stockholders' equity ....................... $ 84,465 $ 45,255
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
FINET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
------------------------ -------------------------
1999 1998 1999 1998
------------------------ -------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ............................................. $ 2,371 $ 6,586 $ 4,415 $ 14,727
Cost of revenues ..................................... 2,220 5,178 5,034 10,831
--------- --------- --------- ---------
Gross profit (loss) .................................. 151 1,408 (619) 3,896
Operating expenses
General and administrative ...................... 4,477 3,731 8,789 6,995
Marketing and advertising ....................... 3,231 188 4,073 639
Depreciation and amortization ................... 301 290 390 541
Other ........................................... 373 709 700 857
--------- --------- --------- ---------
Total expenses ............................... 8,382 4,918 13,952 9,032
--------- --------- --------- ---------
Loss from operations ................................. (8,231) (3,510) (14,571) (5,136)
--------- --------- --------- ---------
Other interest expense ............................... - 1,321 - 2,243
--------- --------- --------- ---------
Loss before income taxes ............................. (8,231) (4,831) (14,571) (7,379)
Income tax expense ................................... - - - -
--------- --------- --------- ---------
Net loss ............................................. $ (8,231) $ (4,831) $(14,571) $ (7,379)
========= ========= ========= =========
Basic and diluted net loss per common share .......... $ (0.09) $ (0.15) $ (0.17) $ (0.23)
--------- --------- --------- ---------
Weighted average common shares used in computing basic
and diluted net loss per common share 92,276 32,913 88,221 32,693
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
FINET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED )
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31
1999 1998
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................................. $(14,571) $ (7,379)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 444 1,569
Imputed interest from convertible debentures ........................... - 1,959
Asset valuation adjustments ............................................ 181 -
(Gain) loss on sale of mortgage servicing rights ....................... - (420)
Changes in operating assets and liabilities:
(Increase) decrease in mortgage loans held for sale ................. (8,841) 9,244
(Increase) decrease in receivables from sales of mortgage
loans, servicing rights and other receivables ..................... 200 4
(Increase) decrease in other assets ................................. (2,682) (467)
Net increase (decrease) in warehouse borrowings ..................... 4,887 (9,820)
Increase (decrease) in accounts payable and accrued expenses ........ 896 (2,216)
---------------------------
Net cash used in operating activities ..................................... (19,486) (7,526)
INVESTING ACTIVITIES:
Proceeds from sale of mortgage servicing rights ........................... 1,848 1,509
Purchase of furniture, fixtures and equipment ............................. (2,408) (248)
Cash acquired in acquisition .............................................. - 185
Acquisition of purchased technology and intangibles ....................... - (481)
Other ..................................................................... - 12
---------------------------
Net cash provided by (used in) investing activities ....................... (560) 977
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses ................... 41,893 -
Proceeds from issuance of convertible debt ................................ - 1,384
Proceeds from issuance of preferred stock ................................. - 2,286
Proceeds from the exercise of common stock warrants and options ........... 2,153 197
Proceeds from advances on note payable and line of credit ................. - 1,400
Repayment of note payable, capitalized leases and line of credit .......... (209) (309)
Other equity .............................................................. - (450)
--------- ----------
Net cash provided by financing activities ................................. 43,837 4,508
--------- ----------
Net increase (decrease) in cash ........................................... 23,791 (2,041)
Cash at beginning of period ............................................... 4,202 2,178
--------- ----------
Cash at end of period ..................................................... $ 27,993 $ 137
========= ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid ........................................................... $ 267 $ 3,779
Taxes paid .............................................................. $ 49 $ 2
</TABLE>
See accompanying notes.
5
<PAGE>
FINET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
ORGANIZATION
FiNet.com ("FiNet" or "the Company") is a provider of mortgage services
to consumers and mortgage broker businesses, including online mortgage services.
The Company primarily markets its consumer mortgage services through marketing
agreements with general interest websites and co-branding arrangements with
financial services websites. FiNet operates its consumer direct and
business-to-business segments through Monument Mortgage, Inc. ("Monument"),
which is licensed to originate loans in 47 states and the District of Columbia.
The majority of Monument's business activity is carried out in
California.
RISKS AND UNCERTAINTIES
The Company has a limited operating history under its current business
model, and its prospects are subject to the risks, expenses, and uncertainties
frequently encountered by companies in the new and rapidly evolving markets for
Internet products and services. These risks include the failure to develop and
extend the Company's online service brands, the rejection of the Company's
services by consumers, vendors and/or advertisers, and the inability of the
Company to maintain and increase the levels of traffic on its online services,
as well as other risks and uncertainties.
The Company has experienced losses in recent fiscal years and had an
accumulated deficit at October 31, 1999 of $62,452,000. Net losses are expected
for the foreseeable future. Equity capital has been raised to fund operations.
The Company's cash on hand at October 31, 1999 was $27,993,000. Future capital
requirements depend on many factors including the Company's ability to execute
its business plan. To execute its business plan, the Company may need to raise
additional capital through the issuance of debt or equity. There can be no
assurance that the Company will be able to raise additional capital, or that
such capital will be available at all on satisfactory terms. Failure to raise
additional capital when needed could have a material adverse effect on the
Company's business, results of operations and financial condition.
NOTE 2. BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of October 31, 1999 and
October 31, 1998 are unaudited. The unaudited interim financial statements have
been prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows for the periods ending and as of
October 31, 1999 and 1998. These financials statements and notes thereto are
unaudited and should be read in conjunction with the Company's audited financial
statements included in the Company's Annual Report on Form 10-K. The results for
the three and six month periods ended October 31, 1999 are not necessarily
indicative of the expected results for the year ending December 31, 1999.
Beginning December 31, 1999, FiNet.com, Inc. will change its year
end from a fiscal year ending April 30, to a calendar year ending December
31. Results for the eight-month transition period ending December 31, 1999
will be reported in the next annual reporting period on Form 10-K which will
be dated December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
6
<PAGE>
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts in the prior quarter period financial statements have
been reclassified consistent with the current quarter presentation.
REVENUE RECOGNITION
Lending transaction fees are deferred until the related loan is sold.
Upon sale of the loan, deferred transaction fee income is recognized and
included in gain on sale of mortgage loans. Discounts and premiums from the
origination of mortgage loans held for sale are deferred and recognized as
adjustments to gain or loss upon sale.
Loan servicing fees represent fees earned for servicing loans for
various investors. The fees are either based on a contractual percentage of the
outstanding principal balance or a fixed dollar amount per loan. Fees are
credited to income when the related payments are received.
Loan brokerage fees represent fees earned by the Company's
consumer-direct segment for processing of mortgage loan applications for third
party lenders. The fees for providing these services are recognized at such time
as the loans are funded by the lender.
Direct loan origination costs and other production costs attributable
to inventory as well as other costs associated with revenues earned during the
period are included in "Cost of revenues" in the Company's Consolidated
Statement of Operations.
The Company's revenue components for the period ended October 31 are:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
(IN THOUSANDS) (IN THOUSANDS)
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Warehouse interest income $ 660 $ 2,154 $ 1,109 $ 3,957
Gain on sale of servicing rights and mortgage loans 848 3,216 1,669 8,618
Loan servicing fees 38 217 286 570
Loan brokerage fees 248 890 629 1,375
Other 577 109 722 207
-------- -------- -------- --------
Total revenues $ 2,371 $ 6,586 $ 4,415 $14,727
======== ======== ======== ========
</TABLE>
For the three month and six month periods ended October 31, 1998,
direct loan origination costs were included in the computation of the gain or
loss on sale of the related loans. The components of the prior period statements
of operations have been reclassified and condensed to conform to the
presentation of the quarter ended October 31, 1999.
7
<PAGE>
FINET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITION
On August 20, 1999, FiNet acquired certain operations and assets of
Lowestrate.com, Inc. ("Lowestrate"). The assets included the trademark
"Lowestrate.com" and the related website and certain equipment and software.
The acquired assets and operations will be used in the Company's
consumer-direct segment. The purchase price was 1,400,000 shares of the
Company's common stock. 560,000 of these shares were issued to the seller at
the purchase date and are valued at approximately $1,820,000. The remaining
840,000 shares were placed in escrow subject to release to Lowestrate and
will be valued as additional purchase price when the contingencies are
satisfied. Certain ancillary agreements were entered into in connection with
the acquisition, including a $500,000 non interest-bearing loan to
Lowestrate, secured by 200,000 of the escrowed shares. The $500,000 note is
included in the Company's "Accounts Receivable" on its Consolidated Balance
Sheet at October 31, 1999.
Subsequent to the asset and operations purchase date and until
appropriate licensing requirements were completed, Monument performed certain
processing and marketing services for Lowestrate and recorded fees and
expenses related to these services. The licensing requirements were completed
subsequent to October 31, 1999. Accordingly, subsequent to the licensing
date, Monument Mortgage will employ the remaining Lowestrate employees, and
FiNet's results of operations will include the activities of those employees.
On October 28, 1999, the Company acquired the remaining 50% interest
of a joint venture, increasing its interest to 100%. The purchase price was
600,000 shares of the Company's common stock. The only assets of the joint
venture are marketable equity securities. The joint venture has no operating
activities.
NOTE 4. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights and the related valuation allowance activity
were as follows:
<TABLE>
<CAPTION>
OCTOBER 31 OCTOBER 31
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year $ 2,693 $ 5,478
Additions - 1,231
Sales (2,693) (1,330)
Scheduled amortization - (919)
Impairment additions charged to operations - -
Impairment reductions credited to operations - -
---------- ----------
Ending balance $ - $ 4,460
========== ==========
</TABLE>
In connection with mortgage servicing activities, the Company
segregates, escrow and custodial funds in a separate trust account and
excludes this balance of $138,000 and $3.7 million at October 31, 1999 and
April 30, 1999, respectively, from its balance sheet.
NOTE 5. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31 APRIL 30
1999 1999
-----------------------------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures $ 781 $ 315
Computer equipment 3,946 2,650
Office equipment 1,722 1,622
Leasehold improvements 215 243
-------- --------
Total cost 6,664 4,830
Less: accumulated depreciation (3,189) (3,255)
-------- --------
8
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Net furniture, fixtures and equipment $ 3,475 $ 1,575
======== ========
</TABLE>
FINET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. BORROWING ARRANGEMENTS
Borrowing arrangements consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31 APRIL 30
1999 1999
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
WAREHOUSE AND OTHER LINES OF CREDIT
Warehouse lines of credit:
$75 million committed and $35 million
uncommitted respectively, bearing interest at 37,913 $30,906
LIBOR + variable spread, expires May 31, 2000
$10 million committed, bearing interest at - 1,001
LIBOR + 2.5%, expired December 31, 1998
Purchase/Repurchase agreements:
$10 million, bearing interest at prime - 138
$10 million, bearing interest at prime 12 993
------ -------
37,925 $33,038
====== =======
Notes payable and capitalized leases (various rates) 182 $ 481
====== =======
</TABLE>
WAREHOUSE LINES OF CREDIT
The Company's continuing operations employed a $75 million revolving
warehouse facility during the period. The remaining facilities with balances
at April 30, 1999 were used by the Company's discontinued operations, and,
after the balances are liquidated, will not be renegotiated. In August, 1999,
the Company entered into a new lending agreement with its primary warehouse
lender, GMAC/RFC. The new agreement provides the Company with a committed
$75 million warehouse borrowing facility that carries an interest rate of LIBOR
plus 1.75%. The agreement expires on May 31, 2000. For the three month
periods ended October 31, 1999 and 1998, the Company recorded warehouse
interest expense of $162,000 and $2,228,000, respectively. For the six month
periods ended October 31, 1999 and 1998, the Company recorded interest
expense of $297,000 and $3,886,000 respectively. Borrowings under this
warehouse facility are secured by the mortgages held for sale thereby
financed. At October 31, 1999, and April 30, 1999, LIBOR was 5.41% and 4.90%,
respectively, and the prime rate was 8.25 % and 7.25%, respectively.
Our available credit lines also include Fannie Mae's "As Soon as Pooled/Early
Purchase Option" (the "ASAP Plus" program). Under the ASAP Plus program,
Fannie Mae funds us on the loans we deliver to them upon receipt of
appropriate mortgage collateral. Fannie Mae subsequently purchases the
mortagage loans for cash upon receipt of complete and accurate mortgage pool
and other documentation. While approximately 66% of loans funded by Monument
Mortgage in fiscal 1999 were sold to Fannie Mae, we have not used the ASAP
Plus program since Fannie Mae reinstituted our eligibility on February 1,
1999 after a period of ineligibility due to our financial condition and
management structure.
WAREHOUSE FACILITY COVENANTS
The agreement for the warehouse line of credit (the "Agreement")
contains various financial covenants including minimum net worth, current
ratio, tangible net worth, and leverage ratio requirements. Should an event
of default occur, as defined in the Agreement, outstanding principal and
interest are due on demand. At April 30, 1999, the Company was in violation
of various financial covenants related to its non-primary warehouse lenders.
The Company is negotiating the closure of these warehouse lines. At
October 31, 1999, the Company was in default of certain financial covenants
with its primary warehouse lender. The Company has obtained a waiver of this
default.
NOTE 7. COMMITMENTS AND CONTINGENCIES
LITIGATION
Prior to the Mical acquisition, a lawsuit was filed which alleges,
among other things, that Mical made certain payments in violation of the Real
Estate Settlement Procedures Act and induced mortgage brokers to breach their
9
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alleged fiduciary duties. The plaintiffs seek unspecified compensatory and
punitive damages. Management believes that its compensation programs comply with
applicable laws and with long standing industry practices and that it has
meritorious defenses to the action. The Company intends to defend vigorously
against the action and believes that the ultimate resolution will not have a
material adverse effect on the Company's results of operations or consolidated
financial position.
The Company and certain subsidiaries are defendants in various legal
proceedings. Although it is difficult to predict the outcome of such cases,
after reviewing with counsel all such proceedings, management does not expect
the aggregate liability, if any, resulting therefrom, will have a material
adverse effect on the consolidated financial position or results of operations
of the Company and its subsidiaries.
NOTE 8. STOCKHOLDERS' EQUITY
During the six months ended October 31, 1999, FiNet issued 11,059,120
shares of common stock for net proceeds of $41,205,000 through private
placements.
FiNet recorded $879,000 of "Other comprehensive income" relating to
unrealized gains on marketable equity securities held as available
for sale at October 31, 1999.
NOTE 9. SEGMENT INFORMATION
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which requires certain disclosures about
operating segments in a manner that is consistent with how management evaluates
the performance of the segment. The Company has identified two reportable
business segments: business to business and consumer direct. Information related
to the Company's reportable operating segments is shown below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTH ENDED
OCTOBER 31 OCTOBER 31
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Business-to-business $ 1,511 $ 5,110 $ 3,054 $ 12,278
Consumer-direct 296 1,366 797 2,339
-------- -------- -------- --------
Segment Revenue 1,807 6,476 3,851 14,617
Corporate 564 110 564 110
-------- -------- -------- --------
$ 2,371 $ 6,586 $ 4,415 $ 14,727
======== ======== ======== ========
Operating income
Business-to-business (5,853) (653) (7,937) (468)
Consumer-direct (741) (832) (1,796) (2,001)
-------- -------- -------- --------
Segment operating income (6,594) (1,485) (9,733) (2,469)
Corporate (1,637) (3,346) (4,838) (4,910)
-------- -------- -------- --------
$ (8,231) $ (4,831) $(14,571) $ (7,379)
======== ======== ======== ========
Capital expenditures
Business-to-business 1,507 24 2,045 107
Consumer-direct 96 52 130 58
-------- -------- -------- --------
Segment Capital expenditures 1,603 76 2,175 165
Corporate 7 336 233 349
10
<PAGE>
-------- -------- -------- --------
$ 1,610 $ 412 $ 2,408 $ 514
======== ======== ======== ========
October April 30
31 1999
-------- --------
Identifiable assets
Business-to-business 75,083 40,141
Consumer-direct 4,571 3,211
-------- --------
Segment Identifiable assets 79,654 43,352
Corporate 4,811 1,903
-------- --------
$ 84,465 $ 45,255
======== ========
Long-lived assets
Business-to-business 2,477 624
Consumer-direct 185 311
-------- --------
Segment long-lived assets 2,662 935
Corporate 813 640
-------- --------
$ 3,475 $ 1,575
======== ========
</TABLE>
The remaining differences from the segment amounts to the consolidated
amounts relate principally to the corporate functions including administrative
costs, corporate cash and related interest income.
NOTE 10. SUBSEQUENT EVENTS
Mark L. Korell, Chairman, Chief Executive Officer and Director retired
effective January 15, 2000. His retirement triggered an event of default under
the Company's warehouse lending agreement with Residential Funding
Corporation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WE HAVE MADE FORWARD-LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON
FORM 10-Q THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. FORWARD-LOOKING
STATEMENTS INCLUDE INFORMATION CONCERNING OUR POSSIBLE OR ASSUMED FUTURE RESULTS
OF OPERATIONS. ALSO, WHEN WE USE SUCH WORDS AS "BELIEVE," "EXPECT,"
"ANTICIPATE," "PLAN," "COULD," "INTEND" OR SIMILAR EXPRESSIONS, WE ARE MAKING
FORWARD-LOOKING STATEMENTS. YOU SHOULD NOTE THAT AN INVESTMENT IN OUR SECURITIES
INVOLVES CERTAIN RISKS AND UNCERTAINTIES THAT COULD AFFECT OUR FUTURE FINANCIAL
RESULTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH IN "FACTORS THAT MAY AFFECT FUTURE PERFORMANCE" IN OUR ANNUAL REPORT
ON FORM 10-K.
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS.
OVERVIEW
FiNet.com is a full service, on-line mortgage banker that offers an
easy-to-use, one stop mortgage source for consumers and mortgage brokers. We
operate one of the first sites on the Internet that enables the consumer to
apply for and receive credit approval on-line, and to electronically search,
analyze and select from a wide variety of mortgage loan products and rates
offered by us and other lenders. We make the mortgage process easier and more
11
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understandable, while maintaining quality service by controlling the consumer's
entire mortgage lending experience. We also provide on-line and e-commerce
technologies and loan process management tools to mortgage broker businesses to
enable them to compete more effectively with on-line and other national lenders
and brokers and to help their customers make better informed borrowing
decisions.
We earn revenues through both the origination and sale of mortgage
loans. As a retail originator of loans, we generate loan origination income and
loan-related fees through loans funded and brokered by us. Our loan origination
income consists of origination points paid to us by borrowers or discount points
paid to us by wholesale lenders. Our loan-related fees consist of application,
documentation and processing fees paid by borrowers.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On the loans that we sell, we generate revenues from net premium income
and interest income. Net premium income consists of the net gain on the sale of
mortgage loans and mortgage servicing rights. This net gain is recognized based
upon the difference between the combined selling price of the loans and their
related servicing rights, and the carrying value of the mortgage loans and
servicing rights sold. Interest income consists of the interest we receive on
our mortgage loans held for sale.
Our costs and expenses related to revenues consist largely of:
- interest paid under our warehouse credit facilities;
- loan-related expenses, consisting of fees paid to third
parties for appraisal and credit report services and reserves
for potential loan repurchase and premium recapture
obligations;
- salaries, commissions and benefits paid to employees;
- general and administrative expenses such as occupancy costs,
office expenses and professional services; and
- depreciation and amortization expense related principally to
our facilities, computers and goodwill associated with our
acquisitions.
IMPACT OF OUR DISCONTINUED UNITS-MICAL, COASTAL AND OUR SERVICING BUSINESS
We incurred significant losses at both our Mical and Coastal
subsidiaries in fiscal 1999. New management elected to discontinue these
business units in the last half of fiscal 1999. In addition, management
determined that servicing loans would not be a part of on-going operations and
began preparing the servicing portfolios for sale. The servicing portfolio was
sold late in the quarter ended July 31, 1999, and $279,000 of additional expense
was recognized upon its sale. The following table summarizes the impact these
discontinued business units had on our consolidated operating results for the
three and six month periods ended October 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues $ 101 $ 3,204 $ 401 $ 7,795
Cost of revenues 218 2,752 1,553 6,156
-------- -------- -------- --------
Gross profit (117) 452 (1,152) 1,639
Other expenses
General and administrative 294 1,158 881 2618
Marketing and advertising (2) 86 3 267
Depreciation and amortization - 134 30 144
Other 73 676 102 743
-------- -------- -------- --------
Total expenses 365 2,054 1,016 3,772
-------- -------- -------- --------
Loss from operations (482) (1,602) (2,168) (2,133)
Other interest expense - (84) - 42
-------- -------- -------- --------
Loss before income taxes (482) (1,518) (2,168) (2,175)
Income tax expense - - - -
-------- -------- -------- --------
Net loss $ (482) $(1,518) $(2,168) $(2,175)
======== ======== ======== ========
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED OCTOBER 31, 1999 COMPARED TO OCTOBER 31, 1998
REVENUES AND VOLUMES
Total loan volume for FiNet's production units is summarized below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
OCTOBER 31
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Business to Business .................................... $ 172,022 $ 330,581
Consumer-direct ......................................... 24,371 87,287
-----------------------------
Total Loan Volume .............................. $ 196,393 $ 417,868
=============================
</TABLE>
Loan volume decreased $221.5 million, or 53%, to $196.4 million for
the quarter ended October 31, 1999 from $417.9 million for the quarter ended
October 31, 1998. Revenues decreased $4.2 million, or 64%, to $2.4 million
for the quarter ended October 31, 1999 from $6.6 million for the quarter
ended October 31, 1998. The volume decrease was attributable primarily to the
volume of the discontinued business units that were no longer operating in
the quarter ended October 31, 1999. Additionally, business-to-business
segment volumes decreased in our continuing units. Mortgage lending rates
have increased in the current fiscal year relative to the prior fiscal year,
slowing mortgage industry originations. In addition, price decreases in
effect during the quarter ended October 31, 1999 negatively impacted revenues
since they were not offset by volume increases. We expect to increase
revenues through the planned expansion of our sales force and increased
emphasis on the business to business segment, through acquisitions and
through strategic relationships. However, there can be no assurance that
increased revenues will be achieved.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues decreased $3.0 million, or 57%, to $2.2 million for
the quarter ended October 31, 1999 from $5.2 million for the quarter ended
October 31, 1998. However, as a percentage of revenues, cost of revenues
increased, decreasing our gross profit to 6% of revenues. Compensation costs of
production-related personnel, the primary component of cost of revenues in our
continuing businesses, does not decrease proportionately with volume decreases.
Warehouse interest expense decreased $2.1 million or 93% to $162,000
for the quarter ended October 31, 1999 from $2.2 million for the quarter ended
October 31, 1998 primarily due to the volume decrease. In addition, in October
of 1998, RFC increased the interest rates on the Company's borrowings to 4% in
excess of the rates otherwise applicable; in fiscal 1999, the excess rates were
not levied. Also, in fiscal 1999, RFC allowed certain excess cash balance
accounts to be offset against amounts due on warehouse borrowings, thereby
further reducing the company's warehouse interest expense for the current fiscal
period compared to the comparable period of the prior year.
In addition, we employed our excess cash to fund a large portion of our
mortgage inventory during a portion of the six months ended October 31, 1999,
whereas for the six months ended October 31, 1998, we financed over 95% of our
mortgage inventory. The decrease in inventory financing in the period ending
October 1999 compared to the quarter ending October contributed to lower
warehouse facility borrowings, contributing to the decrease in interest expense.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE
Personnel costs and other general and administrative costs of our
continuing businesses increased $1.7 million, or 63%, to $4.2 million in the
quarter ended October 31, 1999 from $2.5 million in the quarter ended October
31, 1998. Decreases attributable to the discontinued units were offset by
significant increases in personnel costs as well as professional fees at the
continuing units. Personnel costs have increased as FiNet increased its
management team and hired additional sales and production employees. In
addition, general and administrative expenses have increased significantly as
the result of our spending associated with becoming Year 2000 compliant.
MARKETING AND ADVERTISING
We have initiated a number of marketing relationships in recent months
designed to attract prospective customers to our website, with the intent of
increasing revenues. As a result, marketing and advertising has increased $3.0
million to $3.2 million for the quarter ended October 31, 1999 from $188,000 in
the quarter ended October 31, 1998. FiNet intends to significantly decrease its
spending on branding over the subsequent twelve months relative to spending
incurred in the current quarter.
OTHER INTEREST EXPENSE
Other interest expense decreased $1.3 million to zero for the
quarter ended October 31, 1999. During the quarter ended October 31, 1998, we
incurred other interest expense as we amortized our 3% subordinated convertible
debt discount. We also incurred interest expense related to certain notes
payable, a working capital line of credit, and borrowings for the previous
purchase of servicing assets. These obligations was reduced to zero during the
year ended April 30, 1999; therefore, we did not incur material interest expense
other than warehouse interest expense during the quarter ended October 31, 1999.
SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1998
REVENUES AND VOLUMES
Total loan volume for FiNet's production units is summarized below.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
OCTOBER 31
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Business to Business ............................... $ 285,017 $ 145,791
Consumer-direct .................................... 76,522 673,200
-----------------------------
Total Loan Volume ......................... $ 361,539 $ 818,991
=============================
</TABLE>
Loan volume decreased $457.4 million, or 56%, to $361.6 million for the
six months ended October 31, 1999 from $819.0 million for the six months ended
October 31, 1998. Revenues decreased $10.3 million, or 70%, to $4.4 million for
the six months ended October 31, 1999 from $14.7 million for the six months
ended October 31, 1998. The volume decrease was attributable primarily to the
volume of the discontinued business units that were no longer operating in the
six months ended October 31, 1999. Additionally, business-to-business segment
volumes decreased in our continuing units. Mortgage lending rates have increased
in the current fiscal year relative to the prior fiscal year, slowing mortgage
industry originations. In addition, price decreases negatively impacted revenues
since they were not offset by volume increases. We expect to increase revenues
15
<PAGE>
through the planned expansion of our sales force and increased emphasis on
the business to business segment, and through acquisitions and strategic
relationships. However, there can be no assurance that
increased revenues will be achieved.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues decreased $5.8 million, or 54%, to $5.0 million for
the six months ended October 31, 1999 from $10.8 million for the six months
ended October 31, 1998. However, as a percentage of revenues, cost of revenues
increased, decreasing our gross profit to (14)% of revenues. Compensation costs
of production-related personnel, the primary component of cost of revenues in
our continuing businesses, does not decrease proportionately with volume
decreases. Gross profit was also negatively affected by loan loss provisions of
$833,000 established for one of our discontinued business units and $279,000 of
additional expense related to the sale of our servicing portfolio, neither of
which were incurred in the six months ended October 31, 1998.
Warehouse interest expense decreased $3.6 million or 92% to $297,000
for the six months ended October 31, 1999 from $3.9 million for the six
months ended October 31, 1998 primarily due to the volume decrease. In
addition, we employed our excess cash to fund our mortgage inventory during a
portion of the six month period, whereas for the period ended October 31,
1998, we financed over 95% of our mortgage inventory. Also, in fiscal 1999,
our primary warehouse lender allowed certain excess cash balance accounts to
be offset against amounts due on warehouse borrowings, thereby further
reducing the company's warehouse interest expense for the current fiscal
period compared to the comparable period of the prior year. The decrease in
inventory financing in the period ended October 1999 compared to the 1998
period resulted in lower warehouse facility borrowings, contributing to the
decrease in interest expense.
GENERAL AND ADMINISTRATIVE
Personnel costs and other general and administrative costs of our
continuing businesses increased $3.5 million, or 81%, to $7.9 million in the
six months ended October 31, 1999 from $4.4 million in the quarter ended
October 31, 1998. Decreases attributable to the discontinued units were
offset by significant increases in personnel costs as well as professional
fees at the continuing units. Personnel costs have increased as FiNet
increased its management team and hired additional sales and production
employees. In addition, general and administrative expenses have increased
significantly as the result of our spending associated with becoming Year
2000 compliant.
MARKETING AND ADVERTISING
We have initiated a number of marketing relationships in recent
months designed to attract prospective customers to our website, with the
intent of increasing revenues. As a result, marketing and advertising has
increased $3.4 million to $4.1 million for the six months ended October 31,
1999 from $639,000 in the six months ended October 31, 1998. FiNet intends to
significantly decrease its spending on branding over the subsequent twelve
months relative to spending incurred in the current six month period.
OTHER INTEREST EXPENSE
Other interest expense decreased $2.2 million to zero for the
six months ended October 31, 1999 from $2.2 million for the six months ended
October 31, 1998. During the quarter ended October 31, 1998, we incurred
other interest expense as we amortized of our 3% subordinated convertible
debt discount. We also incurred interest expense related to certain notes
payable, a working capital line of credit, and borrowings for the previous
purchase of servicing assets. These obligations was reduced to zero during
the year ended April 30, 1999; therefore, we did not incur material interest
expense other than warehouse interest expense during the quarter ended
October 31, 1999
FINANCIAL CONDITION
FiNet continues to rely on external sources of equity financing to fund
operations, to complete acquisitions and to make capital investments. The $33.6
million increase in stockholders' equity to $40.3 million at October 31, 1999
from $6.7 million at April 30, 1999 is due to increases in equity resulting
primarily from private placements and
16
<PAGE>
warrant exercises, partially offset by a loss of $14.6 million incurred for
the the six month period ended October 31, 1999.
Our cash increased by $23.8 million to $28.0 million at October 31,
1999 from $4.2 million at April 30, 1999, as the result of cash received from
private placements partially offset by our use of cash to fund some of our
mortgage origination activities and to make capital investments. In addition,
during the prior year, we used our warehouse facility exclusively to finance
approximately 95% of the funds advanced to the borrower in a mortgage
origination transaction. During the current year, we employed either our excess
cash or a combination of our cash and our warehouse facility to fund
originations.
Mortgage servicing rights decreased from $2.7 million at April 30, 1999
to zero at October 31, 1999. The servicing portfolio was sold late in the
quarter ended July 31, 1999. We received cash of $1.8 million, and we recorded
the balance due in "Accounts receivable" on our Consolidated Balance Sheet at
July 31, 1999. We expect to collect substantially all of the balance due on this
sale during the balance of the current fiscal year and the first half of the
year beginning January 1, 2000.
Warehouse borrowings increased $4.9 million, or 15%, from $33.0
million at April 30, 1999 to $37.9 million at October 31, 1999 as the
Company's loan originations increased late in the period ended October 31,
1999.
Accrued expenses increased as we increased our spending on
professional services relating to the implementation of systems
infrastructure required for Year 2000 preparedness and as marketing expenses
increased in connection with our emphasis on branding our name.
While FiNet's financial condition has improved as a result of equity
issuances, our ability to improve our financial condition through improved
results of operations is dependent on our ability to significantly increase loan
origination volumes, to achieve highly efficient operations, and to manage
warehouse and operating expenses given the level of volumes. Our financial
condition is further dependent on economic conditions such as the general health
of the economy and demand for mortgage loans. There can be no assurance that we
will be able to improve our financial condition through profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
The nature of the mortgage lending business requires us to advance cash
on a daily basis to fund newly originated loans. These funds are provided either
through conventional mortgage warehouse lines of credit, through "purchase
repurchase" arrangements, or through the use of our cash balances. Additional
cash resources, obtained primarily through the private placement of our common
stock are used to satisfy its obligations to lenders, to fund ongoing expenses
such as administration and marketing, to invest in product development and to
expand our business geographically. Currently operations are not generating
sufficient cash to meet our operating requirements.
Operating activities including daily operating expenditures, repayment
of warehouse borrowings and funding new originations used $19.5 million of cash
during the six months ended October 31, 1999.
Our investing activities included investments of $2.4 million in
furniture, fixtures and equipment and the divestiture of our servicing
portfolio. We received cash of $1.8 million from our portfolio sale, and we
expect to receive the balance of the cash due during the remainder of the
current fiscal year and in the first quarter of the year beginning January 1,
2000. We expect our capital spending to decrease significantly as we have
completed our Year 2000 remediation program and we have consolidated our west
coast operations into one facility.
Financing activities, primarily the issuance of common stock through
private placements and warrant exercises, provided $43.8 million during the six
months ended October 31, 1999.
17
<PAGE>
On August 9, 1999 we entered into a new, $75 million committed
warehouse borrowing agreement with GMAC/RFC. The new agreement replaced the
existing $35 million extended agreement. The agreement expires May 31, 2000.
The new facility may be used for the origination or the acquisition of
mortgage loans, and it is secured by mortgages loans which it funds.
Borrowings under this agreement bear interest at LIBOR plus 1.75%. The
agreement contains a number of covenants that, among other things, require us
to maintain a minimum current ratio, a minimum ratio of total liabilities to
tangible net worth and maintain a minimum level of tangible net worth.
If we continue to maintain at least our current level of working
capital borrowing resources, we believe that our cash resources will be
sufficient to finance our minimum working capital requirements for the coming
twelve months.
POTENTIAL FOR NASDAQ DELISTING
There are several requirements for continued listing on the Nasdaq
SmallCap Market ("Nasdaq"), including a minimum stock price of $1.00 per share.
If our common share price closes below $1.00 per share for 30 consecutive days,
we may receive notification from Nasdaq that our common stock will be delisted
from the Nasdaq unless the stock closes at or above $1.00 per share for at least
10 consecutive days during the 90 day period following such notification.
Delisting from the Nasdaq and inclusion of our common stock on the OTC
Bulletin Board or similar quotation system could adversely affect the liquidity
and price of our common stock and make it more difficult for investors to obtain
quotations or trade this stock.
In December 1998, we received notice from Nasdaq that we had not met
required financial ratio criteria for continued listing on the Nasdaq. Nasdaq
requested that we maintain a minimum net worth of $2 million and submit to
Nasdaq certain periodic financial reporting until July 1999. We have complied
with Nasdaq's special reporting request and required ratio criteria.
YEAR 2000 READINESS
The Year 2000 issue concerns the ability of automated applications to
process date-dependent processes, calculations and information by properly
interpreting the year. The Year 2000 issue could potentially impact our
business-critical computerized applications relating to, among others, loan
origination, servicing, pipeline management, hedging, payroll, financing and
financial accounting and reporting. In addition, other non business-critical
systems and services may also be affected. We have assembled a project team of
consultants, executive personnel and personnel from the information technology,
operations and finance departments to:
- assess the readiness of our systems, and the systems of our
vendors and suppliers, third-party service providers,
customers and financial institutions;
- replace or correct through program changes all our
non-compliant applications; and
- develop contingency plans in the event that systems and
services are not compliant.
The Year 2000 readiness project was completed on schedule during the
quarter ended October 31, 1999. The project consisted of eight phases:
inventory, assessment, planning, remediation, loan origination testing, loan
origination interface testing, other interfaces and core business systems
validation and testing, and business community planning. We do not expect any
additional significant costs of making our computer systems Year 2000 compliant.
The Company believes that given the hardware and software
replacement/modifications that it successfully completed, the risk of material
financial loss or operational disruption that might lead to financial loss is
low to
18
<PAGE>
medium. However, due to the nature of the mortgage banking industry there are
a significant number of outside third party interfaces that the Company
relies on for conducting business effectively. Their level of compliance
significantly influences the Company's level of risk of disruption to
operations, which ultimately impacts the Company's results of operations and
financial condition.
The Year 2000 project plan calls for a fall back to manual procedures
if absolutely necessary, but the Company considers Year 2000 to be a critical
project and is addressing it as such.
ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK
FiNet's primary market risk of loss is interest rate risk. From the
time we extend an interest rate commitment to the borrower until the loan is
priced for sale to an investor, we are subject to interest rate risk. If
interest rates rise during that period, the price at which the loan can be sold
to an investor declines, resulting in a loss on the sale of the loan. We attempt
to mitigate the such losses and manage our interest rate risk exposure through
hedging transactions using a combination of forward sales of mortgage-backed
securities and forward whole-loan sales to fix the sales price of loans we
expect to fund. Before entering into hedging transactions, we analyze our loans
with committed interest rates (pipeline loans). We consider factors such as the
estimated portion of loans that will ultimately be funded, note rates, interest
rates, inventory of loans and applications and other factors to determine the
type and amount of forward commitment and hedging transactions.
FiNet attempts to make forward commitments for, hedge substantially
all, of its estimated interest rate risk on the loans. We had mandatory and
optional forward commitments at October 31 and April 30, 1999 aggregating
$73.2 million and $43.8 million, respectively. These commitments covered the
market risk associated with mortgages held for sale to investors of $42.3
million and $33.4 million, and our pipeline loans for which interest rates
were at committed at October 31 and April 30, 1999 of $39.8 million and $25.6
million, respectively. We attempt to limit our credit exposure on forward
sales arrangements by entering into these arrangements with institutions that
we believe are sound credit risks and by limiting exposure to any single
institution.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 14, 1998, prior to our acquisition of Mical, a lawsuit was
filed against Mical in the United States District Court for the Middle District
of Georgia. The complaint alleges, among other things, that in connection with
residential mortgage loan closings, Mical made certain payments to mortgage
brokers in violation of the RESPA and induced mortgage brokers to breach their
alleged fiduciary duties to their customers. The plaintiffs seek unspecified
compensatory and punitive damages as to certain claims. We believe that our
compensation programs for mortgage brokers comply with applicable laws and with
long standing industry practices. We intend to defend vigorously against this
action and believe that the ultimate resolution will not have a material adverse
effect on our business, results of operations and financial condition.
On April 16, 1999, a lawsuit was filed in the Superior Court of the
State of California, County of San Francisco by a former director and officer of
FiNet.com against FiNet.com and one of its then current and now former
directors. The complaint alleges, among other things, that the plaintiff and our
then current director entered into an oral contract, wherein they agreed to
share all profits from bonus shares that were issued to either party under
certain specific circumstances. It is further alleged that we issued to our then
current director 1,800,000 shares of stock and that our then current director
failed to provide the plaintiff one-half of the stock, or 900,000 shares. The
plaintiff seeks to recover 900,000 shares of our common stock and punitive
damages as to certain of the claims. FiNet.com and our then current director
have each filed a general denial of all claims. We intend to defend vigorously
against the Action and believe that the ultimate resolution will not have a
material adverse effect in our business, results of operations or financial
condition.
19
<PAGE>
FiNet.com and certain subsidiaries are defendants in various legal
proceedings involving matters generally incidental to their business. We do not
expect that the aggregate liability or loss, if any, resulting therefrom or from
the matters described above will have a material adverse effect on our business
results of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May and June 1999, FiNet issued 11,059,120 shares of common stock at in
private placements for net proceeds of $41,205,000.
In August of 1999, FiNet purchased certain assets and operations of
Lowestrate.com, for a total purchase price of 1,400,000 shares of FiNet.com
common shares. 560,000 of these shares were issued to the seller at the purchase
date. The remaining 840,000 shares were placed in escrow subject to release to
Lowestrate and will be valued as additional purchase price if the contingencies
are resolved.
In October of 1999, FiNet purchased the remaining interest of a Limited
Liability Corporation (LLC) for 600,000 shares of FiNet common stock.
FiNet uses these proceeds for working capital and other operational needs and to
make capital expenditures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
At the Annual Meeting of Shareholders held on September 30, 1999, the
following proposals were adopted by the margins indicated:
To approve an increase in the number of shares authorized to be issued
pursuant to the 1998 Stock Option Plan from 4,000,000 shares to 10,000,000
shares. The motion was carried as follows:
Shares voting:
For 38,715,020
Against 1,801,780
Abstaining 162,864
Non-vote 22,734,047
To approve an amendment to the 1998 Stock Option Plan limiting the number of
shares to be granted to any one participant in a calendar year to no more
than 750,000. A motion was made and seconded to approve the amendment to the
Plan and the motion was carried as follows:
For 62,513,981
Against 766,836
Abstaining 141,884
To approve an increase in the number of shares authorized to be issued
pursuant to the 1998 Non-Employee Director's Stock Option Plan from 500,000
shares to 1,000,000 shares. A motion was made and seconded to approve the
amendment to the Plan and the motion was carried as follows:
For 37,492,361
Against 2,941,342
Abstaining 256,151
Non-vote 25,382,847
To approve the 1999 Stock Purchase Plan. The motion was carried as follows:
For 38,754,705
Against 1,804,096
Abstaining 131,053
Non-vote 22,732,847
To ratify the issuance of 375,000 stock options to Mark L. Korell, the
issuance of 1,000,000 warrants to L. Daniel Rawitch, the issuance of
300,000 shares of common stock to Jan C. Hoeffel and the issuance of
1,000,000 warrants to S. Lew Meyer. The motion was carried as follows:
For 38,956,748
Against 1,358,020
Abstaining 375,086
Non-vote 22,732,847
To ratify the appointment of Ernst & Young as independent auditors for the
fiscal year ending April 30, 2000. The motion was carried as follows:
For 38,956,748
Against 1,358,020
Abstaining 375,086
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
Reports on Form 8-K:
<TABLE>
<CAPTION>
DATE ITEM DESCRIPTION
- ---- ---- -----------
<S> <C> <C>
08-20-99 5 Acquisition of Certain Assets of Lowestrate.com, Inc.
11-09-99 5 Change in Fiscal Year End; Relocation of Corporate Headquarters;
Board Approval of Restated Bylaws
</TABLE>
20
<PAGE>
SIGNATURES
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.COM, INC.
Date: December 15, 1999 /s/Gary A. Palmer
Gary A. Palmer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1999
<CASH> 27,993,000
<SECURITIES> 2,700,000
<RECEIVABLES> 4,009,000
<ALLOWANCES> 1,121,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,664,000
<DEPRECIATION> 3,188,000
<TOTAL-ASSETS> 84,465,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 934,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 84,465,000
<SALES> 0
<TOTAL-REVENUES> 4,415,000
<CGS> 5,034,000
<TOTAL-COSTS> 13,952,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,571,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,571,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,571,000)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
